<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JONES MEDICAL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE
(State or other jurisdiction of
incorporation or organization)
43-1229854
(I.R.S. Employer
Identification Number)
------------------------
1945 Craig Road
St. Louis, MO 63146
(314) 576-6100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
DENNIS M. JONES
Chairman of the Board
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, MO 63146
(314) 576-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies of communications to:
CHARLES E. H. LUEDDE, ESQ.
Greensfelder, Hemker & Gale, P.C.
10 South Broadway, Suite 2000
St. Louis, MO 63102
314-241-9090
LESLIE E. DAVIS, ESQ.
Testa, Hurwitz & Thibeault
High Street Tower, 125 High Street
Boston, MA 02110
617-248-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this
Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.04 par value............. 2,300,000(1) $29.58 1/3(2) $68,041,666.67(2) $23,462.64
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 300,000 shares pursuant to an option to the Underwriters for
covering over-allotments, if any.
(2) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for purposes of calculation of the registration fee. Based
upon the average of the high and low sales prices as reported by the Nasdaq
National Market for February 20, 1996, as adjusted to reflect a
three-for-two split of the common stock (by way of a 50% stock dividend)
effective to holders of record on February 23, 1996 and distributable March
1, 1996.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1996
JONES MEDICAL LOGO
2,000,000 SHARES
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being issued
and sold by Jones Medical Industries, Inc. ("JMI" or the "Company"). On February
23, 1996 the last reported sale price for the Common Stock, as reported on the
Nasdaq National Market, was approximately $29.50 per share, as adjusted for the
three-for-two stock split discussed below. See "Price Range of Common Stock."
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "JMED."
The Company's Board of Directors recently declared a three-for-two stock
split in the form of a 50% stock dividend to be paid on March 1, 1996 to holders
of record on February 23, 1996. The 2,000,000 shares of Common Stock offered
hereby reflect such stock dividend. Purchasers of Common Stock in this offering
will not be entitled to receive the stock dividend in respect of any shares so
purchased.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $310,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY HAMBRECHT & QUIST
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
PRINCIPAL PHARMACEUTICALS
- ------------------------------------------- Thrombin-JMI and
Thrombinar
[PHOTO] (topical hemostats)
- ------------------------------------------- Brevital (anesthetic)
Liqui-Char (toxin
antidote)
----------------------------------
Therevac (mini-enema)
[PHOTO]
Derma-Scrub (surgical
---------------------------------- scrub)
Thrombin-JMI
---------------------
[PHOTO]
---------------------
Brevital
------------------------
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 Prospectus are the property of their respective owners.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
2
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected, without charge, and copied at
the Public Reference Room of the Commission at Room 1024, 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the Commission's Regional offices located at
Seven World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at its Washington
address at prescribed rates. The Common Stock is traded on the Nasdaq National
Market and such reports, proxy statements and other information can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N. W., Washington, D. C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus. The information in documents incorporated by reference has not
been adjusted to reflect the three-for-two stock split in the form of a 50%
stock dividend to be paid on March 1, 1996 to holders of record on February 23,
1996.
(A) Annual Report on Form 10-K for the fiscal year ended December 31, 1994;
(B) Proxy Statement dated April 21, 1995 for Annual Meeting of Stockholders
held May 15, 1995;
(C) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995; and
(D) Current Report on Form 8-K dated September 15, 1995 relating to the
acquisition of the Brevital Sodium product line from Eli Lilly &
Company.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated by reference or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that the statement is
modified or superseded by any other subsequently filed document which is
incorporated or is deemed to be incorporated by reference herein. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide without
charge to each person, including any beneficial owner, to whom this Prospectus
has been delivered, on the written or oral request of such person, a copy of any
or all of the documents referred to above which have been or may be incorporated
into this Prospectus and deemed to be part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. These documents are available upon request from Judith A. Jones,
Secretary, Jones Medical Industries, Inc., 1945 Craig Road, St. Louis, Missouri
63146, (314) 576-6100.
------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................ 4
Risk Factors................................... 6
Use of Proceeds................................ 14
Dividend Policy................................ 14
Price Range of Common Stock.................... 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 24
Management..................................... 34
Principal Stockholders......................... 36
Description of Capital Stock................... 38
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 40
Additional Information......................... 40
Index to Consolidated Financial Statements..... F-1
</TABLE>
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus or incorporated herein by
reference.
THE COMPANY
Jones Medical Industries, Inc. 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
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.
The annual domestic market for pharmaceuticals was estimated to be in
excess of $77 billion in 1995. While the market is dominated by large
multinational pharmaceutical companies which conduct substantial research and
development of new pharmaceuticals, it is estimated that within the domestic
market, approximately 34% of sales are derived from individual pharmaceuticals
and product lines, each of which generate less than $50 million of revenues
annually. Several factors, including industry consolidation, pricing pressures
and investments in new pharmaceuticals, have raised the threshold level of sales
necessary for an individual product to justify active domestic marketing and
promotion from a major pharmaceutical company. Consequently, niche
pharmaceutical companies have developed to acquire those selected
pharmaceuticals that have suffered from a lack of marketing focus in promotion
sensitive markets.
The Company has capitalized on this trend through the acquisition of its
two principal products, Thrombinar, a topical hemostat (to activate blood
clotting), and Brevital Sodium ("Brevital"), a short-term, rapid onset
anesthetic. The Company has also acquired and markets additional therapeutics,
including a toxin antidote, a mini-enema for rehabilitation therapy, a surgical
scrub, and natural thyroid supplements. These niche products are sold and
distributed to hospitals through a dedicated marketing and sales staff. This
sales force focuses primarily on major hospitals and hospital buying groups
which, in aggregate, control the majority of the purchasing of pharmaceuticals
for private sector hospitals.
JMI's nutritional supplements are sold under two brand names, Bronson
Pharmaceutical and MD Pharmaceutical. Products offered include vitamins,
minerals, antioxidants, herbal formulations and personal care products. The
Company's marketing and sales effort focuses on developing recommendations and
referrals to consumers from health care and nutritional professionals primarily
through direct mail and telemarketing.
The Company has achieved significant increases in sales and net income
since its inception through acquisitions of product lines and businesses and
through internal growth initiatives intended to develop marketing opportunities
with respect to acquired product lines. Sales and net income have increased from
$19.7 million and $2.8 million, respectively, in 1990, to $56.4 million and $9.3
million, respectively, in 1995, representing five-year compound annual growth
rates of approximately 23.4% and 27.0%, respectively.
JMI manufactures pharmaceuticals at its facilities in Canton, Ohio,
Middleton, Wisconsin and St. Louis, Missouri, and manufactures nutritional
supplements at its facilities in Tempe, Arizona. The Company also utilizes its
excess manufacturing capacity as a contract manufacturer of pharmaceuticals and
nutritional supplements for distribution and sale by others under their labels
and tradenames.
The Company was incorporated in Delaware on March 24, 1981, its principal
executive offices are located at 1945 Craig Road, St. Louis, Missouri 63146, and
its telephone number is (314) 576-6100. References in this Prospectus to "JMI"
or the "Company" include Jones Medical Industries, Inc. and its operating
subsidiaries unless otherwise noted.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.................. 2,000,000 shares
Common Stock Outstanding After the Offering.......... 16,311,400 shares(1)
Use of Proceeds...................................... For repayment of certain indebtedness
and for general corporate purposes,
including the possible acquisition of
product lines or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol........................ JMED
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ $20,513 $24,057 $43,215 $47,549 $56,397
Gross profit................................. 10,147 11,704 21,306 22,863 29,231
Operating income............................. 4,694 5,337 9,992 9,365 15,326
Net income(2)................................ $ 3,294 $ 3,732 $ 6,204 $ 5,740 $ 9,328
======= ======= ======= ======= =======
Earnings per share(2)........................ $ 0.24 $ 0.26 $ 0.44 $ 0.40 $ 0.64
======= ======= ======= ======= =======
Weighted average shares outstanding.......... 13,876 14,169 14,257 14,391 14,589
Cash dividends declared per share............ $ 0.04 $ 0.05 $ 0.06 $ 0.06 2/3 $ 0.07 1/3
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 5,411 $ 45,803
Working capital..................................................... 13,449 59,474
Total assets........................................................ 74,697 115,089
Long-term debt...................................................... 9,125 0
Total stockholders' equity.......................................... 49,890 105,040
</TABLE>
- ------------
(1) Based on shares outstanding as of February 15, 1996. Excludes 973,350 shares
of Common Stock issuable upon the exercise of outstanding stock options at a
weighted average exercise price of $10.82 per share. Includes 737 shares of
Common Stock issuable upon conversion of the Company's Preferred Stock,
Series A outstanding at February 15, 1996. See "Capitalization."
(2) Net income and earnings per share in 1993 do not reflect the cumulative
effect of a change in accounting principle of $207,100.
(3) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company and the application of the estimated net proceeds therefrom based
upon an assumed public offering price of $29.50 per share.
Except as otherwise specified herein, all information in this Prospectus
(i) has been adjusted to give effect to a three-for-two stock split in the form
of a 50% stock dividend to be paid on March 1, 1996 to holders of record on
February 23, 1996, and (ii) assumes no exercise of the Underwriters'
over-allotment option.
