<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
- --------------------------------------------------------------------------------
JONES MEDICAL INDUSTRIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 43-1229854
- ------------------------------- ---------------------------- ------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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:
<TABLE>
<S> <C>
Charles E. H. Luedde, Esq. John H. Cooper, Esq.
Greensfelder, Hemker & Gale, P.C. Sirote & Permutt, P.C.
10 South Broadway, Suite 2000 P.O. Box 55727
St. Louis, Missouri 63102 Birmingham, Alabama 35255-5727
314-241-9090 205-933-7111
</TABLE>
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The
Notice and Prospectus included in this Registration Statement will be
distributed as promptly as practicable after this Registration Statement
becomes effective. No consent or vote is solicited in connection with the
merger transaction to which this Registration Statement relates. It is
anticipated that the effective date of the merger (and therefore the sale of
the securities offered hereby) will occur on the later of December 31, 1996, or
twenty business days following the first distribution of the Notice and
Prospectus.
- --------------------------------------------------------------------------------
<PAGE> 2
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.04
par value 129,322(1) shares Not Applicable Not Applicable $127.93 (2)
</TABLE>
(1) Does not include an aggregate of 291,250 shares of the Registrant's
Common Stock which are issuable pursuant to the merger transaction to the
two holders of Abana Pharmaceuticals, Inc. ("Abana") who, as the holders
of a majority of the outstanding stock of Abana, have approved and adopted
the merger by written consent as permitted by Delaware law. The 291,250
shares of the Registrant's Common Stock issuable to such holders is deemed
to have been offered in a transaction exempt from registration under
Section 4(2) and/or Regulation D under the Securities Act of 1933.
(2) Determined pursuant to Rule 457(f)(2) under the Securities Act of 1933,
as amended, based upon the book value per share, as of September 30, 1996,
of the 587,830 shares (25.85%) of the common stock of Abana
Pharmaceuticals, Inc. ("Abana") which are to be converted into and
exchanged for the 129,322 shares of the Registrant's common stock to be
issued pursuant to the Plan of Reorganization and Agreement dated as of
October 24, 1996, to holders of the common stock of Abana whose consent or
favorable vote is neither solicited nor required.
-------------------
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> 3
ABANA PHARMACEUTICALS, INC.
P.O. BOX 360388
BIRMINGHAM, ALABAMA 35236-0388
Dear Fellow Shareholder:
As previously announced, on October 24, 1996, Abana Pharmaceuticals, Inc.
("Abana") entered into a Plan of Reorganization and Agreement (the "Agreement")
with Jones Medical Industries, Inc. ("JMED" or the "Company") providing for the
acquisition of Abana by means of a merger (the "Merger") of Abana with and into
a new subsidiary of JMED formed for that purpose. The undersigned, as the
founders and holders of more than a majority of the outstanding stock of Abana,
joined as parties to the Agreement and adopted the Agreement and Merger by
written consent as permitted under Delaware law in lieu of soliciting proxies
or consents from all shareholders.
BECAUSE THE MERGER HAS ALREADY BEEN APPROVED AND ADOPTED BY THE
UNDERSIGNED AS PRINCIPAL HOLDERS OWNING MORE THAN A MAJORITY OF THE OUTSTANDING
COMMON STOCK OF ABANA, YOU ARE NOT BEING ASKED TO VOTE UPON OR TO CONSENT TO
THE MERGER. UNDER THE TERMS OF THE AGREEMENT, THE MERGER IS TO BECOME
EFFECTIVE AS OF THE CLOSE OF BUSINESS ON [DECEMBER 31, 1996], ASSUMING
FULFILLMENT OF CERTAIN CONDITIONS TO THE TRANSACTIONS AS OF THAT DATE.
Under the terms of the Merger, each outstanding share of the common stock
of Abana (other than the 362,519 shares, or approximately 16%, which have been
owned by JMED since June 1, 1992) is to be converted into 0.22 of a share of
the Common Stock of JMED. The Common Stock of JMED is traded over-the-counter
on the Nasdaq National Market maintained by the National Association of
Securities Dealers, Inc. The last reported sale price for the Common Stock of
JMED on November __, 1996 was $____.
Details of the Merger and the Agreement are set forth in the accompanying
Notice and Prospectus together with other important information which you are
urged to read carefully. As more fully discussed elsewhere in this document,
we believe that the Merger is in the best interest of Abana and its
shareholders. Any shareholder not wishing to participate in the Merger may
elect to seek appraisal rights under Delaware law as discussed in the
accompanying Notice and Prospectus in order to receive in cash the "fair value"
of the shares of common stock of Abana held by any such shareholder.
In the event you elect to receive the Common Stock of JMED provided under
the terms of the Merger, you may complete and forward the enclosed Letter of
Transmittal, together with the certificate(s) representing your shares of the
common stock of Abana, in order to facilitate distribution of the merger
consideration promptly following the effective date of the Merger.
Yours sincerely,
Dale E. Eads Perry N. Cole
November __, 1996
<PAGE> 4
ABANA PHARMACEUTICALS, INC.
P.O. BOX 360388
BIRMINGHAM, ALABAMA 35236-0388
NOTICE OF ACTION BY WRITTEN CONSENT OF HOLDERS
OF A MAJORITY OF THE OUTSTANDING COMMON STOCK
To the Stockholders of Abana Pharmaceuticals, Inc.:
NOTICE IS HEREBY GIVEN that on October 23, 1996, the holders of more than
a majority of the outstanding common stock of Abana Pharmaceuticals, Inc.
("Abana"), a Delaware corporation, adopted and approved a Plan of Reorganization
and Agreement dated as of October 24, 1996, (the "Agreement") by and among
Abana, Jones Medical Industries, Inc. ("JMED") and Messrs. Dale E. Eads and
Perry N. Cole. The Agreement provides for the merger (the "Merger") of Abana
with and into a wholly-owned subsidiary of JMED and pursuant to the Merger each
outstanding share of the common stock of Abana (other than shares already
beneficially owned by JMED or shares as to which dissenters' rights of
appraisal are exercised) will be converted into 0.22 of a share of the Common
Stock of JMED (the "Merger Consideration"). Fractional share interests in the
Common Stock of JMED arising from the Merger and conversion will be settled in
cash, based on the closing bid price per share of JMED Common Stock on the
effective date of the Merger. Subject to the fulfillment and satisfaction of
certain conditions to the Merger as set forth in the Agreement, the Merger will
become effective as of the close of business on [December 31, 1996], a date
which is more than twenty days following the date upon which this Notice is
being sent to holders of record of the shares of the common stock of Abana by
certified mail, return receipt requested. Under Delaware law and the terms of
the Agreement, the action by consent of holders of a majority of the
outstanding common stock of Abana is sufficient to adopt the Agreement and
Merger on behalf of Abana and its stockholders and, accordingly, no holder of
the common stock of Abana is being asked to consent to or vote upon the Merger.
A copy of the Agreement is available for inspection at the offices of Abana.
The date of November __ , 1996, has been fixed as the record date for
holders of the common stock of Abana to receive this Notice together with the
accompanying Prospectus which sets forth certain information concerning JMED,
Abana, the Agreement and the Merger.
Holders of record of the common stock of Abana who do not wish to accept
the Merger Consideration and who comply with the requirements of Section 262 of
the Delaware General Corporation Law ("DGCL") have the right to seek an
appraisal by the Delaware Court of Chancery of the "fair value" of their Abana
common stock. For a description of the rights of holders pursuant to Section
262 and a description of the procedures to be followed in order to obtain such
appraisal, see "Rights of Dissenting Stockholders" in the accompanying
Prospectus and the copy of Section 262 of the DGCL which is attached as
Appendix B thereto.
By order of the Board of Directors,
Birmingham, Alabama
November __, 1996 Perry N. Cole, Secretary
<PAGE> 5
JONES MEDICAL INDUSTRIES, INC
PROSPECTUS
This Prospectus is being furnished by Jones Medical Industries, Inc.("JMED"
or the "Company") to holders of the common stock, par value $.01 per share, of
Abana Pharmaceuticals, Inc. ("Abana"), a Delaware corporation, in connection
with the Notice to such holders in respect of the Plan of Reorganization and
Agreement (the "Agreement") dated as of October 24, 1996, by and among Abana,
JMED and Dale E. Eads and Perry N. Cole, as holders of more than a majority of
the outstanding shares of the common stock of Abana, providing for a merger
(the "Merger") of Abana with and into a subsidiary of JMED pursuant to which
each outstanding share of the common stock of Abana is to be converted into
0.22 of a share of the Common Stock, par value $.04 per share, of JMED.
Subject to the fulfillment of certain conditions thereto, the Merger is
expected to become effective as of the close of business on [December 31, 1996]
pursuant to the filing at that time of a certificate of merger with the
Secretary of State of Delaware.
This Prospectus relates to the shares of the Common Stock of JMED issuable
to holders of the common stock of Abana upon consummation of the Merger (other
than shares held by Messrs. Eads and Cole who as the "Principal Holders," by
their action on behalf of Abana by written consent, have heretofore irrevocably
agreed to the terms of the Merger and are deemed, subject to consummation of
the Merger, to have acquired the shares of the Common Stock of JMED issuable to
them in a transaction not involving any public offering of such stock as of the
date of the Agreement).
Although holders of the common stock of Abana, other than the Principal
Holders, are not being asked or provided the opportunity to vote upon or
consent to the Merger, such holders have appraisal rights under Section 262 of
the Delaware General Corporation Law. An election not to pursue such rights
may be deemed to involve an "investment decision" to acquire shares of the
Common Stock of JMED issuable upon consummation of the Merger and the Merger
may therefore be deemed to involve an "offer" and "sale" of shares of the
Common Stock of JMED to such holders. JMED has supplied all information
contained in this Prospectus relating to JMED and its subsidiaries and Abana
has supplied all information contained in this Prospectus relating to Abana.
This Prospectus is first being mailed to holders of the common stock of
Abana on or about [December 2], 1996, twenty business days prior to the
expected effective date of the Merger on [December 31, 1996].
SEE "INVESTMENT CONSIDERATIONS AND RISK FACTORS" BEGINNING ON PAGE 1 FOR A
DISCUSSION OF CERTAIN FACTORS CONCERNING JMED THAT SHOULD BE CONSIDERED BY
HOLDERS OF THE COMMON STOCK OF ABANA.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is [November 29], 1996
<PAGE> 6
AVAILABLE INFORMATION
JMED is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by JMED with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Common Stock of
JMED 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.
JMED has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
approximately 129,322 shares of the Common Stock of JMED to be issued pursuant
to the Merger to holders of the common stock of Abana (other than the Principal
Holders who have heretofore consented to the Merger). This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. Such additional information may be obtained from the
Commission's principal office in Washington, D.C.
The Registration Statement, including the exhibits thereto, and other
reports, proxy statements and filings made by JMED are also generally available
pursuant to the Commission's electronic data gathering and retrieval system
known as "EDGAR," and can be accessed through the Internet at
"http://www.sec.gov" and utilize the following menu choices: at Menu 1 select
"EDGAR Database of Corporate Information"; at Menu 2 select "Search the EDGAR
Database"; at Menu 3 select "Search the EDGAR Archives"; at Menu 4 enter "jones
AND medical" as your search. A list of available filings will appear and you
may highlight and retrieve or print your selection(s).
Statements contained in this Prospectus as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each such instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO JMED (INCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST TO JUDITH A. JONES, SECRETARY, JONES MEDICAL
INDUSTRIES, INC., 1945 CRAIG ROAD, ST. LOUIS, MISSOURI 63146, TELEPHONE NUMBER
314-576-6100. JMED WILL ALSO PROVIDE TO ANY HOLDER OF COMMON STOCK OF ABANA SO
REQUESTING A COPY OF THE AGREEMENT AND THE EXHIBITS THERETO. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST FOR COPIES OF THE
AGREEMENT OR DOCUMENTS RELATING TO JMED SHOULD BE MADE BY [DECEMBER 19], 1996.
The following documents, which have been filed by JMED with the
Commission, are hereby incorporated by reference in this Prospectus:
(1) JMED's Annual Report on Form 10-K for the year ended December 31,
1995;
ii
<PAGE> 7
(2) JMED's Quarterly Reports on Form 10-Q for (i) the three months ended
March 31, 1996, (ii) the six months ended June 30, 1996, and (iii) the
nine months ended September 30, 1996 (as restated to reflect the
acquisition of Galen Drugs of Florida, Inc. and its principal operating
subsidiary, Daniels Pharmaceuticals, Inc.);
(3) JMED's Proxy Statement dated April 24, 1996 for its annual meeting
of shareholders on May 22, 1996;
(4) JMED's Current Reports on Form 8-K dated March 18, 1996 (relating to
the consummation of the acquisition of the Tapazole(R) product line from
Eli Lilly & Co.) and August 30, 1996 (relating to the consummation of the
acquisition of Galen Drugs of Florida, Inc and its principal operating
subsidiary, Daniels Pharmaceuticals, Inc.) and November 8, 1996
(providing restated selected financial data for calendar years 1991-1995
incorporating the results of Galen and Daniels on a pooling of interests
basis, a related restated Management's Discussion and Analysis of
Financial Condition and Results of Operations for the two years ended
December 31, 1995, and a related restatement of JMED's audited financial
statements for the periods included in JMED's Annual Report on Form 10-K
for the year ended December 31,1995).
All documents filed by JMED pursuant to Sections 13(c), 14 or 15(d) of the
Exchange Act after the date hereof and before the effective date of the Merger
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for the purposes of this Proxy
Statement to the extent that a statement contained herein or in another
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY JMED, ABANA OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. THIS PROSPECTUS DOES NOT COVER ANY
RESALES OF THE SHARES OF THE COMMON STOCK OF JMED OFFERED HEREBY TO BE RECEIVED
BY ANY HOLDER OF THE COMMON STOCK OF ABANA WHO MAY BE DEEMED TO BE AFFILIATES
OF ABANA OR JMED UPON THE CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED
TO MAKE USE OF THIS PROSPECTUS IN CONNECTION WITH SUCH RESALES. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF JMED OR ABANA SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information.............................................................................. ii
Incorporation of Certain Documents by Reference.................................................... ii
Table of Contents.................................................................................. iv
Summary............................................................................................ vii
General....................................................................................... vii
The Parties to the Agreement and the Merger................................................... viii
The Merger.................................................................................... ix
The Agreement................................................................................. xi
Resales of Shares of Common Stock of JMED Received in the Merger.............................. xii
Market Price Data............................................................................. xiii
Comparative Unaudited Per Share Data.......................................................... xiv
Summary Consolidated Financial Data of JMED................................................... xv
Summary Financial Data of Abana............................................................... xvi
Investment Considerations and Risk Factors......................................................... 1
Important Developments to Date during 1996.................................................... 1
Dependence on Sales of Key Pharmaceuticals.................................................... 2
Reliance on Third-Party Manufacturers and Sole Source Suppliers............................... 3
Dependence on Acquisition Strategy............................................................ 4
Uncertainty of Future Financial Results; Fluctuations in Quarterly Operating Results ......... 4
Reimbursement Pricing Pressures Applicable to Pharmaceuticals................................. 5
Intense Competition; Uncertainty of Technological Change...................................... 5
Government Regulation......................................................................... 5
Risk of Price Adjustments and Product Returns................................................. 6
Potential Product Liability; Limited Insurance Coverage....................................... 6
Risk of Product Recall........................................................................ 7
Dependence Upon Certain Key Management........................................................ 7
Hazardous Materials........................................................................... 7
Volatility of Common Stock Price.............................................................. 7
Market Risk of Shares Eligible for Resale..................................................... 8
Market Price in Comparison to Book Value...................................................... 8
Anti-Takeover Effect of Charter Provisions and Delaware Law................................... 8
The Merger......................................................................................... 9
Adoption of the Merger by Written Consent..................................................... 9
Effective Time of the Merger.................................................................. 9
Effects of the Merger......................................................................... 9
Management of Abana after the Merger.......................................................... 10
Interest of the Principal Holders in the Merger............................................... 10
Regulatory Approvals.......................................................................... 10
Accounting Treatment.......................................................................... 10
Resales of Shares of Common Stock of JMED Received in the Merger.............................. 11
Procedures for Exchange of Abana Stock for Common Stock of JMED............................... 11
Certain Federal Income Tax Consequences....................................................... 12
Dissenters' Rights of Appraisal............................................................... 13
Background of the Transaction...................................................................... 17
</TABLE>
iv
<PAGE> 9
<TABLE>
<S> <C>
The Agreement........................................................................................ 21
General......................................................................................... 21
Certain Representations and Warranties.......................................................... 21
Certain Covenants............................................................................... 22
Inconsistent Activities......................................................................... 22
Conditions to the Merger........................................................................ 23
Closing and Effectiveness....................................................................... 23
Termination of the Agreement; Amendment......................................................... 23
Agreements of Principal Holders................................................................. 23
Escrow and Indemnification................................................................. 24
Non-Competition Agreement.................................................................. 24
Fees and Expenses............................................................................... 24
Certain Information Concerning JMED.................................................................. 25
General......................................................................................... 25
Industry Background
The United States Pharmaceutical Market.................................................... 25
The United States Market for Nutritional Supplements....................................... 26
Business Strategy............................................................................... 26
Principal Products and Product Lines
1996 Acquisitions of Thyroid Treatment Pharmaceuticals..................................... 26
Critical Care Pharmaceuticals.............................................................. 27
Other Pharmaceuticals...................................................................... 28
Nutritional Supplements.................................................................... 28
Competition..................................................................................... 28
Certain Information Concerning Abana................................................................. 29
Business........................................................................................ 29
Summary Financial Data Regarding Abana.......................................................... 34
Abana's Management's Discussion and Analysis of Financial Condition and Results of Operations... 35
Management...................................................................................... 41
Principal Stockholders.......................................................................... 44
Comparison of Shareholder Rights..................................................................... 45
Description of Capital Stock of Abana................................................................ 45
Description of Capital Stock of JMED................................................................. 47
Legal Matters........................................................................................ 48
Experts.............................................................................................. 48
Index to Financial Information....................................................................... F-1
</TABLE>
Appendix A: Opinion of Sirote & Permutt, P.C., as to certain tax matters
Appendix B: Section 262 of the Delaware General Corporation Law
v
<PAGE> 10
SUMMARY
The following is a summary of certain information contained in this
Prospectus. This summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this Prospectus and
its Exhibits. As used in this Prospectus, the term "JMED" or the "Company"
refers to Jones Medical Industries, Inc. and, where the context so requires,
its subsidiaries, and the term "Abana" refers to Abana Pharmaceuticals, Inc.
JMED has supplied all information concerning JMED and its subsidiaries herein,
and Abana has supplied all information concerning Abana included herein.
GENERAL
This Prospectus relates to the pending merger (the "Merger") of Abana
Pharmaceuticals, Inc. ("Abana"), a Delaware corporation, with and into Abana
Acquisition Corporation ("AAC"), a Delaware corporation which is a wholly-owned
subsidiary of Jones Medical Industries, Inc. ("JMED" or the "Company"), a
Delaware corporation, pursuant to a Plan of Reorganization and Agreement (the
"Agreement") dated October 24, 1996, by and among Abana, JMED and Messrs. Dale
E. Eads and Perry N. Cole. Messrs. Eads and Cole (individually a "Principal
Holder" and collectively the "Principal Holders") were the founders of Abana
and each currently holds an aggregate of 661,932 shares (approximately 29.2%)
of the outstanding common stock of Abana together with options to acquire an
additional 71,068 shares of such common stock of Abana. As parties to the
Agreement, the Principal Holders adopted the Agreement on behalf of Abana by
written consent in their collective capacity as holders of more than a majority
of the outstanding common stock of Abana.
NO MEETING OF THE HOLDERS OF THE COMMON STOCK OF ABANA IS NECESSARY OR
REQUIRED TO BE HELD IN CONNECTION WITH THE MERGER AND NO VOTE OR CONSENT OF
HOLDERS OF THE COMMON STOCK OF ABANA IS SOLICITED HEREBY.
As a result of the Merger, among other things, (1) Abana will be merged
with and into AAC which shall be the surviving corporation, (2) each
outstanding share of the common stock of Abana will, except as noted below, be
converted into 0.22 of a share of the Common Stock of JMED, and (3) each option
outstanding to acquire shares of the common stock of Abana will be converted,
to the nearest whole share, into an option to acquire 0.22 of a share of the
Common Stock of JMED and the option price per share of the Common Stock of JMED
in connection with such converted option, rounded to the nearest whole cent,
will be 4.55 times the option price per share of the common stock of Abana.
Shares of the common stock of Abana which are held in Abana's treasury or which
are beneficially owned by JMED will be canceled and retired in the Merger.
Fractional shares of the Common Stock of JMED arising from the Merger will not
be issued but any fractional share interest due a holder of the common stock of
Abana will be settled in cash based upon the last reported bid price per share
of Common Stock of JMED on the effective date of the Merger. Any shares of the
common stock of Abana as to which dissenters' rights of appraisal have been
duly demanded as permitted under Delaware law, and not withdrawn or abandoned,
will not be converted into shares of the Common Stock of JMED but will instead
represent the right to receive in cash the fair value thereof as may be agreed
or appraised in accordance with Delaware law.
The close of business on [November 29], 1996 has been fixed as the record
date for the determination of the holders of record of shares of the common
stock of Abana entitled to Notice of the Merger and its adoption by the written
consent of the Principal Holders as holders of a majority of the outstanding
common stock of Abana.
Subject to the satisfaction of the parties' respective conditions
precedent to their obligations under the Agreement, the Merger is expected to
become effective as of the close of business on [December 31, 1996]. In the
event that the closing of the transactions contemplated by the Agreement are
delayed to a date after December 31, 1996, the closing of such transaction will
occur as soon thereafter as all conditions are satisfied or waived unless a
party is entitled to and does elect to terminate the Agreement. In the event
that a closing of the transactions
vii
<PAGE> 11
contemplated by the Agreement should occur after December 31, 1996, the
actual closing date will be the effective date of the Merger but the Agreement
provides that for certain tax and accounting purposes the effective date will
be deemed to be the close of business on the last day of the calendar month
preceding the effective date of the Merger.
THE PARTIES TO THE AGREEMENT AND THE MERGER
JONES MEDICAL INDUSTRIES, INC.
JMED 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. The Company's product lines have been acquired
through a series of 15 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 59% and 41%, respectively, of the Company's total sales, as
restated to reflect the acquisition of Galen Drugs of Florida, Inc. (the
"Daniels Acquisition") in a pooling of interests transaction. For further
information concerning JMED, see "Investment Considerations and Risk Factors"
and "Certain Information Concerning JMED" elsewhere in this Prospectus.
Since June 1, 1992, JMED has been the holder of an aggregate of 362,519
shares of the common stock of Abana, representing approximately 16% of the
currently outstanding common stock of Abana. Dennis M. Jones, Chairman of the
Board and President of JMED, served as a director of Abana from June, 1992,
until October, 1996, in accordance with rights granted to JMED in connection
with its acquisition of shares of the common stock of Abana. See "Background
of the Transaction - Prior Investment by JMED in Abana Stock."
Although JMED is not a party to the Merger, as a party to the Agreement
JMED is obligated to deliver or contribute the shares of Common Stock of JMED
to be issued in the Merger.
The principal executive offices of JMED are located at 1945 Craig Road,
St. Louis, Missouri 63146, and the telephone number is (314) 576-6100.
ABANA ACQUISITION CORPORATION
AAC was incorporated on November __, 1996, as a wholly-owned subsidiary of
JMED established for the purposes of the transactions contemplated by the
Agreement. AAC engages in no other business. The principal executive offices
of AAC are currently located at the Company at 1945 Craig Road, St. Louis,
Missouri 63146, and the telephone number is (314) 576-6100.
ABANA PHARMACEUTICALS, INC.
Abana was organized on March 7, 1988, to engage in the marketing,
distribution and sale of branded generic pharmaceuticals sold as prescription
drugs. Abana's product line consists of antihistamine and decongestant
products for respiratory ailments, a topical analgesic for otitis, and weight
control products. At November 1, 1996, Abana had 47 sales representatives
calling on physicians in 17 states, primarily in the southeastern and south
central United States.
Abana's executive offices are located at Suite 260, 1 Chase Corporate
Drive, Birmingham, Alabama 35244. Its telephone number is (205) 988-4588 and
its mailing address is P.O. Box 360388, Birmingham, Alabama 35236.
viii
<PAGE> 12
THE PRINCIPAL HOLDERS
Dale E. Eads and Perry N. Cole, each of whom is a founder, director and
executive officer of Abana and each of whom holds 661,932 shares (approximately
29.2%) of the common stock of Abana together with options to acquire an
additional 71,068 shares of such common stock, are parties to the Agreement.
As the Principal Holders of Abana, holding in excess of a majority of the
outstanding common stock of Abana, they adopted and approved the agreement by
written consent such that, under the Delaware General Corporation Law (the
"DGCL") no further vote or consent of the holders of common stock of Abana is
required.
As parties to the Agreement, the Principal Holders joined in the
representations and warranties made by Abana in the Agreement and agreed to use
their respective best efforts to cause Abana to fulfill the conditions to the
obligations of JMED under the Agreement. The Principal Holders also agreed (i)
to indemnify and hold JMED harmless from certain expenses, loses or claims
arising from any failure of the representations or covenants of Abana in the
Agreement, (ii) to secure such indemnification by placing in escrow an
aggregate of 60,000 shares of the Common Stock of JMED to be received by them
as a result of the Merger, and (iii) to execute and deliver non-competition
agreements. See "The Agreement - Agreements of Principal Holders" and "The
Merger - Interest of the Principal Holders."
THE MERGER
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon, or as provided in, the filing of a
certificate of merger with the Secretary of State of Delaware. It is expected
that the Merger will become effective on December 31, 1996 or as promptly as
practicable thereafter subject to the satisfaction of the conditions to closing
under the Agreement (the "Closing Date"). See "The Merger - Effective Time of
the Merger."
EFFECTS OF THE MERGER
When the Merger becomes effective, (1) Abana will be merged with and into
AAC, which will be the surviving corporation (the "Surviving Corporation"), (2)
the Surviving Corporation will succeed by operation of law to the respective
rights and obligations of each of Abana and AAC, (3) each outstanding share of
the common stock of Abana will (excepted as otherwise provided below) be
converted into and exchanged for 0.22 of a share of the Common Stock of JMED,
and (4) the Surviving Corporation will be a wholly-owned subsidiary of JMED.
Fractional shares of the Common Stock of JMED will not be issued in
connection with the Merger. Holders of the common stock of Abana otherwise
entitled to a fractional share interest in Common Stock of JMED arising from
the conversion of their common stock of Abana will be entitled to receive, in
lieu of such fractional share interest, a cash payment for the value thereof
based on the closing bid price per share of the Common Stock of JMED on the
date the Merger becomes effective.
Shares of the common stock of Abana held by Abana as treasury stock when
the Merger becomes effective and shares of the common stock of Abana held,
directly or indirectly, by JMED when the Merger becomes effective will not be
converted into or exchanged for shares of the Common Stock of JMED but will be
canceled and retired.
Shares of the common stock of Abana held by any holder who has duly
demanded and exercised dissenter's rights of appraisal in accordance with the
DGCL, unless such exercise is withdrawn, will not be converted into shares of
the Common Stock of JMED in the Merger but will represent solely the right to
receive in cash the "fair value" of such shares in accordance with the DGCL.
See "The Merger - Dissenters' Rights of Appraisal."
ix
<PAGE> 13
MANAGEMENT OF ABANA AFTER THE MERGER
AAC, as the Surviving Corporation, will continue to be a wholly-owned
subsidiary of JMED following consummation of the Merger and will adopt the name
"JMI-Abana Pharmaceuticals, Inc." The directors and officers of AAC, each of
whom is an officer of JMED, will continue to serve as the initial directors and
officers of the Surviving Corporation upon consummation of the Merger. It is
anticipated that the current officers of Abana will be elected as officers of
the Surviving Corporation following the Merger, serving in such capacities at
the pleasure of the board of directors of the Surviving Corporation and without
employment agreements.
INTEREST OF THE PRINCIPAL HOLDERS IN THE MERGER
Upon effectiveness of the Merger, each Principal Holder will receive an
aggregate of 145,625 shares of the Common Stock of JMED upon conversion of the
shares of the common stock of Abana currently held. In addition, each
Principal Holder will receive, in conversion and exchange of presently held
options to acquire shares of the common stock of Abana, (i) an "incentive stock
option" to acquire 8,800 shares of the Common Stock of JMED at a price of
$10.00 per share and (ii) a non-qualified option to acquire 6,835 shares of the
Common Stock of JMED at a price of $5.91 per share. The options to be issued
bear the same terms and conditions as the options presently held and such
options are currently vested and exercisable in full. Each Principal Holder
has agreed not to exercise such options prior to the Closing Date. The
Agreement and options provide, however, that by notice to JMED and Abana given
prior to the Closing Date, a Principal Holder may elect to exercise and
surrender such option as of the first business day following the Closing Date
and, in lieu of paying the exercise price and receiving shares of the Common
Stock of JMED, receive in cash the value of such options based upon the last
reported bid price per share of JMED Common Stock as of such date reduced by
the applicable exercise price per share. The Agreement provides certain
registration rights under the Securities Act of 1933 to the Principal Holders
in respect of the shares of the Common Stock of JMED to be received by them
pursuant to the Merger. See "The Merger - Resales of Common Stock of JMED
Received in the Merger - Principal Holders."
The Principal Holders also agreed (i) to indemnify and hold JMED harmless
from certain expenses, loses or claims arising from any failure of the
representations or covenants of Abana in the Agreement, (ii) to secure such
indemnification by placing in escrow an aggregate of 60,000 shares of the
Common Stock of JMED to be received by them as a result of the Merger, and
(iii) to execute and deliver non-competition agreements. See "The Agreement -
Agreements of Principal Holders."
ACCOUNTING TREATMENT
JMED intends to treat the Merger as a "purchase" for accounting and
financial reporting purposes. The Agreement provides that in the event of a
closing date and effectiveness of the Merger as of a date subsequent to
December 31, 1996, the transactions will be deemed to be effective for
accounting, financial reporting purposes and tax purposes as of the close of
business on the last day of the calendar month preceding the month in which the
closing occurs. Accordingly, if the closing occurs as of any date between
December 31, 1996 through January 31, 1997, it will nevertheless be reflected
for such purposes as effective on December 31, 1996. See "The Merger -
Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), such that the receipt of shares of the Common Stock of JMED upon
exchange and conversion of common stock of Abana will not give rise to a
taxable event. See "The Merger - Certain Federal Income Tax Consequences."
x
<PAGE> 14
DISSENTERS' RIGHTS OF APPRAISAL
Although, as a result of the adoption and approval of the Agreement and
Merger by the Principal Holders, other holders of the common stock of Abana do
not have the right to vote upon (and are not being asked to provide written
consent to) the Merger, such holders have the right to dissent from such
approval and adoption and, if the Merger is consummated and becomes effective
in accordance with the DGCL, to receive in cash payment of the fair value of
their shares of the common stock of Abana determined by appraisal or as
otherwise provided in the DGCL. Such dissenters' rights of appraisal require
compliance with the provisions of Section 262 of the DGCL, a copy of which is
provided as Appendix B to this Notice and Prospectus and is incorporated herein
by reference. Holders of the common stock of Abana are urged to read Section
262 of the DGCL carefully. See "The Merger - Dissenters' Rights of Appraisal."
The obligations of JMED under the Agreement are, among other conditions,
subject to a requirement that holders of not more than 56,000 shares of the
common stock of Abana elect to pursue rights of appraisal as dissenting
shareholders in respect of the Merger.
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, holders of the common stock of Abana
(other than holders who receive cash as dissenting shareholders) will become
holders of the Common Stock of JMED. Both Abana and JMED are incorporated in
Delaware and governed by the DGCL, but after the Merger the Certificate of
Incorporation and By-Laws of JMED will apply and holders will no longer be
subject to the terms of Abana's Stockholders' Agreement. See "Comparison of
Shareholder Rights."
THE AGREEMENT
CONDITIONS TO THE MERGER
The obligations of JMED, AAC and Abana to consummate the Merger and
related transactions in accordance with the Agreement are subject to the
satisfaction of certain conditions (any or all of which may be waived by the
party whose obligations are conditioned thereon). Each party's obligations are
conditioned upon (i) the accuracy, as of the date of the Agreement and as of
the Closing Date, of the other party's representations and warranties set forth
in the Agreement, (ii) the performance by other parties to the Agreement of
covenants applicable during the period between the date of the Agreement and
the Closing Date, (iii) the absence of litigation or proceedings seeking to
prevent the Merger or which involves a risk of a material adverse change in the
condition, financial or otherwise, of the other party, and (iv) the receipt of
satisfactory opinions of counsel as to certain matters. In addition, the
obligations of JMED and AAC are conditioned upon (a) the receipt of any
necessary regulatory approval, consent or authorization (including the
effectiveness of the Registration Statement of which this Prospectus is a
part), (b) the delivery at Closing by the Principal Holders of the
indemnification and escrow agreement and the non-competition agreements which
constitute exhibits to the Agreement and (c) the non-exercise of dissenters'
appraisal rights under the DGCL in excess of 56,000 shares of the common stock
of Abana. See "The Agreement - Conditions to the Merger."
INCONSISTENT ACTIVITIES
The Agreement provides that prior to the Closing or termination of the
Agreement Abana will not (i) solicit, directly or indirectly, or cause any
other person to solicit, any offer to acquire the assets of Abana, whether by
merger, purchase of assets, tender offer or similar transaction or (ii) enter
into any agreement which provides for the merger of Abana or the sale of the
capital stock of Abana or the assets of Abana to a person other than JMED or a
subsidiary of JMED.
xi
<PAGE> 15
TERMINATION OF THE AGREEMENT; AMENDMENT
The Agreement will terminate on the later of the Closing Date or March 31,
1997, and may be terminated prior thereto by the mutual agreement of the
parties. In addition, JMED may elect to terminate the Agreement in the event
that (i) Abana shall fail to observe certain covenants, (ii) Abana shall fail
to satisfy timely certain conditions to JMED's obligations, or (iii) in the
event that JMED so elects in good faith in the event of an action seeking to
restrain, prohibit or invalidate the transactions contemplated by the
Agreement. In lieu of seeking termination of the Agreement, a party otherwise
entitled to elect termination may elect to seek enforcement of the Agreement.
Although the representations and warranties of Abana in the Agreement do
not survive the Closing Date, the Agreement provides that in the event of
Closing the representations and warranties of JMED will survive the Closing
Date for three years notwithstanding the termination of the Agreement.
The Agreement may be amended at any time by written consent of the
parties, but no amendment which would reduce the number of shares of the Common
Stock of JMED issuable in the Merger shall be effective without the consent of
holders of a majority of the outstanding stock of Abana and the effectiveness
of an amendment to the Registration Statement of which this Prospectus is a
part and a revised Notice under the DGCL.
ESCROW AND INDEMNIFICATION
The Principal Holders have agreed to indemnify and hold JMED harmless
from and against certain claims, loss, damage or expense as a result of any
breach or failure of the representations of Abana set forth in the Agreement or
any failure of Abana to observe and perform its covenants pending Closing under
the Agreement. Such indemnification is to be secured by, and limited to, the
deposit in escrow on the Closing Date by the Principal Holders of an aggregate
of 60,000 shares of the Common Stock of JMED being received by them in the
Merger. On March 31, 1998, the number of shares held in escrow (and therefore
the exposure of the Principal Holders in respect of the indemnification
provided to JMED) will be reduced to an aggregate of 10,000 shares of the
Common Stock of JMED plus such additional number of shares of the Common Stock
of JMED as may be needed in respect of indemnification claims pending, but not
resolved, as of March 31, 1998. See "The Agreement - Agreements of the
Principal Holders - Escrow and Indemnification."
Holders of the common stock of Abana other than the Principal Holders are
not required to provide indemnification to JMED or to escrow any portion of the
shares of the Common Stock of JMED received pursuant to the Merger.
FEES AND EXPENSES
Each of JMED and Abana have agreed to bear their respective expenses
incurred in connection with the Merger. In the event the expenses incurred by
or on behalf of Abana in connection with the Agreement and Merger exceed
$75,000, JMED would have the right to make a claim against the escrow and
indemnification provided by the Principal Holders; however, the amount of such
expenses incurred by or on behalf of Abana will not reduce the number of shares
of Common Stock of JMED issuable in the transaction.
RESALES OF SHARES OF COMMON STOCK OF JMED RECEIVED IN THE MERGER
PRINCIPAL HOLDERS
The aggregate of 291,250 shares of the Common Stock of JMED to be received
by the Principal Holders as a result of the conversion of the shares of common
stock of Abana held by them in the Merger will constitute "restricted
securities" under the Securities Act and will be deemed to have been issued in
a transaction not involving
xii
<PAGE> 16
any public offering. Unless registered under the Securities Act for
resale, such shares may not be resold in the absence of an exemption from
applicable registration requirements. In the Agreement, JMED has agreed to
provide to the Principal Holders upon request registration of such shares under
the Securities Act following the date upon which JMED files with the Commission
its Annual Report on Form 10-K for the year ending December 31, 1996. Under
the Exchange Act, the Annual Report on Form 10-K for the year ending December
31, 1996, is required to be filed on or before March 31, 1997. JMED has further
agreed, subject to certain conditions, to maintain any such registration
current and effective on behalf of the Principal Holders until the earlier of
(i) two years following the Closing or (ii) the date upon which Rule 144 under
the Securities Act becomes available to the Principal Holders as an exemption
from registration permitting resale. See "The Merger - Resales of Common Stock
of JMED Received in the Merger - Principal Holders."
OTHER HOLDERS
The shares of the Common Stock of JMED being received by holders of the
common stock of Abana other than the Principal Holders are included in the
Registration Statement of which this Prospectus is a part. Since no holder of
the common stock of Abana other than the Principal Holders and JMED may be
deemed to be an "affiliate," as that term is used under the Securities Act, of
either Abana or JMED, and since the Merger does not constitute a transaction
subject to Rule 145 under the Securities Act, the shares of the Common Stock of
JMED being received by such other holders are expected to be freely tradable
without subsequent registration under the Securities Act in accordance with the
exemption provided by Section 4(1) for transactions not involving "an issuer,
underwriter or dealer." See "The Merger - Resales of Common Stock of JMED
Received in the Merger - Other Holders."
MARKET PRICE DATA
The Common Stock of JMED is traded over-the-counter in the Nasdaq National
Market under the symbol "JMED." There is no public trading market for the
common stock of Abana. The following table sets forth the reported closing per
share price of the Common Stock of JMED and the "equivalent price per share"
(as defined below) of the common stock of Abana as of (i) October 23, 1996, the
last trading date before JMED and Abana announced execution of the Agreement
and (ii) November __, 1996. The "equivalent per share price" of the common
stock of Abana as of each such date equals the reported closing per share price
of Common Stock of JMED on that date multiplied by 0.22, representing the
conversion rate in the Merger.
<TABLE>
<CAPTION>
Equivalent Per
Market Price Common Stock Share Price for
Per Share at: of JMED Abana
------------- ------------ ---------------
<S> <C> <C>
October 23, 1996 $ 43.50 $ 9.57
November __, 1996 $ $
</TABLE>
During the twelve months ending November 1, 1996, the reported closing price
per share of the Common Stock of JMED has ranged from $8 to $50 1/2. Holders
of the common stock of Abana are advised to obtain current market quotations
for the Common Stock of JMED. No assurance can be given as to the market price
of the Common Stock of JMED at any time before the Closing Date or at any time
thereafter.
xiii
<PAGE> 17
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
with respect to the Common Stock of JMED on an historical basis and a pro forma
combined basis, and with respect to the common stock of Abana on an historical
basis and a pro forma equivalent basis, giving effect to the Merger as a
purchase transaction for accounting and financial reporting purposes. The pro
forma data assumes that the Merger became effective on December 31, 1995 or at
September 30, 1996 for the book value per share data and at December 31, 1995
for earnings per share and dividends declared data. The pro forma financial
data is presented for informational purposes only, and is not necessarily
indicative of the actual results that would have been achieved had the Merger
been consummated on the dates or prior to the periods presented. See
"Unaudited Pro Forma Condensed Combining Financial Information."
The historical per share data set forth in the following table are derived
from, and should be read in conjunction with, the historical consolidated
financial statements of JMED and Abana, including the notes thereto. The
financial data with respect to JMED reflects the restatement of its historical
financial statements (i) as a result of JMED's acquisition of Galen Drugs of
Florida, Inc. ("Galen", together with its principal operating subsidiary,
Daniels Pharmaceuticals, Inc., the "Daniels Acquisition") on August 30, 1996,
in a transaction accounted for as a pooling of interests and (ii) a
three-for-two stock split by means of a 50% stock dividend distributed June 10,
1996. The audited historical consolidated financial statements of JMED are
incorporated by reference into this Prospectus. The audited historical
financial statements of Abana are included in this Prospectus. See
"Incorporation of Certain Documents by Reference" and "Financial Statements of
Abana Pharmaceuticals, Inc."
<TABLE>
<CAPTION>
Common Stock of JMED Abana Common Stock
------------------------- -------------------------
Pro Forma
Historical Pro Forma Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Book value per share:
December 31, 1995 $ 2.22 $ 2.80 $ 0.68 $ 0.62
September 30, 1996 $ 5.07(1) $ 5.99 $ 0.72 $ 1.32
Cash dividends declared per share:
Year ended December 31, 1995 $ 0.05 $ 0.05 $ 0.02 $ 0.011
Nine months ended September 30, 1996 $ 0.056 $ 0.056 $ 0.03 $ 0.012
Net income per share:
Year ended December 31, 1995 $0.50 $ 0.49 $ 0.36 $ 0.11
Nine months ended September 30, 1996 $0.41(2) $ 0.39 $ 0.07 $ 0.09
</TABLE>
- ---------------------
(1) Includes the effect of net proceeds of $75 million from the public
sale and offering of 3,450,000 shares of the Common Stock of JMED during
1996 at a price of $23.33 per share.
