<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 30, 1996
JONES MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-15098 43-1229854
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1945 Craig Road, St. Louis, MO 63146
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (314) 576-6100
--------------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OF ASSETS
On August 30, 1996 (the "Closing Date"), Jones Medical Industries,
Inc. ("Registrant"), acquired all of the outstanding shares of Daniels
Pharmaceuticals, Inc. ("Daniels"), a Florida corporation, by way of a merger
among Daniels, Daniels' parent entity, Galen Drugs of Florida, Inc. ("Galen"),
a Florida corporation, and the Registrant's wholly owned subsidiary, JGD
Acquisition Corporation ("JGD"), a Florida corporation, in a reorganization
transaction qualifying under Section 368(a) of the Internal Revenue Code of
1986, as amended, and constituting a "pooling of interests" for accounting
purposes.
On the Closing Date, each of JGD and Galen merged with and
consolidated into Daniels, with Daniels as the surviving corporation. Pursuant
to such merger and consolidation, (i) each outstanding share of the capital
stock of JGD was exchanged for and converted into a share of the capital stock
of Daniels; (ii) each outstanding share of the capital stock of Galen was
exchanged for and converted into approximately 29.52 shares of the Common
Stock, par value $.04 per share, of the Registrant; and (iii) each outstanding
share of the capital stock of Daniels was canceled and retired. Holders of
4,286 of the 102,880 Galen shares outstanding exercised statutory dissenters'
rights in connection with the merger and agreed to accept an aggregate of
$4,022,411 in cash in settlement of their claims to the fair market value of
such shares. An aggregate of 2,910,474 shares of the Registrant's
<PAGE> 2
Common Stock were issued to the remaining shareholders of Galen, together with
cash in the amount of approximately $150 in settlement of fractional share
interests.
In a related transaction, the Registrant, through Daniels, acquired
certain real property previously leased to Daniels from an entity owned by
certain affiliates of Galen. Such real property was acquired in exchange for
49,750 additional shares of the Registrant's Common Stock.
Under the terms of the agreements relating to the transaction, an
aggregate of 250,000 shares of the Registrant's Common Stock received by the
former Galen shareholders have been placed in escrow to provide indemnification
to the Registrant and Daniels in connection with certain representations and
covenants contained in the agreements. The number of shares held in escrow
will be reduced to approximately 100,000 shares as of the first anniversary of
the Closing Date, with the escrow and indemnification continuing thereafter
until the expiration of applicable tax statutes of limitations. During such
continuation, permitted claims against the escrow are limited to certain tax
matters and other specific contingencies existing at August 30, 1996.
In connection with the transaction, Daniels and Galen incurred
financial consulting and advisory fees aggregating $1,750,000 which were paid
on the Closing Date. Further, as a result of "change of control" provisions in
employment agreements for certain non-shareholder management personnel of
Daniels and Galen, payments aggregating approximately $540,000 were triggered
by the transaction. In addition, Galen incurred non-recurring equity-based
compensation expenses in the aggregate amount of approximately $2,900,000
accruing to the president of Daniels during the current quarter. The
Registrant estimates that aggregate non-recurring expenses in connection with
the acquisition, including those mentioned above and related legal and
accounting expenses, will be approximately $5,750,000 million and that such
amount will be charged to third quarter 1996 pre-tax income of the combined
operations.
Daniels is the principal operating entity of Galen and is a St.
Petersburg, Florida based manufacturer of prescription pharmaceutical products,
the largest of which is Levoxyl(R), a synthetic thyroid hormone for the
treatment of hypothyroidism. Levoxyl(R) is reported to be the second most
widely prescribed brand of levothyroxine in the United States, within an
estimated $300 million market dominated by Knoll Pharmaceutical Company's
Synthroid(R). Daniels also manufactures a line of prescription veterinarian
pharmaceuticals including Soloxine(R), a brand of levoxythrine for veterinary
use in the treatment of hypothyroidism in small animals. Soloxine(R) and
Daniels' other veterinarian products are marketed through distributors
throughout the United States and Canada and Daniels recently commenced
distribution of Soloxine in the United Kingdom.
Daniels was founded in 1979 to manufacture, market and distribute
pharmaceutical products for the veterinary market. In 1987, the company
expanded into manufacturing, marketing and distribution of pharmaceutical
products for the human market. The company has achieved significant increases
in sales and net income through the introduction of new products and the
expansion of their sales and marketing efforts on a national basis.
2
<PAGE> 3
Sales and net income of Galen have increased from $12,405,460 and
$1,380,744, respectively, for the fiscal year ended September 30, 1993 to
$18,394,720 and $3,060,955 for the fiscal year ended September 30, 1995. For
the nine months ended June 30, 1996, Galen reported sales of $13,803,918 and
net income of $2,108,660, compared to sales and net income of $12,902,104 and
$1,989,007, respectively, for the nine months ended June 30, 1995.
In addition to the operations of Daniels, Galen also conducted retail
pharmacy operations in St. Petersburg, although several such operations had
been closed in recent years. The remaining pharmacy operation, conducted under
the name Meadowlawn Pharmacy, Inc., was sold to an unaffiliated party on August
30, 1996, for $225,000, an amount approximating Galen's net investment in the
operation as of that date.
The offer and sale of the Common Stock of the Registrant in connection
with the acquisition of Daniels is not being registered under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance by the Registrant
upon the availability of one or more exemptions from the requirements of
Section 5 of the Securities Act. The certificates evidencing such shares shall
be subject to "stop transfer" restrictions and bear appropriate restrictive
legends which will be removed from such certificates at such times as the
holding period under Rule 144 of the Securities Act ("Rule 144") establishes
that, in accordance with paragraph (k) of Rule 144, volume limitations and
notice of sale requirements are no longer applicable. The Registrant has
provided certain Securities Act registration rights to the former Galen
shareholders in the event that they elect to sell shares received in the
transactions prior to the time at which Rule 144 becomes available.
Funds for the payment in settlement of dissenters' rights and other
cash expenses of the transaction, aggregating approximately $6,900,000, were
provided from the Registrant's available working capital.
There are no material relationships between the Company (or any of its
direct or indirect affiliates) and Daniels or Galen or any of their respective
affiliates, directors, officers or any associates of any such directors or
officers.
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Consolidated Financial Statements of Galen Drugs of Florida, Inc., at
September 30, 1993, 1994 and 1995 and for the years then ended and
at June 30, 1996 and for the nine months ended June 30, 1995 and
1996.
Report of Hacker, Johnson, Cohen & Grieb, independent accountants
dated April 25, 1996.
Report of Hacker, Johnson, Cohen & Grieb, independent accountants
dated July 24, 1996.
(b) Pro Forma Financial Information
To be filed by amendment at or prior to the filing of the Registrant's
Form 10-Q for the quarter ending September 30, 1996, and in any
event within 60 days following the date of this report.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
2.1 Plan of Reorganization and Agreement dated as of July 30, 1996, by and among Galen Drugs of
Florida, Inc., Daniels Pharmaceuticals, Inc. and Registrant.
2.2 Real Estate Purchase Contract dated as of July 30, 1996, by and among Daniels
Pharmaceuticals, Inc. and Daniels Enterprises, Inc.
2.3 Indemnification and Escrow Agreement dated August 30, 1996, among Registrant, the
shareholders named therein, and Mark Twain Bank as Escrow Agent.
2.4 Articles of Merger and Plan of Merger among JGD Acquisition Corporation, Galen Drugs of
Florida, Inc. and Daniels Pharmaceuticals, Inc.
99 .1 Registrant's Press Release announcing completion of the acquisition transaction.
</TABLE>
The Registrant agrees to furnish supplementally a copy of any
schedules or other attachments to the above exhibits to the Commission upon
request.
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JONES MEDICAL INDUSTRIES, INC.
By: /s/ Dennis M. Jones
---------------------------------------
Name: Dennis M. Jones
Title: President
Date: September 9, 1996
5
<PAGE> 6
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR END FINANCIAL STATEMENTS PAGE
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets
September 30, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the Years Ended
September 30, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders'
Equity for the Years Ended
September 30, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for
the Years Ended September 30, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements
for the Years Ended
September 30, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . F-7 - F-13
INTERIM FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Balance Sheet -
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Consolidated Statements of Income for the
Nine Months Ended June 30, 1995 (unaudited) and 1996 . . . . . . . . . . . . . . . . . F-16
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-17
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1995 (unaudited) and 1996 . . . . . . . . . . . . . . . . . F-18
Notes to Consolidated Financial Statements for
June 30, 1995 (unaudited) and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-19 - F-24
</TABLE>
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the Consolidated Financial Statements and related Notes.
F-1
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galen Drugs of Florida, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheets of Galen Drugs of
Florida, Inc. and Subsidiaries (the "Company") as of September 30, 1995, 1994
and 1993 and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 1995, 1994 and 1993 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
April 25, 1996, except for Note 16 as to which
the date is July 30, 1996.
F-2
<PAGE> 8
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------
1993 1994 1995
---- ---- ----
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 522,870 1,510,992 2,931,222
Accounts receivable, net of allowances
of $22,064, $46,553 and $58,772
in 1993, 1994 and 1995 1,358,414 1,557,594 2,305,649
Inventories 1,704,176 1,967,473 2,267,646
Deferred income taxes 307,227 545,812 612,310
Prepaid expenses and other 14,119 9,653 32,886
---------- --------- ----------
Total current assets 3,906,806 5,591,524 8,149,713
Notes receivable from related party 209,383 255,357 175,169
Property and equipment, net 1,280,298 1,675,774 2,324,440
---------- --------- ----------
Total $5,396,487 7,522,655 10,649,322
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable to
former stockholder - 135,305 180,144
Accounts payable and accrued expenses 1,394,824 1,929,803 2,661,823
Income taxes payable 98,215 107,659 -
---------- --------- ----------
Total current liabilities 1,493,039 2,172,767 2,841,967
Note payable to former stockholder, net of
current portion - 2,978,357 2,295,376
Deferred income taxes 199,789 276,538 356,031
---------- --------- ----------
Total liabilities 1,692,828 5,427,662 5,493,374
---------- --------- ----------
Commitments (Note 6 and 13)
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized, 481,123 in 1993 and 102,880 in 1994
and 1995 shares issued and outstanding 4,811 1,029 1,029
Additional paid-in capital 114,496 - -
Retained earnings 3,584,352 2,093,964 5,154,919
---------- --------- ----------
Total stockholders' equity 3,703,659 2,094,993 5,155,948
---------- --------- ----------
Total $5,396,487 7,522,655 10,649,322
========== ========= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 9
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales, net $12,405,460 14,605,172 18,394,720
Cost of sales 4,591,451 4,817,097 5,588,494
----------- ---------- ----------
Gross profit 7,814,009 9,788,075 12,806,226
----------- ---------- ----------
Selling, general and administrative expenses:
Selling 2,981,005 3,913,761 4,248,277
General and administrative 2,218,177 2,467,107 3,148,315
Research and development 281,293 406,337 452,285
----------- ---------- ----------
Total selling, general and
administrative expenses 5,480,475 6,787,205 7,848,877
----------- ---------- ----------
Income from operations 2,333,534 3,000,870 4,957,349
Other income (expense):
Interest income 11,986 43,218 131,380
Interest expense (28,579) (181,821) (202,906)
Other, net (19,371) (20,708) (11,377)
----------- ---------- ----------
Income before provision for income taxes 2,297,570 2,841,559 4,874,446
Provision for income taxes 916,826 1,061,168 1,813,491
----------- ---------- ----------
Net income $ 1,380,744 1,780,391 3,060,955
=========== ========== ==========
Earnings per share
$ 2.85 10.73 29.75
=========== ========== ==========
Weighted average number of shares outstanding 484,456 165,932 102,880
=========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 10
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINEDSTOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
-------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 485,123 $ 4,851 174,576 2,203,608 2,383,035
Net income - - - 1,380,744 1,380,744
Repurchase of common stock (4,000) (40) (60,080) - (60,120)
------- ------- ------- --------- ---------
Balance at September 30, 1993 481,123 4,811 114,496 3,584,352 3,703,659
Repurchase of common stock (378,243) (3,782) (114,496) (3,270,779) (3,389,057)
Net income - - - 1,780,391 1,780,391
------- ------- ------- --------- ---------
Balance at September 30, 1994 102,880 1,029 - 2,093,964 2,094,993
Net income - - - 3,060,955 3,060,955
------- ------- ------- --------- ---------
Balance at September 30, 1995 102,880 $ 1,029 - 5,154,919 5,155,948
======= ======= ======= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 11
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,380,744 1,780,391 3,060,955
Noncash adjustments:
Depreciation and amortization 89,697 114,481 142,215
Provision (credit) for deferred income taxes (82,914) (161,836) 12,995
Change in assets and liabilities:
Accounts receivable (587,066) (199,180) (748,055)
Inventories (205,541) (263,297) (300,173)
Prepaid expenses and other 9,286 4,466 (23,233)
Accounts payable and accrued expenses 355,828 534,979 732,020
Income taxes payable (211,888) 9,444 (107,659)
---------- --------- ---------
Net cash provided by operating activities 748,146 1,819,448 2,769,065
---------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (484,982) (509,957) (790,881)
Repurchase of common stock (60,120) (169,453) -
Net decrease (increase) in notes receivable from
related party (209,383) (45,974) 80,188
---------- --------- ---------
Net cash used in investing activities (754,485) (725,384) (710,693)
---------- --------- ---------
Cash flows from financing activities:
Repayment of note payable to former stockholder - (105,942) (638,142)
Repayment of note payable to bank (151,721) - -
---------- --------- ---------
Net cash used in financing activities (151,721) (105,942) (638,142)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents (158,060) 988,122 1,420,230
Cash and cash equivalents at beginning of year 680,930 522,870 1,510,992
---------- --------- ---------
Cash and cash equivalents at end of year $ 522,870 1,510,992 2,931,222
========== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 12
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993, 1994 AND 1995
(1) DESCRIPTION OF BUSINESS, BASIS OF CONSOLIDATION AND PRODUCT CONCENTRATION
The accompanying consolidated financial statements include the accounts of Galen
Drugs of Florida, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Subsidiaries are as follows:
Daniels Pharmaceuticals, Inc.
Meadowlawn Pharmacy, Inc.
Arda, Inc.
Azalea Pharmacy, Inc.
The Company's primary activity is the operation of its subsidiaries. Daniels
Pharmaceuticals, Inc. ("Daniels") manufactures pharmaceutical products,
generally sold by prescription for human and veterinary use with a specific
concentration of thyroid medications. Daniels' most significant product line is
Levoxyl with sales totaling approximately $6,348,000, $8,736,000 and $11,684,000
in 1993, 1994 and 1995, respectively. Daniels primary market is the continental
United States. Daniels primary customers consist of wholesale pharmaceutical
distributors and multi location retail pharmacies. Meadowlawn Pharmacy, Inc.,
Arda, Inc., (closed September 1995) and Azalea Pharmacy, Inc., (closed March
1994) (collectively "retail operations") are retail pharmacies located in
Pinellas County, Florida.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies used in the preparation
of the consolidated financial statements.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash on deposit
with financial institutions, certificates of deposit with initial maturities of
seven days or less and U.S. Treasury Bills with initial maturities of ninety
days.
INVENTORIES. Inventories are valued at the lower of cost or market on the
first-in, first-out method.
(continued)
F-7
<PAGE> 13
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation
and amortization are computed on the straight-line method over the estimated
useful lives of the related assets. Upon sale or retirement, the costs and
related depreciation are eliminated from the respective accounts and the
resulting gain or loss is included in operations. Maintenance and repairs are
charged to income when incurred; expenditures for renewals and betterments are
capitalized. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
-------------- -----------
<S> <C>
Machinery and manufacturing equipment 5-40 years
Furniture, fixtures and office equipment 5-20 years
Automobiles and trucks 5 years
</TABLE>
REVENUE RECOGNITION. Daniels' revenues are recognized when goods are shipped,
less estimated amounts for sales returns, rebates and cash discounts. Daniels
enters into contractual agreements for rebates on certain products with its
customers. Retail operations revenues are recognized at the time of sale.
ADVERTISING. Media advertising costs are expensed as incurred. Media
advertising costs charged to expense were $1,078,706, $1,149,398 and $1,250,811
during the years ended September 30, 1993, 1994 and 1995, respectively.
RESEARCH AND DEVELOPMENT. Daniels sponsored research and development costs
related to future products are expensed currently.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the balance sheet
carrying amounts of existing assets and liabilities measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
The Company files a consolidated income tax return with its subsidiaries. Income
taxes are allocated proportionally to the Company and its subsidiaries as though
separate income tax returns were filed.
FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable and accrued expenses approximated fair
value due to the relatively short maturity of these instruments. The carrying
value of note payable to former stockholder approximated fair value due to
repayment in January 1996.
EARNINGS PER COMMON SHARE. Earnings per common share is computed by dividing
the net income for the year by the weighted average number of shares
outstanding.
(continued)
F-8
<PAGE> 14
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Raw materials $ 421,476 454,465 743,220
Work-in-progress 30,386 214 30,950
Finished goods 1,252,314 1,512,794 1,493,476
---------- --------- ---------
Total $1,704,176 1,967,473 2,267,646
========== ========= =========
</TABLE>
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Machinery and manufacturing equipment $1,314,412 1,693,265 2,276,579
Furniture, fixtures and office equipment 317,929 354,909 345,602
Leasehold improvements 159,046 210,242 406,246
Automobiles and trucks 79,718 79,718 79,718
---------- --------- ---------
Total, at cost 1,871,105 2,338,134 3,108,145
Less accumulated depreciation and amortization 590,807 662,360 783,705
---------- --------- ---------
Property and equipment, net $1,280,298 1,675,774 2,324,440
========== ========= =========
</TABLE>
(5) NOTE PAYABLE TO FORMER STOCKHOLDER
Note payable to former stockholder consists of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
6.81% note payable in monthly installments of
$28,598, including interest with unpaid principal
and accrued interest due November 30, 2008,
uncollateralized $ - 3,113,662 2,475,520
------- --------- ---------
Less current portion - 135,305 180,144
------- --------- ---------
Long-term portion $ - 2,978,357 2,295,376
======= ========= =========
</TABLE>
(continued)
F-9
<PAGE> 15
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) NOTE PAYABLE TO FORMER STOCKHOLDER, CONTINUED
At September 30, 1995 installments due on note payable to former stockholder
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
------------------------- ----------
<S> <C>
1996 $ 180,144
1997 192,803
1998 206,350
1999 220,849
2000 236,368
Thereafter 1,439,006
----------
$2,475,520
==========
</TABLE>
The note payable to former stockholder was repaid in January 1996.