This Prospectus 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. Factors that cause such
differences include, but are not limited to, those discussed in "Risk Factors."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
DEPENDENCE ON SALES OF KEY PHARMACEUTICALS
The Company derives a substantial portion of its revenue from sales of two
pharmaceutical products. The Company's topical hemostat thrombin product line,
Thrombin-JMI and Thrombinar, accounted for 25.8% of total sales and 56.2% of
pharmaceutical sales during 1995. The Company's Brevital line of anesthetics,
acquired on August 31, 1995, accounted for 10.9% of total sales and 22.1% of
pharmaceutical sales during the last four months of 1995. The Company believes
that sales of thrombin products and Brevital will continue to constitute a
significant portion of total sales and pharmaceutical sales for the foreseeable
future. Accordingly, any factor adversely affecting thrombin product sales or
Brevital sales would have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, 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 a result of either technological advances affecting
the cost of production, or as a result of marketing or pricing pressure from one
or more of the Company's competitors. The Company's business, financial
condition and results of operations could be materially adversely affected by
any one or more of such developments. In addition, the Company has numerous
competitors in the pharmaceutical market, each of which have substantially
greater technical, marketing and financial resources than the Company. There can
be no assurance that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that competition will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
Thrombin Products. Thrombin products must be manufactured in facilities
licensed by the Center for Biologics Evaluation and Research ("CBER"), a
division of the United States Food and Drug Administration (the "FDA").
Thrombin-JMI is presently manufactured at the Company's GenTrac, Inc.
("GenTrac") facility, which is licensed to produce thrombin products to United
States Pharmacopoeia ("U.S.P.") standards. GenTrac also produces proprietary
thrombin products for Johnson & Johnson Medical, Inc. ("Johnson & Johnson") as a
contract manufacturer. 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. See
"Business--Legal Proceedings."
Brevital. The Company recently acquired an exclusive United States license
to Brevital and has only limited experience in marketing and distributing such
product. While the Company believes that its hospital marketing experience will
assist in its efforts to market Brevital, there can be no assurance that
Brevital will be accepted by the market at the rate and in the levels achieved
to date or sufficient to maintain growth.
DEPENDENCE ON ACQUISITION STRATEGY
The Company has achieved significant increases in sales and net income
since inception through a series of strategic acquisitions and related internal
growth initiatives to develop marketing opportunities with respect to the
acquired product lines. The Company's strategy for growth is dependent upon
6
<PAGE> 8
its continued ability to acquire pharmaceuticals targeted at niche markets which
can be promoted through the Company's marketing and distribution channels.
Because the Company does not engage in proprietary research and development of
new products, it must rely upon the willingness of other manufacturers to sell
or license product lines. Other companies, including those with substantially
greater financial, marketing and sales resources, are competing with the Company
to acquire such products. There can be no assurance that the Company will be
able to acquire rights to additional products on acceptable terms, if at all.
The failure of the Company to acquire additional products or to promote or
market commercially successful products would have a material adverse effect on
the Company's future business, financial condition and results of operations.
Further, the marketing strategy, distribution channels and levels and bases of
competition with respect to acquired products, including the Company's proposed
acquisition of a prescription pharmaceutical product, may be different than
those of the Company's current products and there can be no assurance that the
Company will be able to compete favorably in those product categories. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
UNCERTAINTY OF FUTURE FINANCIAL RESULTS; FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
The Company's results of operations may vary from quarter to quarter due to
a variety of factors including expenditures incurred to acquire or license and
promote additional pharmaceuticals, changing customer base, the availability and
cost of raw materials, interruptions in supply by third-party manufacturers, the
introduction of new products by the Company or its competitors, the mix of
products sold by the Company, changes in sales and marketing expenditures,
competitive pricing pressures and general economic and industry conditions which
affect customer demand. These factors could also affect annual results of
operations. Because the Company's operating expenses are based on anticipated
sales levels and a high percentage of the Company's expenses are relatively
fixed in the short-term, variations in the timing of recognition of revenue
could cause significant fluctuations from quarter to quarter and may result in
unanticipated quarterly earnings shortfalls or losses. There can be no assurance
that the Company will be successful in maintaining or improving its
profitability or avoiding losses in any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNCERTAINTY OF ACCESS TO CAPITAL
The Company may need to raise additional funds to acquire or license
additional products, to expand its sales force, to support the marketing and
sales of additional products, and possibly to expand its facilities to
accommodate an expanded sales force or to expand manufacturing capabilities and
capacity. The Company may seek additional funding through public and private
financings, including equity financings. Adequate funds for these purposes,
whether through the financial markets or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient funds
may cause the Company to delay, scale back, or abandon some or all of its
product acquisition and licensing programs or marketing and manufacturing
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity."
RELIANCE ON THIRD-PARTY MANUFACTURERS AND SOLE SOURCE SUPPLIERS
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 Pharmaceutical Company ("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
7
<PAGE> 9
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.
The Company currently relies on Eli Lilly & Company ("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. 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.
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Manufacturing" and "--Principal Customers and
Suppliers."
MANAGING CHANGING BUSINESS
Due to the Company's business strategy to acquire businesses and products,
the Company anticipates that the integration of newly-acquired businesses or
products will require significant management attention. The Company's ability to
manage change will require it to continue to implement and improve its
operational, financial and management information systems and to motivate and
effectively manage an increasing number of employees. If the Company's
management is unable to manage such change effectively, it would materially
adversely affect the Company's business, financial condition and results of
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The profitability of the Company will depend in part on the availability of
adequate reimbursement for the Company's products from third-party payors, such
as government entities, private health insurers and managed care organizations.
Third-party payors are increasingly challenging the pricing of medical services
and products. There can be no assurance that reimbursement will be available for
the Company's products or that such third-party reimbursement will be adequate.
If adequate reimbursement levels are not provided by government entities and
other third-party payors for the Company's products, the Company's business,
financial condition and results of operations would be materially adversely
affected. Hospital pharmacies, which are the primary customers for many of the
Company's pharmaceuticals, are subject to reimbursement pressures and are
increasingly dependent on joint purchasing organizations to exercise control
over pricing and obtain volume discounts. There can be no assurance that the
Company's products will continue to be included in the purchasing
8
<PAGE> 10
arrangements of hospital buying organizations or that downward pricing pressure
on the industry generally will not have a material adverse effect upon the
Company's business, financial condition and results of operations. Further, a
number of legislative and regulatory proposals aimed at changing the nation's
health care system have been proposed in recent years. While the Company cannot
predict whether any such proposals will be adopted, or the effect that any such
proposal may have on its business, such proposals, if enacted, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
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 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. In addition, Brevital faces competition in the intravenous ("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. There can be no assurance that the Company
will be able to compete effectively, that additional competitors will not enter
the market, or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations.
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 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. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competition will not have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business--Competition."
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 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
9
<PAGE> 11
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 manufactured or
sold.
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 may
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 over-the-counter ("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 practices ("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 commence actions 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 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
"Business--Certain Legal Matters."
The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and recordkeeping requirements administered by the DEA. 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.
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
10
<PAGE> 12
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 formulations 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 cannot predict the extent to which it may be affected in the
future by legislative and other regulatory developments concerning its products.
There can be no assurance that future health care legislation or other changes
in health care legislation will not have a material adverse effect on the
Company's business, financial condition or results of operations.
RISK OF PRICE ADJUSTMENTS AND PRODUCT RETURNS
Under contracts with hospitals and hospital buying groups applicable to the
sale and distribution of the Company's pharmaceuticals, final sales prices to
distributors may be subject to retroactive adjustment based on volume or other
contractual discounts provided by the Company. While the Company believes that
it has adequate reserves to cover such adjustments, there can be no assurance
that the Company will not experience price adjustments in the future that
significantly exceed such reserves.
The Company permits customers to return unused pharmaceuticals under
certain conditions. In addition, the Company's nutritional supplements are sold
with an unconditional money-back guarantee permitting a full refund for unused
product within 30 days of purchase. Although product returns to date have been
less than 1% of gross sales, there can be no assurance that actual levels of
returns will not significantly exceed the amounts anticipated by the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its product is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or otherwise possess
regulatory approval for commercial sale. While the Company has taken, and
continues to take, what it believes are appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure. The Company
currently has product liability insurance in the amount of $10.0 million per
claim and $10.0 million in the aggregate on a claims-made basis; however, there
can be no assurance that such insurance will be sufficient to cover potential
claims. Further, there can be no assurance that adequate insurance coverage will
be available in the future on commercially reasonable terms, if at all, or that
a product liability claim would not materially adversely affect the Company's
business, financial condition and results of operations. See "Business--Product
Liability Insurance."
RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the FDA,
the FTC or other government agencies having regulatory authority for product
sales and may occur due to disputed labeling claims, manufacturing issues,
quality defects or other reasons. No assurance can be given that product recalls
will not occur in the future. Any product recall could materially adversely
affect the Company's business, financial condition and results of operations.
DEPENDENCE UPON CERTAIN KEY MANAGEMENT
The success of the Company to date has been largely dependent upon the
personal efforts and abilities of Dennis M. Jones, the Company's President and
Chief Executive Officer. Should Mr. Jones cease to be affiliated with the
Company, the Company's strategic direction and performance would be materially
adversely affected. The Company is also dependent upon a number of other key
11
<PAGE> 13
management personnel. The loss of the services of one or more key employees, or
the inability of the Company to attract and retain skilled management and
marketing and sales personnel in the future, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation
and disposal of toxic, infectious or other hazardous substances used to
manufacture the Company's products. The failure to comply with current or future
regulations could result in the imposition of substantial fines against the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with any such laws and regulations
in the future, or that such laws or regulations will not have a material adverse
effect on the Company's business, financial condition or results of operations.