(2) After giving effect to a one-time charge of $4.2 million, after tax,
or $0.15 per share for certain expenses associated with the acquisition of
Galen Drugs of Florida, Inc. (the "Daniels Acquisition") on August 30,1996,
in a transaction accounted for as a "pooling of interests". Prior to giving
effect to such one-time charges, the pro forma equivalent income per share
of Abana common stock would have been $0.11 for the period. See "Investment
Considerations and Risk Factors - Important Developments during 1996 - The
Daniels Acquisition" for a brief explanation of "pooling of interests"
accounting treatment and the nature of these one-time charges.
xiv
<PAGE> 18
SUMMARY CONSOLIDATED FINANCIAL DATA OF JMED
The following table summarizes certain selected consolidated financial
data of JMED which should be read in conjunction with the consolidated financial
statements of JMED, and the notes thereto, incorporated by reference into this
Prospectus. The financial data for the three years ended December 31, 1995
have been derived from the audited consolidated financial statements of JMED
restated to reflect (i) a three-for-two stock split pursuant to a 50% stock
dividend distributed on June 10, 1996 and (ii) the Daniels Acquisition on
August 30, 1996, in a transaction accounted for as a pooling of interests. The
financial data for each of the two years in the period ended December 31, 1992,
have been derived from JMED's historical audited consolidated financial
statements, restated to reflect the Daniels Acquisition using unaudited data
concerning Galen. In the opinion of management of JMED, all adjustments
necessary for a fair presentation of the restated results arising from the
pooling of interests are reflected.
The financial data as of and for the nine months ended September 30, 1996
and 1995 have been derived from the unaudited condensed combined financial
statements of JMED. In the opinion of JMED's management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial data for the nine months ended September 30, 1996
and 1995 have been reflected therein. Operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the full year and reflect certain non-recurring expenses and
payments relating to the Daniels Acquisition. The summarized historical
financial data appearing below should be read in conjunction with the
consolidated financial statements of JMED, and the notes thereto, incorporated
by reference into this Prospectus. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended
------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 9/30/95 9/30/96 (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Sales $ 29,098 $ 34,590 $ 55,621 $ 62,154 $ 74,792 $ 52,893 $ 73,810
Cost of Sales 14,960 17,501 26,501 29,503 32,754 23,261 30,305
-------- -------- -------- -------- -------- -------- --------
Gross Profit 14,138 17,089 29,120 32,651 42,037 29,632 43,505
Selling, general and
administrative expenses 9,261 10,738 16,795 20,285 21,754 15,909 25,171
Other income
(expense), net 547 821 (80) (486) (484) (269) 1,199
-------- -------- -------- -------- -------- -------- --------
Income before taxes 5,425 7,172 12,245 11,880 19,799 13,454 19,533
Provision for taxes 1,984 2,672 4,660 4,360 7,410 4,953 8,157
-------- -------- -------- -------- -------- -------- --------
Net income (2) $ 3,441 $ 4,500 $ 7,585 $ 7,520 $ 12,389 8,501 11,376
Earnings per share (2) $ 0.10 $ 0.13 $ 0.21 $ 0.29 $0.50 $ 0.34 $ 0.41
Weighted average
shares outstanding (3) 34,916 35,212 35,229 26,361 24,844 24,749 27,776
Cash dividends
declared per share (4) $ 0.027 $ 0.033 $ 0.04 $ 0.045 $0.05 $ 0.036 $ 0.057
BALANCE SHEET DATA:
Total Assets $ 36,989 $ 39,581 $ 58,113 $ 63,342 $ 86,238 $ 82,363 $154,885
Long-term Obligations 2,889 652 5,400 6,778 11,420 13,019 0
Shareholders' Equity 29,362 33,396 40,832 44,478 55,939 52,007 141,408
</TABLE>
(1) After a one-time charge of approximately $4,250,000, after taxes, or $0.15
per share, for certain expenses of the Daniels Acquisition.
(2) Net income and earnings per share in 1993 do not reflect cumulative effect
of a change in accounting principle of $207,100.
(3) In a transaction in October 1993, Galen Drugs of Florida, Inc. repurchased
and retired approximately 78.6% of its then outstanding common stock in
exchange for consideration consisting of $3.4 million in cash and debt. As a
result of the Daniels acquisition, an aggregate of 10.9 million shares of the
Common Stock of JMED were deemed to be outstanding prior to the date of that
transaction.
(4) Represents historical dividends declared per JMED common share.
xv
<PAGE> 19
SUMMARY FINANCIAL DATA OF ABANA
The following table summarizes certain selected historical financial data
of Abana. The balance sheet data presented below as of December 31, 1994 and
1995 and as of September 30, 1995 and 1996 and the statement of operations data
for each of the years in the three-year period ended December 31, 1995 and for
the nine months ended September 30, 1995 and 1996, are derived from Abana's
financial statements appearing elsewhere in this Prospectus. See "Financial
Statements of Abana." The financial data for the five years ended December 31,
1995 have been derived from audited annual financial statements of Abana. The
balance sheet data as of December 31, 1991, 1992 and 1993, and the statement of
operations data for the years ended December 31, 1991 and 1992, have been
derived from other financial statements of Abana and are not included in this
Prospectus. In the opinion of Abana's management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial data for the nine months ended September 30, 1995 and 1996 have been
reflected therein. Operating results for the nine months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
full year. The summarized historical financial data of Abana should be read in
conjunction with the financial statements and related notes thereto for Abana
and "Abana's Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. See "Certain
Information Concerning Abana" and "Financial Statements of Abana
Pharmaceuticals, Inc."
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended
--------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 9/30/95 9/30/96
---- ---- ---- ---- ---- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales $ 789 $1,176 $ 2,426 $2,948 $4,210 $2,868 $4,103
Cost of sales 260 347 608 656 619 470 736
------ ------ ------- ------ ------ ------ ------
Gross profit 529 829 1,818 2,292 3,590 2,398 3,367
Selling, general and
administrative expenses 536 897 1,853 2,391 2,718 1,939 3,194
Other income (expenses), net (42) - 10 11 17 11 23
Provision for taxes - - - - - - 35
------ ------ ------- ------ ------ ------ ------
Net income (loss) $ (49) $ (68) $ (25) $ (88) $ 889 $ 470 $ 161
====== ====== ======= ====== ====== ====== ======
Earnings (loss)per share $(0.03) $(0.03) $ (0.01) $(0.04) $ 0.36 $ 0.21 $ 0.07
Weighted average shares
outstanding 1,774 2,020 2,211 2,288 2,448 2,291 2,395
Cash dividends declared per share - - - - $ 0.02 - $ 0.03
BALANCE SHEET DATA:
Cash and cash equivalents $ 88 $ 283 $ 482 $ 336 $ 920 $ 486 $ 975
Total assets $ 260 $ 618 $ 993 $ 892 $1,640 $1,193 $1,987
Stockholders' equity $ 96 $ 526 $ 898 $ 793 1,542 $1,164 $1,633
</TABLE>
xvi
<PAGE> 20
INVESTMENT CONSIDERATIONS AND RISK FACTORS
The following discussion contains certain cautionary statements regarding
JMED's business and results of operations which should be considered by holders
of the common stock of Abana. These statements discuss matters which may in
part be discussed elsewhere in this Prospectus and which may have been
discussed in other documents prepared by JMED pursuant to federal or state
securities laws, including documents filed pursuant to the Exchange Act and
incorporated herein by reference. This discussion is intended to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The following factors should be considered in conjunction
with any discussion of operations or results by JMED or its representatives,
including any forward-looking discussion, as well as comments contained in
press releases, presentations to securities analysts or investors, or other
communications by JMED. The discussion below should be read in conjunction
with JMED's "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in its annual and quarterly filings with the Commission
which are incorporated herein by reference. See "Incorporation of Certain
Documents by Reference."
In making these statements, JMED is not undertaking to address or update
each factor in future filings or communications regarding the Company's
business or results, and is not undertaking to address how any of these factors
may have caused changes to discussions or information contained in previous
filings or communications. In addition, any of the matters discussed below may
have affected the Company's past results and may affect future results.
IMPORTANT DEVELOPMENTS TO DATE DURING 1996
As a result of two significant acquisitions completed to date in 1996, the
Company currently derives a significant portion of its revenues from the sale
of pharmaceutical products relating to the treatment of thyroid conditions.
These pharmaceutical products represent new product lines in which the Company
has only limited marketing experience as of the date of this Prospectus. A
substantial percentage of the prescriptions for pharmaceutical products used in
the treatment of thyroid conditions historically have arisen from office-based
endocrinologists and internal medicine specialists rather than through
hospital pharmacies. In addition to expanding the marketing of these products
to hospital-based endocrinologists through the Company's traditional
hospital-directed sales and marketing staff, the Company intends to expand its
office-based sales and marketing staff arising from the Daniels Acquisition.
There can be no assurance that the Company will be successful in efforts to
integrate and expand its sales and marketing staff to accommodate these new
products and the failure to market and sell these new pharmaceutical product
lines successfully could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Background of
the Transaction - Reasons for the Transaction."
Acquisition of the Rights to Tapazole(R). On March 18, 1996, the Company
acquired from Eli Lilly and Company ("Lilly") the exclusive perpetual domestic
right to market and distribute Tapazole(R) (methimazole, USP) in the United
States. The purchase price for Tapazole(R) was $26.0 million, of which
one-third was paid in cash at closing and the remainder of which was paid,
without interest, in installments in June and September, 1996. In addition to
the purchase price, the Company will pay Lilly a royalty equal to 5% of the
Company's net sales of Tapazole(R) during the first 10 years following the
acquisition. The Company also entered into a 10-year manufacturing agreement
with Lilly pursuant to which Lilly will continue to manufacture Tapazole for
the Company.
Tapazole(R) is an anti-thyroid product used for the treatment of
hyperthyroidism; the extreme form of hyperthyroidism is commonly known as
Graves' Disease. Tapazole(R) is prescribed to inhibit the synthesis of thyroid
hormones and to reduce the size of the goiter (an abnormal growth resulting
from overactivity of the thyroid gland). Although the Company is not aware of
any generic forms of Tapazole(R) in the marketplace, Tapazole(R) faces
competition from the generic pharmaceutical, propylthiouracil ("PTU"). PTU is
sold by Lederle Labs, a division of American Cyanamid Company, which has
greater financial resources than the Company, and by a number of other
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independent generic pharmaceutical companies. From the date of acquisition on
March 18, 1996 through September 30, 1996, the Company had net sales of $8.4
million relating to Tapazole(R), equal to 11.3% of the Company's sales for the
nine months ended September 30, 1996.
The Daniels Acquisition. On August 30, 1996, the Company acquired Galen
Drugs of Florida, Inc. and its principal operating subsidiary, Daniels
Pharmaceuticals, Inc. ("Daniels"), and related assets in exchange for an
aggregate of 2,960,224 shares of the Common Stock of JMED and cash in the
amount of $4.0 million in a transaction accounted for as a "pooling of
interests." In a "pooling of interests" transaction, the historical results of
the combining companies are restated as if the entities had always been a
single company for financial reporting purposes and the expenses of the
acquisition transaction are charged against income for the period in which the
transaction occurs. Non-recurring expenses associated with the Daniels
Acquisition resulted in after-tax charges of approximately $4.2 million
($.15 per share) to the Company's earnings during the quarter ended September
30, 1996. Such expenses consist principally of compensatory payments to
certain former officers of Daniels and to business brokerage and financial
advisory fees incurred by Daniels in connection with the transaction.
Daniels is a St. Petersburg, Florida, based manufacturer and marketer of
prescription pharmaceutical products. Daniels' principal product is
Levoxyl(TM), a synthetic thyroid hormone for the treatment of hypothyroidism.
Levoxyl(TM) is reported to be the second most widely prescribed brand of
levothyroxine in the United States, within a $300 million domestic market
dominated by SynthroidTM which is manufactured by Knoll Pharmaceutical
Company, a subsidiary of Boots PLC, which has substantially greater sales,
marketing and financial resources than the Company. Competitive action in the
marketing and distribution of SynthroidTM could disrupt the Company's
strategies for market development of Levoxyl(TM) and have a material adverse
effect on the Company's business, financial condition and results of
operations. Daniels' sales of Levoxyl(TM) during 1995 were $10.9 million,
approximately 14.6% of the Company's 1995 reported sales as restated to reflect
the pooling of interests. During the nine months ended September 30, 1996,
sales of Levoxyl(TM) were $9.8 million, or approximately 13% of the Company's
reported sales for that period as restated to reflect the pooling of interests.
Equity Offering and Increase in Outstanding Common Stock. Pursuant to a
public offering commenced on March 28, 1996, the Company issued an aggregate of
3,450,000 shares of its Common Stock (including shares sold pursuant to the
exercise of over-allotment options issued to the underwriters) at a price of
$23.33 per share and received proceeds, net of underwriting discounts and other
expenses of the offering, aggregating $75 million. The Company has utilized
approximately $30 million of such proceeds in connection with payments to Lilly
arising from the acquisitions of the Tapazole(R) and Brevital(R) Sodium product
lines. An additional $5.5 million may be deemed to have been used in
connection with the Daniels Acquisition and expenses associated therewith.
The Company effected a three-for-two split of its outstanding Common Stock
on March 1, 1996, and a second three-for-two split of its outstanding Common
Stock on June 10, 1996. All references in this Prospectus to the Common Stock
of JMED are adjusted to reflect such stock splits, each of which was
distributed in the form of a 50% stock dividend.
DEPENDENCE ON SALES OF KEY PHARMACEUTICALS
In addition to the significance of the Company's Tapazole(R) and
Levoxyl(TM) thyroid treatment products arising from acquisitions completed in
1996, the Company derives a substantial portion of its revenue from sales of
two pharmaceutical products associated with critical care treatments The
Company's topical hemostat thrombin product line accounted for 19.5% of total
sales and 32.8% of pharmaceutical sales during fiscal 1995 as restated to
reflect the Daniels Acquisition. The Company's Brevital(R) Sodium line of
anesthetics, acquired on August 31, 1995, accounted for 3.2% of total sales and
5.0% of pharmaceuticals sales the last four months of fiscal 1995 as restated
to reflect the Daniels Acquisition.
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The Company believes that sales of thrombin, Brevital(R)Sodium,
Tapazole(R) and Levoxyl(TM) products will continue to constitute a significant
portion of its revenue for the foreseeable future. Accordingly, any factor
adversely affecting thrombin or Brevital(R) Sodium sales could 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 the result of either technological advances affecting the cost of production
or 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.
Thrombin Products. Thrombin products must be manufactured in facilities
with biological licenses from the Center for Biologics Evaluation and Research
("CBER"), a division within the U.S. Food and Drug Administration ("FDA").
Thrombin-JMI(TM) is presently manufactured at the Company's GenTrac facility,
which is licensed to produce thrombin products to United States Pharmacopeia
("U.S.P.") standards and which the Company acquired in 1991 in order to achieve
greater control over its supply of thrombin product. GenTrac also produces
proprietary thrombin products for Johnson & Johnson as a contract manufacturer.
The Company's thrombin product lines compete with those produced for and
marketed by Johnson & Johnson and also compete with thrombin products
distributed by the Parke-Davis division of the Warner-Lambert Company. Each of
the Company's competitors in the market for thrombin-based hemostats has
substantially greater sales, marketing and financial resources than the
Company.
Under a product development agreement between GenTrac and Johnson &
Johnson in effect prior to the time at which the Company acquired GenTrac,
Johnson & Johnson acquired certain rights to new products developed by GenTrac.
Johnson & Johnson has notified the Company that it intends to assert claims
entitling it to exclusive distribution rights for Thrombin-JMI(TM) 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.
Brevital(R)Sodium products. Brevital(R) Sodium pharmaceuticals are
manufactured for the Company by Lilly under a long-term contract. Lilly also
manufactures the product for its own account for distribution in the
international market. Domestic sales of Brevital(R)Sodium for 1995, including
sales by Lilly prior to the Company's acquisition of the product line,
represented approximately 1.2% of the $520 million domestic market for
anesthetics, a market which is dominated by Diprovan(R), produced and marketed
by Roche Labs, a division of Hoffmann-La Roche, Inc., and Zeneca(R), produced
and marketed by Zeneca Pharmaceuticals, a business unit of Zeneca, Inc., each
of which has substantially greater sales, marketing and financial resources
than the Company. Competitive action by any of these entities could disrupt
the Company's strategies for market development for Brevital(R)Sodium and have
a materially adverse effect upon the Company's business, financial condition
and results of operations.
RELIANCE ON THIRD-PARTY MANUFACTURERS AND SOLE SOURCE SUPPLIERS
The Company has historically relied on third party manufacturers to
produce many of its products, and currently relies on third party manufacturers
of the production of Brevital(R)Sodium and Tapazole(R). Although the Company
typically enters into long-term manufacturing contracts with such third party
manufacturers, unless alternative sources are readily available, 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, prior to receiving FDA
approval in February 1995 for the production of Thrombin-JMI(TM) at its GenTrac
facility, the Company's thrombin products were manufactured for the Company
under a contract with Armour Pharmaceutical Company ("Armour") from whom the
Thrombinar(R) product line was acquired in 1989. In the fourth quarter of 1994
and first quarter of 1995 there was
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a disruption in thrombin product availability from Armour resulting in the
Company's inability to provide product to customers and the loss of sales and
income.
The Company's Brevital(R)Sodium product is currently manufactured by Lilly
and manufacture of such product is dependent upon Lilly's ability to procure
certain raw materials used in the manufacture of Brevital(R) Sodium. 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(R) Sodium, 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.
In addition, the Company 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, or to obtain an
alternative manufacturing source from other third parties or within the
Company, on commercially viable terms. 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 be
materially adverse to the business, financial conditions and results of
operations of the Company.
DEPENDENCE ON ACQUISITION STRATEGY
The Company has achieved significant increases in sales and net income
since its inception through a series of strategic acquisitions and related
internal growth initiatives intended to develop marketing opportunities with
respect to the acquired product lines.
The Company's strategy for growth is dependent upon its continued ability
to acquire, by purchase or exclusive license arrangements, pharmaceuticals
targeted at niche markets which can be promoted through marketing and
distribution channels presently developed by the Company and, when appropriate,
the enhancement of such marketing and distribution channels. Because the
Company is not engaged in proprietary research and development activities
leading to the introduction of new products, it must rely upon the
availability of product lines subject to divestiture or sale by other
manufacturers. Other companies, including those with substantially greater
financial, marketing and sales resources, are competing with the Company for
the right 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 effect such acquisitions would have a
material adverse effect on the Company's future business, 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 profiles, 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
revenue 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.
In addition, the acquisition and licensing of products, the expansion of
the Company's sales force in response to the marketing and sales of additional
products, and possible expansion of the Company's facilities in connection with
the foregoing or in order to expand manufacturing capabilities and capacity
would require the commitment of
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substantial capital resources. Depending upon the acquisition and licensing
opportunities available to it, the Company may need to raise additional funds
for such purposes. 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 require the Company to delay, scale back, or abandon some or all of
its product acquisition and licensing programs or marketing and manufacturing
opportunities. The Company anticipates that its existing capital resources,
together with cash expected to be generated from operations and available from
bank borrowings, should be sufficient to finance its current operations and
working capital requirements for the foreseeable future.
REIMBURSEMENT PRICING PRESSURES APPLICABLE TO PHARMACEUTICALS
The ability of the Company to maintain or increase profit margins for
pharmaceuticals will depend in part on the availability of adequate
reimbursement to the Company's customers from third-party health care payors,
such as government and 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. Hospital pharmacies, which are primarily the customers for many of
the Company's pharmaceuticals, are subject to reimbursement pressures and are
increasingly utilizing joint purchasing organizations to exercise control over
pricing and obtain price rebates based on volume usage. There can be no
assurance that the Company's products will continue to be included in the
purchasing 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 products. 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 either
technological advances affecting the cost of production or 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 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 with the
retail market for nutritional supplements as well as the mass-market direct
mail industry and there can be no assurance that the targeted direct market
approach utilized by the Company will remain a viable alternative within the
industry or that other competitors may not enter the targeted direct mail
market utilizing approaches and offering 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.
GOVERNMENT REGULATION
Virtually all aspects of the Company's activities are regulated by federal
and state government agencies.
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The manufacturing, processing, formulation, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the FDA, the Federal Trade Commission ("FTC"), the
Consumer Product Safety Commission, the United States Department of
Agriculture, the Drug Enforcement Agency ("DEA"), the United States Postal
Service and the United States Environmental Protection Agency ("EPA"). These
activities are also regulated by various agencies of the states and localities
in which the Company's products are sold.
While all of the Company's current pharmaceuticals have received all
requisite government approvals for manufacture and sale, such approvals are
subject to revocation by the applicable government agencies. In addition,
modifications to or enhancements of approved products are in many circumstances
subject to additional FDA approvals which may or may not be received and which
may be subject to lengthy application processes. The Company's manufacturing
facilities are continually subject to inspection by such governmental agencies
and manufacturing operations could be interrupted or halted in any such
facility if such inspections prove unsatisfactory.
The Dietary Supplement Act of 1992 required that the FDA issue final
regulations for dietary supplements, including vitamins, not later than
December 31, 1993, and, in connection therewith, the FDA made public proposed
regulations on June 15, 1993. Such regulations, among other items, require the
relabeling of dietary supplements with regard to nutrition labeling information
and nutrient content claims, the establishment of procedures and standards of
FDA approval of health claim messages for dietary supplements and request
comments for approaches to assure the safety of vitamins, minerals, amino
acids, herbs and other nutritional supplements offered for use as dietary
supplements. Such proposed regulations provide for a 60-day comment period and
the final regulations may result in additional or revised regulations for
dietary supplements. The Dietary Supplemental Act also requires that the
Comptroller General of the United States and the Director of the Office of
Technology Assessment undertake separate studies of FDA regulation of dietary
supplements and make recommendations concerning such regulation to the
Congress.
The Company cannot determine what effect the FDA's currently proposed or
revised regulations, when and if promulgated, will have on its business in the
future. Such regulations could, among other things, require expanded or
different labeling, the recall or discontinuance of certain products,
additional recordkeeping and expanded documentation of the properties of
certain products and scientific substantiation. In addition, the Company
cannot predict whether new legislation regulating its activities will be
enacted. Such new legislation could have a material adverse effect on the
Company's business, financial condition and 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
under the foregoing policies have been less than 1% of sales, there can be no
assurance that actual levels of returns will not significantly exceed the
amounts anticipated by the Company.
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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 $20 million
per claim and $20 million in the aggregate and excess coverage of up to $5
million through an "umbrella" policy; 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.
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,
inaccurate tracking of distributed products 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. Should Mr. Jones cease to
be affiliated with the Company, the Company's strategic direction and
performance would be materially adversely effected. The Company is also
dependent upon a number of other key 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 sales marketing personnel in the
future, could have a material adverse effect on the Company's business,
financial condition and results of operations.
HAZARDOUS MATERIALS
Certain of the Company's manufacturing and packaging activities involve
the controlled use of hazardous materials and compounds. Although the Company
believes that its procedures for handling and disposing of hazardous materials
and compounds comply with the standards prescribed by state and federal
regulations, the risk of contamination or injury cannot be eliminated. In the
event of an accident, the Company could be held liable for any damages or fines
that result and such liability could 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 own products and financial
performance. Although the Common Stock trades on the Nasdaq National Market,
trading volume 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' views of the
Company and the industries in which it participates. The realization of any of
the risks
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described in these "Investment Considerations and Risk Factors" could have a
dramatic and adverse impact on the market price for the Common Stock of JMED.
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.
Sales by officers and directors of the Company are generally subject to
the provisions of Rule 144 under the Securities Act of 1933 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.
In connection with the Daniels Acquisition, the Company issued an
aggregate of 2,960,224 shares of its Common Stock in a transaction not
involving any public offering. The Company has granted registration rights
with respect to such stock to permit the sale of such stock in non-underwritten
offerings. Similarly, as a result of the Merger the Principal Holders (of
Abana) will acquire an aggregate of 291,250 shares of the Company's Common
Stock as to which the Company has also granted registration rights to permit
the sale thereof in non-underwritten offerings. The filing of a registration
statement with respect to such shares, by possibly creating a significant
apparent excess of supply over market demand for the Company's Common Stock, or
the actual sale of such Common Stock pursuant to a registration other than in
underwritten or privately negotiated block transactions could adversely impact
the market price for the Common Stock.
MARKET PRICE IN COMPARISON TO BOOK VALUE
The market price of the Common Stock offered hereby significantly exceeds
the current book value per share of the Common Stock. In addition, a
significant portion of the Company's assets are intangible and attributable
either to perceived value of trademarks and tradenames or to goodwill arising
in connection with the purchase of products or operations. Certain of these
intangible assets are subject to amortization and will be charged against
earnings in future years. In connection with the Merger, the Company will
recognize approximately $14 million in goodwill and other intangibles which
will be generally amortized over a period of 25 years. See "The Merger -
Accounting Treatment."
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 DGCL, 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.
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THE MERGER
The following information describes the material aspects of the Merger.
This description does not purport to be complete and is qualified in its
entirety by reference to the Agreement which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is incorporated
herein by reference. See also "The Agreement."
ADOPTION OF THE MERGER BY WRITTEN CONSENT
Under applicable provisions of the DGCL, the Merger may become effective
after adoption by written consent of holders of a majority of the outstanding
voting stock of Abana provided that written notice of such adoption is given to
all holders not less than twenty days prior to the effective date of the
Merger. A formal Notice relating to the adoption of the Merger accompanies
this Prospectus. The Merger is the principal transaction provided in the
Agreement and the Merger has been approved and adopted by the written consent
of the Principal Holders in lieu of submitting the Merger to a vote of all
holders of the common stock of Abana. The terms of the Merger and the
Agreement were negotiated directly by the Principal Holders and the management
of JMED. See "Background of the Transaction."
NO MEETING OF THE HOLDERS OF THE COMMON STOCK OF ABANA IS NECESSARY OR
REQUIRED TO BE HELD IN CONNECTION WITH THE MERGER AND NO VOTE OR CONSENT OF
HOLDERS OF THE COMMON STOCK OF ABANA IS SOLICITED HEREBY.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon, or as provided in, the filing of a
certificate of merger with the Secretary of State of Delaware. It is expected
that the Merger will become effective on December 31, 1996 or as promptly as
practicable thereafter subject to the satisfaction of the conditions to closing
under the Agreement (the "Closing Date"). See "The Agreement - Closing and
Effectiveness."
EFFECTS OF THE MERGER
When the Merger becomes effective, (1) Abana will be merged with and into
AAC, which will be the surviving corporation (the "Surviving Corporation"), (2)
the Surviving Corporation will succeed by operation of law to the respective
rights and obligations of each of Abana and AAC, (3) each outstanding share of
the common stock of Abana will (excepted as otherwise provided below) be
converted into and exchanged for 0.22 of a share of the Common Stock of JMED,
(4) each outstanding option to acquire a share of the common stock of Abana
will be converted into and exchanged for a like option to acquire 0.22 share of
the Common Stock of JMED at an exercise price per share equal to 4.55 times the
exercise price per share applicable to the Abana option (subject to rounding
the option issuable upon conversion to the nearest whole share of the Common
Stock of JMED and the exercise price to the nearest whole cent), and (5) the
Surviving Corporation will be a wholly-owned subsidiary of JMED.
Fractional shares of the Common Stock of JMED will not be issued in
connection with the Merger. Holders of the common stock of Abana otherwise
entitled to a fractional share interest in Common Stock of JMED arising from
the conversion of their common stock of Abana will be entitled to receive, in
lieu of such fractional share interest, a cash payment for the value thereof
based on the closing bid price per share of the Common Stock of JMED on the
date the Merger becomes effective.
Shares of the common stock of Abana held by Abana as treasury stock when
the Merger becomes effective and shares of the common stock of Abana held,
directly or indirectly, by JMED when the Merger becomes effective will not be
converted into or exchanged for shares of the Common Stock of JMED but will be
canceled and retired.
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Shares of the common stock of Abana held by any holder who has duly
demanded and exercised dissenter's rights of appraisal in accordance with the
DGCL, unless such exercise is withdrawn, will not be converted into shares of
the Common Stock of JMED in the Merger but will represent solely the right to
receive in cash the "fair value" of such shares in accordance with the DGCL.
See "Dissenting Stock."
MANAGEMENT OF ABANA AFTER THE MERGER
AAC, as the Surviving Corporation, will continue to be a wholly-owned
subsidiary of JMED following consummation of the Merger and will adopt the name
"JMI-Abana Pharmaceuticals, Inc." The directors and officers of AAC, each of
whom is an officer of JMED, will continue to serve as the initial directors and
officers of the Surviving Corporation upon consummation of the Merger. It is
anticipated that the current officers of Abana will be elected as officers of
the Surviving Corporation following the Merger, serving in such capacities at
the pleasure of the board of directors of the Surviving Corporation and without
employment agreements.
INTEREST OF THE PRINCIPAL HOLDERS IN THE MERGER
Upon effectiveness of the Merger, each Principal Holder will receive an
aggregate of 145,625 shares of the Common Stock of JMED upon conversion of the
shares of the common stock of Abana currently held. In addition, each
Principal Holder will receive, in conversion and exchange of presently held
options to acquire shares of the common stock of Abana, (i) an "incentive stock
option" to acquire 8,800 shares of the Common Stock of JMED at a price of
$10.00 per share and (ii) a non-qualified option to acquire 6,835 shares of the
Common Stock of JMED at a price of $5.91 per share. The options to be issued
bear the same terms and conditions as the options presently held and such
options are currently vested and exercisable in full. Each Principal Holder
has agreed not to exercise such options prior to the Closing Date. The
Agreement and options provide, however, that by notice to JMED and Abana given
prior to the Closing Date, a Principal Holder may elect to exercise and
surrender such option as of the first business day following the Closing Date
and, in lieu of paying the exercise price and receiving shares of the Common
Stock of JMED, receive in cash the value of such options as of such date. The
Agreement provides certain registration rights under the Securities Act of 1933
to the Principal Holders in respect of the shares of the Common Stock of JMED
to be received by them pursuant to the Merger.
The Principal Holders also agreed (i) to indemnify and hold JMED harmless
from certain expenses, loses or claims arising from any failure of the
representations or covenants of Abana in the Agreement, (ii) to secure such
indemnification by placing in escrow an aggregate of 60,000 shares of the
Common Stock of JMED to be received by them as a result of the Merger, and
(iii) to execute and deliver non-competition agreements. See "The Agreement -
Agreements of Principal Holders."
REGULATORY APPROVALS
Neither JMED nor Abana is aware of any material governmental approvals or
actions that may be required for consummation of the Merger other than the
effectiveness of the Registration Statement of which this Prospectus is a part.
Should any such approval or action be required, it is presently contemplated
that such approval or action would be sought. There can be no assurance,
however, that any such approval or action, if needed, could be obtained or, if
obtained, would not be conditioned in a manner that would cause the parties to
abandon the Merger.
ACCOUNTING TREATMENT
JMED intends to treat the Merger as a "purchase" for accounting and
financial reporting purposes. As a "purchase" for financial reporting
purposes, JMED will record the cost of the acquisition (consisting of the fair
value of the consideration paid to acquire Abana together with certain expenses
of the transaction) and allocate such costs to Abana's net assets. The fair
value of the Common Stock of JMED issued in the transaction will be added to
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JMED's reported shareholders' equity. To the extent that the cost of the
acquisition exceeds the fair value of Abana's tangible net assets, the excess
will be recorded by JMED as "goodwill" or other intangible assets. Amounts
allocated to goodwill or other intangible assets will generally be amortized
and charged against income over a 25 year period from the date of the
acquisition. In connection with the Merger, JMED expects to recognize
approximately $14 million of goodwill. See "Unaudited Pro Forma Condensed
Combining Financial Information." Because the Merger is intended to qualify as
a "tax-free" reorganization, future amortization charges arising from such
goodwill are not expected to be deductible by JMED for federal or state income
tax purposes. See "The Merger - Certain Federal Income Tax Consequences."
The Agreement provides that in the event of a closing date and
effectiveness of the Merger as of a date subsequent to December 31, 1996, the
transactions will be deemed to be effective for accounting, financial reporting
purposes and tax purposes as of the close of business on the last day of the
calendar month preceding the month in which the closing occurs. Accordingly,
if the closing occurs as of any date between December 31, 1996 through January
31, 1997, it will nevertheless be reflected for such purposes as effective on
December 31, 1996.
RESALES OF SHARES OF COMMON STOCK OF JMED RECEIVED IN THE MERGER
MARKET FOR THE COMMON STOCK OF JMED
The Common Stock of JMED is traded over-the-counter in the Nasdaq National
Market. JMED has filed an application to the National Association of
Securities Dealers, Inc. to include, upon official notice of issuance, the
shares of its Common Stock issuable pursuant to the Merger.
PRINCIPAL HOLDERS
The aggregate of 291,250 shares of the Common Stock of JMED to be received
by the Principal Holders as a result of the conversion of the shares of common
stock of Abana held by them in the Merger will constitute "restricted
securities" under the Securities Act and will be deemed to have been issued in
a transaction not involving any public offering. Unless registered under the
Securities Act for resale, such shares may not be resold in the absence of an
exemption from applicable registration requirements. In the Agreement, JMED
has agreed to provide to the Principal Holders upon request registration of
such shares under the Securities Act following the date upon which JMED files
with the Commission its Annual Report on Form 10-K for the year ending December
31, 1996. Under the Exchange Act, the Annual Report on Form 10-K for the year
ending December 31, 1996, is required to be filed on or before March 31, 1997.
JMED has further agreed, subject to certain conditions, to maintain any such
registration current and effective on behalf of the Principal Holders until the
earlier of (i) two years following the Closing or (ii) the date upon which Rule
144 under the Securities Act becomes available to the Principal Holders as an
exemption from registration permitting resale.
OTHER HOLDERS
The shares of the Common Stock of JMED being received by holders of the
common stock of Abana other than the Principal Holders are included in the
Registration Statement of which this Prospectus is a part. Since no holder of
the common stock of Abana other than the Principal Holders and JMED may be
deemed to be an "affiliate," as that term is used under the Securities Act, of
either Abana or JMED, and since the Merger does not constitute a transaction
subject to Rule 145 under the Securities Act, the shares of the Common Stock of
JMED being received by such other holders are expected to be freely tradable
without subsequent registration under the Securities Act in accordance with the
exemption provided by Section 4(1) for transactions not involving "an issuer,
underwriter or dealer."
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PROCEDURES FOR EXCHANGE OF ABANA STOCK FOR COMMON STOCK OF JMED
As of the Closing Date, JMED will deposit, or will cause to be deposited,
with the transfer agent for the Common Stock of JMED (or another agent
designated by JMED and acceptable to Abana) (the "Exchange Agent") for the
benefit of the holders of common stock of Abana, for exchange in accordance
with the terms of the Merger certificates representing the shares of Common
Stock of JMED issuable pursuant to the Merger. The Exchange Agent will,
pursuant to irrevocable instructions, deliver the shares of Common Stock of
JMED against receipt and surrender of the shares of the common stock of Abana.
Accompanying this Prospectus is a form of Transmittal Letter which may be
used by holders of the common stock of Abana to forward, either in advance of or
subsequent to the Closing Date, certificate(s) representing the shares of common
stock of Abana held of record. HOLDERS OF THE COMMON STOCK OF ABANA MUST
FORWARD AND SURRENDER TO THE EXCHANGE AGENT CERTIFICATE(S) REPRESENTING ALL
SHARES OF SUCH COMMON STOCK IN ORDER TO OBTAIN DELIVERY OF THE SHARES OF THE
COMMON STOCK OF JMED INTO WHICH SUCH SHARES ARE TO BE CONVERTED. Pending
receipt by the Exchange Agent of the certificate(s) representing the shares of
the common stock of Abana to be surrendered and exchanged in the Merger, the
Exchange Agent will hold and not distribute to holder (i) any cash payment due
such holder in respect of any fractional share interest in Common Stock of JMED
arising from the Merger and (ii) any dividend payable with respect to the Common
Stock of JMED held by the Exchange Agent for delivery to such holder. Any such
cash amounts held for distribution to a former holder of the common stock of
Abana will not bear interest pending delivery.
The shares of the Common Stock of JMED issued upon conversion of the
shares of the common stock of Abana in the Merger will be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of common
stock of Abana.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary description of the material federal income tax
consequences of the Merger to holders of the common stock of Abana. This
summary is not a complete description of all of the consequences of the Merger
and, in particular, may not address federal income tax considerations
applicable to the treatment of a stockholder who, at the Closing Date, (i)
already owns shares of the Common Stock of JMED, (ii) is not a United States
citizen, (iii) is a tax-exempt entity, or (iv) holds shares of the common stock
of Abana as a nominee or representative rather than in his or her individual
capacity. In addition, no information is provided herein with respect to the
tax consequences of the Merger under applicable foreign, state or local laws.
Each holder of the common stock of Abana is urged to consult a tax advisor as
to the specific tax consequences of the transaction to that stockholder. The
following discussion is based on the Code, as in effect on the date of this
Prospectus, without consideration of the particular facts or circumstances of
any holder of shares of the common stock of Abana.
THE MERGER
Abana has received an opinion from Sirote & Permutt, P.C., Birmingham,
Alabama, counsel to Abana, which opinion is included as Appendix A to this
Prospectus. Stockholders are urged to read the opinion and to recognize the
assumptions and limitations set forth therein. The following summary of the
material federal income tax consequences of the Merger to holders of the common
stock of Abana is subject to such assumptions and limitations and is qualified
in its entirety by the matters specifically addressed in the opinion.
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The Merger will constitute a reorganization within the meaning of Section
368 of the Code such that no taxable gain or loss will be recognized by a
holder of the common stock of Abana except with respect to cash, if any, paid
to such holder pursuant to the Merger including cash received in lieu of
fractional share interests or cash received as a result of the exercise of
statutory dissenters' rights. Accordingly, except as to such cash
distributions, gain or loss on the investment in Abana of a holder of common
stock of Abana will generally be deferred until the holder sells the shares of
the Common Stock of JMED to be received in the Merger. The opinion assumes
that the former holders of common stock of Abana will not act in concert to
sell the shares of the Common Stock of JMED received in the Merger and will, in
the aggregate, retain sufficient shares of the Common Stock of JMED to satisfy
any "continuity of interests" test applicable to the Merger.
As no gain or loss will be recognized to holders of the common stock of
Abana upon the surrender, exchange and conversion of their Abana shares for
shares of the Common Stock of JMED, the tax basis of the shares of the Common
Stock of JMED received in the Merger will be the same as the holder's tax basis
in the shares of the common stock of Abana surrendered in exchange therefor.
For tax purposes and provided that the shares of the common stock of Abana were
held as a capital asset on the Closing Date, the holding period of the shares
of the Common Stock of JMED received in the Merger will include the period
during which the shares of the common stock of Abana surrendered in exchange
therefor were held.
The receipt of cash in lieu of a fractional share interest in the Common
Stock of JMED arising from the Merger will be a taxable transaction and,
assuming that the share is held as a capital asset, will constitute a capital
gain. A portion of the holder's basis in the common stock of Abana surrendered
in the Merger will offset or reduce the amount of such gain.
The receipt of cash in lieu of shares of the Common Stock of JMED pursuant
to the exercise of dissenters' rights under the DGCL will be a taxable event
whether the amount of such cash payment is negotiated and agreed with the
Surviving Corporation or results from an appraisal proceeding under Delaware
law. A holder of the common stock of Abana who exercises dissenters' rights
and receives cash for his or her common stock of Abana will be treated as
receiving the cash in redemption of such shares of the common stock of Abana.
Such a dissenting stockholder ordinarily will recognize gain or loss equal to
the difference between the amount of cash received and such stockholder's basis
in the shares of the common stock of Abana deemed redeemed. Such gain or loss
generally will be a capital gain or loss if the shares of the common stock of
Abana were held as a capital asset as of the Closing Date.
THE MERGER MAY HAVE CONSEQUENCES AFFECTING TAXES OTHER THAN THE FEDERAL
INCOME TAX CONSEQUENCES DISCUSSED ABOVE. HOLDERS OF THE COMMON STOCK OF ABANA
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING ALL TAX CONSEQUENCES OF
THE CONSUMMATION OF THE MERGER AS IT RELATES TO THEIR OWN CIRCUMSTANCES UNDER
FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.
Neither JMED nor AAC, as the Surviving Corporation and successor to Abana,
will recognize taxable gain or loss in connection with the Merger. For tax
purposes, JMED and the Surviving Corporation will succeed to Abana's tax basis
in the assets of Abana transferred to the Surviving Corporation as a result of
the Merger. Because the Merger is intended to qualify as a "tax-free"
reorganization under the Code, JMED is generally not permitted to increase its
tax basis in the assets acquired to reflect the value of the consideration paid
in the transaction. Such an increase in the tax basis, if available, could be
beneficial to JMED either by reducing recognition of income at the time of sale
or disposition of such assets or by increasing available tax deductions
associated with depreciation or amortization of the value of such assets.
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DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262 of the DGCL ("Section 262"), holders of the common stock
of Abana who do not wish to accept shares of the Common Stock of JMED pursuant
to the terms of the Merger have the right to seek appraisal of the fair value of
their shares of common stock of Abana in the Delaware Court of Chancery.
Section 262 is set forth in its entirety as Appendix B to this Prospectus. The
following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix B.
This discussion and Appendix B should be reviewed carefully by any holder who
wishes to exercise statutory appraisal rights or wishes to preserve the right to
do so, since failure to comply with the procedures set forth herein or therein
may result in a loss of such appraisal rights.
NOTICE REQUIREMENTS
A holder of record of the common stock of Abana who desire to exercise his
appraisal rights must satisfy all the following conditions: (1) a written
demand for appraisal of the shares of the common stock of Abana must be
delivered by the holder to the Secretary of Abana within twenty (20) days of
the date upon which the Notice of the adoption of the Merger has been mailed to
such holder, and (2) the holder must continue to hold the shares of common
stock of Abana as to which appraisal is sought and held on the date of making
the demand through the Closing Date, which is the effective date of the Merger.
THE NOTICE AND THIS PROSPECTUS ARE BEING MAILED TO RECORD HOLDERS OF THE
COMMON STOCK OF ABANA BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ON [DECEMBER
2, 1996]; ACCORDINGLY, ANY WRITTEN DEMAND FOR APPRAISAL AND EXERCISE OF RIGHTS
UNDER SECTION 262 MUST BE RECEIVED BY THE SECRETARY OF ABANA AT OR BEFORE THE
CLOSE OF BUSINESS ON [DECEMBER 23, 1996]. Holders of the common stock of
Abana who wish to exercise or preserve their rights to appraisal under Section
262 should mail or deliver their written demands to: _________________________.