(6) LEASES
The Company leases its manufacturing plant facilities and its retail drug store
from an affiliated entity under operating leases. The leases have initial
terms of one year, however, management expects to renew these leases and remain
in these facilities for the foreseeable future. In addition, the Company
leases certain parking facilities under an operating lease with an initial term
of five years. Certain office equipment is leased under operating leases with
initial terms ranging from one to five years.
Rental expense for the years ended September 30, 1993, 1994 and 1995 was
$404,209, $449,797 and $456,346, respectively. Future minimum rental payments
under operating leases at September 30, 1995 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
------------------------- --------
<S> <C>
1996 $138,300
1997 26,100
1998 16,800
1999 7,300
2000 800
--------
$189,300
========
</TABLE>
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Trade payables $ 393,513 428,088 923,791
Sales returns 350,535 501,103 709,956
Sales rebates 282,911 493,313 435,116
Compensation 316,117 413,000 522,883
Other 51,748 94,299 70,077
---------- --------- ---------
Total accounts payable and accrued expenses $1,394,824 1,929,803 2,661,823
========== ========= =========
</TABLE>
(continued)
F-10
<PAGE> 16
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Noncash investing and financing activity-
Note payable to former stockholder
issued in connection with repurchase
of common stock $ - 3,219,604 -
========== ========= =========
Cash paid during the year for:
Interest $ 28,579 181,821 202,906
========== ========= =========
Income taxes $1,150,159 1,183,298 1,919,255
========== ========= =========
</TABLE>
(9) INCOME TAXES
A reconciliation of the difference between the United States federal statutory
tax rates and the effective income tax rate as a percentage of income before
provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Tax at federal statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income tax (net of federal income
tax benefit) 4.2 4.1 3.6
Internal Revenue Service assessment
of taxes for prior year 2.3 - -
Research credit (.6) (1.3) (.8)
Other - .1 .1
---- ---- ----
39.9% 36.9% 36.9%
==== ==== ====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $843,146 1,025,121 1,534,414
State 156,594 197,883 266,082
-------- -------- ---------
Total current 999,740 1,223,004 1,800,496
-------- -------- ---------
Deferred:
Federal (70,796) (138,182) 11,096
State (12,118) (23,654) 1,899
-------- -------- ---------
Total deferred (82,914) (161,836) 12,995
-------- -------- ---------
Total provision for income taxes $916,826 1,061,168 1,813,491
======== ========= =========
</TABLE>
(continued)
F-11
<PAGE> 17
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) INCOME TAXES, CONTINUED
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Allowance for bad debts $ 8,303 17,518 22,116
Allowance for medical sales charge backs 37,756 48,228 75,312
Allowance for rebates 68,703 137,406 88,423
Allowance for sales returns 131,906 188,565 267,156
Inventory capitalization 43,175 78,832 116,230
Accrued expenses 17,384 75,263 43,073
-------- ------- -------
Gross deferred tax assets 307,227 545,812 612,310
-------- ------- -------
Deferred tax liabilities-
Depreciation 199,789 276,538 356,031
-------- ------- -------
Net deferred tax assets $107,438 269,274 256,279
======== ======= =======
</TABLE>
(10) RETIREMENT PLAN
Effective January 1, 1994, the Company established a 401(k) profit sharing plan
covering all employees who have attained age twenty-one, completed 1,000 hours
of service and one year of employment. The Company may make a discretionary
contribution each year. The Company's expense under this plan was $15,623 and
$20,199 during the years ended September 30, 1994 and 1995, respectively.
(11) ECONOMIC DEPENDENCE AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. At September 30, 1993, 1994 and 1995 cash and cash equivalents
consisted of $522,870, $1,016,197 and $940,342 on deposit with First Union
National Bank and U.S. Treasury Bills of $0, $494,795 and $1,990,880,
respectively. During the normal course of business the Company extends credit
to customers located primarily in the continental United States. The financial
position and payment history of each customer has been considered in determining
the allowance for doubtful accounts. The Company's top five customers
represented an aggregate of 33%, 37% and 37% of the Company's sales during the
years ended September 30, 1993, 1994 and 1995, respectively.
(continued)
F-12
<PAGE> 18
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) RELATED PARTY TRANSACTIONS
The Company purchased 378,243 shares of its common stock for $3,389,057 from
the former majority stockholder of the Company on November 30, 1993. The stock
redemption agreement provided for a cash payment of $169,453 and the issuance
of a note payable to the former stockholder for the balance due of $3,219,604
(See Note 5). Interest expense in connection with the note payable to the
former stockholder was $181,821 and $202,906 during the years ended September
30, 1994 and 1995, respectively. The note payable was repaid in January 1996.
At September 30, 1995, the Company leases its manufacturing facilities and a
retail drug store from an entity controlled by certain stockholders of the
Company. Rental expense for facilities leased from related parties totaled
$364,411, $427,454 and $455,266 for the years ended September 30, 1993, 1994
and 1995, respectively.
(13) EMPLOYMENT CONTRACTS
Certain employees of the Company have employment contracts providing for
additional compensation in the event of a change in control of the Company. In
addition, one employee has a contract which provides for the payment of 3% of
the gross sales price, as defined, of the Company to the employee in the event
of a change of control. Compensation which might be payable under these
agreements has not been accrued in the consolidated financial statements as a
change of control has not occurred.
(14) COMMON STOCK SALE RESTRICTIONS
The Company's bylaws provide that no owner of stock in the Company may sell,
exchange or otherwise dispose of any such stock or interest therein without
first offering such stock or interest therein to the Company at the same price
and upon the same terms and conditions which said stockholder desires to sell,
exchange or otherwise dispose of such stock or interest therein. If an offer is
not accepted by the Company within thirty days then the offer to sell must be
made available at the same terms to the other stockholders of the Company.
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales $4,047,728 4,338,587 4,515,789 5,492,616
========== ========= ========= =========
Gross profit $2,753,032 2,854,971 3,201,859 3,996,364
========== ========= ========= =========
Net income $ 541,891 589,906 857,210 1,071,948
========== ========= ========= =========
Earnings per share $ 5.27 5.73 8.33 10.42
========== ========= ========= =========
</TABLE>
(16) SUBSEQUENT EVENT - ACQUISITION OF THE COMPANY
On July 30, 1996, the Company signed a definitive agreement to exchange all of
the outstanding common shares of the Company for approximately 3,000,000 shares
of common stock of Jones Medical Industries, Inc. The agreement provides for
the closing of the transaction on or before August 30, 1996. The transaction
is subject to certain conditions, including being accounted for as a pooling of
interests, and approval of the transaction by the United States Federal Trade
Commission.
F-13
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galen Drugs of Florida, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheet of Galen Drugs of
Florida, Inc. and Subsidiaries (the "Company") as of June 30, 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for the nine months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of June 30, 1996 and the results of its operations and its cash
flows for the nine months then ended, in conformity with generally accepted
accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
July 24, 1996, except for Note 15 as to which
the date is July 30, 1996.
F-14
<PAGE> 20
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,183,290
Accounts receivable, net of allowances of $91,602 2,457,854
Inventories 2,711,112
Deferred income taxes 760,282
Prepaid expenses and other 114,414
-----------
Total current assets 7,226,952
Notes receivable from related party 114,359
Property and equipment, net 2,850,847
----------
Total $ 10,192,158
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 2,441,291
Income taxes payable 77,349
-----------
Total current liabilities 2,518,640
Deferred income taxes
408,910
-----------
Total liabilities 2,927,550
-----------
Commitments (Notes 5 and 12)
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized, 102,880 issued and outstanding 1,029
Retained earnings
7,263,579
----------
Total stockholders' equity 7,264,608
----------
Total $ 10,192,158
==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-15
<PAGE> 21
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Sales, net $ 12,902,104 13,803,918
Cost of sales 4,092,242 4,035,483
---------- ----------
Gross profit 8,809,862 9,768,435
---------- ----------
Selling, general and administrative expenses:
Selling 3,157,961 3,356,420
General and administrative 2,081,329 2,708,197
Research and development 334,029 344,011
---------- ----------
Total selling, general and administrative expenses 5,573,319 6,408,628
---------- ----------
Income from operations 3,236,543 3,359,807
Other income (expense):
Interest income 78,307 57,395
Interest expense (155,910) (32,003)
Other, net 8,475 (9,241)
---------- ----------
Income before provision for income taxes 3,167,415 3,375,958
Provision for income taxes 1,178,408 1,267,298
---------- ----------
Net income $ 1,989,007 2,108,660
========== ==========
Earnings per share
$ 19.33 20.50
========== ==========
Weighted average number of shares outstanding 102,880 102,880
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-16
<PAGE> 22
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON RETAINED STOCKHOLDERS'
SHARES STOCK EARNINGS EQUITY
-------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995 102,880 $ 1,029 5,154,919 5,155,948
Net income - - 2,108,660 2,108,660
--------- ------- --------- ---------
Balance at June 30, 1996 102,880 $ 1,029 7,263,579 7,264,608
======= ===== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE> 23
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,989,007 2,108,660
Noncash adjustments:
Depreciation and amortization 103,227 133,850
Provision (credit) for deferred income taxes 8,444 (95,093)
Change in assets and liabilities:
Accounts receivable (352,740) (152,205)
Inventories (442,136) (443,466)
Prepaid expenses and other (19,220) (81,528)
Accounts payable and accrued expenses 96,931 (220,532)
Income taxes payable 200,424 77,349
----------- ---------
Net cash provided by operating activities 1,583,937 1,327,035
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (488,509) (660,257)
Decrease in notes receivable from related party 60,201 60,810
----------- ---------
Net cash used in investing activities (428,308) (599,447)
----------- ---------
Cash flows used in financing activities-
Repayment of note payable to former stockholder (99,875) (2,475,520)
----------- ---------
Net increase (decrease) in cash and cash equivalents 1,055,754 (1,747,932)
Cash and cash equivalents at beginning of period 1,510,992 2,931,222
----------- ---------
Cash and cash equivalents at end of period $ 2,566,746 1,183,290
=========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE> 24
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND JUNE 30, 1996
(1) DESCRIPTION OF BUSINESS, BASIS OF CONSOLIDATION AND PRODUCT CONCENTRATION
The accompanying consolidated financial statements include the accounts of Galen
Drugs of Florida, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Subsidiaries are as follows:
Daniels Pharmaceuticals, Inc.
Meadowlawn Pharmacy, Inc.
The Company's primary activity is the operation of its subsidiaries. Daniels
Pharmaceuticals, Inc. ("Daniels") manufactures pharmaceutical products,
generally sold by prescription for human and veterinary use with a specific
concentration of thyroid medications. Daniels' most significant product line is
Levoxyl with sales totaling approximately $7,812,000 and $8,895,000,
respectively, during the nine months ended June 30, 1995 (unaudited) and 1996.
Daniels' primary market is the continental United States. Daniels' primary
customers consist of wholesale pharmaceutical distributors and multi-location
retail pharmacies. Meadowlawn Pharmacy, Inc., ("retail operations") is a retail
pharmacy located in Pinellas County, Florida.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies used in the preparation
of the consolidated financial statements.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash on deposit
with financial institutions, certificates of deposit with initial maturities of
seven days or less and U.S. Treasury Bills with initial maturities of ninety
days.
INVENTORIES. Inventories are valued at the lower of cost or market on the
first-in, first-out method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation
and amortization are computed using the straight-line method over the estimated
useful lives of the related assets. Upon sale or retirement, the cost and
related depreciation are eliminated from the respective accounts and the
resulting gain or loss is included in operations. Maintenance and repairs are
charged to income when incurred; expenditures for renewals and betterments are
capitalized. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
-------------- -----------
<S> <C>
Machinery and manufacturing equipment 5-40 years
Furniture, fixtures and office equipment 5-20 years
Automobiles and trucks 5 years
</TABLE>
(continued)
F-19
<PAGE> 25
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION. Daniels' revenues are recognized when goods are shipped,
less estimated amounts for sales returns, rebates and cash discounts. Daniels
enters into contractual agreements for rebates on certain products with its
customers. Retail operations revenues are recognized at the time of sale.
ADVERTISING. Media advertising costs are expensed as incurred. Media
advertising costs charged to expense were $1,081,867 and $930,729, respectively,
during the nine months ended June 30, 1995 (unaudited) and 1996.
RESEARCH AND DEVELOPMENT. Daniels sponsored research and development costs
related to future products are expensed currently.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company files a consolidated income tax return with its subsidiaries. Income
taxes are allocated proportionally to the Company and its subsidiaries as though
separate income tax returns were filed.
FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable and accrued expenses approximated fair
value due to the relatively short maturity of these instruments.
EARNINGS PER COMMON SHARE. Earnings per common share is computed by dividing
the net income for the period by the weighted average number of shares
outstanding.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AT JUNE 30,
1996
----
<S> <C>
Raw materials $ 570,115
Work-in-progress 20,027
Finished goods 2,120,970
---------
Total $ 2,711,112
=========
</TABLE>
(continued)
F-20
<PAGE> 26
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
Property and equipment consist of the following:
AT JUNE 30,
1996
----
<S> <C>
Machinery and manufacturing equipment $ 2,596,075
Furniture, fixtures and office equipment 289,341
Leasehold improvements 676,216
Automobiles and trucks 132,102
---------
Total, at cost 3,693,734
Less accumulated depreciation and amortization 842,887
---------
Property and equipment, net $ 2,850,847
=========
</TABLE>
(5) LEASES
The Company leases its manufacturing plant facilities and its retail drug store
from an affiliated entity under operating leases. The leases have initial terms
of one year, however management expects to renew these leases and remain in
these facilities for the foreseeable future. In addition, the Company leases
certain parking facilities under an operating lease with an initial term of five
years. Certain office equipment is leased under operating leases with initial
terms ranging from one to five years.
Rental expense for the nine months ended June 30, 1995 (unaudited) and 1996 was
$344,612 and $324,735, respectively. Future minimum rental payments under
operating leases at June 30, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
-------------------- --------
<S> <C>
1997 $ 247,000
1998 23,000
1999 12,000
2000 2,000
-------
$ 284,000
=======
</TABLE>
(continued)
F-21
<PAGE> 27
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accounts payable and accrued expenses consist of the following:
AT JUNE 30,
1996
----
<S> <C>
Trade payables $ 632,659
Sales returns 1,030,395
Sales rebates 408,015
Compensation 244,497
Other 125,725
----------
$ 2,441,291
=========
</TABLE>
(7) INCOME TAXES
A reconciliation of the difference between the United States federal statutory
tax rates and the effective income tax rate as a percentage of income before
provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED JUNE 30,
---------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Tax at federal statutory rate 34.0% 34.0%
Increase resulting from-
State income tax (net of federal income tax benefit) 3.2 3.5
---- ----
37.2% 37.5%
==== ====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED JUNE 30,
------------------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Current:
Federal $ 997,064 1,168,275
State 172,900 194,116
--------- ---------
Total current provision 1,169,964 1,362,391
--------- ---------
Deferred:
Federal 7,210 (81,194)
State 1,234 (13,899)
--------- ---------
Total deferred credit 8,444 (95,093)
--------- ----------
Total provision for income taxes $ 1,178,408 1,267,298
========= =========
</TABLE>
(continued)
F-22
<PAGE> 28
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) INCOME TAXES, CONTINUED
The tax effect of temporary differences that give rise to deferred tax assets
and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
AT JUNE 30,
1996
----
<S> <C>
Deferred tax assets:
Allowance for bad debts $ 34,470
Allowance for medical sales charge backs 75,996
Allowance for rebates 77,540
Allowance for sales returns 387,738
Inventory capitalization 116,230
Accrued expenses 68,308
-------
Gross deferred tax assets 760,282
-------
Deferred tax liabilities-
Depreciation 408,910
-------
Net deferred tax assets $ 351,372
=======
</TABLE>
(8) RETIREMENT PLAN
Effective January 1, 1994, the Company established a 401(k) profit sharing plan
covering all employees who have attained age twenty-one, completed 1,000 hours
of service and one year of employment. The Company may make a discretionary
contribution each year. The Company's expense under this plan was $15,082 and
$41,170, respectively, during the nine months ended June 30, 1995 (unaudited)
and 1996.
(9) ECONOMIC DEPENDENCE AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. At June 30, 1996 cash and cash equivalents consisted of $1,183,290
on deposit with First Union National Bank. During the normal course of business
the Company extends credit to customers located primarily in the continental
United States. The financial position and payment history of each customer has
been considered in determining the allowance for doubtful accounts. The
Company's top five customers represented an aggregate of 37% and 32% of the
Company's sales during the nine months ended June 30, 1995 (unaudited) and 1996,
respectively.
(continued)
F-23
<PAGE> 29
GALEN DRUGS OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
Cash paid for: 1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Interest $ 155,381 32,003
======= =========
Income taxes $ 966,255 1,270,538
======= =========
</TABLE>
(11) RELATED PARTY TRANSACTIONS
The Company purchased 378,243 shares of its common stock for $3,389,057 from the
former majority stockholder of the Company on November 30, 1993. The stock
redemption agreement provided for a cash payment of $169,453 and the issuance of
a note payable to the former stockholder for the balance due of $3,219,604.
Interest expense in connection with the note payable to the former stockholder
was $155,381 and $31,991, respectively, during the nine months ended June 30,
1995 (unaudited) and 1996. The note payable was repaid in January 1996. At
June 30, 1996, the Company leases its manufacturing facilities and a retail drug
store from an entity controlled by certain stockholders of the Company. Rental
expense for facilities leased from related parties totaled $341,450 and
$323,925, respectively, for the nine months ended June 30, 1995 (unaudited) and
1996.
(12) EMPLOYMENT CONTRACTS
Certain employees of the Company have employment contracts providing for
additional compensation in the event of a change in control of the Company. In
addition, one employee has a contract which provides for the payment of 3% of
the gross sales price, as defined, of the Company to the employee in the event
of a change of control. Compensation which might be payable under these
agreements has not been accrued in the consolidated financial statements as a
change of control has not occurred.