Any failure by the Company to control the use, disposal, removal or storage of,
or to adequately restrict the discharge of, or assist in the cleanup of,
hazardous chemicals or hazardous, infectious or toxic substances could subject
the Company to significant liabilities, including joint and several liability
under certain statutes. The imposition of such liabilities would have a material
adverse effect on the Company's business, financial condition and results of
operations.
VOLATILITY OF COMMON STOCK PRICE
The market price for the stocks of many publicly traded pharmaceutical
companies and manufacturers and marketers of nutritional supplements, including
the Company, is subject to periods of high volatility. A variety of events, both
concerning and unrelated to the Company and the markets in which it
participates, may have significant negative impact on the market price of the
Common Stock, including regulatory developments in the health care field
generally, the performance of other pharmaceutical or nutritional supplement
companies as well as matters affecting the Company's products, acquisitions and
financial performance. Although the Common Stock trades on the Nasdaq National
Market, trading volume, size of institutional holdings and the number of market
makers has fluctuated and at times has been quite low, and both the price and
volume of trading has been sensitive to the number of analysts reporting on the
Company and such analysts' comments concerning the Company and the industries in
which it participates. The realization of any of the risks described in these
"Risk Factors" could have a dramatic and adverse impact on the price of the
Company's Common Stock. See "Price Range of Common Stock."
MARKET RISK OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock.
Certain directors and officers of the Company, holding in the aggregate as of
February 15, 1996, 4,228,474 shares (25.8% of the shares to be outstanding upon
completion of the offering) have agreed with the Underwriters not to sell or
dispose of any shares of Common Stock for a period of 90 days following
commencement of this offering without the consent of Robertson, Stephens &
Company LLC. Sales by such officers and directors are generally subject to the
provisions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act") which, as to such persons, requires notice of sale activity
and limits the amount sold on behalf of any such person (including persons
acting in concert with one another) in any 90-day period to the greater of 1% of
the outstanding stock or the average weekly trading volume preceding such
notice. Such persons are also subject to the short-swing trading provisions of
the Exchange Act. See "Underwriting."
12
<PAGE> 14
DILUTION
The market price of the Common Stock offered hereby significantly exceeds
the current tangible book value per share of the Common Stock. The historical
book value of the Company's assets includes a significant value attributable to
intangible assets, substantially all of which is attributable to acquisitions of
product lines and related assets. Certain of these intangible assets are subject
to amortization and will be charged against earnings in future years. As a
result of these factors, purchasers of shares of Common Stock in this offering
will experience immediate and substantial dilution between the offering price
and the resulting net tangible book value per share. In the event that proceeds
from the offering are utilized in the acquisition of one or more additional
product lines it is likely that such proceeds will be used to acquire trademarks
and other intangible assets which will result in increased dilution to such
purchasers. See "Dilution."
ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS AND DELAWARE LAW
The Company's Certificate of Incorporation authorizes the Board of
Directors to designate and issue, without stockholder approval, Preferred Stock
with voting, conversion and other rights and preferences that could
differentially and adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited acquisition
proposal. In addition, certain provisions of Delaware law applicable to the
Company could also delay or make more difficult a merger, tender offer or proxy
contest involving the Company, including Section 203 of the Delaware Business
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
unless certain conditions are met. The possible issuance of Preferred Stock and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company including, without limitation, discouraging a proxy
contest, making more difficult the acquisition of a substantial block of the
Company's Common Stock or limiting the price that investors might in the future
be willing to pay for shares of the Common Stock.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby will be approximately $55,150,000
($63,469,000 assuming the Underwriters' over-allotment option is exercised in
full), at an assumed public offering price of $29.50 per share, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company.
The Company intends to use approximately $14.8 million of such proceeds to
repay outstanding indebtedness incurred primarily in connection with the
Company's acquisition of the exclusive United States license for Brevital from
Lilly. Such indebtedness consists of Lilly financing of $7.0 million bearing
interest at the rate of 7.0% per annum and payable in installments of $4.0
million in August 1996 and $3.0 million in August 1997, and $7.8 million of bank
debt bearing interest at 0.5% below the prime rate and secured by all of the
assets of the Company. The Company intends to use the balance of the net
proceeds of this offering for general corporate purposes, including the possible
acquisition of one or more additional product lines or businesses. Pending such
uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
The Company has completed a total of 13 product or business acquisitions
since inception and, in the normal course of business, evaluates potential
acquisitions of businesses or products that would complement or expand the
Company's business. The Company is negotiating the acquisition of a prescription
pharmaceutical product with annual sales in 1995 of approximately $6.7 million.
The purchase price for the product is expected to be approximately $26.0
million. In addition, it is anticipated that the Company will be obligated to
make royalty payments on future product sales and will enter into a long-term
manufacturing and supply agreement with the seller. Such acquisition, if
completed, would utilize a significant portion of the unallocated net proceeds
of the offering of the shares of Common Stock made hereby, although the Company
believes that it has available alternative sources of financing in the event
such acquisition should occur in the absence of this offering. Although the
Company intends diligently to pursue this acquisition, there can be no assurance
as to whether or when a definitive agreement relating to the transaction will be
reached or that conditions to consummation of the transaction will be satisfied.
Other than the aforementioned acquisition, as of the date of this Prospectus,
the Company has no present commitments or agreements with respect to any such
transaction. There can be no assurance that any future acquisition will be
completed or, if completed, that the Company will realize the same level of
historical sales achieved by a seller or that such acquisition will prove
successful for the Company.
DIVIDEND POLICY
JMI initiated a quarterly cash dividend policy for its Common Stock in
December 1988 and has declared and paid consecutive quarterly dividends since
that date. During 1994 and 1995 cash dividends of $0.06 2/3 and $0.07 1/3 per
share, respectively, were declared. 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. It is the
intention of the Company's Board of Directors to continue to pay quarterly cash
dividends; however, the declaration and payment of future dividends and their
amounts will depend upon the earnings, financial condition and capital needs of
the Company and such other factors as are deemed relevant by the Company's Board
of Directors.
14
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "JMED." The following table sets forth the 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 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
1996
First Quarter (through February 23)......................... 31 1/4 15
</TABLE>
On February 23, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was approximately $29.50 per share. As of such date,
there were approximately 1,000 holders of record and the Company believes
approximately 5,000 non-record beneficial owners of the Common Stock.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995, and as adjusted to reflect the receipt of the estimated net
proceeds from the sale of the 2,000,000 shares of Common Stock offered hereby at
an estimated public offering price of $29.50 per share and the application of
the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt (including current portion)(1)........... $14,758 $ 0
Stockholders' equity
Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; 1,056 shares outstanding(2)............ 0 0
Common Stock, $0.04 par value; 30,000,000 shares
authorized; 14,178,129 shares outstanding
(16,178,129 shares as adjusted)(3)................. 567 647
Contributed capital(4)................................ 19,545 74,615
Retained earnings..................................... 29,778 29,778
------- -------
Total stockholders' equity.................... 49,890 105,040
------- -------
Total capitalization..................... $64,648 $105,040
======= =======
</TABLE>
- ------------
(1) Consists of (i) acquisition debt due Lilly aggregating $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, and (ii) a bank loan of $7.8 million bearing
interest at 0.5% below prime and secured by all assets of the Company.
(2) The Preferred Stock is issuable in classes with preferences as designated by
the Board of Directors of the Company. The outstanding Preferred Stock is
convertible into shares of the Common Stock of the Company, at the option of
the holder or the Company, at a ratio of 2.625 shares of Common Stock per
share of Preferred Stock, and bears a quarterly dividend at the annual rate
of $0.16 per share (the current annual dividend rate on the Common Stock
into which the Preferred Stock is convertible is $0.2625 per share).
(3) Does not include options outstanding as of December 31, 1995, to purchase an
aggregate of 583,350 shares of Common Stock at a weighted average exercise
price of $4.14 per share. As a result of option exercises and grants
subsequent to December 31, 1995, there were outstanding as of February 15,
1996, options to purchase an aggregate of 973,350 shares of Common Stock at
a weighted average exercise price of $10.82 per share.
(4) Includes effects of unearned compensation and related amortization.
16
<PAGE> 18
DILUTION
The net tangible book value of the Company as of December 31, 1995 was
approximately $17.0 million, or $1.20 per share of Common Stock. After giving
effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby, at an assumed public offering price of $29.50 per share and the
receipt of the net proceeds therefrom, and assuming that all shares of Preferred
Stock outstanding as of December 31, 1995 had been converted into Common Stock
as of such date, the pro forma net tangible book value of the Company as of
December 31, 1995 would have been approximately $72.1 million or $4.46 per
share. This represents an immediate increase in net tangible book value of $3.26
per share to existing stockholders and an immediate dilution in net tangible
book value per share of $25.04 per share to the new investors purchasing shares
at the assumed public offering price. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price(1)............................... $29.50
------
Net tangible book value before offering(2)................... $1.20
Increase attributable to new investors....................... 3.26
------
Pro forma net tangible book value after offering............... $ 4.46
-------
Dilution to new investors...................................... $25.04
=======
</TABLE>
- ------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.