A written demand for appraisal in accordance with Section 262 will be
sufficient if it reasonably informs Abana of the identity of the holder and
indicates that the holder intends to demand the appraisal of his shares if the
Merger becomes effective under the DGCL. A demand for appraisal must be
executed by or for the holder of record, fully and correctly, as such holder's
name appears on the records of Abana. An authorized agent or representative,
including a fiduciary, may execute the demand for appraisal for a holder of
record; however, the agent must identify the record holder and expressly
disclose the fact that, in exercising the demand, such person is acting as
agent for the holder. Beneficial owners who are not record holders and who
intend to exercise appraisal rights should instruct their record holders to
comply strictly with the statutory requirements with respect to the exercise of
appraisal rights and within the time requirements set forth above.
Under Section 262, Abana or the Surviving Corporation must provide notice
to each holder who has properly given Abana notice of such holder's intent to
exercise or preserve appraisal rights and complied with the requirements of
Section 262 that such appraisal rights will be available to such holder as of
the Closing Date. In the context of the Merger, it is expected that any such
confirming notice will be provided by the Surviving Corporation promptly
following the Closing Date.
POSSIBLE VOLUNTARY RESOLUTION OF DISSENTERS' RIGHTS
Under the terms of the Agreement, the obligations of JMED and AAC to
complete the Merger are conditioned, among other requirements, upon appraisal
rights under Section 262 not being exercised as to more than 56,000 shares of
the common stock of Abana. Accordingly, in the event that Abana receives any
notice from any holder of its common stock of such holder's intention to
exercise appraisal rights under Section 262 either Abana or JMED may elect to
contact such holder prior to the Closing Date and endeavor to negotiate a
mutually agreeable cash settlement with respect to such holder. It is
anticipated that any such settlement would be conditioned upon
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consummation of the Merger and would be in full settlement of all claims of
such holder against Abana and would require the waiver of such holder's rights
under Section 262. In the event that appraisal rights should be asserted with
respect to more than 56,000 shares of the common stock of Abana, the ability to
reach such settlements in advance of the Closing Date could be a factor in any
determination by JMED to waive such condition to its obligations.
APPRAISAL PROCEDURES
Within 120 days after the Closing Date, but not thereafter, either the
Surviving Corporation or any holder who has complied with the requirements of
Section 262 and is entitled to appraisal rights may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the shares
as to which appraisal rights have been asserted (the "Dissenting Stock").
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine which former holders of
the common stock of Abana are entitled to appraisal and thereafter appraise the
"fair value" of the shares held by them exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value from the Closing Date.
Costs of the appraisal proceeding may be determined by the Delaware Court
of Chancery and taxed upon the parties as the Delaware Court of Chancery deems
equitable in the circumstances. Upon application from a holder of Dissenting
Stock, the Delaware Court of Chancery may order that all or a portion of the
expenses incurred, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares entitled to appraisal. In the absence of such a determination,
allocation or assessment, each party bears its own expenses.
If no petition for an appraisal is filed within 120 days after the Closing
Date, holders' rights to appraisal shall cease and all holders of Dissenting
Stock (other than any such holders who have reached a settlement with the
Surviving Corporation regarding the fair cash value of such holders' Dissenting
Stock) shall be entitled to receive the shares of the Common Stock of JMED to
which they would have been entitled in the Merger absent the exercise of
appraisal rights.
Inasmuch as the Surviving Corporation has no obligation to file such a
petition initiating appraisal proceedings, and has no present intention to do
so, any holder of Dissenting Stock who desires such a petition to be filed is
advised to file a petition on a timely basis. Once a petition has been timely
filed in the Delaware Court of Chancery demanding appraisal, the petition
cannot be dismissed as to holder of Dissenting Stock without the approval of
the Delaware Court of Chancery, and such approval may be conditioned upon such
terms as the Delaware Court of Chancery deems just.
ELEMENTS OF "FAIR VALUE"
In determining fair value, the Court of Chancery is to take into account
all relevant factors. In Weinberger v. UOP, Inc., et al., decided February 1,
1983, the Delaware Supreme Court discussed the factors which could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered and that "[f]air price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making a determination of fair value, the court must consider
"market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which were known or which could be ascertained
as of the date of the merger which throw any light on future prospects of the
merged corporation. . . ." Section 262 provides that fair value is to be
"exclusive of any element of
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value arising from the accomplishment or expectations of the merger." In
Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible as of the date of the merger and not the product of
speculation, may be considered."
The fair value of shares of the common stock of Abana as determined under
Section 262 could be more than, the same as or less than the value of the
shares of the Common Stock of JMED issuable in exchange therefor in the Merger.
In any appraisal arising from the Merger, the focus will be on the fair value
of the common stock of Abana and the Surviving Corporation may, among other
arguments, suggest that (i) the value of the shares of the Common Stock of JMED
issuable in the Merger, whether valued as of the date of the Agreement or as of
the Closing Date, includes "elements of value arising from the accomplishment
or expectations of the merger," (ii) any change in the value of the Common
Stock of JMED between the date of the Agreement and the Closing Date is
unrelated to any change in the value of the common stock of Abana apart from
the Merger, and/or (iii) that in the context of the Merger the market price for
the Common Stock of JMED issuable pursuant thereto exceeds the fair value in
cash of the common stock of Abana.
VOLUNTARY WITHDRAWAL OF DISSENTERS' RIGHTS
At any time within 60 days following the Closing Date, any holder of
Dissenting Stock shall have the right to withdraw his demand for appraisal and
to accept the shares of the Common Stock of JMED to which such holder would
have been entitled under the Merger. After this 60 day period, a holder of
Dissenting Stock may withdraw his demand for appraisal only with the consent of
the Surviving Corporation and in lieu of providing such consent the Surviving
Corporation could elect to file a petition to commence appraisal proceedings
before the Delaware Court of Chancery.
OTHER MATTERS
Any holder who has duly demanded an appraisal in compliance with Section
262 will not, after the Closing Date, be entitled to vote shares of the common
stock of Abana for any purpose or be entitled to the payment of dividends or
distributions on those shares.
If any holder who demands appraisal of his common stock of Abana under
Section 262 fails to perfect, or effectively withdraws or loses his right to
appraisal other than by means of a settlement with the Surviving Corporation as
to the fair value in cash of such Dissenting Stock, the shares of such holder
will be converted into shares of the Common Stock of JMED as provided in the
Merger. Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination of such rights. In view of the
complexity of the applicable provisions of the DGCL, holders who are
considering the assertion of rights under Section 262 should consult their
legal advisors. Such holders should also consider the related tax consequences
associated with the exercise of such rights. See "The Merger -Certain Federal
Income Tax Consequences - The Merger."
Until the Closing Date, dissenting holders of the common stock of Abana
should send any communications regarding their rights to Abana,
c/o___________________________________. After the Closing Date, such holders
should send any communications to JMI-Abana Pharmaceuticals, Inc., c/o Edward
A. Chod, Esq., Greensfelder, Hemker & Gale, P.C., 2000 Equitable Building, 10
South Broadway, St. Louis, Missouri 63102. All such communications should be
signed by or on behalf of the holder in the form in which the shares are
registered on the books of Abana.
The foregoing summary of Section 262 and its application to the Merger
does not purport to be complete and is qualified in its entirety by reference
to Section 262, a copy of which is included as Appendix B to this Prospectus
and incorporated herein by reference. All holders of the common stock of Abana
are urged to read Section 262 in its entirety.
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BACKGROUND OF THE TRANSACTION
A significant portion of the information appearing in this portion of the
Prospectus has been supplied to JMED by Abana and is included by JMED herein in
reliance upon the representations and warranties of Abana contained in the
Agreement.
PRIOR INVESTMENT BY JMED IN ABANA STOCK
In early 1992, Abana contacted a third party in Chattanooga, Tennessee for
the purpose of seeking assistance in obtaining capital through the sale of
shares of the common stock of Abana to fund its operations. Through this
contract, Abana was introduced to Dennis M. Jones, Chairman of the Board of
JMED. After negotiations between Abana and JMED, Abana and JMED entered into a
Stock Purchase Agreement on June 1, 1992, pursuant to which JMED purchased
362,519 shares of Abana common stock (approximately 16% of the outstanding
shares) for an aggregate investment of $500,000.
Under the Stock Purchase Agreement, JMED was granted certain rights,
including the right to elect one member of the board of directors of Abana and
pre-emptive rights to purchase additional shares of the common stock of Abana
in the event Abana offered additional shares in the future in order to permit
JMED the opportunity to maintain its percentage ownership of the outstanding
shares of such common stock. Mr. Jones was elected to the board of directors
of Abana in June of 1992 and has served on the board since that time.
As a result of JMED's investment in Abana and Mr. Jones' position as a
member of the board of directors of Abana, JMED has been familiar with the
development of Abana's product lines and marketing and sales efforts since
1992. Although JMED and Abana periodically discussed possible sale and
distribution of JMED products through the Abana sales force, such activity did
not develop primarily due to the fact that JMED's pharmaceuticals focused on
the critical care segment of the market, in which marketing efforts were
directed primarily to hospital pharmacies, whereas Abana's pharmaceutical
products were oriented toward generic prescription pharmaceuticals and its
marketing approach was directed primarily toward individual physician
prescribers.
CONSIDERATIONS AND EVENTS LEADING TO THE AGREEMENT
For approximately two years prior to entering the Agreement, Abana
management has been considering various alternatives for maximizing shareholder
value and providing liquidity for its shareholders. Approaches considered by
Abana management included a public offering to raise additional capital funds
and permit expansion of its product lines and sales force, as well as possible
"strategic mergers" or alliances with similar firms and the possible sale of
Abana. During the course of these considerations, Mr. Jones indicated to Mr.
Eads on various occasions that JMED would consider a possible merger of Abana
with and into JMED when and if Abana achieved profitability and a satisfactory
level of sales volume and a product mix which appeared compatible with JMED's
other pharmaceutical activities. Although 1995, represented Abana's first year
of profitable operations, that development did not lead to immediate discussions
between JMED and Abana relating to a possible acquisition since the management
of JMED was engaged in other acquisition and financing activities and since the
management of Abana was exploring other alternatives.
PROPOSED TRANSACTION BETWEEN ABANA AND KV PHARMACEUTICAL COMPANY
During the early part of 1996, management of Abana met several times with
management of KV Pharmaceutical Company ("KV"), a manufacturer of
prescription pharmaceuticals. As a result of such discussions, Abana and
Messrs. Eads and Cole entered a letter of intent with KV relating to a proposed
transaction pursuant to which Abana would be acquired by KV in exchange for an
aggregate of approximately 1,000,000 shares of the
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common stock of KV in a transaction intended to qualify as a "tax free"
reorganization and to be accorded "pooling of interests" accounting treatment.
A "pooling of interests" transaction treats combining companies for certain
accounting purposes as if they had been a single company since inception and
avoids the requirement applicable to other business combinations, including the
Merger, that the excess of the purchase or acquisition price over the fair
value of the tangible assets being acquired be recognized as "goodwill" or
other intangibles subject to amortization against future income. Among other
conditions in order to qualify as a "pooling of interests," a transaction must
involve solely an exchange of common stock for common stock and no more than
10% of the shares, including shares held by dissenting shareholders, may be
acquired for cash.
At the time of the letter of intent between Abana and KV, the market value
of the shares of KV to be offered to the Abana stockholders was approximately
$15.75 per share, giving the transaction an indicated market value of
approximately $15,750,000. The proposed transaction included provisions
limiting the maximum value of the shares of KV stock to be issued to
$17,000,000 and creating a minimum value of $14,000,000; however, in the event
that KV was required to issue additional shares of its stock to achieve the
$14,000,000 price, KV (but not Abana) would have been permitted to terminate
its obligation to consummate the transaction if the market price for KV stock
fell below $12.50 per share. Under the terms proposed by KV, each share of the
common stock of Abana would have been converted into a fractional share of KV
stock having a market value between $6.17 and $7.50.
Subsequent to the letter of intent, representatives of KV and management
of Abana continued discussion of the terms of the proposed transaction and
Abana received a draft of a Agreement and Plan of Merger from KV in early
April, 1996.
As a member of the board of directors of Abana, Mr. Jones was provided
with a copy of the letter of intent between KV and Abana and participated in a
telephonic meeting of Abana's board of directors to discuss and authorize
entering into the letter of intent. Mr. Jones abstained from voting in favor
of or against the proposed transaction with KV and advised the other directors
that JMED would be willing to investigate and consider a possible proposal for
acquiring Abana but due to other commitments could not undertake any such
investigation until mid-April, 1996. Although Mr. Jones indicated that he
believed that if JMED determined to make an offer for Abana, such offer would
equal or exceed the terms proposed by KV, he also indicated that there was no
assurance that such an offer would be forthcoming. Mr. Jones also indicated
that in the event that Abana elected to pursue the transaction with KV, JMED
would be willing to agree with Abana and KV not to exercise its dissenter's
rights or to take other action which would cause such transaction to fail to
qualify for "pooling of interests" accounting treatment.
In early April, Mr. Jones and other representatives of JMED met with
management of Abana to review developments in Abana's operations with a view to
determining whether there appeared to be a strategic fit between Abana and JMED
and whether JMED wished to make a counter-offer to Abana in face of the
proposed transaction with KV. As a result of such discussions, JMED determined
not to make an offer at that time. JMED indicated that having recently
acquired domestic marketing rights to Tapazole(R) from Eli Lilly, it believed
that its energies would be focused more appropriately upon sales and marketing
strategies with respect to that product line.
Although management of Abana continued discussions of the terms of the
proposed merger with representatives of KV, they were unable to reach agreement
on certain terms set forth in the draft agreement submitted by KV and, in view
of subsequent developments at KV and a decline in the price of the KV stock
below the $12.50 level, the proposed transaction between Abana and KV was
abandoned in May, 1996. As of November 1, 1996, the market price for the
common stock of KV as reported on the American Stock Exchange was approximately
$11.75 per share.
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DISCUSSIONS AND NEGOTIATIONS LEADING TO THE AGREEMENT
In July, 1996, JMED entered into the agreements relating to the Daniels
Acquisition pursuant to which JMED would, inter alia, acquire ownership,
manufacturing and marketing rights to Levoxyl(TM). Tapazole(R) and Levoxyl(TM)
are, respectively, pharmaceuticals used in the treatment of hyperthyroidism and
hypothyroidism and the marketing efforts for both such products are focused
primarily upon individual endocrinologists and other prescribing physicians
rather than toward hospital pharmacies. In reviewing alternative strategies
for increasing its sales force to promote sales of these products, which in the
aggregate are expected to account for approximately 25% of JMED's 1996 sales
revenues, JMED believed that the physician-oriented marketing approach of
Abana's sales force was significantly more attractive than was the case during
prior discussions between the companies.
On August 20, 1996, Mr. Eads was contacted by Mr. Jones by telephone to
determine whether Abana was interested in exploring the possibility of the
acquisition of Abana by JMED. Abana management was receptive to the
preliminary discussion with Mr. Jones and several discussions followed. Abana
management believed that the preliminary terms offered by JMED could form the
basis of an acceptable transaction. Mr. Jones and other JMED representatives
met with Abana management on August 25, 1996, in Birmingham, Alabama, to
discuss the specifics of the JMED proposal. Abana management indicated its
willingness to entertain a written offer from JMED based on the terms discussed
during this meeting.
On September 10, 1996, JMED delivered a letter to Mr. Eads, proposing the
acquisition of Abana by JMED pursuant to a merger of Abana with and into AAC, a
to be formed wholly-owned subsidiary of JMED, in exchange for shares of classes
of preferred stock of JMED, convertible into common stock at future dates.
Under the terms of this proposal, holders of fewer than 5,000 shares of the
common stock of Abana would have received cash in the amount of $7.65 per share
and those holding 5,000 or more shares of common stock of Abana would have
received, for each 5,000 shares of Abana held, a package of preferred stocks
convertible into between 900 and 1,125 shares of JMED Common Stock with the
number of shares to be determined in part based upon the operations of Abana
during 1997. This structure was intended, in part, to allow the proposed
transaction to be accomplished as a so-called "private placement" in order to
avoid delays between the signing and closing of the transaction arising from
the need to register the shares of JMED under the Securities Act of 1933.
JMED delivered a draft of the definitive Agreement on or about September
19, 1996, and the parties commenced negotiations of the specific terms of the
Merger. Although the Principal Holders and Abana were receptive to the terms
and structure proposed, discussion continued between Abana and JMED
particularly with a view to increasing the number and level at which holders of
Abana's common stock would receive JMED securities rather than cash. Although
the proposed $7.65 cash per share of common stock of Abana was roughly
equivalent to the approximately $35 price per JMED share applicable at the time
the preliminary understandings between Abana and JMED had been reached,
subsequent increases in the market price for the Common Stock of JMED gave rise
to concerns that the apparent disparity between the cash price and the number of
shares of Common Stock of JMED potentially to be received by Abana's larger
shareholders upon conversion of the proposed preferred stock might lead to a
challenge to the transaction.
As a result of numerous discussions between JMED management and Abana
management and their respective legal counsel, and after exploring various
restructuring alternatives, JMED revised its offer on October 7, 1996, to
provide for a merger in which JMED would issue 0.22 shares of its Common Stock
in exchange for each share of the common stock of Abana. JMED's willingness to
revise the terms in this manner was conditioned in part upon the willingness of
the Principal Holders, as the holders of more than a majority of the
outstanding common stock of Abana, to approve and adopt the proposed merger by
written consent, thereby reducing any risk to JMED that the transaction would
not be consummated. In connection with the revised offer, JMED also requested
that the Principal Holders accept certain proposed indemnification and escrow
arrangements and that the Principal Holders agree to enter non-competition
agreements. In transmitting its revised offer, JMED indicated that it was
unwilling
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to incur the additional costs of implementing the transaction as restructured
unless Abana and the Principal Holders completed, as of the date of the
Agreement, all necessary corporation authorizations to give effect to the
Merger in a manner that would not require further action by the holders of the
common stock of Abana.
Abana's Management and the Principal Holders indicated their willingness
to accept JMED's revised proposal, and Abana management and JMED management
proceeded to negotiate the definitive terms of the Agreement following JMED's
submission of a revised draft agreement on October 10, 1996.
The Abana board of directors met on October 23, 1996, to review and
discuss the Agreement. The Abana board considered the specific terms of the
definitive Agreement and the effect of the Merger on the Abana stockholders. A
form of the definitive Agreement was reviewed by the Abana board. After
discussing the terms of the JMED offer and reviewing the form of the Agreement,
the Abana board voted unanimously, with Mr. Jones abstaining, to approve the
Agreement and the transactions contemplated therein, including the Merger. The
Board of Directors of JMED approved the Agreement on November 6, 1996.
REASONS FOR THE TRANSACTION
Abana and the Principal Holders believe that the transaction provides both
significant liquidity and significant shareholder value and return to the
holders of common stock of Abana and that the operations of Abana will benefit
from the availability of JMED's pharmaceutical product lines. JMED believes
that the addition of Abana's sales force will significantly enhance its ability
to develop marketing efforts for its current physician-oriented products and
that the addition of Abana's existing product lines complement JMED's existing
product lines and provide opportunities for further growth and product
development.
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THE AGREEMENT
The following is a brief summary of the material provisions of the
Agreement and certain exhibits thereto. This description does not purport to
be complete and is qualified in its entirety by reference to the Agreement
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. A copy of this Agreement is available for inspection at
the offices of Abana and will be provided upon request to any holder of the
common stock of Abana. See "Incorporation of Certain Documents by Reference."
GENERAL
The Agreement provides that, upon the satisfaction or waiver of certain
conditions, Abana will be merged with and into AAC, AAC will continue as the
Surviving Corporation and a wholly-owned subsidiary of JMED under the name
"JMI-Abana Pharmaceuticals, Inc.," and the separate existence of Abana will
cease. Pursuant to the Agreement, at the effective time of the Merger on the
Closing Date, among other things, each outstanding share of the common stock of
Abana will be converted into the right to receive 0.22 share of the Common
Stock of JMED; provided, however, that (i) shares of the common stock of Abana
held in its treasury or held, directly or indirectly by JMED, will not be so
converted but will be retired and canceled and (ii) shares of the common stock
of Abana which constitutes Dissenting Stock will be converted into the right to
receive the "fair value" thereof in cash of as otherwise determined in
accordance with Section 262 of the DGCL. See "The Merger - Effects of the
Merger" and "The Merger - Dissenters' Rights of Appraisal."
Based upon the aggregate of 2,274,213 shares of the common stock of Abana
outstanding as of the date of the Agreement, reduced by the 362,519 such shares
beneficially owned by JMED, it is expected that JMED will issue an aggregate of
420,572 shares of the Common Stock of JMED pursuant to the Merger subject to
such reductions in number of such shares as may arise from the settlement of
fractional share interests or from Dissenting Stock, if any. In addition,
based on the options to acquire shares of the common stock of Abana outstanding
on the date of the Agreement, options to acquire an aggregate of 40,070 shares
of the Common Stock of JMED are to be issued pursuant to the Merger.
The Principal Holders joined with JMED and Abana as parties to the
Agreement to confirm, as of the date of the Agreement, their irrevocable
intention (i) to be bound by the terms of the Merger and to deliver the related
indemnification and non-competition agreements as contemplated by the
Agreement, (ii) to cause Abana to take all necessary and appropriate action to
meet the conditions to the obligations of JMED under the Agreement, and (iii)
to adopt and approve the Agreement and the Merger by written consent as holders
of a majority of the common stock of Abana. See "Background of the Transaction
- - Discussions and Negotiations Leading to the Agreement."
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made
by JMED and, jointly and severally, by Abana and the Principal Holders. The
representations and warranties contained in the Agreement are subject, in
certain cases, to specified exceptions. Each of the representations and
warranties is represented as being true as of the date of the Agreement and to
be true as of the Closing Date. The representations made by Abana expire as of
the Closing Date. The representations made by JMED survive the Closing Date
for a period of three years.
Representations and warranties relating to the following matters have been
made with respect to each of JMED and Abana: (i) their respective due
organization, corporate power, good standing and related matters; (ii) their
respective capital structures; (iii) receipt of necessary corporate authority
with respect to the transactions contemplated by the Agreement; (iv) the
respective financial statements referenced in the Agreement; (v) the absence of
any conflict with their respective corporate charters and by-laws, applicable
law or with certain contracts; (vi) representations intended to confirm the
absence of conditions which would prevent the Merger from qualifying as
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a tax-free reorganization under the Code; and (vi) the accuracy of certain
information provided in or pursuant to the Agreement.
JMED has made certain additional representations and warranties to Abana
relating, among other things, to (i) the authorization and validity of the
shares of the Common Stock of JMED to be issued in the Merger, (ii) the
organization, capitalization and ownership of AAC prior to the Closing Date,
and (iii) the eligibility and absence of impediments for certain filings by
JMED under the Securities Act.
Abana and the Principal Holders have made certain additional
representations to JMED relating to, among other things, the following matters:
(i) Abana's shareholders and related parties, (ii) filings and payments with
respect to certain tax matters, (iii) material contracts, (iv) the absence of
certain conduct, whether or not in the ordinary course of business, since
December 31, 1995, (v) litigation matters affecting Abana, (vi) possession of
certain licenses or other authorizations and compliance with applicable laws,
(vii) products manufactured by or produced for Abana, (viii) title to
properties, (ix) employee benefit matters, (x) intellectual property, (xi)
insurance, (xi) customers and supplemental financial information, (xii)
employees and employee relations matters, (xiii) environmental matters, and
(xiv) to the effect that Abana is an operating company and not an "investment
company" under the Code or federal securities laws.
CERTAIN COVENANTS
Abana has agreed to provide JMED access to its books, records and
properties and to provide information to JMED necessary to enable JMED to
prepare and complete any application statement or filing in respect of the
transactions contemplated by the Agreement, including the Registration
Statement of which this Prospectus is a part.
Abana and the Principal Holders have agreed to use their best efforts to
take or cause to be taken all actions necessary, proper or advisable to
consummate the Merger and the transactions contemplated by the Agreement.
Abana has further agreed to use its best efforts to maintain its properties and
business organization and to perform and comply with its obligations and duties
under contract or under applicable laws, rules, regulations and governmental
authority.
Abana has agreed pending the Closing Date not to take action, including
the making of certain payments or the entering or amending of certain
contracts, without prior written consent or authorization from JMED. Abana has
also agreed to provide JMED with prompt notice of events or issues which may
have an impact on the assets, financial condition, products or operations of
Abana either pending or following the Closing Date.
JMED has agreed not to take action which would interfere with its ability
to perform its obligations under the Agreement. JMED has also (i) agreed to
cause the filing of the Registration Statement of which this Prospectus is a
part and to cause such Registration Statement to become effective as promptly
as practicable thereafter and (ii) agreed to effect certain future filings
under the Securities Act and under the Exchange Act relating, directly or
indirectly, to the shares of the Common Stock of JMED to be received by the
Principal Holders pursuant to the Merger. See "The Merger - Resales of Shares
of the Common Stock of JMED Received in the Merger - Principal Holders." In
connection with registration statements filed under the Securities Act relating
to the Agreement or on behalf of the Principal Holders, JMED has agreed to
indemnify and hold the Principal Holders harmless against certain loss, claims,
damage or expense.
INCONSISTENT ACTIVITIES
The Agreement provides that prior to the Closing or termination of the
Agreement Abana will not (i) solicit, directly or indirectly, or cause any
other person to solicit, any offer to acquire the assets of Abana, whether by
merger, purchase of assets, tender offer or similar transaction or (ii) enter
into any agreement which provides for the
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merger of Abana or the sale of the capital stock of Abana or the assets of
Abana to a person other than JMED or a subsidiary of JMED.
CONDITIONS TO THE MERGER
The obligations of JMED, AAC and Abana to consummate the Merger and
related transactions in accordance with the Agreement are subject to the
satisfaction of certain conditions (any or all of which may be waived by the
party whose obligations are conditioned thereon). Each party's obligations are
conditioned upon (i) the accuracy, as of the date of the Agreement and as of
the Closing Date, of the other party's representations and warranties set forth
in the Agreement, (ii) the performance by other parties to the Agreement of
covenants applicable during the period between the date of the Agreement and
the Closing Date, (iii) the absence of litigation or proceedings seeking to
prevent the Merger or which involves a risk of a material adverse change in the
condition, financial or otherwise of the other party, (iv) the receipt of
satisfactory opinions of counsel as to certain matters; and (v) the
transactions contemplated by the Agreement not giving rise to certain rights
under the Abana Stockholders' Agreement. In addition, the obligations of JMED
and AAC are conditioned upon (a) the receipt of any necessary regulatory
approval, consent or authorization (including the effectiveness of the
Registration Statement of which this Prospectus is a part), (b) the delivery at
Closing by the Principal Holders of the indemnification and escrow agreement
and the non-competition agreements which constitute exhibits to the Agreement
and (c) the non-exercise of dissenters' appraisal rights under the DGCL in
excess of 56,000 shares of the common stock of Abana.
CLOSING AND EFFECTIVENESS
It is expected that the Closing under the Agreement will occur, and the
Merger will become effective under the DGCL, on [December 31, 1996] or as
promptly thereafter as practicable (the "Closing Date"), subject to the
satisfaction or waiver of the conditions to the Merger. The Agreement provides
that in the event of a closing date and effectiveness of the Merger as of a
date subsequent to December 31, 1996, the transactions will be deemed to be
effective for accounting, financial reporting purposes and tax purposes as of
the close of business on the last day of the calendar month preceding the month
in which the closing occurs. Accordingly, if the closing occurs as of any date
between December 31, 1996 through January 31, 1997, it will nevertheless be
reflected for such purposes as effective on December 31, 1996.
TERMINATION OF THE AGREEMENT; AMENDMENT
The Agreement will terminate on the later of the Closing Date or March 31,
1997, and may be terminated prior thereto by the mutual agreement of the
parties. In addition, JMED may elect to terminate the Agreement in the event
that (i) Abana shall fail to observe certain covenants, (ii) Abana shall fail
to satisfy timely certain conditions to JMED's obligations, or (iii) in the
event that JMED so elects in good faith in the event of an action seeking to
restrain, prohibit or invalidate the transactions contemplated by the
Agreement. In lieu of seeking termination of the Agreement, a party otherwise
entitled to elect termination may elect to seek enforcement of the Agreement.
The Agreement may be amended at any time by written consent of the
parties, but no amendment which would reduce the number of shares of the Common
Stock of JMED issuable in the Merger shall be effective without the consent of
holders of a majority of the outstanding stock of Abana and the effectiveness
of an amendment to the Registration Statement of which this Prospectus is a
part and a revised Notice under the DGCL.
AGREEMENTS OF PRINCIPAL HOLDERS
In addition to being parties to the Agreement for purposes of adopting the
Merger by their written consent and joining in certain covenants,
representations and warranties of Abana contained in the Agreement, the
Principal Holders have agreed to deliver certain supplemental agreements to
JMED on the Closing Date.
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ESCROW AND INDEMNIFICATION
The Principal Holders have agreed to indemnify and hold JMED harmless from
and against certain claims, loss, damage or expense as a result of any breach
or failure of the representations of Abana set forth in the Agreement or any
failure of Abana to observe and perform its covenants pending Closing under the
Agreement. Such indemnification is to be secured by, and limited to, the
deposit in escrow on the Closing Date by the Principal Holders of an aggregate
of 60,000 shares of the Common Stock of JMED being received by them in the
Merger. On March 31, 1998, the number of shares held in escrow (and therefore
the exposure of the Principal Holders in respect of the indemnification
provided to JMED) will be reduced to an aggregate of 10,000 shares of the
Common Stock of JMED plus such additional number of shares of the Common Stock
of JMED, if any, as may be needed in respect of indemnification claims pending,
but not resolved, as of March 31, 1998. The indemnification and escrow
expires, other than as to pending claims, on September 15, 1999.
The Indemnification and Escrow Agreement provides that JMED will not be
entitled to indemnification unless and until the aggregate of all claims as to
which indemnification is otherwise applicable exceeds $50,000. The Escrow and
Indemnification Agreement further provides that (i) in the event that prior to
the Closing Date there is discovered a breach or failure of a representation or
warranty of Abana or the failure of Abana to comply with or perform a covenant
such that the conditions to the obligations of JMED to consummate the
transactions contemplated by the Agreement would not be fulfilled, and (ii) in
the further event that JMED is willing to waive such breach or failure, then
the claim of JMED pursuant to the Escrow and Indemnification Agreement shall be
limited to 60% of the total loss, claim, damage or expense incurred by JMED or
the Surviving Corporation as a result of such breach or failure.
Holders of the common stock of Abana other than the Principal Holders are
not required to provide indemnification to JMED or to escrow any shares of the
Common Stock of JMED received pursuant to the Merger.
NON-COMPETITION AGREEMENT
As an inducement to JMED to enter the Agreement and as a condition to
JMED's obligations thereunder, each Principal Holder has agreed to deliver to
JMED on the Closing Date a Non-Competition Agreement in which such Principal
Holder agrees, except as provided therein, (a) not to reveal Confidential
Information, as defined therein, relating to methods of operation, proprietary
information, intellectual property and trade secrets, (b) at any time during
the five years following the Closing Date or while employed by JMED or any
subsidiary of JMED, or within two years thereafter not (i) to solicit for his
own behalf or on behalf of or in conjunction with any other person, any
employees, agents, contractors or consultants to Abana or JMED, or (ii) to
engage in a business competitive with manufacturing, marketing or sale of
pharmaceutical products similar to or competitive with the therapeutic
categories of products marketed by Abana or JMED and (c) not to engage in
activity intended to take away or divert business from Abana or JMED as to any
customer of (i) Abana during the two years prior to the Closing Date or (ii)
JMED or any of its subsidiaries at any time after the Closing Date at a time
when such Principal Holder is employed by JMED or any of its subsidiaries.
No additional consideration is due or payable to the Principal Holders in
connection with the delivery of the Non-Competition Agreements.
FEES AND EXPENSES
Each of JMED and Abana have agreed to bear their respective expenses
incurred in connection with the Merger. In the event the expenses incurred by
or on behalf of Abana in connection with the Agreement and Merger exceed
$75,000, JMED would have the right to make a claim against the escrow and
indemnification provided by the Principal Holders; however, the amount of such
expenses incurred by or on behalf of Abana will not reduce the number of shares
of Common Stock of JMED issuable in the Merger.
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CERTAIN INFORMATION CONCERNING JMED
The following summary information with respect to the business of JMED is
intended to provide a general background concerning the Company, the markets
within which it operates, the Company's business strategy and principal
products and significant developments in the current year. The information
presented below with respect to JMED reflects the restatement of its financial
statements arising from the Daniels Acquisition accounts for a pooling of
interests but does not include other material information concerning the
Company's operations and management as set forth in filings under the Exchange
Act which are incorporated in this Prospectus by reference. See "Available
Information" and "Incorporation of Certain Documents by Reference." See also
"Investment Considerations and Risk Factors" elsewhere in this Prospectus for
additional information on factors affecting JMED's operations and financial
condition.
GENERAL
The Company is engaged in the marketing, distribution and manufacture of
pharmaceuticals and nutritional supplements. Founded in 1981, the Company
currently distributes approximately 160 branded pharmaceuticals and
approximately 375 branded nutritional supplements under its own trademarks and
tradenames. The Company manufactures pharmaceuticals at its facilities in
Canton, Ohio, Middleton, Wisconsin, St. Petersburg, Florida, and St. Louis,
Missouri and manufactures nutritional supplements at its facilities in Tempe,
Arizona. The Company also utilizes manufacturing capacity as a contract
manufacturer of pharmaceuticals and nutritional supplements for distribution
and sale by others under their labels and tradenames. During 1995, sales of
pharmaceuticals and nutritional supplements accounted for approximately 59% and
41%, respectively, of the Company's total sales, as restated to reflect the
acquisition of Galen Drugs of Florida, Inc. (the "Daniels Acquisition") in a
pooling of interests transaction.
INDUSTRY BACKGROUND
THE UNITED STATES PHARMACEUTICAL MARKET
The annual domestic market for pharmaceuticals has estimated sales in
excess of $60 billion. While the market is dominated by large multinational
firms which conduct substantial research and development on new drugs, it is
estimated that, within the domestic market, approximately 40% 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 producer. In
addition, major pharmaceutical companies have focused their marketing efforts
on new drugs in order 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 harvesting cash flow 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-$50 million; (iii) products which receive minimal promotion
from the divesting company but compete in promotion sensitive markets; (iv)
products which have stagnant or slowly declining 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
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payors, or which have a clear price advantage over alternative treatments; and
(vi) products which can be leveraged with 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 extracts, currently
exceeds $4.5 billion. The market has historically expanded due to increasing
consumer awareness of the health benefits of nutritional supplements and 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
dietary professionals.
BUSINESS STRATEGY
The Company's business strategy is to acquire speciality 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. The
Company 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. The
Company intends to maximize productivity of its sales force through replacement
of existing, lower-volume products with new, larger market opportunities. In
addition, the Company intends to raise the awareness of selected products
through targeted sales efforts focused on physicians, hospital pharmacists and
other health care professionals in the United States.
Expand Marketing Initiative for Nutritional Supplements to Health Care
Professionals. Since the Company acquired Bronson Pharmaceutical in early
1993, monthly orders have grown from 26,000 to 29,000, and the average order
has grown from $43 to $64. The Company 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.
Through efficient utilization of sales personnel, minimizing corporate overhead
and focusing on high margin products, the Company intends to increase gross and
operating margins. By focusing on a limited number of products, the Company
believes it can increase sales by maximizing the productivity of its sales
force and controlling overhead costs.
PRINCIPAL PRODUCTS AND PRODUCT LINES
1996 ACQUISITIONS OF THYROID TREATMENT PHARMACEUTICALS
As a result of two significant acquisitions completed to date in 1996, the
Company currently derives a significant portion of its revenues from the sale
of pharmaceutical products relating to the treatment of thyroid conditions.
Acquisition of the Rights to Tapazole(R). On March 18, 1996, the Company
acquired from Eli Lilly and Company ("Lilly") the exclusive perpetual domestic
right to market and distribute Tapazole(R) (methimazole, USP) in the United
States. The Company also entered into a 10-year manufacturing agreement with
Lilly pursuant to which Lilly will continue to manufacture Tapazole for the
Company. Tapazole(R) is an anti-thyroid product used for the
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treatment of hyperthyroidism; the extreme form of hyperthyroidism is commonly
known as Graves' Disease. Tapazole(R) is prescribed to inhibit the synthesis
of thyroid hormones and to reduce the size of the goiter (an abnormal growth
resulting from overactivity of the thyroid gland). Although the Company is not
aware of any generic forms of Tapazole(R) in the marketplace, Tapazole(R) faces
competition from the generic pharmaceutical, propylthiouracil ("PTU"). PTU is
sold by Lederle Labs, a division of American Cyanamid Company, which has
greater financial resources than the Company, and by a number of other
independent generic pharmaceutical companies. From the date of acquisition on
March 18, 1996 through September 30, 1996, the Company had net sales of $8.4
million relating to Tapazole(R), equal to 11% of the Company's sales for the
nine months ended September 30, 1996.
The Daniels Acquisition. On August 30, 1996, the Company acquired Galen
Drugs of Florida, Inc. and its principal operating subsidiary, Daniels
Pharmaceuticals, Inc. ("Daniels"). Daniels is a St. Petersburg, Florida,
based manufacturer and marketer of prescription pharmaceutical products.
Daniels' principal product is Levoxyl(TM), a synthetic thyroid hormone for the
treatment of hypothyroidism. Levoxyl(TM) is reported to be the second most
widely prescribed brand of levothyroxine in the United States, within a $300
million domestic market dominated by Synthroid(R) which is manufactured by
Knoll Pharmaceutical Company, a subsidiary of Boots PLC, which has
substantially greater sales, marketing and financial resources than the
Company. Daniels sales of Levoxyl(TM) during 1995 were $14.6 million,
approximately 10.9% of the Company's 1995 sales as restated to reflect the
pooling of interests. During the nine months ended September 30, 1996, sales
of Levoxyl(TM) were $9.8 million, or approximately 13% of the Company's reported
sales for that period as restated to reflect the pooling of interests.
CRITICAL CARE PHARMACEUTICALS
Prior to the 1996 acquisitions, the Company's principal branded
pharmaceuticals primarily served the critical care segment of the health care
industry and were as follows:
Thrombin-JMI and Thrombinar. Rapid, reliable hemostasis is an important
part of any surgical procedure. Surgeons may use gauze pads, sponges or
pressure bandages to achieve hemostasis or they may use topical hemostatic
agents to achieve a more rapid, complete hemostatic state. The U.S. market for
topical hemostatic products was more than $80 million in 1995. Less active
hemostatic agents such as Gelfoam and Surgicel are slower acting and should be
removed prior to closure, sometimes causing recurrence of bleeding. The
Company's products, Thrombin-JMI and Thrombinar are highly purified forms of
thrombin, derived from bovine blood, and can produce rapid hemostasis. Other
forms of topical bovine thrombin are non-purified products. The Company's
purified products, Thrombin-JMI and Thrombinar do not require removal prior to
closure and thus do not interfere with the natural healing process.
Thrombin-JMI and Thrombinar may also be applied with a spray apparatus for
direct application in liquid form. Thrombin-JMI was introduced in 1995 and
does not require refrigeration to maintain a two year shelf life. The
predecessor product, Thrombinar, was initially introduced by Armour in 1981,
and all domestic rights to the product were acquired by the Company in 1989.
The Company's branded thrombin products accounted for 19.5% of total Company
sales, 13.8% of the topical hemostatic market sales and 50.4% of the topical
bovine thrombin market sales in 1995. Thrombin-JMI is manufactured at the
Company's wholly-owned subsidiary, GenTrac, Inc. ("GenTrac"). Thrombinar was
produced for the Company under a contract with Armour which expired in
September 1995 and is being replaced by the Thrombin-JMI product line.
Brevital Sodium. Rapid, short-acting anesthesia is required when
performing short term procedures such as dental surgery, cardioversion and
electroconvulsive therapy. When inducing anesthesia, it is desirable to use an
anesthetic agent that has a rapid onset of action. I.V. anesthetic agents
generated industry-wide revenues of $500 million in 1994. Several I.V.
anesthetic agents are currently marketed for induction of anesthesia and for
general anesthesia with most agents causing varying degrees of side effects
such as nausea, headaches and muscle hyperactivity. The Company's product,
Brevital Sodium, is a rapid, ultrashort-acting intravenous anesthetic agent
used by anesthesiologists and other trained medical personnel to induce and
maintain anesthesia. The rapid onset of action and rapid recovery time
associated with Brevital Sodium make it suitable for short therapeutic and
27
<PAGE> 47
diagnostic procedures. Brevital Sodium was introduced by Lilly in 1961 and the
domestic rights thereto were licensed to the Company in August 1995. Brevital
Sodium is marketed by the Company under license from Lilly granting the Company
exclusive U.S. marketing rights in perpetuity. Brevital Sodium accounted for
3.2% of the Company's total sales in 1995 and 7% of the Company's total sales
for the nine months ended September 30, 1996.
OTHER PHARMACEUTICALS
The Company also manufactures and distributes other critical care products
and 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, an antimicrobial scrub, and Thyroid Strong
and Westhroid thyroid replacements. As a result of the Daniels Acquisition,
the Company also manufactures and distributes a line of levothyroxine and other
pharmaceuticals for veterinary use. Combined, all other pharmaceutical
products accounted for 20% of the Company's total sales in 1995.
NUTRITIONAL SUPPLEMENTS
The Company's principal nutritional supplement product lines accounted for
40.7% of the Company's total sales in 1995. The Company's branded nutritional
supplement products represented 33.6% of sales in 1995 and are marketed under
the Bronson and MD Pharmaceutical tradenames.
Bronson. The Bronson product line consists of over 260 branded vitamin,
mineral and herbal extract formulations. The products include multiple
vitamins, mineral formulations, individual vitamins, antioxidants, herbal
formulations and personal care products. The Bronson Pharmaceutical product
line accounted for 27.1% of the Company's total sales in 1995.