(13) COMMON STOCK SALE RESTRICTIONS
The Company's bylaws provide that no owner of stock in the Company may sell,
exchange or otherwise dispose of any such stock or interest therein without
first offering such stock or interest therein to the Company at the same price
and upon the same terms and conditions which said stockholder desires to sell,
exchange or otherwise dispose of such stock or interest therein. If an offer is
not accepted by the Company within thirty days then the offer to sell must be
made available at the same terms to the other stockholders of the Company.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD
---- ----- ------ -----
<S> <C> <C> <C>
Net sales $ 4,206,864 4,470,953 5,126,101
========= ========= =========
Gross profit $ 3,107,562 2,904,549 3,756,324
========= ========= =========
Net income $ 701,925 473,294 933,441
========= ========= =========
Earnings per share $ 6.82 4.60 9.08
========= ========= =========
</TABLE>
(15) SUBSEQUENT EVENT
On July 30, 1996, the Company signed a definitive agreement to exchange all of
the outstanding common shares of the Company for approximately 3,000,000 shares
of common stock of Jones Medical Industries, Inc. The Agreement provides for
the closing of the transaction on or before August 30, 1996. The transaction is
subject to certain conditions, including being accounted for as a pooling of
interests, and approval of the transaction by the United States Federal Trade
Commission.
F-24
<PAGE> 30
[LETTERHEAD OF HACKER, JOHNSON, COHEN & GRIEB]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galen Drugs of Florida, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheets of Galen Drugs of
Florida, Inc. and Subsidiaries (the "Company") as of September 30, 1995, 1994
and 1993 and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 1995, 1994 and 1993 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Hacker, Johnson,Cohen & Grieb
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
April 25, 1996, except for Note 16 as to which
the date is July 30, 1996.
<PAGE> 31
[LETTERHEAD OF HACKER, JOHNSON, COHEN & GRIEB]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galen Drugs of Florida, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheet of Galen Drugs of
Florida, Inc. and Subsidiaries (the "Company") as of June 30, 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for the nine months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of June 30, 1996 and the results of its operations and its cash
flows for the nine months then ended, in conformity with generally accepted
accounting principles.
/s/ Hacker, Johnson, Cohen & Grieb
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
July 24, 1996, except for Note 15 as to which
the date is July 30, 1996.
<PAGE> 1
PLAN OF REORGANIZATION AND AGREEMENT
This Plan of Reorganization and Agreement is made and entered into as of July
30, 1996, by and among Galen Drugs of Florida, Inc. ("Galen"), a Florida
corporation, Daniels Pharmaceuticals, Inc. ("Daniels"), a Florida corporation,
and Jones Medical Industries, Inc. ("JMED"), a Delaware corporation.
Witnesseth That:
Whereas, Galen is primarily engaged in the manufacture, distribution
and sale of pharmaceutical products through its wholly- owned
subsidiary, Daniels; and
Whereas, subject to the terms and conditions of this Agreement, Jones
wishes to acquire and succeed to the operations of Galen and Daniels
solely in exchange for shares of it common stock in a reorganization
qualifying under Section 368(a) of the Internal Revenue Code of 1986,
as amended, and constituting a "pooling of interests" for accounting
purposes and will establish JGD Acquisition Corporation ("JGD") 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 Galen 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, certain shareholders of Galen holding in excess of ninety
percent (90%) of the voting capital stock of Galen (the "Principal
Holders" as hereinafter defined) have entered into agreements with
Galen and Jones to approve the reorganization transactions
contemplated hereby and fulfill certain conditions thereto;
Now Therefore, in consideration of the premises and the covenants,
representations and undertakings hereinafter contained, the parties agree as
follows:
I. THE REORGANIZATION TRANSACTIONS
1.1 Merger and Consolidation. On the Closing Date, as hereinafter
defined, each of JGD and Galen shall merge with and consolidate into Daniels
which shall be the surviving corporation (the "Surviving Corporation") and
pursuant to which: (a) each outstanding share of the capital stock of JGD
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 Galen shall be exchanged for and converted into a pro-rata share of the
Merger Consideration as hereinafter defined; and (c) each outstanding share of
the capital stock of Daniels shall be canceled and retired. Each of JGD,
<PAGE> 2
Galen and Daniels agrees to execute and deliver an agreement or certificate of
merger or consolidation in a form to evidence such reorganization and for
purpose of filings with the Secretary of State of Florida to give effect to the
merger and consolidation contemplated hereby as of the Closing Date. Upon the
effectiveness of the merger and consolidation, Daniels shall succeed by
operation of law to the assets, operations and liabilities of each of Galen and
JGD.
1.2 The Merger Consideration. Each share of the capital stock of
Galen outstanding on the Closing Date, other than shares (if any) as to which
statutory dissenters' rights have been validly asserted and exercised, shall be
exchanged for and converted into a pro rata share of the Merger Consideration
consisting of a number of shares of the Common Stock, par value $.04 per share,
of JMED determined as hereinafter provided (the "Jones Stock"). Each share of
the capital stock of Galen outstanding on the Closing Date as to which
statutory dissenters' rights have been exercised, if any, shall be exchanged
for and converted into a claim to receive cash for the fair value of such
shares. As of the Closing Date there shall be established for each share of
the outstanding capital stock of Galen an exchange ratio indicating the number
of shares of Jones Stock into which such capital stock of Galen shall be
converted and such exchange ratio shall be reflected in the terms of the
agreement or certificate of merger or consolidation as filed with the Secretary
of State of Florida.
1.3 The Jones Stock. The aggregate number of shares constituting
the Jones Stock to be issued and delivered as part of the Merger Consideration
shall be determined as follows:
(a) The Base Number of shares of the Jones Stock shall be 3,090,000.
(b) The Base Number of shares of Common Stock of JMED shall be
reduced by 53,000 shares equal to the number of shares of Common Stock of JMED
to be delivered by the Surviving Corporation in connection with the acquisition
by the Surviving Corporation of certain real estate as provided in paragraph
1.4 below and the resulting number of shares shall be known as the Adjusted
Base Number.
(c) The Adjusted Base Number shall be subject to further adjustment
in the event that any holder of the capital stock of Galen shall validly assert
and exercise statutory dissenters' rights in accordance with the following
formula:
The Adjusted Base Number shall be divided by 102,880 and the
resulting number (rounded to the nearest 100th) shall be
multiplied by the number of shares of the capital stock of
Galen as to which dissenters' statutory rights have been
exercised and such number (to the nearest whole share) shall
be deducted from the Adjusted Base Number.
JMED agrees that any payments to any dissenting shareholder of Galen arising
from the transactions contemplated hereby shall be paid in cash or its
equivalent on the Closing Date if such dissenting shareholder shall accept such
payment in full settlement and release of claims against the Surviving
Corporation (and JMED shall cause such payment to be made).
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(d) The Base Number (or Adjusted Base Number) as changed by the
adjustments provided in clauses (b) and (c) above shall be the number of shares
of Jones Stock constituting part of the Merger Consideration.
(e) In the event of any stock dividend, stock split or other
recapitalization affecting the Common Stock of JMED for which the record date
or distribution date occurs between the date of this Agreement and the Closing
Date, the number of shares constituting the Base Number and or the Adjusted
Base Number shall be appropriately adjusted in the foregoing formulae so that
the value of the Jones Stock constituting part of the Merger Consideration is
not adversely impacted.
1.4 Purchase of Real Estate. Daniels and Daniels Enterprises Inc.
("Realco") shall execute and deliver an agreement for the purchase by Daniels,
as of the Closing Date, of the real property currently leased by Daniels from
Realco, a related party, in exchange for 53,000 shares of the Common Stock of
JMED equal to $1,696,000 divided by the closing price per share for JMED Common
Stock in the Nasdaq National Market on the day next preceding the date of this
Agreement.
1.5 JMED Contribution of Shares & Cash. JMED agrees to
provide either directly or to JGD as a contribution to the capital of JGD a
sufficient number of shares of the Common Stock of JMED to permit JGD and the
Surviving Corporation to deliver the Jones Stock to the shareholders of Galen
and the Common Stock of JMED constituting consideration for the purchase of
real estate by Daniels to the shareholders of Realco, as of the Closing Date
together with cash necessary for the settlement of any payments due in respect
of dissenting shareholders.
1.6 Fractional Shares. No fractional shares of the Common
Stock of JMED shall be issuable in connection with the transactions
contemplated by this Agreement. In connection with the determination of the
Base Number and any adjustments thereto required under this Agreement, the
number of shares of Jones Stock shall be rounded to the nearest whole share.
In connection with the conversion and exchange of shares of the capital stock
of Galen into and for shares of the Jones Stock in connection with the merger
and consolidation, any resulting fractional share interests shall be settled by
the Surviving Corporation in cash at Closing based on the Closing Date Value
Per Share and any undelivered shares held by the Surviving Corporation as a
result of such settlement shall be returned to JMED.
1.7 Indemnification and Escrow by Principal Holders. In
connection with the transactions contemplated hereby, each Principal Holder
shall severally join in the representations and warranties of Galen and Daniels
in Article VII below and shall agree to use his or her respective best efforts
to cause Galen and Daniels to fulfill the conditions precedent to the
obligations of JMED and JGD under this Agreement. The Principal Holders shall
further enter an agreement in the form of Exhibit III providing for (i)
indemnification to JMED in respect of any breach or failure of the
representations and warranties of Galen and Daniels in Article VII below and in
respect of any breach or failure of Galen or Daniels of the covenants contained
in paragraphs 3.6 and 3.7 below and (ii) the deposit on the Closing Date of an
aggregate of 250,000 shares of the Common Stock of JMED in escrow to secure
such indemnification. As provided in Exhibit III, such indemnification and
escrow
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shall expire twelve months following the Closing Date except as to certain tax
matters as to which the indemnification and escrow shall expire at the later of
such twelve months or the audit or expiration of the statute of limitations
with respect to federal income tax returns of Galen for all periods ending on
or prior to the Closing Date.
1.8 Agreements by Principal Holders. Each Principal Holder has
agreed with JMED and Galen in the form of Exhibit IV hereto (i) such holder's
irrevocable agreement to vote in favor of the reorganization and the
transactions contemplated hereby, (ii) such holder's waiver and agreement not
to exercise statutory dissenters' rights as a shareholder of Galen in respect
of the merger and consolidation in paragraph 1.4 above, (iii) such holder's
irrevocable consent, as a shareholder of Galen, to the provisions of paragraph
3.8 below and the options to be granted to JMED pursuant to clause (b) thereof,
(iv) such holder's agreement to execute and deliver at or prior to the Closing
Date such other agreements and instruments as are provided herein subject to
the approval of this Agreement and the transactions contemplated hereby as
required by the general corporation laws of the State of Florida, and (v) such
holder's agreement to use best efforts to cause Galen to fulfill all
conditions precedent to the obligations of JMED hereunder, including, in the
case of those Principal Holders who are also beneficial owners of Realco,
action to cause Realco to execute, deliver and perform the real estate
transaction provided in paragraph 1.4 above.
1.9 Closing Date. The Closing Date for the transactions
contemplated hereby shall occur as promptly following the date of this
Agreement as the conditions to the parties' obligations to consummate the
transactions contemplated hereby shall be satisfied, provided, however, that
the Closing shall not occur subsequent to August 30, 1996 unless all conditions
to the obligations of Galen and Daniels (other than that set forth in paragraph
5.5) shall have been satisfied, or waived, at or prior to such date.
1.10 Closing. 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.
II. CERTAIN MATTERS IN RESPECT OF THE JONES STOCK
2.1 Absence of Registration. The offer and sale of the Common
Stock of JMED in connection with the reorganization contemplated by this
Agreement, including the Jones Stock and the shares to be issued and delivered
in connection with the purchase of the real estate pursuant to paragraph 1.4
above, is not being 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. The
certificates evidencing such shares 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 be
available to the registered holder an exemption from registration.
The issuer shall not be
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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 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. 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 Galen
for redelivery to each holder of capital stock of Galen (including each
beneficial holder of capital stock in Realco) 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 and copies
of the final prospectus included in its Registration Statement on Form S-3
under the Securities Act effective March 28, 1996, and JMED agrees to provide
to Galen for similar redelivery copies of any filings pursuant to the
Securities Act or the Exchange Act occurring subsequent to the date hereof and
prior to the Closing Date.
2.3 Agreements of Affiliates. Each person who may be
deemed an "affiliate" of JMED and each person who may be deemed an "affiliate"
of Galen has executed and delivered a letter agreement in the form of Exhibit V
in which such affiliates agree not to dispose in any manner of any shares of
the Common Stock of JMED, whether currently held or being issued in the
transactions contemplated by this Agreement, without the prior written consent
of JMED until JMED has announced operating results covering a period of the
combined operations of JMED, Galen and Daniels for at least thirty (30) days
following the Closing Date.
2.4 Demand Registration Right for the Jones Stock. JMED agrees
that upon request of the Principal Holders it will file two or more
registration statements under the Act to permit the holders thereof to make
offers and sales of the Jones Stock (and the shares of JMED Common Stock issued
to Realco in connection with the acquisition of real estate pursuant to
paragraph 1.4) subject to the following terms and conditions:
(a) A written request for the first registration may be submitted to
JMED by one or more of the Principal Holders at any time after Closing (but
such request shall not be effective until JMED has announced operating results
covering a period of the combined operations of JMED, Galen and Daniels for at
least thirty (30) days following the Closing Date) and prior to the second
anniversary of the Closing Date and shall relate to not less than 500,000
shares, nor more than 1,500,000 shares, of the Common Stock of JMED. Unless
all Principal Holders and all other recipients of shares of the Common Stock of
JMED in the transactions contemplated by this Agreement are participating in
the
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request, JMED will, following receipt of the request contact each
non-participating holder and offer inclusion of shares held by such holder.
(b) A written request for a second registration may be submitted to
JMED by one or more of the Principal Holders at any time more than two months
after the effective date of the registration requested pursuant to clause (a)
above and prior to the second anniversary of the Closing Date; provided that
such second request shall not be made at any time when more than 100,000 shares
of the Common Stock of JMED included in the registration pursuant to clause (a)
above remain unsold and provided further that such second request shall relate
to not less than 500,000 shares of the Common Stock of JMED. Unless all
Principal Holders and all other recipients of shares of the Common Stock of
JMED in the transactions contemplated by this Agreement are participating in
the request, JMED will, following receipt of the request contact each
non-participating holder and offer inclusion of shares held by such holder.
(c) A 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 shall relate to offerings from time to time
by the selling participants in open market or negotiated transactions, but not
to an underwritten offering.
(d) 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.
(e) Subject to the participating holders' agreement to refrain from
sales of the shares during certain periods as provided in clause (f) 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, (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.
(f) 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.
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(g) 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.
(h) In connection with registration provided pursuant to clause (a)
or (b) hereof, 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 the 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.
(i) Notwithstanding the provisions of clause (h), 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, 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.
(j) Although JMED shall not be required to provide additional
registrations at the request of holders, it may in its discretion agree from
time to time to file additional registrations meeting the requirements of
clause (c) above but separate from its obligations under clauses (a) and (b)
above. As to any such discretionary filings, clauses (e), (f) and (g) shall be
applicable, but the holders on whose behalf such registration is filed shall
bear the expenses of JMED enumerated in clause (h) above as well as expenses of
the type enumerated in clause (i) above.
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.
2.5 Piggyback Registration Right in respect of the Jones Stock.
In addition to the demand registration rights set forth in paragraph 2.4, JMED
agrees that with respect to any registration statement filed by JMED subsequent
to (or effective after) the filing of JMED's Annual Report on Form 10-K for the
year ending December 31, 1996, and effective prior to the second anniversary of
the Closing Date with respect to an underwritten offering of Common Stock for
the account of
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JMED, JMED will grant so-called piggyback rights to the Principal Holders to
participate in such underwritten offering, provided, however, that the number
of shares of the Common Stock of JMED to be included on behalf of such
Principal Holders shall, in the aggregate, not be less than 500,000 and,
without the consent of JMED and its underwriters, not be more than fifty
percent (50%) of the number of shares to be offered by JMED for its account. In
connection with any such registration, JMED shall bear the costs of the
registration and offering except that the participating holders shall be
responsible for (i) their pro-rata portion of applicable SEC and NASD or Nasdaq
National Market filing fees, (ii) underwriting discounts and commissions and
other chargeable underwriting costs, if any, (iii) fees of counsel incurred on
behalf of such participating holders, and (iv) if applicable, costs relating to
the withdrawal of shares theretofore included in the demand registration
pursuant to paragraph 2.4 above. In addition, in any such registration, each
participating holder will agree to execute and deliver usual and customary
underwriting agreements and related agreements and documentation as reasonably
requested by JMED or its underwriters.
2.6 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 (i) timely file any reports of ownership or sale of
the Common Stock of JMED as may, from time to time, be required under the
Securities Act or the Exchange Act and (ii) promptly advise JMED of sales of
shares included for the account of such participant in any registration
statement filed under the Securities Act.
2.7 Registration Rights Non-Transferable. The registration
rights granted by JMED pursuant to this Article II are granted solely for the
benefit of the holders of persons receiving shares of the Common Stock of JMED
directly as a result of the transactions contemplated by this Agreement and may
not be transferred or assigned, except by operation of law, without the consent
of JMED acting in its sole discretion.
III. COVENANTS PENDING CLOSING
3.1 Access to Information and Properties. From and after the
date of this Agreement each of Galen and Daniels will afford to the officers
and authorized representatives of JMED full access to the properties, books and
records of Galen and its subsidiaries 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 Galen and its subsidiaries,
and the officers of Galen shall furnish JMED with such additional financial and
operating data and other information as to the business and properties of Galen
and Daniels as JMED shall from time to time reasonably request. As soon as
practicable after they become available, Galen will deliver to JMED all audited
or unaudited financial statements prepared by or for Galen or any of its
subsidiaries 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 Galen
all information and data relating to Galen and its subsidiaries delivered in
writing to JMED by Galen or Daniels and any and all copies thereof, and in such
event, JMED agrees to exert its best efforts to ensure that none
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of its officers, employees or agents divulge any confidential information
relating to the business of Galen or any of its subsidiaries 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 Galen or Daniels to keep such information confidential or
(iii) JMED is required by law to disclose any such confidential information.