The historical book value of the Company's assets includes a significant
value attributable to intangible assets, substantially all of which is
attributable to acquisitions of product lines and related assets. At December
31, 1995, these intangible assets included (i) customer lists of $6.1 million,
(ii) distribution systems, trademarks and licenses of $24.3 million, (iii)
restrictive covenants and other intangibles of $3.1 million, and (iv) goodwill
of $4.3 million. These intangible assets are subject to amortization over
periods of 5 to 40 years depending on the nature of the assets. In the event
that proceeds from the offering are utilized, as expected, in the acquisition of
one or more additional product lines, it is likely that such proceeds will be
used to acquire trademarks or other intangible assets which will result in
increased dilution to the purchasers of shares of Common Stock in this offering.
See "Intangible Assets" in Note 2 of Notes to Consolidated Financial Statements.
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data set forth below for the years ended
December 31, 1993, 1994 and 1995 and the balance sheet data at December 31, 1994
and 1995, are derived from the consolidated financial statements of the Company
that have been audited by Ernst & Young LLP included elsewhere in this
Prospectus. The Statement of Operations data for the years ended December 31,
1991 and 1992 and the balance sheet data at December 31, 1991, 1992 and 1993,
are derived from other audited consolidated financial statements of the Company
not appearing in this Prospectus which have also been audited by Ernst & Young
LLP. The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... $20,513 $24,057 $43,215 $47,549 $56,397
Cost of sales.................................. 10,366 12,353 21,909 24,686 27,166
------- ------- ------- ------- -------
Gross profit................................... 10,147 11,704 21,306 22,863 29,231
Selling, general and administrative expenses... 5,453 6,368 11,314 13,498 13,905
------- ------- ------- ------- -------
Operating income............................... 4,694 5,337 9,992 9,365 15,326
Other income (expense)......................... 451 695 (44) (327) (401)
------- ------- ------- ------- -------
Income before taxes............................ 5,145 6,032 9,948 9,038 14,925
Provision for taxes............................ 1,851 2,300 3,744 3,299 5,597
------- ------- ------- ------- -------
Net income(1).................................. $ 3,294 $ 3,732 $ 6,204 $ 5,739 $ 9,328
======= ======= ======= ======= =======
Earnings per share(1).......................... $ 0.24 $ 0.26 $ 0.44 $ 0.40 $ 0.64
======= ======= ======= ======= =======
Weighted average shares outstanding............ 13,876 14,169 14,257 14,391 14,589
Cash dividends declared per share.............. $ 0.04 $ 0.05 $ 0.06 $0.06 2/3 $ 0.07 1/3
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 9,031 $10,528 $ 949 $ 7,032 $ 5,411
Working capital................................ 14,748 15,990 11,995 15,015 13,449
Total assets................................... 33,393 35,185 51,824 54,927 74,697
Long-term debt (less current portion).......... 2,738 500 5,400 3,800 9,125
Total stockholders' equity..................... 26,787 30,121 36,236 41,490 49,890
</TABLE>
- ------------
(1) Net income and earnings per share in 1993 do not reflect the cumulative
effect of a change in accounting principle of $207,100.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Pharmaceuticals ("Bronson"). In the fourth quarter of 1994 and the 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 $14.0 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.
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 for
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.
This Prospectus 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. Factors that cause such
differences include, but are not limited to, those discussed in "Risk Factors."
19
<PAGE> 21
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...................................... 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)
Miscellaneous income (expenses)................. 0.3 0.2 (0.2)
----- ----- -----
Income before income tax(1)....................... 23.0 19.0 26.4
----- ----- -----
Net income........................................ 14.4% 12.1% 16.5%
===== ===== =====
</TABLE>
- ------------
(1) Before cumulative effect of change in accounting principle of $207,100 in
1993.
Years Ended December 31, 1995, 1994 and 1993
Sales
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.
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.
20
<PAGE> 22
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. As a percent of sales,
amortization expenses increased 2.9% in 1994 from 2.6% in 1993.
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.
21
<PAGE> 23
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.
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
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. The Company plans to use approximately $14.8 million of
the net proceeds from this offering to repay the entire outstanding balance of
such indebtedness.
Under revolving credit and other borrowing lines available to the Company
at January 31, 1996, the Company had an unused line of credit aggregating
approximately $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.
22
<PAGE> 24
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.
The Company believes that the net proceeds from this offering together with
those generated from operations and borrowings available from its revolving
credit facility will be sufficient to finance its working capital requirements
for the foreseeable future. However, in the event the Company makes significant
future acquisitions, it may be required to raise funds through additional
borrowings or the issuance of debt or equity securities. Adequate funds for
these purposes, whether through the financial markets or from other sources, may
not be available when needed or on terms acceptable to the Company. Insufficient
funds may cause the Company to delay, scale back, or abandon some or all of its
product acquisition and licensing programs or marketing and manufacturing
opportunities.
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.
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.
23
<PAGE> 25
BUSINESS
GENERAL
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 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.
INDUSTRY BACKGROUND
The United States Pharmaceutical Market
The annual domestic market for pharmaceuticals was estimated to be in
excess of $77 billion in 1995. While the market is dominated by large
multinational pharmaceutical companies which conduct substantial research and
development on new pharmaceuticals, it is estimated that, within the domestic
market, approximately 34% of sales are derived from individual pharmaceuticals
and product lines, each of which generate less than $50 million of revenues
annually. Industry consolidation and pricing pressures from cost containment
initiatives have raised the threshold level of sales necessary for an individual
product to justify active domestic marketing and promotion from a major
pharmaceutical company. In addition, major pharmaceutical companies have focused
their marketing efforts on new pharmaceuticals to recover development costs. As
a result, sales of established pharmaceuticals may decline or become focused on
a particular market niche. Further, pricing and profit pressures are leading the
major pharmaceutical companies to consider divestitures of small product lines
as a more effective means of deriving revenue from products which are not
strategically important. While most of these products are no longer subject to
patent protection, the cost of establishing manufacturing may prove excessive,
raw materials may be difficult to obtain or the market size may be too small to
warrant competition from generic drug suppliers.
The result of the foregoing factors influencing the major pharmaceutical
companies has been the emergence of marketing-oriented niche pharmaceutical
companies willing to acquire and market established product lines. Products
which are perceived as having potential for acquisition by these emerging
pharmaceutical companies are those which share several, but not necessarily all,
of the following characteristics: (i) products which no longer fit the strategic
focus of the divesting company; (ii) products with annual sales in the range of
$1 to $50 million; (iii) products which receive minimal promotion from the
divesting company but compete in promotion sensitive markets; (iv) products
which have slowly declining or stagnant sales in the hands of the divesting
company; (v) products which have sales levels that are less likely to become
targets of pricing pressure from managed care or third-party payors, or which
have a clear price advantage over alternative treatments; and (vi) products
which can leverage the existing sales force and marketing efforts of the
acquiring company.
The United States Market for Nutritional Supplements
Based on industry sources, the annual retail market for nutritional
supplements, including vitamins, minerals and herbal formulations, exceeded $4.5
billion in 1994. The market has historically expanded due to increasing consumer
awareness of the health benefits of nutritional supplements and due to the
increase in the elderly population. An important factor in the increased
awareness of benefits from nutritional supplements is the increased attention
and importance being given to nutritional supplements by health care and
nutritional professionals.
24
<PAGE> 26
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.
Expand Marketing Initiatives for Nutritional Supplements to Health Care
Professionals. Since the Company acquired Bronson Pharmaceuticals in early 1993,
monthly orders 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 it 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 total 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 in 1989. Thrombin-JMI is manufactured at the Company's
wholly-owned subsidiary GenTrac. Thrombinar was manufactured by Armour for JMI
until September 1995 when it was replaced by Thrombin-JMI.
25
<PAGE> 27
Brevital. The I.V. anesthetic market is split into segments based on type
and length of therapeutic, diagnostic or surgical procedures. Short-term general
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, 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. Brevital was introduced by
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 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
26
<PAGE> 28
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 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.
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 CBER 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 U.S.P. products and also acts as a
contract manufacturer of Thrombogen, a line of proprietary thrombin products
manufactured for 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 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 manufac-
27
<PAGE> 29
tured 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.
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, which accounted for 10.9% of the Company's sales volume during
the last four months of 1995, 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.
28
<PAGE> 30
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 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. In addition, 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. There can be no assurance that the Company will be able to
compete effectively, that additional competitors will not enter the market, or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.
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 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. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competition will not have a material adverse
effect on the Company's business, financial condition or results of operations.
29
<PAGE> 31
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 or more federal agencies including the FDA, the DEA,
the EPA, the FTC, OSHA, the USDA, the 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 manufactured or 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 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 commence actions 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 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.
The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and recordkeeping requirements administered by the DEA. The
Company has experienced regulatory challenges with respect to
30
<PAGE> 32
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
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.
The Company cannot predict the extent to which its pharmaceuticals and
nutritional supplement product categories may be affected in the future by
legislative and other regulatory developments concerning its products. There can
be no assurance that future health care legislation or other changes in health
care legislation will not have a material adverse effect on the Company's
business, financial condition or results of operations.
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.
CERTAIN LEGAL MATTERS
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.