MD Pharmaceutical. These multiple vitamins, mineral formulations,
individual vitamins and antioxidants are sold exclusively through military base
retail outlets and accounted for 4.5% of the Company's total sales in 1995.
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 products. The
pharmaceutical industry is characterized by rapid product development and
technical 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 either technological
advances affecting the cost of production 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. See "Investment Considerations and
Risk Factors."
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 with the
retail market for nutritional supplements as well as the mass-market direct
mail industry, both of which offer products similar to the products offered by
the Company, and there can be no assurance that the targeted direct market
approach utilized by the Company will remain as a viable alternative within the
industry or that other competitors may not enter the targeted direct mail
market utilizing approaches similar to those employed 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.
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<PAGE> 48
CERTAIN INFORMATION CONCERNING ABANA
The following information with respect to Abana's business, operations,
management and principal shareholders has been furnished by Abana to JMED in
accordance with the terms of the Agreement and is included in this Prospectus
by JMED in reliance upon the representations and warranties of Abana contained
in the Agreement.
BUSINESS
Abana, formed in 1988, is engaged in the marketing, distribution and sale
of branded generic pharmaceutical products sold as prescription drugs.
Abana's primary area of operations is in the southeastern and south-central
United States, where it markets its products through a network of trained
medical sales representatives. Abana currently distributes seven branded
generic pharmaceuticals under its own trademarks and trade names. Abana holds
licenses from the Drug Enforcement Agency (the "DEA"), the Food and Drug
Administration (the "FDA") and in numerous states to distribute drugs.
Abana is a distributor of its own brand name prescription pharmaceutical
products. Abana's customers are drug wholesale companies, which distribute the
products to retail pharmacies. Abana's sales representatives make sales
presentations and sample the products directly to the prescribing physicians.
Abana's product line is now categorized in three distinct areas: analgesics;
cough and cold products; and weight control products.
Although Abana manufactured some of its pharmaceutical products in the
past, currently all of Abana's products are manufactured by independent
pharmaceutical manufacturers. This enables Abana to concentrate exclusively on
its main goal of building a national distribution network, and eliminates the
capital needs of manufacturing.
Abana's principal office address is 1 Chase Corporate Drive, Suite 260,
Birmingham, Alabama 35244, and its telephone number is (205) 988-4588. Abana's
mailing address is Post Office Box 360388, Birmingham, Alabama 35236.
THE MARKET FOR BRANDED GENERIC PHARMACEUTICALS
Pharmaceutical manufacturers who engage in research and development
activities and the introduction of new drug formulations are permitted to
obtain patents and thereby obtain exclusive rights to the production and
marketing of such new drugs for a period of time extending beyond FDA approval
of the drug. Such patent protection allows manufacturers to recover research
and development costs associated with new drug products by affording a period
of time during which the product formulation is not subject to price
competition from other manufacturers or distributors.
The patent protection available for new drug formulations has expired with
respect to the overwhelming majority of prescription pharmaceuticals available
in the Untied States. Pharmaceutical products as to which patent protection
has expired are subject to replication by other pharmaceutical companies and
may be offered as generic products. If the pharmaceutical to be offered as a
generic product was the subject of a New Drug Application ("NDA") filed with
the FDA, generic replications of the drug are generally required to be the
subject of an Abbreviated New Drug Application ("ANDA") subject to approval by
the FDA prior to the commencement of marketing. Pharmaceutical products which
were originally introduced prior to the FDA's requirement for NDA authorization
and approval, either as a result of exemption or "grandfather" status, are
generally not subject to ANDA filings and approval prior to replication and
introduction to the market.
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<PAGE> 49
Generic replications of pharmaceuticals may be offered either as "true
generics," which are marketed to pharmacies under chemical names without brand
identification, or as "branded generic pharmaceuticals." When generic
replications are available, physicians issuing prescriptions for patients may
elect to prescribe the original branded pharmaceutical formulation or a branded
generic equivalent and, in either event, may authorize substitution of a
non-branded generic equivalent product. Cost consciousness and concerns within
the health care industry generally, and medical insurance and reimbursement
policies and practices in particular, increasingly favor use of generic
pharmaceutical formulations when available.
Branded generic pharmaceuticals generally carry significantly lower prices
than the original branded formulation, but higher prices than "true generics"
which have significantly lower marketing and distribution costs. Accordingly,
branded generic pharmaceuticals, such as those marketed by Abana, are sensitive
to price competition not only from comparable branded generic products but also
to possible price reductions or marketing initiatives from the producer of the
original branded pharmaceutical formulation and to the possible availability of
"true generic" alternatives. Pharmacies often select "true generic"
pharmaceutical equivalents solely on the basis of price and immediate
availability and, therefore, "true generic" equivalents may differ from one
another in appearance, ease of use and, as to certain formulations, taste or
odor.
Unlike "true generics," branded generic pharmaceuticals are perceived as
offering a more consistent and reliable replication and pharmaceutical
equivalent to the original product. Accordingly, the ability successfully to
market and promote branded generic pharmaceuticals relies heavily on the
ability of the marketer in establishing not only a satisfactory replication of
the original branded pharmaceutical but also in establishing brand recognition
and a reputation for consistency of product.
ABANA'S BUSINESS STRATEGIES
Abana's principal business strategies are to develop a national
pharmaceutical distribution network, to acquire and develop additional
pharmaceutical products that complement Abana's existing products in its
therapeutic categories, and to increase net sales through an expansion of its
pharmaceutical sales representatives and an increase in the sales volume of its
products. The key elements of Abana's strategies include:
Acquire and Develop Additional Products. Abana has sought to acquire or
replicate and to develop branded generic pharmaceutical products which
complement its existing product lines and which have broad marketing potential
while facing only limited competition from "true generic" product equivalents.
Expand Sales Force. Abana markets its products primarily through its
network of trained sales representatives, utilizing the "pull-through"
marketing strategy. This strategy involves Abana's sales representatives
calling on physicians and persuading the physicians to prescribe Abana's
products. By increasing the demand for its products through increased
prescriptions, wholesale drug companies order increased levels of Abana's
products. To achieve this strategy, Abana must recruit and train additional
sales representatives to cover specific geographic territories. Since January
1, 1996, Abana has hired and trained 22 sales representatives and as of
November 1, 1996, had 47 sales representatives calling on physicians in 17
states.
Develop Highly Trained and Motivated Sales Force. Newly hired sales
representatives are required to attend two week initial training programs that
encompass the fundamentals of selling in the pharmaceutical environment and
provides detailed instruction regarding Abana's products, market, competition
and industry. Each sales representative must participate in role playing
scenarios and must pass a final presentation that is videotaped for grading.
In addition, each newly recruited sales representative is tested upon entrance
to the training class and retested prior to exiting the class, and each newly
hired sales representative must pass the exit exam to leave the training
program. Sales representatives must also participate in an advanced sales
training class and in a continuing
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<PAGE> 50
education program. The advanced sales training program focuses on advanced
sales and marketing strategies in an interactive format to maximize the sales
potential of Abana's representatives.
ABANA'S CURRENT PRODUCTS
Abana's current product line of branded generic pharmaceuticals consists
of antihistamine and decongestant products for respiratory ailments, a topical
analgesic for pain relief, and weight control products. All products currently
marketed are prescription drugs and are manufactured in compliance with FDA
regulations.
Abana's primary products and a brief description of each are as
follows:
Nasabid(R) SR is a long acting, low dose decongestant/expectorant tablet
that is indicated for sinusitis. Nasabid(R) SR is formulated to moderate
the side effects found in most decongestant products.
Vanex(TM) Forte is a long acting antihistamine/decongestant tablet that is
indicated for symptoms related to the common cold, sinusitis, hay fever
and other allergic reactions. Vanex Forte's combination of antihistamines
and decongestants offers physicians a product that reduces the incidence
of drowsiness, a side effect found in most antihistamine products.
Vanex(TM) Grape is a liquid cough suppressant that contains an
antihistamine and a decongestant. The formula features a grape flavor and
was developed specifically for the pediatric and geriatric markets.
Vanex-HD(R) is also a liquid cough suppressant that contains an
antihistamine and a decongestant. The formula features a cherry flavor
and was also developed specifically for the pediatric and geriatric
markets.
Endagen(TM)-HD is Abana's generic version of Endal(R), a product marketed
by Forest Laboratories. Endagen- HD is a liquid cough syrup indicated for
cough control and to provide temporary relief from upper respiratory tract
congestion.
Otocain(TM) is a topical anesthetic ear drop. Otocain is indicated for
relief of pain and pruritus in the ear, acute swimmer's ear, and other
forms of earaches.
Obenix(R) is an orally effective appetite suppressant with a prescribed
dosage of one capsule daily. Physicians now treat obesity as a disease
rather than as an acute disorder. Therefore, centrally acting products
similar to Obenix(R) are being prescribed more frequently.
MARKETING AND DISTRIBUTION
As of November 1, 1996, Abana employed 47 sales representatives who market
Abana's products to practicing physicians in 17 states. Abana expects to hire
approximately 10 additional sales representatives during the remainder of 1996.
Management believes that Abana's sales increase is in direct relation to the
number of successful sales representatives working on Abana's behalf.
Accordingly, the development of a capable sales force is among Abana's highest
priorities.
Since Abana's products are available only in prescription form, marketing
activity focuses upon inducing physicians to prescribe Abana's products. In
addition to selling efforts based upon the merits and characteristics of its
products, Abana provides physicians with sample product packages for use by
patients. Prescriptions for Abana's products are filled by retail pharmacies,
which purchase the products from drug wholesale companies. The drug wholesale
companies are Abana's principal customers. Abana has established a
distribution network with all major drug wholesale companies in the United
States.
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<PAGE> 51
MANUFACTURING
All of Abana's current products are manufactured under generic
formulations to Abana's specifications by independent third party contract
pharmaceutical manufacturers. Abana does not maintain long-term supply
contracts with such manufacturers. Although Abana has not experienced delays
in obtaining product inventories under such arrangements, the inability of a
third party contract manufacturer to produce and supply product could result in
product unavailability and interrupt the ability of Abana to distribute
product. Any such interruption could adversely affect Abana's business,
financial condition and results of operations and could have a longer term
adverse effect upon the perceived reliability of the brand. Management of
Abana believes that alternative sources of manufacturing for its products are
available within the industry.
COMPETITION
The manufacture and sale of pharmaceuticals is highly competitive. As a
marketer of branded generic pharmaceuticals, Abana faces competition from
original branded formulations of products and potential competition from
producers of unbranded generic equivalents of its products. Moreover, although
Abana's products are available only by prescription, its current product lines
also face competition from branded and generic non-prescription,
over-the-counter product formulations for treatment of similar ailments.
Many of Abana'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 Abana. Additionally, many of
Abana'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 Abana's products. The pharmaceutical industry
is characterized by rapid product development and technological change.
Abana's pharmaceuticals could be rendered obsolete or uneconomical by the
development of new pharmaceuticals to treat the conditions addressed by Abana's
products, as the result of the availability of similar generic equivalents in
the non-prescription market, or as the result of either technological advances
affecting the cost of production of marketing or pricing action by one or more
of Abana's competitors. Abana's business, financial condition and results of
operations could be materially and adversely affected by any one or more of
such developments.
SUPERVISION AND REGULATION
General. Abana's business is regulated by many federal and state laws,
regulations and agencies, including the Federal Food, Drug and Cosmetic Act;
the Prescription Drug Marketing Act of 1987; the FDA; the DEA; the Federal
Trade Commission; and the federal and state controlled substances acts. Abana
is in compliance with all applicable federal and state laws and regulations,
and has obtained all licenses and permits necessary to carry on its business.
The FDA and DEA licenses are in the name of Abana, but Dale E. Eads is listed
with the FDA and DEA as the responsible party.
The FDA. The FDA is responsible for enforcing the laws enacted by
Congress under the Federal Food, Drug and Cosmetic Act and the Prescription
Drug Marketing Act of 1987. The Federal Food, Drug and Cosmetic Act is the
basic drug law of the United States and is intended to assure consumers that
drugs are safe and effective for their intended uses as well as that all
labeling and packaging is truthful, informative and not deceptive. The Federal
Food, Drug and Cosmetic Act prohibits distribution of any drug required to be
approved by the FDA if such approval has not been given. Certain products, such
as new drugs, are required to be approved by the FDA for safety prior to sale
or use. Such approval is based on scientific data provided by manufacturers and
sponsors, subject to review and acceptance by FDA scientists for scope and
adequacy. Compliance with the Federal Food, Drug and Cosmetic Act is secured
through periodic inspections of facilities and products, analysis of samples,
educational activities and legal proceedings. One of the major means of
consumer protection utilized by the FDA is product recall. A recall may be
initiated by the manufacturer or shipper of the product, or may be requested by
the FDA.
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The Federal Food, Drug and Cosmetic Act requires owners or operators of
all establishments that distribute drugs in the United States to register the
establishment and the products with the FDA. Abana is currently registered and
in good standing with the FDA.
Classes of Drugs. For purposes of regulation under the Federal Food, Drug
and Cosmetic Act, drugs are divided into several major categories, each subject
to particular requirements. The largest category of drugs is defined as "new
drugs." A new drug is one that contains a newly developed chemical, a chemical
or substance not previously used in medicine, or one which has become
recognized by qualified experts as safe and effective before its intended use
as a result of investigational studies but has not otherwise been used to a
material extent or for a material time under such conditions.
A new drug may not be commercially marketed in the United States unless it
has been approved as safe and effective by the FDA. Such approval is based on
an NDA or ANDA submitted by the sponsor of the drug, containing acceptable
scientific data including the results of tests to evaluate its safety and
substantial evidence of effectiveness for the conditions for which the drug is
to be offered. Once an NDA or ANDA is approved by the FDA, the drug's formula,
manufacturing process, labeling, packaging, dosage, methods of testing, etc.,
generally may not be changed from those stated in the NDA or ANDA unless the
FDA approves a supplemental application. The one exception to this general rule
is a change which will increase assurance of safety and effectiveness of the
new drug which must be put into effect at the earliest possible time after the
drug is already on the market without waiting for approval.
Abana markets and distributes exclusively prescription drugs that may be
dispensed only by or on the prescription of a licensed practitioner, such as a
physician. Prescription drugs may not be shipped directly to the public by the
manufacturer or Abana. Prescription drugs may legally be shipped only to
persons and firms who are regularly and lawfully engaged in the wholesale and
retail distribution of prescription drugs, and to hospitals, clinics,
physicians or others licensed to prescribe such drugs. Prescription drugs may
only be shipped to consumers when dispensed either by a physician or a
pharmacist.
The Federal Food, Drug and Cosmetic Act also requires that all drugs be
properly labeled. Appropriate labeling includes the name and address of the
manufacturer or distributor, statement of the dosage strength, list of active
ingredients, expiration date, established or trade name, adequate directions
for use, adequate warnings and appropriate legends.
New Regulatory Initiatives. The United States Congress has recently held
hearings on certain promotional practices of the pharmaceutical industry, and
the FDA has recently begun scrutinizing product sampling and certain other
pharmaceutical marketing practices more closely. Although management of Abana
believes that no governmental regulations have been adopted to date that have
had an material adverse effect on Abana, Abana could be adversely affected by
future regulatory restrictions on the pharmaceutical industry. Restrictions on
product sampling in connection with the marketing of branded generic
pharmaceuticals, for example, could significantly and adversely impact the
ability of Abana to establish and build upon brand recognition of its generic
pharmaceutical formulations.
EMPLOYEES
Abana presently employs 64 individuals, including Dale E. Eads, Chairman
of the Board of Directors, President, Treasurer and Chief Executive Officer;
Perry N. Cole, Vice Chairman, Executive Vice President, Secretary and Director;
and 47 sales representatives.
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PROPERTIES
Abana maintains its administrative offices at 1 Chase Corporate Drive,
Suite 260, Birmingham, Alabama 35244 under a lease expiring February 28, 1999.
Abana's 17,670 square foot warehouse and shipping facilities are located at 105
Oxmoor Circle, Birmingham, Alabama 35209 under a lease expiring February 28,
1999.
LEGAL PROCEEDINGS AND INSURANCE
There are no material legal proceedings to which Abana is a party or to
which any of its property is subject. Abana maintains product liability
coverage of $3,000,000, which Management believes is adequate and is typical of
companies similarly situated. Abana also maintains general business liability
and property and casualty coverage.
SUMMARY FINANCIAL DATA REGARDING ABANA
The following table summarizes certain selected historical financial data
of Abana. The balance sheet data presented below as of December 31, 1994 and
1995 and as of September 30, 1995 and 1996 and the statement of operations data
for each of the years in the three-year period ended December 31, 1995 and for
the periods ending September 30, 1995 and 1996, are derived from Abana's
financial statements appearing elsewhere in this Prospectus. The balance
sheet data as of December 31, 1991, 1992 and 1993, and the statement of
operations data for the years ended December 31, 1991 and 1992, have been
derived from other financial statements of Abana and are not included in this
Prospectus. The financial data for the five years ended December 31, 1995
have been derived from audited annual financial statements of Abana. In the
opinion of Abana's management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial data
for the nine months ended September 30, 1995 and 1996 have been reflected
therein. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full year.
The summarized historical financial data should be read in conjunction with the
financial statements and related notes thereto for Abana included elsewhere in
this Prospectus and "Abana's Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------------------------- -----------------------
1991 1992 1993 1994 1995 9/30/95 9/30/96
------ ------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
STATEMENT OF OPERATIONS DATA
Sales $ 789 $1,176 $2,426 $2,948 $4,210 $2,868 $4,103
Cost of sales 260 347 608 656 619 470 736
------ ------ ------ ------ ------ ------ ------
Gross profit 529 829 1,818 2,292 3,590 2,398 3,367
Selling, general and
administrative expenses 536 897 1,853 2,391 2,718 1,939 3,194
Other income (expenses), net (42) - 10 11 17 11 23
Provision for taxes - - - - - - 35
------ ------ ------ ------ ------ ------ ------
Net income (loss) $ (49) $ (68) $ (25) $ (88) $ 889 $ 470 $ 161
====== ====== ====== ====== ====== ====== ======
Earnings (loss)per share $(0.03) $(0.03) $(0.01) $(0.04) $ 0.36 $ 0.21 $ 0.07
Weighted average shares
outstanding 1,774 2,020 2,211 2,288 2,448 2,291 2,395
Cash dividends declared per share - - - - $ 0.02 - $ 0.03
BALANCE SHEET DATA:
Cash and cash equivalents $ 88 $ 283 $ 482 $ 336 $ 920 $ 486 $ 975
Total assets $ 260 $ 618 $ 993 $ 892 $1,640 $1,193 $1,987
Stockholders' equity $ 96 $ 526 $ 898 $ 793 $1,542 $1,164 $1,633
</TABLE>
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ABANA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements of Abana and the related Notes to Financial Statements
contained elsewhere herein.
OVERVIEW
Abana was founded in 1988 and is engaged in the marketing, distribution and
sale of prescription drugs. Abana's primary area of operations is in the
southeastern United States, where it markets its products through a network of
trained sales representatives. Abana has achieved annual increases in sales by
increasing its number of sales representatives and by adding products. Total
sales have increased from $498,000 in 1990 to $4.3 million in 1995. Abana
incurred a net loss of $368,000 in 1990 and incurred net losses each year
thereafter until 1995, when it earned $889,000 in net income.
Sales are reported as gross total sales and any discounts given to
customers for early payment of their purchases are subtracted from gross total
sales to arrive at net sales. Early payment discounts given to customers
amounted to $85,456 for 1995, $59,602 for 1994, and $55,604 for 1993. Abana's
gross sales are net of any sales that are credited or refunded back to
customers under its returned goods policy.
RESULTS OF OPERATIONS - 1995 VERSUS 1994 VERSUS 1993
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 . . . . . . . . . . . . . . . . . 26.8 23.8 16.4
---- ---- ----
Gross profit on sales . . . . . . . . . . . . . 73.2 76.2 83.6
Selling, general & administrative expenses . . 74.6 79.5 63.3
---- ---- ----
Operating (loss) income . . . . . . . . . . . . (1.4) (3.3) 20.3
Other income . . . . . . . . . . . . . . . . . .4 .4 .4
(Loss) income before taxes . . . . . . . . . . (1.0) (2.9) 20.7
----- ----- ----
Net (loss) income . . . . . . . . . . . . . . (1.0) (2.9) 20.7
===== ===== ====
</TABLE>
Sales. Net sales for the year ended December 31, 1995 increased 42.8% to
$4.3 million from $3.0 million for the year ended December 31, 1994 and 21.2%
to $3.0 million from $2.4 million for the year ended December 31, 1993.
Abana's sales increases during the past three years are due primarily to unit
and dollar growth.
Gross Profit. Gross profit during 1995 increased 56.6% or $1.3 million to
$3.6 million from $2.3 million in 1994. As a percentage of net sales, margins
grew to 83.6% in 1995 from 76.2% in 1994. Gross profit during 1994 increased
26.1% or $474,000 to $2.3 million from 1993 gross profit of $1.8 million. The
increases in gross profit
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<PAGE> 55
from 1993 to 1994 and 1994 to 1995 are a result of increased sales of higher
margin products and ongoing efficiencies achieved in the cost of product
samples and literature.
Selling, General and Administrative Expenses. Selling expenses remained
essentially unchanged in 1995 at approximately $1.4 million, as compared to
1994. Selling expenses increased 17.6% or $202,000 to $1.4 million in 1994
from $1.2 million in 1993 as a result of an increase in the number of sales
representatives hired during an expansion program during 1994. As a percentage
of net sales, selling expenses amounted to 32.8% in 1995, 45.8% in 1994 and
47.3% in 1993.
General and administrative expenses increased 28.5% or $297,000 in 1995 to
$1.3 million from $1.0 million in 1994 due primarily to increases in personnel
and other administrative costs necessary to support the growth in Abana's sales
force. As a percentage of net sales, these expenses declined to 31.2% in 1995
from 34.6% in 1994.
General and administrative expenses increased 47.6% or $336,000 to $1.0
million in 1994 from $706,000 in 1993 as a result of increases in personnel,
additional warehouse space, and other administrative costs necessary to support
the expansion of the Abana's sales force.
Operating Income. Operating income during 1995 increased $971,000 to
$872,000 from the operating loss of $99,000 incurred during 1994. The increase
in sales and a higher gross profit margin helped to generate the operating
income increase.
The operating loss incurred during 1994 increased $64,000 to $99,000 from
the operating loss of $35,000 incurred during 1993. The operating loss
increase for 1994 was a result of the expansion of Abana's sales force and
related costs to support the expansion.
Other Income (Expense). Other income for 1995 includes interest income of
$23,000, which was 92.4% or $11,000 higher than the $12,000 of interest income
earned in 1994. The $12,000 of interest income earned in 1994 was 29.2% or
$3,000 higher than the $9,000 of interest income earned during 1993. The
increases in interest income from 1993 to 1994 and to 1995 are due to the
increases in the Abana's cash balances maintained in interest bearing accounts.
Discounts earned amounted to $1,988 in 1995, which is a decrease of 45.1%
or $1,632 from the discounts earned of $3,620 in 1994. The discounts earned in
1994 were 42.5% or $2,677 less than the $6,297 of discounts earned in 1993.
Discounts earned are amounts received from vendors and contract manufacturers
for early payment of invoices. Due to changes in Abana's available suppliers,
the number of vendors and contract manufacturers that offer an early payment
discount have decreased.
During 1995 Abana incurred a loss on disposal of assets comprised mainly
of obsolete equipment, of $5,974. Abana had no disposals during 1994. Abana
had a net gain of $441 on disposals of assets during 1993.
Abana's interest expense for 1995 was $2,070, which was a decrease of
50.8% or $2,138 from $4,208 in 1994. Abana's interest expense for 1994 was
$4,208, which was a decrease of 29.4% or $1,750 from $5,958 in 1993. The
decrease in Abana's interest expense between 1993 and 1994, and between 1994
and 1995, is a result of the reduction of a note payable to a former
stockholder.
Provision of Income Taxes. Abana had no provision for income taxes for
1995, 1994 and 1993 due to the net operating loss carryforwards available
during those years that were used to offset any taxable income.
Net Income. Net income increased $976,000 to $889,000 in 1995 from a net
loss of $87,000 in 1994. The net loss of $87,000 in 1994 increased $62,000
from the net loss of $25,000 in 1993.
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<PAGE> 56
The increase in net income for 1995 over the net loss for 1994 was due to
an increase in sales, higher gross profit margins and only a slight increase in
sales and marketing expenses. The increase in the net loss incurred during
1994 over the net loss incurred during 1993 was caused primarily by the
expansion of Abana's sales force and related costs to support the expansion.
BALANCE SHEET INFORMATION
Abana's current ratio at December 31, 1995 was 14:8:1, which increased
from the current ratio of 8.2:1 at December 31, 1994. Working capital at
December 31, 1995 increased $722,000 to $1.3 million from Abana's working
capital of $626,000 at December 31, 1994. The increase in Abana's current
ratio and working capital amounts for 1995 over 1994 are due primarily to
increases in Abana's cash and accounts receivable balances and only a slight
increase in its current liabilities.
Debt as a percentage of equity decreased to 0.8% at December 31, 1995,
from 4.5% at December 31, 1994 as a result of the increase in equity from the
net income earned in 1995 with no significant change in Abana's total debt from
1994 to 1995.
LIQUIDITY AND CAPITAL RESOURCES AT YEAR-END
Since its inception, Abana has financed its operation primarily through
cash flow from operations, private sales of equity securities and borrowings
under credit arrangements with banks. At December 31, 1995 and 1994, Abana had
cash and cash equivalents of $920,000 and $336,000, respectively.
Total assets increased $798,000 to $1.6 million at December 31, 1995 from
$892,000 at December 31, 1994 and total liabilities decreased $1,000 to $98,000
at December 31, 1995 from $99,000 at December 31, 1994.
Inventories decreased $51,000 to $219,000 at December 31, 1995 from
$270,000 at December 31, 1994. Accounts receivable increased $181,000 to
$277,000 at December 31, 1995 from $96,000 at December 31, 1994. Average days
in accounts receivable for 1995 was 11 days, which was an increase of 1 day over
1994 average days in accounts receivable of 10. The increase in average days
in accounts receivable is due to the increase in Abana's sales during 1995 over
1994.
Total fixed assets increased $25,000 to $219,000 at December 31, 1995 from
$194,000 at December 31, 1994, with the increase composed mainly of the
acquisition of new computer equipment. Net property and equipment decreased
$4,000 to $142,000 at December 31, 1995 from $146,000 at December 31, 1994, as
a result of an increase in depreciation expense, reflecting a full year of
depreciation during 1995 on some assets placed into service in late 1994.
Formulas and trademarks increased to $57,000 at December 31, 1995 from
$38,000 at December 31, 1994. This increase is net of 1995 amortization of
$811 and was a result of payments made to a contract manufacturer for
formulation and other costs incurred in an FDA filing for an Abbreviated New
Drug Application with respect to a new product for Abana.
Total stockholder's equity increased $749,000 to $1.5 million at December
31, 1995 from $793,000 at December 31, 1994 primarily due to the net income
earned during 1995.
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<PAGE> 57
RESULTS OF OPERATIONS - INTERIM PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
The following table sets forth, for the interim periods indicated, the
percentages which certain components of the Statement of Operations bear to
product net sales and the percentage change of such components (based on
aggregate dollars) as compared to the prior year.
<TABLE>
<CAPTION>
Three Months Ended Percentage Increase Nine Months Ended Percentage Increase
September 30, (Decrease)Aggregate September 30, (Decrease) Aggregate
-------------------- --------------------
Dollar Dollar
1995 1996 Amount 1995 1996 Amount
--------- --------- -------------------- --------- --------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0 100.0 68.2 100.0 100.0 43.0
Cost of sales 14.0 23.2 178.5 16.4 17.9 56.6
Gross profit margin 86.0 76.8 50.2 83.6 82.1 40.4
Selling, general and
administrative expenses
Selling 46.4 55.0 99.4 37.3 49.5 89.7
General & administrative 31.0 31.4 70.1 30.3 28.4 33.9
Amortization -- -- -- -- -- --
Total selling, general
& administrative
expenses 77.4 86.4 87.6 67.6 77.9 64.7
Operating Income (loss) 8.5 (9.6) (290.3) 16.0 4.2 62.2
Other income (expense) .1 -- 153.1 .4 .6 115.0
Income before income
taxes 8.7 (9.6) (285.6) 16.4 4.8 (58.1)
Provision for taxes -- 2.5 -- -- .9 --
Net income 8.7 (12.1) (333.6) 16.4 3.9 (65.6)
</TABLE>
Sales. Sales for the three months ended September 30, 1996 increased 68.2%
or $568,000 to $1.4 million from $833,000 for the three months ended
September 30, 1995. The increase in Abana's sales for this period was due
primarily to increases in unit and dollar growth.
Sales for the nine months ended September 30, 1996 increased 43.0% or $1.2
million to $4.1 million from sales of $2.9 million during the nine months
ended September 30, 1995. Abana's sales increased from the addition of new
sales representatives in early 1996 and from increases in unit and dollar
growth from maturing sales territories.
Gross Profit. Gross profit during the three months ended September 30,
1996 increased 50.2% or $360,000 to $1.1 million from $716,000 for the three
months ended September 30, 1995. Gross profit as a percentage of sales was
76.8% for the three months ended September 30, 1996, which is a decrease of
9.2% from the gross profit as a
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<PAGE> 58
percentage of sales of 86.0% for the three months ended September 30, 1995.
The increase in gross profit was due to the increase in total sales and the
decrease in gross profit as a percentage of sales was due to increases in
product acquisition costs and increases in the volume of product samples and
literature distribution.
Gross profit for the nine months ended September 30, 1996 increased
40.4% or $969,000 to $3.4 million from $2.4 million for the nine months ended
September 30, 1995. Gross profit as a percentage of sales was 82.1% for the
nine months ended September 30, 1996, which is a decrease of 1.5% from the
gross profit percentage of sales of 83.6% for the nine months ended September
30, 1995. The increase in gross profit was due to the increase in total sales
and the decrease in gross profit as a percentage of sales was due primarily to
increases in product acquisition costs, increases in the volume of products
sampled, and literature costs.
Selling, General and Administrative Expenses. Selling expenses for the
three months ended September 30, 1996 increased 8.6% as a percentage of sales
and $384,000 in aggregate dollars to $771,000 compared to selling expenses of
$387,000 for the three months ended September 30, 1995. The increase in
aggregate dollars was due to the increase in the number of sales representatives
employed in the three months ended September 30, 1996 as compared to the number
employed during the three months ended September 30, 1995. Selling expenses as
a percentage of sales increased due to higher wage and other costs associated
with selling activities.
Selling expenses for the nine months ended September 30, 1996 increased
12.2% as a percentage of sales and $960,000 in aggregate dollars to $2.0 million
from $1.1 million for the nine months ended September 30, 1995. The increase in
aggregate dollars was due to the increase in the number of sales representatives
employed during first nine months of 1996 as compared to the number employed
during the first nine months of 1995. Higher wage and other costs associated
with selling activities caused selling expenses as a percentage of sales to
increase.
General and administrative expenses for the three months ended September
30, 1996 increased 70.1% or $181,000 to $440,000 from $259,000 for the three
months ended September 30, 1995. General and administrative expenses as a
percentage of sales were 31.4% for the three months ended September 30, 1996 as
compared to 31.0% for the three months ended September 30, 1995. The increase
in the aggregate dollar amount was due primarily to an increase in general
administrative overhead costs including increased occupancy space and personnel
costs.
General and administrative expenses for the nine months ended September
30, 1996 increased 33.9% or $295,000 to $1.2 million from $869,000 for the nine
months ended September 30, 1995. As a percentage of sales, general and
administrative expenses for the nine months ended September 30, 1996 were 28.4%,
which was a decrease of 1.9% from general and administrative expense as a
percentage of sales of 30.3% for the nine months ended September 30, 1995. The
increase in aggregate dollar amounts were a result of increases in
administrative personnel, occupancy space, and general overhead costs necessary
to support the increase in the number of sales representatives employed during
the first nine months of 1996 as compared to the during the first nine months
of 1995. The decrease of 1.9% of general and administrative expense as a
percent of sales for the first nine months of 1996 as compared to the first
nine months of 1995 was due to the fixed costs included in the expenses that
decrease as a percentage of sales as sales increase.
Operating Income. Abana incurred an operating loss of $35,000 for the
three months ended September 30, 1996, which was a decrease of $206,000 from
Abana's operating income of $71,000 for the three months ended September 30,
1995. The operating loss for the three months ended September 30, 1996 was the
result of the accrual of approximately $132,000 in bonuses, an increase of
$7,275 in depreciation expense and a increase in cost of sales from product
acquisition costs which amounted to approximately $63,000, and the write-off
of inventory of some discontinued products, which amounted to approximately
$15,800.
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<PAGE> 59
For the nine months ended September 30, 1996 operating income decreased
$286,000 to $173,000 from the operating income of $459,000 earned during the
nine months ended September 30, 1995. As a percentage of sales, operating
income for the nine months ended September 30, 1996 was 4.2% and 16.0% of sales
for the nine months ended September 30, 1995. The decrease in operating
income earned during the nine months ended September 30, 1996 from the
operating income earned during the nine months ended September 30, 1995 was the
result of the three months ended September 30, 1996 expenses previously
mentioned and an overall increase in selling and general and administrative
expenses incurred to support the growth in the number of sales representatives,
and from the increase in cost of sales that resulted from increased product
acquisition costs and the write-off of inventory of discontinued products
previously mentioned.
Other Income and Expense. Abana's Other Income and Expense for the three
months ended September 30, 1996 included interest income of $9,558, which
increased 46.5% or $3,032 from interest income of $6,526 earned during the three
months ended September 30, 1995. This increase was a result of an increase in
Abana's available cash balances. Interest expense for the three months ended
September 30, 1996 was $306, which decreased 38.2% or $189 from the $495 of
interest expense for the three months ended September 30, 1995. This decrease
was a result of the reduction in the principal balance of a note payable to a
former shareholder.
A loss on disposal of equipment amounted to $268 for the three months
ended September 30, 1996 as compared to a loss of $4,554 incurred during the
three months ended September 30, 1995.
Bad debt expense of $10,319 was incurred during the three months ended
September 30, 1996 as compared to no bad debt expense incurred during the three
months ended September 30, 1995. The bad debt expense was a result of the
bankruptcy filing of Foxmeyer, one of Abana's customers.
Other miscellaneous income, net of expense, amounted to $1,086 for the
three months ended September 30, 1996, which was an increase of $657 over the
$429 of net miscellaneous income for the three months ended September 30, 1995.
The net miscellaneous income was composed primarily of discounts earned from
early payment of trade accounts payable.
Interest income earned during the nine months ended September 30, 1996
increased 95% or $15,373 to $31,525 from interest income of $16,152 earned
during the nine months ended September 30, 1995. This increase was due to the
significantly higher cash balances available for earning interest during the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995.
Interest expense for the nine months ended September 30, 1996 decreased
$1,449 to $456 from the interest expense of $1,905 incurred during the nine
months ended September 30, 1995. The decline in interest expense was due to the
reduction in the principal amount of a note payable to a former shareholder.
The loss on disposal of equipment for the nine months ended September 30, 1996
remained at $268 and the loss incurred during the nine months ended September
30, 1995 remained at $4,554.
Bad debt expense of $10,319, as previously discussed, remained the same
for the nine months ended September 30, 1996 and Abana incurred no bad debt
expense during the nine months ended September 30, 1995.
Net miscellaneous income comprising mainly of discounts earned from early
payment of trade accounts payable for the nine months ended September 30, 1996
increased 145% or $1,749 to $2,955 from $1,206 of net miscellaneous income
earned during the nine months ended September 30, 1995. Discounts earned from
early payments of trade accounts payable have increased due to the increased
purchases necessary to support Abana's increased sales volume.
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<PAGE> 60
Income Taxes A provision of $35,000 for income taxes was made in the
three months ended September 30, 1996, which was based on an estimated
effective tax rate of approximately 18% of Abana's pre-tax income for the nine
months ended September 30, 1996. Abana had net operating loss carryforwards
available to offset taxable income earned during the three months ended
September 30, 1995 and for the nine months ended September 30, 1995. The net
operating loss carryforwards were used in full to offset taxable income during
the nine months ended September 30, 1996.
Net Income. Abana incurred a loss per share of $0.07 for the three months
ended September 30, 1996, which is a decrease of $.10 per share from the
earnings of $0.03 per share for the three months ended September 30, 1995.
Average shares outstanding for the three months ended September 30, 1996 and
1995 were 2,267,213 and 2,469,381, respectively.
Earnings per share for the nine months ended September 30, 1996 and 1995
were $0.07 per share on 2,394,917 average shares outstanding and $0.21 per share
on 2,291,176 average shares outstanding, respectively.
MANAGEMENT
The following table sets forth certain information with respect to the
Abana's Directors and executive officers as of November 1, 1996:
Name Age Position(s) with Abana
- ---- ---- ----------------------
Dale E. Eads 48 Chairman of the Board of Directors, President, Chief
Executive Officer and Treasurer
Perry N. Cole 40 Vice Chairman of the Board of Directors, Executive Vice
President, Chief Financial Officer and Secretary
John W. Fuqua 39 Vice President of Sales and Marketing
J. Dante Graham 36 Director of Sales
Angela E. Holley 26 Director of Technical & Education Services and Director
Dennis M. Jones 57 Director
Dale E. Eads joined Abana as its President, Chief Executive Officer,
Treasurer and Director in December 1988, and was elected Chairman of the Board
of Directors in 1993. Mr. Eads' experience includes over 20 years of service
in the pharmaceutical industry. From January 1988 to December 1988, he served
as Director of Sales of E.T.M., a company engaged in the electronic training
business. From 1983 through 1987, he served as National Sales Manager of Russ
Pharmaceuticals, Inc., a Birmingham, Alabama pharmaceutical company, where he
was in charge of recruiting, sales training and marketing. He personally
hired, trained and assisted in supervising over 80 sales representatives.
Prior to that time, he served as a medical sales representative and as a Field
Supervisor for Reid-Provident Laboratories and for Syntex Laboratories, Ltd.
His responsibilities include product development, public relations, and general
corporate officer functions.
Perry N. Cole is Vice Chairman of the Board of Directors, Executive Vice
President, Chief Financial Officer, and Secretary and is in charge of Abana's
administrative and operational functions. His experience includes twelve years
of service in the pharmaceutical industry. He has held the positions of
Executive Vice President, Secretary and
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<PAGE> 61
a Director since December 1988, and was Chairman of the Board until 1993 when
he was elected Vice Chairman. From February 1984 to December 1986, he served
as Treasurer and a Director of Russ Pharmaceuticals, Inc. where he was in
charge of the financial and administrative functions. At Russ he implemented a
computerized accounting and reporting system, assisted in two private placement
common stock offerings, managed the corporate finances, and supervised
administrative personnel. He graduated from Samford University in 1978 with a
Bachelor of Science degree in Business Administration, is a Certified Public
Accountant and practiced public accounting with a Birmingham, Alabama CPA firm
from 1978 to 1984.
John W. Fuqua has served as Vice President of Sales and Marketing of Abana
since January 1, 1996. He served as Regional Business Manager of
Hoechst-Roussel Pharmaceuticals from 1981 to 1996, and District Business
Manager in Birmingham, Alabama, and Montgomery, Alabama, where he built a top
producing district, from 1991 to 1993. He has been in the pharmaceutical
industry since 1981. His current responsibilities include the day-to-day sales
and marketing responsibilities.
J. Dante Graham has served as Director of Sales of Abana since March 1995.
From 1983 to 1989, he was in charge of district sales and sales management of
Wholesale Merchandise of Atlanta, Georgia. He was employed by Abana as a sales
representative in 1991 and was promoted to District Manager in July 1992. His
district was part of a major expansion during 1992 when he took District 2 to
over one million dollars in sales in two years. In July 1994 he was promoted
to head special projects and to Director of Sales in 1995. His current
responsibilities include direct supervision of the District Business Managers
and the sales force.
Angela E. Holley has served as Director of Technical & Education Services
since August, 1991. Her experience includes over six years of service in the
pharmaceutical industry and many successful sales achievements. She was
elected a Director of Abana in May 1993, and served as a sales representative
and as Sales Training Manager from 1991 to the present. From June 1987 to
August 1991, she was employed as the office manager of a retail pharmacy owned
by Harco Drug Company. With a background in public health, she is responsible
for the development of all patient education and medical information. Her
responsibilities also include the development of all training programs and
continuing education for the sales force.
Dennis M. Jones has served as a Director of Abana since June 1992 pursuant
to the Stock Purchase Agreement between Abana and JMED. See "Background of the
Transaction - Prior Investment by JMED in Abana Stock" and "Description of
Capital Stock of Abana - Other Matters - Stock Purchase Agreement." Mr. Jones
is the founder and has been the Chief Executive Officer and Chairman of the
Board of JMED since its organization in March 1981. JMED manufactures and
markets pharmaceutical and nutritional products. He is also a Director of Mark
Twain State Bank, a subsidiary of Mark Twain Bancshares, Inc., and has served
in that capacity since 1987.
There are no other arrangements or understandings known to Abana between
any of Abana's Directors or executive officers and any other person pursuant to
which such person was or is to be selected as a Director or an executive
officer of Abana. Dale E. Eads is the father of Angela E. Holley.
CERTAIN EMPLOYMENT AND COMPENSATION MATTERS
Although it is anticipated that each of Abana's officers will continue to
be employed by the Surviving Corporation following the Merger, and will serve
in substantially similar positions, none of such persons will have an
employment contract with either the Surviving Corporation or JMED and it is not
anticipated that any of such persons will become an officer or director of
JMED. Each of the Principal Holders will, as a condition to the Merger,
deliver to JMED a non-competition agreement. See "The Agreement - Agreements
of Principal Holders - Non- Competition Agreement."