3.2 Information for Applications and Filings. Galen will furnish
JMED with all information concerning Galen and its subsidiaries required for
inclusion in 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 Galen 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.
Galen and Daniels 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 Galen or Daniels expressly for use therein.
Each of Galen and Daniels 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 Galen and its subsidiaries contained in any
application, statement or filing and further confirming that the information
with respect to Galen and its subsidiaries contained in such document was
furnished by Galen and/or Daniels 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 Galen and/or Daniels 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 Shareholder Approval and Best Efforts. Galen will use its
best efforts to secure the necessary approvals of the shareholders of Galen in
respect of the transactions contemplated by this Agreement in accordance with
the general corporation laws of the State of Florida and will use its best
efforts to take or cause to be taken all other actions necessary, proper or
advisable to consummate this Agreement and the transactions contemplated hereby
and in connection with filing
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applications or statements with, or obtaining approvals of, governmental
bodies for the transactions contemplated by this Agreement.
3.4 HSR Filings. Promptly following the execution and delivery
of this Agreement, each of JMED and Galen will prepare and file, and will cause
any necessary related party to prepare and file, necessary and appropriate
notifications to the Federal Trade Commission and the Department of Justice
under the Pre-Merger Notification requirements and regulations under the
Hart-Scott-Rodino Anti-Trust Improvements Act ("HSR").
3.5 Audits in respect of Galen. Galen will cause its
independent auditors, Hacker, Johnson, Cohen & Grieb, to undertake and complete
an audit of the consolidated financial statements of Galen and its subsidiaries
as of June 30, 1996, and for the three fiscal years and nine fiscal months then
ended, including balance sheets as of September 30, 1993, 1994 and 1995 and as
of June 30, 1996, and income statements, statements of cash flow and statements
of stockholders' equity for the fiscal years ended September 30, 1993, 1994 and
1995 and the nine months ended June 30, 1996, in accordance with generally
accepted accounting principles applied consistently with the audited financial
statements of JMED, together with such quarterly financial data and
consolidating schedules as is reasonably available. In the event that the
Closing of the transactions contemplated hereby shall occur after September 30,
1996, Galen shall further cause such independent auditors to conduct an audit
and deliver audited financial statements consistent with the foregoing
statements as of and for the year ending September 30, 1996.
3.6 Operations of Galen and Daniels 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) Each of Galen and Daniels will use its best efforts to (i) carry
on its business and the business of its subsidiaries in a reasonably prudent
manner, (ii) maintain and keep its properties and the properties of its
subsidiaries 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 and its subsidiaries, (iv) perform all
of its and its subsidiaries' obligations under contracts, leases and documents
relating to or affecting its or its subsidiaries' assets and business except
such obligations as Galen may in good faith reasonably dispute, (v) use its
best efforts to maintain and preserve its business organization intact, to
retain its and its subsidiaries' present employees and customers and (vi)
comply with and perform all obligations and duties imposed upon it and its
subsidiaries by all federal and state laws, and all rules, regulations and
orders imposed by federal, state or local governmental authorities.
(b) Neither Galen nor Daniels will, 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 Galen and Daniels in
Article VII or Article VIII 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
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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 Galen; (vi) pay or agree to pay any bonus or compensation
to any Principal Holder or officer of Galen or Daniels except as set forth on
Schedule 3.6 hereto or increase in any manner the compensation or benefits due
any employee of Galen or Daniels; or (vii) make any extension of credit or
advance to or any investment in any subsidiary of Galen other than Daniels.
3.7 Notification to JMED. Galen will promptly inform JMED of:
(a) all actions, suits, proceedings or governmental investigations
or inquiries brought ot to its knowledge threatened against Galen or any of its
subsidiaries after the date hereof;
(b) all events or occurrences which might materially and adversely
affect the business, operations, properties, prospects, assets or condition,
financial or otherwise, of Galen or Daniels;
(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 Galen or any of its
subsidiaries and the U.S. Food and Drug Administration ("FDA"), the
Environmental Protection Agency ("EPA") or the U.S. Drug Enforcement Agency
("DEA") or any comparable state agency with jurisdiction over the business,
properties and activities of Galen or Daniels; and
(e) all other matters relating to the conduct of, or affecting the
business, operations, properties, prospects, assets or conditions, financial or
otherwise, of Galen or its subsidiaries which in the judgment or Galen or
Daniels are material.
3.8 Inconsistent Activities. Neither Galen nor Daniels shall,
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 Galen of any of its subsidiaries, whether by merger, purchase of
assets, tender offer or similar transaction; or (ii) enter into any agreement
which provides for the merger of Galen or any of its subsidiaries or the sale
of the capital stock of Galen or any of its subsidiaries or the assets of Galen
or any of its subsidiaries to a person other than JMED or a subsidiary of JMED.
In the event that the shareholders of Galen shall not have approved this
Agreement and the transactions contemplated hereby as the result of an
acceptance of an offer or bid from a third party for the purchase of Galen or
Daniels or of all or a substantial portion of the assets of Galen or Daniels or
for the purchase of all or a substantial portion of the outstanding shares of
the capital stock of Galen, Galen and Daniels shall
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(a) reimburse JMED for all of JMED's reasonable out of pocket
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, provided that such reimbursement shall not exceed
$1,000,000; and
(b) grant to JMED the right and option, exercisable at any time prior
to August 31, 1997, to acquire, at JMED's election, at an aggregate exercise
price of $ 500,000 either (a) a number of shares of that common capital stock
of Galen equal to twenty-five percent (25%) of the number of shares outstanding
as of the date of exercise or (b) twenty percent (20%) of the shares of the
capital stock of Daniels held by Galen.
3.9 JMED Efforts. JMED 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.
3.10 Activities by JMED. JMED shall not be restricted in any
way, and no consent need be obtained by JMED from Galen, Daniels 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 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 the Jones Stock (including the shares to be delivered by the
Surviving Corporation in connection with the real estate purchase under
paragraph 1.4 above) at the Closing Date.
IV CONDITIONS TO JMED'S OBLIGATIONS TO CLOSE
The obligations of JMED under this Agreement, and the obligations of
JGD under the Merger Agreement, to consummate the transactions contemplated
hereby 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
Galen and Daniels 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).
4.2 Compliance. Each of Galen and Daniels 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 Galen or Daniels nor shall any event have occurred
which involves a risk that such a material adverse change will occur.
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4.4 Certification. JMED shall have been furnished with a
certificate, executed by the Chairman of Galen, the President of Daniels, and
by the principal financial officer of Galen and Daniels 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 Audit Reports. Galen shall have delivered to JMED the
audited financial statements set forth in paragraph 3.5 together with the
unqualified opinions of Hacker, Johnson, Cohen & Grieb thereon, and such
audited financial statements with respect to the three fiscal years ended
September 30, 1995 shall be consistent, both in form and substance, in all
material respects to the unaudited financial statements for such periods
delivered by Galen pursuant to paragraph 7.5 below.
4.6 Accounting Treatment. JMED has received a letter from its
independent auditors as of the date of the Agreement confirming that the
reorganization and transactions contemplated by this Agreement qualify for
"pooling of interests" accounting treatment in accordance with APB 16 and at
Closing shall receive a bring-down confirmation that no change arising from any
amendment, waiver or conduct between the date of this Agreement and the Closing
Date alters such treatment.
4.7 Shareholder Approval; Dissenters. This Agreement and
the transactions contemplated hereby shall have been ratified and approved by
the holders of the outstanding capital stock of Galen as required by the
general corporation law of the State of Florida; there shall not have been
exercised dissenters' rights in connection with the transaction in respect of
more than five percent (5%) of the outstanding capital stock of Galen; and each
dissenting shareholder of Galen, if any, shall have agreed to a cash settlement
in respect of the transactions contemplated hereby at a price equal to the
lesser of (i) $938.50 per share of the capital stock of Galen or (ii) the
Closing Date Per Share Value of the number of shares of the Common Stock of
JMED unto which such shares of capital stock of Galen would have been converted
but for the exercise of such dissenters' rights.
4.8 Legal Opinion. JMED shall have received the opinion of
Annis, Mitchell, Cockey, Edwards & Roehn, P.A., counsel to Galen and Daniels
and special counsel to the Principal Holders, in the form of Exhibit VI hereto.
4.9 Litigation. JMED shall be furnished with a certificate
dated the Closing Date and executed by the Chairman of Galen and by the
President of Daniels 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 material risk of a material adverse change in the
financial condition, assets, liabilities, business or prospects of Galen or
Daniels and (ii) no issues have been raised by the Internal Revenue Service or
any other taxing authority which involve a material risk of a material adverse
change in the financial condition, assets, liabilities, business or prospects
of Galen or Daniels.
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4.10 Governmental Approvals; Consents and Other Matters.
All required filings under HSR shall have been completed, including any
supplemental information reasonably requested in connection therewith, and the
applicable waiting periods under HSR shall have expired. JMED, Galen and
Daniels 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 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.
4.11 Agreements of Principal Holders and Affiliates. Each
Principal Holder or affiliate of Galen shall have executed and delivered to
JMED agreements in the form of Exhibit IV and Exhibit V hereto; each Principal
Holder shall have executed and delivered the indemnification and escrow
agreement in the form of Exhibit III hereto; there shall be instruments
delivered to JMED with respect to the deposit of 250,000 shares of the Common
Stock of JMED pursuant to the escrow agreement in the form of Exhibit III
hereto; and Realco shall have executed and delivered to Daniels the real estate
purchase agreement in the form of Exhibit I hereto.
V CONDITIONS TO GALEN'S AND DANIELS' OBLIGATIONS TO CLOSE
The obligations of Galen and Daniels under this Agreement and under
the Merger Agreement, to consummate the transactions contemplated hereby are
subject, at the discretion of Galen, 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. Galen shall have been furnished with a
certificate, executed by the Chairman of JMED and by the principal financial
officer 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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5.5 Shareholder Approval. This Agreement and the transactions
contemplated hereby, including the merger and consolidation among JGD, Galen
and Daniels, shall have been approved by the holders of the capital stock of
Galen in accordance with the general corporation laws of the State of Florida.
5.6 Legal Opinion. Galen shall have received the opinion of
Greensfelder, Hemker & Gale, P.C., counsel to Jones and JGD, in the form of
Exhibit VII hereto.
5.7 Litigation. Galen shall be furnished with a certificate
dated the Closing Date and executed by the Chairman 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 Real Estate. JMED shall have contributed shares of its
Common Stock to JGD to enable the Surviving Corporation to perform its
obligations under Exhibit I in respect of the purchase of real estate from
Realco.
VI REPRESENTATIONS AND WARRANTIES OF JMED.
JMED represents and warrants to Galen and Daniels 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 JGD. JGD will be, as of closing, a
corporation duly organized and validly existing under the laws of the State of
Florida 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 Common
Stock, of which 25,032,098 shares were outstanding at June 30, 1996.
6.4 The Common Stock of JMED. The Common Stock of JMED to
be issued and delivered in connection with the transactions contemplated by
this Agreement pursuant to the
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agreement of merger and consolidation and the real estate purchase agreement in
the form of Exhibit I will, upon issuance and delivery, be duly authorized,
validly issued, fully paid and non-assessable. The Common Stock of JMED 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, execution and delivery of this Agreement and has
approved the transactions contemplated hereby pursuant to action taken on July
23, 1996. 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 JGD has
authorized and approved the execution and delivery of this Agreement and such
other instruments and agreements as are necessary and appropriate to JGD'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 Galen 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 and to the extent reflected or reserved against in such
consolidated balance sheet as of March 31, 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
March 31, 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
JGD is a party or by which either JMED or JGD is bound or constitute an event
which with the lapse of time 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 Galen and
Daniels in connection with this
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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 Galen in writing which should be disclosed to Galen 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 Galen and
the holders of the capital stock of Galen in connection with this Agreement to
be made on the basis of adequate information.
6.9 Continuation of the Business of Daniels. JMED intends to
cause the Surviving Corporation to continue the business of Daniels and Galen
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 and consolidation
among JGD, Galen and Daniels as contemplated hereby, or to cause the Surviving
Corporation to sell or otherwise dispose of its assets except in the ordinary
course of business.
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 registration of the Jones Stock under the Securities Act on behalf
of the 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 to so utilize form S-3.
VII REPRESENTATIONS AND WARRANTIES OF GALEN AND DANIELS
Galen and Daniels jointly and severally represent and warrant to JMED
as follows:
7.1 Organization of Galen and its Subsidiaries. Each of
Galen, Daniels, and Meadowlawn Pharmacy, Inc. ("Meadowlawn") is a corporation
duly organized and validly existing under the laws of the State of Florida 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. Each of Galen, Daniels and Meadowlawn 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 its 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 Galen and its
subsidiaries taken as a whole, and the states in which any of Galen, Daniels or
Meadowlawn is so qualified are listed on Schedule 7.1 hereto. Azalea Pharmacy,
Inc. ("Azalea") was administratively dissolved by the Secretary of State of
Florida on August 26, 1994, and Arda, Inc. ("Arda") will be administratively
dissolved on August 7, 1996.
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7.2 Capitalization. The authorized capital stock of Galen
consists of 1,000,000 shares of common capital stock, $.01 par value (the
"Galen Stock"), of which 102,880 shares are issued and outstanding as of the
date of this Agreement and no shares are held by Galen as treasury stock. All
such outstanding shares of Galen 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, calls or commitments
of any kind obligating Galen to issue or deliver shares of Galen Stock. No
shares of Galen Stock have been issued or acquired as treasury stock during the
two years preceding the date of this Agreement and, except as set forth on
Schedule 7.2 to this Agreement, Galen does not have any outstanding commitment,
obligation or right to purchase, reacquire or redeem any of Galen Stock. The
authorized capital stock of Daniels consists of 50 shares of common capital
stock, $200.00 par value, of which 22 shares are issued and outstanding as of
the date of this Agreement and all such shares are owned of record and
beneficially by Galen. The authorized capital stock of Meadowlawn consists of
7,000 shares of common capital stock, $1.00 par value, of which 1,000 shares
are issued and outstanding as of the date of this Agreement and all such shares
are owned of record and beneficially by Galen. The authorized capital stock of
Arda consists of 5,000 shares of common capital stock, $1.00 par value, of
which 1,500 shares are issued and outstanding as of the date of this Agreement
and all such shares are owned of record and beneficially by Galen. The
authorized capital stock of Azalea consists of 100 shares of common capital
stock, no par value, of which 100 shares are issued and outstanding as of the
date of this Agreement and all such shares are owned of record and beneficially
by Galen.There are no existing options, warrants, calls or commitments of any
kind obligating Galen, Daniels, Meadowlawn, Arda or Azalea to issue or deliver
any shares of their respective capital stocks. Neither Galen nor Daniels has
acquired or sold any shares of the capital stock of Daniels within the two
years preceding the date of this Agreement.
7.3 Affiliated Companies. Except for Galen's ownership of all
the issued and outstanding capital stock of Daniels, neither Galen nor Daniels
has been a direct or indirect subsidiary or division of any other corporation
or business entity within the two years preceding the date of this Agreement.
Schedule 7.3 hereto contains a complete and correct list of (i) the name and
jurisdiction of organization of each corporation or other entity in which Galen
directly or indirectly owns an equity or voting interest, including entities,
if any, as to which the charter is currently lapsed or forfeit, and (ii) the
percentage of the outstanding shares or other interest held by Galen in each
such corporation or entity. All shares of capital stock or other interests
held by Galen in Daniels or any corporation or entity listed on Schedule 7.3
hereto are directly or indirectly owned by Galen free and clear of any liens,
charges, encumbrances, claims and other rights of third parties. Except as
otherwise indicated on Schedule 7.3, each corporation in which Galen has a
direct or indirect interest is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
and has all material power and authority (including all material licenses,
franchises, permits and other governmental authorizations which are legally
required) to own or lease its properties and to engage in the business and
activities which it now conducts. Neither Arda nor Azalea have any liabilities
or obligations outstanding and Galen has no obligations or liabilities with
respect to either Arda or Azalea.
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7.4 Related Parties. Schedule 7.4 hereto identifies each
holder of capital stock of Galen who holds in excess of five percent of the
outstanding Galen Stock and each person or holder so identified is a Principal
Holder. Except as disclosed on Schedule 7.4 hereto, neither Galen nor Daniels
has 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. Galen is not a party to any agreement with a holder of capital
stock of Galen 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 Galen or any voting agreement
or voting trust with respect to shares of such capital stock.
7.5 Financial Statements. Galen has delivered to JMED
copies of draft consolidated financial statements of Galen as of September 30,
1994 and 1995 and for each of the fiscal years in the three year period ended
September 30, 1995, in the form attached as Exhibit VIII hereto, which
consolidated financial statements consist of comparative balance sheets as of
September 30, 1994 and 1995, statements of operations, cash flow and changes in
shareholders' equity for each of the years ending September 30, 1993, 1994 and
1995 with footnotes and supplementary schedules. Galen's consolidated balance
sheet as of September 30, 1995 is sometimes hereinafter referred to as the
"Galen Balance Sheet." Such financial statements are true and correct and
fairly present the financial position of Galen and the results of its
consolidated operations at the dates and for the periods indicated in
conformity with generally accepted accounting principles applied on a
consistent basis. Galen has also delivered to JMED copies of unaudited
internal consolidated financial statements as of June 30, 1996 and for the nine
months then ended (the "Galen Interim Statements") which are attached as
Exhibit II hereto. The Galen Interim Statements are true and accurate and
fairly present the financial position of Galen as of June 30, 1996, and the
sales and net income of Galen for the nine months then ended. Neither Galen
nor any of its subsidiaries had, as of the date of the Galen Balance Sheet or
as of the date of the unaudited balance sheet included in the Galen Interim
Statements 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 Galen and Daniels on a
consolidated basis.
7.6 Taxes. Except as disclosed in Schedule 7.6 hereto,
(a) Galen and its subsidiaries have duly and timely filed with the
appropriate governmental taxing authorities (i) all state, local, foreign and
other tax returns required to be filed which are material to Galen or any
subsidiary and (ii) all federal tax returns and reports required to be filed,
in each case by or with respect to Galen, its subsidiaries or any corporation
which is or was a member of an affiliated group of corporations (within the
meaning of the Internal Revenue Code of 1986, as amended) of which Galen or any
of its subsidiaries was a member for any period ending on or prior to the
Closing Date. Galen and its
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subsidiaries have included in such returns and reports all items of income,
gain, loss, deduction and credit or other items required to be included
therein. Galen and its subsidiaries have paid all taxes and assessments
(including interest and penalties) which have come due with respect to the
periods covered by such returns and reports. Neither Galen nor any of its
subsidiaries has 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 Galen or any of its subsidiaries. All federal income tax
returns with respect to periods ending on or prior to September 30, 1994,
except for the fiscal year ended September 30, 1992, have been subject to audit
by the Internal Revenue Service and there exists no outstanding controversy or
dispute with respect to taxes due for such periods.