31
<PAGE> 33
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 development and distribution agreements 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.
PRODUCT LIABILITY INSURANCE
The Company maintains product liability insurance coverage of $10.0 million
per occurrence and $10.0 million in the aggregate on a "claims made" basis,
which coverage is substantially less than the risks associated with the
Company's business. There can be no assurance that the Company's present
insurance will cover potential claims which may be asserted against the Company
in the future. Since many of the Company's customers require the Company to
maintain product liability insurance coverage as a condition to their doing
business with the Company, and since the loss of such insurance coverage would
result in a loss of said customers, the Company intends to take all reasonable
steps necessary to maintain such insurance coverage.
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.
FACILITIES
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
32
<PAGE> 34
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.
33
<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of March 1, 1996 with
respect to the directors and executive and senior staff officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
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
Gerald W. Garner.......................... 60 Vice President-Sales
William L. Brown.......................... 48 Vice President-Finance and Controller
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
</TABLE>
- ------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
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
34
<PAGE> 36
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.
Gerald W. Garner, a staff officer employed by the Company since April 1990,
was appointed Vice President-Marketing in 1994 and as Vice President-Sales in
1995. He has spent the last 26 years in the pharmaceutical industry, beginning
his career with Armour where he held the positions of District Manager,
Corporate Manager of Training and Development, and Senior National Accounts
Manager.
William L. Brown, a staff officer employed by the Company since May 1993,
has served as Controller and was appointed Vice President-Finance in January
1996. Mr. Brown is a certified public accountant and served on a part-time basis
as the controller and principal accounting officer of GenTrac prior to its
acquisition by the Company. From 1983 until joining the Company, Mr. Brown was
in private practice as an accountant in Middleton, Wisconsin, as the principal
of Small Business Accounting, Inc.
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 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. Executive officers are elected annually by the Board of Directors.
Gerald W. Garner and William L. Brown are staff officers appointed by or with
the consent of the Chief Executive Officer.
35
<PAGE> 37
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 15, 1996, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each person known
by the Company to be the beneficial owner of 5% or more of the Company's
outstanding shares of Common Stock, (ii) each of the Company's executive
officers, (iii) each of the Company's directors and (iv) all directors and
executive officers as a group. Except as otherwise indicated in the footnotes to
this table, the Company believes that the persons named in this table have sole
voting and investment power with respect to all the shares of Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- -------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Dennis M. Jones(2)(3)......................................... 2,781,840 19.4% 17.1%
Chairman of the Board of Directors and President
Judith A. Jones(2)(4)......................................... 680,625 4.8% 4.2%
Executive Vice President, Secretary, Treasurer and Director
Michael T. Bramblett(5)....................................... 162,576 1.1% 1.0%
Executive Vice President and Director
G. Andrew Franz(6)............................................ 325,183 2.3% 2.0%
Senior Vice President-Operations-Pharmaceuticals and Director
David A. McLaughlin(7)........................................ 82,500 * *
Senior Vice President-Operations-Nutritionals and Director
Stanley L. Lopata(8).......................................... 151,500 1.1% *
Director
900 South Hanley Rd.
St. Louis, MO 63106
L. John Polite, Jr(9)......................................... 27,000 * *
Director
211 Oldwoods Road
Franklin Lakes, NJ 07417
Edward A. Chod(10)............................................ 17,250 * *
Director
10 South Broadway, Suite 2000
St. Louis, MO 63102
Thomas F. Patton, Ph.D. ...................................... -- * *
Director
All Directors and Executive Officers as a Group
(consisting of nine persons)(11).............................. 4,228,474 29.3% 25.8%
</TABLE>
- ------------
* Less than 1%.
(1) The number of shares of Common Stock deemed outstanding prior to the
offering made hereby includes (i) 14,310,663 shares of Common Stock
outstanding as of February 15, 1996, (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 as of February 15, 1996 and (iii)
shares issuable pursuant to options held by the respective person or group
which may be exercised within 60 days of February 15, 1996 ("presently
exercisable stock options"), as set forth below. The number of shares
deemed outstanding after this offering includes an additional 2,000,000
shares of Common Stock which are being offered for sale by the Company in
the offering made hereby.
36
<PAGE> 38
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 shown as beneficially owned by them and their
respective addresses are 1945 Craig Road, St. Louis, Missouri 63146.
(2) Excludes 90,000 shares owned by the Company's 401(k) Plan (of which Dennis
M. and Judith A. Jones are co-trustees) and with respect to which Dennis M.
and Judith A. Jones disclaim beneficial ownership. In addition to such
holdings, on January 2, 1996, Mr. Jones was granted a non-qualified stock
option covering an aggregate of 360,000 shares and Mrs. Jones was granted a
non-qualified stock option covering an aggregate of 90,000 shares. The
options granted to Mr. and Mrs. Jones provide for an exercise price of
$16.00 per share, and become exercisable as of January 2, 2004. However,
the options may become exercisable in installments on or after the
anniversary of the date of grant in the years 1997 through 2001, if either
for the fifteen consecutive trading days immediately prior to such date or
for a period of fifteen consecutive trading days following such date, the
closing market price per share of the Company's Common Stock is equal to or
above the following respective target prices: $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.
(3) 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.
(4) 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.
(5) 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 75,000 shares of Common Stock issuable
pursuant to presently exercisable stock options.
(6) 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 7,500 shares of Common Stock issuable
pursuant to presently exercisable stock options.
(7) Includes 75,000 shares owned directly by Mr. McLaughlin and 7,500 shares of
Common Stock issuable pursuant to presently exercisable stock options.
(8) 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 ownership, and 1,500 shares of Common Stock
issuable pursuant to presently exercisable stock options.
(9) Includes 24,000 shares owned directly by Mr. Polite and 3,000 shares of
Common Stock issuable pursuant to presently exercisable stock options.
(10) Includes 15,750 shares owned directly by Mr. Chod and 1,500 shares of
Common Stock issuable pursuant to presently exercisable stock options.
(11) Includes 96,000 shares issuable pursuant to presently exercisable stock
options.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $0.04 per share, and 1,000,000 shares of Preferred
Stock, par value $0.01 per share.
COMMON STOCK
As of February 15, 1996, there were 14,310,663 shares of Common Stock
outstanding and held of record by approximately 1,000 stockholders, and held by
approximately 5,000 non-record beneficial owners. Stockholders are entitled to
one vote for each share of Common Stock on matters to be voted on by the
stockholders of the Company. Stockholders will be entitled to receive dividends
when, as and if declared by the Board of Directors and to share ratably in the
assets of the Company legally available for distribution to its stockholders in
the event of the liquidation, dissolution or winding-up of the Company. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. All of the issued and outstanding shares of Common Stock are, and all
shares of Common Stock to be sold in this offering will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors may without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. The holders of Preferred
Stock would normally be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of the Company before any payment is
made to the holders of the Common Stock.
The ability of the Company's Board of Directors to issue Preferred Stock
could be exercised to render more difficult the accomplishment of mergers or
other takeover or change in control attempts. To the extent that this ability
has this effect, removal of the Company's incumbent Board of Directors and
management may be rendered more difficult. Further, this may have an adverse
impact on the ability of stockholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of the Common Stock.
At December 31, 1995, an aggregate of 1,056 shares, constituting the
remainder of a series of Preferred Stock designated and issued in connection
with the Company's acquisition of GenTrac, were outstanding. These shares, which
are subject to conversion into shares of Common Stock, at the option of either
the Company or the holders, at the rate of 1.75 shares (2.625 shares after
giving effect to the three-for-two stock split) of Common Stock for each share
of Preferred Stock, are in the process of being so converted.
DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
38
<PAGE> 40
UNDERWRITING
The Underwriters named below, acting through their representatives
Robertson, Stephens & Company LLC and Hambrecht & Quist LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement to purchase from the Company the number of shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if they are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Robertson, Stephens & Company LLC.................................
Hambrecht & Quist LLC.............................................
---------
Total........................................................ 2,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,000,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above tables represents as a percentage of
the 2,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the Underwriters on the same terms as those on which the 2,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each executive officer and director of the Company has agreed with the
Representatives for a period of 90 days from the date of this Prospectus (the
"Lock-Up Period") not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any option to purchase any shares of Common
Stock, or any securities convertible into, or exchangeable for, or any rights to
purchase or acquire, shares of Common Stock, now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC which may, in its sole discretion and at any time or from time to time,
without notice, release all or any portion of the shares subject to the lock-up
agreements. In addition, the Company has agreed that, during the Lock-Up Period,
the Company will not, without the prior written consent of Robertson, Stephens &
Company LLC, issue, sell, contract to sell or otherwise dispose of any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the issuance of Common Stock upon the exercise of
outstanding options and the Company's grant of options under existing stock
option plans.
39
<PAGE> 41
The offering price for the Common Stock has been determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Company's
Common Stock during the period immediately preceding the commencement of sales
in the Offerings. The Commission has, however, adopted exemptions from these
rules that permit passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group, if any, to continue
to make a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group intend to engage in passive market making in the
Company's Common Stock during such period.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Greensfelder, Hemker & Gale, P.C., St. Louis, Missouri.
Edward A. Chod, an officer and shareholder of Greensfelder, Hemker & Gale, P.C.,
is a director and shareholder of the Company. Greensfelder, Hemker & Gale, P.C.
and certain of its officers other than Mr. Chod owned an aggregate of 32,550
shares of JMI Common Stock as of February 15, 1996.