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<PAGE> 62
Stock Options. The 1988 Stock Option Plan of Abana (the "Stock Option
Plan"), which was approved and adopted as of March 7, 1988, is designed to
qualify under Section 422A of the Internal Revenue Code with respect to options
granted thereunder which are designated as "incentive stock options." Under
the Stock Option Plan, options may be granted to purchase common stock of Abana
at not less than 100% of the fair market value of the underlying shares on the
date of grant (or 110% of such fair market value in the case of any optionee
who held more than 10% of the combined voting power of Abana's stock as of the
date of the grant). The Stock Option Plan is administered by the Stock Option
Plan Committee (the "Committee"), which consists of not less than two members,
at least one of whom must be a member of the Abana's Board of Directors. The
Committee is empowered to designate options granted under the Stock Option Plan
as "incentive stock options" ("ISOs") or as non-qualified stock options
("NQOs"). Options designated as ISOs will be issued subject to the requirements
of Section 422A of the Internal Revenue Code. All options not specifically
designated by the Committee as ISOs shall be deemed to be NQOs. The duration
of options granted under the Stock Option Plan is determined by the Committee,
but cannot exceed ten years (or five years in the case of optionees who held
more than 10% of the combined voting power of the Abana's stock as of the date
of the grant).
The aggregate fair market value (determined as of the time the option is
granted) of the common stock with respect to which ISOs are exercisable for the
first time by any person during any calendar year under the Stock Option Plan
shall not exceed $100,000 plus any unused limit carryover permitted pursuant to
Section 422A of the Internal Revenue Code.
As of November 1, 1996, Abana had outstanding ISO options to purchase
120,000 shares of Abana common stock at exercise prices ranging from $2.00 to
$7.50 per share under the Stock Option Plan and nonqualified options to
purchase 62,136 shares of Abana common stock at an exercise price of $1.30 per
share. Such options are held as follows:
Each of the Principal Holders holds options to purchase an aggregate of
71,068 shares of the common stock of Abana granted under Abana's 1988 Stock
Option Plan, which options are currently exercisable. Options to purchase
31,068 of such shares are "non-qualified options" exercisable at $1.30 per
share and options to purchase 40,000 of such shares are intended to qualify as
"incentive stock options" exercisable at $2.20 per share. The Principal
Holders have agreed not to exercise such options prior to the closing of the
Merger. Pursuant to the Merger, such options will be converted into (i) an
option to acquire 6,835 shares of the Common Stock of JMED at $5.91per share
and (ii) an option to acquire 8,800 shares of the Common Stock of JMED at
$10.00 per share.
John W. Fuqua holds an option granted under Abana's 1988 Stock Option Plan
for the purchase of 10,000 shares of the common stock of Abana at $2.00 per
share which will become exercisable on January 1, 1998 and expires on January
1, 2006. Pursuant to the Merger, such option will be converted into an option
to acquire 2,200 shares of the Common Stock of JMED at a price of $9.09 per
share with the same exercise and expiration terms.
On October 23, 1996, Abana granted additional options to purchase shares
of Abana's common stock at a price of $7.50 per share as follows: John W.
Fuqua, 15,000 shares; J. Dante Graham, 7,500 shares; and Angela E. Holley, 7,500
shares. As a result of the Merger such options will be converted into options
to acquire shares of Common Stock of JMED at $34.12 per share as follows: John
W. Fuqua, 3,300 shares; J. Dante Graham, 1,650 shares; and Angela E. Holley,
1,650 shares. Such options will become exercisable in five equal annual
installments, commencing on October 23, 1997, and will expire on October 22,
2002.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to each
person, or group of persons, known by Abana to be the beneficial owner of any
of Abana's common stock, par value $.01 per share, its only outstanding class
of voting securities, and as to the beneficial ownership thereof of all Abana's
Directors and executive officers, individually, and all Abana's directors and
officers as a group, as at November 1, 1996:
<TABLE>
Name and Address Number of Percentage
of Beneficial Owner Shares Owned(1) Owned
------------------- --------------- ----------
<S> <C> <C>
Dale E. Eads 733,000(2) 31.25%
#1 Chase Corporate Drive,
Suite 260
Birmingham, Alabama 35244
Perry N. Cole 733,000(3) 31.25%
#1 Chase Corporate Drive,
Suite 260
Birmingham, Alabama 35244
Dennis M. Jones(4) 0 0
1945 Craig Road
St. Louis, Missouri 63146
Jones Medical Industries, Inc. 362,519 15.94%
1945 Craig Road
St. Louis, Missouri 63146
Angela E. Holley 12,000 *
1245 Tahiti Circle
Alabaster, Alabama 35007
All Officers and Directors as a Group (5 persons) 1,478,000(5) 61.17%
</TABLE>
- --------------------------
* less than 1 percent
(1) Abana understands that all of the shares listed are owned by the named
holder with sole voting power and sole investment power.
(2) Includes 71,068 shares of common stock reserved for issuance upon the
exercise of options exercisable by him within sixty days under Abana's
Stock Option Plan.
(3) Includes 71,068 shares of common stock reserved for issuance upon the
exercise of options exercisable by him within sixty days under Abana's
Stock Option Plan.
(4) Dennis M. Jones, a Director of Abana, is also the Chairman of the Board
and Chief Executive Officer of JMED, and is deemed to own beneficially
approximately 17.7% of the outstanding shares of the Common Stock of JMED
(including shares held by his wife, Judith A. Jones, who is also an
officer and director of JMED).
(5) Includes 142,136 shares of common stock reserved for issuance upon the
exercise of options exercisable within sixty days under Abana's Stock
Option Plan.
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<PAGE> 64
COMPARISON OF SHAREHOLDER RIGHTS
Since both Abana and JMED are Delaware corporations, there are no
significant differences in the relative rights of shareholders of the two
companies except that holders of the common stock of Abana are currently
parties, together with each other and Abana, to a Stockholders' Agreement which
restricts the sale or transfer of shares of Abana, grants certain rights of
first refusal to Abana and other shareholders with respect to proposed sales
and other dispositions of such stock and provides rights to Abana and other
shareholders to purchase the shares in certain events, including a holder's
death or bankruptcy. See "Description of Capital Stock of Abana - Other
Matters - Stockholders' Agreement." The rights and restrictions arising under
the Stockholders' Agreement will not survive the Merger or otherwise apply to
the shares of the Common Stock of JMED to be issued in the Merger.
DESCRIPTION OF CAPITAL STOCK OF ABANA
Abana's authorized capital stock consists of 5,000,000 shares of common
stock, par value of $.01 per share. As of September 30, 1996, there were
2,274,213 shares of Abana common stock outstanding and held of record by
approximately 130 stockholders. Stockholders are entitled to one vote for each
share of common stock on matters to be voted on by the stockholders of Abana.
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 Abana legally
available for distribution to its stockholders in the event of the liquidation,
dissolution or winding-up of Abana. Except for certain contract rights granted
to JMED, as described below under the caption "Other Matters," holders of Abana
common stock have no preemptive, subscription, redemption or conversion rights.
Also as described below in "Other Matters" all of the holders of Abana common
stock, except for JMED, have signed a Stockholders' Agreement restricting the
sale or hypothecation of the shares of Abana common stock owned by them unless
a right of first refusal is first given to Abana and then to Abana's other
stockholders on a pro-rata basis. All of the issued and outstanding shares of
Abana common stock are duly authorized, validly issued, fully paid and
nonassessable.
DELAWARE LAW
Abana 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_% of the outstanding voting stock which is not owned by the interested
stockholder.
Subpart (c)(5) of Section 203 defines an "interested stockholder" as any
person (other than the corporation and any direct or indirect majority-owned
subsidiary of the corporation) that (i) is the owner of 15% or more of the
outstanding voting stock of the corporation, or (ii) is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the 3-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder; and the affiliates and
associates of such person; provided, however, that the term "interested
stockholder" shall not include (x) any person who (A) owned shares in excess of
the 15% limitation set forth herein as of, or acquired such shares pursuant to
a tender offer commenced prior to, December 23, 1987, or pursuant to an
exchange offer announced prior
45
<PAGE> 65
to the aforesaid date and commenced within 90 days thereafter and either (I)
continued to own shares in excess of such 15% limitation or would have but for
action by the corporation or (II) is an affiliate or associate of the
corporation and so continued (or so would have continued but for action by the
corporation) to be the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the 3-year period immediately prior to the
date on which it is sought to be determined whether such a person is an
interested stockholder or (B) acquired said shares from a person described in
item (A) of this paragraph by gift, inheritance or in a transaction in which no
consideration was exchanged; or (y) any person whose ownership of shares in
excess of the 15% limitation set forth herein is the result of action taken
solely by the corporation; provided that such person shall be an interested
stockholder if thereafter such person acquires additional shares of voting
stock of the corporation, except as a result of further corporate action not
caused, directly or indirectly, by such person.
By virtue of its ownership interest of approximately 16% of the
outstanding shares of Abana common stock, JMED is an "interested stockholder"
as to Abana. However, because JMED has been an interested stockholder in Abana
for more than three years and because JMED's initial acquisition of and
investment in the common stock of Abana was approved by the board of directors
of Abana, Section 203's prohibition on business combinations with interested
stockholders is not applicable to the Merger.
OTHER MATTERS
Stock Purchase Agreement. Pursuant to a Stock Purchase Agreement entered
into on June 1, 1992, between JMED and Abana, JMED was granted a 30-day right
of first refusal with respect to any offer to provide long-term equity
financing which Abana receives. The Stock Purchase Agreement also granted JMED
the preemptive right to purchase shares of Abana common stock in such amounts
as to preserve JMED's proportionate dividend and voting rights at prices no
less favorable than those at which shares are offered to others. Under the
Stock Purchase Agreement, JMED is also entitled to elect one member to Abana's
board of directors.
Stockholders' Agreement. Pursuant to the Stockholders' Agreement dated as
of March 7, 1988, each holder of Abana common stock has agreed to restrict the
transfer of Abana common stock owned by the stockholder. Notwithstanding the
general restriction or transfer of Abana common stock, the Stockholders'
Agreement provides that if a stockholder receives a bona fide third party
offer, then he may sell his Abana common stock but only after he has first
offered the Abana common stock to Abana, and if such offer is not accepted by
Abana within thirty (30) days, he must offer the Abana common stock to Abana's
other stockholders on a pro-rata basis. If the offer is not accepted by the
other holders of Abana common stock, then the stockholder may sell his Abana
common stock to the third party pursuant to the terms of the bona fide offer.
On the death of the holder of Abana common stock, Abana has the option to
purchase the Abana common stock from the estate of the deceased stockholder at
the fair market value of the Abana common stock as determined by an independent
appraiser. If Abana does not exercise its option, then the surviving holders
of Abana common stock may purchase the Abana common stock from the estate of
the deceased stockholder at the fair market value of the Abana common stock on
a pro-rata basis. If neither Abana nor the surviving holders of Abana common
stock exercise their options, then the shares of Abana common stock owned by
the deceased stockholder shall pass under the laws of descent and distribution.
By its terms, the Stockholders' Agreement remains in full force and effect
until terminated by (a) the written agreement among all holders of Abana common
stock, (b) the dissolution or bankruptcy of Abana, (c) Abana registers its
shares for a public offering of securities, or (d) there is only one holder of
Abana common stock.
In Shields v. Shields, 498 A.2d 161 (1985), the Court of Chancery of
Delaware ("Shields Court") held that the statutory conversion of stock in a
constituent corporation that is effected by a stock for stock merger does not
constitute a sale, transfer or exchange of that stock for purposes of an
agreement among shareholders restricting their power to transfer their stock.
The Shields Court further held that the effect of such a merger is to
extinguish and terminate the stock restriction agreement as of the effective
date of the merger since the security to which the
46
<PAGE> 66
agreement applied no longer exists. Accordingly, by virtue of the Merger,
the Stockholders' Agreement will expire as of the Closing Date under the
Agreement.
DESCRIPTION OF COMMON STOCK OF JMED
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $.04 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
As of September 30, 1996, there were 27,998,325 shares of Common Stock of
JMED outstanding and held of record by 780 stockholders. 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 issued in the Merger
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 of winding-up of the Company before any payment
is made to the holders of the Common Stock. As of September 30, 1996, there
were no shares of Preferred Stock currently designated or outstanding.
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.
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 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_% of the outstanding voting stock which is not owned by the interested
stockholder.
47
<PAGE> 67
LEGAL MATTERS
The validity of the shares of the Common Stock of JMED to be issued in
connection with the Merger will be passed upon for JMED 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
(including Mr. Chod) beneficially owned an aggregate of _____ shares of the
Common Stock of JMED as of November 1, 1996.
The opinion of counsel included as Appendix A to this Prospectus and
described under the caption "The Merger - Certain Federal Income Tax
Consequences" has been rendered by Sirote & Permutt, P.C., Birmingham, Alabama,
and is included in reliance upon such firm as counsel to Abana in connection
with the Agreement and the Merger.
EXPERTS
The consolidated financial statements of JMED appearing in its Form 10-K
for the year ended December 31, 1995, and the restated consolidated financial
statements of JMED as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, appearing in JMED's Current
Report on Form 8-K dated November 8, 1996, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The balance sheets as of December 31, 1994 and 1995, and the statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995 of Abana, have been audited by Martin
Stuedeman & Associates, P.C., certified public accountants, as indicated in
their report with respect thereto, in reliance upon the authority of said firm
as experts in accounting and auditing.
48
<PAGE> 68
INDEX TO FINANCIAL INFORMATION
FINANCIAL STATEMENTS OF ABANA PHARMACEUTICALS, INC.
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 . . . . . . . F-4
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995. . . F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited Balance Sheets as of December 31, 1995 and September 30, 1996 . . . . . . . . . . F-12
Unaudited Statements of Operations for the three months ended September 30, 1995 and 1996
and for the nine months ended September 30, 1995 and 1996 . . . . . . . . . . . . F-13
Unaudited Statement of Stockholders' Equity for the nine months ended
September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Unaudited Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Notes to Unaudited Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . F-16
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction and Notes to Unaudited Pro Forma
Condensed Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . F-18
Unaudited Pro Forma Condensed Combined Balance Sheets of
JMED and Abana as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . F-19
Unaudited Pro Forma Condensed Combined Statement of Income of
JMED and Abana for the nine months ended September 30, 1996 . . . . . . . . . . . F-20
Unaudited Pro Forma Condensed Combined Statement of Income of
JMED and Abana for the year ended December 31, 1995 . . . . . . . . . . . . . . . F-21
</TABLE>
F-1
<PAGE> 69
[MARTIN STUEDEMAN & ASSOCIATES, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Abana Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Abana Pharmaceuticals, Inc.
(a Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1993, 1994, and, 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Abana Pharmaceuticals, Inc. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MARTIN STUEDEMAN & ASSOCIATES, P.C.
March 22, 1996
(except for Note 11, as to
which the date is October 24, 1996)
F-2
<PAGE> 70
ABANA PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash $ 335,501 $ 919,898
Accounts receivable 96,146 277,245
Inventories 269,935 218,902
Other 11,535 29,720
----------- ----------
Total current assets 713,117 1,445,765
Intangible assets:
Formulas and trademarks 37,650 57,103
Computer software 14,117 18,926
Leasehold improvements 3,315 3,315
----------- ----------
Less accumulated amortization 55,082 79,344
7,557 12,206
----------- ----------
Net intangible assets 47,525 67,138
Net property, plant and equipment 131,182 126,749
Other Assets 90 90
----------- ----------
Total assets $ 891,914 $1,639,742
=========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 62,928 $ 40,189
Current portion of long-term debt 24,000 12,000
Dividends payable - 45,336
Other liabilities 25 100
----------- ----------
Total current liabilities 86,953 97,625
----------- ----------
Long-term debt, less current portion 12,000 -
Stockholders' equity:
Common stock, $0.01 par value, 5,000,000 shares
authorized,
2,299,770 and 2,316,770 shares issued, 22,998 23,168
2,290,520 and 2,266,999 shares outstanding 1,785,009 1,811,148
Contributed capital (994,846) (151,425)
Accumulated deficit (20,200) (140,774)
Treasury stock, at cost, 8,250 and 49,882 shares ----------- ----------
Total stockholders' equity 792,961 1,542,117
----------- ----------
Total liabilities and stockholders' equity $ 891,914 $1,639,742
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
ABANA PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales $2,481,724 $3,007,561 $4,295,152
Cost of sales 664,038 715,535 704,871
---------- ---------- ----------
Gross Profit 1,817,686 2,292,026 3,590,281
Selling, general and administrative expenses:
Selling 1,146,789 1,348,902 1,379,002
General and administrative 706,146 1,042,060 1,339,459
---------- ---------- ----------
Total selling, general and administrative expenses 1,852,935 2,390,962 2,718,461
---------- ---------- ----------
Operating income (loss) (35,249) (98,936) 871,820
---------- ---------- ----------
Other income (expense):
Interest income 9,248 11,950 22,993
Discounts earned 6,297 3,620 1,988
Gain (Loss) on disposal of assets 441 (5,974)
Interest expense (5,958) (4,208) (2,070)
---------- ---------- ----------
Net income (loss) $ (25,221) $ (87,574) $ 888,757
========== ========== ==========
Earnings per common and common equivalent share ($0.01) ($0.04) $ 0.36
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
ABANA PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
Number of Shares Treasury
Common Common Stock Contributed Capital Retained Earnings Shares Total
---------------- ------------ ------------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 2,181,881 $21,819 $1,400,423 $(882,051) $ (14,440) $ 525,791
Proceeds from stock offering 100,000 1,000 378,357 - - 379,357
Exercise of stock options 12,639 126 17,547 - - 17,673
Net income (loss) - - - (25,221) - (25,221)
Balance at December 31, 1993 2,294,520 22,945 1,796,327 (907,272) (14,400) 897,600
Exercise of stock options 6,100 61 11,549 - - 11,610
Net income (loss) - - - (87,574) - (87,574)
Capital returned (850) (8) (22,867) - - (22,875)
Stock purchased for treasury - - - - (5,800) (5,800)
Balance at December 31, 1994 2,299,770 22,998 1,785,009 (994,846) (20,200) 792,961
Exercise of stock options 17,000 170 26,139 - - 26,309
Net income (loss) - - - 888,757 - 888,757
Stock purchased for treasury - - - - (120,574) (120,574)
Cash dividends paid - - - (45,336) - (45,336)
Balance at December 31, 1995 2,316,770 $23,168 $1,811,148 $(151,425) $(140,774) $1,542,117
</TABLE>
The acompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
ABANA PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(25,221) $ (87,574) $ 888,757
Noncash adjustments
Depreciation and amortization 11,867 24,062 33,646
(Gain) loss from disposal of assets (441) - 5,974
Change in assets and liabilities
Accounts receivable (66,723) 43,658 (181,099)
Inventories (70,335) (6,945) 51,033
Prepaid expenses (13,900) 4,738 (18,185)
Deposits - (50) -
Accounts payable (675) 43,343 (20,939)
Other liabilities (647) (280) 75
401(k) plan 17,705 (17,704) -
Interest payable (900) (1,238) (1,800)
-------- --------- ---------
Net cash from operating activities (149,270) 2,010 757,462
-------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (40,431) (102,077) (45,347)
Proceeds from sale of assets 4,000 - 10,000
Purchases of formulas and trademarks (1,208) (4,595) (19,453)
Purchases of leasehold improvements - (3,315) -
-------- --------- ---------
Net cash from investing activities (37,639) (109,987) (54,800)
-------- --------- ---------
FINANCING ACTIVITIES
Repayment of long-term debt (12,000) (21,000) (24,000)
Net proceeds from issuance of common stock 397,030 11,610 26,309
Purchase of treasury stock - (5,800) (120,574)
Capital returned - (22,875) -
-------- --------- ---------
Net cash from (used for) financing 385,030 (38,065) (118,265)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents 198,121 (146,042) 584,397
Cash and cash equivalents, beginning of year 283,422 481,543 335,501
-------- --------- ---------
Cash and cash equivalents, end of year $481,543 $ 335,501 $ 919,898
======== ========= =========
Supplemental disclosure of cash flows information
Cash paid during the year for interest $ 6,858 $ 5,445 $ 3,870
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
ABANA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Abana Pharmaceuticals, Inc. is a Delaware corporation, incorporated on March 7,
1988. The company is engaged in the business of marketing, distribution and
sale of prescription drugs.
ACCOUNTS RECEIVABLE
Management believes that all accounts receivable as of December 31, 1994 and
1995 are fully collectible; therefore, no allowance for doubtful accounts has
been established.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out method.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired
or otherwise disposed of and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is provided using the straight-line method for books and
accelerated methods for tax over the estimated useful lives of the assets which
are as follows:
Machinery and equipment 5-10 years
Leasehold improvements 5 years
Depreciation expense charged to operations for the years ended December 31,
1993, 1994, and 1995 was $10,032, $23,261, and $ 32,835, respectively.
FORMULAS AND TRADEMARKS
Formulas and trademarks are being amortized by the straight line method over
forty years. Amortization expense charged to operations for the years ended
December 31, 1993, 1994, and 1995 was $1,835, $801, and $811, respectively.
F-7
<PAGE> 75
ABANA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1993, 1994 AND 1995
2. LINE OF CREDIT
The Company has available a $600,000 line of credit with The Bank of Vernon.
At December 31, 1994 and 1995, there were no outstanding balances associated
with this line.
3. LONG-TERM DEBT
Long-term debt consists of the following:
1994 1995
---------- ---------
Note payable to former shareholder in connection with
purchase of treasury stock. Principal payments due in
monthly installments of $1,000 beginning April 1, 1991
through March 1, 1994 and $2,000 beginning April, 1994.
Interest at 9% accrues monthly and is paid annually on
March 31.
$ 36,000 $ 12,000
--------- --------
Less current maturities (24,000) (12,000)
--------- --------
$ 12,000 $ -0-
========= ========
4. LEASE COMMITMENTS
The Company leases office and warehouse space under two noncancelable operating
lease agreements. The terms of the leases are for five years, with options to
renew.
Future minimum rental payments required under the leases as of December 31,
1995 as follows:
1996 $131,309
1997 132,133
1998 132,133
1999 22,022
--------
$417,597
Total rental expense for the years ended December 31, 1993, 1994, and 1995 were
$53,843, $119,002, and $127,172, respectively.
5. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of trade accounts receivables and cash on
deposit in financial institutions. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
geographic areas. As of December 31, 1995, the Company had no significant
concentrations of credit risk with respect to collectibility of trade accounts
receivables.
F-8
<PAGE> 76
ABANA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1993, 1994 AND 1995
The Company maintains its cash balances in financial institutions located in
Birmingham, Alabama. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1994 and 1995, the Company's
uninsured cash balances totaled $154,149 and $841,784, respectively.
6. 401(K) SAVINGS PLAN
During 1992 the Company established a 401(k) savings plan for the benefit of
its employees. Employees of the Company may participate in a 401(k) savings
plan, whereby employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length of service requirements. An
employee can contribute up to ten percent of their salary. The Company makes a
matching contribution of ten percent. The Company can also, at the discretion
of the officers, make an additional contribution based on the Company's
performance. The total administrative expense and Company contributions for
the years ended December 31, 1993, 1994, and 1995, were $21,032, $4,267, and
$7,368, respectively.
7. TREASURY STOCK
During the year ended December 31, 1994 and 1995 the Company purchased 2,050
and 40,623 shares of common stock for the treasury at a cost of $5,800 and
$120,574, respectively.
8. STOCK OPTION PLAN
Under the terms of the Company's Stock Option Plan the Company may grant
incentive or non-qualified options to officers and other key employees of the
Company. At December 31, 1994 and 1995, there were 401,261 and 384,261 shares,
respectively, reserved in the Plan for distributions. All options outstanding
at December 31, 1995 will expire no later than January 1, 2006 or at the time
of termination from the Company.
The table below summarizes stock option activity, over the past two years under
the current plan:
<TABLE>
<CAPTION>
Number of Option Price
Shares (range per share)
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1994 181,861 $1.30-2.20
Granted 10,000 $2.00
Exercised (6,100) $1.30-2.00
Cancelled or expired (9,700)
--------
Outstanding at December 31, 1994 176,061 $1.30-2.20
Granted 20,000 $2.00
Exercised (17,000) $1.30-2.00
Cancelled or expired (13,500)
--------
Outstanding at December 31, 1995 165,561 $1.30-2.20
======== ===========
</TABLE>
F-9
<PAGE> 77
ABANA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1993, 1994 AND 1995
9. COMMITMENTS AND CONTINGENCIES
The Company, from time to time, becomes involved in various legal matters which
it considers to be in the ordinary course of business. While the Company is
not presently able to determine the potential liability, if any, related to
such matters, the Company believes none of the matters, individually or in the
aggregate, will have a material adverse effect on its financial position.
10. INCOME TAXES
The components of deferred tax assets and liabilities pursuant to SFAS
No. 109 are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $402,525 $27,478
Deferred tax liability:
Depreciation (7,800) (9,697)
Valuation Allowance (394,725) (17,781)
--------- --------
Net deferred tax asset $-0- $-0-
</TABLE>
The Company's effective tax rate differs from the expected federal income tax
rate as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at statutory rate $(4,539) $(15,763) $308,409
Increase (decrease) in valuation allowance 5,548 19,266 (376,944)
State income taxes (benefit), net of federal benefit $(1,009) $(3,503) $68,535
-------- -------- -------
Actual income taxes -0- -0- -0-
</TABLE>
The corporation has available, for tax purposes as benefits to reduce taxes on
future income, the following estimated carryforwards at December 31, 1995:
Year Year of Net
Originated Expiration Operating Loss
---------- ---------- --------------
1993 2008 211
1994 2009 70,253
--------
$ 70,466
========
F-10
<PAGE> 78
ABANA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1993, 1994 AND 1995
11. SUBSEQUENT EVENT
On October 24, 1996, the Company and its majority shareholders signed an
agreement to be acquired by merger into a subsidiary of Jones Medical
Industries, Inc. Under the terms of the agreement, Jones Medical Industries,
Inc. will issue approximately 420,000 shares of its common stock to Abana's
stockholders (other than Jones Medical Industries, Inc.) to acquire 100%
ownership of the Company. Management expects this transaction to be
consummated on or about December 31, 1996.
F-11
<PAGE> 79
ABANA PHARMACEUTICALS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 919,818 $ 975,193
Accounts receivable 277,245 297,779
Inventories 218,902 436,012
Deferred income taxes - -
Prepaid expenses and other 29,720 19,991
---------- ----------
Total current assets 1,445,765 1,728,975
Net property, plant and equipment 126,749 190,516
Net intangible assets 67,138 67,423
Other assets 90 90
---------- ----------
$1,639,742 $1,987,004
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 40,289 $ 354,218
Current portion of long-term debt 12,000 -
Dividends payable 45,336 282
---------- ----------
Total current liabilities 97,625 354,499
Long-term debt - -
Deferred income taxes - -
Contingencies and commitments - -
Stockholders' equity:
Common stock 23,168 23,171
Contributed capital 1,811,148 1,811,795
Treasury stock, at cost, 9,250 and 49,882 shares (140,774) (144,774)
Accumulated deficit (151,425) (57,687)
---------- ----------
Total stockholders' equity 1,542,117 1,632,505
---------- ----------
$1,639,742 $1,987,004
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 80
ABANA PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- --------------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 832,789 $1,400,833 $2,868,324 $4,103,136
Cost of sales 116,723 325,051 469,955 735,996
---------- ---------- ---------- ----------
Gross profit 716,065 1,075,781 2,398,369 3,367,140
Selling, general adminstrative expenses:
Selling 386,462 770,716 1,069,485 2,029,149
General and administrative 258,528 439,648 869,383 1,164,085
Amortization 200 265 599 664
---------- ---------- ---------- ----------
Total selling, general and administrative expenses 645,189 1,210,629 1,939,466 3,193,898
---------- ---------- ---------- ----------
Operating income (loss) 70,876 (134,847) 458,903 173,242
Other income (expense):
Interest income 6,526 9,558 16,152 31,525
Interest expense (495) (306) (1,905) (456)
Loss on disposal of equipment (4,554) (268) (4,554) (268)
Provision for bad debt - (10,319) - (10,319)
Other income (expense) 429 1,086 1,206 2,955
---------- ---------- ---------- ----------
Income (loss) before income taxes 72,782 (135,096) 469,802 196,678
Income taxes - 35,000 - 35,000
Net income (loss) $ 72,782 $ (170,096) $ 469,802 $ 161,678
========== ========== ========== ==========
Average shares outstanding 2,469,381 2,267,213 2,291,176 2,394,917
Earnings per common and common equivalent share $ 0.03 $ (0.07) $ 0.21 $ 0.07
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 81
ABANA PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1995 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $469,801 $161,679
Noncash adjustments
Depreciation and amortization 23,459 32,213
Provision for uncollectibles - 10,319
Loss from disposal of assets 4,554 -
Change in assets and liabilities (127,152) (27,041)
Accounts receivable (19,806) (217,045)
Inventories (12,493) 9,729
Prepaid expenses and other assets (52,354) 265,064
Accounts payable and accrued expenses -------- --------
Net cash from operating activities 286,009 234,918
-------- --------
INVESTING ACTIVITIES
Additions to property and equipment (22,933) (96,334)
Proceeds from sale of property and equipment 10,000 -
Additions to formulas and trademarks (4,935) -
Additions to computer software - -
-------- --------
Net cash used for investing activities (17,868) (96,334)
-------- --------
FINANCING ACTIVITIES
Repayment of long-term debt (18,000) (12,000)
Payment of dividends - (67,939)
Proceeds from exercise of stock options 6,000 650
Purchase of treasury stock (104,687) (4,000)
-------- --------
Net cash used for financing (116,687) (83,289)
-------- --------
Increase in cash and temporary investments 151,454 55,295
Cash and temporary investments, beginning of 335,501 919,898
period -------- --------
Cash and temporary investments, end of period $486,955 $975,193
======== ========
Supplemental disclosure of cash flows
information:
Cash paid during the year for interest $ 1,905 $ 456
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 82
ABANA PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Number of
Shares Common Contributed Retained Treasury
Common Stock Capital Earnings Shares Total
--------- ------ ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,299,770 $ 22,998 $ 1,785,009 $(994,846) $ (20,200) $ 792,961
Exercise of stock options 3,000 30 5,970 - - 6,000
Net income (loss) - - - 469,801 - 469,801)
Stock purchased for treasury - - - - (104,688) (104,688
Cash dividends paid - - - - - -
---------- -------- ------------ --------- ---------- -----------
Balance at September 30, 1995 2,302,770 23,028 1,790,979 (525,045) (124,888) 1,164,074
========== ======== ============ ========= ========== ===========
Balance at December 31, 1995 2,316,770 23,168 1,811,148 (151,425) (140,774) 1,542,117
Exercise of stock options 325 3 647 - - 650
Net income (loss) - - - 161,678 - 161,678)
Stock purchased for treasury - - - - (4,000) (4,000)
Cash dividends paid - - - (67,940) - (67,940
---------- -------- ------------ --------- ---------- -----------
Balance at September 30, 1996 2,317,095 $ 23,171 $ 1,811,795 $ (57,687) $(144,774) 1,632,505
========== ======== ============ ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 83
ABANA PHARMACEUTICALS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. GENERAL
The unaudited interim financial information reflects all adjustments
(consisting of normal recurring accruals) which management considers necessary
for a fair presentation of the results of operations for such periods and is
subject to year end adjustments. Certain footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from the unaudited interim
financial information as permitted by the rules and regulations of the
Securities and Exchange Commission. Management believes that the disclosures
made are adequate to make the information presented not misleading. The
results for the interim periods are not necessarily indicative of the results
for the full year. It is suggested that these financial statements be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 1995.
2. 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 the period (2,469,381 and 2,291,176 for the three months and
nine months ended September 30, 1995; 2,267,213 and 2,394,917 for the three
months and nine months ended September 30, 1996.)
3. INVENTORIES
Inventories are valued at the lower of cost or market on a first in, first
out basis.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
------------- -------------
<S> <C> <C>
Machinery and equipment . . . . . . . . . . $203,277 $292,216
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . 76,528 101,700
-------- --------
$126.749 $190,516
======== ========
</TABLE>
F-16
<PAGE> 84
ABANA PHARMACEUTICALS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
5. INTANGIBLE ASSETS
Intangible assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
------------ -------------
<S> <C> <C>
Leasehold improvements . . . . . . . . . $ 3,315 $ 3,315
Computer software . . . . . . . . . . . 18,926 19,721
Formulas and trademarks . . . . . . . . 51,493 50,829
-------- --------
73,734 73,865
Less accumulated
amortization . . . . . . . . . . . . . . 6,596 6,442
------- -------
$67,138 $67,423
======= =======
</TABLE>
6. INCOME TAXES
The provision for income taxes at September 30, 1996 of $35,000 is based
on an effective annual income tax rate of 18%.
7. COMMITMENTS AND CONTINGENCIES
The Company, from time to time becomes involved in various legal matters
which it considers to be in the ordinary course of business. While the
Company is not presently able to determine the potential liability, if
any, related to such matters, the company believes none of the matters,
individually or in the aggregate, will have a material adverse effect on
its financial position.
F-17
<PAGE> 85
JONES MEDICAL INDUSTRIES, INC.
ABANA PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma condensed combined balance sheet of
Jones Medical Industries, Inc. ("JMED") at September 30, 1996 has been prepared
to give effect to the acquisition of Abana Pharmaceuticals, Inc. ("Abana") as
if the acquisition (the "Merger") had occurred on September 30, 1996. The
related pro forma condensed combined statements of income for the year ended
December 31, 1995 and the nine months ended September 30, 1996, have been
prepared to give effect to the acquisition of Abana as if the Merger had
occurred at the beginning of the respective periods.
These unaudited pro forma condensed combined financial statements do not
purport to represent what JMED's financial position or results of operations
for the indicated periods would actually have been had the transactions in fact
occurred on the indicated dates, or to project JMED's financial position or
results of operations for any future periods. The pro forma adjustments are
based upon available information and upon certain assumptions that management
of JMED believes are reasonable under the circumstances.
The pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements and notes thereto for
Abana which are included elsewhere in this Prospectus and in conjunction with
(i) the historical consolidated financial statements and notes thereto for JMED
which are incorporated by reference in this Prospectus to the Company's Current
Report on Form 8-K dated November 8, 1996 (restating the historical financial
statements and notes thereto filed with in the Compnay's 10-K for the year
ended December 31, 1995, but reflecting the Daniels Acquistion on August 30,
1996, as a "pooling of interests" transaction) and (ii) the Company's Quarterly
Report on Form 10-Q for the three and nine months ended September 30, 1996.
See "Incorporation of Certain Documents by Reference."
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(A) To record the purchase of the common stock of Abana by JMED, to allocate
the purchase price to the fair value of the assets, less the liabilities
assumed and to eliminate Abana's equity accounts.
(B) To reclassify JMED's prior investment in the common stock of Abana.
(C) To record amortization expense for the acquired intangibles using
estimated economic lives of approximately 25 years.
(D) Pro forma combined earnings per common share and common equivalent share
reflect the adjustment in pro forma combined net income and the increase
in outstanding shares assuming the Common Stock of JMED to be issued in
the Merger were outstanding during the entire period.
(E) To record increase in tax provision due to net operating loss
carryforwards of Abana that would not be utilized by the combined
entities.
F-18
<PAGE> 86
JONES MEDICAL INDUSTRIES, INC. - ABANA PHARMACEUTICALS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
JMED Abana Combined
September September Before Pro Forma Pro Forma
30, 1996 30, 1996 Adjustments Adjustments Combined
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash & cash equivalents $ 46,518 $ 975 $ 47,493 - $ 47,493
Marketable securities 120 - 120 - 120
Accounts receivable, net 10,325 298 10,623 - 10,623
Inventory 12,895 436 13,331 - 13,331
Deferred income taxes 1,694 - 1,694 - 1,694
Prepaid expenses and other 804 20 824 - 824
-------- ------ -------- ----------- --------
Total current assets $ 72,356 $1,729 $ 74,085 - $ 74,085
Non-current assets
Net plant, property & equip 22,748 187 22,935 - 22,935
Intangible assets, net 57,080 71 57,151 (A) $13,868 71,019
Other assets 2,701 - 2,701 (B) (500) 2,201
-------- ------ -------- ----------- --------
Total non-current assets $ 82,529 $ 258 $ 82,787 $13,368 $ 96,155
Total Assets $154,885 $1,987 $156,872 $13,368 $170,240
======== ====== ======== =========== ========
Liabilities & Stockholder Equity
Current liabilities
Accounts payable & accruals $ 5,384 $ 354 $ 5,738 - $ 5,738
Current portion long term debt 3,000 - 3,000 - 3,000
Income taxes payable 7 - 7 - 7
Dividends payable 560 - 560 - 560
-------- ------ -------- ----------- --------
Total current liabilities $ 8,951 $ 354 $ 9,305 - $ 9,305
Deferred income taxes 4,526 - 4,526 (A) 76 4,602
Total stockholders' equity 141,408 1,633 143,041 (A) 13,292 156,333
-------- ------ -------- ----------- --------
Total Liabilities &
Stockholders' Equity $154,885 $1,987 $156,872 $13,368 $170,240
</TABLE>
F-19
<PAGE> 87
JONES MEDICAL INDUSTRIES, INC. - ABANA PHARMACEUTICALS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
JMED Abana
9 months 9 months Pro Forma Pro Forma
9/30/96 9/30/96 Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $73,810 $4,024 $77,834
Cost of sales 30,305 657 30,962
------- ------ -------
Gross margin $43,505 $3,367 $46,872
S, G & A expenses
Selling 11,122 1,908 13,030
General & administrative 6,178 1,284 7,462
Research & development 286 - 286
Amortization 1,920 - (C) $ 446 2,366
Acquisition costs(1) 5,665 - 5,665
------- ------ ----------- -------
Total S,G & A $25,171 $3,192 $ 446 $28,809
------- ------ ----------- -------
Operating Income $18,334 $ 175 $ (446) $18,063
Other income, net 1,199 24 - 1,223
------- ------ ----------- -------
Income before taxes $19,533 $ 199 $ (446) $19,286
Income taxes 8,158 35 (E) 45 8,238
------- ------ ----------- -------
Net Income $11,375 $ 164 $ (491) $11,048
======= ====== =========== =======
Average shares outstanding 27,776 (D) 421 28,197
======= ========== =======
Earnings per share $ 0.41 $ 0.39
======= =======
</TABLE>
(1) Reflecting expenses associated with the Daniels Acquisition
F-20
<PAGE> 88
JONES MEDICAL INDUSTRIES, INC. - ABANA PHARMACEUTICALS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
JMED Abana
year ended year ended Pro Forma Pro Forma
12/31/95 12/31/95 Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $74,792 $4,210 $79,002
Cost of sales 32,754 620 33,374
------- ------ -------
Gross margin $42,038 $3,590 $45,628
S, G & A expenses
Selling 12,679 1,379 14,058
General & administrative 7,193 1,339 8,532
Research & development 453 - 453
Amortization 1,430 - (C) $595 2,025
------- ------ -------- -------
Total S,G & A $21,755 $2,178 $595 $25,068
------- ------ -------- -------
Operating Income $20,283 $ 872 $(595) $20,560
Other income, net (483) 17 - (466)
------- ------ -------- -------
Income before taxes $19,800 $ 889 $(595) $20,094
Income taxes 7,411 - (E) 330 7,741
------- ------ -------- -------
Net Income $12,389 $ 889 $(925) $12,353
======= ====== ======= =======
Average shares outstanding 24,844 (D) 421 25,265
======= ======== =======
Earnings per share $0.50 $0.49
===== =====
</TABLE>
F-21
<PAGE> 89
APPENDIX A
[SIROTE & PERMUTT LETTERHEAD]
November __, 1996
Abana Pharmaceuticals, Inc.
Suite 260
One Chase Corporate Drive
Birmingham, Alabama 35244
Attn: Dale E. Eads
Re: Merger of Abana Pharmaceuticals, Inc. with and into Abana Acquisition
Corporation, a wholly-owned subsidiary of Jones Medical Industries, Inc.
Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences of the merger of Abana Pharmaceuticals, Inc., a Delaware
corporation (the "Company") with and into Abana Acquisition Corporation, a
Delaware corporation ("AAC"), a wholly-owned subsidiary of Jones Medical
Industries, Inc., a Delaware corporation ("JMED"), in exchange for shares of
JMED Common Stock, as hereinafter described. Our opinion is based on (i) the
Agreement of Reorganization and Agreement (the "Agreement") entered into as of
October 24, 1996, by and among the Company, JMED, Dale E. Eads ("Eads") and
Perry N. Cole ("Cole") (Eads and Cole are referred to herein as the "Principal
Holders"); (ii) the Form S-4 Registration Statement to be filed with the
Securities and Exchange Commission in connection with the Merger (the
"Registration Statement"); and (iii) the facts, representations, and
assumptions set forth below. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Agreement, as the case may be.
FACTS
The following facts were ascertained from our review of the Agreement and
the Registration Statement. In rendering our opinions below, we have assumed
all of the facts stated herein and therein are accurate, without independently
verifying the accuracy of any such facts. Furthermore, we are relying on the
truth of the covenants, representations, and warranties of the Company, JMED,
AAC, and the Principal Holders as set forth in the Agreement.
Capital Structure of the Company
The Company is a corporation duly organized and existing under the laws of
the State of Delaware with authorized capital consisting of 5,000,000 shares of
common stock, par value $.01 per share ("Company Common Stock"), of which
2,274,213 shares are issued and outstanding and held by approximately 130
shareholders ("Shareholders").
Appendix A - Page 1
<PAGE> 90
Capital Structure of AAC and JMED
AAC is a corporation duly organized and existing under the laws of the
state of Delaware with authorized capital consisting of [1,000] shares, of
common stock, par value $[._] per share, of which [1,000] shares are issued
and outstanding and held by JMED.
JMED is a corporation duly organized and existing under the laws of the
state of Delaware with authorized capital consisting of (i) 30,000,000 shares
of common stock, par value $.04 per share ("JMED Common Stock"), of which
__________________ were issued and outstanding as of September 30, 1996; and
(ii) 1,000,000 shares of preferred stock, of which no shares were issued and
outstanding as of September 30, 1996.
The Merger
The Agreement provides for the merger of the Company with and into AAC
pursuant to Section 251 of the Delaware General Corporation Law ("DGCL") (the
"Merger"). Upon consummation of the Merger, the separate corporate existence
of the Company shall cease, and AAC shall continue as the surviving
corporation. All property of the Company of every kind and description shall
be vested in and devolve upon AAC without further act and deed, and AAC shall
assume all of the liabilities of every kind and description of the Company.