(b) The amounts set up as provisions for taxes on the financial
statements referred to in paragraph 7.5 above are sufficient for the payment of
all unpaid federal, state, local, foreign or other taxes (including any
interest or penalties) of Galen and its subsidiaries applicable to the periods
covered by such financial statements and all years and periods prior thereto,
and for which Galen or any subsidiary 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.
7.7 Certain Contracts and Commitments. Except as set forth
in Schedule 7.7, neither Galen nor Daniels nor any Principal Holder is
obligated with respect to any compensation or payment due any employee or
affiliate of, or consultant to, Galen or Daniels 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.
7.8 Authority and Approval. The Board of Directors of Galen have
authorized and approved the execution and delivery of this Agreement and have
recommended the approval of this Agreement and the transactions contemplated
hereby to holders of the Galen Stock. Galen has the corporate power and
authority to execute and deliver this Agreement and subject to securing the
approval of holders of the Galen Stock, to consummate the transactions
contemplated hereby. Galen, as the holder of all the issued and outstanding
capital stock of Daniels has caused this Agreement and the transactions
contemplated hereby to be authorized and approved by the board of directors of
Daniels and has approved and ratified this Agreement. This Agreement
constitutes a valid and binding obligation of each of Galen and Daniels.
7.9 Certain Conduct. Except as set forth in Schedule 7.9
hereto, since the date of the Galen Balance Sheet, neither Galen nor any of its
subsidiaries has (i) declared or set aside or paid any dividends (other than
cash dividends paid to Galen by any subsidiary), (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 Galen or Daniels, (iii) mortgaged, pledged or subjected to lien or
encumbrance (other than statutory liens not yet delinquent) any assets which
are material to Galen or Daniels, (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 Galen Balance Sheet and
accruals and accounts payable incurred since the date of the Galen Balance
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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) made any capital contribution or other advance from Galen to
any subsidiary other than Daniels, (vii) materially increased the rate of
compensation payable or to become payable by Galen or any subsidiary to their
respective directors, officers, employees or agents; or (viii) entered into
any transaction outside the ordinary course of its business, other than this
Agreement, which is material to Galen or Daniels. Schedule 7.9 also reflect
all payments, advances or loans made by Galen or any subsidiary to any
Principal Holder during the period between October 1, 1995 and the date of this
Agreement.
7.10 Litigation. Except as set forth in Schedule 7.10 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 Galen, threatened before any court or administrative
body in any manner in which any claim is being asserted or is proposed to be
asserted against Galen or Daniels which is material to Galen and Daniels on a
consolidated basis. Neither Galen nor Daniels is in default with respect to
any judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or instrumentality, which default is
material to Galen or Daniels, and no event has occurred which with notice or
lapse of time or both would constitute such a default.
7.11 General Contracts. Except for matters disclosed on
Schedule 7.11 (or on Schedule 7.7) neither Galen nor any of its subsidiaries is
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, which is
material to Galen or Daniels, (iv) contracts or commitments for capital
expenditures in excess of $50,000 in the aggregate or in excess of $10,000 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
Galen or Daniels; (ix) indenture,. mortgage, note, debenture, 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 Galen or Daniels.
7.12 Applicable Laws and Governmental Authorizations. Each of
Galen and Daniels is in compliance with all applicable federal, state, local
and foreign 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
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matters, civil rights matters and occupational safety and health matters,
except for such non-compliance which is not material to Galen or Daniels.
Galen and/or Daniels have all licenses, franchises, permits, authorizations and
concessions (collectively "Licenses") which are material to Galen and Daniels
and which are known by Galen to be legally required to enable it and Daniels to
carry on their 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 materially and
adversely affects, or in the future can reasonably be expected to materially
and adversely affect, the financial condition, assets, liabilities, business or
prospects of The Surviving Corporation. Except as set forth in Schedule 7.12,
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 or any other state or federal government agencies or
boards, pertaining to Galen, Daniels or any product manufactured, sold or
distributed by either of them. 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
Galen or Daniels of this Agreement or the consummation by either of them of the
transactions contemplated hereby, except for the filing of the agreement and
certificate of merger and consolidation with the Secretary of State of the
State of Florida.
7.13 NDAs, ANDAs and Product Information. Schedule 7.13
hereto lists each product manufactured by or produced for Galen or Daniels as
to which there exists a New Drug Application ("NDA") or an Abbreviated New Drug
Application ("ANDA") heretofore filed with the FDA. As to each such NDA or
ANDA, Galen or Daniel is the lawful holder of all rights under NDA or ANDA free
and clear of the claims of any other party and each of Galen and Daniels has
complied in all material respects with all applicable laws and regulations in
connection with the preparation and submission to the FDA of each such NDA or
ANDA. Each NDA or ANDA has been approved by the FDA and nothing has come to
the attention of Galen or Daniels which has, or reasonably should have, led
Galen or Daniels to believe that any such NDA or ANDA is not in good standing
with the FDA. The transactions contemplated by this Agreement do not require
the consent or approval of the FDA or any party with respect to any deemed
transfer or change of control of ownership of any NDA or ANDA. No such NDA or
ANDA is subject to any right, license or use in the United States or incident
to sales outside of the United States except as reflected on Schedule 7.13.
Each product and product line of Galen or Daniels not subject to an NDA or an
ANDA is not, to the knowledge and reasonable belief of Galen or Daniels,
required to be the subject of an NDA or ANDA. Schedule 7.13 also sets forth
research and development projects and activities in progress at Galen or
Daniels which either Galen or Daniels believes may lead to future filings of
any NDA or ANDA.
7.14 Title to Properties. Except as set forth in Schedule
7.14, Galen and its subsidiaries have good and indefeasible title to all of the
assets and properties which are material to Galen or Daniels, including,
without limitation, buildings and improvements thereon, and Galen and its
subsidiaries own all personal and intangible properties reflected in the Galen
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
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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 Galen or Daniels, and (iii) for those
assets and properties disposed of for fair value in to ordinary course of
business since the dates of the Galen Balance Sheet.
7.15 Real Property. Schedule 7.15(a) attached hereto sets forth
a listing of all real estate owned by Galen or any of its subsidiaries (the
"Owned Real Estate"). Except as set forth on Schedule 7.15(a), the Owned Real
Estate is free and clear of any and all liens, easements, restrictions and
encumbrances of any kind. Schedule 7.15(b) attached hereto sets forth a
listing of any and all real estate leased, occupied or otherwise used by Galen
and/or any of its subsidiaries (the "Leased Real Estate"), and the terms and
conditions of each such lease. The use and condition of the Owned Real Estate
and/or the Leased Real Estate (collectively the "Real Estate") does not, and
will not, violate any zoning, subdivision, building, health, fire or similar
statute, ordinance, regulation or code and neither Galen nor Daniels has
received any notice, written or otherwise, from any governmental agency
alleging any such violations. The Real Estate is in full compliance with all
applicable zoning requirements and is not a nonconforming, conditional or
special use. Schedule 7.15(c) attached hereto sets forth additional
representations and warranties by Galen and Daniels with respect to the Real
Estate.
7.16 Employee Benefit Plans and ERISA.
(a) Schedule 7.16 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 the Company 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 the Company 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 Buyer. There are no
negotiations, demands or proposals which are pending or which have been made
since September 30, 1995 which concern matters now covered, or that would be
covered, by such types of plans, agreements, arrangements or commitments. The
Company 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.
(b) For purposes of this Section 7.16, "ERISA Affiliate" means each
trade or business (whether or not incorporated) which together with the Company
is treated as a single employer under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended ("Code").
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(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) The Company 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. The Company 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 the
Company 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 the Company 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. The Company and each ERISA Affiliate
has no liability and there are no claims against the Company or any ERISA
Affiliate pursuant to any provision of the Code or ERISA by reason of the
relationship of the Company to any ERISA Affiliate.
7.17 Labeling Compliance with respect to Levoxyl. Daniels is
in full compliance with respect to specific labeling requirements, including
dosage and warning disclosures, applicable to its Levoxyl product line under 21
C.F.R. Section 201.57, including the changes thereto in respect of pediatric
dosage adopted by the FDA on December 31, 1994, and set forth at 59 F.R. 64240.
VIII ADDITIONAL INFORMATION PROVIDED BY GALEN AND DANIELS
For informational purposes of JMED in advance of the Closing Date,
Galen and Daniels further jointly and severally represent and warrant to JMED
as follows:
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8.1 Continuity of Interest. Galen 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 capital stock of Galen
outstanding as of the same date. In addition, Galen has ascertained that no
Principal Holder has any present plan or intention to sell or otherwise dispose
of more than fifty percent (50%) of the shares of Jones Stock to be received by
such Principal Holder.
8.2 Intellectual Property. Schedule 8.2 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 Galen or Daniels or are used in connection with the
business thereof or are held for use in connection therewith or otherwise
related thereto and which Intellectual Properties are material to Galen or
Daniels. Except as set forth in Schedule 8.2 hereto, Galen and/or Daniels own
and have 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. Neither Galen nor
Daniels has been charged or threatened to be charged with the infringement of,
nor has either of them 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 Galen or Daniels. Galen has no knowledge of
any unexpired patent adverse to the interest of Galen or Daniels, except
patents under which Galen or Daniels is licensed.
8.3 Insurance. Galen and its subsidiaries have in effect
insurance coverage with reputable insurers, which in respect of amounts, types
and risks insured is that which management of Galen reasonably believe to be
adequate for the business conducted by them. A list and description of the
coverage of each such insurance and the provider thereof is set forth on
Schedule 8.3 hereto.
8.4 No Conflict with Other Agreements or Instruments. Except as
disclosed on Schedule 8.4 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 Galen or any of its subsidiaries is
a party or by which any of them 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
Galen or Daniels or upon the capital stock of the Surviving Corporation.
8.5 Certain Conduct. Except as disclosed on Schedule 8.5
hereto, since the date of the Galen Balance Sheet neither Galen nor any of its
subsidiaries has (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
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in respect of Galen or Daniels, 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 Galen or
Daniels.
8.6 Customers; Supplemental Financial Schedules and Information.
Galen has delivered to JMED as Schedule 8.6 hereto information reflecting for
each of the fiscal periods covered by the financial statements constituting
Exhibit VIII hereto (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, (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 principal customers
for such product or product line, and (iii) a narrative discussion and
analysis, in substantially the format set forth in Item 303 of Regulation S-K
under the Securities Act and the Exchange Act, analyzing the results of
operations of Galen and Daniels on a consolidated basis. To the best knowledge
of Galen, no customer listed on Schedule 8.6 intends to cease doing business
with Galen or Daniels.
8.7 Employee Relations. To the best information and belief
of Galen and Daniels, the services of substantially all present employees of
Daniels will continue to be available to the Surviving Corporation for the
continuation of the business of Daniels after the Closing Date. Except as set
forth in Schedule 8.7, there are no controversies pending or, to the best
information and belief of Galen and Daniels, threatened between Galen or
Daniels and any employees, former employees or job applicants thereof, and
Galen believes that its and Daniels' relationships with employees is good. No
union is known to Galen to have organized any employees of Galen or Daniels,
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 Galen is unaware of any efforts by any labor organization to represent any
of such employees.
8.8 Investment Company Status. Galen is not an investment
company within the meaning of the Internal Revenue Code or the Investment
Company Act of 1940.
8.9 Accuracy of Information. The information relating to Galen
and its subsidiaries and disclosed or provided in writing by Galen 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 Galen
and Daniels herein not misleading or, to the knowledge of Galen or Daniels, in
order for decisions by JMED in connection with this Agreement to be made on the
basis of adequate information.
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8.10 Environmental Matters. Except as set forth on Schedule 8.10
hereto, neither Galen nor Daniels generates, holds or disposes of hazardous
environmental waste products.
8.11 Listing of Outside Consultants and Professionals. Schedule
8.11 hereto lists the names (including firm name and principal contact) of each
outside consultant or professional (including, without limitation, attorneys
and accountants) utilized by Galen or any of its subsidiaries within the period
commencing October 1, 1993 and ending on the Closing Date, together with a
brief explanation of the nature and scope of the engagement.
IX TERM AND TERMINATION; REMEDIES
9.1 Term of Agreement. Unless terminated in accordance with
the provisions of paragraph 9.2 below, this Agreement shall expire on the later
of (i) the Closing or (ii) December 31, 1996.
9.2 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 approval by the
holders of the Galen Stock in accordance with the general corporation laws of
the State of Florida. In addition this Agreement shall be subject to
termination as follows:
(a) At the election of Galen in the event that JMED shall fail or
refuse to satisfy all conditions precedent to the obligations of Galen and
Daniels on or before August 31, 1996; or
(b) At the election of JMED in the event that Galen and Daniels shall
fail or refuse to satisfy all conditions precedent to the obligations of JMED
and JGD on or before August 31, 1996; or
(c) At the election of JMED in the event that 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.
9.3 Remedies upon Termination. In the event of a
termination of this Agreement pursuant to clause (a) or clause (b) of paragraph
9.2, 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 Galen and Daniels, exceed
$100,000 plus, in the case of JMED, any filing fee paid in connection with
notification and review of the transactions contemplated by this Agreement
under the provisions of HSR..
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9.4 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 of Galen and Daniels
acknowledge and agree that in the event that either of them should fail or
refuse to close or perform in accordance with the terms of this Agreement,
monetary damages may be insufficient to compensate JMED and that, accordingly,
JMED shall be entitled to seek injunctive and other equitable relief against
Galen and Daniels in the enforcement of this Agreement. JMED and Galen agree
that in the event that JMED should fail or refuse to close or perform in
accordance with this Agreement, JMED shall be liable to Galen for liquidated
damages in the amount of $20,000,000 unless Galen shall, on or prior to August
31, 1997, agree to a similar transaction or sale of the stock or assets of
Daniels with a third party at a price equal to or in excess of $80,000,000 in
which event Galen shall be receive actual damages in lieu of such liquidated
damages.
X MISCELLANEOUS
10.1 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.
10.2 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 date of approval and adoption of this
Agreement and the transactions contemplated hereby by holders of Galen Stock in
accordance with the general corporation law of the State of Florida, no
amendment which shall reduce the number of shares of Jones Stock issuable in
consummation of the transactions contemplated hereby shall be effective without
the ratifying consent of holders of a majority of the Galen 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.
10.3 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.
10.4 No Third-Party Rights; Exceptions. Except for the
registration rights granted by JMED in Article II of this Agreement, 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. Notwithstanding anything in this Agreement to the
contrary, JMED agrees that each former shareholder of Galen receiving Common
Stock of JMED pursuant to the transactions contemplated by this Agreement
(including, without limitation, shares received by Realco whether
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<PAGE> 29
or not such shares are distributed by Realco to any former shareholder of
Galen) shall be deemed parties to this Agreement for the purpose of enforcing
rights granted by JMED in Article II and that the obligations of JMED under
such Article II survive the Closing Date.
10.5 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.
10.6 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, JGD, Galen and Daniels, respectively, shall be governed by the
general corporation laws of their respective states of incorporation.
10.7 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.
10.8 Survival of Representations, Warranties and Covenants.
The representations and warranties made in this Agreement by Galen and Daniels
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 III 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.
10.9 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 Galen or Daniels, as follows:
Galen Drugs of Florida, Inc.
2517 Twenty-fifth Avenue North
St. Petersburg, Florida 33713
Attn: President
facsimile: 813-323-3893
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With a copy to:
Annis, Mitchell, Cockey, Edwards & Roehn, P.A.
Suite 2100
One Tampa City Center Building
(or Post Office Box 3433)
Tampa, Florida 33601
Attn: Joseph W. N. Rugg, Esq
facsimile: 813-223-9067
If to JMED or JGD, 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
or in any case to such other address or addresses as hereafter shall be
furnished by any party hereto to the other party.
10.10 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.
10.11 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.
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10.12 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
GALEN DRUGS OF FLORIDA, INC JONES MEDICAL INDUSTRIES, INC.
By THOMAS B. DANIELS, JR. By DENNIS M. JONES
--------------------------------- ----------------------------------
Name: Thomas B. Daniels, Jr. Name: Dennis M. Jones
Title: President Title: Chairman & President
DANIELS PHARMACEUTICALS, INC.
By THOMAS B. DANIELS, JR.
---------------------------------
Name: Thomas B. Daniels, Jr.
Title: Vice President
31
<PAGE> 32
PLAN OF REORGANIZATION AND AGREEMENT
SCHEDULES
Schedule 3.6 Operations of Galen and Daniels pending Closing
Schedule 7.1 Organization of Galen and its Subsidiaries
Schedule 7.2 Capitalization
Schedule 7.3 Affiliated Companies
Schedule 7.4 Related Parties
Schedule 7.6 Taxes
Schedule 7.7 Certain Contracts and Commitments
Schedule 7.9 Certain Conduct
Schedule 7.10 Litigation
Schedule 7.11 General Contracts
Schedule 7.12 Applicable Laws and Governmental Authorizations
Schedule 7.13 NDAs, ANDAs and Product Information
Schedule 7.14 Title to Properties
Schedule 7.15(a) Owned Real Estate
Schedule 7.15(b) Leased Real Estate
Schedule 7.15(c) Real Estate Representations and Warranties
Schedule 7.16 Employee Benefit Plans and ERISA
Schedule 8.2 Intellectual Property
Schedule 8.3 Insurance
Schedule 8.4 No Conflict with Other Agreements or Instruments
Schedule 8.5 Certain Conduct
Schedule 8.6 Customers
Schedule 8.7 Employee Relations
Schedule 8.10 Environmental Matters
Schedule 8.11 Listing of Outside Consultants and Professionals
<PAGE> 33
EXHIBITS
Exhibit I Real Estate Purchase Contract
Exhibit II Galen Interim Statements
Exhibit III Indemnification and Escrow Agreement
Exhibit IV Agreements of Principal Holders
Exhibit V Agreements of Affiliates
Exhibit VI Legal Opinion - Annis Mitchell
Exhibit VII Legal Opinion - Greensfelder,Hemker & Gale, P.C.
