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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 0-15098
JONES MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1229854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1945 Craig Road, St. Louis, MO 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (314) 576-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1997, is approximately $690.0 million.
Number of shares outstanding of registrant's Common Stock as of March 3, 1997:
28,569,651.
The following documents are incorporated by reference in Part III hereof: None
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INTRODUCTORY NOTES
All historical financial information appearing in this report has been restated
for all prior periods to reflect (i) a three for two split of the Company's
Common Stock effective March 1, 1996, and a second three for two split of the
Company's Common Stock effective June 10, 1996, and (ii) the acquisition on
August 30, 1996, of Galen Drugs of Florida, Inc. and its principal operating
subsidiary (the "Daniels Acquisition") in a transaction treated as a "pooling
of interests" for accounting and reporting purposes. As a "pooling of
interests" transaction, the operations acquired as a result of the Daniels
Acquisition are deemed to have been owned and conducted by the Company for all
prior periods.
Tapazole(R), Levoxyl(R), Thrombin-JMI(TM), Thrombinar(R), Brevital(R)Sodium,
Bronson(TM), Bronson Pharmaceutical(TM), MD Pharmaceutical(TM), Liqui-Char(R),
Therevac(R), Derma-Scrub(R), Soloxine(R), Nasabid(R), Vanex(TM), and Obenix(R)
are trademarks owned by or under license to the Company. All other trademarks
and registered trademarks used in this Form 10-K are the property of their
respective owner. Unless the context otherwise requires, references herein to
"JMI" or the "Company" refer to Jones Medical Industries, Inc. and its
subsidiaries.
The following discussion contains forward-looking statements that involve risks
and uncertainties. Certain of these risks and uncertainties are discussed
below in Item 1 as they relate to the Company's existing operations and
strategies and in Item 7 as they relate to the Company's results of operations
and financial condition. The Company's actual results in future periods may
differ significantly from the results discussed in or anticipated by such
forward-looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
Jones Medical Industries, Inc. is engaged in the manufacture,
marketing and sale of pharmaceuticals and nutritional supplements. Founded in
1981, the Company markets a wide variety of pharmaceuticals and branded
nutritional supplements under its own trademarks and tradenames. All of the
Company's product lines have been acquired through a series of acquisitions
which have complemented or expanded its existing lines of business. The
Company intends to leverage its existing marketing and sales capabilities
through additional strategic acquisitions of complementary products and
businesses, by expanding and increasing the penetration of its existing
customer base, and through the introduction of new formats for pharmaceuticals
and new formulations for nutritional supplements. During 1996, sales of
pharmaceuticals and nutritional supplements accounted for approximately 68% and
32% of the Company's total sales, respectively.
BUSINESS STRATEGY
The Company's business strategy is to acquire specialty product lines
or operations that complement or expand the marketing or distribution of
existing product lines and to develop and apply marketing initiatives to such
products. The key elements of the Company's strategy include:
Acquire and Build Market Share in Specialty Pharmaceuticals. Since
inception, the Company has purchased domestic rights to certain specialty
pharmaceuticals addressing markets such as critical care treatments involving
hemostasis and anesthesia and prescription treatments for thyroid disorders.
JMI intends to continue to seek the rights to products that it believes can
benefit from focused marketing efforts.
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Leverage Established Pharmaceutical Marketing and Sales Efforts. JMI
intends to maximize productivity of its sales force through replacement of
existing, lower-volume products with new products with larger market
opportunities. In addition, the Company intends to raise the awareness of
selected products through targeted sales efforts focused on hospital
pharmacists, prescribing physicians and other health care professionals in the
United States.
Improve Margins Through Focus on High-Margin Products and Cost
Control. JMI intends to increase gross and operating margins by using sales
personnel efficiently, minimizing corporate overhead and focusing on high
margin products. The Company believes that by focusing on a limited number of
products, the Company can increase sales by maximizing the productivity of its
sales force and controlling overhead costs.
SIGNIFICANT OPERATING EVENTS DURING 1996
As a result of two significant acquisitions completed in 1996, the
Company currently derives a significant portion of its revenues from the sale
of Tapazole and Levoxyl which are pharmaceutical products relating to the
treatment of thyroid conditions. These pharmaceutical products represent new
product lines in which the Company has only limited direct marketing experience
to date. A substantial percentage of the prescriptions for pharmaceutical
products used in the treatment of thyroid conditions has historically arisen
from office-based endocrinologists and internal medicine specialists rather
than through hospital pharmacies which have been the focus of the Company's
marketing and sales of its critical care pharmaceuticals. During the course of
1996, the Company significantly expanded its sales and marketing staff to
address this additional marketing focus and, on December 31, 1996, acquired
Abana Pharmaceuticals, Inc., a company engaged in the marketing, distribution
and sale of prescription pharmaceuticals. There can be no assurance that the
Company will be successful in efforts to integrate and expand its sales and
marketing efforts directed toward office-based physician prescribers. The
failure successfully to market and sell the pharmaceutical product lines
acquired during 1996 could have a material adverse effect on the Company's
business, financial condition and results of operations.
Acquisition of the Rights to Tapazole. On March 18, 1996, the Company
acquired from Eli Lilly and Company ("Lilly") the exclusive perpetual domestic
right to market and distribute Tapazole (methimazole, USP) in the United
States. The purchase price for Tapazole was $26.0 million, of which one-third
was paid in cash at closing and the remainder of which was paid, without
interest, in installments in June and September, 1996. In addition to the
purchase price, the Company will pay Lilly a royalty equal to 5% of the
Company's net sales of Tapazole during the first 10 years following the
acquisition. The Company also entered into a 10 year manufacturing agreement
with Lilly pursuant to which Lilly will continue to manufacture Tapazole for
the Company.
The Daniels Acquisition. On August 30, 1996, the Company acquired
Galen Drugs of Florida, Inc. and its principal operating subsidiary, Daniels
Pharmaceuticals, Inc. ("Daniels"), and related assets in exchange for an
aggregate of 2,960,224 shares of the Company's Common Stock and cash in the
amount of $4.0 million. Daniels is a St. Petersburg, Florida, based
manufacturer and distributor of prescription pharmaceutical products whose
principal product is Levoxyl, a synthetic thyroid hormone for the treatment of
hypothyroidism. Prior to its acquisition by the Company, Daniels maintained an
in-house sales and marketing staff of 30 persons, focusing primarily on sales
and promotion of its products to endocrinologists and other office-based
physician prescribers.
Acquisition of Abana Pharmaceuticals, Inc. Effective as of the close
of business on December 31, 1996, the Company completed the acquisition of
Abana Pharmaceuticals, Inc. ("Abana"), in which it previously owned an
approximately 16% interest, in exchange for 420,553 shares of the Common Stock
of
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the Company. Abana, formed in 1988, was engaged in the marketing, distribution
and sale of branded generic prescription pharmaceuticals under its own
trademarks and tradenames and had net sales of approximately $6.0 million for
its 1996 year. Its principal products are marketed to prescribing physicians
under the Nasabid, Vanex and Obenix tradenames. Abana's sales and marketing
organization included 55 sales representatives marketing products to physicians
in 15 states. Sales of Abana's product lines are primarily to drug wholesale
companies who provide pharmaceuticals to retail pharmacies filling individual
prescriptions.
PRINCIPAL PRODUCTS AND PRODUCT LINES
Pharmaceuticals. The Company markets and distributes a variety of
branded pharmaceuticals, which accounted for approximately 61% of the Company's
sales in 1996. The Company's principal branded pharmaceuticals primarily serve
the thyroid treatment and the critical care segments of the health care
industry and are as follows:
Thyroid Treatment Pharmaceuticals.
Tapazole. Tapazole is an anti-thyroid product used for the treatment
of hyperthyroidism; the extreme form of hyperthyroidism is commonly known as
'Graves' Disease.' Tapazole is prescribed to inhibit the synthesis and
production of natural thyroid hormones and to reduce the size of the goiter (an
abnormal growth resulting from overactivity of the thyroid gland). Although
the Company is not aware of any generic forms of Tapazole in the marketplace,
Tapazole faces competition from the generic pharmaceutical, propylthiouracil
("PTU"). PTU is manufactured by Lederle Labs ("Lederle"), a division of
American Cyanamid Company, which has greater financial resources than the
Company, and is marketed and distributed by a number of independent generic
pharmaceutical companies who acquire product from Lederle. During the period
from the Company's acquisition of Tapazole on March 18, 1996 through December
31, 1996, the Company had net sales of $12.3 million relating to Tapazole,
equal to 12.3% of the Company's 1996 sales.
Levoxyl. Levoxyl is a synthetic thyroid hormone for the treatment of
hypothyroidism and is reported to be the second most widely prescribed brand of
levothyroxine in the United States. Levothyroxine pharmaceuticals are used to
supplement or enhance endocrine levels produced by underactive thyroid glands.
The U.S. domestic market for levothyroxine is estimated at $300 million
annually and is dominated by Synthroid(R) which is manufactured by Knoll
Pharmaceutical Company, a subsidiary of Boots Plc, which has substantially
greater sales, marketing and financial resources than the Company. Competitive
action in the marketing and distribution of Synthroid(R) could disrupt the
Company's strategies for market development of Levoxyl and have a material
adverse effect on the Company's business and financial condition and its
results of operations. The Company's sales of Levoxyl were $14.2 million or
approximately 14.2% of total 1996 sales.
Critical Care Pharmaceuticals.
Thrombin-JMI and Thrombinar. During invasive surgical procedures,
surgeons typically limit bleeding in order to control blood loss and maintain
visibility of the surgical site. Surgeons may apply pressure bandages, suture
severed vessels and/or use a topical hemostatic agent to maintain the surgical
site. In most cases, collagen, cellulose or thrombin-based hemostatic agents
are used because of their ability to rapidly begin the clotting process. The
Company's products, Thrombin-JMI and Thrombinar, are thrombin-based topical
hemostatic agents derived from bovine blood. The Company's thrombin products
offer advantages over collagen and cellulose products because of faster
activity in the surgical site. Additionally, because of their physical
characteristics, JMI's thrombin products do not need to be removed from the
surgical site prior to closure, whereas non-thrombin
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competing products need to be removed, often leading to recurrence of bleeding.
Thrombin-JMI was introduced in 1995 and differs from Thrombinar in that
Thrombin-JMI does not require refrigeration, and is therefore more convenient
in the operating room. The topical hemostat market was estimated to be greater
than $90 million in the United States in 1996. The Company's branded thrombin
products accounted for 15% of the United States topical hemostat market and 70%
of the United States topical bovine thrombin market in 1996. Thrombin-JMI and
Thrombinar accounted for 13.5% of total Company sales in 1996. The Company's
first thrombin product, Thrombinar, was acquired by JMI from Armour
Pharmaceuticals ("Armour") in 1989. Thrombin-JMI is manufactured at the
Company's wholly-owned subsidiary GenTrac, Inc. ("GenTrac"). Thrombinar was
manufactured by Armour for JMI until September 1995 when it was replaced by
Thrombin-JMI.
Brevital Sodium. The intravenous ("I.V.") anesthetic market is split
into segments based on type and length of therapeutic, diagnostic or surgical
procedures. Short-term general anesthesia is required when performing minor
surgical procedures such as dental surgery, cardioversion and other brief
ambulatory surgeries. Long-term general anesthesia is required when more
complex and invasive surgical procedures are performed. In order to administer
long-term general anesthesia, induction agents are used to begin the anesthetic
event and are subsequently followed by another drug or gas to maintain the
anesthesia. The Company's product, Brevital Sodium ("Brevital"), is a general
I.V. anesthetic agent that addresses both the short-term and long-term
anesthesia markets and was originally introduced by Lilly in 1961. Brevital is
used in short-term procedures because of its rapid onset of action and minimal
recovery time. Brevital's rapid onset of action also makes it a useful
induction agent for long-term general anesthesia prior to the administration of
another agent to maintain the anesthesia. The I.V. anesthetic market in the
United States is estimated to be $500 million. In August 1995 the Company
acquired from Lilly an exclusive domestic perpetual license to distribute
Brevital. During 1996, the Company had sales of Brevital of $7.2 million or
7.2% of total sales.
Other Pharmaceuticals. The Company also manufactures and distributes
other branded pharmaceuticals under numerous trademarks and tradenames, the
most prominent of which are Liqui-Char, a toxin antidote, Therevac, a
mini-enema for rehabilitation therapy, and the Derma-Scrub line of
anti-micorbial soaps and lotions. In addition to Levoxyl, the Company also
manufactures levothyroxine products for veterinary use in the treatment of
hypothyroidism in pets under the name Soloxine. Combined, sales of all other
branded pharmaceutical products accounted for approximately 14.0% of the
Company's total sales in 1996, including approximately 3.5% of total sales
which were directed to the veterinary market.
As a result of the acquisition of Abana, the Company now also markets
and distributes several product lines of branded generic pharmaceuticals,
including Obenix, an orally effective appetite suppressant in capsule form,
Nasabid, a long-acting, low-dose decongestant/expectorant tablet, and Vanex
Forte, a long-acting antihistamine/decongestant.
Nutritional Supplements. The Company markets and distributes a full
line of branded nutritional supplements, which accounted for approximately
23.5% of the Company's total sales in 1996. The Company's branded nutritional
supplements are marketed under the Bronson Pharmaceutical and MD Pharmaceutical
tradenames. The Bronson Pharmaceutical product line consists of over 260
branded vitamin, mineral and herbal extract formulations. The products include
multi-vitamins, mineral formulations, individual vitamins, antioxidants, herbal
formulations and personal care products. The Bronson Pharmaceutical product
line accounted for approximately 21.5% of the Company's total sales in 1996.
Products bearing the MD Pharmaceutical tradename are sold exclusively
through military base retail outlets and consist of a broad line of branded
nutritional supplements which compete with national brands.
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Sales of MD Pharmaceutical products have declined in recent years, primarily as
the result of the reduced number of active duty military personnel and related
reorganizations and cutbacks affecting the military commissary system.
MARKETING AND SALES
The Company markets and promotes its products primarily through a
direct sales force and by direct mail. The Company also attends major medical
conventions and symposia and utilizes advertising in trade publications. The
Company maintains product line sales staffs directed to the physician, hospital
and nutritional markets together with an internal marketing staff which
provides marketing administration and support and customer service. The
Company also utilizes independent sales representatives for marketing certain
products.
Pharmaceuticals. The Company's marketing and sales staff for
pharmaceuticals and critical care products consists of 104 field sales
personnel (including 10 managers, 77 field physician sales representatives and
17 hospital sales managers), 15 marketing and customer support specialists, a
hospital group contract coordinator and a product manager. The pharmaceutical
sales and marketing staffs are organized into separate groups for
physician-oriented and hospital-oriented product lines, with each group
reporting to a staff Vice President of Sales.
Marketing activity for physician prescribed pharmaceuticals focuses
upon inducing the physicians to prescribe the Company's products.
Prescriptions for these products are filled by retail pharmacies, which
purchase the products from wholesale drug distributors. In addition to selling
efforts based upon the merits and characteristics of its products, the Company
provides physicians with sample product packages for trial use by patients and
to aid in establishing dosage levels prior to the time at which prescriptions
are written. The cost of sampled products, including related packaging and
recordkeeping expense, is charged as a selling expense.
Sales activities for the Company's critical care pharmaceuticals are
focused on major hospital buying groups which, in the aggregate, manage and
contract for a majority of the purchasing of pharmaceuticals for private sector
hospitals through bid and contract agreements. Although the Company's
marketing efforts focus upon individual hospitals' Directors of Pharmacy as the
ultimate decision-maker, the Company presently has contracts for one or more
product lines with substantially all of the major hospital buying groups.
The Company distributes both its prescription and critical care
pharmaceuticals through all major full-line wholesale drug distributors in the
United States. Although one of such distributors accounted for approximately
8% of total sales (and approximately 11% of pharmaceutical sales) during 1996,
the role of such distributors in the pharmaceutical market does not relate to
the Company's marketing efforts to create or stimulate demand for products or
to physician or consumer use or such products.
Nutritional Supplements. The Company markets the Bronson
Pharmaceutical product line directly to consumers and health care and
nutritional professionals through catalogs and direct mailings to a database
that includes health care and nutritional professionals as well as mail order
and retail customers. The Company maintains a telemarketing sales force of 18
persons which processes orders. The majority of sales and shipments arise from
prepaid telephone, facsimile or mail orders. Orders are processed and filled
at the Company's distribution center in St. Louis, Missouri, usually within 24
hours of entry, and are shipped by United Parcel Service or parcel post with
shipping and handling costs added to the price. In addition to direct mail
sales, the Bronson Pharmaceutical product line is distributed through retail
pharmacy and health food store accounts. The MD Pharmaceutical product line is
marketed to military outlets by independent sales representatives.