On the Closing Date, each share of the Company Common Stock issued and
outstanding immediately before the Closing Date shall be converted into
approximately 0.22 shares of JMED Common Stock. The Agreement provides that the
Shareholders will receive cash in lieu of fractional shares of JMED Common
Stock.
In Section 2.3 of the Agreement, JMED agrees to file with the Securities
and Exchange Commission the Registration Statement on Form S-4 relating to the
shares of the JMED Common Stock to be issued to the Shareholders other than the
Principal Holders pursuant to the Agreement and to use its reasonable best
efforts to cause the Registration Statement to become effective. In Section
2.4 of the Agreement, JMED agrees to file a registration statement under which
JMED agrees to register the shares of JMED Common Stock to be issued to the
Principal Holders and to keep the prospectus that is a part of the registration
statement current for at least two years after the Closing Date.
To secure the Principal Holders' indemnification for breaches of
representations, warranties and covenants, the Principal Holders will each
deposit into escrow with a third party escrow agent 30,000 shares (the
"Indemnity Shares") of the JMED Common Stock to be received in the Merger
pursuant to Section 1.6 of the Agreement and the Indemnification and Escrow
Agreement attached thereto as Exhibit I (the "Escrow Agreement"). Under the
Escrow Agreement, the escrow agent will hold the Indemnity Shares in escrow
until March 31, 1998, at which time the escrow agent will disburse to the
Principal Holders all but 10,000 of the Indemnity Shares except to the extent
required to satisfy indemnification claims, if any, made by JMED under the
Agreement. All remaining Indemnity Shares shall be released from the escrow
and distributed to the Principal Holders on the later of: (i) the date upon
which all pending claims by JMED or AAC for indemnification have been resolved
or (ii) the earlier of (a) thirty (30) days following the completion of any and
all audits of the federal and state tax returns of Abana for periods ending on
or prior to the Closing Date or (b) September 15, 1999. During the term of the
Escrow Agreement, the escrow agent shall disburse any dividends received with
respect to the Indemnity Shares.
In connection with your request that we furnish this opinion, certain
representations have been made to us by the Company and the Principal Holders
and certain assumptions have been made by us with respect to the existence of
certain facts. These constitute material representations and assumptions
relied upon by us as a basis for our opinion, and our opinion is conditioned
upon the initial and continuing accuracy of these representations and
assumptions. These representations and assumptions are substantially the same
as the representations required by the Internal Revenue Service (the "IRS") in
order to seek a private letter ruling with respect to the applicability of
Section 368(a)(1)(A) and (2)(D) of the Internal Revenue Code of 1986, as
amended (unless otherwise stated, all
Appendix A - Page 2
<PAGE> 91
references to Sections refer to the Internal Revenue Code of 1986, as amended),
as set forth in Revenue Procedure 86-42, 1986-2 C.B. 722, section 7.03.
Although the IRS has announced that it will no longer issue advance rulings
under Section 368(a)(1)(A), it did not revoke Revenue Procedure 86-42.
Specifically, the Company and the Principal Holders have been represented to us
that:
1. As of the date of this opinion, the fair value of the JMED Common Stock
and other consideration receivable by the Shareholders will be
approximately equal to the fair value of the Company Common Stock to be
surrendered in the exchange.
2. There is no present plan or intention by the Principal Holders or, to the
best of the Principal Holders' knowledge, any of the other Shareholders to
sell, exchange or otherwise dispose of a number of shares of JMED Common
Stock to be received in the Merger that would reduce the aggregate
ownership of JMED Common Stock to a number of shares having a value, as of
the date of the Merger, of less than 50 percent of the value of all of the
formerly outstanding Company Common Stock as of the date of the Merger.
For purposes of this representation, shares of the Company Common Stock
and shares of JMED Common Stock held by the Shareholders and otherwise
sold, redeemed, or disposed of prior to, or with respect to which there is
a plan or intent to so sell, redeem or dispose of subsequent to, the
Merger will be considered in making this representation.
3. AAC will acquire at least 90 percent of the fair value of the net assets
and at least 70 percent of the fair value of the gross assets held by the
Company immediately prior to the Merger. For purposes of this
representation, the Company assets used to pay its reorganization expenses
and all redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding the Merger will be
included as assets of the Company held immediately prior to the Merger.
4. The liabilities of the Company assumed by AAC and the liabilities to
which the transferred assets of the Company are subject were incurred by
the Company in the ordinary course of business.
5. Neither JMED nor AAC will pay the expenses of the Company or the
Shareholders incurred in connection with the Merger.
6. There is no intercorporate indebtedness existing between JMED and the
Company or between AAC and the Company that was issued, acquired, or will
be settled at a discount.
7. The Company is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A).
8. The fair value of the assets of the Company transferred to AAC will equal
or exceed the sum of the liabilities assumed by AAC, plus the amount of
liabilities, if any, to which the transferred assets are subject.
9. No stock of AAC will be issued in the Merger.
10. The following representations pertain to the terms and conditions
associated with the Escrow Agreement:
(a) There is a valid business reason for establishing such escrow;
(b) The Indemnity Shares will appear as issued and outstanding on the
balance sheet of JMED and such stock is legally outstanding under
applicable state law;
(c) All dividends paid on the Indemnity Shares during the period of
the Escrow Agreement will be distributed currently to
the Principal Holders;
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(d) All voting rights of the Indemnity Shares will be exercisable by
or on behalf of the Principal Holders;
(e) None of the Indemnity Shares are subject to restrictions requiring
their return to JMED because of death, failure to continue
employment, or similar restrictions;
(f) All Indemnity Shares will be released from the escrow within 5
years from the Closing Date (except where there is a bona fide
dispute as to whom the stock should be released);
(g) The return of the Indemnity Shares will not be triggered by an
event the occurrence or nonoccurrence of which is within the
control of the Principal Holder;
(h) The return of Indemnity Shares will not be triggered by the
payment of additional tax or reduction in tax paid as a result
of an IRS audit of the Company or the Principal Holders with
respect to the Merger;
(i) The mechanism for the calculation of the number of shares of the
Indemnity Shares to be returned is objective and readily
ascertainable; and
(g) At least 50 percent of the number of shares of JMED Common Stock
issued initially to Company Shareholders in the merger is not
subject to such escrow arrangement.
In addition to the above factual representations, we have assumed the
existence of the following facts for purposes of rendering our opinion:
1. Prior to the Merger, JMED will be in control of AAC within the meaning
of Section 368(c).
2. Following the Merger, AAC will not issue additional shares of its stock
that would result in JMED losing control of AAC within the meaning of Section
368(c).
3. JMED has no plan or intention to reacquire any of the JMED Common Stock
issued in the Merger except for Indemnity Shares reacquired by JMED pursuant to
the Escrow Agreement.
4. JMED has no plan or intention to liquidate AAC; to merge AAC with and
into another corporation; to sell or otherwise dispose of the AAC stock; or to
cause AAC to sell or otherwise dispose of any of the assets of the Company
acquired in the Merger, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C).
5. Following the Merger, AAC will continue the historic business of the
Company or use a significant part of the Company's historic business assets in
a business.
6. Neither the Company, JMED, nor AAC is an investment company as defined
in Sections 368(a)(2)(F)(iii) and (iv).
7. [The JMED Common Stock exchanged by AAC in the Merger will be received
by AAC immediately prior to and in connection with the Merger.]
8. The Merger will be carried out strictly in accordance with the terms of
the Agreement.
9. The Shareholders will receive cash in lieu of fractional shares of JMED
in the Merger in accordance with Section 1.3 of the Agreement.
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10. There are no other agreements, arrangements, or understandings among
any of the Company, the Shareholders, JMED, and AAC other than those described
or referenced in the Agreement.
11. The Merger will constitute a statutory merger under the applicable
laws of the State of Delaware.
12. The Shareholders will not dispose of the JMED Common Stock received by
the Shareholders in the Merger to such extent as to cause the Merger to not
satisfy the continuity of proprietary interest requirement of Treasury
Regulation Section 1.368-1(b).
LEGAL AUTHORITIES
Section 368(a)(1)(A) defines a "reorganization" to include a statutory
merger. Treasury Regulation Section 1.368-2(b)(1) provides that in order to
qualify as a reorganization under Section 368(a)(1)(A) the transaction must be
a merger effected pursuant to the corporation laws of the United States or a
State or Territory or the District of Columbia.
Section 368(a)(2)(D) provides that a transaction otherwise qualifying
under Section 368(a)(1)(A) shall not be disqualified by reason of the fact that
stock of a corporation which is in control, within the meaning of Section
368(c), of the acquiring corporation is used in the transaction if (i) the
acquiring corporation acquires "substantially all of the properties" of the
acquired corporation as a result of the transaction, and (ii) no stock of the
acquiring corporation is used in the transaction.
Control is defined in Section 368(c) as the ownership of stock possessing
at least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of stock of the corporation.
Treasury Regulation Section 1.368-2(b)(2) provides that the term
"substantially all" under Section 368(a)(2)(D) has the same meaning as it has
in Section 368(a)(1)(C). The IRS provided in Revenue Ruling 57-518, 1957-2
C.B. 253 that the test for substantially all under Section 368(a)(1)(C) will
depend on the facts and circumstances in each case rather than upon any
particular percentage. For advance ruling purposes, the IRS indicated in
Revenue Procedure 77-37, 1977-2 C.B. 568 that the "substantially all"
requirement will be satisfied if there is a transfer of assets representing at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by the acquired
corporation immediately prior to the transfer.
Treasury Regulation Section 1.368-1(b) provides that requisite to a
reorganization under Section 368(a) is a continuity of the business enterprise
under the modified corporate form. Treasury Regulation Section 1.368-1(d)(2)
provides that continuity of business enterprise requires that the acquiring
corporation either (i) continue the historic business of the acquired
corporation or (ii) use a significant portion of the acquired corporation's
historic business assets in a business.
Treasury Regulation Section 1.368-1(b) also provides that requisite to a
reorganization under Section 368(a)(1) is a continuity of interest in the
business enterprise on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization. For advance
ruling purposes, the IRS provided in Revenue Procedure 77-37, 1977-2 C.B. 568
that the continuity of interest requirement is satisfied if there is a
continuing interest through stock ownership in the acquiring corporation (or a
corporation in control thereof) on the part of the direct or indirect former
owners of the acquired corporation which is equal in value, as of the effective
date of the reorganization, to at least 50 percent of the value of all of the
formerly outstanding stock of the acquired corporation as of the same date.
Sales, redemptions, and other dispositions of stock occurring prior or
subsequent to the plan of reorganization will be considered in determining
whether there is a 50 percent continuing interest
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through stock ownership as of the effective date of the reorganization.
Revenue Procedure 77-37, by its terms, does not define, as a matter of law, the
lower limits of continuity of interest. See, e.g., John A. Nelson Co. v.
Helvering, 296 U.S. 374 (1935); Helvering v. Minnesota Tea Co., 296 U.S. 378
(1935); Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936).
The direct or indirect owners of the acquired corporation must not plan or
intend, at the time of the reorganization, to sell, exchange or otherwise
dispose of a number of shares of the stock of the acquiring corporation (or the
corporation in control thereof) received in the reorganization that would
negate the required continuity of interest in the acquiring corporation under
Treasury Regulation Section 1.368-1(b); if they do have such a plan or intent,
any post-reorganization sales of such stock will be taken into account in
determining whether the continuity of interest requirement is satisfied. See
e.g., McDonald's Restaurants of Illinois v. Commissioner, 688 F.2d 520 (7th
Cir. 1982); Penrod v. Commissioner, 88 T.C. 1415 (1987).
In Revenue Procedure 84-42, 1984-1 C.B. 521, the IRS stated that in
reorganization transactions a portion of the stock issued in exchange for the
requisite stock or property may be placed in escrow by the exchanging
shareholders for possible return to the issuing corporation under specified
conditions provided that: (i) there is a valid business reason for establishing
the arrangement; (ii) the stock subject to such arrangement appears as issued
and outstanding on the balance sheet of the issuing corporation and such stock
is legally outstanding under applicable state law; (iii) all dividends paid on
such stock will be distributed currently to the exchanging shareholders; (iv)
all voting rights of such stock are exercisable by or on behalf of the
shareholders or their authorized agent; (v) no shares of such stock are subject
to restrictions requiring their return to the issuing corporation because of
death, failure to continue employment, or similar restrictions; (vi) all such
stock is released from the arrangement within 5 years from the date of the
consummation of the transaction (except where there is a bona fide dispute as
to whom the stock should be released), (vii) at least 50 percent of the number
of shares of each class of stock issued initially to the shareholders is not
subject to the arrangement; (viii) the return of stock will not be triggered by
an event the occurrence or nonoccurrence of which is within the control of the
shareholders; (ix) the return of stock will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an audit by the IRS of
the shareholders or the corporation; and (x) the mechanism for the calculation
of the number of shares of stock to be returned is objective and readily
ascertainable.
Section 354(a)(1) provides the general rule that no gain or loss shall be
recognized if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization. Section 368(b)(2) defines a party to a reorganization to
include in the case of a reorganization under Section 368(a)(2)(D) the acquired
corporation, the acquiring corporation, and the corporation in control of the
acquiring corporation.
Section 1223(l) provides that in determining the period for which the
taxpayer has held property received in an exchange, there shall be included the
period for which he held the property exchanged if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis in
whole or part in his hands as the property exchanged and the property exchanged
at the time of such exchange was a capital asset as defined in Section 1221.
Section 361(a) provides the general rule that no gain or loss shall be
recognized to a corporation if such corporation is a party to a reorganization
and exchanges property, in pursuance of the plan of reorganization, solely for
stock or securities in another corporation a party to the reorganization.
Section 358(a)(1) provides that in the case of an exchange to which
Section 354 applies, the basis of the property permitted to be received under
Section 354 without the recognition of gain or loss shall be the same as that
of the property exchanged.
Appendix A - Page 6
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OPINIONS
Based upon the facts, representations, and assumptions set forth above,
the authorities and ruling policies of the IRS discussed above as applied to
those facts, representations, and assumptions and conditioned upon the initial
and continuing accuracy of the representations and assumptions set forth above,
it is our opinion that:
1. The Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and (2)(D), and the Company, AAC, and JMED will each be a
party to the reorganization within the meaning of Section 368(b).
2. No gain or loss will be recognized by the Shareholders upon the receipt
of shares of JMED Common Stock in exchange for shares of the Company Common
Stock pursuant to the Merger.
3. Shareholders who receive cash in lieu of fractional shares of JMED
Common Stock will recognize gain to the extent the amount of cash received
exceeds the tax basis of the fractional JMED Common Stock interest or recognize
loss to the extent the tax basis of the fractional JMED Common Stock interest
exceeds the amount of cash received. Such gain or loss shall be long term
capital gain or loss, provided the Company Common Stock was held as a capital
asset for at least one year immediately prior to the Merger.
4. The tax basis of the shares of JMED Common Stock to be received by each
of the Shareholders in the Merger will be the same as the tax basis for its
Company Common Stock.
5. The holding period of the JMED Common Stock received by the Shareholders
in the Merger will include the holding period of the shares of the Company
Common Stock exchanged therefor, provided the Company Common Stock was held as
a capital asset immediately before the Merger.
6. No gain or loss will be recognized by the Company upon the transfer of
its assets to AAC pursuant to the Merger.
In rendering our opinions, we have considered and relied upon the
authorities and ruling policies of the IRS discussed above, all of which are
subject to change prospectively and retroactively. No assurance can be given
that the federal income tax consequences of the Merger under subsequent
legislation, Treasury Regulations, administrative rulings and interpretations,
or judicial decisions will be the same as the federal income tax consequences
stated in this opinion.
We have rendered the foregoing opinions as of the date hereof, and we do
not undertake to supplement our opinions with respect to factual matters or
changes in the law which may hereafter occur.
We express no opinion as to the tax treatment of the Merger under the
provisions of any other Sections of the Code which may also be applicable
thereto or to the tax treatment of any conditions existing at the time of, or
effects resulting from, the transactions which are not specifically addressed
in the foregoing opinions.
Our opinions expressed herein are given to you by us solely for your use
and are not to be quoted or otherwise referred to or furnished to any
governmental agency (other than to the Securities and Exchange Commission as an
exhibit to the Registration Statement or to the IRS in connection with an
examination of the Merger) or to other persons without our prior written
consent. We hereby consent to the use of our name under "Certain Federal
Income Tax Consequences" in the Registration Statement and the filing of a copy
of this opinion as an exhibit to the Registration Statement.
Sincerely,
Sirote & Permutt, P.C.
Appendix A - Page 7
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APPENDIX B
DELAWARE GENERAL CORPORATION LAW
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of
the merger or consolidation will be either listed on a
national securities exchange or designated as a national
market system security on an interdealer quotation
system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsection (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
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consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
Appendix B - Page 3
<PAGE> 99
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
Appendix B - Page 4
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of Section 145 of Chapter One of Title 8 of the Delaware
Code, amended (Section 145 of the General Corporation Law of the State of
Delaware), read as follows:
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 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
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<PAGE> 101
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
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).
By virtue of the representations and warranties made by Abana
Pharmaceuticals, Inc. ("Abana") and Dale Eads and Perry Cole as "Principal
Holders" (of Abana) in connection with the Plan of Reorganization and Agreement
filed as Exhibit 2.1 to this Registration Statement, the Registrant and its
directors and officers may be entitled, directly or indirectly, to
indemnification from the Principal Holders with respect to information provided
to the
II-2
<PAGE> 102
Registrant by Abana for inclusion in the Registration. Any such
indemnification would be limited by and subject to the terms of the
Indemnification and Escrow Agreement in the form of Exhibit I to the Plan of
Reorganization and Agreement, which Indemnification and Escrow Agreement is
filed as Exhibit 2.2 to this Registration Statement.
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a). Exhibits:
2.1 Plan of Reorganization and Agreement dated as of October 24,
1996, by and among Jones Medical Industries, Inc., Abana
Pharmaceuticals, Inc., Dale Eads and Perry Cole.
2.2 Form of Indemnification and Escrow Agreement to be entered
among Jones Medical Industries, Inc., Dale Eads, Perry Cole
and Mark Twain Bank as Escrow Agent.
5.1 Opinion of Greensfelder, Hemker & Gale, P.C. with respect to
the validity of the securities offered hereby.
8.1 Opinion of Sirote & Permutt, P.C. with respect to certain
tax matters (included as Appendix A to the Prospectus
included in this Registration Statement).
10.1 Form of Non-Competition Agreement to be entered between
Jones Medical Industries, Inc. and each of Dale Eads and
Perry Cole.
23.1 Consent of Greensfelder, Hemker & Gale, P.C. (included in
Exhibit 5.1 above)
23.2 Consent of Sirote & Permutt, P.C. (included in Exhibit 8.1
above)
23.3 Consent of Ernst & Young LLP
23.4 Consent of Martin Stuedeman & Associates, P.C.
23.5 Consent of Hacker, Johnson, Cohen & Grieb
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
(b). Financial Statement Schedules
<not applicable>
(c). Not Applicable.
ITEM 22. UNDERTAKINGS.
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<PAGE> 103
(a). Not Applicable.
(b). The undersigned registrant hereby undertakes to respond to
requests for information that it incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(c). The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
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<PAGE> 104
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 8th day of November, 1996.
JONES MEDICAL INDUSTRIES, INC.
By /s/ Dennis M. Jones
--------------------------------
Dennis M. Jones, Chairman of the Board,
President & 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, Judith A. Jones and
Michael T. Bramblett, or any 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, Judith A.
Jones and Michael T. Bramblett, or any 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, Judith A. Jones and Michael T.
Bramblett, or any 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.
SIGNATURES TITLE DATE
- -------------------------- -------------------------------- ------------------
/s/ Dennis M. Jones Chairman of the Board, November 8 , 1996
- -------------------- President, Chief Executive
Dennis M. Jones, President Officer and Director
/s/ Judith A. Jones Principal Financial Officer, November 8 , 1996
- -------------------- Executive Vice President,
Judith A. Jones Secretary, Treasurer and
Director
/s/ Michael T. Bramblett Executive Vice President and November 8 , 1996
- ------------------------- Director
Michael T. Bramblett
/s/ Edward A. Chod Director November 8 , 1996
- -------------------
Edward A. Chod
/s/ C. Andrew Franz Senior Vice President - November 8 , 1996
- -------------------- Operations - Pharmaceuticals
C. Andrew Franz and Director
/s/ David A. McLaughlin Senior Vice President - November 8 , 1996
- ------------------------ Operations - Nutritionals and
David A. McLaughlin Director
- -------------------------- Director November ___, 1996
Stanley Lopata
- -------------------------- Director November ___, 1996
L. John Polite, Jr.
- -------------------------- Director November ___, 1996
Thomas F. Patton
II-5
<PAGE> 1
PLAN OF REORGANIZATION AND AGREEMENT
This Plan of Reorganization and Agreement is made and entered into as of
October 24, 1996, by and among Jones Medical Industries, Inc. ("JMED"), a
Delaware corporation, and Abana Pharmaceuticals, Inc. ("Abana"), a Delaware
corporation, and Dale Eads ("Eads") and Perry Cole ("Cole"), individual
shareholders of Abana resident in the State of Alabama.
Witnesseth That:
Whereas, Abana is primarily engaged in the distribution and sale
of pharmaceutical products; and
Whereas, JMED has for a number of years owned 362,519 shares of
the common stock of Abana representing approximately 16% of the
currently outstanding capital stock of Abana; and
Whereas, subject to the terms and conditions of this Agreement,
JMED wishes to acquire and succeed to the operations of Abana in
exchange for shares of voting capital stock of JMED in a
reorganization qualifying under Section 368(a) of the Internal
Revenue Code of 1986, as amended, and will establish Abana
Acquisition Corporation ("AAC") as a wholly-owned subsidiary of
JMED to enter into transactions to accomplish such acquisition and
reorganization; and
Whereas, subject to the terms and conditions of this Agreement,
the Board of Directors of Abana favors and recommends to its
shareholders the adoption of the plan of reorganization set forth
in this Agreement and the approval of the transactions
contemplated hereby; and,
Whereas, each of Eads and Cole (individually a "Principal Holder"
and collectively the "Principal Holders") holds shares of the
voting capital stock of Abana representing in excess of
twenty-nine percent (29%) of the voting capital stock of Abana and
each Principal Holder joins in the execution and delivery of this
Agreement with Abana and JMED to adopt and approve the
reorganization transactions contemplated hereby by written consent
of holders of a majority of the outstanding stock of Abana
pursuant to Section 228 of Delaware General Corporation Law
("DGCL") and to fulfill certain conditions to the reorganization;
Now Therefore, in consideration of the premises and the covenants,
representations and undertakings hereinafter contained, the parties hereto
agree as follows:
<PAGE> 2
I. THE REORGANIZATION TRANSACTIONS
1.1 Merger. On the Closing Date, as hereinafter defined, Abana shall
merge with and into AAC (the "Merger") which shall be the surviving
corporation (the "Surviving Corporation") and pursuant to which: (a) each
outstanding share of the capital stock of AAC shall be exchanged for and
converted into a share of the common capital stock of the Surviving
Corporation; (b) each outstanding share of the capital stock of Abana shall be
exchanged for and converted into the Merger Consideration as hereinafter
defined, provided, however, that (i) no fractional shares of the voting capital
stock of JMED constituting the Merger Consideration shall be issued, (ii)
shares of the capital stock of Abana held by JMED or AAC shall be canceled and
retired, and (iii) each share of the common stock of Abana held by any holder
of Abana exercising rights as a dissenting shareholder in accordance with the
DGCL shall, in lieu of being converted into the Merger Consideration represent
solely the right of the holder thereof to receive from the Surviving
Corporation cash in an amount equal to the fair value of such share. Each of
JMED, AAC and Abana agrees to execute and deliver an agreement or certificate
of merger in an appropriate form to evidence such reorganization and Merger and
for purpose of filings with the Secretary of State of Delaware to give effect
to the Merger as of the Closing Date. Upon the effectiveness of the Merger,
the Surviving Corporation shall succeed by operation of law to the assets,
operations and liabilities of each of Abana and AAC.
1.2 The Merger Consideration. Except as provided in paragraph 1.1 above,
each share of the capital stock of Abana outstanding on the Closing Date shall
be exchanged for and converted into twenty-two one-hundredths (0.22) of a share
of the Common Stock, par value $.04 per share, of JMED. References in this
Agreement to "JMED Common Stock" shall mean the class of such Common Stock;
references in this Agreement to the "Jones Stock" shall mean the shares of JMED
Common Stock being issued and delivered in connection with the transactions
contemplated hereby.
1.3 Cash to be Paid in Lieu of Fractional Share Interests. Any fractional
share interest in the Jones Stock resulting from the conversion of shares of
the capital stock of Abana in the Merger shall, in lieu of issuance of such
fractional share interest, be converted into and exchanged for the right to
receive in cash an amount equal to the value of such fractional share interest
as of the Closing Date based upon the last reported bid price per share of JMED
Common Stock as reported by Nasdaq on the Closing Date.
1.4 Conversion of Certain Option Rights to Acquire Shares of Abana Common
Stock. Each option or right outstanding on the Closing Date to acquire shares
of the common stock of Abana (an "Abana Option"), whether or not exercisable as
of such date, shall be converted into and exchanged for an option to acquire
shares of JMED Common Stock in accordance with the following terms and
conditions:
(i) the number of shares to which the option to acquire shares of
JMED Common Stock shall relate shall be determined by multiplying
the number of shares of common stock of Abana to which the Abana
Option applied by 0.22, and then rounding such result to the
nearest whole number; and
2
<PAGE> 3
(ii) the price per share of the option to acquire shares of
JMED Common Stock shall be the per share option price applicable to
the Abana common stock multiplied by 4.55, with the result of such
calculations rounded to the nearest whole cent.
The expiration date and vesting schedule of each such option shall remain
unchanged. Notwithstanding the foregoing, any holder of an exercisable Abana
Option may by written notice to Abana and JMED delivered not less than five
business days prior to the Closing Date elect to have such Abana Option settled
in cash on the business day next following the Closing Date based upon the last
reported bid price per share of JMED Common Stock on the Closing Date reduced
by the applicable exercise price per share.
1.5 JMED Contribution of Shares & Cash. JMED agrees to provide either
directly or to AAC as a contribution to the capital of AAC the number of shares
of the Jones Stock required to permit the Surviving Corporation to deliver the
Jones Stock to the shareholders of Abana together with cash necessary for the
settlement of any payments due in respect of fractional share interests or to
dissenting shareholders. JMED further agrees to issue and deliver as of the
Closing Date option agreements under its existing stock and option plans in the
form required by paragraph 1.4 above.
1.6 Indemnification and Escrow by Principal Holders. In connection with
the transactions contemplated hereby, each Principal Holder joins in the
representations and warranties of Abana in Article VII below and agrees to use
his respective best efforts to cause Abana to fulfill the conditions precedent
to the obligations of JMED and AAC under this Agreement. The Principal Holders
further agree to execute and deliver on the Closing Date an agreement in the
form of Exhibit I hereto providing for (i) indemnification to JMED in respect
of certain matters and (ii) the deposit on the Closing Date of an aggregate of
60,000 shares of JMED Common Stock in escrow to secure such indemnification.
1.7 Adoption of Merger by Written Consent and Agreements by Principal
Holders. Each Principal Holder agrees with JMED and Abana that the execution
and delivery of this Agreement by such Principal Holder constitutes his
irrevocable consent and adoption of the Merger. Each Principal Holder further
agrees with JMED and Abana (i) to execute and deliver at or prior to the
Closing Date such other agreements and instruments as are provided herein to
fulfill all conditions precedent to the obligations of JMED hereunder,
including the Escrow Agreement in the form of Exhibit I hereto and their
respective Non-Competition Agreements in the form of Exhibit II hereto; (ii)
not to effect any sale or transfer of the shares of the capital stock of Abana
held by such Principal Holder without the prior written consent of each of
Abana and JMED; and (iii) not to exercise, at or prior to the Closing Date,
any Abana Option presently held by such Principal Holder. Each Principal
Holder further represents to JMED that the shares of the Jones Stock being
acquired by such Principal Holder pursuant to the Merger are being acquired
solely for the account of such Principal Holder for investment and without a
current view to the resale or distribution thereof.
1.8 Distribution of Merger Consideration and Proceeds. As promptly as
practicable following the Closing Date and the effectiveness of the Merger
under the DGCL, JMED
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<PAGE> 4
and the Surviving Corporation shall distribute to each former shareholder of
Abana the number of shares of the Jones Stock and/or the cash to which such
former shareholder is entitled as a result of the transactions contemplated
hereby or arising therefrom; provided, however, that no former shareholder of
Abana shall be entitled to receive such distribution until such shareholder
shall have delivered and surrendered to the Surviving Corporation the
certificate(s) evidencing such former shareholder's ownership of shares of
Abana Stock. No former shareholder of Abana shall be entitled to receive any
dividend payable on shares of the Jones Stock to which such former shareholder
is entitled until distribution of the certificates representing the Jones Stock
due such former shareholder shall have been made in accordance with the
foregoing and any check in payment of any such dividend shall be held by JMED
or its agent until such distribution of certificates representing the Jones
Stock shall have been effected. Neither any such dividend nor any cash
consideration or proceeds due any former shareholder of Abana arising from the
transactions contemplated hereby shall bear interest pending actual
distribution or delivery thereof to such former shareholder of Abana.
1.9 Closing Date and Closing. Unless terminated in accordance with
paragraph 8.2 below, the Closing Date for the transactions contemplated hereby
shall occur on December 31, 1996, or as promptly thereafter as the conditions
to the parties' obligations to consummate the transactions contemplated hereby
shall be satisfied. The Closing of the transactions contemplated hereby shall
occur at the offices of Greensfelder, Hemker & Gale, P.C., Suite 2000, 10 South
Broadway, St. Louis, Missouri.
1.10 Effective Date of the Merger and Transactions Contemplated Hereby.
The Merger contemplated hereby shall become effective on the Closing Date or as
promptly thereafter as the appropriate certificate of merger is filed in
accordance with the DGCL. Notwithstanding the foregoing, JMED and Abana agree
that for tax and accounting purposes the Merger and reorganization transactions
contemplated hereby shall be effective as of the close of business on the later
of (i) December 31, 1996, or (ii) the last calendar day of the month preceding
the month in which the Closing occurs.
II. CERTAIN MATTERS IN RESPECT OF THE JONES STOCK
2.1 Absence of Registration in Respect of Certain Shares. The offer and
sale of shares of the Jones Stock to the Principal Holders in connection with
the reorganization contemplated by this Agreement has not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance by
JMED upon the availability of one or more exemptions from the requirements of
Section 5 of the Securities Act as applicable to the offer to the Principal
Holders and their irrevocable acceptance evidenced by adopting and consenting
to the Merger. The certificates evidencing shares of the Jones Stock issuable
to the Principal Holders as a result of the Merger shall be subject to "stop
transfer" restrictions and bear a legend in substantially the following form:
The shares represented by this certificate have been issued or
transferred to the registered holder in a transaction occurring
without registration under the Securities Act of 1933, as amended
(the "Act"), and may not be sold, transferred, assigned, pledged
or hypothecated by the registered holder in the absence of current
registration under the Act except to the extent that there shall
4
<PAGE> 5
be available to the registered holder an exemption from
registration. The issuer shall not be required to give effect to
any sale, transfer, assignment, pledge or hypothecation unless the
issuer shall have been provided by the transferor with an opinion
of counsel, satisfactory in form and substance to the issuer, to
the effect that such transaction either (i) is in accordance with
the terms of a current registration of such shares or (ii)
qualifies for an exemption from current registration and, in the
latter case, specifies such exemption and the basis therefor,
including whether such shares constitute "restricted securities"
in the hands of the transferee or pledgee.
JMED agrees that the foregoing legend will be (i) removed from certificates at
such time as the holding period under Rule 144 under the Securities Act
establishes that, in accordance with paragraph (k) of Rule 144, volume
limitations and notice of sale requirements are no longer applicable or (ii)
modified appropriately in the event of registration of the shares under the
Securities Act to permit sales by the Principal Holders in accordance with the
terms of this Agreement. JMED further covenants to use its best efforts to
remain current in its reporting obligations under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
2.2 Information Concerning JMED. JMED has provided to Abana and to each
Principal Holder copies of all filings made by JMED to the date of this
Agreement pursuant to the Exchange Act commencing with its Annual Report on
Form 10-K for the year ended December 31, 1995.
2.3 Registration of Certain Shares of the Jones Stock. Although in
accordance with the DGCL neither the vote nor the consent of holders of the
capital stock of Abana (other than the consent of the Principal Holders which
is contained in this Agreement) is required in connection with the Merger, JMED
and Abana acknowledge that the issuance of shares of the Jones Stock to holders
of the capital stock of Abana other than the Principal Holders may be deemed to
involve an "offer" and "sale" under the Securities Act. Accordingly, as
promptly as practicable following the execution and delivery of this Agreement
JMED and Abana agree jointly to prepare a Registration Statement on Form S-4
(the "Registration Statement"), including the form of formal notice of the
adoption of the Merger by consent of the Principal Holders in accordance with
the DGCL, and JMED agrees to cause such Registration Statement to be filed
under the Securities Act and to use its best efforts to cause such Registration
Statement to become effective as promptly thereafter as practicable.
2.4 Registration Rights of Principal Holders. Subject to the terms and
conditions set forth in this paragraph 2.4, JMED agrees that upon request of
the Principal Holders after the Closing Date it will file one registration
statement under the Securities Act to permit such Principal Holders to make
offers and sales of the shares of the Jones Stock received by them in the
Merger.
(a) A written request for a registration may be submitted to JMED by
either of the Principal Holders at any time after the Closing Date and unless
otherwise agreed by the Principal Holders shall relate to all shares of the
Jones Stock held by the Principal Holders as of the date of such request. JMED
agrees to file such registration as promptly as practicable after such request
is received but in no event shall JMED be required to effect such filing until
five business days following the date upon which JMED's Annual Report on Form
10-K for the year ended December 31, 1996, is filed under
5
<PAGE> 6
the Exchange Act. Anything to the contrary herein notwithstanding, no
registration statement shall be required hereunder if, as of the date upon
which such request for registration is received, the shares of the Jones Stock
held by the Principal Holders shall be eligible for sale under Rule 144 under
the Securities Act.
(b) Any registration pursuant to this paragraph 2.4 shall be effected on
Form S-3 or its equivalent and shall incorporate by reference information
concerning JMED to the maximum extent permitted by Form S-3 and the
Instructions applicable thereto and such registration shall relate to offerings
from time to time by the selling participants in open market or negotiated
transactions, but not to an underwritten offering.
(c) JMED agrees to use its best efforts to prepare and file such
registration statement as promptly as practicable following receipt of the
written request but shall not be required to file such registration statement
sooner than five days following the filing of its quarterly report on Form 10-Q
for its most recently ended quarter (or, in the case of a request received
during the first calendar quarter, sooner than five days following the filing
of its annual report on Form 10-K for the preceding year), and following filing
shall use its best efforts to cause the registration statement to be declared
effective as promptly as practicable.
(d) Subject to the participating holders' agreement to refrain from sales
of the shares during certain periods as provided in clause (e) below, JMED
agrees to utilize its best efforts to keep such registration current and
effective until the earliest to occur of the following events (i) the second
anniversary of the Closing Date or such earlier date upon which Rule 144
becomes available to the Principal Holders, (ii) notification to JMED that all
shares included in such registration have been sold for the accounts of the
participating holders, or (iii) a request by all participating holders having
unsold shares that the registration statement be terminated.
(e) The holders participating in any such registration statement will
agree with JMED and with any underwriters acting on behalf of JMED to refrain
from any offering or sale of shares (i) during the forty-five (45) days
following the effective date of any registration statement filed by JMED
relating to an offering for its own account of its Common Stock (or of
securities convertible into its Common Stock) filed on Form S-3 or S-4 provided
that JMED gives notice to such holders of the filing and effectiveness of such
registration statement, and (ii) during any period in which information
provided by any participating holder to JMED for inclusion in the registration
is inaccurate or incomplete.
(f) In connection with the registration statement filed pursuant hereto,
each participating holder, and each broker acting on behalf of any such holder,
shall provide to JMED such information as may be reasonably requested by JMED
or required for inclusion in the registration, and each holder shall agree to
indemnify JMED in respect of any misstatement of fact, or the failure to state
a fact necessary to make the statements of fact not misleading, relating to
such holder's participation and proposed manner of sale.
6
<PAGE> 7
(g) In connection with registration provided pursuant hereto, JMED agrees
to bear the expense of the filing fee due the Securities and Exchange
Commission together with (i) the fees and expenses of JMED's counsel and
accountants in connection with the preparation, review and filing of the
registration statement and (ii) the costs of electronic filing of the
registration statement and printing costs with respect to the prospectus
included in such registration statement; including costs in respect of any
pre-effective amendment thereto. Each participating holder will bear the
expense of any counsel fees incurred by or on behalf of such holder and
brokerage commissions or other expenses in connection with the sale, including
the cost of any review of offering or brokerage arrangements by the National
Association of Securities Dealers, Inc. ("NASD"). JMED agrees to provide to
each participating holder copies of the prospectus included in the registration
together with copies of reports filed under the Exchange Act and incorporated
therein by reference.
(h) Notwithstanding the provisions of clause (g), the participating
holders shall be responsible for costs incurred in connection with any
amendment to the registration statement arising from any change in the proposed
manner of offering or distribution or any withdrawal of shares from
registration and in the event that any such amendment is required, and the
participating holders shall reimburse JMED for its reasonable out of pocket
expenses (including fees of counsel and accountants and printing expenses) in
connection with amending the registration statement and prospectus.
In connection with any such registration statement and offering, each
participating holder shall understand and acknowledge that JMED is not a
participant in the offering and is under no obligation to provide information
or assistance other than the materials constituting the registration statement
and the materials incorporated therein by reference. Each Principal Holder or
other holder participating in such registration shall, upon request by JMED,
provide such holder's written agreement to indemnify and hold JMED (and each
officer or director of JMED) harmless from any loss, damage, claim or expense
arising in connection with such registration and based upon information
supplied to JMED for inclusion in such registration by such holder or by any
broker acting on behalf of such holder in connection with the sale or
distribution of shares pursuant to such registration.
2.5 Certain Reports by Principal Holders and Participants. In
consideration of the registration rights hereunder, each Principal Holder and
each other participant in any registration statement filed pursuant to
paragraph 2.4 above shall promptly advise JMED of sales of shares included for
the account of such participant in any registration statement filed under the
Securities Act.
2.6 Registration Rights Non-Transferable. The registration rights granted
by JMED pursuant to paragraph 2.4 above are granted solely for the benefit of
the Principal Holders and may not be transferred or assigned, except by
operation of law, without the consent of JMED acting in its sole discretion.
2.7 Registration in respect of Options to Acquire JMED Stock. JMED agrees
that any options issued by it in conversion of outstanding Abana Options will
be issued under existing
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employee stock option plans maintained by JMED and that the Common Stock of
JMED issuable upon exercise thereof will have been subject to registration on
Form S-8 under the Securities Act at or prior to the exercise of such options.
2.8 Indemnification by JMED in respect of Registrations. In connection
with the Registration Statement and any registration pursuant to paragraph 2.4
above, JMED shall indemnify and hold each Principal Holder harmless from and
against any and all losses, claims, damages, expenses or liabilities to which
any of them may become subject under applicable laws (including, but not
limited to, the Securities Act and the Exchange Act) and rules and regulations
thereunder and will reimburse them for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any actions
whether or not resulting in liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any such
application, statement or filing or arise out of or are based upon the omission
of alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided,
however, that such indemnification shall not apply insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing by a Principal Holder or by Abana expressly
for use therein.
III. COVENANTS PENDING CLOSING
3.1 Access to Information and Properties. From and after the date of this
Agreement, Abana and the Principal Holders will afford to the officers and
authorized representatives of JMED full access to the properties, books and
records of Abana in order that JMED may have full opportunity to make such
reasonable investigation as it shall desire to make of the affairs, business,
operations and prospects of Abana, and the officers of Abana shall furnish JMED
with such additional financial and operating data and other information as to
the business and properties of Abana as JMED shall from time to time reasonably
request. To the extent reasonably possible JMED agrees to conduct such access
and investigation in coordination with Cole in order to minimize any potential
disruption of Abana's business operations. As soon as practicable after they
become available, Abana will deliver to JMED all audited or unaudited financial
statements prepared by or for Abana prior to the Closing Date, which financial
statements will be prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods. In the event that
the transactions contemplated by this Agreement are not consummated, JMED will
return to Abana all information and data relating to Abana delivered in writing
to JMED by Abana and any and all copies thereof, and in such event, JMED agrees
to exert its best efforts to ensure that none of its officers, employees or
agents divulge any confidential information relating to the business of Abana
to a third party or use the same in any manner for the profit or to the benefit
of JMED or any such officer, employee, agent or a third party, unless and until
(i) it shall have become public knowledge otherwise than by disclosure by JMED
or its officers, employees or agents, (ii) JMED shall have received such
confidential information from a third party who, by revealing the same, is not
in violation of any obligation to Abana to keep such information confidential
or (iii) JMED is required by law to disclose any such confidential information.
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3.2 Information for Applications and Filings. Abana will furnish JMED with
all information concerning Abana required for inclusion in the Registration
Statement or any other application, statement or filing to be made by JMED to
or with any governmental body in connection with the transactions contemplated
by this Agreement or in connection with any unrelated transactions during the
term of this Agreement, and Abana represents and warrants that all information
so furnished for such statements, applications and filings shall be true and
correct in all material respects and shall not omit any material fact required
to be stated therein or necessary to make the statements made not misleading.
Abana and the Principal Holders shall jointly and severally indemnify and hold
harmless JMED, each of its officers and directors, each underwriter and each
person, if any, who controls JMED within the meaning of the Securities Act,
from and against any and all losses, claims, damages, expenses or liabilities
to which any of them may become subject under applicable laws (including, but
not limited to, the Securities Act and the Exchange Act) and rules and
regulations thereunder and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
actions whether or not resulting in liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any such application, statement or filing or arise out of or are based upon the
omission of alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing by Abana expressly for use
therein. Abana further agrees at any time upon the request of JMED to furnish
to JMED a written letter or statement confirming the accuracy of information
relating to Abana contained in any application, statement or filing and further
confirming that the information with respect to Abana contained in such
document was furnished by Abana expressly for use therein or, if such is not
the case, indicating the inaccuracies contained in such document or that the
information was not furnished by Abana for use therein. The indemnity
agreement contained in this paragraph 3.2 shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of JMED.