Exhibit VIII Financial Statements
2
<PAGE> 1
REAL ESTATE PURCHASE CONTRACT
THIS REAL ESTATE PURCHASE CONTRACT ("Contract") is made and entered
into as of the 30 day of July, 1996, by and between DANIELS ENTERPRISES
INC., a Florida corporation ("Seller") and DANIELS PHARMACEUTICALS, INC., a
Florida corporation, or its assigns ("Purchaser").
RECITALS:
A. Pursuant to a certain Plan of Reorganization and Agreement
dated as of the date hereof by and among Galen Drugs of Florida, Inc., Jones
Medical Industries, Inc. ("JMED") and Purchaser (the "Reorganization
Agreement"), Purchaser is to acquire all of the real property used or occupied
by Purchaser in the operation of its business.
B. Seller owns all of said real property and has agreed to convey
said real property to Purchaser in accordance with the provisions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and agreements contained herein, the parties hereby agree as follows:
ARTICLE 1. SALE
Seller agrees to sell and convey to Purchaser and Purchaser agrees to
purchase from Seller all of Seller's right, title and interest in and to the
following:
1.1 Land. Those certain tracts of land described in Exhibit A
attached hereto, together with all rights, easements and interests appurtenant
thereto, and all water and mineral rights owned by Seller (the "Land"), and all
buildings, improvements, fixtures and structures now or hereafter located on
the Land (the "Improvements").
1.2 Personal Property. All personal property and other tangible
property owned by Seller now or hereafter located on the Land or in the
Improvements and/or used in connection with the operation of the Improvements,
and all other personal property used in such operation owned by Seller (the
"Personal Property").
1.3 Intangible Property. All warranties, guarantees, executory
agreements and service contracts to which Seller is a party or as to which it
has the benefit, relating to the Improvements or Personal Property to the
extent assignable (the "Intangible Property").
The Land, Improvements, Personal Property and Intangible Property are
sometimes hereinafter collectively referred to as the "Property".
<PAGE> 2
ARTICLE 2. PURCHASE PRICE
2.1 Purchase Price. The purchase price ("Purchase Price") for the
Property shall be payable by delivering Fifty-Three Thousand (53,000) shares
of common stock of Jones Medical Industries, Inc., a Delaware corporation (the
"Jones Stock").
2.2 Prorations and Adjustments. The following prorations and
adjustments shall be made to the Purchase Price at Closing:
(a) Taxes. All ad valorem real estate taxes ("Taxes")
imposed on the Property for the year in which Closing occurs shall be prorated
and adjusted to the Closing Date, based on the latest information available
with respect to Taxes. All special taxes or assessments due and payable on or
before the Closing Date shall be paid by Seller on or before the Closing Date.
All prorations will be on the basis of a 365 day year with the Closing Date
being credited or charged to Purchaser.
(b) Other Prorated Items. Subdivision assessments,
insurance premiums, fees and charges for utilities, including water, sewer, gas
and electric, if any, shall be prorated to the day of Closing and the amount
thereof shall be added to or deducted from the Purchase Price as the case may
be. All such expenses shall be prorated and adjusted on the basis of thirty
(30) days to the month with the day of Closing credited or charged to Purchaser
as the case may be.
(c) Release of Encumbrances. Except as specifically set
forth in subsection (e) below, on or before Closing, Seller shall, at its sole
expense, cause any and all assessments, liens, leases or tenancies and
encumbrances affecting the Property, including, without limitation, any
mechanic's lien, security interests, mortgages or deeds of trust to be
satisfied and released, except for taxes and assessments for the year 1996 and
subsequent years. The proceeds due at Closing may be applied by Purchaser, at
its option, to satisfy or pay any assessments, liens, encumbrances or other
charges affecting the Property, which are to be paid, satisfied or released
pursuant to this Contract.
(d) Other Charges. All recording fees, transfer taxes and
other closing costs shall be borne equally by Purchaser and Seller.
(e) That certain "Real Estate Mortgage" dated January 28,
1994 recorded in the public records of Pinellas County, Florida in Book 8596,
Page 1628 shall not be released at Closing but rather the Purchase Price shall
be adjusted by reducing the number of shares of Jones Stock delivered at
Closing. The number of shares by which the Purchase Price shall be reduced
shall be calculated as follows: divide the total amount outstanding due under
the promissory note which is secured by the Real Estate Mortgage as of the
Closing Date by the average closing price per share of Jones Stock in the
NASDAQ national market for the five (5) trading days next preceding the
business day immediately prior to Closing (rounded to the nearest whole share).
2
<PAGE> 3
ARTICLE 3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Seller's Representations, Warranties and Covenants. Seller
hereby makes the following representations, warranties and covenants, each of
which is material to the Purchaser and each of which is effective as of the
date of this Contract and will be effective as of the date of Closing and shall
survive the Closing:
(a) Land. Seller is sole owner of the Land and has good
and marketable fee simple title to the Land, subject only to non- monetary
exceptions and restrictions of record, none of which adversely affect or
prohibit the current use and enjoyment of the Land (the "Permitted
Exceptions"). There are no purchase contracts, options or other agreements of
any kind, written or oral, formal or informal, whereby any person or entity
(other than Purchaser) has acquired or has any basis to assert any right, title
or interest in, or right to possession, use, enjoyment or proceeds of all or
any portion of the Land. No person or entity will occupy or be in possession
of any of the Land as of the Closing other than Purchaser.
(b) Personal Property and Improvements. Seller has good
title to the Personal Property and Improvements and no interest therein has
been encumbered, pledged or hypothecated.
(c) Intangible Property. Seller has full rights in, to
and under the Intangible Property, none of which rights have been encumbered,
pledged or hypothecated.
(d) Violations of Law. The use and condition of the
Property does not and will not violate any zoning, building, health, fire or
similar statute, ordinance, regulation or code; and Seller has not received any
notice, written or otherwise, from any governmental agency alleging any such
violations. The Property is in full compliance with all applicable zoning
requirements, including without limitation, all parking requirements, and is
not a nonconforming or special use. The Property as conveyed to Purchaser
shall include all rights to any offsite facilities necessary to insure
compliance with all zoning, building, health, fire, water, use or similar
statutes, laws, regulations and orders. There are no unperformed obligations
relative to the Property outstanding to any governmental or quasi-governmental
body or authority.
(e) Litigation. There are no pending or, to the best
knowledge and belief of Seller, threatened matters of litigation,
administrative action or examination, claim or demand whatsoever relating to
the Property.
(f) Condemnation. Seller has not received any notice of
any pending or, to the best knowledge and belief of Seller, threatened, eminent
domain, condemnation or other governmental taking of the Property or any part
thereof.
(g) Access and Utilities. No fact or condition exists
which would result in the termination or impairment of access to the Property
from adjoining public or private streets or ways, and Seller has no knowledge
of any planned or pending street or road improvement plan which would impair
access to or the value of the Property. The Property is adjacent to and has
full and free
3
<PAGE> 4
access on all perimeter areas to and from public roads and ways, such that no
private easements or agreements are necessary to afford access to or from the
Property.
(h) Information Delivered. All documents, instruments
and other information being delivered by Seller pursuant to this Contract, are
true, accurate and complete. The information set forth therein is set forth in
a manner which is not misleading.
(i) Authority of Signatories; No Breach of Other
Agreements; etc. The execution, delivery of and performance under this
Contract is pursuant to authority validly and duly conferred upon Seller and
the signatories hereto. The consummation of the transaction herein
contemplated and the compliance by Seller with the terms of this Contract do
not conflict with or result in breach of any of the terms or provisions of or
constitute default under any agreement, accord, document or instrument by which
Seller or the Property are bound, and will not and does not constitute a
violation of any applicable law, rule, regulation, judgment, order or decree
of any governmental instrumentality or court, domestic or foreign, to which
Seller or the Property are subject.
(j) Insurability. Neither Seller nor its agents have
received any formal or informal notice from any insurance company of any defect
or inadequacies in the Property or of any part thereof which would adversely
affect the insurability of the Improvements or materially increase the rates
thereof.
(k) All Required Action Taken. All action required
pursuant to this Contract and necessary to effectuate the transaction
contemplated herein has been or will be taken promptly and in good faith by
Seller and its representatives and agents.
(l) Bills and Invoices. All bills and invoices for labor
and material of any kind and relating to the Property, have been paid in full,
and there are no mechanic's or materialmen's liens or other claims outstanding
or available to any party in connection with the Property.
(m) Improvements and Utilities. Sewage, sanitation,
plumbing, water retention and detention, refuge disposal, electricity, gas and
similar facilities in and on and/or servicing the Property are fully adequate
to service the Property as presently improved and are in full compliance with
all governmental and environmental protection authorities, laws, rules,
regulations and requirements.
(n) Executory Agreements. Seller is not a party to, and
the Property is not subject to, any contract or agreement of any kind
whatsoever, written or oral, formal or informal, with respect to the Property,
other than (i) this Agreement and (ii) those matters set forth and described in
detail in Schedule 1 attached hereto (the "Executory Agreements"). Purchaser
shall not, by reason of entering into or Closing under this Agreement, become
subject to or bound by any agreement, contract, lease, license, undertaking or
understanding which it shall not have previously agreed in writing to accept.
4
<PAGE> 5
(o) Conduct Prior to Closing. From and after the date of
this Contract, and while this Contract is in effect: (i) Seller will not enter
into any agreements affecting the Property without the prior written consent of
Buyer; and (ii) Seller will continue to operate the Property in such a manner
as operated on the date of this Agreement; and (iii) Seller shall not take any
other action which would cause any representation, warranty or covenant set out
herein to be untrue as of Closing without Purchaser's prior consent;
3.2 Purchaser's Representations, Warranties and Covenants.
Purchaser hereby represents, warrants and covenants that the execution,
delivery of and performance under this Contract is pursuant to authority
validly and duly conferred upon Purchaser and the signatories hereto.
3.3 Breach of Representations, Warranties or Covenants. In the
event of the breach of any representation, warranty or covenant made herein or
elsewhere in this Contract by Seller, Seller hereby agrees to indemnify and
hold Purchaser harmless against all losses, damages, liabilities, costs,
expenses (including reasonable attorneys' fees), and charges arising as a
direct or indirect consequence of such breach, including all incidental and
consequential damages.
ARTICLE 4. ITEMS DELIVERED.
4.1 Items to Deliver. Seller has delivered to Purchaser, or
Purchaser's designee, the following items (or, with respect to all or a portion
of any such items that do not exist, a statement stating that the same do not
exist):
(a) Engineering Reports, Surveys, Plats and Plans. A
true and accurate copy of any and all engineering reports, surveys, plats and
plans of the Property which are in the possession or control of Seller.
(b) Title Information. A true and accurate copy of any
abstracts of title, certificates of title, title insurance policies or title
insurance commitments, covering the Property which are in the possession or
control of Seller.
(c) Deeds. A true and accurate copy of the deed or deeds
conveying the Property to Seller.
(d) Improvement Plans. A true and accurate copy of all
building plans and specifications for all Improvements.
(e) Governmental Notices. A schedule and summary of any
oral notices and a copy of any written notices received from any governmental
or quasi-governmental authority or utility company relating to violations of
any laws, regulations or ordinances affecting the Property which have not been
corrected as of the date of this Contract.
(f) Executory Agreements. A copy of each Executory
Agreement.
5
<PAGE> 6
4.2 Form of Delivery. All items described in this Article have
been delivered to Purchaser, or Purchaser's designee, in the form of executed
originals or photocopies of executed originals. Seller represents and warrants
all such items are true and complete and will include any and all amendments,
modifications or changes thereto.
ARTICLE 5. INVESTIGATION OF THE PROPERTY
From and after the date of this Contract, and continuing through
Closing (hereinafter referred to as the "Investigation Period"), Seller grants
to Purchaser and JMED, and their respective agents and representatives, the
full right of access to the Property, and Purchaser and JMED may, through their
agents and representatives, inspect the Property, cause boundary line, spot and
topographical surveys to be prepared, take soil samples, conduct boring tests
and conduct engineering and mechanical investigations and such other
inspections as they may reasonably require.
ARTICLE 6. CONTINGENCIES
Purchaser's obligation to consummate the purchase called for herein
shall be subject to the closing of the transactions contemplated by the
Reorganization Agreement.
ARTICLE 7. CLOSING
7.1 Place and Closing Date. The closing ("Closing") of the
purchase and sale of the Property shall take place in the offices of
Greensfelder, Hemker & Gale, P.C. at 10:00 a.m., on the Closing Date referenced
in the Reorganization Agreement.
7.2 Possession. At Closing, Seller shall deliver possession of
the Property to Purchaser free and clear of all leases, tenants, tenancies,
occupancies or rights of possession of any person.
7.3 Seller's Obligations at Closing. At Closing, Seller shall, in
addition to any other obligations of Seller as set forth in this Contract:
(a) Deed. Deliver a Warranty Deed, duly executed and
acknowledged by Seller and in form approved by JMED, conveying fee simple title
to the Property to Purchaser, free and clear of all liens, encumbrances and
restrictions except the Permitted Exceptions.
(b) Certified Resolutions. Deliver a certificate of
resolutions of the Board of Directors of Seller evidencing Seller's authority
to enter into this Contract and to convey the Property to Purchaser.
(c) Good Standing. Deliver a certificate of good
standing dated within ten (10) days of the Closing Date, issued by the
Secretary of State of Florida evidencing that Seller is a corporation in good
standing.
6
<PAGE> 7
(d) Releases. Release or cause to be released any lien,
security interest, mortgage or deed of trust, mechanic's lien or other
encumbrance affecting the Property.
(e) Seller's Affidavit. Deliver an executed and
acknowledged Seller's Affidavit in form to permit Purchaser to obtain title
insurance without reference to standard title exceptions and in conformance
with the provisions of this Contract.
(f) Bill of Sale. Deliver an executed and acknowledged
Bill of Sale in a form acceptable to Purchaser.
(g) Non-Foreign Seller Affidavit. Deliver an executed
affidavit of Seller setting forth the tax identification number of Seller, and
certifying that, (i) Seller is not a foreign person as that term is used and
defined in Sections 1455 and 7701 of the U.S. Internal Revenue Code; and (ii)
Seller is a United States tax resident.
(h) Certificates and Permits. Deliver to the extent they
are assignable and then in Seller's possession and not posted at the Property,
certificates, licenses, permits, authorizations and approvals issued for or
with respect to the Property by governmental and quasi-governmental authorities
having jurisdiction thereof, including, without limitation, any certificate of
occupancy regarding the Property.
(i) Other Documents. Deliver such other documents and
instruments to Purchaser pertaining to the state, city, or county in which the
Property is located, as may be reasonably required by Purchaser in order to
effectuate the transactions contemplated by this Contract.
ARTICLE 8. EMINENT DOMAIN
8.1 Commencement of Action. In the event that at any time prior
to the Closing, any proceeding shall be commenced or consummated for the taking
of all or any part of the Property for public or quasi-public use pursuant to
the power of eminent domain or otherwise, Seller shall promptly give written
notice thereof to Purchaser.
8.2 Purchaser's Option to Cancel. The commencement or completion
of any such proceeding shall have no effect on this Contract unless Purchaser,
by reason thereof, elects (at the direction of JMED) at its option, within
thirty (30) days after receipt by it of Seller's notice of such taking, to
cancel this Contract by giving written notice thereof to Seller to such effect,
and upon the giving of such notice, this Contract shall become null and void
and of no further force or effect, with neither party having any further rights
or liabilities hereunder.
8.3 Purchaser's Right to Purchase. If Purchaser (at JMED's
direction) elects to proceed with the performance of this Contract,
notwithstanding the commencement of any such proceedings described herein, or
the completion of any such taking, then Seller shall assign any and all awards
7
<PAGE> 8
and other compensation for any such taking to Purchaser, and Seller shall
convey all or such portion of the Property, if any, as shall be left after such
taking in accordance with the terms of this Contract.
ARTICLE 9. RISK OF LOSS OR DAMAGE
The risk of loss or damage to the Property by fire or otherwise, is
assumed by Seller until closing of this transaction. In the event of such loss
or damage, the Purchaser may, at Purchaser's option (as directed by JMED), (i)
terminate this Contract, (ii) reduce the Purchase Price herein by the amount of
any such loss or damage, or (iii) purchase the Property as is in which event
all insurance proceeds shall be paid to Purchaser.
ARTICLE 10. NOTICES
Any notice, request, approval, demand, instruction or other
communication to be given to either party hereunder, except those required to
be delivered at Closing, shall be in writing, and shall be conclusively deemed
to be delivered when personally delivered or when deposited in the U. S. mail,
sent by certified mail, return receipt requested, and addressed to the
following addresses:
If to Seller: 6401 9th Street North
St. Petersburg, FL 33702
If to Purchaser: 2517 25th Avenue North
St. Petersburg, FL 33713
ARTICLE 11. DEFAULTS AND REMEDIES
11.1 Default by Seller. In the event that any of Seller's
representations or warranties contained herein are untrue (either when made or
at Closing) or if Seller shall have failed to have timely performed any of its
obligations, covenants and/or agreements contained herein which are to be
performed by Seller, then Purchaser, at its option (as directed by JMED) may:
(a) Elect to close the purchase of the Property pursuant
to the provisions hereof provided that such Closing shall not waive any claims
against Seller for damages as a result of Seller's default and Purchaser may,
on or after Closing, proceed against Seller for damages caused thereby.
(b) Purchaser may specifically enforce the provisions of
this Contract and in which event Purchaser shall still have a claim for damages
for default against Seller.
(c) Purchaser may (at the direction of JMED) cancel and
terminate this Contract and in such event Purchaser shall retain all rights
against Seller for damages arising out of Seller's default.
8
<PAGE> 9
(d) In any action or litigation between Purchaser and
Seller as a result of Seller's failure to perform or default under this
Contract, Purchaser shall be entitled to recover such reasonable attorneys'
fees and court costs as may be awarded by the court.