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MANUFACTURING
The Company manufactures pharmaceuticals at its facilities in Canton,
Ohio, St. Petersburg, Florida, Middleton, Wisconsin, and St. Louis, Missouri,
each of which is registered with the United States Food and Drug Administration
("FDA"). The Company manufactures and formulates nutritional supplements at
its facilities in Tempe, Arizona.
The Company has manufactured pharmaceuticals at its Canton, Ohio,
facility since March 1984. The Company's Daniels operations have manufactured
pharmaceuticals at the St. Petersburg facility since 1975. At each of such
facilities, the Company processes raw materials purchased from outside sources
and produces products in tablet form. Content, shape and color of most such
products are produced within the guidelines of FDA regulations pertaining to
over-the-counter drugs or prescription drugs that were marketed prior to 1938.
The St. Petersburg facility is also licensed by the FDA to produce "new drugs"
introduced after 1938 and, as such, pharmaceuticals produced at that location
are subject to more extensive regulatory controls.
In 1991, in connection with the Company's acquisition of GenTrac, the
Company assumed operations of the GenTrac facility located in Middleton,
Wisconsin which is licensed by The Center for Biologics Evaluation and Research
("CBER"), a Division of the FDA, for the production of therapeutic and
diagnostic thrombin products. Biological products such as Thrombin-JMI must be
produced at a licensed biologic facility specifically licensed to manufacture
that product. The Company's GenTrac facility, which produces Thrombin-JMI, is
licensed for the production of thrombin United States Pharmacopoeia ("U.S.P.")
products and also acts as a contract manufacturer of Thrombogen(R), a line of
proprietary thrombin products manufactured for Johnson & Johnson Medical, Inc.
("Johnson & Johnson") under distribution and development agreements. Additions
to the Gentrac facility have expanded production capacity to meet the Company's
and Johnson & Johnson's combined product demand. Production of thrombin
products for Johnson & Johnson respresented approximately 25% of GenTrac's
total production for 1996 and approximately $4.0 million of the Company's 1996
total sales. A reduction in the volume of product sold to Johnson & Johnson,
or a failure to continue production for it on terms satisfactory to the Company
upon expiration of the current contract in the year 2000, could adversely
affect overhead rates at the facility and have a material adverse effect upon
the Company's operating results.
Packaging, as well as warehousing and distribution, for certain
pharmaceuticals and for nutritional supplements, is primarily conducted at the
Company's distribution center and headquarters located in St. Louis, Missouri.
The Company also formulates and produces liquid products such as Liqui-Char and
the Derma-Scrub line at its St. Louis, Missouri facility.
The Company has manufactured nutritional supplements at its facilities
in Tempe, Arizona, since 1984. As in the case of pharmaceuticals, the Company
processes raw materials purchased from outside sources and formulates them into
final dosage form. Although, prior to the acquisition of Bronson
Pharmaceuticals ("Bronson") by the Company in March 1993, Bronson functioned
solely as a marketer and distributor of its product line, the Company now
manufactures the majority of its Bronson products at its Tempe, Arizona
facilities.
The Company utilizes available excess capacity at its manufacturing
facilities to produce pharmaceuticals and nutritional supplements for other
branded and generic distributors, in bulk or packaged (private label) form.
The Company's marketing efforts with respect to contract manufactured products
are conducted both internally and through independent commissioned sales
representatives. Contract manufacture, other than sales of thrombin products
to Johnson & Johnson, relates primarily to nutritional supplements and
represented approximately 10.5% of the Company's total sales during 1996.
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With the exception of GenTrac's agreement with Johnson & Johnson, the
Company does not have long-term manufacturing contracts with its customers for
contract manufacturing but instead manufactures products pursuant to purchase
orders as they are received. Contract manufacturing is performed primarily for
generic and private label product distributors which are not involved in
manufacturing and whose products primarily consist of basic generic ethical
drugs, generic over-the-counter drugs and vitamins, and private formulations of
vitamins, prescription and over-the-counter drugs. Notwithstanding the absence
of long-term manufacturing agreements with its contract manufacturing
customers, JMI has long-standing relationships with the majority of its
customers for such products. There can be no assurance, however, that such
relationships will continue in the future.
In 1996, the Company manufactured approximately 75% of its total
products sold and approximately 70% of its branded products sold. The
percentage of products manufactured is subject to variance from year to year
based not only on the relative mix of the Company's existing product lines, but
also as a result of acquisition activity. Accordingly, increases in percentage
of in-house manufacturing arising from the Company's current production of
JMI-Thrombin at its Gentrac facility and its production of Levoxyl and other
products resulting from the Daniels Acquisition are offset by Lilly's contract
manufacture of Brevital and Tapazole products for the Company.
The Company has historically relied on third-party manufacturers to
produce certain of its products. The Company typically does not enter into
long-term manufacturing contracts with such third-party manufacturers, however,
even when such contracts exist there can be no assurance that the Company will
be able to obtain adequate supplies of such products in a timely fashion, or at
all. For example, the Company's thrombin products were manufactured for the
Company under a contract with Armour from whom the Thrombinar product line was
acquired in 1989. During the fourth quarter of 1994 and first quarter of 1995,
Armour was unable to fully meet the Company's requirements for thrombin
products, resulting in the Company's inability to fill product orders from
customers and the loss of sales and income. The Company also faces the risk
that upon expiration of the term of any third-party manufacturing agreement it
may not be able to renew or extend the agreement with the third-party
manufacturer, to obtain an alternative manufacturing source from other third
parties or develop internal manufacturing capabilities on commercially viable
terms, if at all. In such circumstances the Company may be unable to continue
to market its products as planned and could be required to abandon or divest
itself of a product line on terms which would materially adversely affect the
Company's business, financial condition and results of operations.
Brevital and Tapazole are each manufactured for the Company by Lilly
from whom these product lines were acquired. Pursuant to each such
acquisition, the Company obtained a perpetual, exclusive license to market and
distribute the product in the United States and entered into 10-year
manufacturing agreements with Lilly for supply of the products. As to either
product, the manufacturing agreement may be terminated by Lilly at any time
after the first five years by giving at least five years notice to the Company
prior to ceasing the manufacture of the product for the Company. The Brevital
agreement was entered in August 1995 and the Tapazole agreement was entered in
March 1996. In the event of such termination, Lilly has agreed to use
reasonable efforts to assist the Company in obtaining all the necessary
licenses and approvals to enable the Company or an alternative manufacturer to
manufacture the product. Although Lilly continues to manufacture and
distribute Brevital and Tapazole for its own account in connection with foreign
markets, there can be no assurance that Lilly will continue to meet FDA or
product specification standards for Brevital or Tapazole or that the Company's
demands for these products can be met in a consistent and timely manner. Lilly
is the sole manufacturer of Brevital and of Tapazole and any alternative
manufacturer would require regulatory change-in-site qualification to
manufacture the product. In the event of any interruption in the supply of
Brevital or Tapazole from Lilly due to regulatory or other causes, there can be
no assurance that the Company could make alternative manufacturing arrangements
on a timely basis, if at all. Such an interruption would have a material
adverse effect on the Company's business, financial condition and results of
operations.
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PRINCIPAL CUSTOMERS AND SUPPLIERS
No one customer accounted for 10% or more of the Company's sales in
1996.
The Company has not experienced to date any significant shortages in
supplies of raw materials. The raw materials utilized by the Company in its
manufacturing operations are purchased from a variety of suppliers. The
Company endeavors to maintain multiple suppliers in order to minimize delays or
cost disparities in the event of supplier shortages. For the most part the
Company's ability to manufacture products is not dependent on any particular
raw material supplier except as to thyroid raw materials.
The Company relies on certain suppliers of key raw materials to
provide an adequate supply of such materials for production of finished
products. Certain materials are purchased from single sources. In particular,
the manufacture of Brevital and of Tapazole are each dependent upon Lilly's
ability to procure certain raw materials used in the manufacture of such
products. Although the Company has no reason to believe that Lilly will be
unable to procure adequate supplies of such raw materials on a timely basis,
disruptions in supplies of Brevital or Tapazole, including delays due to
Lilly's inability to procure raw materials, would have a material adverse
effect on the Company's business, financial condition and results of
operations.
COMPETITION
The manufacture and sale of pharmaceuticals is highly competitive.
Many of the Company's competitors are large well-known pharmaceutical, chemical
and health care companies which have considerably greater financial, sales,
marketing and technical resources than those of the Company. Additionally,
many of the Company's present and potential competitors have research and
development capabilities that may allow such competitors to develop new or
improved products that may compete with the Company's product lines. The
pharmaceutical industry is characterized by rapid product development and
technological change. The Company's pharmaceuticals could be rendered obsolete
or uneconomical by the development of new pharmaceuticals to treat the
conditions addressed by the Company's products or as the result of
technological advances affecting the cost of production, or as a result of
marketing or pricing action by one or more of the Company's competitors. The
Company's business, financial condition and results of operations could be
materially and adversely affected by any one or more of such developments.
Tapazole competes with PTU, a generic pharmaceutical manufactured by
Lederle and sold by a number of independent generic pharmaceutical companies.
Levoxyl competes with Synthroid(R), which is produced by Knoll Pharmaceutical
Company, and a number of other synthetic thyroid hormones. The Company's
thrombin product lines compete with those produced for and marketed by Johnson
& Johnson and with thrombin products distributed by Parke-Davis, a division of
the Warner-Lambert Company. The Company's thrombin products also compete with
other hemostatic agents, including Gelfoam, manufactured by Pharmacia & Upjohn,
Inc., and Surgicel, manufactured by Johnson & Johnson. Brevital faces
competition in the I.V. anesthetic market from other I.V. anesthetic products,
including Diprivan, which is produced by Stuart Pharmaceuticals, a business
unit of Zeneca, Inc., and Versed, produced and marketed by Roche Labs, a
division of Hoffmann-LaRoche, Inc. Each of these competitors has substantially
greater marketing, sales and financial resources than the Company.
Just as certain of the Company's pharmaceutical products face actual
or potential competition from generic pharmaceuticals, the Company's lines of
branded generic pharmaceuticals acquired as a result of the Abana acquisition
face competition from both original branded formulations of the products and
from unbranded generic equivalents of the products. Further, although the
former Abana product lines are available
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only by prescription, such products also compete with branded and generic
over-the-counter product formulations for the treatment of similar ailments.
The market for nutritional supplements is characterized by extensive
competition, frequent new product introductions, short product life cycles and
changing customer preferences. The Company is subject to competition from the
retail market, as well as the mass-market, direct-mail market, for nutritional
supplements, and there can be no assurance that the Company's targeted
direct-market approach will remain a viable alternative within the industry or
that other competitors may not enter the targeted direct-mail market and offer
products similar to those offered by the Company. Many of the Company's
existing and potential competitors in the nutritional supplements industry have
greater financial, marketing and research capabilities than the Company.
TRADEMARKS
The branded products sold by the Company are sold under a variety of
trademarks. While the Company believes that it has valid proprietary interests
in all currently used trademarks, only certain of the trademarks are registered
with the United States government. The Company's licenses from Lilly for the
Brevital and Tapazole trademarks are limited to the United States and its right
to utilize the MD Pharmaceutical brand name is restricted to the United States
military and its outlets.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling,
storage, promotion, distribution and advertising of the Company's products are
subject to extensive regulation by one of or more federal agencies including
the FDA, the Drug Enforcement Administration ("DEA"), the Environmental
Protection Agency ("EPA"), the Federal Trade Commission ("FTC"), the
Occupational Safety and Health Administration ("OSHA"), the Department of
Agriculture ("USDA"), the Consumer Product Safety Commission ("CPC"), the
United States Customs Service, and the United States Postal Service. These
activities are also regulated by various agencies of the states and localities
in which the Company's products are sold.
Pharmaceuticals. All pharmaceutical manufacturers, including the
Company, are subject to regulation by the FDA. New drugs must be approved by
the FDA before they may be marketed, except for those prescription drugs about
which the FDA has knowledge but for which the FDA is not requiring applications
either because of 'grandfather status' under 1938 legislation, 'grandfather
status' under 1962 legislation, or for other reasons. The FDA has the
authority to revoke existing approvals, or to review the status of currently
exempt pharmaceuticals and require application and approval, of prescription
drugs if new information reveals that they are not safe or effective and also
regulates the advertising of prescription drugs. The Company's marketing of
OTC drugs is affected by the establishment of FDA monographs, a regulatory
system arising under 1962 legislation. FDA monographs effectively exempt from
FDA approval OTC drugs which are produced and labeled in accordance with the
standards set forth in FDA regulations. The rulemaking process to establish or
revise an FDA monograph allows a 12 month grace period to make appropriate
formulation or label changes following publication of the final monograph. The
FTC regulates advertising of OTC drug products. Drug products must be
manufactured, packaged, and labeled in accordance with their approvals and in
conformity with current good manufacturing practice ("CGMP"). The Company is
subject to periodic inspection by the FDA to assure such compliance. Drugs
must be distributed, sampled and promoted in accordance with FDA requirements.
The Company also manufactures and sells drugs which are "controlled substances"
as defined in the Controlled Substances Act, which establishes certain security
and record keeping requirements administered by the DEA, a division of the
Department of Justice. The FDA has extensive enforcement powers over the
activities of pharmaceutical manufacturers, including authority to seize and
prohibit the sale of unapproved or non-complying products, and to halt
manufacturing operations that
9
<PAGE> 11
are not in compliance with CGMP. Both the FDA and DEA may impose civil
penalties and seek criminal penalties arising from non-compliance with
applicable regulations. Any restriction or prohibition applicable to sales of
products marketed by the Company could materially adversely affect the
Company's business, financial condition, and results of operation.
The Company manufactures and distributes biological drugs, including
thrombin, which are also regulated by the FDA. The Company's Thrombin-JMI line
of products has been approved by the FDA, and the Company's GenTrac facility is
licensed by the FDA to produce Thrombin-JMI and Thrombogen, a line of
proprietary thrombin products manufactured for Johnson & Johnson. Under
development and distribution agreements between GenTrac and Johnson & Johnson
entered prior to the Company's acquisition of GenTrac, Johnson and Johnson has
rights to certain new products and product enhancements which might be
developed at GenTrac. The Company is not pursuing, and is not required to
pursue, development of such products at this time and currently believes that
there is insufficient market demand for alternative formulations of bovine
thrombin hemostats.
In connection with the use of sampling of pharmaceutical products in
connection with marketing to prescribing physicians, the Company's activities
are subject to the Prescription Drug Marketing Act ("PDMA") which permits
regulation of such activities at both the federal and state level. Under PDMA,
states are permitted to require registration of manufacturers and distributors
who provide sample pharmaceuticals even if such manufacturers or distributors
have no place of business within the state and states are also permitted to
adopt regulations limiting the distribution of sample products to licensed
practitioners. PDMA also imposes extensive recordkeeping, packaging, quantity
and labelling requirements intended to prevent sale of sampled pharmaceutical
products or other diversion from their intended use.
Nutritional Supplements. Although the manufacturing and production of
nutritional supplements has historically been subject to less intensive
regulation than pharmaceutical products, government oversight in this area is
currently increasing. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise increased authority over the labeling and sales of
vitamin and mineral supplements. In addition, the United States Postal Service
and the FTC regulate advertising claims with respect to the Company's products
sold by solicitation through the mail.
The FDA and other federal authorities are reviewing alternative
approaches to assure the safety of vitamins, minerals, herbals and other
products sold as nutritional supplements. Increased regulatory oversight could
subject the Company and other manufacturers of nutritional supplements to
increased production and compliance costs and possibly require capital
expenditures. Future regulation affecting nutritional supplements could result
in a recall or discontinuance of certain products.
Recent proposed regulations issued by the FDA require the relabeling of
dietary supplements with regard to nutrition labeling ingredient information
and nutrient content claims but have not become fully effective and may be
modified prior to final adoption. FDA regulations applicable to the
manufacture of nutritional supplements generally do not apply to formulations
based upon ingredients which were marketed as dietary supplements prior to
October 1994, although the FDA has recently given notice of proposed rulemaking
which would apply CGMP standards to the formulation and manufacture of all
nutritional supplements.
With respect to formulations which include ingredients not marketed as
or included in dietary supplements prior to October 1994, prior authorization
from the FDA is now required. Applications for such authorization are required
to be accompanied by studies concerning the safety and efficacy of the product
or ingredient. The Company does not currently manufacture or market
nutritional supplements which contain ingredients not used as dietary
supplements prior to October 1994. Regulations applicable to the use of
10
<PAGE> 12
formulations including new ingredients, and possible patent claims in respect
of such formulations, may make it more difficult for manufacturers of
nutritional supplements to replicate competitors formulations or variants
thereof.