Certain legal matters related to the offering will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995,
1994 and 1993 and for each of the four years in the period ended December 31,
1995, appearing or incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein or incorporated by
reference in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto, copies of which may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. Statements contained in this Prospectus as to the contents of any
contract or other document filed, or incorporated by reference, as an exhibit to
the Registration Statement are qualified in all respects by such reference.
40
<PAGE> 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Income.................................................... F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 43
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. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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.
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
F-2
<PAGE> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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.
F-15
<PAGE> 57
BRANDED NUTRITIONAL SUPPLEMENTS
- --------------------------------------------------------------------------------
[PHOTO]
- --------------------------------------------------------------------------------
The Company's branded nutritional supplements are marketed under the Bronson
Pharmaceutical and MD Pharmaceutical tradenames.
<PAGE> 58
[JONES MEDICAL LOGO]
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS.
The amounts of expenses (other than underwriting discounts and commissions)
in connection with the issuance and distribution of the shares registered hereby
are set forth in the following table. All the amounts shown are estimates,
except the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration Fee................................................. $ 23,462.64
NASD Filing Fee.................................................. 10,706.25
Accounting Fees and Expenses..................................... 50,000.00
Legal Fees and Expenses.......................................... 75,000.00
Printing and Engraving Costs..................................... 90,000.00
Transfer Agent and Registrar Fees................................ --
Blue Sky Fees and Expenses....................................... 15,000.00
Miscellaneous.................................................... 45,831.11
----------
Total....................................................... $310,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provision of Section 145 of Chapter One of Title 8 of the Delaware
Code, as amended (Section 145 of the General Corporation Law of the State of
Delaware), provide:
Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation may 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
action, suit 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 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) A corporation may 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 or the
court in which such action or suit was
II-1
<PAGE> 60
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) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directors, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) 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, 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
section. 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.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer.
(g) A corporation shall have power to purchase and maintain insurance
on behalf 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 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 this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and 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
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
II-2
<PAGE> 61
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, 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. (Last amended by Ch.
289, L. '86, eff. 7-1-86).
Sections 8(b) of the Underwriting Agreement provides for indemnification of
officers and directors of the Registrant under certain circumstances, including
liabilities under the Securities Act of 1933, as amended. See Exhibit 1 hereto.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 Form of Underwriting Agreement.
5 Opinion and consent of Greensfelder, Hemker & Gale, P.C. (to be filed by amendment).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greensfelder, Hemker & Gale, P.C. (to be included with Exhibit 5).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis, State of
Missouri, on the 26th day of February, 1996.
JONES MEDICAL INDUSTRIES, INC.
By DENNIS M. JONES
------------------------------------
Dennis M. Jones, Chairman of the
Board, resident & Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Jones Medical Industries,
Inc. do hereby constitute and appoint Dennis M. Jones and Judith A. Jones, or
either of them, our true and lawful attorney and agent, to do any and all acts
and things in our name and behalf in our capacities as directors and officers,
and to execute any and all instruments for us and in our names in the capacities
indicated below which Dennis M. Jones and Judith A. Jones, or either of them,
may deem necessary or advisable to enable Jones Medical Industries, Inc. to
comply with the Securities Act of 1933 as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto; and we do hereby ratify and confirm all that Dennis M. Jones and Judith
A. Jones, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ------------------------------------ ------------------
<C> <S> <C>
DENNIS M. JONES President, Chief Executive Officer February 26, 1996
- ------------------------------------- and Director
Dennis M. Jones
JUDITH A. JONES Principal Financial Officer, February 26, 1996
- ------------------------------------- Vice-President -- Finance,
Judith A. Jones Secretary, Treasurer and Director
MICHAEL T. BRAMBLETT Director February 26, 1996
- -------------------------------------
Michael T. Bramblett
STANLEY LOPATA Director February 26, 1996
- -------------------------------------
Stanley Lopata
L. JOHN POLITE, JR. Director February 26, 1996
- -------------------------------------
L. John Polite, Jr.
EDWARD A. CHOD Director February 26, 1996
- -------------------------------------
Edward A. Chod
G. ANDREW FRANZ Director February 26, 1996
- -------------------------------------
G. Andrew Franz
DAVID A. MCLAUGHLIN Director February 26, 1996
- -------------------------------------
David A. McLaughlin
THOMAS F. PATTON Director February 26, 1996
- -------------------------------------
Thomas F. Patton
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1
Draft dated 2/20/96
2,000,000 SHARES(1)
JONES MEDICAL INDUSTRIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________________, 1996
ROBERTSON, STEPHENS & COMPANY LLC
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Jones Medical Industries, Inc., a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. Description of Shares. The Company proposes to issue and sell
2,000,000 shares of its authorized and unissued Common Stock, par value $.04
per share (the "Firm Shares"), to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 300,000
additional shares of the Company's Common Stock, par value $.04 per share (the
"Option Shares"), as provided in Section 7 hereof. As used in this Agreement,
the term "Shares" shall include the Firm Shares and the Option Shares. All
shares of Common Stock, par value $.04 per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby, including the
Shares, are hereinafter referred to as "Common Stock."
- --------------------
(1) Plus an option to purchase up to 300,000 additional shares from the Company
to cover over-allotments.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company.
I. The Company represents and warrants to and agrees with each Underwriter
that:
(a) A registration statement on Form S-3 (File No. 33-________) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company
will file such additional amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration statement
and amendments, of each related prospectus subject to completion (the
"Preliminary Prospectuses"), including all documents incorporated by reference
therein, and of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations have been delivered to you. The Company and the
transactions contemplated by this Agreement meet the requirements for using
Form S-3 under the Act.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules
and Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the
Rules and Regulations or as part of a post-effective amendment to the
registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of prospectus,
or, if Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulation.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment
-2-
<PAGE> 3
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject
to completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed
to be a part of the Registration Statement at the time it became effective
pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the
foregoing, if any revised prospectus shall be provided to the Underwriters by
the Company for use in connection with the offering of the Shares that differs
from the prospectus referred to in the immediately preceding sentence (whether
or not such revised prospectus is required to be filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. If in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company
LLC, on behalf of the several Underwriters, the Company shall have provided to
the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement. Any
reference to the Registration Statement or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the Act, as of the date of the Registration
Statement or the Prospectus, as the case may be, and any reference to any
amendment or supplement to the Registration Statement or the Prospectus shall
be deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon
filing, are incorporated by reference therein, as required by paragraph (b) of
Item 12 of Form S-3. As used in this Agreement, the term "Incorporated
Documents" means the documents which at the time are incorporated by reference
in the Registration Statement, the Prospectus or any amendment or supplement
thereto.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares
-3-
<PAGE> 4
are to be purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
The Incorporated Documents heretofore filed, when they were filed (or, if
any amendment with respect to any such document was filed, when such amendment
was filed), conformed in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder; any
further Incorporated Documents so filed will, when they are filed, conform in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission thereunder; no such document when it was
filed (or, if an amendment with respect to any such document was filed, when
such amendment was filed), contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and no such further amendment
will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; except as described in the Prospectus, the Company
owns all of the outstanding capital stock of its subsidiaries free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
each of the Company and its subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise; no proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities, including,
without limitation, the United States Food and Drug Administration (the "FDA"),
the Federal Trade Commission (the "FTC"), the Consumer Product
-4-
<PAGE> 5
Safety Commission, the United States Department of Agriculture, the Drug
Enforcement Agency (the "DEA") and the United States Environment Protection
Agency (the "EPA"), which are material to the conduct of its business, all of
which are valid and in full force and effect; there are no FDA, FTC, DEA or EPA
enforcement actions pending or threatened against the Company or any of its
subsidiaries; the Company and its subsidiaries are conducting their business in
compliance with all the laws, rules and regulations of the jurisdictions in
which they are conducting business, except where failure to be so in compliance
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; neither the Company nor any
of its subsidiaries is in violation of its respective charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective properties may be
bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
over their respective properties of which it has knowledge. The Company does
not own or control, directly or indirectly, any corporation, association or
other entity other than those subsidiaries listed in Exhibit 21 to the
Company's Annual Report on Form 10-K filed with the Commission and incorporated
by reference into the Registration Statement ("Exhibit 21"), and does not have
any significant investment in any other corporation, association or other
entity except for Abana Pharmaceuticals, Inc., a Delaware corporation, in
which the Company has an approximately 16.7% ownership interest.
(d) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in (i) a violation of the
charter or by-laws of the Company or any of its subsidiaries or (ii) a material
breach or violation of any of the terms and provisions of, or constitute a
default under, (a) any bond, debenture, note or other evidence of indebtedness,
or under any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it or any of its subsidiaries
or their respective properties may be bound, (or (b) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective properties is required for the execution and delivery of this
Agreement and the
-5-
<PAGE> 6
consummation by the Company or any of its subsidiaries of the transactions
herein contemplated, except such as may be required under the Act or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's knowledge,
threatened action, suit, claim or proceeding against the Company, any of its
subsidiaries or any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or over their respective officers or properties or
otherwise which (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise or
might materially and adversely affect their properties, assets or rights
(except as disclosed in the Prospectus), (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
statutes, government regulations, agreements, contracts, leases or documents of
the Company or any of its subsidiaries of a character required to be described
or referred to in the Registration Statement or Prospectus or any Incorporated
Document or to be filed as an exhibit to the Registration Statement or any
Incorporated Document by the Act or the Rules and Regulations or by the
Exchange Act or the rules and regulations of the Commission thereunder which
have not been accurately described in all material respects in the Registration
Statement or Prospectus or any Incorporated Document or filed as exhibits to
the Registration Statement or any Incorporated Document.