ARTICLE 12. MISCELLANEOUS
12.l Assignment. Purchaser may (at JMED's direction) assign its
rights under this Contract without the consent of Seller.
l2.2 Binding Effect. This Contract is binding upon and inures to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
l2.3 Entire Agreement. This Contract and the Reorganization
Agreement constitute the entire agreement and understanding between Seller and
Purchaser with respect to the subject matter hereof, and there are no other
covenants, agreements, promises, terms and provisions, conditions, undertakings
or understandings either oral or written, between them concerning the Property
other than those herein set forth. No subsequent alteration, amendment,
change, deletion or addition to this Contract shall be binding upon Seller or
Purchaser unless in writing and signed by all parties to the Reorganization
Agreement.
l2.4 Person Defined. The word "person" as used herein shall
include all individuals, partnerships, corporations, or any entities
whatsoever.
l2.5 Exhibits. Any reference herein to any exhibits, addenda or
attachments refers to the applicable exhibit, addendum or attachment that is
attached to this Contract, and all such exhibits, addenda or attachments shall
constitute a part of this Contract and are expressly made a part hereof.
l2.6 Contract Separable. If any provision hereof is for any reason
unenforceable or inapplicable, the other provisions hereof will remain in full
force and effect in the same manner as if such unenforceable or inapplicable
provision had never been contained herein.
l2.7 Counterparts. This Contract may be executed in any number of
counterparts, each of which will, for all purposes, be deemed to be an
original, and all of which are identical.
l2.8 Governing Law. This Contract shall be construed under and in
accordance with the laws of the State of Florida.
12.9 Survival of Representations. The representations, warranties
and covenants contained herein shall not merge in any document delivered at
Closing and shall survive Closing.
12.10 Expenses. Each party shall be responsible for its respective
expenses incurred with respect to the transactions contemplated by this
Contract.
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<PAGE> 10
12.11 Third Party Beneficiary. As a result of the transactions
contemplated by the Reorganization Agreement, JMED is a third party
beneficiary of the rights granted to Purchaser hereunder and JMED shall have
the right to enforce the provisions of this Contract on behalf of Purchaser.
Notwithstanding the foregoing, JMED's remedies for breach by Seller of this
Contract including, without limitation, any breach of any representation,
warranty or covenant set forth in Article 3 hereof, shall be limited by the
same limitations on JMED's remedies set forth in that certain Indemnification
and Escrow Agreement dated as of the Closing Date, a form of which is attached
as Exhibit III to the Reorganization Agreement.
12.12 Radon Gas. Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit. This notice is provided pursuant
to Section 404.056(8), Florida statutes.
IN WITNESS WHEREOF, the parties have executed this Contract as of the
day and year first above written.
PURCHASER: SELLER:
DANIELS PHARMACEUTICALS, INC. DANIELS ENTERPRISES, INC.
By: THOMAS B. DANIELS, JR. By: THOMAS B. DANIELS, JR.
----------------------------- --------------------------------
Name: Thomas B. Daniels Jr. Name: Thomas B. Daniels, Jr.
--------------------------- ------------------------------
Title: Vice President Title: President
-------------------------- -----------------------------
10
<PAGE> 11
EXHIBIT A
Land
#1.2501-2517 25TH AVE. N., ST.
PETERSBURG, FLORIDA Lots 15, 16, and 17, Block 7 COLFAX CITY SUBDIVISION as
recorded in Plat Book 8, Page 15 Public Records of Pinellas County, Florida
TOGETHER WITH the vacated North 20 feet of 25th Avenue North lying South of
and adjacent to the above-described lots as recorded in O.R. Book 4963, Page
13 Public Records of Pinellas County, Florida.
#2.2527 25TH AVE. N., ST. PETERSBURG,
FLORIDA Lot 18, Block 7, COLFAX CITY SUBDIVISION as recorded in Plat Book 8,
Page 15, Public Records of Pinellas County, Florida (including any rights to
the vacated North 20 feet of 25th Avenue lying South of and adjacent to the
above described Lot).
#3.2540 26TH AVE. N., ST. PETERSBURG,
FLORIDA Lots 8, 9, 10 and 11, Block 7, COLFAX CITY SUBDIVISION as recorded
in Plat Book 8, Page 15, public records of Pinellas County, Florida
#4.2534 26TH AVE. N., ST. PETERSBURG,
FLORIDA (Seller represents that the building with this address is
located on the same parcel of real property described in #3 above.)
#5.2828 21ST AVE. N., ST. PETERSBURG,
FLORIDA Lots 23 and 24, Block 7, Pelham Manor No. 1, according to the plat
thereof recorded in Plat Book 17, Page 22, Public Records of Pinellas
County, Florida.
#6.2846 21ST AVE. N., ST. PETERSBURG,
FLORIDA Lot 22, Block 7, Pelham Manor No. 1, according to the plat thereof,
recorded in Plat Book 17, Page(s) 22, Public Records of Pinellas County,
Florida.
#7.2536-2541 25TH AVE. N., ST.
PETERSBURG, FLORIDA Lots 19 and 20, Block 7, COLFAX CITY SUBDIVISION,
according to plat thereof as recorded in Plat Book 8, Page 15, Public
Records of Pinellas County, Florida, together with the vacated North 20 feet
of 25th Avenue N. abutting the South line of said Lots 19 and 20 and bounded
on the East by the Southerly extension of the East line of Lot 19 and on the
West by the Southerly extension of the West line of Lot 20.
[Legal descriptions on surveys approved by Purchaser to govern]
<PAGE> 12
SCHEDULE 1
Executory Agreements
NONE
<PAGE> 1
INDEMNIFICATION AND ESCROW AGREEMENT
This Agreement is made and entered into this 30th day of August, 1996, by
and among JONES MEDICAL INDUSTRIES, INC., a Delaware corporation ("JMED"), the
Principal Holders of the capital stock of Galen Drugs of Florida, Inc. (as
identified on Schedule A to this Agreement and as that term is defined in the
Reorganization Agreement hereinafter identified), 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
July 30, 1996 (the "Reorganization Agreement"), by and among JMED, Galen
Drugs of Florida, Inc. ("Galen") and Daniels Pharmaceuticals, Inc.
("Daniels"), JGD Acquisition Corporation (a wholly-owned subsidiary of
JMED) and Galen are to be merged and consolidated (the "Merger") with and
into Daniels; 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 Daniels 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
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 Daniels as the
Surviving Corporation under the transactions contemplated by the Reorganization
Agreement, including reasonable attorneys' fees and expenses incurred by JMED or
Daniels in the defense of such claims, and arising from:
<PAGE> 2
(i) any failure of Galen and Daniels or either of them to observe,
perform and discharge their respective covenants, agreements and
undertakings set forth in the Reorganization Agreement, including
without limitation, those set forth in Section 3.6 and 3.7 of the
Reorganization Agreement;
(ii) any breach, failure, omission or untruth of the representations and
warranties of Galen and Daniels or either of them with respect to
the representations and warranties set forth in Article VII of the
Reorganization Agreement;
(iii) the amounts if any by which (A) 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 Galen,
Daniels, Realco (as defined in the Reorganization Agreement) or any
Principal Holder exceed, in the aggregate as to all such claims,
$1,750,000 or (B) expenses incurred by or on behalf of Galen and
Daniels for consulting, legal and accounting fees and cost
reimbursements in connection with the Reorganization Agreement and
the transactions contemplated thereby (including, without
limitation, (1) audit expenses in connection with the audited
financial statements constituting an exhibit to or delivered
pursuant to the Reorganization Agreement and (2) expenses related
to negotiations with other parties in respect of a possible sale of
assets or reorganization and (3) reimbursements or advances of
expenses paid to or for any broker or financial advisor) exceed
$200,000 on a cumulative basis for periods subsequent to September
30, 1995, or (C) bonuses payable by Galen or its subsidiaries to
the Principal Holders or to any other employee exceed the bonus
amounts disclosed on Schedule 3.6 to the Reorganization Agreement,
or (D) any cash settlements or other payments made to any
shareholder of Galen in satisfaction of dissenters' rights exceed
the amount required to be paid to each dissenting shareholder of
Galen pursuant to paragraph 4.7 of the Reorganization Agreement;
and
(iv) any Claims suffered or incurred by Daniels or JMED or the
Owned Real Estate (as defined in the Reorganization Agreement)
arising from or due in whole or in part to any encroachment of
improvements located on the Owned Real Estate over property lines
or over easements;
provided, however, that such indemnification shall be limited as hereinafter
provided. JMED and each Principal Holder further agree that except as
otherwise agreed in writing between JMED and Galen 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.
2
<PAGE> 3
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 Daniels 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:
(i) as to Claims arising under clause (i) or clause (iii) or
clause (iv) 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 7.17 or paragraph 7.7 or
with respect to the information set forth in Schedules 7.15(a) or
7.15(b) pursuant to paragraph 7.15 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;
(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
or paragraph 7.7 or with respect to the information set forth in
Schedules 7.15(a) or 7.15(b) of paragraph 7.15 of the
Reorganization Agreement, no indemnification shall be required
until the aggregate of all Claims equals $500,000 but if such
aggregate is reached, JMED shall be entitled to indemnification in
respect of all such Claims; and
(iii) as to Claims arising pursuant to paragraph 7.6 of the
Reorganization Agreement, no indemnification shall be required
until the aggregate of all such 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 $500,000 threshold established in clause (ii) above
is reached, there shall be included all prior Claims as to which clause (iii)
above would be applicable, but there shall be excluded Claims under clause (i)
as to which no threshold applies. Further, in determining the amount of any
Claim, there shall be excluded any net recovery received by JMED or Daniels
from insurance coverage, if any, maintained, with respect to the exposure
giving rise to such Claim.
3
<PAGE> 4
Section 1.4 Limitation in Respect of Time to assert Certain Claims.
Except with respect to Claims arising under paragraph 7.6 or paragraph 7.17
of the Reorganization Agreement, JMED shall not assert Claims for
indemnification hereunder after August 30, 1997. JMED may assert Claims arising
under paragraph 7.6 or paragraph 7.17 of the Reorganization Agreement until
thirty (30) days following the later of (i) the completion of any audit of the
federal income tax returns of Galen and its subsidiaries for periods ending on
or prior to the Closing Date or (ii) the expiration of the last of the
three-year statutes of limitations (or any waiver in respect thereof) with
respect to federal income tax returns of Galen and its subsidiaries for periods
ending on or prior to the Closing Date. JMED agrees that it will not, without
the written consent of the Stockholder Representative hereinafter designated,
consent or agree or permit Daniels to consent or agree to any extension or
waiver of the statute of limitations with respect to the federal income tax
returns of Galen and its subsidiaries.
Section 1.5 Notice of All Claims to Stockholder Representative.
In addition to notices to the Escrow Agent and to the Stockholder
Representative in respect of claims by JMED for indemnification from the Escrow
Fund as hereinafter provided, JMED shall give notice to the Stockholder
Representative 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. Unless the Stockholder Representative shall object in writing to such
Claim within thirty (30) days, the amount of such Claim shall be recorded and
applied against the applicable threshold.
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 Daniels by a third party, including without limitation any
government or regulatory body, JMED agrees that the Stockholder Representative
may, at his 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 Daniels or (b) has an
aggregate value exceeding the then value of the Escrow Fund.
Section 1.7 JMED Claim to Include Certain Costs.
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 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.
4
<PAGE> 5
ARTICLE TWO: THE ESCROW
Section 2.1. Establishment of Escrow Fund.
Simultaneously with the execution of this Agreement JMED is delivering to
the Escrow Agent a stock certificate number evidencing 250,000 shares of the
Common Stock, par value $0.04 per share ("JMED Common Stock"), registered in the
name of Escrow Agent. The JMED Common Stock is delivered on behalf of the
Principal Holders in accordance with the relative numbers of shares set opposite
there names on Schedule A to this Agreement 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 JMED Common Stock
initially deposited to constitute the Escrow Fund. The Escrow Agent hereby
acknowledges receipt of the certificate evidencing 250,000 shares of JMED Common
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
Stockholder Representative 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
Stockholder Representative 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 the Stockholder Representative
shall not, within thirty (30) days after the mailing of a Liquidated Claim
Notice, advise 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.
5
<PAGE> 6
2.2.4 Dispute. If the Stockholder Representative shall, within the
thirty-day period referred to in Section 2.2.3 hereof, notify the Escrow Agent
in writing that he disputes JMED's rights asserted in any Liquidated Claim
Notice, the Stockholder Representative shall simultaneously give written notice
to JMED of such dispute. As promptly thereafter as possible, JMED and the
Stockholder Representative 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 Stockholder Representative shall notify the Escrow Agent (either by
means of a written instrument executed by JMED and the Stockholder
Representative, 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.
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 Sale of Escrow Shares or other Property. If the Escrow Agent is
required to make any payment to JMED pursuant to this Agreement, then subject to
the conditions hereinafter set forth in this Section 2.3.1, the Escrow Agent
shall use its best efforts to sell such portion of the shares or other property
in the Escrow Fund determined in accordance with Section 2.3.3 below, as may be
necessary to obtain cash in an amount sufficient to make such payment. The
Escrow Agent's obligation to use its best efforts to make any such sale shall be
conditioned upon its receipt of (i) the written consent of JMED to such sale and
(ii) an opinion of counsel satisfactory to the Escrow Agent to the effect that
such sale can be made in compliance with all applicable federal and state laws,
including securities laws. The Escrow Agent shall use the net cash proceeds of
any such sale to make the required payment to JMED; if such proceeds shall be
insufficient to make such payment in full, they shall be used to satisfy the
payment obligation in part.
2.3.2 Transfer of Escrow Shares or Other Property to JMED. If any
payment to JMED required by Section 2.2.3 hereof has not, within sixty (60) days
after the expiration of the thirty-day period referred to therein, been
satisfied in full by cash payments made pursuant to Section 2.3.1 hereof, or if
any payment to JMED required by Section 2.2.4 hereof has not, within sixty (60)
days after the Escrow Agent's receipt of the Settlement Document, been satisfied
in full by cash payments made pursuant to Section 2.3.1 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.
6
<PAGE> 7
2.3.3 Valuation of Escrow Shares or Other Property. For purposes of any
sale pursuant to Section 2.3.1 or any transfer pursuant to Section 2.3.2, the
value of each shares of the JMED Common Stock held in the Escrow Fund shall be
an amount equal to the average closing price per share for the such shares 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 JMED Common
Stock to be transferred pursuant to Section 2.3 at any time shall not include a
fractional share; instead, any fraction greater than or equal to .5 shall be
rounded up to the nearest whole number, and any such fraction less than .5 shall
be rounded down to the nearest whole number.
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 JMED Common Stock
and other securities in the Escrow Fund in accordance with the written
instruments, if any, received by the Escrow Agent from the Stockholder
Representative.
2.4.2 Dividends. Any cash dividends paid with respect to the shares of
JMED Common 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 August 30, 1997, there
shall be released from escrow such portion of the assets then comprising the
Escrow Fund as shall exceed (i) 100,000 shares of the JMED Common 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
Daniels 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 7.6 of the Reorganization Agreement shall have expired as of
August 30, 1997, the retention of 100,000 shares of JMED Common Stock pursuant
to clause (i) of this Section 2.5.1 shall not be required. In the event of any
stock dividends
7
<PAGE> 8
or stock splits applicable to the JMED Common Stock subsequent to the date of
this Agreement, the 100,000 share figure used herein shall be adjusted to
include the additional shares of Common Stock of JMED 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 Daniels for indemnification have been resolved or (ii)
the date upon which is thirty (30) days following the later of (a) the
completion of any audit of the federal income tax returns of Galen and its
subsidiaries for periods ending on or prior to the Closing Date or (b) the
expiration of the last of the three-year statute of limitations (or any waiver
in respect thereof) with respect to federal income tax returns of Galen and its
subsidiaries for periods ending on or prior to the Closing Date.
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 Stockholder Representative in reimbursement of any expenses incurred by
him in connection with his duties hereunder or in defense of Claims by 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
8
<PAGE> 9
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 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:
9
<PAGE> 10
If to the Stockholder Representative, as follows:
Thomas B. Daniels, Jr.
6401 Ninth Street North
St. Petersburg, Florida 33702
facsimile: 813-522-3661
With a copy to:
Annis, Mitchell, Cockey, Edwards & Roehn, P.A.
Suite 2100
One Tampa City Center Building
(or Post Office Box 3433)
Tampa, Florida 33601
Attn: Joseph W. N. Rugg, Esq
facsimile: 813-223-9067
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:
Hary Starr, Executive Vice President
Mark Twain Bank
P.O. Box 14259-A
St. Louis, Missouri 63178
10
<PAGE> 11
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 Stockholder Representative. Thomas B. Daniels, Jr. shall serve as
the initial Stockholder Representative to act with full power of and make
decisions for and on behalf of the Principal Holders. In the event of the
death, resignation or incapacity of Thomas B. Daniels, Jr. to serve as such
Stockholder Representative, Michael D. Daniels (or such other Stockholder
Representative as may be designated by Principal Holders owning a majority
interest in the Escrow Shares) shall serve as the successor Stockholder
Representative. In performing any of his duties hereunder, the Stockholder
Representative 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 Stockholder Representative 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 Stockholder Representative 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 Stockholder
Representative 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.
3.7 Registration and Sale of JMED Common Stock. The shares of JMED
Common 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
Shareholder Representative in accordance with such rights, such shares may be
sold by the Escrow Agent in the discretion and as directed by the Shareholder
Representative. Any such sale shall be allocated pro rata to the respective
beneficial interests in the Escrow Fund at the time of such sale. 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.
3.8 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.
3.9 Modification. This Agreement may be modified only by a written
instrument signed by JMED, the Stockholder Representative and the Escrow Agent,
provided, however, that no modification or amendment which expands the scope or
duration of the indemnification provisions contained in Article One of this
Agreement, whether by permitting additional claims, altering the indemnification
thresholds or extending the duration of the period in which claims may be
asserted shall be valid as to any Principal Holder other than to a Principal
Holder consenting in writing to such modification.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
JONES MEDICAL INDUSTRIES, INC.
By DENNIS M. JONES
----------------------------------
Dennis M. Jones, President
MARK TWAIN BANK
By J. HARY STARR
----------------------------------
Name: J. Hary Starr
The Principal Holders: Title: Executive Vice President
THOMAS B. DANIELS, JR.
- ----------------------------------
Thomas B. Daniels, Jr.