The Company believes that it is in material compliance with applicable
laws and regulations concerning nutritional supplements. Moreover, the Company
believes that its experience in the manufacture and sale of pharmaceuticals,
and its use of certain manufacturing processes and controls uniformly across
all product lines, will enable the Company to comply with regulations, record
keeping, testing and manufacturing standards which may be applied to
nutritional supplements. On the other hand, current regulations with respect
to product labelling and to advertising and marketing claims for nutritionals
are complex and, in some cases, are subject to joint administration by the FDA
and the FTC and the application and interpretation of certain requirements is
not presently clear.
ENVIRONMENTAL STANDARDS
The Company uses certain hazardous substances which require special
handling and disposal as dictated by the EPA. The Company believes that its
manufacturing operations are in compliance with environmental protection and
other government regulations.
EMPLOYEES
At February 1, 1997, the Company had 508 full-time employees: 229 in
manufacturing, 147 in sales, 55 in finance and administration, 49 in quality
assurance, and 28 in distribution. The Company believes that its relationship
with its employees is good.
ITEM 2. PROPERTIES
The Company's distribution operations, including warehousing and
shipping for the Company's branded products, are located in a 150,000 square
foot facility on a 15 acre site in St. Louis, Missouri which was acquired by
the Company in mid-1993. The 24,000 square feet of office space within the
facility permit it to serve as corporate headquarters and to house the
Company's administration, sales and marketing, and telemarketing operations.
The Company has centralized packaging operations for its branded nutritional
supplements at this location in addition to certain laboratory and quality
assurance facilities. Liquid products, including Liqui-Char and the
Derma-Scrub line, are also manufactured and packaged at this facility.
The Company owns a facility at Canton, Ohio where its subsidiary,
JMI-Canton Pharmaceuticals, Inc. ("JMI-Canton"), manufactures and packages
pharmaceuticals. The facility is a 25,000 square foot building containing
manufacturing, laboratory and administrative space.
The Company owns a facility at St. Petersburg, Florida, where its
subsidiary, JMI-Daniels Pharmaceuticals, Inc., manufactures and packages
pharmaceuticals. The facility consists of six buildings containing a total of
approximately 42,000 square feet providing manufacturing, laboratory,
packaging, warehouse and administrative space.
The Company manufactures hemostatic thrombin products in a 40,000
square foot FDA-licensed sterile fill facility owned by the Company which is
located on an eight acre site in Middleton, Wisconsin.
The Company's subsidiary, JMI Phoenix Laboratories, Inc. ("JMI
Phoenix"), manufactures the Company's nutritional supplements in two adjacent
buildings owned by the Company consisting of approximately 30,000 total square
feet, located in Tempe, Arizona.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation in which it
believes an adverse outcome would materially adversely affect the Company's
business, financial condition or results of operations. However, the Company
has been involved in litigation and is subject to certain claims as set forth
below.
As previously reported, the Company is, and has in the past been, a
defendant in lawsuits relating to the manufacture or distribution of
L-Tryptophan, a nutritional supplement product distributed by the Company and
Bronson prior to 1989. The manufacturer of L-Tryptophan, Showa Denko, has
agreed to indemnify the Company (including Bronson) from all costs and damages
with respect thereto to the extent that the product distributed by the Company
was produced by Showa Denko. As a result of the indemnity, and the product
liability insurance maintained by Bronson prior to its acquisition by the
Company, the Company has not incurred any material expense or liability in
respect of claims involving L-Tryptophan and does not anticipate that it will
have any material liability arising from any remaining claims.
The Company has also previously reported that under development and
distribution agreements between GenTrac and entered into prior to the Company's
acquisition of GenTrac, Johnson & Johnson acquired certain rights to new
thrombin products and thrombin product improvements developed by GenTrac and
had given notice to the Company claiming exclusive distribution rights for a
liquid thrombin product previously under development at the GenTrac facility.
The claim is not currently being pursued and the Company believes that the
claim has been rendered moot since, for reasons unrelated to the claim, GenTrac
is not pursuing further development of the liquid thrombin product.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote
of security holders of the Company through the solicitation of proxies or
otherwise.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is traded on the Nasdaq
National Market under the symbol "JMED". The following table sets forth the
splits-adjusted quarterly high and low sales prices for the Common Stock
reported by Nasdaq for the periods indicated:
High Low
---- ---
1995
First Quarter $4 $ 2 3/4
Second Quarter 5 1/3 3 5/8
Third Quarter 8 5
Fourth Quarter 11 7 1/8
1996
First Quarter 30 1/3 10 3/8
Second Quarter 39 1/2 25 2/3
Third Quarter 50 1/2 21
Fourth Quarter 48 5/8 32 1/2
As of March 3, 1997, there were approximately 825 stockholders of
record and a total of 28,569,651 shares of Common Stock outstanding.
Approximately 19.0 million shares or 67.0% of the Company's
outstanding Common Stock are held in depository accounts representing "street
name" or similar nominee ownership. The Company believes that such shares are
held for more than 15,000 non-record beneficial holders' accounts.
During 1995 and 1996, cash dividends of $0.05 and $0.077 per share,
respectively, were declared with respect to the Common Stock.
The future declaration and payment of cash dividends is subject to the
discretion of the Board of Directors and will be dependent on many factors,
including the Company's earnings, financial condition and capital needs of the
Company and such other factors as are deemed relevant by the Company's Board of
Directors. The Company anticipates that it will continue to pay a dividend each
quarter; however, the Company's Board of Directors intends to review this
policy from time to time.
At its next annual meeting of shareholders in May 1997 the Company
intends to seek shareholder approval to increase its authorized Common Stock
from 30.0 million shares to 75.0 million shares.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data of the Company which should be read in conjunction with the accompanying
consolidated financial statements of the Company and the notes thereto. The
financial data as of December 31, 1996, 1995 and 1994 and for the four years
ended December 31, 1996 have been derived from the audited consolidated
financial statements of the Company. The financial data as of December 31,
1993 and 1992 and for the year ended December 31, 1992, has been combined by
the Company using the Company's audited historical financial statements for
those periods and unaudited financial data concerning Galen Drugs of Florida,
Inc. ("Galen") and Galen's subsidiairies including Daniels. In the opinion of
management of the Company, all adjustments necessary for a fair presentation of
the restated results arising from the pooling of interest of the Company and
Galen as a result of the Daniels Acquisiton are reflected. In the following
summary consolidated financial data, for 1995 and prior years, fiscal years of
Galen ending September 30 have been combined with the Company's historical
results for years ending December 31. In 1996, both the Company and Galen have
been combined using a December 31 fiscal year end. See Note 1 of Notes to
Consolidated Financial Statements appearing elsewhere in this report.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $34,590,117 $55,620,958 $62,153,975 $74,791,815 $ 100,153,086
Cost of sales 17,501,215 26,500,879 29,502,923 32,754,390 39,825,723
----------- ----------- ----------- ----------- -------------
Gross profit 17,088,902 29,120,079 32,651,052 42,037,425 60,327,363
Selling, general and
administrative expenses 10,738,350 16,794,635 20,284,788 21,754,155 25,909,725
Non-recurring merger
expense(1) - - - - 5,743,151
----------- ------------ ----------- ----------- -------------
Operating income 6,350,552 12,325,444 12,366,264 20,283,270 28,674,487
Other income (expense) 821,467 (80,061) (486,198) (483,520) 1,754,251
---------- ------------ ------------ ----------- -------------
Income before taxes 7,172,019 12,245,383 11,880,066 19,799,750 30,428,738
Provision for taxes 2,671,690 4,660,826 4,360,168 7,410,491 12,290,000
--------- ------------ ------------ ----------- -------------
Net income $ 4,500,329 $ 7,584,557(2) $ 7,519,898 $12,389,259 $ 18,138,738
=========== ============ =========== =========== =============
Weighted average 35,211,967(3) 35,228,601(3) 26,360,757 24,843,953 28,048,519
shares outstanding
Earnings per common and
common equivalent share $ 0.13 $ 0.22(2) $ 0.29 $ 0.50 $ 0.65
Cash dividends declared $ 0.033 $ 0.04 $ 0.045 $ 0.05 $ 0.077
per share(4) ============ ============ ============ =========== =============
</TABLE>
14
<PAGE> 16
Notes to Statement of Operations Data:
(1) Reflects non-recurring expenses associated with the Daniels
Acquisition which was treated as a "pooling of interests" for
financial accounting and reporting purposes. In the absence of such
charges, operating income and net income for the 1996 year would have
been $34.4 million and $22.4 million, respectively, and earnings per
share would have been $0.80
(2) Net income and earnings per share in 1993 do not reflect cumulative
effect of change in accounting principle of $207,100.
(3) In a transaction in October 1993, Galen Drugs of Florida, Inc.,
Daniels' then parent, repurchased and retired approximately 78.6% of
its then outstanding common stock in exchange for consideration
consisting of $3.4 million in cash and debt. As a result of the
Daniels Acquisition, an aggregate of 10.9 million shares of Common
Stock of the Company were deemed to be outstanding prior to the date
of this retirement.
(4) Represents historical dividends declared per share of the Company's
Common Stock.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $39,580,925 $58,112,520 $63,342,382 $86,238,408 $177,233,388
Current assets $22,743,724 $22,232,384 $26,384,883 $33,337,031 $ 80,550,805
Current liabilities $ 4,661,994 $ 7,823,121 $ 7,951,511 $14,405,444 $ 10,031,359
Working capital $18,081,730 $14,409,263 $18,433,372 $18,931,587 $ 70,519,446
Long-term debt $ 652,245 $ 5,399,986 $ 6,778,335 $11,420,362 $ -0-
Shareholders' equity $33,396,344 $40,832,212 $44,477,800 $55,938,525 $161,919,722
Per share book value(*) $ 0.96 $ 1.17 $ 1.84 $ 2.31 $ 5.69
Current ratio 4.9:1 2.8:1 3.3:1 2.3:1 8.0:1
</TABLE>
- -------------------------------
Note to Balance Sheet Data:
(*) Per share book value is computed assuming conversion of the
outstanding preferred stock.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results in future
periods may differ significantly from the results discussed in or anticipated
by such forward-looking statements. Certain factors which may impact results
for future periods are discussed below under the captions "Overview" and "Risks
and Uncertainties."
OVERVIEW
The Company was founded in 1981 to market and distribute specialty
pharmaceuticals and nutritional supplements. The Company has achieved
significant increases in sales and net income through acquisitions of products
and businesses to complement or expand the Company's business and to add
selected manufacturing capacity to support certain product lines. At December
31, 1996, the Company had completed 15 such acquisitions of which four were
completed in the preceding 16 months, including the Daniels Acquisition in
August 1996 which is treated as a "pooling of interests" for accounting and
reporting purposes and the acquisition of Abana and the addition of its 55
person physician-oriented sales force on December 31, 1996.
In addition to the significant revenue growth derived from acquisition
activity, the Company pursues internal growth initiatives to develop marketing
opportunities with respect to the acquired product lines and businesses. Sales
and net income have increased from $29.1 million and $3.4 million in 1991,
respectively, to $100.2 million and $18.1 million in 1996, respectively,
representing five-year compounded annual growth rates of approximately 28.0% in
sales and 40.0% in net income.
Sales are reported net of returns, rebates and discounts during the
period in which product is shipped. Product rebates and discounts are incurred
due to volume or other contractual allowances on certain pharmaceutical sales
under contracts with hospitals, buying groups and managed care organizations.
As of December 31, 1995 and 1996, the Company maintained reserves of $1.7
million for unclaimed but anticipated rebates and discounts. Product returns,
pursuant to operating policies with respect to unused pharmaceuticals and
pursuant to a limited money-back refund policy applicable to nutritional
supplements sold to consumers, are less than 2% of gross annual sales. Return
policies applicable to Daniels' products were revised effective December 31,
1996, to conform to other pharmaceuticals having lower rates of product return.
Sales are reflected prior to royalties due on sales of certain pharmaceuticals
arising from product line acquisitions. Such royalties are recorded as a
selling expense. Royalty arrangements typically extend for a fixed period from
the date of acquisition and do not require minimum payments to maintain
ownership or any rights to products.
During the year ending December 31, 1996, sales were $100.2 million
comprised of $68.0 million of pharmaceutical sales and $32.2 million of
nutritional supplement sales. The relative contributions of pharmaceuticals
and nutritional supplements to the Company's sales can be influenced by
acquisition activity in each product category as well as by marketing activity,
customer demand and product availability. In the fourth quarter of 1994 and
first quarter of 1995, sales of certain of its thrombin-based hemostats were
adversely impacted by supply difficulties. In August 1995 the Company acquired
domestic rights to the Brevital pharmaceutical line for $14 million and a
10-year royalty of 5% on net sales of Brevital. Sales of Brevital represented
approximately 3.2% of total Company sales during the last four months of 1995
and approximately 7.2% of 1996 sales. In March 1996 the Company acquired
domestic rights to the Tapazole pharmaceutical line for $26 million and a
10-year royalty of 5% on net sales of Tapazole. Sales of Tapazole for periods
subsequent to the date of acquisition represented approximately 12.3% of total
Company sales for the full year.
16
<PAGE> 18
The Company's strategy for continued growth is materially dependent
upon its continued ability to acquire, by purchase or exclusive license
arrangements, niche-market pharmaceuticals which can be promoted through
existing marketing and distribution channels. The Company also intends to
market aggressively the principal products in its current portfolio together
with new formats or formulations of existing products and, when appropriate, to
enhance its marketing and distribution channels.
In pursuing its acquisition strategy, the Company relies to a
significant degree upon the availability of product lines subject to
divestiture or sale by other manufacturers. There can be no assurance that the
Company will be able to acquire rights to additional products on acceptable
terms, if at all, and the failure to do so could have a material adverse effect
upon the Company's rate of growth and on its business and financial conditions
and results of operations. The success of the Company's efforts in managing
its existing business is subject to a number of risks and uncertainties.
Factors which may affect the Company include its dependence upon a limited
number of key pharmaceuticals, the Company's ability to integrate new product
acquisitions and to adapt and expand its marketing capabilities to the needs of
such products, and its reliance upon third-party manufacturers to produce
certain key products. The Company's operations and growth will also be
influenced by regulatory and governmental policies and by competitive forces
within the pharmaceutical and nutritional supplement industries.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere herein. The following table sets forth certain
data as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES Year Ended December 31,
--------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 47.4 43.8 39.8
----- ----- ----
Gross profit on sales 52.5 56.2 60.2
Selling, general & administrative expenses 32.6 29.1 25.9
Non-recurring merger expense - - - - 5.7*
----- ----- -----
Operating income 19.9 27.1 28.6
Other income (expenses)
Interest income 0.2 0.4 2.3
Interest expense (1.1) (0.8) (0.5)
Other miscellaneous income (expenses) 0.1 (0.2) -
----- ----- -----
Income before income tax 19.1 26.5 30.4
----- ----- -----
Net income 12.1% 16.6% 18.1%
===== ===== =====
</TABLE>
* Transaction costs and other non-recurring expenses arising in
connection with the Daniels Acquisition and charged against operating income
in accordance with "pooling of interests" accounting treatment. In the absence
of such charges, operating income would have been 34.3% of net sales and income
before tax and net income would have increased to 36.1% and 22.4%, respectively.
17
<PAGE> 19
Sales
The following summarizes approximate sales activity by product categories:
<TABLE>
<CAPTION>
SALES BY PRODUCT
CATEGORY 1994 1995 1996
------------------------ ---------------------- -------------------------
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Pharmaceuticals $36,530,000 58.8% $44,331,000 59.3% $ 67,984,000 67.9%
Nutritional Supplements 25,624,000 41.2% 30,461,000 40.7% 32,169,000 32.1%
----------- ------ ----------- ----- ------------ -----
Total Sales $62,154,000 100% $74,792,000 100% $100,153,000 100%
=========== ===== =========== ===== ============ =====
</TABLE>
Sales for the year ended December 31, 1996, increased 33.9% to $100.2
million from $74.8 million for the year ended December 31, 1995, following an
increase in the 1995 year of 20.3% to $74.8 million from sales of $62.2 million
for the year ended December 31, 1994. In both 1995 and 1996 the Company's
increases in sales were the result of both unit and dollar growth in the sales
of both pharmaceuticals and nutritional supplements.