3.3 Best Efforts. Abana will use its best efforts to take or cause to be
taken all actions necessary, proper or advisable to consummate this Agreement
and the transactions contemplated hereby and in connection with filing
applications or statements with, or obtaining approvals of, governmental
bodies for the transactions contemplated by this Agreement.
3.4 Operations of Abana pending Closing. From and after the date of this
Agreement until the earlier of the Closing Date or the expiration of the term
of this Agreement:
(a) Abana will use its best efforts to (i) carry on its business in a
reasonably prudent manner, (ii) maintain and keep its properties in good repair
and condition as at present, except for deterioration due to ordinary wear and
tear and damage due to casualty, (iii) maintain in full force and effect
insurance comparable in amount and in scope of coverage to that now maintained
by it, (iv) perform all of its obligations under contracts, leases and
documents relating to or affecting its assets and business except such
obligations as Abana may in good faith reasonably dispute, (v) use its best
efforts to maintain and preserve its business organization intact, to retain
its present employees and
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customers and (vi) comply with and perform all obligations and duties imposed
upon it by all federal, state and local laws, and all rules, regulations and
orders imposed by federal, state or local governmental authorities.
(b) Abana will not, without the prior written consent of the President or
an Executive Vice President of JMED, (i) permit any change to be made in its
articles or certificate of incorporation or by-laws, (ii) take any action which
would render any representation of Abana in Article VII below inaccurate or
incomplete if made as of the Closing Date, (iii) enter into or amend any
contract, agreement or other instrument other than contracts for the purchase
or sale of inventory in the ordinary course of business or other contracts in
the ordinary course of business which if existing on the date hereof would not
be required to be disclosed on any Schedule to this Agreement, (iv) make, or
enter into any contract or agreement for, any capital expenditure except in
accordance with contracts or agreements listed on any Schedule to this
Agreement, (v) declare or pay any dividend on the outstanding shares of the
capital stock of Abana; (vi) pay or agree to pay any bonus or compensation to
any Principal Holder or officer of Abana except as set forth on Schedule 3.4
hereto or increase in any manner the compensation or benefits due any employee
of Abana; or (vii) make any extension of credit or advance to or any investment
in any other entity.
3.5 Notification to JMED. Abana will promptly inform JMED of:
(a) all actions, suits, proceedings or governmental investigations or
inquiries brought or to its knowledge threatened against Abana after the date
hereof;
(b) all events or occurrences which might adversely affect the business,
operations, properties, prospects, assets or condition, financial or otherwise,
of Abana;
(c) all issues raised by the Internal Revenue Service or any other
governmental authority subsequent to the date hereof except for issues raised
by governmental taxing authorities other than the Internal Revenue Service or
any state taxing authority which involve amounts less than $10,000 in the
aggregate;
(d) all correspondence or other contact between Abana and the U.S. Food
and Drug Administration ("FDA"), the Environmental Protection Agency ("EPA"),
the U.S. Drug Enforcement Agency ("DEA"), the U.S. Occupational Safety and
Health Administration ("OSHA") or any comparable state agency with jurisdiction
over the business, properties and activities of Abana; and
(e) all other matters relating to the conduct of, or affecting the
business, operations, properties, prospects, assets or conditions, financial or
otherwise, of Abana which in the judgment of Abana are material.
3.6 Inconsistent Activities. Abana shall not, prior to the expiration of
the term of this Agreement, (i) solicit, directly or indirectly, or cause any
other person to solicit, any offer to acquire the assets of Abana, whether by
merger, purchase of assets, tender offer or similar
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transaction; or (ii) enter into any agreement which provides for the merger of
Abana or the sale of the capital stock of Abana or the assets of Abana to a
person other than JMED or a subsidiary of JMED.
3.7 Activities by JMED. JMED shall not be restricted in any way, and no
consent need be obtained by JMED from Abana or any Principal Holder, with
respect to (i) the issuance by JMED of (or the agreement by JMED to issue)
additional shares of its capital stock in connection with other acquisitions or
the grant or exercise of outstanding employee or director options, or (ii) the
issuance of any other additional shares of capital stock of JMED authorized in
good faith and for valid business purposes by JMED's Board of Directors prior
to the Closing Date; provided, however, that JMED (a) will not issue or commit
or agree to issue additional shares of its Common Stock in a quantity which
would render JMED unable to fulfill its obligations hereunder to contribute or
deliver the Jones Stock as of the Closing Date in accordance with this
Agreement and (b) will not establish between the date of this Agreement and the
Closing Date any record date for holders of JMED Common Stock with respect to
any dividend (other than regular quarterly cash dividends in an amount not
exceeding 0.025 per share), split, recapitalization or reorganization involving
shares of JMED Common Stock unless the Merger Consideration provided in this
Agreement shall be appropriately adjusted give effect to such event.
3.9 Transfers of Abana Stock. Abana and each Principal Holder shall use
their respective best efforts to discourage any sales, transfers or assignments
of outstanding shares of Abana Stock between the date of this Agreement and the
Closing Date.
3.10 Notice to Abana Shareholders in Respect of Merger and Reorganization.
As promptly as practicable following the execution and delivery of this
Agreement, Abana shall provide notice (the "Notice") to its shareholders of the
adoption and approval of the Merger by the written consent of holders of a
majority of the outstanding capital stock of Abana; provided, that without the
written consent of JMED such Notice shall not be provided prior to the date
upon which the Registration Statement becomes effective under the Securities
Act. Any such Notice shall (i) comply with the requirements of DGCL, (ii)
include notice of the availability to shareholders of Abana of rights under
Section 262 of the DGCL, and (iii) include a form of Transmittal Letter by
which shareholders of Abana may forward the certificates representing shares of
the capital stock of Abana surrendered for conversion and exchange as of the
Closing Date. The Notice shall be in a form reasonably acceptable to JMED and
its counsel.
IV CONDITIONS TO JMED'S OBLIGATIONS TO CLOSE
The obligations of JMED under this Agreement to consummate the
transactions contemplated hereby, and the obligations of AAC to consummate the
Merger, are subject, at the discretion of JMED, to the satisfaction at or prior
to the Closing Date of each of the following conditions:
4.1 Representations. The representations and warranties made by Abana and
the Principal Holders in this Agreement shall have been true when made on the
date of this Agreement
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and shall be true in all material respects as of the Closing Date with the same
force and effect as if such representations and warranties were made at and as
of the Closing Date (except for changes therein required or permitted by this
Agreement).
4.2 Compliance. Each of Abana and the Principal Holders shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed and complied with prior to or at the Closing.
4.3 Absence of Adverse Change. There shall not have been a material
adverse change in the financial condition, assets, liabilities, business or
prospects of Abana nor shall any event have occurred which involves a risk that
such a material adverse change will occur.
4.4 Certification. JMED shall have been furnished with a certificate,
executed by each of the Principal Holders, individually and as officers of
Abana, dated as of the Closing Date and certifying that the conditions in
paragraphs 4.1, 4.2 and 4.3 have been fulfilled.
4.5 Registration Statement Effective. The Registration Statement in
respect of the shares of the Jones Stock issuable under the Merger to
shareholders of Abana other than the Principal Holders shall have been declared
effective under the Securities Act and the Prospectus contained therein shall
have been forwarded to each holder of record of shares of the capital stock of
Abana not less than twenty (20) business days prior to the Closing Date.
4.6 Absence of Dissenters. Holders of more than 56,000 shares of the
capital stock of Abana shall not have exercised appraisal or dissenters' rights
in respect of the Merger under Section 262 of the DGCL or objected in writing
to the adoption of the Merger and this Agreement by the consent of the
Principal Holders.
4.7 Legal Opinion. JMED shall have received the opinion of Sirote &
Permutt, P.C., counsel to Abana and special counsel to the Principal Holders,
in the form of Exhibit III hereto.
4.8 Litigation. JMED shall be furnished with a certificate dated the
Closing Date and executed by the Principal Holders, individually and as
officers of Abana, to the effect that (i) no litigation, proceeding,
investigation or inquiry is pending or threatened which might result in action
to enjoin or prevent the consummation of the transactions contemplated by this
Agreement or which involves a risk of a material adverse change in the
financial condition, assets, liabilities, business or prospects of Abana and
(ii) no issues have been raised by the Internal Revenue Service or any other
taxing authority which involve a risk of a material adverse change in the
financial condition, assets, liabilities, business or prospects of Abana.
4.9 Governmental Approvals; Consents and Other Matters. Each of JMED and
Abana shall have received all consents, approvals and waivers from third
parties and governmental agencies and authorities, if any, necessary to permit
the transactions contemplated by this Agreement, no such consent or
authorization shall contain unduly burdensome conditions, all waiting periods
relating to
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any required filings with governmental authorities shall have expired, and
there shall not be any threatened action or proceeding by or before any court
or any other governmental body which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement and which, in the
judgment of the Board of Directors of JMED, made in good faith after consulting
with counsel, makes it inadvisable to proceed with the transactions
contemplated hereby.
4.10 Agreements of Principal Holders and Affiliates. Each Principal Holder
of Abana shall have executed and delivered to JMED (i) the Escrow and
Indemnification Agreement in the form of Exhibit I (the "Escrow Agreement"),
(ii) a Non-Competition Agreement in the form of Exhibit II hereto, and (iii) a
voluntary termination without penalty of such Principal Holder's employment
agreement with Abana, including a waiver of bonus rights or accruals, in a form
acceptable to JMED; and there shall be instruments delivered to JMED with
respect to the deposit of an aggregate of 60,000 shares of the Jones Stock
pursuant to the Escrow Agreement.
4.11 Stockholder's Agreement Inapplicable. Abana shall have provided to
JMED evidence that the rights of first refusal under Section 3 of Abana's
Stockholders' Agreement dated March 7, 1988 shall have lapsed or been waived as
to all holders of Abana stock or JMED shall have received an opinion of counsel
satisfactory in form and substance to it to the effect that such Stockholders'
Agreement does not apply to the Merger and the transactions contemplated by
this Agreement.
V CONDITIONS TO ABANA'S OBLIGATIONS TO CLOSE
The obligations of Abana under this Agreement and under the Merger
Agreement, to consummate the transactions contemplated hereby are subject, at
the discretion of Abana, to the satisfaction at or prior to the Closing Date of
each of the following conditions:
5.1 Representations. The representations and warranties made by JMED in
this Agreement were true when made and shall be true in all material respects
as of the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein required or permitted by this Agreement).
5.2 Compliance. JMED shall have performed or complied with all covenants
and conditions required by this Agreement to be performed and complied with
prior to or at the Closing.
5.3 Absence of Adverse Change. There shall not have been a material
adverse change in the financial condition, assets, liabilities, business or
prospects of JMED nor shall any event have occurred which involves a risk that
such a material adverse change will occur.
5.4 Certification. Abana shall have been furnished with a certificate,
executed by the President or an Executive Vice President of JMED dated as of
the Closing Date and certifying that the conditions in paragraphs 5.1, 5.2 and
5.3 have been fulfilled.
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5.6 Legal Opinion. Abana shall have received the opinion of Greensfelder,
Hemker & Gale, P.C., counsel to Jones and AAC, in the form of Exhibit IV
hereto.
5.7 Litigation. Abana shall be furnished with a certificate dated the
Closing Date and executed by the President or an Executive Vice President of
JMED to the effect that no litigation, proceeding, investigation or inquiry is
pending or threatened which might result in action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement or which
involves a material risk of a material adverse change in the financial
condition, assets, liabilities, business or prospects of JMED.
5.8 Notice. The Notice shall have been provided to the record holders of
the capital stock of Abana not less than twenty days prior to the Closing Date
either directly Abana or by JMED pursuant to the Prospectus included in the
Registration Statement.
5.9 Tax Opinion. At or prior to the filing of the Registration Statement,
Abana shall have received the favorable opinion of Sirote & Permutt, P.C., in
substantially the form of Exhibit VII hereto, to the effect that the Merger
contemplated by this Agreement qualifies as a reorganization under Section
368(a) of the Internal Revenue Code.
VI REPRESENTATIONS AND WARRANTIES OF JMED.
JMED represents and warrants to Abana as follows:
6.1 Organization of JMED. JMED is a corporation duly organized and validly
existing under the laws of the State of Delaware and has all material power and
authority (including all material governmental licenses, franchises, permits
and other authorizations which are legally required) to own its properties and
to engage in the business and activities presently conducted by it. JMED is
duly qualified as a foreign corporation, and is in good standing, in each
jurisdiction where the nature of its properties or the conduct of irs business
makes such qualification necessary, except for such jurisdictions where the
failure to so qualify will not have a material adverse effect on the financial
condition, assets, liabilities, business or prospects of JMED and its
subsidiaries taken as a whole.
6.2 Organization of AAC. AAC will be, as of Closing, a corporation duly
organized and validly existing under the laws of the State of Delaware and will
be a wholly owned subsidiary of JMED organized for the purpose of the
transactions contemplated by this Agreement.
6.3 Capitalization of JMED. The authorized capital stock of JMED consists
of 1,000,000 shares of Preferred Stock, $1.00 par value, issuable in series of
which no shares are outstanding, and 30,000,000 shares of JMED Common Stock, of
which 27,998,332 shares were outstanding at September 30, 1996.
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6.4 The Jones Stock. The Jones Stock to be issued and delivered in
connection with the transactions contemplated by this Agreement pursuant to the
agreement of merger will, upon issuance and delivery, be duly authorized,
validly issued, fully paid and non-assessable. The JMED Common Stock is
admitted to trading in the Nasdaq National Market of the NASD and is registered
as a class of equity securities under Section 13(g) of the Exchange Act.
6.5 Authority and Approvals. The Board of Directors of JMED has authorized
the negotiation of this Agreement and at or prior to the filing of the
Registration Statement will ratify the execution and delivery of this
Agreement, the filing of the Registration Statement and its approved the
transactions contemplated hereby. JMED has the corporate power and authority
to execute and deliver this Agreement and such other agreements and instruments
as are necessary and appropriate to consummate the transactions contemplated
hereby and this Agreement, and each of such other instruments and agreements
when executed and delivered pursuant hereto, constitutes a valid and binding
obligation of JMED. JMED, as the holder of all the issued and outstanding
capital stock of AAC has authorized and approved the execution and delivery of
this Agreement and such other instruments and agreements as are necessary and
appropriate to AAC's participation in the consummation of the transactions
contemplated hereby.
6.6 Financial Statements. The financial statements of JMED contained in
its filings under the Securities Act and the Exchange Act and furnished to
Abana and the Principal Holders pursuant to paragraph 2.2 above fairly present
the consolidated financial position of JMED and its subsidiaries as of the
respective dates thereof and the consolidated results of their operations for
the periods indicated in accordance with generally accepted accounting
principles applied on a consistent basis, subject, in the case of unaudited
consolidated financial statements, to year-end audit adjustments consisting
only of normal recurring accruals and routine adjustments (which in the
aggregate are not material) as discussed in the notes to the financial
statements. Except as arising from the acquisition of Daniels Pharmaceuticals,
Inc. on August 30, 1996 as reflected in JMED's filing on Form 8-K under the
Exchange Act in respect thereof or as and to the extent reflected or reserved
against in such consolidated balance sheet as of June 30, 1996, JMED did not
have, as of that date, any material liabilities or obligations (absolute or
contingent) of a nature required to be reflected in a balance sheet or the
notes thereto prepared in accordance with generally accepted accounting
principles. Since June 30, 1996, there has not been any material adverse
change in the consolidated financial condition, assets, business or prospects
of JMED and its subsidiaries taken as a whole, nor has any event or condition
occurred which with the lapse of time would cause or create any material
adverse change in the consolidated financial condition, assets, business or
prospects of JMED and its subsidiaries taken as a whole.
6.7 No Conflict with Other Instruments or Agreements. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby will not violate any provision of, or constitute a default under, any
law, or any order, writ, injunction or decree of any court or governmental
agency, or any contract, agreement or instrument to which JMED or AAC is a
party or by which either JMED or AAC is bound or constitute an event which with
the lapse of time
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or action by a third party could result in any default under any of the
foregoing or result in the creation of any lien, charge or encumbrance upon any
of JMED's assets or properties.
6.8 Accuracy of Information. The information relating to JMED and its
subsidiaries and disclosed or provided in writing by JMED to Abana in
connection with this Agreement and the transactions contemplated hereby, when
such information is considered in the aggregate, did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. There are no material facts or
circumstances not disclosed to Abana in writing which should be disclosed to
Abana in order to make any of the representations and warranties made by JMED
herein not misleading or, to the knowledge of JMED, in order for decisions by
Abana and the holders of the capital stock of Abana in connection with this
Agreement to be made on the basis of adequate information.
6.9 Continuation of the Business of Abana. JMED intends to cause the
Surviving Corporation to continue the business of Abana subsequent to the
transactions contemplated hereby, and JMED has no plan or intention to
liquidate the Surviving Corporation, to cause the Surviving Corporation to
distribute its assets to JMED, to merge the Surviving Corporation into another
corporation following the merger between AAC and Abana as contemplated hereby,
or to cause the Surviving Corporation to sell or otherwise dispose of its
assets except in the ordinary course of business; provided, however, that the
foregoing shall not prevent an election by JMED subsequent to the Closing Date
to cause the merger of Abana directly into JMED.
6.10 No Impediment to Demand Registration Rights. As of the date of this
Agreement and as of the Closing Date, JMED is eligible to utilize form S-3 to
effect registration of the Jones Stock under the Securities Act on behalf of
the Principal Holders as contemplated in paragraph 2.4 hereof and, to the best
of JMED's knowledge, neither this Agreement and the transactions contemplated
hereby nor any other transaction pending as of the Closing Date will constitute
or give rise to an impediment to JMED's ability so to utilize form S-3.
VII REPRESENTATIONS AND WARRANTIES IN RESPECT OF ABANA
Abana and the Principal Holders jointly and severally represent and
warrant to JMED as follows:
7.1 Organization of Abana. Abana is a corporation duly organized and
validly existing under the laws of the State of Delaware and has all material
power and authority (including all material governmental licenses, franchises,
permits and other authorizations which are legally required) to own its
properties and to engage in the business and activities presently conducted by
it. Abana is duly qualified as a foreign corporation, and is in good standing,
in Alabama and each other jurisdiction where the nature of its properties or
the conduct of its business makes such qualification necessary, except for such
jurisdictions in which the failure to so qualify will not have a material
adverse effect on the financial condition, assets, liabilities, business or
prospects of Abana
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taken as a whole, and the states in which Abana is so qualified are listed on
Schedule 7.1 hereto. Abana does not have any subsidiary nor does it have,
directly or indirectly, any investment or interest in any other corporation,
partnership, joint venture or other business entity.
7.2 Capitalization. The authorized capital stock of Abana consists of
5,000,000 shares of common capital stock, $.01 par value (the "Abana Stock"),
of which 2,274,213 shares are issued and outstanding as of the date of this
Agreement and 50,882 shares are held by Abana as treasury stock. All such
outstanding shares of Abana Stock are validly issued, fully paid and
non-assessable and have not been issued in violation of the preemptive rights
of any person. There are no existing options, warrants, rights, calls or
commitments of any kind obligating Abana to issue or deliver shares of Abana
Stock other than options held by employees to purchase an aggregate of 182,136
shares of Abana Stock as set forth on Schedule 7.2 hereto. No shares of Abana
Stock have been issued or acquired as treasury stock in contemplation of the
transactions contemplated by this Agreement and, except as set forth on
Schedule 7.2 to this Agreement, Abana does not have any outstanding commitment,
obligation or right to purchase, reacquire or redeem any of Abana Stock.
7.3 Shareholders and Related Parties. Schedule 7.3 hereto identifies each
holder of capital stock of Abana and the number of shares held by each such
holder. Except as disclosed on Schedule 7.3 hereto, Abana has not engaged in
any transaction during the two years preceding the date of this Agreement with
any corporation or other entity in which any one or more Principal Holder(s)
is/are the owner(s) of either (i) an equity interest exceeding 10% of the
capital or income of such corporation or other entity or (ii) a voting interest
exceeding 10% of the voting power in such corporation or other entity. Except
as disclosed on Schedule 7.3 hereto, Abana is not a party to any agreement with
a holder of capital stock of Abana or aware of any agreement between or among
any such holders relating to a right of first refusal with respect to the
purchase or sale by any such holder of shares of the capital stock of Abana or
any voting agreement or voting trust with respect to shares of such capital
stock.
7.4 Financial Statements. Abana has delivered to JMED copies of financial
statements of Abana (the "Abana Financial Statements") as of December 31, 1994
and 1995 and for each of the fiscal years in the three year period ended
December 31, 1995, in the form attached as Exhibit V hereto, which financial
statements consist of comparative balance sheets as of December 31, 1994 and
1995, statements of operations, cash flow and changes in shareholders' equity
for each of the years ending December 31, 1993, 1994 and 1995 with footnotes
and supplementary schedules. The Abana Financial Statements have been audited
by Martin Stuedeman & Associates, P.C. Abana's balance sheet as of December
31, 1995 is sometimes hereinafter referred to as the "Abana Balance Sheet."
The Abana Financial Statements are true and correct and fairly present the
financial position of Abana and the results of its operations at the dates and
for the periods indicated in conformity with generally accepted accounting
principles applied on a consistent basis. Abana has also delivered to JMED
copies of unaudited internal financial statements as of September 30, 1996 and
for the nine months then ended (the "Abana Interim Statements") which are
attached as Exhibit VI hereto. The Abana Interim Statements are true, correct
and accurate and fairly present the financial position of Abana as of September
30, 1996, and the sales and net income of Abana for the nine months then
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ended. Abana did not, as of the date of the Abana Balance Sheet or as of the
date of the unaudited balance sheet included in the Abana Interim Statements,
have any liabilities (absolute or contingent) of a nature required (in
accordance with generally accepted accounting principles consistently applied)
to be reflected in a balance sheet or the notes thereto prepared which are not
so reflected or provided for and which are material to Abana.
7.5 Taxes. Except as disclosed in Schedule 7.5 hereto,
(a) Abana has duly and timely filed with the appropriate governmental
taxing authorities (i) all state, local, foreign and other tax returns required
to be filed and (ii) all federal tax returns and reports required to be filed,
in each case by or with respect to Abana and its operations and employees.
Abana has included in such returns and reports all items of income, gain, loss,
deduction and credit or other items required to be included therein. Abana has
paid all taxes and assessments (including interest and penalties) which have
come due with respect to the periods covered by such returns and reports. Abana
has not executed or filed with the Internal Revenue Service or any other
governmental taxing authority any agreement extending the period for assessment
and collection of any tax (except for agreements which have expired), nor is
there any pending claim for assessment or collection of taxes asserted against
Abana. No audit of any federal income tax return of Abana by the Internal
Revenue Service has occurred. There exists no outstanding controversy or
dispute with respect to federal or state income taxes due from Abana for
periods ending on or prior to December 31, 1995.
(b) The amounts set up as provisions for taxes on the financial
statements referred to in paragraph 7.4 above are sufficient for the payment of
all unpaid federal, state, local, foreign or other taxes (including any
interest or penalties) of Abana applicable to the periods covered by such
financial statements and all years and periods prior thereto, and for which
Abana may on the dates of such financial statements have been liable in its own
right, as a transferee of the assets of or as a successor to any other
corporation or other entity or otherwise.
7.6 Certain Contracts and Commitments. Abana is not obligated with respect
to any compensation or payment due any employee or affiliate of, or consultant
to, Abana or any Principal Holder which compensation or payment will become due
or measured by the transactions contemplated by this Agreement, including any
broker's or finder's fee, any "change of control" compensation arrangement or
other provision or arrangement.
7.7 Authority and Approval. The Board of Directors of Abana has authorized
and approved the execution and delivery of this Agreement and recommended the
approval of this Agreement and the transactions contemplated hereby to the
Principal Holders for adoption by the consent of such Principal Holders as
holders of a majority of the Abana Stock. Abana has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement constitutes a valid and
binding obligation of Abana and the Principal Holders.
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7.8 Certain Conduct. Except as set forth in Schedule 7.8 hereto, since the
date of the Abana Balance Sheet, Abana has not (i) declared or set aside or
paid any dividends, (ii) incurred any obligations or liabilities (fixed or
contingent), except obligations or liabilities incurred in the ordinary course
of business or which are not, in the aggregate, material to Abana, (iii)
mortgaged, pledged or subjected to lien or encumbrance (other than statutory
liens not yet delinquent) any assets which are material to Abana, (iv)
discharged or satisfied any lien or encumbrance or paid any obligation or
liability (fixed or contingent), other than accruals and accounts payable
included in the Abana Balance Sheet and accruals and accounts payable incurred
since the date of the Abana Balance Sheet in the ordinary course of business,
(v) sold, exchanged or otherwise disposed of any of its capital assets other
than in the ordinary course of business, (vi) materially increased the rate of
compensation payable or to become payable by Abana to its directors, officers,
employees or agents; or (vii) materially changed any of its business policies
or practices including, without limitation, advertising, distributing,
marketing, pricing, purchasing, personnel or sales polices, (viii) entered into
any transaction or agreement with either Principal Holder, (ix) terminated or
failed to renew any contract or Agreement that is material to the condition of
Abana or received any notice or threat of termination from a party to any
contract which is material to the condition of Abana, or (x) entered into any
transaction outside the ordinary course of its business, other than this
Agreement, which is material to Abana. Schedule 7.8 also reflects all
payments, advances or loans made by Abana to any Principal Holder during the
period between January 1, 1996 and the date of this Agreement.
7.9 Litigation. Except as set forth in Schedule 7.9 hereto, there are, as
of the date of this Agreement, no legal, quasi-judicial or administrative
proceedings of any kind or nature now pending or, to the knowledge of
management of Abana or either Principal Holder, threatened before any court or
administrative body in any manner in which any claim is being asserted or is
proposed to be asserted against Abana. Abana is not in default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or instrumentality, and no event has
occurred which with notice or lapse of time or both would constitute such a
default.
7.10 General Contracts. Except for matters disclosed on Schedule 7.10
Abana is not a party to or bound by any (i) employment contract (including
without limitation any collective bargaining contract or union agreement), (ii)
bonus, stock option, deferred compensation or profit-sharing, pension or
retirement plan or arrangement, (iii) lease or license with respect to any
property, real or personal, whether as landlord, tenant, licensor or licensee,
(iv) contracts or commitments for capital expenditures in excess of $10,000 in
the aggregate or in excess of $5,000 for any one project, (v) contract or
commitment made in the ordinary course of business for the purchase of
inventory or raw materials or other materials or supplies for a period of more
than nine months from the date of this Agreement, (vi) contract or commitment
made in the ordinary course of business for the sale of inventory at fixed unit
prices over a period of more than sixty (60) days from the date of this
Agreement; (vii) contract or agreement with any buying group or distributor,
whether or not entered into in the ordinary course of business, providing for
rebates or retroactive price adjustments of any nature, (viii) contract or
option to purchase or sell, other than in the ordinary course of business, any
real or personal property which is material to Abana; (ix) indenture,.
mortgage, note, debenture,
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guaranty, security agreement or other debt instrument; or (x) contract other
than the foregoing involving more than $5,000 or providing for the payment of
royalties on sales or which is otherwise material to Abana. There are no
contracts other than those set forth on Schedule 7.10 which are necessary for
the operation of Abana's business. Abana is not in default in any material
respect under any such contract, nor is any other party to any such contract in
default thereunder in any material respect, nor does any condition exist that
with notice or lapse of time or both would constitute a material default
thereunder. Schedule 7.10 also sets forth any co-marketing, co-development or
other co-venture agreement or arrangement to which Abana is or has been a party
at any time during the three (3) years prior to the date of this Agreement.
7.11 Applicable Laws and Governmental Authorizations. Abana is in
compliance with all applicable federal, state, local and foreign laws,
statutes, rules, regulations, orders, ordinances, codes, licenses, franchises,
permits, authorizations and concessions, including but not limited to necessary
FDA and DEA authorizations, licenses and approvals and those imposing taxes,
regulating prices and relating to pension and profit sharing matters,
environmental matters, labor matters, civil rights matters and occupational
safety and health matters. Abana possesses all licenses, franchises, permits,
authorizations and concessions (collectively "Licenses") which are known by
Abana to be legally required to enable it to carry on its business as presently
conducted. No revocation proceeding is pending and no violations exist with
respect to any of such Licenses, and there is no basis or grounds for any
revocation or limitation of any of such Licenses. No term or condition of any
of such Licenses adversely affects, or in the future can reasonably be expected
to adversely affect, the financial condition, assets, liabilities, business or
prospects of the Surviving Corporation. Except as set forth in Schedule 7.11,
there are no letters of adverse finding, Form 483's, regulatory actions,
memoranda of understanding or other regulatory correspondence or communications
with the FDA, the DEA, the EPA, OSHA or any other state or federal government
agencies or boards, pertaining to Abana or any product manufactured, sold or
distributed by it. No authorization, approval, consent or order of, or
registration, declaration or filing with, any court or other governmental body
is required in connection with the execution and delivery by Abana of this
Agreement or the consummation of the transactions contemplated hereby.
7.12 NDAs, ANDAs and Product Information. Schedule 7.12 hereto lists each
product manufactured by or produced for Abana. No New Drug Application
("NDA") or Abbreviated New Drug Application ("ANDA") has heretofore been filed
with the FDA by or on behalf of Abana. The transactions contemplated by this
Agreement do not require the consent or approval of the FDA. No product and
product line of Abana is, to the knowledge and reasonable belief of Abana and
the Principal Holders, required to be the subject of an NDA or ANDA. Schedule
7.12 also sets forth research and development projects and activities in
progress by or for the benefit of Abana which may lead to future filings of any
NDA or ANDA. Neither Abana nor either Principal Holder has received any, and
to the best of each Principal Holder's knowledge there are no, statements,
citations or decisions by any governmental or regulatory body stating that any
product of Abana is defective or unsafe or fails to meet any standards
promulgated by any such governmental or regulatory body. Except as set forth
on Schedule 7.12, there have been no recalls ordered by any such governmental
or regulatory body with respect to any product of Abana. To the best of each
Principal Holder's
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knowledge, there is no (i) fact relating to any Abana product that may impose
upon Abana a duty to recall any products or a duty to warn customers of a
defect in any product, or (ii) significant liability for warranty claims,
returns or servicing with respect to any product which is not fully reflected
on the Abana Interim Statements.
7.13 Title to Properties. Except as set forth in Schedule 7.13, Abana has
good and indefeasible title to all of the assets and properties which are
material to Abana, and Abana owns all personal and intangible properties
reflected in the Abana Balance Sheet or acquired subsequent to the date
thereof, subject to no liens, mortgages, security interests, encumbrances or
charges of any kind except (i) statutory liens not yet delinquent, (ii) defects
and irregularities in title and encumbrances which are not substantial in
character or amounts and do not impair the uses thereof for the purpose for
which they are held in a manner which is material to Abana, and (iii) for those
assets and properties disposed of for fair value in to ordinary course of
business since the dates of the Abana Balance Sheet.
7.14 Real Property. Abana does not own any real property. Schedule
7.14 attached hereto sets forth a listing of any and all real estate leased,
occupied or otherwise used by Abana (the "Leased Real Estate"), and the terms
and conditions of each such lease. The use and condition of the Leased Real
Estate does not, and will not, violate any zoning, subdivision, building,
health, fire or similar statute, ordinance, regulation or code and Abana has
not received any notice, written or otherwise, from any governmental agency
alleging any such violations. The Leased Real Estate is in full compliance
with all applicable zoning requirements and is not a nonconforming, conditional
or special use. Abana has delivered to JMED a true, correct and complete copy
of each lease identified on Schedule 7.14.
7.15 Employee Benefit Plans and ERISA.
(a) Schedule 7.15 sets forth a list and description of all "employee
benefit plans" as such term is defined in Section 3 of the Employment
Retirement Income Security Act of 1974, as amended, ("ERISA") of Abana or any
ERISA Affiliate (collectively the "Plans") including all bonus, incentive
compensation, profit-sharing, pension, retirement, stock purchase, stock
option, deferred compensation, hospitalization, group insurance, death benefit,
disability, union, collective bargaining, works council, severance and other
compensation and fringe benefit plans, trust agreements, arrangements and
commitments of Abana or any ERISA Affiliate. True, correct and complete copies
of all documents creating or evidencing any such plan, agreement, arrangement
or commitment have been delivered to JMED. There are no negotiations, demands
or proposals which are pending or which have been made since December 31, 1995
which concern matters now covered, or that would be covered, by such types of
plans, agreements, arrangements or commitments. Abana and each ERISA Affiliate
is not and has never been a party to any multiemployer plan as that term is
defined by ERISA. The transactions contemplated hereby will not result in a
deemed severance or termination of employment under any plan, agreement,
arrangement or commitment, nor will any subsequent termination of employment
result in any obligations under any severance pay plan, agreement, arrangement
or commitment.
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(b) For purposes of this Section 7.15, "ERISA Affiliate" means each trade
or business (whether or not incorporated) which together with Abana is treated
as a single employer under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended ("Code").
(c) All Plans are in compliance with the applicable provisions of ERISA,
including all reporting and disclosure requirements, and no "reportable event"
or "prohibited transaction" as defined by ERISA has occurred. Each of the
Plans which is intended to meet the requirements of Section 401(a) of the Code
to be "qualified" within the meaning of the Code, is so qualified and there
exists no fact which would adversely affect the qualified status of such Plans.
The statements of assets and liabilities of each Plan as of the end of the
most recent fiscal year for each such Plan and the statement of changes in fund
balances, financial position and net assets available for benefits under such
Plan for such fiscal year, true and complete copies of which have been made
available to Buyer, fairly present the financial condition of such Plan as of
such date and the results of operations thereof for the year ended on such
date, all in accordance with GAAP applied on a consistent basis, and there has
been no material adverse change in the assets, fund balances, or net value of
such Plan subsequent to such date.
(d) Abana and each ERISA Affiliate has complied with all of its
obligations under Section 4980B of the Code, including the provision of
adequate notice to employees and "qualified beneficiaries" concerning rights to
continuation of health care coverage. Abana and each ERISA Affiliate has not
agreed or committed to provide retiree medical or life insurance benefits to
any current or former employee.
(e) Other than claims for benefits submitted by participants or
beneficiaries in the ordinary course, there is no request for documents,
litigation, legal action, suit, investigation, claim, counterclaim or
proceeding pending or threatened against or affecting any Plan. Neither Abana
nor any ERISA Affiliate nor any administrator or fiduciary of any Plan (or any
agent of any of the foregoing) has engaged in any transaction or acted or
failed to act in a manner which could subject Abana or any ERISA Affiliate to
any material liability for a breach of fiduciary duty under ERISA or any other
applicable law. If Section 302 of ERISA and Section 412 of the Code apply to
any Plan, no "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived, exists
with respect to such Plan. Abana and each ERISA Affiliate has no liability and
there are no claims against Abana or any ERISA Affiliate pursuant to any
provision of the Code or ERISA by reason of the relationship of Abana to any
ERISA Affiliate.
7.16 Continuity of Interest. Abana knows of no present plan or intention
on the part of its shareholders to sell or otherwise dispose of a number of
shares of the Jones Stock to be received by them pursuant to the reorganization
contemplated hereby which would reduce their holdings of such Jones Stock to an
amount having in the aggregate a value at the time of the merger of less than
fifty percent (50%) of all Abana Stock outstanding as of the same date. In
addition, no Principal Holder has any present plan or intention to sell or
otherwise dispose of more than fifty percent (50%) of the shares of the Jones
Stock to be received by such Principal Holder.
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7.17 Intellectual Property. Schedule 7.17 hereto lists all patents and
applications therefor, trademarks, trademark registrations and applications
therefor, trade names, copyrights and copyright registrations and applications
therefor, technology, processes, formulae and manufacturing know-how
(collectively, "Intellectual Properties") which cover any of the products or
processes of Abana or are used in connection with the business thereof or are
held for use in connection therewith or otherwise related thereto. Except as
set forth in Schedule 7.17 hereto, Abana owns and has good and marketable title
to such Intellectual Properties, subject to no liens, mortgages, pledges,
encumbrances, claims, restrictions or charges of any kind, and all taxes or
other payments due and payable and necessary to keep such Intellectual
Properties in effect have been made. Abana has not been charged or threatened
to be charged with the infringement of, nor has Abana infringed on, any
unexpired patent, trademark, trademark registration, trade name, copyright,
copyright registration or other proprietary right of any party in the United
States or in any foreign country in connection with the business of Abana.
Abana has no knowledge of any unexpired patent adverse to the interest of
Abana, except patents under which Abana is licensed.
7.18 Insurance. Abana has in effect insurance coverage with reputable
insurers, which in respect of amounts, types and risks insured is that which
management of Abana reasonably believe to be adequate for the business
conducted by Abana. A list and description of the coverage of each such
insurance and the provider thereof is set forth on Schedule 7.18 hereto.
7.19 No Conflict with Other Agreements or Instruments. Except as disclosed
on Schedule 7.19 hereto, the execution, delivery and performance of this
Agreement and the transactions contemplated hereby will not violate any
provision of, or constitute a default under, any law, or any order writ,
injunction or decree of any court or other governmental agency, or any
contract, agreement or instrument to which Abana is a party or by which it is
bound or constitute an event which, with the lapse of time or action by a third
party or both, could result in the creation of any lien, charge or encumbrance
upon any of the assets or properties of Abana or upon the capital stock of the
Surviving Corporation.
7.20 Certain Conduct. Except as disclosed on Schedule 7.20 hereto, since
the date of the Abana Balance Sheet, Abana has not (i) made any general wage or
salary increase or instituted or amended any employee welfare, retirement or
similar plan or arrangement, (ii) made any significant change in any method of
management, operation or accounting in respect of Abana, or (iii) suffered any
damage, destruction or loss, whether or not covered by insurance, materially
and adversely affecting the business, assets, liabilities, financial condition
or prospects of Abana.
7.21 Customers; Supplemental Financial Schedules and Information. Abana
has delivered to JMED as Schedule 7.21 hereto information reflecting for each
of the fiscal periods covered by the Abana Financial Statements (i) a listing
of each customer representing more than five percent (5%) of sales during such
period together with a summary of the principal products or product lines sold
to such customer, and (ii) a listing of each product or product line
representing more than five percent (5%) of sales during such period together
with identification of the five
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principal customers for such product or product line. To the best knowledge of
Abana, no customer listed on Schedule 7.21 intends to cease doing business with
Abana.
7.22 Employee Relations. To the best information and belief of Abana, the
services of substantially all present employees of Abana will continue to be
available to the Surviving Corporation for the continuation of the business of
Abana after the Closing Date. Except as set forth in Schedule 7.22, there are
no controversies pending or, to the best information and belief of Abana,
threatened between Abana and any employees, former employees or job applicants
thereof, and Abana believes that its relationships with employees is good. No
union is known to Abana to have organized any employees of Abana, there are no
representation petitions pending with the National Labor Relations Board with
respect to such employees, there have been no demands for recognition by any
labor organization purporting to recognize such employees and Abana is unaware
of any efforts by any labor organization to represent any of such employees.
7.23 Investment Company Status. Abana is not an investment company within
the meaning of the Internal Revenue Code or the Investment Company Act of 1940.
7.24 Accuracy of Information. The information relating to Abana disclosed
or provided in writing by Abana to JMED in connection with this Agreement and
the transactions contemplated hereby, when such information is considered in
the aggregate, did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. There are no material facts or circumstances not disclosed to JMED
in writing which should be disclosed to JMED in order to make any of the
representations and warranties made by Abana herein not misleading or, to the
knowledge of Abana, in order for decisions by JMED in connection with this
Agreement to be made on the basis of adequate information.
7.25 Environmental Matters. Except as set forth on Schedule 7.25 hereto,
Abana does not generate, hold or dispose of hazardous environmental waste
products.
7.26 Sales Personnel. Attached hereto as Schedule 7.26 is a listing of all
sales personnel of Abana, the current salaries and other benefits paid or
accruing to said personnel and the geographic territories currently serviced by
each of them.
VIII TERM AND TERMINATION; REMEDIES
8.1 Term of Agreement. Unless terminated in accordance with the provisions
of paragraph 8.2 below, this Agreement shall expire on the later of (i) the
Closing or (ii) March 31, 1997, provided, however, that in the event of a
Closing of the transactions contemplated hereby, the expiration of this
Agreement shall not affect the rights or responsibilities of any party hereto
which arise as of the Closing and are covenants to be performed following
Closing.
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8.2 Termination. This Agreement and the transactions contemplated hereby
may be terminated by the mutual Agreement of the parties at any time prior to
the Closing Date, whether before or after the giving of Notice to the record
holders of the Abana Stock in accordance with the DGCL. In addition this
Agreement shall be subject to termination as follows:
(a) At the election of Abana in the event that JMED shall fail or refuse
to file the Registration Statement on or before November 30, 1996, provided,
however, that such election shall not be available to Abana in the event that
JMED shall reasonably claim that the inability to effect such filing is the
result of a failure of Abana to provide on a timely basis information or data
required to complete such filing; or
(b) At the election of JMED in the event that Abana shall fail or refuse
to satisfy all conditions precedent to the obligations of JMED and AAC on or
before December 31, 1996, provided, however, that such election shall not be
available to JMED if the only conditions precedent not fulfilled as of such
date relates (i) to the failure of the Registration Statement to have been
declared effective not less than twenty (20) business days prior to December
31, 1996 or (ii) that as a result of the failure in clause (i) the time for
assertion of dissenters' appraisal rights under the DGCL has not expired by
such date; or
(c) At the election of JMED in the event that (i) Abana shall have failed
to provide on a timely basis information or data concerning Abana for inclusion
in the Registration Statement to enable the filing thereof on or before
November 30, 1996 or (ii) the transactions contemplated by this Agreement shall
be contested by any pending or threatened action by or before any court or
other governmental body which shall seek to restrain, prohibit or invalidate
the transactions contemplated by this Agreement and which, in the judgment of
the Board of Directors of JMED, made in good faith after consulting with
counsel, makes it inadvisable to proceed with the transactions contemplated
hereby.