MICHAEL D. DANIELS
- ----------------------------------
Michael D. Daniels
ROBERT L. DANIELS
- ----------------------------------
Robert L. Daniels
PAMELA D. DUQUETTE
- ----------------------------------
Pamela D. Duquette
F. DAVID DUQUETTE
- ----------------------------------
F. David Duquette
Cristina Daniels Irrevocable Trust
dated 05/13/93
By THOMAS B. DANIELS, JR.
- ----------------------------------
Thomas B. Daniels, Jr. Trustee
Christopher W. Daniels Irrevocable
Trust dated 05/13/93
By THOMAS B. DANIELS, JR.
- ----------------------------------
Thomas B. Daniels, Jr. Trustee
12
<PAGE> 13
Schedule A to Indemnification and Escrow Agreement
<TABLE>
<CAPTION>
Name and Address of Principal Holder SS# or TIN # of JMED Shares % of Escrow Fund
- ------------------------------------ ---------- ----------------- ----------------
<S> <C> <C> <C>
Thomas B. Daniels, Jr. ###-##-#### 50,000 20.0
Michael D. Daniels ###-##-#### 50,000 20.0
Robert L. Daniels ###-##-#### 50,000 20.0
Pamela D. Duquette ###-##-#### 19,266 7.7
F. David Duquette ###-##-#### 30,734 12.3
Thomas B. Daniels, Jr. Trustee
f/b/o Cristina Daniels Trust 59-7001478 25,000 10.0
Thomas B. Daniels, Jr., Trustee
f/b/o Christopher Daniels Trust 59-7001480 25,000 10.0
</TABLE>
13
<PAGE> 1
ARTICLES OF MERGER
OF
JGD ACQUISITION CORPORATION
AND
GALEN DRUGS OF FLORIDA, INC.
INTO
DANIELS PHARMACEUTICALS, INC.
-----------------------------------------
Under Section 607.1105, Florida Statutes
-----------------------------------------
Pursuant to the provisions of Section 607.1105 of the Florida Statutes, the
undersigned hereby certify by these Articles of Merger as follows:
FIRST: The names of the corporations which are parties to the merger are
JGD Acquisition Corporation, a Florida corporation, Galen Drugs of Florida,
Inc., a Florida corporation, and Daniels Pharmaceuticals, Inc., a Florida
corporation. The surviving corporation is Daniels Pharmaceuticals, Inc., a
Florida corporation, which shall be governed by the laws of the State of Florida
and, pursuant to the Plan of Merger and the Amended and Restated Articles of
Incorporation attached thereto, shall be renamed JMI-Daniels Pharmaceuticals,
Inc.
SECOND: The Plan of Merger is annexed hereto as Exhibit "A" and
incorporated herein by reference in its entirety.
THIRD: The Plan of Merger was duly adopted by the stockholders of JGD
Acquisition Corporation as of the 14th day of August, 1996, was duly adopted by
the stockholders of Galen Drugs of Florida, Inc. as of the 26th day of August,
1996, and was duly adopted by the stockholders of Daniels Pharmaceuticals, Inc.
as of the 26th day of August, 1996.
FOURTH: The effective date of the merger shall be the date of filing of
these Articles of Merger with the Florida Department of State.
<PAGE> 2
IN WITNESS WHEREOF, each of the corporations party to the merger has caused
these Articles of Merger to be executed on its behalf by its duly authorized
officers this 30th day of August, 1996.
JGD ACQUISITION CORPORATION,
a Florida corporation
By: DENNIS M. JONES
-----------------------------------
Dennis M. Jones, President
By: JUDITH A. JONES
-----------------------------------
Judith A. Jones, Secretary
GALEN DRUGS OF FLORIDA, INC.,
a Florida corporation
By: THOMAS B. DANIELS, JR.
-----------------------------------
Thomas B. Daniels, Jr., President
By: THOMAS B. DANIELS, JR.
-----------------------------------
Name: Thomas B. Daniels, Jr.
Title: Secretary/Assistant Secretary
DANIELS PHARMACEUTICALS, INC.,
a Florida corporation
By: THOMAS B. DANIELS, JR.
-----------------------------------
Thomas B. Daniels, Jr., Chairman
By: THOMAS B. DANIELS, JR.
-----------------------------------
Name: Thomas B. Daniels, Jr.
Title: Secretary/Assistant Secretary
Exhibit A - Plan of Merger
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EXHIBIT A
PLAN OF MERGER
THIS PLAN OF MERGER, dated this 30th day of August, 1996, is made and
entered into by and between JGD Acquisition Corporation, a Florida corporation
("JGD"), Galen Drugs of Florida, Inc., a Florida corporation ("Galen"), and
Daniels Pharmaceuticals, Inc., a Florida corporation ("Daniels" or "Surviving
Corporation"), being sometimes collectively referred to herein as the
"Constituent Corporations".
W I T N E S E T H:
WHEREAS, JGD is a corporation duly organized under the laws of the State of
Florida, having an authorized capital stock of 30,000 shares of common stock, of
which as of the date hereof 22 shares of common stock are validly issued and
outstanding.
WHEREAS, Galen is a corporation duly organized under the laws of the State
of Florida, having an authorized capital stock of 1,000,000 shares of common
stock, of which as of the date hereof 102,880 shares of common stock are validly
issued and outstanding.
WHEREAS, Daniels is a corporation duly organized under the laws of the
State of Florida, having an authorized capital stock of 50 shares of common
stock, of which as of the date hereof 22 shares of common stock are validly
issued and outstanding.
WHEREAS, on July 30, 1996, Galen, Daniels and Jones Medical Industries,
Inc., a Delaware corporation which is the parent corporation of JGD ("JMED"),
entered into that certain Plan of Reorganization and Agreement ("Plan of
Reorganization") pursuant to which JGD was incorporated and this Plan of Merger
has been prepared and approved by the Constituent Corporations.
WHEREAS, the Board of Directors and Shareholders of each Constituent
Corporation deems it advisable for the general welfare of such Constituent
Corporations that JGD and Galen be merged into Daniels, which shall be the
Surviving Corporation.
WHEREAS, pursuant to the Amended and Restated Articles of Incorporation
attached hereto as Schedule 1, among other things, the name of the Surviving
Corporation shall be changed to "JMI-Daniels Pharmaceuticals, Inc."
WHEREAS, each outstanding share of the capital stock of JGD shall be
exchanged for and converted into one share of the common capital stock of the
Surviving Corporation.
WHEREAS, each outstanding share of the capital stock of Galen shall be
exchanged for and converted into shares of the common capital stock of JMED or
cash, as hereinafter set forth.
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WHEREAS, each outstanding share of the capital stock of Daniels shall be
canceled and retired.
NOW, THEREFORE, the Constituent Corporations hereby agree that JGD and
Galen shall be merged with and into the Surviving Corporation in accordance with
applicable laws of the State of Florida and the terms and conditions of the
following Plan of Merger:
ARTICLE I
The Constituent Corporations
The names of the Constituent Corporations to the merger are JGD Acquisition
Corporation (Florida Charter No. P96000067263), Galen Drugs of Florida, Inc.
(Florida Charter No. 370248) and Daniels Pharmaceuticals, Inc. (Florida Charter
No.259379).
ARTICLE II
The Merger
On the Effective Date (as hereinafter defined) both JGD and Galen shall be
merged with and into the Surviving Corporation (the "Merger"), upon the terms
and subject to the conditions hereinafter set forth as permitted by and in
accordance with the provisions of Florida Statutes Chapter 607 (the "Florida
Law").
ARTICLE III
Effect of Merger
Upon the effectiveness of the Merger, Daniels shall succeed by operation of
law to the assets, operations and liabilities of each of Galen and JGD.
ARTICLE IV
Articles of Incorporation and Bylaws
The Articles of Incorporation of the Surviving Corporation shall be that of
Daniels Pharmaceuticals, Inc., except that, upon the effectiveness of the
Merger, the Articles of Incorporation shall be amended and restated in its
entirety to read as set forth on Schedule 1 attached hereto and pursuant
thereto, among other things, the name of the Surviving Corporation shall be
changed to "JMI-Daniels Pharmaceuticals, Inc."
The Bylaws of the Surviving Corporation as in effect on the Effective Date
shall survive the Merger, until the same shall thereafter be further amended or
repealed as provided therein and by applicable law.
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ARTICLE V
Treatment of Shares of Constituent Corporations
(a) Each outstanding share of the capital stock of JGD shall be
exchanged for and converted into one share of the common capital stock of the
Surviving Corporation;
(b) Each outstanding share of the capital stock of Galen, other than
shares (if any) as to which statutory dissenters' rights have been validly
asserted and exercised, shall be exchanged for and converted into 29.5198289
shares of the common capital stock of JMED, par value $.04 per share; and
(c) Each outstanding share of the capital stock of Galen as to which
statutory dissenters' rights have been exercised, if any, shall be exchanged for
and converted into a claim to receive cash for the fair value of such shares,
subject to the terms and provisions of the Plan of Reorganization; and
(d) Each outstanding share of the capital stock of Daniels shall be
cancelled and retired.
No fractional shares of the common stock of JMED shall be issuable in
connection with the transactions contemplated by this Plan. In connection with
the conversion and exchange of shares of the capital stock of Galen into and for
shares of the common capital stock of JMED in connection with the Merger, any
resulting fractional share interests shall be settled by the Surviving
Corporation in cash on the Effective Date, and any undelivered shares held by
the Surviving Corporation as a result of such settlement shall be returned to
JMED.
ARTICLE VI
Surrender of Certificates
Each record holder of any outstanding certificate or certificates which
represent shares of JGD common stock or Galen common stock shall surrender such
certificate or certificates as a condition to receiving common stock in the
Surviving Corporation, JMED, or cash, as applicable, pursuant to this Plan of
Merger.
ARTICLE VII
Effective Date
The merger of JGD and Galen into the Surviving Corporation shall become
effective as of the date of filing of the Articles of Merger related hereto in
accordance with Florida Law. The date on which such Merger shall become
effective is herein called the "Effective Date".
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ARTICLE VIII
Plan of Reorganization
This Plan of Merger has been prepared pursuant to Florida law and the Plan
of Reorganization. This Plan of Merger shall not be deemed to alter, amend,
replace or modify the rights, duties, obligations of the parties to the Plan of
Reorganization or any other document, certificate, agreement or instrument
executed and delivered in connection therewith, each of which shall continue in
full force and effect, unmodified hereby. An executed copy of the Plan of
Reorganization is on file at the principal place of business of the Surviving
Corporation, located at 2517 25th Avenue North, St. Petersburg, Florida 33713.
IN WITNESS WHEREOF, each of the parties to this Plan of Merger has caused
this Plan of Merger to be executed by its duly authorized officer on the day and
year above written.
JGD ACQUISITION CORPORATION,
a Florida corporation
By: DENNIS M. JONES
--------------------------------
Dennis M. Jones, President
GALEN DRUGS OF FLORIDA, INC.,
a Florida corporation
By: THOMAS B. DANIELS, JR.
--------------------------------
Thomas B. Daniels, Jr., President
DANIELS PHARMACEUTICALS, INC.,
a Florida corporation
By: THOMAS B. DANIELS, JR.
--------------------------------
Thomas B. Daniels, Jr., Chairman
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SCHEDULE 1
TO PLAN OF MERGER BY AND AMONG JGD ACQUISITION CORPORATION,
GALEN DRUGS OF FLORIDA, INC. AND DANIELS PHARMACEUTICALS, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF DANIELS PHARMACEUTICALS, INC.
Pursuant to that certain Plan of Merger effective August 30, 1996 by and
among JGD Acquisition Corporation, Galen Drugs of Florida, Inc. and Daniels
Pharmaceuticals, Inc. ("Plan of Merger"), to which these Amended and Restated
Articles of Incorporation are attached as Schedule 1, upon the filing of the
related Articles of Merger with the Florida Department of State, JGD Acquisition
Corporation, a Florida corporation, and Galen Drugs of Florida, Inc., a Florida
corporation, shall merge with and into Daniels Pharmaceuticals, Inc., a Florida
corporation, with Daniels Pharmaceuticals, Inc. (the "Corporation") as the
surviving corporation. According to Article IV of the Plan of Merger, pursuant
to the foregoing merger, the Articles of Incorporation of the Corporation shall
be amended and restated as set forth herein.
The Corporation, originally organized under the name of Daniels
Pharmaceuticals, Inc., hereby certifies to the Florida Secretary of State that
the Corporation desires to amend and restate its Articles of Incorporation as
currently in effect and the following Amended and Restated Articles of
Incorporation are all of the provisions of the Articles of Incorporation of the
Corporation as theretofore amended and that these Amended and Restated Articles
of Incorporation supersede the original Articles of Incorporation and all
amendments thereto.
Pursuant to Sections 607.1006 and 607.1007 of the Florida Business
Corporation Act, the Corporation adopts these Amended and Restated Articles of
Incorporation. The amendment and restatement of the Articles of Incorporation
of the Corporation set forth below was proposed by the Board of Directors of the
Corporation to the sole shareholder of the Corporation and adopted by the sole
shareholder of the Corporation as of the 26th day of August, 1996. Pursuant to
the requirements of Section 607.1006(f) of the Florida Business Corporation Act,
a sufficient number of shareholder votes were cast for the approval of the
amendment of the Articles of Incorporation of the Corporation set forth below.
Articles I, II, IV, VI, and VII of the Articles of Incorporation of the
Corporation are amended to read as follows:
ARTICLE I NAME
The name of this Corporation is JMI-Daniels Pharmaceuticals, Inc.
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ARTICLE II NATURE OF BUSINESS
This Corporation may engage in or transact any or all lawful activities or
business permitted under the laws of the United States, the State of Florida, or
any other state, country, territory or nation.
ARTICLE IV REGISTERED OFFICE
The address, including street and number, of the Corporation's registered
office in the State of Florida is 1200 S. Pine Island Road, Plantation, Florida
33324, and the name of its Registered Agent at said address is CT Corporation
System.
ARTICLE VI PRINCIPAL ADDRESS
The principal place of business of this Corporation shall be: 2517 25th
Avenue North, St. Petersburg, Florida 33713.
ARTICLE VII DIRECTORS
The management and control of the Corporation shall be vested in one (1)
Director.
Article VIII, Article IX and Article XI are deleted in their entirety. As a
result, the numbering of Articles X and XII shall be changed to reflect the
deletion of Articles VIII, IX and XI.
The Articles of Incorporation of JMI-Daniels Pharmaceuticals, Inc. are
hereby restated as follows:
ARTICLE I NAME
The name of this Corporation is JMI-Daniels Pharmaceuticals, Inc.
ARTICLE II NATURE OF BUSINESS
This Corporation may engage in or transact any or all lawful activities or
business permitted under the laws of the United States, the State of Florida, or
any other state, country, territory or nation.
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ARTICLE III CAPITAL STOCK
1. The maximum number of shares of stock that this Corporation is
authorized to have outstanding at any one time is 50 shares of common stock of
the par value $200.00 per share.
2. The holders of stock in this Corporation shall be entitled to one (1)
vote for each share of stock at all meetings of the stockholders. Cumulative
voting shall not be permitted.
3. The Board of Directors may issue the stock or any part thereof, but
such subscription shall be payable in lawful money of the United States or in
property, labor or services, at a just valuation to be fixed by the Board of
Directors.
ARTICLE IV REGISTERED OFFICE
The address, including street and number, of the Corporation's registered
office in the State of Florida is 1200 S. Pine Island Road, Plantation, Florida
33324, and the name of its Registered Agent at said address is CT Corporation
System.
ARTICLE V TERM OF EXISTENCE
This Corporation is to have perpetual existence.
ARTICLE VI PRINCIPAL ADDRESS
The principal place of business of this Corporation shall be: 2517 25th
Avenue North, St. Petersburg, Florida 33713.
ARTICLE VII DIRECTORS
The management and control of the Corporation shall be vested in one (1)
Director.
ARTICLE VIII LOSS OF STOCK CERTIFICATE
In case of loss or destruction of a certificate of stock, no new
certificate shall be issued in lieu thereof except upon satisfactory proof to
the Board of Directors of such loss or destruction, and upon the giving of
satisfactory security, by bond or otherwise, as may be approved by the Board of
Directors. Any such new certificate shall be plainly marked "duplicate" upon
its face.
ARTICLE IX AMENDMENT
These Articles of Incorporation may be amended in the manner provided by
law. Every amendment shall be approved by the Board of Directors, proposed by
them to the stockholders, and approved at a stockholders' meeting by a majority
of the stock entitled to vote thereon.
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE AUGUST 30, 1996
JONES MEDICAL COMPLETES ACQUISITION OF
DANIELS PHARMACEUTICALS
St. Louis, MO - Jones Medical Industries, Inc. (NASDAQ: JMED) today announced
the completion of the acquisition of Daniels Pharmaceuticals, Inc. of St.
Petersburg, Florida, for approximately 2,960,000 shares of common stock.
Daniels Pharmaceuticals is a manufacturer of prescription pharmaceutical
products, the largest of which is Levoxyl(R), a synthetic thyroid hormone for
the treatment of hypothyroidism. Levoxyl(R) is reported to be the second most
widely prescribed brand of levothyroxine in the United States, within a $300
million growing market dominated by Knoll Pharmaceutical Company's
Synthroid(R). In 1995 Synthroid(R) was reported to be the third most widely
dispensed drug by retail pharmacies in the United States. Levoxyl(R) was
reported in 64th place, up from 91st in 1994. Levoxyl's(R) wholesale price is
approximately 60 percent below Synthroid's(R) and has been growing
approximately 30 percent each year, for the past five years, with trailing
twelve month sales totaling $13 million.
Daniels other primary marketing activity is with five prescription veterinarian
pharmaceuticals, the largest of which is Soloxine(R). Soloxine(R) is the
Company's brand of levothyroxine for veterinarian use, which has been growing
approximately 10 percent annually. Trailing twelve month sales of Soloxine(R)
are $3.3 million, which represents approximately 85 percent of the veterinarian
levothyroxine market. Soloxine(R) and Daniels other veterinarian products are
marketed through all major veterinarian distributors throughout the United
States and Canada. Recently Daniels has begun distributing Soloxine(R) in
England.
Dennis Jones, Chairman and CEO of Jones Medical, said in commenting on the
Daniels acquisition, "Daniels adds an important new dimension to Jones. It
expands our franchise in endocrinology and provides our first direct physician
sales force which we plan to leverage with additional products from possible
future acquisitions."
For further information contact Investor Relations at (314) 576-6100.