Sales of pharmaceuticals in 1996 grew 53.4% to $68.0 million from $44.3
million in 1995 due primarily to increases in sales of the Company's Thrombin
and Levothyroxine products together with the inclusion of a full twelve months
of Brevital sales (versus four months in 1995) and due to nine months of sales
of Tapazole, which was acquired in March 1996. Sales of nutritional
supplements in 1996 grew 5.6% to $32.2 million from $30.5 million in 1995 due
to a 25% increase in contract manufactured products and a 4% increase in
Bronson product sales, offset in part by a $900,000 decline in sales of the MD
Pharmaceutical product line offered through military commissaries.
Sales of pharmaceuticals in 1995 grew 21.4% to $44.3 million from $36.5
million in 1994 due primarily to increases in sales of the Company's Thrombin
and Levothyroxine products, and from the inclusion of four months of Brevital
sales. Sales of nutritional supplements in 1995 grew 18.9% to $30.5 million
from $25.6 million in 1994 due to a 14.5% increase in Bronson Pharmaceutical
product sales and a 102.2% increase in sales of contract manufactured products,
offset in part by a $1.2 million decline in sales of the MD Pharmaceutical
products.
Gross Profit
Gross profit during 1996 increased 43.5% or $18.3 million to $60.3 million
from $42.0 million in 1995. As a percentage of sales, margins increased to
60.2% in 1996 from 56.2% in 1995 as result of increased sales of higher margin
products, price increases and greater manufacturing efficiencies.
Gross profit during 1995 increased 28.7% or $9.4 million to $42.0 million
from $32.6 million in 1994. As a percentage of sales, margins grew to 56.2% in
1995 from 52.5% in 1994 as a result of greater manufacturing efficiencies and
sales increases in higher margin products.
Selling, General and Administrative Expenses
Selling expenses increased 20.1% or aproximately $2.5 million to $15.2
million in 1996 from $12.7 million in 1995 primarily as a result of increased
royalties related to sales of Brevital and Tapazole in 1996
18
<PAGE> 20
and to higher personnel costs due to 20 hospital sales representatives on staff
throughout 1996 as compared to only 10 for most of 1995. Administrative fees
due hospital buying groups also increased in 1996, primarily due to increased
sales of Brevital and Thrombin products. As a percentage of sales, these
expenses decreased to 15.2% in 1996 from 17.0% in 1995. As a result of the
addition as of December 31, 1996, of the 55 person Abana sales and marketing
staff and increased sampling of pharmaceuticals to physician prescribers, it is
expected that selling expenses will increase significantly for 1997 in dollars
and will also increase as a percentage of total sales.
Selling expenses increased 6.0% or $722,000 to $12.7 million in 1995 from
$12.0 million in 1994 primarily as a result of opening new sales territories in
1995 and due to higher direct marketing expenses associated with larger and
more frequent mailings of the Bronson Pharmaceutical catalogue. As a
percentage of sales, these expenses decreased to 17.0% in 1995 from 19.2% in
1994.
General and administrative expenses in 1996 increased 6.3% or $456,000 to
$7.6 million from $7.2 million in 1995 primarily as a result of higher salaries
and overhead, but declined as a percentage of sales to 7.6% in 1996 from 9.6%
in 1995.
General and administrative expenses in 1995 increased 11.4% or $735,000 to
$7.2 million from $6.5 million in 1994 primarily as a result of higher salaries
and overhead, but declined as a percentage of sales to 9.6% in 1995 from 10.4%
in 1994.
Research and develoment expenses declined 9.3% in 1996 to $410,000 from
$452,000 in 1995 primarily due to the reduction of ongoing expenses by Daniels
in new product development.
Research and development expenses declined 10.8% in 1995 to $452,000 from
$507,000 in 1994 primarily due to the reduction of ongoing expenses by GenTrac
related to development efforts for pre-mixed liquid thrombin formulations.
Amortization expenses associated with intangible assets and included in
selling, general and administrative expenses increased 83.0% to $2.6 million in
1996 from $1.4 million in 1995 due primarily to the acquisition of the
Tapazole product line in March 1996 and to a full year of amortization
associated with the Brevital product line acquired in August 1995. As a
percentage of sales these expenses increased from 1.9% in 1995 to 2.6% in 1996.
Amortization expenses remained essentially unchanged in 1995 as compared
to 1994 at approximately $1.4 million, as the impact of the Brevital product
line acquisition was substantially offset by declining amortization on other
products. As a percentage of sales these expenses decreased to 1.9% in 1995
from 2.2% in 1994.
A one time acquisition charge of $5.7 million was taken in 1996 in
conjunction with certain costs and expenses associated with the Daniels
Acquisition which is treated as a 'pooling of interests' transaction.
Approximately $3.5 million of such charges related to compensation items
directly or indirectly related to the change of control of Daniels, including
certain costs paid by shareholders, and $1.8 million to financial advisory
services incurred by Daniels. The remaining charges related primarily to
transaction expenses including the fees and expenses of counsel and accountants
for both Daniels (and its parent, Galen Drugs of Florida, Inc.) and the
Company.
19
<PAGE> 21
Operating Income
Operating income during 1996 increased 41.4% or $8.4 million to $28.7
million from $20.3 million in 1995 and increased as a percentage of sales to
28.6% from 27.1% as a result of a greater increase in gross profits than in
operating expenses.
Operating income during 1995 increased 64.0% or $7.9 million to $20.3
million from $12.4 million in 1994, and increased as a percentage of sales to
27.1% from 19.9% in 1994, as the result of higher overall gross profits and
marginal increases in operating expenses.
Other Income (Expense)
Interest income from investing activities increased sharply to $2.3
million in 1996 from $304,000 in 1995 as the result of the $75 million cash
infusion from the April 1996 sale of additional common stock. Interest
expense, primarily associated with borrowings related to the acquisition of the
Brevital product line which were paid with a portion of the proceeds from the
stock offering, decreased from $655,000 in 1995 to $553,000 in 1996.
Other income during 1995 reflects a one time loss of $132,000 associated
with the sale of certain real property which the Company was unable to use and
the reduction in the associated rental income. Interest income from investing
activities increased to $304,000 in 1995 from $144,000 in 1994 as a result of
higher cash balances. Interest expense of $655,000 in 1995 was essentially
unchanged from interest expense of $698,000 in 1994.
Income Taxes
The provision for income taxes increased to 40.4% of pre-tax income in
1996 compared to 37.4% in 1995 primarily because certain of the non-recurring
merger expenses associated with the Daniels Acquisiton are not tax
deductible.
The provision for income taxes in 1995 increased to 37.4% of pre-tax
income compared to 36.7% of pre-tax income in 1994, primarily as the result of
a 1% higher federal tax rate on taxable income exceeding $10 million.
Net Income
Net income increased 46.4% or $5.7 million to $18.1 milllion in 1996 from
$12.4 million in 1995, and increased as a percentage of sales to 18.1% in 1996
from 16.6% in 1995.
Net income increased 64.8% or $4.9 million to $12.4 million in 1995 from
$7.5 million in 1994, and increased as a percentage of sales to 16.6% in 1995
from 12.1% in 1994.
Fourth Quarter - 1995 to 1996
Sales during the fourth quarter of 1996 increased 4.4 million, or 20.3%,
to $26.3 million from $21.9 million during the fourth quarter of 1995. Net
income during the fourth quarter of 1996 increased $2.9 million, or 73.9%, to
$6.8 million from $3.9 million during the fourth quarter of 1995. Earnings per
share during the fourth quarter of 1996 were $.24, with 28.8 million average
shares outstanding, compared to $.16 per share, with 24.8 million average
shares outstanding, during the fourth quarter of 1995. The 1996 increases
20
<PAGE> 22
resulted from improved operations throughout 1996, increased sales of higher
margin products and sales from the Tapazole product line which was not owned
during the 1995 fourth quarter.
FINANCIAL CONDITION
Balance Sheet Information
The Company's current ratio increased to 8.0:1 as of December 31, 1996 from
2.3:1 as of December 31, 1995, working capital increased to $70.5 million as of
December 31, 1996 from $18.9 million as of December 31, 1995, and debt as a
percentage of equity decreased to 1.8% as of December 31, 1996 from 30.8% as of
December 31, 1995, primarily as a result of the April 1996 sale of common stock
and positive cash flow from operations in 1996.
Liquidity and Capital Resources
Since inception the Company has financed its operations primarily through
cash flow from operations, public and private sales of equity securities and
borrowings under revolving credit facilities. During 1996 the Company received
net proceeds of approximately $75.0 million through an underwritten offering
and sale of 3,450,000 shares of Common Stock to provide funding for debt
repayment and acquisition purposes. Approximately $33.2 million of such
proceeds remain available for acquisition and working capital purposes
following debt retirement of $11.8 million, payment of $26.0 million in
connection with the acquisition of Tapazole, and cash payments of approximatley
$4.0 million in connection with dissenters' rights of minority holders in the
Daniels Acquisition. Also during 1996, the Company issued approximately 2.9
million shares having a market value of approximately $113.0 million at date of
issuance in connection with the Daniels Acquisition and approximately 420,000
shares having a market value of approximately $17.0 million at date of issuance
in connection with the acquisition of Abana.
At December 31, 1996 and 1995, respectively, the Company had cash and cash
equivalents of $52.2 million and $8.3 million, respectively. The increase in
cash and cash equivalents reflects the unapplied proceeds from the sale of
additional stock and cash flow from operations, net of debt repayment and
capital investments. The Company believes that available resources and
anticipated cash flow from operations are adequate to meet currently
anticipated operating needs and acquisition program. While the Company does
not maintain current lines of credit, it believes it has sufficient borrowing
capacity in the event that acquisition opportunities cannot be funded from
existing resources.
Total assets increased $91.0 million to $177.2 million at December 31,
1996 from $86.2 million at December 31, 1995 and total liabilities decreased
$15.0 million to $15.3 million at December 31, 1996 from $30.3 million at
December 31, 1995. Intangible assets, principally licenses, trademarks and
goodwill associated with acquired products, increased $36.9 million, net of
amortization charges during the year, to $69.8 million at December 31, 1996,
primarily as a result of the acquisition of the Tapazole rights in March 1996
and the acquistion of Abana on December 31, 1996. Intangible assets as a
percent of shareholders' equity declined from 58.9% at December 31, 1995 to
43.1% at December 31, 1996.
Inventories declined $261,000 to $12.8 million at December 31, 1996, from
$13.0 million at December 31, 1995 as a result of higher inventory turns.
Accounts receivable increased to $11.3 million at December 31, 1996, from $9.4
million at December 31, 1995, due to higher fourth quarter sale in 1996. In
days outstanding, however, accounts receivable decreased to 39 days at December
31, 1996 from 46 days at December 31, 1995. Net property plant and equipment
increased by $5.5 million to $24.2 million at December 31, 1996, from $18.7
million at December 31, 1995, primarily due to expansion of the Company's
Gentrac and Daniels manufacturing capacities during 1996.
21
<PAGE> 23
As of December 31, 1996, the Company is indebted to Lilly in the principal
amount of $3.0 million bearing interest at 7.0%. This indebtedness, incurred
in connection with the 1995 acquisition of the Brevital product line, is due in
August 1997.
The Company has experienced only moderate raw material and labor price
increases in recent years. While the Company has passed some price increases
along to customers, the Company has primarily benefitted from rapid sales
growth, negating most inflationary pressures. The Company's manufacturing
operations are not capital intensive and, as such, the impact of inflation on
the property, plant and equipment and associated depreciation expense of the
Company has been minimal.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1996 the Company adopted FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and FASB Statement No. 123, "Accounting for Stock Based Compensation."
The adoption of these Statements did not have a material effect on the
Company's consolidated financial statements or results of operations.
RISKS AND UNCERTAINTIES
The future results of operations, both annually and from
quarter-to-quarter, are subject to a variety of factors applicable to the
Company and to the industries and markets in which it operates. In addition to
factors discussed above and elsewhere in this Report, the following should be
considered.
New Marketing Directions arising from Recent Acquisitions. As a result of
the Company's acquisitions during 1996, it currently derives a significant
portion of its revenues from the sale of pharmaceuticals which are marketed
primarily by sales and promotional activities directed to office-based
prescribing physicians. Prior to these developments, the Company's
pharmaceutical marketing efforts focused on critical care products and were
directed toward hospital pharmacies. The Company has significantly expanded
its pharmaceutical marketing staff particularly as the result of the
acquisition of Abana and its 55-person sales force at year end. The Company
has only limited experience to date in the marketing of prescription oriented
pharmaceuticals and its ability to maintain or increase sales levels for these
products is materially dependent upon its ability to understand and adapt to
the needs of this market and to integrate successfully the Abana sales force.
Dependence upon Key Pharmaceutical Products. The Company's recent
significant growth in revenues and earnings is primarily attributable to its
acquisitions of a limited number of key pharmaceuticals with higher gross
margins. During 1996 the sales of four products, Tapazole, Levoxyl, Brevital
and JMI-Thrombin represented, in the aggregate, approximately 47.0% of total
sales. Any factor adversely affecting either the availability of or the market
for any of such products would have a material adverse effect upon the
Company's business, financial condition and results of operations.
Product Pricing Constraints and Adjustments. In addition to other
competitive factors, the ability of the Company to maintain or increase profit
margins for pharmaceuticals depends in part on the availability of adequate
reimbursement to the Company's customers and patients from third-party health
care payors, such as governments, private insurors and managed care
organizations. Policies adopted by third-party payors influence the pricing of
medical services and products. There can be no assurance that reimbursement
will be available for the Company's products or that such third-party
reimbursement will be adequate. Moreover, under contracts with hospitals and
buying groups applicable to the sale of many of the Company's pharmaceuticals,
final sales prices to distributors may be subject to retroactive adjustment
based upon volume or other contractual discounts provided by the Company.
While the Company believes that it has adequate
22
<PAGE> 24
reserves to cover such adjustments, there can be no assurance that the Company
will not experience price adjustments in the future that significantly exceed
such reserves.
Regulation and Product Risks. The manufacturing, processing, formulation,
packaging, labeling, advertising and sampling of the Company's products are
subject to extensive regulations by various federal and state agencies,
including the FDA, the FTC, the DEA, the Consumer Product Safety Commission,
the Department of Agriculture, the United States Postal Service and the EPA.
In addition to other costs of compliance with such regulations, the Company is
subject to possible risks arising from changes in such regulations or based
upon alleged violations of regulations. Such risks could render products
unavailable or unmarketable or result in product recalls. Any such development
could materially and adversely affect the Company's reputation, business,
financial condition and results of operations.
In addition to government regulation, the Company faces an inherent risk
of exposure to product liability claims in the event use of a product is
alleged to have resulted in adverse effects for a patient or consumer. Such
risk exists even with respect to those products which are manufactured in
regulated facilities or otherwise possess regulatory approval for commercial
sale. While the Company has taken, and continues to take, what it believes are
appropriate precautions, there can be no assurance that it will avoid
significant product liability exposure. The Company currently has product
liability insurance in the amount of $20 million per claim and $20 million in
the aggregate and excess coverage of $5 million through an "umbrella" policy;
however, there can be no assurance that such insurance would be sufficient to
cover potential claims or that such insurance coverage will be available in the
future on commercially reasonable terms, if at all. A product liability claim
could materially and adversely affect the Company's business, financial
condition and results of operations.
Reliance on Third-Party Manufacturers. The Company has historically
relied on third party manufacturers to produce many of its products and
currently relies upon third party manufacturers for production of Brevital and
Tapazole, each of which is a key pharmaceutical. Although such products are
subject to long-term manufacturing arrangements with reliable and substantial
entities, alternative sources are not readily available and there can be no
assurance that the Company will be able to obtain adequate supplies of such
products in a timely fashion, or at all. Disruption in the available supply of
Brevital or of Tapazole or the inability of the Company to find obtain sources
of supply upon the expiration of current contracts would be materially adverse
to the business, financial condition and results of operations of the Company.
Competition. Many of the Company's competitors, both in the manufacture
and sale of pharmaceuticals and in the marketing and distribution of
nutritional supplements, have considerably greater financial, sales, marketing
and technical resources than those of the Company. In addition, many of the
Company's present competitors have extensive research and development
capabilities that may allow such competitors to develop new or improved
products that may compete with the Company's products. Technological advances
affecting the cost of production as well as marketing or pricing action by one
or more of the competitors could also materially and adversely affect the
Company's business, financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the Financial Statements contained in Part IV hereof
and to the Index to Consolidated Financial Statements on page 38.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the Company's auditors, Ernst & Young
LLP, on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
23
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
DIRECTORS AND OFFICERS
The following table sets forth certain information as of March 1, 1996
with respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dennis M. Jones 58 Chairman of the Board, President and Chief Executive Officer
Judith A. Jones(1) 56 Executive Vice President, Secretary, Treasurer and Director
Michael T. Bramblett 54 Executive Vice President and Director
G. Andrew Franz 44 Senior Vice President-Operations-Pharmaceuticals and Director
David A. McLaughlin 49 Senior Vice President-Operations-Nutritionals and Director
Edward A. Chod(2) 43 Director
Stanley L. Lopata(1)(2) 82 Director
Thomas F. Patton(1)(2) 48 Director
L. John Polite, Jr. 75 Director
</TABLE>
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Dennis M. Jones and Judith A. Jones are husband and wife. G. Andrew
Franz is the son-in-law of Dennis M. and Judith A. Jones.