(f) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus and any Incorporated Document (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right of shareholders exists with respect to any of the Firm Shares or Option
Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state
or other securities or Blue Sky laws. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and, are fully paid and nonassessable, and were not issued in
violation of or
-6-
<PAGE> 7
subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. Except as
disclosed in or contemplated by the Prospectus and the consolidated financial
statements of the Company and its subsidiaries, and the related schedules and
notes thereto, included or incorporated by reference in the Prospectus, neither
the Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Ernst & Young LLP, which has audited the consolidated financial
statements of the Company, together with the related schedules and notes, as of
December 31, 1994 and 1995 and for each of the years in the three (3) year
period ended December 31, 1995 filed with the Commission as a part of or
incorporated by reference into the Registration Statement, which are included
or incorporated by reference in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of or incorporated by reference into the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates
and for the respective periods to which they apply. The selected and summary
financial and statistical data included or incorporated by reference in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited consolidated financial
statements presented therein. No other financial statements or schedules are
required to be included or incorporated by reference in the Registration
Statement.
(h) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise, (ii) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered into in
the ordinary course of business, (iii) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries
that is material to the Company and its subsidiaries considered as one
enterprise, (v) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company, or (vi) any
-7-
<PAGE> 8
loss or damage (whether or not insured) to the property of the Company or any
of its subsidiaries which has been sustained or will have been sustained which
has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus and
any Incorporated Document, (i) each of the Company and its subsidiaries has
good and marketable title to all properties and assets described in the
Registration Statement and Prospectus and any Incorporated Document as owned by
it, free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest, other than such as would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise, (ii) the agreements to which the Company or any of its
subsidiaries is a party described in the Registration Statement, the Prospectus
and any Incorporated Document are valid agreements, enforceable by the Company
any its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company
and its subsidiaries has valid and enforceable leases for all properties
described in the Registration Statement, the Prospectus and any Incorporated
Document as leased by it, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement, the
Prospectus and any Incorporated Document, the Company and its subsidiaries own
or lease all such properties as are necessary to their operations as now
conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased
by the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
-8-
<PAGE> 9
as may be necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subcontractors or manufacturers
that might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise. No
collective bargaining agreement exists with any of the Company's employees or
employees of any of its subsidiaries and, to the best of the Company's
knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses adequate
rights to use all patents, patent applications, patent rights, inventions,
trade secrets, know-how, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights or other information
(collectively, "Intellectual Property") which are necessary to conduct its
business as now or as proposed to be conducted by it as described in the
Registration Statement, the Prospectus and any Incorporated Document; the
expiration of any Intellectual Property would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise; neither the Company nor any of its subsidiaries has received
any notice of, and has knowledge of, any infringement of or conflict with
asserted rights of the Company or its subsidiaries by others with respect to
any Intellectual Property; neither the Company nor any of its subsidiaries has
received any notice of, and has knowledge of, any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property which
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(o) The Company has been advised concerning the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its
affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the 1940 Act and such rules and regulations.
-9-
<PAGE> 10
(p) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
(s) Each executive officer and director of the Company has agreed in
writing that such person will not, for a period of 90 days from the date that
the Registration Statement is declared effective by the Commission (the
"Lock-up Period"), sell, offer, contract to sell, pledge, grant any option to
purchase or otherwise dispose of (collectively, a "Disposition") any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into or exchangeable for Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to limited partners or shareholders of such person, provided
that the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its
-10-
<PAGE> 11
officers, directors or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Robertson,
Stephens & Company LLC.
(t) Except as set forth in the Registration Statement, the Prospectus and
any Incorporated Document, (i) each of the Company and its subsidiaries is in
compliance in all material respects with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to their respective businesses, (ii) neither the Company nor any of
its subsidiaries has received any notice from any governmental authority or
third party of an asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement, the Prospectus and/or
any Incorporated Document, (iii) neither the Company nor its subsidiaries will
be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company or any of its subsidiaries has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as
a contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access
to assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement, the Prospectus and any
Incorporated Document.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $__________ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
-11-
<PAGE> 12
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or
official bank check or checks drawn in next-day funds, payable to the order of
the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn, and not to take any other action with the purpose or
effect of receiving immediately available funds, until the business day
following the date of its delivery to the Company, and, in the event of any
breach of the foregoing, the Company shall reimburse the Underwriters for the
interest lost and any other expenses borne by them by reason of such breach),
at the offices of Greensfelder, Hemker & Gale, P.C., 10 South Broadway, St.
Louis, Missouri 63102 (or at such other place as may be agreed upon among the
Representatives and the Company), at 7:00 A.M., San Francisco time, (a) on the
third (3rd) full business day following the first day that Shares are traded,
(b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco
time, the fourth (4th) full business day following the day this Agreement is
executed and delivered or (c) or at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available
to the Representatives copies of the Prospectus within the time period provided
in Section 4(d) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $______ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), in the _____ and
_____ paragraphs on the inside front cover page of the Prospectus concerning
stabilization and over-allotment by the
-12-
<PAGE> 13
Underwriters, and in the ____________________ and ___________ paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the final form
of Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus, the Registration Statement or any Incorporated
Document, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason
the filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations, it will provide evidence satisfactory to you that
the Prospectus contains such information and has been filed with the Commission
within the time period prescribed; it will notify you promptly of any request
by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; promptly upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion
of Testa, Hurwitz & Thibeault, counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered
-13-
<PAGE> 14
under the Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Shares as then in effect
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement, the Prospectus or the Incorporated
Documents or, prior to the end of the period of time in which a prospectus
relating to the Shares is required to be delivered under the Act, file any
document which upon filing becomes an Incorporated Document, which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day the Shares are traded, copies of the Registration Statement (four of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, and the Incorporated Documents (four of which will include all
exhibits) all in such quantities as you may from time to time reasonably
request. Notwithstanding the foregoing, if Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the Company shall provide to you copies of a
Preliminary Prospectus updated in all respects through the date specified by
you in such quantities as you may from time to time reasonably request.
-14-
<PAGE> 15
(e) The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and will make available to
its shareholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will furnish to you and the other
several Underwriters hereunder, upon request (i) concurrently with furnishing
such reports to its shareholders, statements of operations of the Company for
each of the first three (3) quarters in the form furnished to the Company's
shareholders, (ii) concurrently with furnishing to its shareholders, a balance
sheet of the Company as of the end of such fiscal year, together with
statements of operations, of shareholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or
report thereon of independent certified public accountants, (iii) as soon as
they are available, copies of all reports (financial or other) mailed to
shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company or any of its subsidiaries,
and (vi) any additional information of a public nature concerning the Company
or any of its subsidiaries, or their respective businesses which you may
reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(j) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the
-15-
<PAGE> 16
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the prior
written consent of Robertson Stephens & Company LLC, effect the Disposition of,
directly or indirectly, any Securities other than the sale of the Firm Shares
and the Option Shares hereunder and the Company's issuance of options or Common
Stock under the Company's presently authorized 1989 Incentive Stock Option
Plan, 1994 Incentive Stock Plan and 1994 Formula Stock Option Plan (the "Option
Plan").
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in connection
with the preparation, printing and filing of the Registration Statement
(including financial statements, schedules and exhibits), Preliminary
Prospectuses, Prospectus and the Incorporated Documents and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey
and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power
of Attorney, and any instruments related to any of the foregoing; the issuance
and delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus, Prospectus and the Incorporated Documents,
and any amendments or supplements to any of the foregoing; NASD filing fees and
the cost of qualifying the Shares under the laws of such jurisdictions as you
may designate (including filing fees and fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and Blue Sky
qualifications); and all other expenses directly incurred by the Company in
connection with the performance of their obligations hereunder.
-16-
<PAGE> 17
(ii) In addition to its other obligations under Section 8(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(a)
hereof, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that
any such interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the base rate on
corporate loans posted by a substantial majority of the nation's thirty (30)
largest banks (the "Prime Rate"). Any such interim reimbursement payments
which are not made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) In addition to their other obligations under Section 8(b) hereof, the
Underwriters severally and not jointly agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof, they will reimburse the Company on a monthly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Company shall promptly return such payment to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the
Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the
-17-
<PAGE> 18
ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a) and 8(b) hereof or
the obligation to contribute to expenses which is created by the provisions of
Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of their respective obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later than
2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and
no stop order suspending the effectiveness thereof shall have been issued and
no proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or any Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as they may reasonably
have requested to enable them to pass upon the matters referred to in this
Section.