8.3 Remedies upon Termination. In the event of a termination of this
Agreement pursuant to clause (a) or clause (b) or clause (c)(i) of paragraph
8.2, the party electing such termination (unless such party is also in default
of its obligations hereunder) shall be entitled to recover from the defaulting
party or parties its out of pocket expenses incurred in connection with
negotiation of this Agreement and otherwise in connection with the transactions
contemplated hereby; provided, however, that the amount of such out of pocket
expense shall not, either as to JMED or as to Abana, exceed $150,000.
8.4 Remedies in lieu of Termination. This Agreement constitutes a valid,
binding and enforceable obligation of the parties hereto. In the event of a
failure or refusal of a party to perform its covenants hereunder and to satisfy
and fulfill the conditions to be performed by such party as a condition to
another party's obligations hereunder, the non-defaulting party shall be
entitled to enforcement of this Agreement or to recover damages in lieu of such
enforcement, together with attorneys fees and expenses reasonably incurred in
connection with such enforcement or recovery. Each Principal Holder
acknowledges and agrees with Abana and JMED that in the event of his failure
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to perform and observe his covenants under this Agreement monetary damages may
be insufficient as a remedy and that accordingly JMED and/or Abana shall be
entitled to seek injunctive and other equitable relief against the Principal
Holders in the enforcement of this Agreement.
IX MISCELLANEOUS
9.1 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements or
understandings of the parties relating thereto.
9.2 Amendments. This Agreement may be amended by the parties hereto at any
time prior to the Closing Date by action taken by, or pursuant to authority
delegated by, their respective Boards of Directors, provided, however, that
from and after the effective date of the Registration Statement (or such later
date as the Notice is given) no amendment which shall reduce the number of
shares of the Jones Stock issuable in consummation of the transactions
contemplated hereby shall be effective without the ratifying consent of holders
of a majority of the Abana Stock. The execution and acceptance, at or prior to
the Closing Date, of any Exhibit in a form other than the form attached hereto
shall evidence such party's consent to any amendment inherent in such executed
Exhibit.
9.3 Captions and Headings. All Article headings or paragraph captions
contained in this Agreement, in any Schedule referred to herein or in any
Exhibit annexed hereto, and the table of contents, if any, to this Agreement
are for convenience of reference only, shall not be deemed a part of this
Agreement and shall not affect the meaning or interpretation of this Agreement.
9.4 No Third-Party Rights. No provision of this Agreement shall be deemed
or construed in any way to result in the creation of any rights or obligations
in any person or entity not a party to this Agreement.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
9.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Missouri excluding any choice of law
rules which may direct the application of the law of another state; provided,
however, that matters of law concerning the internal corporate affairs of JMED,
AAC and Abana, respectively, shall be governed by the general corporation laws
of their respective states of incorporation.
9.7 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that no party may assign any of its rights, duties
or obligations hereunder prior to the Closing Date without the prior written
consent of each other party, which consent may be withheld in the other's sole
discretion. No assignment of this Agreement or of any rights hereunder shall
relieve the assigning party of any of its obligations or liability hereunder.
No assignment, other than an
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assignment or transfer by operation of law, shall be effective with respect to
rights arising on or as of the Closing Date of the transactions contemplated by
this Agreement without the consent of the party granting or obligated to
perform such rights.
9.8 Survival of Representations, Warranties and Covenants. The
representations and warranties made in this Agreement by Abana shall not
survive the Closing Date, provided, however, that the non-survival of such
representations and warranties shall not void or otherwise invalidate the
indemnification of JMED by the Principal Holders as and to the extent provided
in Exhibit I hereto. The representations and warranties of JMED in this
Agreement and the covenants of JMED in Article II of this Agreement shall
survive the Closing Date for a period of three (3) years.
9.9 Notices. All notices or other communications to parties to this
Agreement which are required or permitted to be given hereunder shall be deemed
validly given if in writing and sent (i) by certified United States Mail,
postage prepaid, return receipt requested, (ii) by prepaid independent
overnight courier or delivery service, or (iii) by confirmed tele-facsimile
communication with receipt acknowledged from the receiving machine, and
addressed as follows:
If to Abana or the Principal Holders, as follows:
Abana Pharmaceuticals, Inc.
P.O. Box 360388
Birmingham, Alabama 35236
Attn: President
facsimile: 205-988-3294
With a copy to:
Sirote & Permutt, P.C.
2222 Arlington Avenue, South
P.O. Box 55727
Birmingham, Alabama 35255-5727
Attn: John H. Cooper, Esq
facsimile: 205-930-5301
If to JMED or AAC, as follows:
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, Missouri 63146
Attn: President
facsimile: 314-469-5749
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With a copy to:
Greensfelder, Hemker & Gale, P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attn: Edward A. Chod, Esq.
facsimile: 314-241-8624
or in any case to such other address or addresses as hereafter shall be
furnished by any party hereto to the other party.
9.10 Severability. If any provision of this Agreement is found or declared
to be invalid or unenforceable by any court or other competent authority having
jurisdiction, such finding or declaration shall not invalidate any other
provision hereof, and this Agreement shall thereafter continue in full force
and effect except that such invalid or unenforceable provision, and (if
necessary) other provision(s) thereof, shall be reformed by a court of
competent jurisdiction so as to effect insofar as is practicable, the intention
of the parties as set forth in this Agreement, provided that if such court is
unable or unwilling to effect such reformation, the invalid or unenforceable
provision shall be deemed deleted to the same extent as if it had never
existed.
9.11 Expenses. Except as otherwise specifically provided in this
Agreement, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of this Agreement
and the transactions contemplated hereby.
9.12 Extension; Waiver. At any time prior to the Closing Date, a party
hereto may (i) extend the time for performance of any of the obligations or
other acts which obligations or acts are conditions to the party granting such
extension, (ii) waive any inaccuracies in the representations and warranties
made to such party in this Agreement or in any document delivered pursuant
hereto, or (iii) waive compliance by another party with respect to any
agreements or covenants in favor of the party granting such waiver. Any
agreement on the part of a party hereto to grant any such extension or waiver
shall be valid if set forth in an instrument in writing signed by such party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
ABANA PHARMACEUTICALS, INC JONES MEDICAL INDUSTRIES, INC.
By Dale E. Eads By Dennis M. Jones
-------------------------- -------------------------------------
Name: Dale E. Eads Name: Dennis M. Jones
Title: President Title: Chairman & President
Dale E. Eads
____________________________
Dale E. Eads
Perry N. Cole
____________________________
Perry N. Cole
29
<PAGE> 1
INDEMNIFICATION AND ESCROW AGREEMENT
This Agreement is made and entered into this _____ day of
_________________, 1996, by and among JONES MEDICAL INDUSTRIES, INC., a
Delaware corporation ("JMED"), Dale Eads and Perry Cole, individually and as
Principal Holders of the capital stock of Abana Pharmaceuticals, Inc.
("Abana"), a Delaware corporation, and Mark Twain Bank, a Missouri banking
association, as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Plan of Reorganization and Agreement,
dated as of October 24, 1996 (the "Reorganization Agreement"), by
and among JMED, Abana, and the Principal Holders, Abana is to be
merged (the "Merger") with and into Abana Acquisition Corporation
("AAC," a wholly-owned subsidiary of JMED); and
WHEREAS, the Reorganization Agreement provides that the
obligations of JMED to the transactions contemplated thereby are
subject to the execution and delivery as of the Closing Date (as
defined in the Reorganization Agreement) of this Agreement
providing (i) for indemnification of JMED (and of AAC as the
surviving corporation in the Merger) by the Principal Holders in
respect of certain matters and (ii) for the delivery of certain
shares of the Common Stock of JMED into Escrow to secure such
indemnification and provide for pro-rata participation by the
Principal Holders in accordance with their respective deposits of
such shares; and
WHEREAS, the Escrow Agent is willing to act as escrow agent hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual promises,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE ONE: INDEMNIFICATION
Section 1.1 Indemnification
1.1.1 Each Principal Holder jointly and severally agrees to indemnify and
hold JMED harmless from and against any loss, claim, damage, liability or
expense (hereinafter, collectively "Claims") suffered by JMED, or by AAC as the
Surviving Corporation under the transactions contemplated by the Reorganization
Agreement, including reasonable attorneys' fees and expenses incurred by JMED
or AAC in the defense of such claims, and arising from:
<PAGE> 2
(i) any failure of Abana to observe, perform and discharge its
covenants, agreements and undertakings set forth in the
Reorganization Agreement, including without limitation, those set
forth in Sections 3.4 and 3.5 of the Reorganization Agreement;
(ii) any breach, failure, omission or untruth of the
representations and warranties of Abana and the Principal Holders
with respect to the representations and warranties set forth in
Article VII of the Reorganization Agreement; and
(iii) the amounts, if any, (A) of any claims to entitlement to
business, financial advisory fees or other brokerage fees or
commissions arising in connection with the transactions
contemplated by the Reorganization Agreement on behalf of Abana or
any Principal Holder or (B) by which expenses incurred by or on
behalf of Abana for consulting, legal and accounting fees and cost
reimbursements in connection with the Reorganization Agreement and
the transactions contemplated thereby exceed $75,000, or (C) by
which bonuses paid or payable by Abana to the Principal Holders or
to any other employee exceed the bonus amounts disclosed on
Schedule 3.4 to the Reorganization Agreement;
provided, however, that such indemnification shall be limited as hereinafter
provided.
1.1.2 JMED and each Principal Holder further agree that except as
otherwise agreed in writing between JMED and Abana at or prior to the Closing
Date, any waiver given by JMED to any breach or failure of any covenant or
representation which is a condition to JMED's obligations to the transactions
contemplated by the Reorganization Agreement shall not prevent JMED from
asserting a Claim if such breach or failure is otherwise entitled to
indemnification under the provisions of this Agreement; however, in the event
of a Claim based upon any such breach or failure disclosed in writing to JMED
at or prior to the Closing Date, then in the event that JMED elects to proceed
with Closing, the indemnification to JMED provided for herein shall be limited
to sixty percent (60%) of the aggregate loss, claim, damage or expense
resulting from such breach or failure.
Section 1.2 Limitation as to Maximum Amount of Claim.
The indemnification pursuant to Section 1.1 shall be provided solely from
the assets deposited into and held as the Escrow Fund pursuant to Article Two
of this Agreement and except for the pro-rata beneficial interest of each
Principal Holder in the assets comprising the Escrow Fund, no Principal Holder
shall be directly liable to JMED or AAC as a result of the indemnification
provided herein.
Section 1.3 Limitation as to Minimum Amounts of Certain Claims.
JMED agrees with each Principal Holder that it shall not be entitled to
indemnification in respect of Claims unless the amount of any Claim or Claims
asserted equals or exceeds the following threshold amounts:
2
<PAGE> 3
(i) as to Claims arising under clause (i) or clause (iii) of Section
1.1 above and with respect to Claims, if any, from a breach,
failure, omission or misrepresentation of or in the representations
contained in paragraph 7.6 of the Reorganization Agreement, no
minimum or threshold shall be required and JMED shall be entitled
to assert, establish and collect with respect to all such Claims;
and
(ii) as to Claims arising under clause (ii) of Section 1.1 above
other than with respect to Claims arising pursuant to paragraph 7.6
of the Reorganization Agreement, no indemnification shall be
required until the aggregate of all Claims equals $50,000 but if
such aggregate is reached, JMED shall be entitled to
indemnification in respect of all such Claims.
In determining whether the $50,000 threshold established in clause (ii) above
is reached, there shall be excluded Claims under clause (i) above as to which
no threshold applies.
Section 1.4 Limitation in Respect of Time to assert Certain Claims.
1.4.1 Except with respect to Claims arising under paragraph 7.5 of the
Reorganization Agreement, JMED shall not assert Claims for indemnification
hereunder after March 31, 1998. JMED may assert Claims arising under paragraph
7.5 of the Reorganization Agreement until the earlier of (i) thirty (30) days
following the completion of any and all audits of the federal and state tax
returns of Abana for periods ending on or prior to the Closing Date or (ii)
September 15, 1999. Notwithstanding the foregoing, JMED acknowledges that (i)
the preparation, filing and final payment with respect to federal and state
income tax returns of Abana for periods subsequent to December 31, 1995
(collectively, the "Final Returns") will be the responsibility of AAC as the
Surviving Corporation and, therefore, subject to control by JMED and (ii) that
JMED's entitlement to assert any Claim for taxes due in such Final Returns
shall be limited to the amount, if any by which payments or accruals in respect
of such taxes, as reflected on the Abana Interim Statements, are less than the
amount of such payments or accruals which should have been made or reflected as
of September 30, 1996.
1.4.2 JMED agrees that it will not, without the written consent of the
Principal Holders, consent or agree or permit AAC to consent or agree to any
extension or waiver of the statute of limitations with respect to the federal
income tax returns of Abana.
Section 1.5 Notice of All Claims to the Principal Holders.
In addition to notices to the Escrow Agent and to the Principal Holders in
respect of Claims by JMED for indemnification from the Escrow Fund as
hereinafter provided, JMED shall give notice to the Principal Holders in
respect of Claims as to which it is not currently entitled to indemnification
as a result of the thresholds applicable under Section 1.3 above. The amount of
such Claims shall be recorded and applied against the applicable threshold
unless either Principal Holder objects in writing to such Claims within thirty
(30) days, in which event the Claims will be resolved as set forth in Section
2.2 hereof.
3
<PAGE> 4
Section 1.6 Third-Party Claims; Participation in Defense.
In the case of any Claim which arises as the result of an assertion of a
claim against JMED or AAC by a third party, including without limitation any
government or regulatory body, JMED agrees that the Principal Holders may, at
their expense (subject to reimbursement as provided in Article Two below),
participate in the defense of such third party claim, provided, however, that
unless JMED shall otherwise consent in writing JMED shall have the sole right
to defend, settle or compromise as to any such third party claim which (a)
affects either the reputation or future operations of JMED or AAC or (b) has an
aggregate value exceeding the then value of the Escrow Fund in excess of any
pending asserted Claims. Notwithstanding the right of the Principal Holders to
participate in the defense of certain third party claims, the right to settle
or compromise such claims shall rest solely with the party or parties of record
against whom such claim is asserted by the third party; provided, however, that
(i) no Claim for indemnification hereunder shall exist with respect to the
amount, if any, by which the ultimate cost of such claim (including the defense
thereof) exceeds the sum of the amount of any settlement or compromise thereof
rejected by JMED but accepted by both Principal Holders and by the third party
claimant(s) plus the cost of defense in respect thereof as of the date of such
consent and (ii) in the event that JMED or AAC shall elect to settle or
compromise such third party claim over the objection of the Principal Holders,
JMED shall have the burden in any Claim asserted by it hereunder against the
Principal Holders in establishing that the amount of such settlement was fair
and reasonable in the circumstances.
Section 1.7 JMED Claim to Include Certain Costs and to Reflect Certain
Recoveries.
1.7.1 Subject only to the limitation in Section 1.2 above, the amount of
any indemnification to which JMED is otherwise entitled under this Agreement
shall include, without limitation, its reasonable costs and expenses in
enforcing its rights under this Agreement but only to the extent that it is
entitled to an award or payment in respect of the matter as to which its Claim
relates.
1.7.2 The amount of any loss, claim, damage or liability included by JMED
in any Claim for indemnification hereunder shall be computed net of any net
benefit or recovery (other than the benefit or recovery due from the Principal
Holders hereunder) received or receivable by JMED. Accordingly and without
limiting the generality of the foregoing, (i) any claim arising from the
assertion of additional tax liabilities due from Abana shall be offset to the
extent of any current or future tax deduction or benefit due JMED, adjusted to
reflect, if appropriate, the loss of use of funds pending the realization of
any such future benefit and (ii) any claim or loss which is partially or wholly
offset by insurance recovery shall be reduced by such recover, net of any
increase in future insurance costs arising directly therefrom.
4
<PAGE> 5
ARTICLE TWO: THE ESCROW
Section 2.1. Establishment of Escrow Fund.
Simultaneously with the execution of this Agreement, JMED and the
Principal Holders are delivering to the Escrow Agent stock certificates
evidencing 60,000 shares of the Common Stock, par value $0.04 per share of JMED
(the "Jones Stock"), to be registered in the name of Escrow Agent. The Jones
Stock is delivered equally on behalf of the Principal Holders and each
Principal Holder shall have a pro-rata interest in the assets comprising the
Escrow Fund in accordance with such Principal Holder's percentage of the
aggregate shares of the Jones Stock initially deposited to constitute the
Escrow Fund, as the same may be modified due to any "non-pro rata"
distributions to the Principal Holders in accordance with the provisions of
this Agreement. The Escrow Agent hereby acknowledges receipt of the
certificate evidencing the Jones Stock.
Section 2.2. Claims Against the Escrow Fund.
2.2.1 Purpose of Escrow. The Escrow Fund shall secure the obligations of
the Principal Holders pursuant to Article One of this Agreement subject to the
release or distribution of the shares constituting the Escrow Fund as provided
in this Agreement.
2.2.2 Notices. If at any time on or before the expiration of the Escrow
Fund as hereinafter provided, JMED shall claim a right to payment pursuant to
Article One of this Agreement, JMED shall notify the Escrow Agent and the
Principal Holders in writing. Such notice shall specify the basis of such
Claim. If such Claim is liquidated in amount, the notice shall so state, and
such amount shall be deemed the amount of the Claim of JMED against the Escrow
Fund. If the amount is not liquidated, then (i) the notice shall so state and
shall state JMED's good faith estimate of the amount of such Claim, and a claim
shall be deemed asserted against the Escrow Fund on behalf of JMED, but no
payment shall be made on account thereof until the amount of such Claim is
liquidated and (ii) promptly after the amount of such unliquidated Claim shall
have become liquidated, JMED shall notify the Escrow Agent and the Principal
Holders in writing of the liquidated amount of such Claim, and such amount
shall be deemed the amount of the claim of JMED against the Escrow Fund. Any
notice of a Claim pursuant to this Section 2.2.2 that states the liquidated
amount of such Claim of JMED against the Escrow Fund shall be referred to
herein as a "Liquidated Claim Notice."
2.2.3 Consent to Validity of Claim. If neither Principal Holder, within
thirty (30) days after the mailing of a Liquidated Claim Notice, advises the
Escrow Agent in writing that he disputes JMED's rights asserted in such notice,
then the Escrow Agent shall pay to JMED, in accordance with the provisions of
Section 2.3 of Article Two hereof, the amount of JMED's Claim stated in such
notice. Such payment shall be made promptly after the end of the thirty-day
period mentioned above.
2.2.4 Dispute. If either or both of the Principal Holders shall, within
the thirty-day period referred to in Section 2.2.3 hereof, notify the Escrow
Agent in writing that he or they, as the case may be, dispute JMED's rights
asserted in any Liquidated Claim Notice, then said Principal Holder(s) shall
give written notice to JMED of such dispute. As promptly thereafter as
possible, JMED and the
5
<PAGE> 6
Principal Holder(s) shall endeavor to settle and compromise the subject Claim,
or may agree to submit the same to arbitration, and, if unable to agree on any
settlement or compromise or on submission to arbitration, such Claim shall be
settled by litigation or by any other means chosen by the parties jointly or
individually. Upon final determination of the merits of such Claim, JMED and
the Principal Holder(s) shall notify the Escrow Agent (either by means of a
written instrument executed by JMED and the Principal Holder(s), a certified
copy of the arbitration decision, or a certified copy of any court judgment) of
the terms of such determination. Upon receipt of such document (the
"Settlement Document"), the Escrow Agent shall thereupon pay the amount (if
any) indicated in such Settlement Document to JMED in accordance with the
provisions of Section 2.3 of Article Two hereof. Nothing set forth in this
Agreement shall prevent a Principal Holder (without the consent of any other
Principal Holder) from settling all or part of a Claim with respect to his pro
rata share of the Escrow Fund.
2.2.5 No Payment on Claims Unless Threshold Met. Anything to the contrary
in this Agreement notwithstanding, no payment in respect of a Claim shall be
made unless such Claim meets or exceeds the applicable minimum set forth in
Section 1.3 above.
Section 2.3. Payments by Escrow Agent.
2.3.1 Transfer of Cash to JMED. If the Escrow Agent is required to make
any payment to JMED pursuant to this Agreement, then to the extent any cash is
available in the Escrow Fund, any and all payments made to JMED shall first be
made from said cash in the Escrow Fund. If the cash available in the Escrow
Fund shall be insufficient to make such payment in full, then Escrow Shares or
other property shall be transferred to JMED as set forth in Section 2.3.2.
2.3.2 Transfer of Escrow Shares or Other Property to JMED. If there is
insufficient cash in the Escrow Fund to satisfy any payments to JMED required
by Sections 2.2.3 or 2.2.4 hereof, then the Escrow Agent shall make such
payment, or any unpaid balance thereof, by transferring to JMED a portion of
the shares or other securities or property in the Escrow Fund, or any
combination thereof, having a value (determined in accordance with Section
2.3.3 hereof) equal to the dollar amount of such required payment or unpaid
balance thereof.
2.3.3 Valuation of Escrow Shares or Other Property. For purposes of any
transfer pursuant to Section 2.3.2, the value of such shares of the Jones
Stock held in the Escrow Fund shall be an amount equal to the average closing
price per share for the JMED Common Stock as reported by the Nasdaq National
Market quotation system for the ten trading days preceding the date of the
Escrow Agent's payment to JMED. In the event of any exchange listing for JMED
Common Stock, such exchange closing price shall replace the Nasdaq National
Market quotation system.
2.3.4 No Fractional Shares. The number of the shares of the Jones Stock
to be transferred pursuant to Section 2.3 at any time shall not include a
fractional share; JMED may, at its sole option, elect either to waive such
fractional share interest or to purchase the balance of such fractional share
interest based on the value of the JMED Common Stock used in Section 2.3.3
above.
6
<PAGE> 7
Section 2.4. Rights as to Escrow Shares During Term of This Agreement.
2.4.1 Voting. The Escrow Agent shall exercise all rights and privileges
of election, voting and consent with respect to the shares of Jones Stock and
other securities in the Escrow Fund in accordance with the written instruments,
if any, received by the Escrow Agent from the respective Principal Holders.
2.4.2 Dividends. Any cash dividends paid with respect to the shares the
Jones Stock, and any cash dividends or interest paid with respect to other
securities in the Escrow Fund, shall be paid to the Escrow Agent. The Escrow
Agent shall promptly pay the amount of any such dividends or interest to the
Principal Holders in accordance with their pro-rata interests in the Escrow
Fund as of the date such income is received.
2.4.3 Other Distributions. All other securities or property distributed
from time to time with respect to the assets comprising the Escrow Fund,
including without limitation, any JMED securities issued as a result of any
stock dividend, stock split, consolidation of shares, reclassification, or
other reorganization, any noncash dividends, and any distributions (either cash
or noncash) in complete or partial liquidation of JMED, shall be deemed to be a
part of the Escrow Fund and shall be held by the Escrow Agent pursuant to the
provisions of this Agreement.
Section 2.5. Distributions from Escrow Fund
2.5.1. First Distribution to Principal Holders. On March 31, 1998, there
shall be released from escrow such portion of the assets then comprising the
Escrow Fund as shall exceed (i) 10,000 shares of Jones Stock plus (ii) such
additional assets as are necessary to satisfy in full any pending asserted
Claims, whether or not then liquidated in amount, as to which JMED or AAC may
be entitled to indemnification under the provisions of Article One of this
Agreement. In the event that the time for asserting Claims arising under
paragraph 7.5 of the Reorganization Agreement shall have expired as of March
31, 1998, the retention of shares of pursuant to clause (i) of this Section
2.5.1 shall not be required. In the event of any stock dividends or stock
splits applicable to the Jones Stock subsequent to the date of this Agreement,
the 10,000 share figure used herein shall be adjusted to include the additional
shares of Jones Stock arising from such stock dividends or stock splits.
2.5.2 Final Distribution to Principal Holders. Unless all assets
comprising the Escrow Fund shall have been distributed in accordance with
Section 2.5.1 above, the remaining assets comprising the Escrow Fund shall,
unless JMED shall consent to an earlier distribution in whole or in part, be
distributed and released from escrow at the later of (i) the date upon which
all pending Claims by JMED or AAC for indemnification have been resolved or
(ii) the earlier of (a) thirty (30) days following the completion of any and
all audits of the federal and state tax returns of Abana for periods ending on
or prior to the Closing Date or (b) September 15, 1999.
2.5.3 Method of Distribution. In connection with any distribution to the
Principal Holders pursuant to this Section 2.5, distribution shall be made
first to the Escrow Agent in reimbursement of any expenses incurred by it in
connection with its duties hereunder or in defense of Claims by
7
<PAGE> 8
JMED or third party claims and then pro rata to the Principal Holders in
accordance with their respective beneficial interests in the assets comprising
the Escrow Fund.
Section 2.6. Termination of Escrow Fund.
The Escrow established hereby shall terminate at the time all
distributions required under Section 2.5 above have been completed.
Section 2.7. Escrow Agent.
2.7.1 Duties. In performing any of its duties hereunder, the Escrow Agent
shall not incur any liability to anyone for any damages, losses or expenses,
except for bad faith, willful default or breach of trust, and accordingly, the
Escrow Agent shall not incur any such liability with respect to any action
taken or omitted (a) in good faith upon advice of its counsel given with
respect to any action taken or omitted (b) in good faith upon advice of its
counsel given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement, or (c) in reliance
upon any instrument not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed or presented by a proper person or
persons and to conform with the provisions of this Agreement.
2.7.2 Indemnity. JMED and the Principal Holders hereby jointly and
severally agree to indemnify and hold harmless the Escrow Agent against any and
all losses, claims, damages, liabilities and expenses, including reasonable
costs of investigation and counsel fees and disbursements, which may be imposed
upon the Escrow Agent or incurred by the Escrow Agent in connection with its
acceptance of appointment as the escrow agent hereunder, or the performance of
its duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof.
2.7.3 Disputes. In the event of a dispute between the parties hereto
sufficient in the discretion of the Escrow Agent to justify its doing so, the
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hand under this
Agreement, together with such legal pleadings as it deems appropriate, and
thereupon be discharged from all further duties and liabilities under this
Agreement. Any such legal action may be brought in such court as the Escrow
Agent shall determine to have jurisdiction thereof. The filing of any such
legal proceedings shall not deprive the Escrow Agent of its compensation earned
prior to such filing.
2.7.4 Fees. The Escrow Agent's fees hereunder shall be $1,000 per annum,
the first installment of which has been paid to the Escrow Agent by JMED
contemporaneously with the
8
<PAGE> 9
execution of this Agreement. Subsequent annual installments shall be paid by
JMED upon receipt of invoices therefor from the Escrow Agent.
ARTICLE THREE - MISCELLANEOUS
3.1 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon JMED, the Principal Holders and the Escrow Agent and
their respective heirs, personal representatives, successors and assigns.
3.2 Interests of Principal Holders; Non-Assignability.
Neither the Escrow Agent nor JMED shall be required to give effect to any
attempted sale or transfer of an interest in the Escrow Fund, other than a
transfer by operation of law to the estate or personal representative of a
Principal Holder.
3.3 Construction. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of the State of Missouri. No provision of this Agreement or any
related document shall be construed against or interpreted to the disadvantage
of any party hereto by any court or other governmental or judicial authority by
reason of such party's having or being deemed to have structured or drafted
such provision.
3.4 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
3.5 Notices. All notices or other communications required or permitted to
be given hereunder shall be deemed validly given if in writing and sent (i) by
certified United States Mail, postage prepaid, return receipt requested, (ii)
by prepaid independent overnight courier or delivery service, or (iii) by
confirmed tele-facsimile communication with receipt acknowledged from the
receiving machine, and addressed as follows:
If to the Principal Holders, as follows:
Dale E. Eads
259 Norwick Forest Drive
Alabaster, AL 35007
facsimile:(205) 669-6877
Perry N. Cole
3508 Altabrook Drive
Birmingham, AL 35243
facsimile:
9
<PAGE> 10
With a copy to:
Sirote & Permutt
2222 Arlington Avenue South
P.O. Box 55727
Birmingham, Alabama 35255-5727
Attn: John H. Cooper, Esq.
facsimile: 205-930-5301
If to JMED, as follows:
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, Missouri 63146
Attn: President
facsimile: 314-469-5749
With a copy to:
Greensfelder, Hemker & Gale, P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attn: Edward A. Chod, Esq.
facsimile:314-241-8624
If to the Escrow Agent, addressed to:
Mark Twain Bank
P.O. Box 14259-A
St. Louis, Missouri 63178
Attn: _____________________
or in any case to such other address or addresses as hereafter shall be
furnished by any party hereto to the other party.
3.6 Registration and Sale of Jones Stock. The shares of the Jones Stock
deposited as, and initially constituting, the Escrow Fund are subject to
registration rights granted by JMED in Article II of the Reorganization
Agreement. In the event that such shares shall be registered for offering and
sale under the Securities Act of 1933 at the request of the Principal Holders
in accordance with such rights, such shares may be sold by the Escrow Agent in
the discretion and as directed by a Principal
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<PAGE> 11
Holder with respect to his pro rata share of said Jones Stock. Any such sale
shall be allocated to such selling Principal Holder. In the event of any such
sale, the proceeds shall be invested in U.S. Government securities or such
other investments to which JMED shall consent.
3.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
3.8 Modification. This Agreement may be modified only by a written
instrument signed by JMED, the Principal Holders and the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
JONES MEDICAL INDUSTRIES, INC.
By ____________________________
Name: Dennis M. Jones
Title: President
MARK TWAIN BANK
By ____________________________
Name: ________________________
The Principal Holders: Title: ________________________
______________________________
Dale E. Eads
______________________________
Perry N. Cole
11
<PAGE> 1
November 8, 1996
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, MO 63146
Gentlemen:
We are acting as counsel for Jones Medical Industries, Inc. (the
"Company") in connection with the registration of an aggregate of 129,322
shares of its Common Stock, $.04 par value (the "Shares"), under the Securities
Act of 1933, as amended, pursuant to a Registration Statement on Form S-4 filed
on November 8, 1996. The Shares represent a portion of the aggregate of
420,572 shares of the Company's Common Stock to be issued pursuant to the Plan
of Reorganization and Agreement ("Agreement") dated as of October 24, 1996, by
and among Abana Pharmaceuticals, Inc. ("Abana"), the Company and Dale E. Eads
and Perry N. Cole, as holders of more than a majority of the outstanding shares
of the common stock of Abana. The Agreement provides for a merger of Abana
with and into a wholly-owned subsidiary of the Company pursuant to which each
outstanding share of the common stock of Abana is to be converted into 0.22 of
a share of the Company's Common Stock.
We have examined all proceedings with reference to the due incorporation
of the Company under the laws of the State of Delaware, minutes of meetings of
the Company's Board of Directors and stockholders, and such other papers and
records as we deem relevant to the opinions set forth below.
Based upon the foregoing, it is our opinion that the Shares, when issued
and delivered as described in the Registration Statement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
GREENSFELDER, HEMKER & GALE, P.C.
<PAGE> 1
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made and entered into as
of the ____ day of ____________, 1996, by and between JONES MEDICAL INDUSTRIES,
INC., a Delaware corporation ("JMED") and ______________________________
("Principal Holder").
RECITALS
A. The Principal Holder is a major shareholder and key employee of Abana
Pharmaceuticals, Inc., a Delaware corporation ("Abana"), and has been involved
in the management of, and is fully familiar with, the business operations and
confidential information of Abana.
B. Incident to a Plan of Reorganization and Agreement dated as of October
___, 1996 (the "Reorganization Agreement"), by and among JMED, Abana and
certain major shareholders of Abana, Abana is to be merged into a wholly-owned
subsidiary of JMED.
C. As a condition to JMED completing the transactions contemplated by the
Reorganization Agreement, JMED has requested the Principal Holder to agree to
the restrictive covenants set forth in this Agreement, and the Principal Holder
has agreed to comply with the provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
1.1 "Affiliate" shall mean, with respect to any Person, any Person
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with, such Person. For purposes hereof,
the term "controlled" (including the terms "controlled by" and "under common
control with"), as used with respect to any Person shall mean the direct or
indirect ability or power to direct or cause the direction of management
policies of such Person or otherwise direct the affairs of such Person, whether
through ownership of voting securities or otherwise.
1.2 "Person" shall mean any person, partnership, firm, limited
liability company, corporation, association or other entity.
<PAGE> 2
1.3 "Restricted Period" shall mean the period commencing on the date
which is the later of (i) five years after the date of this Agreement, and
(ii) two years following the last day of Principal Holder's employment with
Abana, JMED, or any Affiliate of JMED.
2. CONFIDENTIALITY, SOLICITATION AND NON-COMPETITION
2.1 CONFIDENTIAL INFORMATION. The Principal Holder expressly
recognizes, acknowledges and agrees that Abana's methods of operation,
information and trade secrets, whether written or unwritten, including, but
not limited to, products, records, materials, suppliers, manufacturing
techniques and information, know-how, customer lists, inventions, discoveries,
improvements relating to the products and services offered by Abana, data,
documenta, patents, licenses, memoranda and other information, financial or
otherwise, about Abana's operations, business or products, as presently
conducted or proposed to be conducted (collectively, "Confidential
Information") are secret and confidential and shall remain the exclusive
property of Abana. The Principal Holder shall not at any time, directly or
indirectly, use, disseminate, divulge or disclose to any Person (other than on
behalf and for the benefit of JMED or Abana), any Confidential Information.
2.2 EMPLOYEE SOLICITATION. For and during the Restricted Period, the
Principal Holder shall not in any way, directly or indirectly, for his own
behalf or on behalf of or in conjunction with any Person, solicit, entice,
hire, employ, endeavor to employ or associate with for business purposes, any
employee(s), agent(s), contractor(s) or consultant(s) of Abana, JMED or any
Affiliate of JMED.
2.3 NON-COMPETITION PROVISIONS.
(a) For and during the Restricted Period, the Principal Holder
covenants and agrees not to, directly or indirectly, for the Principal Holder's
own account or benefit or for the account or benefit of any other Person,
(i) engage or become interested in, as owner, partner, officer, director,
employee, agent, principal, shareholder (except as a holder of less than
2% of the outstanding stock of any company whose securities are traded on
any national stock exchange or over the counter), supplier, advisor,
lender of funds or credit or otherwise, any business (other than on
behalf and for the benefit of Abana or JMED), involved in the
manufacturing, marketing or sale of pharmaceutical products similar to or
which otherwise compete with those therapeutic categories which have been
marketed by Abana at or prior to the date or this Agreement or which are
being marketed by JMED at the later of the date of this Agreement or the
date upon which the Principal Holder ceases to be an employee of JMED or
any of its Affiliates, or
2
<PAGE> 3
(ii) solicit, take away, attempt to take away or divert or participate in
the diversion of any business of Abana or JMED from any Person which (A)
was a customer of Abana at any time during the two (2) year period
immediately preceding the date of this Agreement, or (B) is a customer of
JMED at any time after the date of this Agreement while the Principal
Holder is an employee of JMED or any of its Affiliates.
(b) The geographic area in which the restrictions set forth herein are
applicable is the United States.
2.4 SCOPE; REASONABLENESS. Each of the foregoing covenants on the
part of the Principal Holder shall be construed as an agreement independent of
any other provision in this Agreement, and the existence of any claim or cause
of action of the Principal Holder against Abana or JMED, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by JMED of any of such covenants. The Principal Holder acknowledges that (i)
the restrictions set forth in this Article 2 are reasonable in scope and
geographical territory, and are essential to protecting JMED's legitimate
interests, (ii) but for the provisions set forth herein, JMED would not enter
into the Reorganization Agreement, and (iii) enforcement of this Agreement will
not preclude the Principal Holder from becoming gainfully employed in such a
manner and to such extent as to provide a standard of living for himself, the
members of the Principal Holder's family and those dependent on the Principal
Holder of at least the sort and fashion to which the Principal Holder and they
have become accustomed.
2.5 REMEDIES. If the Principal Holder breaches or threatens to
commit a breach of any of the provisions of this Article 2, JMED and Abana,
shall have the following rights and remedies, each of which shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to
JMED or Abana at law or equity:
(a) The right and remedy to have the provisions of this Article 2
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the provisions of this Article 2 would
cause irreparable injury to JMED and Abana and that monetary damages would not
provide an adequate remedy to JMED or Abana. It is further agreed that the
amount of any bond that JMED or Abana may be required to post incident to any
equitable relief sought pursuant hereto shall not exceed $5,000 and that said
amount shall be deemed reasonable and proper. The Principal Holder hereby
waives any claim or defense that JMED or Abana has an adequate remedy at law,
and the Principal Holder shall not claim, at any such action or proceeding,
that an adequate remedy at law exists.
(b) The right and remedy to require the Principal Holder to account for
and pay over to JMED or Abana, as the case may be, all compensation, profits,
monies, accruals, gratuities, increments or other benefits derived or received
by the Principal Holder or by any other Person as a result of, or in any way
incident to, any conduct or transactions constituting a breach of the
provisions of this Article 2.
3
<PAGE> 4
2.6 SEVERABILITY AND BLUE-PENCILING. Should any of the provisions of
this Article 2 be held to be too broad or invalid or unenforceable by a court of
competent jurisdiction, then such provision(s) shall be so interpreted and
applied in such a narrower sense as shall be necessary to make such
provision(s) valid and enforceable. The provisions of this Article 2 are
separate and independent covenants and it is agreed that the invalidity or
unenforceability of one or more of the provisions or covenants hereof shall not
affect the validity or enforceability of the remaining provisions of this
Article 2, which Agreement shall then be construed in all respects as if such
invalid or unenforceable provision were omitted.
3. NO ADDITIONAL COMPENSATION. No compensation (other than that received
by the Principal Holder for his shares of capital stock in Abana pursuant to
the Reorganization Agreement) shall be paid to the Principal Holder for the
covenants and agreements set forth in Article 2 hereof, the Principal Holder
hereby acknowledging receipt of adequate consideration therefor pursuant to the
Reorganization Agreement.
4. MISCELLANEOUS
4.1 NON-WAIVER. The failure to object to or to take affirmative action
with respect to any conduct of the Principal Holder which is in violation of
the provisions of this Agreement shall not constitute a waiver of that
violation or any subsequent violation of this Agreement by the Principal
Holder.
4.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between JMED and the Principal Holder regarding the subject matter of this
Agreement and supersedes all prior oral or written proposals, negotiations,
representations, communications or agreements between JMED and the Principal
Holder. This Agreement may not be changed or modified except by a written
instrument executed by an authorized officer of JMED and the Principal Holder.
4.3 COSTS OF ENFORCEMENT. In the event of a dispute with respect to the
provisions of this Agreement and in addition to all other remedies, the
non-prevailing party shall indemnify, protect and hold harmless the prevailing
party from and shall pay the prevailing party's costs and expenses (including
without limitation reasonable attorneys' fees, court costs and expenses)
incurred by the prevailing party in enforcing any of the provisions of this
Agreement and pursuing its rights and remedies hereunder.
4.4 SUCCESSORSHIP. This Agreement shall inure to the benefit of JMED,
its Affiliates and their respective successors and assigns.
4.5 CHOICE OF LAW. The validity, construction, enforcement and
interpretation of this Agreement shall be governed by the laws of the State of
Missouri. The venue for resolution of all disputes hereunder, shall be St.
Louis, Missouri and the Principal Holder hereby consents to the venue and
jurisdiction of the courts located in St. Louis County, Missouri.
4
<PAGE> 5
4.6 SURVIVORSHIP. The provisions of this Agreement shall survive the
signing of this Agreement and completion of the transactions contemplated by
the Reorganization Agreement.
4.7 NOTICE. Any notice or other communication required or contemplated
pursuant to this Agreement shall be in writing and delivered in person, or
mailed by certified mail, return receipt requested, postage prepaid, addressed
to the address of each party set forth below their respective signatures hereto
or to such other address as may be designated in writing as herein set forth.
The date of the notice shall be the date of delivery, if the notice is
personally delivered, or of the date of mailing, if such notice is mailed in
accordance with this paragraph.
4.8 CAPTIONS. The captions and titles contained in this Agreement are
for reference purposes only and shall not affect the interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
day and year first above written.
("Principal Holder') ("JMED")
JONES MEDICAL INDUSTRIES, INC.
_____________________________ By: __________________________
Name: Dennis M. Jones
Title: Chairman & President
Address:_____________________ Address: 1945 Craig Road
St. Louis, MO 63146
_____________________________
5
<PAGE> 1
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-_____) and related Prospectus of Jones
Medical Industries, Inc. for the registration of 129,322 shares of its common
stock and to the incorporation by reference therein of our reports (a) dated
February 12, 1996 (except for Note 16 as to which the date is February 26,
1996) with respect to the consolidated financial statements and schedule of
Jones Medical Industries, Inc. in its Form 10-K for the year ended December 31,
1995, and (b) our report dated February 12, 1996 (except for the first
paragraph of Note 4 as to which the date is March 18, 1996 and except for Note
1 as to which the date is August 30, 1996) with respect to the restated
consolidated financial statements of Jones Medical Industries, Inc. as of
December 31, 1995 and 1994 and for each of three years in the period ended
December 31, 1995 included in its Current Report on Form 8-K dated November 8,
1996.
St. Louis, Missouri
November 6, 1996
- -------------------
Ernst & Young LLP
<PAGE> 1
Consent of Independent Auditors
We Consent to the reference to our firm under the caption "Experts" and
to the use of our report dated October 24, 1996, with respect to the financial
statements of Abana Pharmaceuticals, Inc. included in the Registration
Statement (Form S-4 No. 333-xxxxx) filed on November 8, 1996.
Martin Stuedemann & Associates, P.C.
November 8, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Jones Medical Industries, Inc.:
We consent to the use of our report dated April 25, 1996, except for Note 16 as
to which the date is July 30, 1996, with respect to the consolidated balance
sheets of Galen Drugs of Florida, Inc. and subsidiaries as of September 30,
1995, 1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the years then ended, which report
appears in the Form 8-K of Jones Medical Industries, Inc., dated November 8,
1996 incorporated in your Form S-4 dated November 8, 1996.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
November 8, 1996