Dennis M. Jones, the founder of the Company, has been JMI's Chairman
of the Board, President and Chief Executive Officer since its inception in
March 1981. Mr. Jones has been involved primarily in the pharmaceutical
industry since 1964 in various marketing, management and administrative
positions. He was a co-founder of O'Neal, Jones and Feldman Pharmaceuticals,
which was acquired by Chromalloy American Pharmaceuticals, Inc. in 1978 and
subsequently acquired by Forest Laboratories, Inc., a specialty pharmaceutical
company, in 1984. Mr. Jones has been a director of Mark Twain State Bank, a
subsidiary of Mark Twain Bancshares, Inc., since 1988.
Judith A. Jones joined the Company in October 1981 and has been in
charge of the financial affairs and books of the Company since that time. Mrs.
Jones has been a Director of the Company since December 1981, and the Secretary
and Treasurer since April 1982. Mrs. Jones served as Vice President of the
Company from March 1985 to February 1994 and has been Executive Vice President
of the Company since February 1994.
24
<PAGE> 26
Michael T. Bramblett, a Director of the Company since 1987, served as
Vice President - Marketing of the Company from January 1991 to February 1994
and has served as Executive Vice President since February 1994. From May 1988
through December 1990, Mr. Bramblett served as Marketing Director of Carlson
Marketing Group, and from June 1987 until May 1988, he served as Corporate Vice
President of S&H Motivation Company.
G. Andrew Franz, a Director of the Company since 1994, became Senior
Vice President-Operations-Pharmaceuticals for the Company in February 1994. He
served as the Vice President-Operations of JMI-Canton since the facility was
acquired by JMI-Canton from Bowman Pharmaceuticals, Inc. in March 1984 until
February 1994. Prior to March 1984, Mr. Franz held various management
positions for 14 years within Bowman Pharmaceuticals, Inc., including Chief
Chemist and Vice President-Operations.
David A. McLaughlin, a Director of the Company since 1994, became
Senior Vice President-Operations-Nutritionals in February 1994. He served as
the Vice President-Operations of JMI's subsidiary, American Vitamin Company
from May 1988 until that company's merger into JMI Phoenix in 1993. From April
1986 to May 1988, Mr. McLaughlin was the Vice President-Sales and Marketing of
JMI Phoenix. Prior to that time, Mr. McLaughlin served as an independent
consultant to a number of health food, chemical and pharmaceutical companies,
including JMI Phoenix. From May 1978 to January 1982 he was a supervisor of
packaging and processing for the Searle Consumer Products Division of G.D.
Searle & Company, a chemical company.
Edward A. Chod has been a Director since 1991. Mr. Chod is an officer
and shareholder in the law firm of Greensfelder, Hemker & Gale, P.C. which he
joined in 1978 and which has served as counsel to the Company since 1982.
Stanley L. Lopata, a Director since 1988, is the President of Lopata
Research and Development Corp. and has served in that capacity since 1988.
Prior to 1988, Mr. Lopata was the Chairman of the Board of Directors and Chief
Executive Officer of Carboline Corporation, a manufacturer of specialty paint
and coating products, from 1960 through 1988. Mr. Lopata has been a director
of Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc., since
1983.
Thomas F. Patton, Ph.D., a Director since 1995, is President of the
St. Louis College of Pharmacy and has served in that capacity since June 1994.
From April 1993 until January 1994 and from January 1994 until May 1994, Dr.
Patton served as Executive Director of Pharmaceutical Research and Development
and as Vice President of Pharmaceutical Research and Development, respectively,
at Dupont-Merck Pharmaceutical Co., a pharmaceutical company. From March 1990
through March 1993, Dr. Patton served as Director and Senior Director of
Pharmaceutical Research and Development at Merck and Co., Inc., a
pharmaceutical company. In 1993, Dr. Patton was President of the American
Association of Pharmaceutical Scientists. Dr. Patton's 20 year career also
includes tenures as Professor of Pharmaceutical Chemistry and Pharmacy Practice
at the University of Kansas, Associate Director Control Development at the
Upjohn Co., a pharmaceutical company, and Vice President of Operations at Oread
Laboratories, Inc., a pharmaceutical company.
L. John Polite, Jr., a Director since 1989, is Chairman of Peridot
(New Jersey) Chemicals, Inc., and has served in that capacity since December
1989. He was the Chairman of the Board, President and Chief Executive Officer
of Essex Chemical Corporation ("Essex") from April 1978 to October 1988 when
Essex merged into Dow Chemical Company, a chemical company. Mr. Polite also
serves as a director of Witco Corporation, a manufacturer and marketer of a
wide range of specialty chemicals, petroleum products and engineered materials.
25
<PAGE> 27
Directors of the Company are elected by the Company's stockholders and
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified, or until their earlier resignation or
removal. All executive officers are appointed by and serve at the discretion
of the Board of Directors.
No employee who is a director receives a director's fee for services
rendered as a director. However, each non-employee director receives
reimbursement for any expenses incurred in his capacity as a director of the
Company and $3,000 per meeting of the Board of Directors attended by such
non-employee director, subject to a minimum (as of December 31, 1996) of $7,500
per year. In addition, non-employee directors who are members of the Company's
compensation committee receive $500 per meeting of the compensation committee
attended by such non-employee directors. Finally, the present non-employee
directors of the Company have been granted stock options pursuant to the
Company's 1994 Formula Stock Option Plan for Non-Management Directors, as set
forth in the table below:
<TABLE>
<CAPTION>
Date of No. of Options Per Share Initial Expiration
------- -------------- --------- ------- ----------
Name Grant Granted Exercise Price Exercise Date Date
---- ----- ------- -------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Stanley L. Lopata 6/1/94 11,250 $4.67 6/1/94 6/1/99
L. John Polite, Jr. 6/1/94 11,250 $4.67 6/1/94 6/1/99
Edward A. Chod 6/1/94 11,250 $4.67 5/1/95 5/1/00
Thomas F. Patton 6/1/95 11,250 $4.45 5/1/96 5/1/01
</TABLE>
26
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The table below sets forth all compensation
received in each of the three fiscal years ended December 31, 1994, 1995 and
1996 for services rendered in all capacities to the Company and its
subsidiaries by the Chief Executive Officer and the other four (4)
highest-compensated Executive Officers of the Company during the fiscal year
ended December 31, 1996 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------------------- ---------
Compensation
------------
Awards
------
Name and Principal Position Year Salary Bonus Other Annual Securities All Other
--------------------------- ---- ------ ----- ------------ ---------- ---------
Compensation (1) Underlying Compensation
---------------- ---------- ------------
Options
-------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Jones, 1996 $360,000 $100,000 0 540,000 $17,599(2)
Chairman of the
Board, Director and
President and Chief 1995 300,000 75,000 0 0 14,357(2)
Executive Officer
1994 250,000 50,000 0 0 13,971(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Judith A. Jones, 1996 $180,000 $ 50,000 0 135,000 $ 7,518(3)
Director, Executive
Vice President,
Secretary and Treasurer 1995 150,000 35,000 0 0 5,638(3)
1994 125,000 25,000 0 0 9,558(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Bramblett, 1996 $180,000 $ 50,000 0 63,000 $ 7,500(4)
Director and
Executive Vice
President 1995 150,000 35,000 0 0 6,771(4)
1994 125,000 25,000 0 0 5,990(4)
- ------------------------------------------------------------------------------------------------------------------------------------
G. Andrew Franz, 1996 $144,000 $ 40,000 0 0 $ 7,500(4)
Director and Senior
Vice President -
Operations - 1995 120,000 20,000 0 0 5,125(4)
Pharmaceuticals
1994 90,000 10,000 0 56,250 4,813(4)
- ------------------------------------------------------------------------------------------------------------------------------------
David A. McLaughlin, 1996 $144,000 $ 40,000 0 0 $ 7,500(4)
Director and Senior
Vice President -
Operations - 1995 120,000 20,000 0 0 5,125(4)
Nutritionals
1994 90,000 10,000 0 56,250 4,813(4)
</TABLE>
(1) No Named Executive received Other Annual Compensation which is required to
be reported in this column.
(2) Consists of a Company contribution to a 401(k) plan ($7,500 in 1996,
$6,196 in 1995 and $6,264 in 1994) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mr. Jones, of
which $10,099, $8,161 and $7,707 constituted his entire economic benefit
in the years 1996, 1995 and 1994, respectively.
(3) Consists of a Company contribution to a 401(k) plan ($4,375 in 1996,
$2,696 in 1995 and $6,774 in 1994) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mrs. Jones, of
which $3,143, $2,948 and $2,784 constituted her entire economic benefit in
the years 1996, 1995 and 1994, respectively.
(4) Consists of a Company contribution to a 401(k) plan.
27
<PAGE> 29
STOCK OPTIONS AND INCENTIVE AWARDS
Shareholders of the Company have approved the adoption of stock option and
incentive stock plans which are administered by the Compensation Committee of
the Board of Directors of the Company. At December 31, 1996, the Company had
outstanding stock options for an aggregate of 1,381,595 shares of Common Stock
at a weighted average price of $9.65 per share held by 107 employees, including
the options held by the Named Executives as described below. Although
permitted under certain of the stock option and incentive stock plans, the
Company did not issue or have outstanding in 1996 stock appreciation rights
("SARs") or restricted share grants to any Named Executive. In November 1996
the terms of the Company's stock option plans were amended by the Board of
Directors of the Company to permit "exchange exercises" in which an optionee is
permitted to pay the exercise price of vested options by surrendering
previously owned shares of the Company's Common Stock having a market value
equal to the exercise price of the option being exercised.
Stock Option Grants. During 1996, the Company granted stock options to
the Named Executives as set forth in the following table.
Individual Grants
-----------------------------------------
<TABLE>
<CAPTION>
Percent of
Total Shares Potential Realizable Value at
Underlying Assumed Annual Rates of
Number of Shares Options Stock Price
Underlying Granted Per Share Appreciation (2)
Options to Employees Exercise Expiration -----------------------------------
Name Granted in 1996(1) Price Date 5% 10%
- ------------------ ----------- ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Jones 540,000(3) 59.9% $10.67 1/2/2005 $3,175,200 $7,824,600
Judith A. Jones 135,000(3) 15.0% $10.67 1/2/2005 $793,800 $1,956,150
Michael T. Bramblett 63,000(4) 7.0% $10.67 1/2/2004 $320,670 $768,600
</TABLE>
(1) The total number of shares underlying options granted in 1996 of 901,070
includes 40,070 shares covered by options issued on December 31, 1996 in
connection with the acquisition of Abana in conversion of options
previously issued by Abana.
(2) As reflected in the table appearing in the next section below, the values
attributable to unexercised options based on the market value for the
Common Stock at December 31, 1996, already exceed the assumed potential
values reflected in this table.
(3) The non-statutory options granted to each of Mr. and Mrs. Jones become
exercisable on January 2, 2004, however the options include provisions
which accelerate the exercisability of such options based upon the market
price for the Company's Common Stock during certain periods. As a result
of such provisions, 20% of each of such options became exercisable on
January 2, 1997. An additional 20% will become exercisable on each
succeeding January 2 through 2001 if the average closing market price for
the 15 trading days preceding or following such dates is equal to or
greater than $17.78 for 1998, $21.33 for 1999, $26.67 for 2000, and $33.33
for 2001.
(4) The options granted to Mr. Bramblett are intended to qualify as an
"incentive stock options" for tax purposes and become exercisable in 9,000
share installments on January 2, 1997 and each year thereafter through
2003.
28
<PAGE> 30
Aggregate Option Exercises during 1996 and Year End Option Values.
The following table provides information with respect to the stock options
exercised during the fiscal year ended December 31, 1996 and the value as
of December 31, 1996 of unexercised in-the-money options held by the Named
Executives. The value realized on the exercise of options is calculated
using the difference between the option exercise price and the fair market
value of the Company's stock on the date of the exercise. The value of
unexercised in-the-money options at fiscal year end is calculated using
the difference between the option exercise price and the fair market value
of the Company's stock at fiscal year end, December 31, 1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-the-
Shares Unexercised Options Money Options at
Acquired Value at December 31, 1996 December 31, 1996
on Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis M. Jones 0 0 0/540,000 $0/$14,015,700
Judith A. Jones 0 0 0/135,000 $0/$3,503,925
Michael T. Bramblett 112,500 $1,162,744 112,500/63,000 $3,820,275/$1,635,354
G. Andrew Franz 11,250 $ 203,738 11,250/33,750 $372,094/$1,116,281
David A. McLaughlin 22,500 $ 363,600 0/33,750 $0/$1,116,281
</TABLE>
JMI's Employee Profit-Sharing and 401(k) Plan. The Company maintains
an Employee Profit-Sharing and 401(k) Plan (the "401(k) Plan") which was
originally adopted as of January 1, 1987. The 401(k) Plan provides employees
with a convenient way to save on a regular and long-term basis and encourages
employees to make and continue careers with the Company. The 401(k) Plan has
been amended and restated from time to time, most recently as of January 1,
1997, to permit individual direction of investments and to facilitate the
consolidation of the 401(k) Plan with similar employee plans maintained by
Daniels Pharmaceuticals, Inc. and Abana Pharmaceuticals, Inc.
To become eligible to participate in the 401(k) Plan, an employee must
have completed six months of service and have reached his or her eighteenth
birthday ("Eligible Employee"). Pursuant to the 401(k) Plan, an Eligible
Employee who participates ("Participant") may direct that a portion of his or
her compensation be contributed to the 401(k) Plan ("Elective Contributions").
Elective Contributions are treated as salary deferrals for federal income tax
purposes and under current federal tax law may not exceed $9,500 per year. The
amount of a Participant's Elective Contribution may also be limited under the
Employee Retirement Income Security Act (ERISA) in the case of highly-
compensated individuals, including the Named Executives. Participants are not
allowed to make any voluntary contributions to the 401(k) Plan, other than
their Elective Contributions.
Each year the Company makes contributions to match all or a portion of
Participants' Elective Contributions. As to any Participant in any year, such
matching contributions may not exceed the lesser of (i) a Participant's
Elective Contributions for such year or (ii) a maximum matching percentage of
Participants' compensation determined by the Company for such year. In each of
the last three years, the Company has set the maximum permitted matching
contribution at five percent of Participants' compensation. In addition to
matching contributions, the Company may make a discretionary contribution which
is allocated among Participants' Accounts in proportion to compensation. No
discretionary contributions have been made in the last three years. The
Company's matching and discretionary contributions are collectively called
"Company Contributions".
29
<PAGE> 31
A Participant's Account under the 401(k) Plan consists of the
Participant's Elective Contributions, the Company Contributions allocated to
the Participant and the earnings or investment performance arising from
investment of such funds. Generally a participant may not make withdrawals
from his 401(k) Plan Account prior to age 59 1/2, retirement, termination of
employment, or other condition specified in the 401(k) Plan without incurring
tax penalties, although the Plan permits a Participant to borrow up to 50% of
his Elective Contributions in certain hardship circumstances as provided in the
Plan. Elective Contributions are always 100% vested, however, Company
Contributions are subject to a vesting schedule described below.
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
2 . . . . . . . . . . . . . . . . . . . . . 20%
3 . . . . . . . . . . . . . . . . . . . . . . 40%
4 . . . . . . . . . . . . . . . . . . . . . . 60%
5 . . . . . . . . . . . . . . . . . . . . . . 80%
6 . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
Any unvested portion of Company Contributions allocated to a Participant at the
time of such Participant's termination of employment with the Company, other
than by retirement or death, is forfeited by the Participant. Forfeitures of
discretionary Company Contributions will be allocated to the accounts of other
Participants. Forfeitures of matching contributions are allocated in
proportion to matching contributions.
As of January 1, 1997, the Company had approximately 328 Eligible
Employees, including the Named Executives (Dennis M. Jones, Judith A. Jones,
Michael T. Bramblett, G. Andrew Franz and David A. McLaughlin). During 1996,
the Company made matching contributions to the 401(k) Plan aggregating $34,375
to the accounts of the Named Executives and total matching contributions of
$357,424 to all Participants' Accounts.