(c) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are purchased, as the case may be, the following opinion of
Greensfelder, Hemker & Gale, P.C., counsel for the Company, dated the Closing
Date or such later date on which Option Shares are purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) The Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation;
-18-
<PAGE> 19
(ii) The Company and each subsidiary has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in [list
each jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing
would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise]. To such counsel's
knowledge, other than those subsidiaries listed in Exhibit 21 the
Company does not own or control, directly or indirectly, any
corporation, association or other entity and does not have any
significant investment in any other corporation, association or other
entity other than Abana Pharmaceuticals, Inc., a Delaware corporation,
in which the Company has approximately 16.7% ownership interest;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and will not have been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
shareholders;
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
-19-
<PAGE> 20
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company;
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all
material respects with the requirements of the Act and the applicable
Rules and Regulations and each of the Incorporated Documents (other
than the financial statements (including supporting schedules) and the
financial data derived therefrom as to which such counsel need express
no opinion) complied when filed pursuant to the Exchange Act as to
form in all material respects with the requirements of the Act and the
Rules and Regulations and the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(xi) The terms and provisions of the capital stock of the Company
conform in all material respects to the description thereof contained
in the Registration Statement and the Prospectus and the Incorporated
Documents, and the statements in or incorporated by reference into the
Prospectus under the captions "______, _______ and ______", to the
extent that they constitute summaries of matters of law or legal
conclusions, have been reviewed by such counsel and are accurate and
complete statements or summaries of the matters set forth therein, and
the form of certificate evidencing the Common Stock complies with
Delaware law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or any Incorporated Document or to be filed as
an exhibit to the Registration Statement or any Incorporated Document
which are not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be
-20-
<PAGE> 21
expressed) will not (a) result in any violation of the Company's
charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument known to such counsel to which the Company is
a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries,
or over any of their respective properties or operations is necessary
in connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act
or such as may be required under state or other securities or Blue Sky
laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of
a character required to be disclosed in the Registration Statement,
the Prospectus or any Incorporated Document by the Act or the Rules
and Regulations or by the Exchange Act or the applicable rules and
regulations of the Commission thereunder, other than those described
therein;
(xvii) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is presently (a) in violation of its respective
charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries, or over any of their properties or
operations; and
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement, the Prospectus and any Incorporated Document,
no holders of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company and,
except as set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other
securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby,
waived such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
-21-
<PAGE> 22
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement
thereto and any Incorporated Document, when such documents become effective or
were filed with the Commission (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto and any Incorporated
Document (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such counsel shall also state that the conditions for the use of
Form S-3 set forth in the General Instructions thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the States of Missouri and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date on
which Option Shares are purchased, as the case may be, the following opinion of
Olsson, Frank and Weeda, P.C., special regulatory counsel to the Company, dated
the Closing Date or such later date on which Option Shares are purchased,
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters to the effect that they serve as special
regulatory counsel to the Company and that:
(i) The statements in the Registration Statement and Prospectus
under the captions "Risk Factors -- Government Regulation" and
"Business -- Government Regulation," insofar as such statements
purport to summarize applicable provisions of regulatory law, have
been reviewed by such counsel and are accurate and complete
statements or summaries of the matters set forth therein.
-22-
<PAGE> 23
(ii) To such counsel's knowledge, there are no FDA, DEA or EPA
enforcement actions pending against the Company and no such actions
are threatened.
In addition, counsel shall state that no facts have come to their
attention which cause them to believe that the statements in the Prospectus
under the captions "Risk Factors -- Government Regulation" and "Business --
Government Regulation," insofar as such statements relate to regulatory
matters, at the time the Registration Statement became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing date or at any later date on which Option Shares
are purchased, as the case may be, contains an untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are purchased, as the case may be, the following opinion of
King & Spalding, special regulatory counsel to Company, dated the Closing Date
or such later date on which Option Shares are purchased, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the underwriters, to the effect that they serve as special regulatory
counsel to the Company and that:
(i) The statements in the Registration Statement and Prospectus
under the captions "Risk Factors -- Government Regulation" and
"Business -- Government Regulation," insofar as such statements
purport to summarize applicable provisions of regulatory law, have
been reviewed by such counsel and are accurate and complete
statements or summaries of the matters set forth therein.
(ii) To such counsel's knowledge, there are no FDA, DEA or
EPA enforcement actions pending against the Company and no such
actions are threatened.
In addition, counsel shall state that no facts have come to their
attention which cause them to believe that the statements in the Prospectus
under the captions "Risk Factors -- Government Regulation" and Business --
Government Regulation," insofar as such statements relate to regulatory matters
, at the time the Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
at the Closing date or at any later date on which Option Shares are purchased,
as the case may be, contains an untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
-23-
<PAGE> 24
(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Testa, Hurwitz & Thibeault, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from
Ernst & Young LLP addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. The Original Letter
from Ernst & Young LLP shall be addressed to or for the use of the Underwriters
in form and substance satisfactory to the Underwriters and shall (i) represent,
to the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
December 31, 1994 and 1995, and related consolidated statements of operations,
shareholders' equity, and cash flows for the three years ended December 31,
1995 and (iii) address other matters agreed upon by Ernst & Young LLP and you.
In addition, if applicable, you shall have received from Ernst & Young LLP a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as of December
31, 1994 and 1995, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(i) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may
-24-
<PAGE> 25
be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, and the Incorporated Documents, when such
Incorporated Documents became effective or were filed with the
Commission, contained all material information required to be included
therein by the Act and the Rules and Regulations or the Exchange Act
and the applicable rules and regulations of the Commission thereunder,
as the case may be, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations or the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, the Registration Statement, and any
amendment or supplement thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so
set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its
subsidiaries considered as one
-25-
<PAGE> 26
enterprise, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(j) The Company shall have obtained and delivered to you an agreement from
each executive officer and director of the Company in writing prior to the date
hereof that such person will not, during the Lock-up Period, effect the
Disposition of any Securities now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to limited partners or shareholders of such person, provided
that the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the such holder. Such prohibited
hedging or other transactions would including, without limitation, any short
sale (whether or not against the box) or any purchase, sale or grant of any
right (including, without limitation, any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will have also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction.
(j) The Company shall have furnished to you such further certificates and
documents as you shall reasonably request (including certificates of officers
of the Company) as to the accuracy of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 300,000 Option
Shares at the purchase price per share for the Firm Shares set forth
-26-
<PAGE> 27
in Section 3 hereof. Such option may be exercised by the Representatives on
behalf of the several Underwriters on one (1) or more occasions in whole or in
part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor by
the several Underwriters by certified or official bank check or checks drawn in
next-day funds, payable to the order of the Company (and the Company agrees not
to deposit any such check in the bank on which it is drawn, and not to take any
other action with the purpose or effect of receiving immediately available
funds, until the business day following the date of its delivery to the
Company). In the event of any breach of the foregoing, the Company shall
reimburse the Underwriters for the interest lost and any other expenses borne
by them by reason of such breach. Such delivery and payment shall take place
at the offices of Greensfelder, Hemker & Gale, P.C., 10 South Broadway, St.
Louis, Missouri 63102 or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the
-27-
<PAGE> 28
date hereof and as of the date of payment and delivery for such Option Shares)
to the accuracy of and compliance with the representations, warranties and
agreements of the Company herein, to the accuracy of the statements of the
Company and officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of
the representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the compliance with any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the
Company herein contained, (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment
or supplement thereto, including any Incorporated Document or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by
such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
-28-
<PAGE> 29
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company against any losses, claims, damages or liabilities,
joint or several, to which the Company may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, including any Incorporated Document or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have
-29-
<PAGE> 30
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of commencement of the action or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 8 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Underwriters severally and not
jointly are responsible pro rata for the portion represented by the percentage
that the underwriting discount bears to the initial public offering price, and
the Company are responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter in
excess of the amount of damages which such Underwriter is otherwise required to
pay and (ii) no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(d) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if any, who
controls the Underwriters or the Company within the meaning of the Act or the
Exchange Act and each officer of the Company who signed the Registration
Statement and each director of the Company.
-30-
<PAGE> 31
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed
to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
-31-
<PAGE> 32
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of
their underwriting obligation. If the remaining Underwriters shall not take up
and pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall
mean the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled, including,
without limitation, any
-32-
<PAGE> 33
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. In the event of termination pursuant to subparagraph (i)
above, the Company shall also remain obligated to pay costs and expenses
pursuant to Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party to
any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 1945 Craig Road, St. Louis, Missouri
63146, telecopier number (314) 469-5749, Attention: Dennis M. Jones, Chief
Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8
hereof, any legal or equitable right, remedy or claim in respect of this
Agreement or any provisions herein contained, this
-33-
<PAGE> 34
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or corporation. No purchaser of any of the Shares from any
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you jointly or by Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
-34-
<PAGE> 35
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and the several Underwriters.
Very truly yours,
JONES MEDICAL INDUSTRIES, INC.
By:_____________________________
Name:
Title:
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY, INC.
By:_______________________________
Authorized Signatory
-35-
<PAGE> 36
Draft dated 2/20/96
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ---------------------------------------------- ---------------------
<S> <C>
Robertson, Stephens & Company LLC.............
Hambrecht & Quist LLC.........................
---------
2,000,000
Total......................................... =====================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 12, 1996, in the Registration Statement (Form S-3 No. 33-00000) and
related Prospectus of Jones Medical Industries, Inc. for the registration of
2,300,000 shares of its Common Stock.
We also consent to the incorporation by reference therein of our report
dated February 14, 1995, with respect to the consolidated financial statements
and schedule of Jones Medical Industries, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1994, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
St. Louis, Missouri
February 23, 1996