Participants in the 401(k) Plan may direct investment of amounts allocated
to their respective accounts among various investment funds selected by the
Plan Administrator. Prior to January 1, 1997, investment of funds in the
401(k) was directed by the Trustees of the 401(k) Plan and a portion of Company
Contributions was, from time to time, invested in shares of the Common Stock of
the Company. The investment funds currently available under the 401(k) Plan do
not include a Company Common Stock Fund for either Elective Contributions or
Company Contributions.
The Company is the 401(k) Plan Administrator and currently pays all
expenses of the 401(k) Plan other than audit fees, which are paid by the 401(k)
Plan. The Company has appointed Dennis M. Jones and Judith A. Jones as
Trustees of the 401(k) Plan and Smith Barney Corporate Trust Company is an
additional trustee with respect to the investment funds available to
Participants. The 401(k) Plan may be modified by the officers of the Company
at any time, provided that the aggregate additional annual cost to the Company
of any such modification does not exceed $500,000 and provided further that no
modification shall adversely affect the rights of the Participants or divert
any of the 401(k) Plan assets to purposes other than the benefit of the
Participants.
30
<PAGE> 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
record and beneficial ownership of the Common Stock of the Company on the
indicated date by (i) each director and Named Executive (as such term is
defined in "Executive Compensation -- Summary Compensation Table", above) of
the Company, (ii) all directors and executive officers of the Company as a
group, and (iii) each shareholder known to the Company to own, of record or
beneficially, five percent (5%) or more of the outstanding Common Stock.
BENEFICIAL OWNERSHIP AS OF MARCH 3, 1997
<TABLE>
<CAPTION>
Name and Address of Percentage of Shares
Beneficial Owner(1) Shares Beneficially Owned(2) Beneficially Owned(3)
- ------------------------------ ----------------------------- ---------------------
<S> <C> <C>
Dennis M. Jones 3,642,750(4)(5) 12.7%
Chairman of the Board of
Directors and President
Judith A. Jones 1,047,937(6) 3.7%
Executive Vice President,
Secretary, Treasurer and Director
Michael T. Bramblett 157,167(7) 0.5%
Executive Vice President and
Director
G. Andrew Franz 434,157(8) 1.5%
Senior Vice President - Operations
Pharmaceuticals and Director
David A. McLaughlin 112,500(9) *
Senior Vice President - Operations
Nutritionals and Director
Stanley Lopata 174,250(9) 0.6%
Director
900 South Hanley Rd.
St. Louis, MO 63105
L. John Polite, Jr. 41,750(10) *
Director
211 Oldwoods Rd.
Franklin Lakes, NJ 07417
Edward A. Chod 25,375(11) *
Director
10 South Broadway, Ste. 2000
St. Louis, MO 63102
Thomas F. Patton, Ph.D. 4,500(12) *
Director
All Directors and 5,640,386 19.6%
Executive Officers as a Group
(consisting of nine persons)
</TABLE>
* Less than one-half of one percent.
(1) Except as otherwise indicated, the address for each individual named
is c/o Jones Medical Industries, Inc., 1945 Craig Road, St. Louis,
Missouri 63146. Each beneficial owner has sole voting and investment
power with respect to the shares of Common Stock shown as beneficially
owned except that an individual may be deemed to have only indirect
shared voting and investment power with respect to shares held by the
individual's spouse as reflected in other footnotes.
31
<PAGE> 33
(2) Includes shares deemed owned as a result of purchase options which are
presently or will become exercisable on or prior to June 1, 1997.
(3) The number of shares of Common Stock deemed outstanding as of March 3,
1997 includes (i) 28,569,651 shares of Common Stock outstanding as of
such date, and (ii) shares of Common Stock issuable pursuant to
options held by the directors and executive officers that are
currently exercisable or will become exercisable on or before June 1,
1997, by the person or group in question.
(4) Includes 108,000 shares under option rights issued by the Company and
held by Mr. Jones. Does not include 1,047,937 shares or options held
by his spouse, with respect to which he disclaims beneficial
ownership.
(5) As a result of call options written and sold by Mr. Jones, an
aggregate of 120,000 of the shares reflected as owned by him are
subject to purchase by third parties at $40 per share under option
rights expiring on March 21, 1997.
(6) Includes 27,000 shares under option rights issued by the Company and
held by Mrs. Jones. Does not include 3,642,750 shares or options
held by her spouse, with respect to which she disclaims beneficial
ownership.
(7) Includes 1,318 shares held by Mr. Bramblett's wife with respect to
which he disclaims beneficial ownership. Also includes 9,000 shares
under option rights issued by the Company.
(8) Includes 196,165 shares owned by Mr. Franz' wife, 51,840 shares held
by his spouse as custodian for their children, 24,996 shares held by
his wife as a co-trustee for the benefit of the Franz' children and
12,498 shares held by his wife as a co-trustee for the benefit of her
nephew. Mr. Franz disclaims beneficial ownership of all of the shares
held by his wife.
(9) Includes 64,950 shares held in revocable trust created by Mr. Lopata's
wife and with respect to which he disclaims beneficial ownership.
Also includes 6,750 shares under vested and unexercised options.
(10) Includes 9,000 shares under option rights issued by the Company.
(11) Includes 6,750 shares under option rights issued by the Company.
(12) Includes 4,500 shares under option rights issued by the Company.
Other Significant Shareholdings
Based upon filings with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company is advised that as of December 31, 1996 each of the following investment
advisors held discretionary authority over accounts holding, in the aggregate,
the indicated numbers of shares of the Common Stock, in each case representing
approximately 5% of the then outstanding shares of Common Stock:
Name & Address of Investment Advisor Shares
- ------------------------------------ ------
American Century Companies, Inc. 1,661,300 (5.8%)
American Century Investment Management, Inc.
4500 Main Street
P.O. Box 418210
Kansas City, Missouri 64141-9210
Nicholas Applegate Capital Management 1,367,887 (4.9%)
600 West Broadway, 29th Floor
San Diego, CA 92101
32
<PAGE> 34
In addition, as of December 31, 1996, members of the Daniels family
(the former principal owners of Galen Drugs of Florida, Inc. which was acquired
by the Company on August 30, 1996 (the "Daniels Acquisition")), held beneficial
ownership of an aggregate of 2,957,531 shares (10.4%) of the Common Stock. No
individual member of the Daniels family held direct beneficial ownership of 5%
or more of the outstanding stock and each member has severally advised the
Company that they act independently with respect to voting and investment
decisions with respect to such holdings. Pursuant to securities registration
rights granted by the Company in connection with the Daniels Acquisition, a
registration statement filed with the SEC under the Securities Act of 1933
covering an aggregate of 1,460,084 shares became effective on February 6, 1997.
The Company is advised that as of March 10, 1997, all but 90,000 of the shares
offered pursuant to such registration have either been sold and delivered or
serve as collateral for "short against the box" sales effected for the accounts
of the respective holders. Accordingly, the aggregate number of shares
beneficially owned by the several members of the Daniels family as of such date
is 1,587,447 or approximately 5.6% of the outstanding Common Stock.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a class of the Company's equity
securities registered under the Exhange Act, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company, including rights relating to the
acquisition or disposition of any such securities. SEC regulations require
such holders to furnish copies of such reports to the Company.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the fiscal year ended
December 31, 1996 all Section 16(a) filing requirements applicable to the
Company's directors, officers and greater than 10% beneficial owners were
complied with except that L. John Polite, Jr., a director, (i) filed a Form 4
approximately thirty days after the required filing date with respect to a sale
of 1,000 shares (2,250 shares as adjusted for subsequent splits) on January 17,
1996 and (ii) filed a Form 4 approximately sixty days after the required filing
date with respect to a sale of 1,000 shares on December 5, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Edward A. Chod, director of the Company, is a principal in the law
firm of Greensfelder, Hemker & Gale, P.C., which firm has served as counsel to
the Company since 1982. The amount of legal fees paid by the Company to
Greensfelder, Hemker & Gale, P.C. during the fiscal year ended December 31,
1996 did not exceed five percent (5%) of such firm's gross revenues for its
applicable fiscal year.
33
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements filed as part of this
report on Form 10-K are listed on the accompanying Index to
Consolidated Financial Statements and Consolidated Financial
Statement Schedule on page 38.
2. The consolidated financial statement schedule filed as part of
this report on Form 10-K is listed on the accompanying Index
to Consolidated Financial Statements and Consolidated
Financial Statement Schedule on page 38.
3. Exhibits:
(3.1) Restated Certificate of Incorporation of the Company
dated June 21, 1988 (incorporated by reference from
Form 10-K for the year ended December 31, 1995).
(3.2) Certificate of Amendment of the Certificate of
Incorporation of the Company dated May 14, 1990
(incorporated by reference from Form 10-K for the
year ended December 31, 1995).
(3.3) Certificate of Amendment of the Certificate of
Incorporation of the Company dated May 30, 1991
(incorporated by reference from Form 10-K for the
year ended December 31, 1995).
(3.5) Amended By-Laws of the Company as of June 14, 1988
(incorporated by reference from Form 10-K for the
year ended December 31, 1995).
(3.6) Amendment to Section 3.02 of By-Laws of the Company
as of April 1, 1992 (incorporated by reference from
Form 10-K for the year ended December 31, 1995).
(10.1) The Company's 1989 Incentive Stock Option Plan
(incorporated by reference from Form 10-K for the
year ended December 31, 1995).
(10.2) Employee Profit Sharing and 401(k) Plan as amended
and restated as of January 1, 1997 (FILED HEREWITH).
(10.3) The Company's 1994 Incentive Stock Plan effective
June 1, 1994 (incorporated by reference from the
Company's Proxy Statement dated April 21, 1995 for
the Annual Meeting of Stockholders held May 15,
1995).
(10.4) The Company's 1994 Formula Stock Option Plan for
Non-Management Directors effective May 25, 1994
(incorporated by reference from the Company's Proxy
Statement dated April 21, 1995 for the Annual Meeting
of Stockholders held May 15, 1995).
(10.5) Asset Purchase Agreement dated as of February 12,
1993, between the Company and Tsumura International,
Inc. (incorporated by reference from Form 8-K dated
February 18, 1993).
34
<PAGE> 36
(10.6) Stock Purchase Agreement dated as of March 22, 1993,
among the Company and each of the stockholders of
Bronson Pharmaceuticals (incorporated by reference
from Form 8-K dated April 7, 1993).
(10.7) Licensing Agreement dated August 31, 1995 between the
Company and Eli Lilly & Company (incorporated by
reference from Form 8-K dated September 15, 1995).
(10.8) Manufacturing Agreement dated August 31, 1995 between
the Company and Eli Lilly & Company (incorporated by
reference from Form 8-K dated September 15, 1995).
(10.9) License Agreement dated March 18, 1996, between the
Company and Eli Lilly and Company (incorporated by
reference from Form 8-K dated March 18, 1996).
(10.10) Manufacturing Agreement dated March 18, 1996, between
the Company and Eli Lilly and Company (incorporated
by reference from Form 8-K dated March 18, 1996).
(10.11) Plan of Reorganization and Agreement dated as of July
30, 1996, by and among Galen Drugs of Florida, Inc.,
Daniels Pharmaceuticals, Inc. and the Company
(incorporated by reference from Form 8-K dated
September 6, 1996).
(10.12) Plan of Reorganization and Agreement dated as of
October 24, 1996, by and among the Company, Abana
Pharmaceuticals, Inc., Dale E. Eads and Perry N. Cole
(incorporated by reference from the Company's
Registration Statement on Form S-4 (Registration No.
333-15889) filed on November 8, 1996).
(11.1) Statement re: computation of per share earnings.
(FILED HEREWITH)
(21.1) Subsidiaries of the Registrant. (FILED HEREWITH)
(23.1) Consent of Ernst & Young LLP. (FILED HEREWITH)
(23.2) Consent of Hacker, Johnson, Cohen & Grieb. (FILED
HEREWITH)
(27.1) Financial Data Schedule. (FILED HEREWITH)
(b) The following reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this report:
(1) Form 8-K dated October 24, 1996, announcing the signing of an
agreement with Abana Pharmaceuticals, Inc. ("Abana") and the
holders of a majority of Abana'soutstanding common stock to
acquire Abana by means of a merger of Abana with and into a
wholly- owned subsidiary of the Company; and
(2) Form 8-K dated November 8, 1996, relating to the Company's
acquisition of Galen Drugs of Florida, Inc. ("Galen"),
including Galen's principal operating subsidiary, Daniels
Pharmaceuticals, Inc. ("Daniels Acquisition") which was
treated as a "pooling of interests" for financial reporting
purposes, whereby the Company filed the following financial
data:
35
<PAGE> 37
(i) a restatement of the 5-year Selected Financial Data
originally filed as Item 6 in the its Form 10-K
Annual Report for the year ended December 31, 1995,
to give effect to the three-for-two split of the
Company's common stock effective June 10, 1996, and
the restatement of such data arising from the Daniels
Acquisition;
(ii) a restatement of Management's Discussion and Analysis
of Financial Condition and Results of Operation as
originally filed as Item 7 in its Form 10-K Annual
Report for the year ended December 31, 1995, to give
effect to the restatement thereof arising from the
Daniels Acquisition; and
(iii) as an exhibit thereto, the Company's restated audited
financial statements as of December 31, 1994 and 1995
and for each of the three years in the period ended
December 31, 1995, reflecting the pooling of
interests arising from the Daniels Acquisition.
(3) Form 8-K dated December 31, 1996, announcing the closing of
the acquisition of Abana.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JONES MEDICAL INDUSTRIES, INC.
By: /s/ Dennis M. Jones
-------------------------------
Dennis M. Jones, President
DATE: MARCH 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Dennis M. Jones President, Chief Executive March 10, 1997
--------------------------- Officer and Director
Dennis M. Jones
/s/ Judith A. Jones Principal Financial and March 10, 1997
--------------------------- Accounting Officer, Executive
Judith A. Jones Vice President, Secretary,
Treasurer and Director
/s/ Michael T. Bramblett Executive Vice President and March 10, 1997
--------------------------- Director
Michael T. Bramblett
/s/ G. Andrew Franz Senior Vice President - March 10, 1997
--------------------------- Operations - Pharmaceuticals
G. Andrew Franz and Director
/s/ David A. McLaughlin Senior Vice President - March 10, 1997
--------------------------- Operations - Nutritionals and
David A. McLaughlin Director
/s/ Edward A. Chod
--------------------------- Director March 10, 1997
Edward A. Chod
/s/ Stanley Lopata Director March 10, 1997
---------------------------
Stanley Lopata
/s/ L. John Polite, Jr. Director March 10, 1997
---------------------------
L. John Polite, Jr.
/s/ Thomas F. Patton, Ph.D. Director March 10, 1997
---------------------------
Thomas F. Patton, Ph.D.
</TABLE>
37
<PAGE> 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, independent auditors F-1
Report of Hacker, Johnson, Cohen & Grieb, independent auditors F-2
Consolidated balance sheets as of December 31, 1995 and 1996 F-3
Consolidated statements of income for the years ended December 31, 1994,
1995 and 1996 F-4
Consolidated statements of stockholders' equity for the years ended December
31, 1994, 1995 and 1996 F-5
Consolidated statements of cash flows for the years ended December 31, 1994,
1995 and 1996 F-6
Notes to consolidated financial statements F-7
Consolidated schedule for the years ended December 31, 1994, 1995 and 1996:
II. Valuation and qualifying accounts F-22
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
38
<PAGE> 40
Report of Independent Auditors
The Board of Directors and Stockholders
Jones Medical Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jones Medical
Industries, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
September 30, 1995 and 1994 consolidated financial statements of Galen Drugs
of Florida, Inc. (acquired by the Company in a business combination accounted
for as a pooling of interests, as described in Note 1 to the consolidated
financial statements of Jones Medical Industries, Inc.), which statements
reflect total assets of $10,649,322 as of September 30, 1995 and total
revenues of $18,394,720 and $14,605,172 for the years ended September 30, 1995
and 1994, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Galen Drugs of Florida, Inc., as of September 30, 1995
and for each of the two years in the period then ended, is based solely upon
the report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Jones Medical
Industries, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
St. Louis, Missouri
February 14, 1997
F-1
<PAGE> 41
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 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended September 30, 1995 and 1994. 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 and the results of its operations and its cash flows for the
years ended September 30, 1995 and 1994, 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> 42
Jones Medical Industries, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,341,823 $ 52,171,684
Accounts receivable, less allowance for doubtful
accounts of $187,484 in 1995 and $388,109 in 1996 9,438,107 11,301,251
Inventories 13,014,276 12,752,523
Note receivable 175,169 -
Income taxes receivable - 1,763,864
Deferred income taxes 1,546,100 1,846,318
Other 821,556 715,165
------------------------
Total current assets 33,337,031 80,550,805
Intangible assets:
Customer lists 6,084,967 6,084,967
Distribution systems, trademarks, and licenses 24,336,110 48,409,609
Restrictive covenants and other intangibles 3,142,328 5,602,768
Goodwill 4,255,298 17,249,968
------------------------
37,818,703 77,347,312
Less accumulated amortization 4,883,538 7,500,072
------------------------
Net intangible assets 32,935,165 69,847,240
Net property, plant and equipment 18,659,500 24,170,353
Other assets 1,306,712 2,664,990
------------------------
Total assets $86,238,408 $177,233,388
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,436,964 $ 6,471,061
Current portion of long-term debt 5,813,474 3,000,000
Income taxes payable 871,401 -
Dividends payable 283,605 560,298
------------------------
Total current liabilities 14,405,444 10,031,359
Long-term debt 11,420,362 -
Deferred income taxes 4,474,077 5,282,307
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 1,056 shares issued and outstanding in
1995 and none in 1996 10 -
Common stock, $.04 par value; 30,000,000 shares
authorized, 24,227,423 shares issued and outstanding
in 1995 and 28,435,451 in 1996 969,097 1,137,418
Contributed capital (including effects of unearned
compensation and related amortization) 19,590,417 108,582,105
Retained earnings 35,379,001 52,200,199
------------------------
Total stockholders' equity 55,938,525 161,919,722
------------------------
$86,238,408 $177,233,388
========================
</TABLE>
See accompanying notes.
F-3
<PAGE> 43
Jones Medical Industries, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
Sales $62,153,975 $74,791,815 $100,153,086
Cost of sales 29,502,923 32,754,390 39,825,723
-----------------------------------------
Gross profit on sales 32,651,052 42,037,425 60,327,363
Selling, general, and administrative
expenses:
Selling 11,956,990 12,679,189 15,233,406
General and administrative 6,457,842 7,192,877 7,649,007
Research and development 507,020 452,285 410,170
Amortization 1,362,936 1,429,804 2,617,142
Nonrecurring merger expenses - - 5,743,151
-----------------------------------------
Total selling, general, and
administrative expenses 20,284,788 21,754,155 31,652,876
-----------------------------------------
Operating income 12,366,264 20,283,270 28,674,487
Other income (expense):
Interest income 144,473 304,089 2,276,199
Interest expense (698,095) (655,003) (553,196)
Miscellaneous 67,424 (132,606) 31,248
-----------------------------------------
Income before income taxes 11,880,066 19,799,750 30,428,738
Provision for income taxes 4,360,168 7,410,491 12,290,000
-----------------------------------------
Net income $ 7,519,898 $12,389,259 $ 18,138,738
=========================================
Earnings per common and common
equivalent share $ 0.29 $ 0.50 $ 0.65
=========================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 44
Jones Medical Industries, Inc.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1995, and 1996
<TABLE>
NUMBER OF SHARES
---------------------- PREFERRED COMMON CONTRIBUTED RETAINED
PREFERRED COMMON STOCK STOCK CAPITAL EARNINGS TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 222,706 33,985,731 $2,227 $1,359,428 $ 19,208,372 $20,262,185 $ 40,832,212
Exercise of stock options - 144,225 - 5,769 415,156 - 420,925
Restricted stock:
Amortization of unearned compensation - - - 30,470 - 30,470
Conversion of preferred stock (122,787) 483,465 (1,228) 19,339 (18,111) - -
Net income - - - - - 7,519,898 7,519,898
Cash dividend declared - common stock
($.045 per historical JMED share) - - - - - (911,718) (911,718)
Cash dividend declared - preferred
stock ($.16 per share) - - - - - (24,930) (24,930)
Adjustment for treasury stock
activity in November 1993 - pooled
company - (10,883,413) - (435,336) (128,611) (2,825,110) (3,389,057)
--------------------------------------------------------------------------------------
Balance at December 31, 1994 99,919 23,730,008 999 949,200 19,507,276 24,020,325 44,477,800
Exercise of stock options - 281,565 - 11,263 433,192 - 444,455
Restricted stock:
Amortization of unearned compensation - - - 29,544 - 29,544
Conversion of preferred stock (54,859) 215,850 (549) 8,634 (8,085) - -
Return of escrowed preferred stock (44,004) - (440) - (380,836) - (381,276)
Escrowed preferred dividend - - - - 9,326 - 9,326
Net income - - - - - 12,389,259 12,389,259
Cash dividend declared - common stock
($.05 per historical JMED share) - - - - - (1,026,401) (1,026,401)
Cash dividend declared - preferred
stock ($.16 per share) - - - - - (4,182) (4,182)
--------------------------------------------------------------------------------------
Balance at December 31, 1995 1,056 24,227,423 10 969,097 19,590,417 35,379,001 55,938,525
Net proceeds from sale of common stock - 3,450,000 - 138,000 75,083,921 - 75,221,921
Exercise of stock options - 333,397 - 13,336 787,013 - 800,349
Restricted stock:
Amortization of unearned compensation - - - - 12,500 - 12,500
Tax benefits associated with the
exercise of nonqualified stock
options - - - - 845,773 - 845,773
Adjustment to increase pooled
company's net income to a 12-month
amount - - - - - 701,925 701,925
Costs paid by shareholders on behalf
of the Company - - - - 2,900,000 - 2,900,000
Redemption of dissenters' shares - - - - (4,022,411) - (4,022,411)
Shares issued in connection with the
Abana purchase - 420,553 - 16,823 13,875,085 - 13,891,908
Other - - - - (490,041) - (490,041)
Conversion of preferred stock (1,056) 4,078 (10) 162 (152) - -
Net income - - - - - 18,138,738 18,138,738
Cash dividend declared - common stock
($.0767 per share) - - - - - (2,019,453) (2,019,453)
Cash dividend declared - preferred
stock ($.04 per share) - - - - - (12) (12)
--------------------------------------------------------------------------------------
Balance at December 31, 1996 - 28,435,451 $ - $1,137,418 $108,582,105 $52,200,199 $161,919,722
======================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 45
Jones Medical Industries, Inc.
Consolidated Statements of Cash Flows
<TABLE>
YEAR ENDED DECEMBER 31
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,519,898 $ 12,389,259 $ 18,138,738
Adjustment to increase pooled company's net
income above to a 15-month amount - - 701,925
Noncash adjustments:
Costs paid by shareholders on behalf of the
Company - - 2,900,000
Depreciation 912,348 1,109,480 1,362,780
Amortization 1,362,936 1,429,804 2,629,642
Provision for uncollectibles 7,212 63,918 200,625
Deferred income taxes (270,992) (8,141) 527,012
(Gain) loss on sale of assets (1,471) 126,060 101,359
Change in assets and liabilities, net of
effects from acquisitions:
Accounts receivable 584,430 (3,702,075) (1,406,010)
Inventories 1,286,351 (2,726,213) 867,879
Other assets 282,857 (716,218) (1,603,162)
Accounts payable and accrued expenses 273,752 1,867,195 (1,118,951)
Income taxes payable 251,467 470,968 (2,635,265)
----------------------------------------
Net cash from operating activities 12,208,788 10,304,037 20,666,572
INVESTING ACTIVITIES
Maturity (purchases) of certificates of
deposit and U.S. government obligations 1,247,489 - -
Sales of marketable equity securities 3,515 - -
Additions to property, plant and equipment (3,688,322) (5,448,477) (7,386,159)
Proceeds from sale of assets 268,938 766,108 408,073
Purchases of intangible assets in product
line acquisitions, net of seller financing - (7,072,278) (8,757,057)
Adjustment for treasury stock activity of
pooled company (169,453) - -
Net (increase) decrease in note receivable
from related party (45,974) 80,188 175,169
-----------------------------------------
Net cash used for investing (2,383,807) (11,674,459) (15,559,974)
FINANCING ACTIVITIES
Net proceeds from sale of common stock - - 75,221,921
Proceeds from debt - 7,000,000 8,700,000
Repayment of long-term debt (2,134,295) (4,652,908) (37,758,316)
Purchase of dissenters' shares - - (4,022,411)
Repayment of note payable to former
stockholder of pooled company (105,942) (638,142) (2,475,520)
Payments of cash dividends (934,495) (983,917) (1,742,760)
Proceeds from exercise of stock options 420,925 444,455 800,349
-----------------------------------------
Net cash from (used for) financing (2,753,807) 1,169,488 38,723,263
-----------------------------------------
Increase (decrease) in cash and
cash equivalents 7,071,174 (200,934) 43,829,861
Cash and cash equivalents, beginning of year 1,471,583 8,542,757 8,341,823
-----------------------------------------
Cash and cash equivalents, end of year $ 8,542,757 $ 8,341,823 $ 52,171,684
=========================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 46
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. BASIS OF PRESENTATION
On August 30, 1996, Jones Medical Industries, Inc. ("JMED" or the "Company")
acquired Daniels Pharmaceuticals, Inc. ("Daniels"), a Florida corporation, in a
business combination accounted for as a pooling of interests by way of a merger
(the "Merger") among Daniels, Daniels' parent entity, Galen Drugs of Florida,
Inc. ("Galen"), a Florida corporation, and JMED's wholly owned subsidiary, JGD
Acquisition Corporation, a Florida corporation. The accompanying financial
statements are based on the assumption that the two companies were combined at
the beginning of the year, and all financial statements for prior periods
presented have been restated to give effect to the combination. Earnings per
share data reflects the shares issued in the merger for all periods presented.
In connection with the Merger, JMED issued 2,910,474 shares of its common stock
and paid cash consideration of approximately $4,022,000 to dissenting
shareholders. In addition, JMED issued 49,750 shares of its common stock to
Daniels Enterprises, Inc. ("DEI"), an S-Corporation controlled by the principal
shareholders of Galen, to acquire the real estate associated with the business.
The book value of the real estate acquired was $892,000 at the consummation
date of the combination.
Nonrecurring merger expenses related to this acquisition consisting of costs
paid by shareholders on behalf of the Company, investment banking and
professional fees, and severance costs total $5,743,151 and have been included
in selling, general, and administrative expenses in the accompanying 1996
consolidated statement of income.
In connection with the Merger, Daniels changed its fiscal year-end from
September 30 to December 31, which conforms to JMED's year-end. The
consolidated financial statements for all periods prior to 1996 have not been
restated to reflect Daniels' change in fiscal year and include Daniels' results
of operations on a September 30 fiscal year-end basis and JMED's on a December
31 calendar year basis. The accompanying 1996 financial statements combine both
entities' results as of December 31, 1996 and for the 12 months then ended.
Because the conformity of Daniels' fiscal year-end has been changed
prospectively, Daniels' net income for the three months ended December 31, 1995
has been added directly to retained earnings of the combined Company. During
the three months ended December 31, 1995, Daniels reported sales of $4,206,864
and
F-7
<PAGE> 47
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION (CONTINUED)
net income of $701,925. The consolidated statement of cash flows for the year
ended December 31, 1996 combines JMED's cash flows for that period with the
cash flows of Daniels for the period from October 1, 1995 to December 31, 1996.
The separate components of the combined results of JMED and Daniels are
presented below. Although the merger occurred on August 30, 1996, the separate
components are presented through September 30, 1996, which is the date the
Company merged the operating results of the two entities.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
1994 1995 1996
---------------------------------------------------
<S> <C> <C> <C>
Sales:
JMED $47,548,803 $56,397,095 $60,738,148
Daniels 14,605,172 18,394,720 13,072,200
---------------------------------------------------
Combined $62,153,975 $74,791,815 $73,810,348
===================================================
Net income:
JMED $ 5,739,507 $ 9,328,304 $10,322,802
Daniels 1,780,391 3,060,955 1,052,778
---------------------------------------------------
Combined $ 7,519,898 $12,389,259 $11,375,580
===================================================
</TABLE>
On February 7, 1996, the Board of Directors declared a three-for-two stock
split effected in the form of a stock dividend to be paid on March 1, 1996 to
holders of record on February 23, 1996. The financial statements, including
stock options, share data, per share data, and market prices, have been
retroactively adjusted to reflect the split.
On May 22, 1996, the Board of Directors declared a three-for-two stock split
effected in the form of a stock dividend to be paid on June 10, 1996 to holders
of record on June 3, 1996. The financial statements, including stock options,
share data, per share data, and market prices, have been retroactively adjusted
to reflect the split.
2. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
The Company is engaged in the manufacturing, marketing, and sale of
pharmaceuticals and nutritional supplements. The Company's principal customers
include consumers, retail pharmacies, hospitals (through wholesale drug
distributors), physicians, and the United States government, of which sales to
the United States government totaled approximately $4,500,000, $3,250,000, and
$2,340,000 in 1994, 1995, and 1996,
F-8
<PAGE> 48
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
2. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION (CONTINUED)
respectively. No one customer accounted for more than 10 percent of the
Company's consolidated sales in 1994, 1995, or 1996.
The Company's most significant products include:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------------------------------------------------------------------------------
PRODUCT SALES PRODUCT SALES PRODUCT SALES
(000'S OMITTED) PERCENT OF SALES (000'S OMITTED) PERCENT OF SALES (000'S OMITTED) PERCENT OF SALES
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thrombin products $12,681 20% $14,573 19% $21,134 21%
Levoxyl $ 8,736 14% $11,684 16% $14,197 14%
Brevital (acquired
August 31, 1995) $ - - $ 2,385 3% $ 7,251 7%
Tapazole (acquired
March 18, 1996) $ - - $ - - $12,254 12%
</TABLE>
The Company's only source of supply for thrombin products is from GenTrac,
Inc., a wholly owned subsidiary of the Company.
The Company currently relies on Eli Lilly and Company ("Lilly") for the
manufacture of Brevital and Tapazole. The Company has entered into ten-year
manufacturing agreements with Lilly, which may be terminated by Lilly at any
time after the first five years by giving at least five years' notice to the
Company prior to ceasing the manufacture of the related products. In the event
of such termination, Lilly must use reasonable efforts to assist the Company in
obtaining all the necessary licenses and approvals to enable the Company or an
alternative manufacturer to manufacture the products. Lilly is the sole
manufacturer of both products, and any alternative manufacturer would require
regulatory change-in-site qualification to manufacture the products. In the
event of any interruption in the supply of either product from Lilly due to
regulatory or other causes, there can be no assurance that the Company could
make alternative manufacturing arrangements on a timely basis, if at all. Such
an interruption could have a material adverse effect on the Company's business,
financial condition, and results of operations.
F-9
<PAGE> 49
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jones Medical
Industries, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents in short-term money market accounts and other investments with
original maturities of less than three months are stated at cost plus accrued
interest and are considered to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is computed by
the straight-line method over the useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
-------------------------- -----------
<S> <C>
Buildings and improvements 15-40 years
Equipment and furniture 5-15 years
Automobiles 5 years
</TABLE>
INTANGIBLE ASSETS
The cost of product line or business acquisitions accounted for using the
purchase method of accounting is allocated first to identifiable assets and
liabilities based on estimated fair values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill.
F-10
<PAGE> 50
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
Amortization is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
--------------- -----------
<S> <C>
Customer lists 20 years
Distribution systems, trademarks, and licenses 5-30 years
Restrictive covenants and other intangibles 5-10 years
Goodwill 25-40 years
</TABLE>
The Company continually reevaluates the propriety of the carrying amount of
goodwill and other intangibles as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying values and/or revised estimates of useful lives. This evaluation is
based on the Company's projection of the undiscounted operating income before
depreciation, amortization, and interest over the remaining lives of the
amortization periods of related goodwill and intangible assets. The projections
are based on the historical trend line of actual results since the date of
acquisition of the respective assets and adjusted for expected changes in
operating results.
To the extent such projections indicate that the undiscounted operating income
(as defined above) is not expected to be adequate to recover the carrying
amounts of related intangibles, such carrying amounts are written down by
charges to expense in amounts equal to the excess of the carrying amount of
intangible assets over the respective fair values. At this time, the Company
believes that no significant impairment of the goodwill and other intangibles
has occurred and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
Sales are reported net of rebates, returns and discounts during the period in
which product is shipped. Product rebates and discounts are incurred due to
volume or other contractual allowances on certain pharmaceutical sales under
contracts with hospitals, buying groups, and managed care organizations.
Product returns are permitted in accordance with operating policies established
with respect to unused pharmaceuticals and pursuant to a limited money-back
refund policy applicable to mail-order and other consumer sales of nutritional
supplements. At December 31, 1995 and 1996, the Company maintained reserves of
$2,645,072 and $1,857,298, respectively, for product rebates, returns and
discounts. The reserve decreased in 1996 due to a change in the Company's
product return policy applicable to Daniels' product returns received after
December 31, 1996.
F-11
<PAGE> 51
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year (26,360,757 in 1994, 24,843,953 in 1995, and
28,048,519 in 1996) after giving retroactive effect to the following: (i) a
three-for-two stock split effected in the form of a stock dividend declared
February 7, 1996, (ii) a three-for-two stock split effected in the form of a
stock dividend declared May 22, 1996, and (iii) the shares issued to consummate
the acquisition of Daniels. The computation assumes that outstanding stock
options were exercised and the proceeds used to purchase common shares.
Outstanding preferred stock was assumed to have been converted to common stock
at the issuance date.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, no compensation expense is recognized because the exercise price
of the Company's incentive stock options equals the market price of the
underlying stock on the date of grant.
In connection with various nonqualified stock option plans, certain options
have been granted at exercise prices below the fair market value of the common
stock at the grant date. Differences between the option prices and fair market
values at the dates of grant are charged to compensation expense ratably over
the future service vesting periods.
DIRECT-RESPONSE ADVERTISING
Costs associated with the production of the Company's direct-response mail
order catalog are capitalized and amortized over the expected period of future
benefit, which typically does not extend beyond six months. At December 31,
1995 and 1996, approximately $392,000 and $57,000, respectively, of capitalized
catalog costs are included in the accompanying balance sheets. Advertising
expense associated with the catalog in 1994, 1995, and 1996 totaled $902,000,
$1,223,000, and $1,548,000, respectively.
F-12
<PAGE> 52
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation.
4. ACQUISITIONS
TAPAZOLE
On March 18, 1996, the Company entered into a perpetual licensing agreement
with Lilly for the exclusive United States marketing rights to the Tapazole
product line. The purchase price of approximately $26 million was financed with
short-term bank debt of $8.7 million and Lilly financing of $17.3 million for
six months. Approximately $24 million was allocated to the perpetual license
with an amortizable life of 30 years, and $2 million was allocated to a
restrictive covenant with an amortizable life of 10 years.
BREVITAL
On August 31, 1995, the Company acquired a perpetual licensing agreement for
the exclusive United States marketing rights to the Brevital product line from
Lilly. The purchase price of approximately $14 million was financed with bank
debt of $7 million and Lilly financing of $7 million. Approximately $13
million was allocated to the perpetual license with an amortizable life of 30
years, and $1 million was allocated to a restrictive covenant with an
amortizable life of 10 years.
F-13
<PAGE> 53
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
4. ACQUISITIONS (CONTINUED)
ABANA
Since June 1, 1992, the Company has owned an investment in Abana
Pharmaceuticals, Inc. (Abana) equivalent to 16 percent of Abana's outstanding
common stock. In October 1996, the parties reached an agreement in principle
whereby the Company would acquire the remaining 84 percent of Abana's
outstanding common stock. On December 31, 1996, the consummation date of the
acquisition, the Company issued 420,553 shares of its common stock in exchange
for the remaining outstanding common stock of Abana. In addition, outstanding
Abana stock options were exchanged for approximately 40,000 of the Company's
stock options. The total purchase price of approximately $14.9 million,
representing the fair value of Company common stock given of approximately
$13.9 million and the fair value of stock options given of approximately $1
million, has been allocated to the fair value of assets acquired and
liabilities assumed in accordance with the purchase method of accounting. The
excess of the purchase price over the fair values of acquired assets and
liabilities, totaling approximately $13 million, has been allocated to goodwill
with an estimated economic life of 25 years. Proforma results of operations,
assuming the acquisition of Abana had occured on January 1, 1996, would not
materially differ from the 1996 reported results of operations.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a summary of supplemental cash flow information:
<TABLE>
<CAPTION>
1994 1995 1996
-----------------------------------
<S> <C> <C> <C>
Interest $ 685,345 $ 502,022 $ 532,012
Income taxes $4,333,298 $7,007,200 $14,109,483
Note payable issued in connection with
repurchase of common stock of pooled
company $3,219,604 $ - $ -
</TABLE>
6. INVENTORIES
Inventories at December 31, 1995 and 1996, are comprised of the following:
<TABLE>
<CAPTION>
1995 1996
--------------------------
<S> <C> <C>
Raw materials $ 5,613,815 $ 4,766,356
Work-in-process 1,130,532 1,539,115
Finished goods 6,269,929 6,447,052
--------------------------
$13,014,276 $12,752,523
==========================
</TABLE>
F-14
<PAGE> 54
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------------------
<S> <C> <C>
Land $ 2,397,755 $ 2,419,676
Buildings and improvements 9,617,331 11,710,066
Equipment and furniture 10,031,272 15,022,571
Automobiles 461,702 438,451
--------------------------
22,508,060 29,590,764
Less accumulated depreciation 3,848,560 5,420,411
--------------------------
$18,659,500 $24,170,353
==========================
</TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1995 and 1996, are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996
----------------------
<S> <C> <C>
Trade payables $1,995,631 $1,116,267
Sales rebates, returns and discounts 2,645,072 1,857,298
Compensation 1,158,203 1,492,558
Taxes other than income 114,137 132,968
Interest 175,285 196,469
Royalties 174,276 285,180
Health insurance claims 198,060 130,722
Property and equipment purchases 203,762 39,056
Catalog expenses 163,418 72,118
Nonrecurring merger expenses - 177,862
Other 609,120 970,563
----------------------
$7,436,964 $6,471,061
======================
</TABLE>
F-15
<PAGE> 55
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
9. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------------------
<S> <C> <C>
Note payable to bank at .5% below bank base rate (8.25%
at December 31, 1995), secured by all corporate assets,
payable $136,111 monthly plus interest; final payment
due September 2000 $ 7,758,316 $ -
Note payable to Lilly at 7%; payable in installments of
$4,000,000 in August 1996 and $3,000,000 in August 1997 7,000,000 3,000,000
Note payable to former shareholder of pooled company at
6.81% 2,475,520 -
----------------------
17,233,836 3,000,000
Less current maturities 5,813,474 3,000,000
----------------------
$11,420,362 $ -
======================
</TABLE>
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $4,474,077 $5,282,307
Deferred tax assets:
Accrued sales rebates, returns and discounts 992,026 1,068,770
Deferred compensation on stock options 85,870 85,870
Unicap adjustment on inventory 260,144 267,590
Allowance for doubtful accounts 70,300 128,549
Other 137,760 295,539
----------------------
1,546,100 1,846,318
----------------------
Net deferred tax liabilities $2,927,977 $3,435,989
======================
</TABLE>
F-16
<PAGE> 56
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
10. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,145,121 $6,628,414 $10,912,000
State 485,883 790,082 851,000
-------------------------------------
Total current 4,631,004 7,418,496 11,763,000
Deferred:
Federal (236,182) (7,804) 485,000
State (34,654) (201) 42,000
-------------------------------------
Total deferred (270,836) (8,005) 527,000
-------------------------------------
$4,360,168 $7,410,491 $12,290,000
=====================================
</TABLE>
A reconciliation of the difference between the United States federal statutory
tax rates and the effective income tax rate as a percentage of net income is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------------------
<S> <C> <C> <C>
U.S. federal statutory tax rate 34.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 3.8% 4.0% 3.0%
Other, net (1.1)% (1.6)% 2.3%
--------------------
36.7% 37.4% 40.3%
====================
</TABLE>
11. PREFERRED STOCK
The Company's Board of Directors may without further action by the Company's
stockholders, from time to time, direct the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the rights,
preferences, and limitations of each series. The holders of preferred stock
would normally be entitled to receive a preference payment in the event of any
liquidation of the Company before any payment is made to the holders of the
common stock. As of December 31, 1996, there were no shares of preferred stock
currently designated or outstanding.
F-17
<PAGE> 57
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
11. PREFERRED STOCK (CONTINUED)
During 1995, the Company reached a settlement regarding a portion of the
contingent purchase price payable to the former stockholders of GenTrac, Inc.
In connection with the settlement, 44,004 shares of the Company's preferred
stock held in an escrow account, pending final dispute resolution, were
released from escrow and returned to the Company. These shares of preferred
stock with an original cost of $381,276 have been canceled by the Company. The
accompanying 1995 financial statements reflect the resulting $381,276 reduction
of goodwill associated with the contingent purchase price and reduction in
preferred stock.
12. STOCK OPTION PLANS
The Company has various incentive stock plans for executives and employees. In
connection with the plans, options to purchase common stock are granted at
option prices not less than the fair market values of the common stock at the
time the options are granted and vest ratably over five- to eight-year periods
from the grant dates. At December 31, 1996, options for 498,030 shares of
common stock are available for future grant. A total of 1,381,595 options to
purchase common stock are outstanding under these plans at December 31, 1996,
of which 198,375 are currently exercisable. Included in the outstanding options
under these plans are options to purchase 675,000 shares of common stock that
have been granted to certain officers of the Company under time accelerated
stock option agreements. The options become exercisable at the end of eight
years from the grant date; however, the options may become exercisable at
earlier dates if certain targeted common stock prices are attained.
In November 1996, the Company amended the incentive stock plans to allow for
employee payment of option exercise prices in the form of either cash or
previously held common stock of the Company. Shares tendered in payment of the
option exercise price must be owned by the employee making the tender for not
less than six months prior to the date of tender.
In addition, the Company has nonqualified stock option (NSO) plans for its
independent directors. Certain of these options offer exercise prices below
the fair market value of the common stock at the date of grant. In accordance
with APB 25, differences between the option prices and the fair market values
at the dates of grant have been accrued ratably over the five-year vesting
periods. Total compensation expense in 1994, 1995, and 1996 related to the NSO
plans was $122,000, $123,500, and $12,500, respectively. At
F-18
<PAGE> 58
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
12. STOCK OPTION PLANS (CONTINUED)
December 31, 1996, a total of 42,750 options to purchase common stock are
outstanding under the NSO plans of which 18,000 are currently exercisable.
Option activity for 1994, 1995, and 1996 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------
<S> <C> <C> <C>
Outstanding options, January 1 1,084,500 973,215 875,025
Exercised (144,225) (281,565) (333,397)
Granted 196,875 194,625 901,070
Cancelled (163,935) (11,250) (18,353)
---------------------------------
Outstanding options, December 31 973,215 875,025 1,424,345
=================================
Weighted average price of options
outstanding, January 1 $ 2.52 $ 2.36 $ 2.76
=================================
Weighted average price of options exercised $ 1.99 $ 1.58 $ 2.41
=================================
Weighted average price of options granted $ 3.73 $ 3.67 $ 13.24
=================================
Weighted average price of options cancelled $ 5.37 $ 2.85 $ 3.35
=================================
Weighted average price of options
outstanding, December 31 $ 2.36 $ 2.76 $ 9.65
=================================
</TABLE>
Outstanding options at December 31, 1996 are exercisable as follows, assuming
the targeted common stock prices are attained with respect to the time
accelerated stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RANGE OF
NUMBER OPTION OPTION
OF SHARES PRICE PRICE
-----------------------------------
<S> <C> <C> <C>
Currently exercisable at
December 31, 1996: 216,375 $ 3.21 $2.44 - $7.50
Outstanding options vesting in:
1997 284,640 $ 8.84 $ 2.33 - $40.00
1998 254,845 $ 9.30 $ 2.33 - $40.00
1999 241,195 $10.35 $ 2.89 - $40.00
2000 226,170 $11.80 $ 2.89 - $40.00
2001 and thereafter 201,120 $14.90 $10.67 - $40.00
-------------------
1,424,345 $ 9.65
========= ========
</TABLE>
F-19
<PAGE> 59
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
12. STOCK OPTION PLANS (CONTINUED)
Pro forma information regarding net income and earnings per share is required
by FASB Statement No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a binomial option pricing model with the following weighted average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.26
percent and 6.36 percent; a dividend yield of .2 percent and .2 percent;
volatility factors of the expected market price of the Company's common stock
of .514 and .516; and a weighted average expected life of the options of five
years.
The binomial option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting periods. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1995 1996
------------------------
<S> <C> <C>
Pro forma net income $12,345,765 $17,511,170
=========== ===========
Pro forma earnings per common and common equivalent
share $ .50 $ .62
</TABLE> =========== ===========
13. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering substantially all
employees. The plan provides the Company may match 100 percent of the employee
voluntary contributions up to a maximum matching contribution of 5 percent of
the employee's compensation. Company contributions in 1994, 1995, and 1996 were
approximately $200,000, $224,000, and $357,000, respectively.
F-20
<PAGE> 60
Jones Medical Industries, Inc.
Notes to Consolidated Financial Statements
14. CONTINGENCIES AND COMMITMENTS
At December 31, 1996, the Company carried product liability coverage of $20
million per occurrence and $20 million in the aggregate on a "claims made"
basis and carried excess coverage of $5 million through an umbrella policy.
There is no assurance that the Company's present insurance will cover any
potential claims that may be asserted in the future. In addition, the Company
is subject to legal proceedings and claims which arise in the ordinary course
of its business.
In connection with certain product line acquisitions, the Company is obligated
to pay royalties of up to 10 percent of certain product sales through 2006.
Total royalty expense in 1994, 1995, and 1996 was approximately $636,000,
$593,000, and $872,000, respectively.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $15,506,275 $17,620,771 $19,765,990 $21,898,779
Gross profit $ 8,944,085 $ 9,561,901 $11,125,851 $12,405,588
Net income $ 2,588,149 $ 2,717,620 $ 3,194,763 $ 3,888,727
Earnings per share (a)(b) $ .10 $ .11 $ .13 $ .16
Stock prices: (a)
High $ 4.04 $ 5.33 $ 8.04 $ 11.00
Low $ 2.79 $ 3.625 $ 4.96 $ 7.125
1996
Net sales $21,848,076 $25,737,906 $26,224,366 $26,342,738
Gross profit $12,447,137 $15,716,094 $15,341,781 $16,822,351
Net income $ 3,748,697 $ 5,838,204 $ 1,788,679 $ 6,763,158
Earnings per share (a)(b) $ .15 $ .20 $ .06 $ .24
Stock prices: (a)
High $ 30.33 $ 39.50 $ 50.50 $ 48.625
Low $ 10.39 $ 25.67 $ 21.00 $ 32.50
</TABLE>
(a) Retroactively adjusted to reflect the three-for-two stock split declared
February 7, 1996 and the three-for-two stock split declared May 22, 1996.
(b) Retroactively adjusted to reflect the shares issued in connection with
the Daniels merger on August 30, 1996.
F-21
<PAGE> 61
Jones Medical Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
BALANCE AT CHARGED TO
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS END OF PERIOD
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ 187,484 $ 236,803 $ (36,178) $ 388,109
===================================================
Accumulated amortization of intangibles $4,883,538 $2,617,142 $ (608) $7,500,072
===================================================
Year ended December 31, 1995
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ 111,347 $ 76,137 $ - $ 187,484
===================================================
Accumulated amortization of intangibles $4,092,394 $1,429,804 $(638,660)* $4,883,538
===================================================
Year ended December 31, 1994
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ 79,646 $ 80,296 $ (48,595) $ 111,347
===================================================
Accumulated amortization of intangibles $3,653,028 $1,362,936 $(923,570)* $4,092,394
===================================================
</TABLE>
*Write-off of fully amortized intangibles in 1995 and 1994.
F-22
<PAGE> 62
Commission File No: 0-15098
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
JONES MEDICAL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
1945 Craig Road
St. Louis, MO 63146
(Address of Registrant's principal offices)
<PAGE> 1
EXHIBIT 10.2
JMI'S EMPLOYEE PROFIT-SHARING AND 401(K) PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 1997)
WHEREAS, Jones Medical Industries, Inc. maintains an employee pension
benefit plan known as JMI's Employee Profit-Sharing and 401(k) Plan, designed
to comply with provisions of the United States Internal Revenue Code and the
Employee Retirement Income Security Act of 1974 applicable to qualified
employee plans and trusts; and
WHEREAS, Jones Medical Industries, Inc. reserved to itself the right to
amend the JMI's Employee Profit-Sharing and 401(k) Plan in Section 3.10.1
thereof; and
WHEREAS, Jones Medical Industries, Inc. deems it necessary and desirable
to amend and restate the JMI's Employee Profit-Sharing and 401(k) Plan in its
entirety.
AMENDMENT AND RESTATEMENT OF PLAN AND EFFECTIVE DATE
Jones Medical Industries, Inc. does hereby adopt an amendment and
restatement of the JMI's Employee Profit-Sharing and 401(k) Plan under the name
of JMI's Employee Profit-Sharing and 401(k) Plan (Amended and Restated as of
January 1, 1997), as set forth herein, effective from and after January 1,
1997, except as otherwise provided herein. Except as otherwise expressly
provided in this instrument, the provisions of this amended and restated plan
apply only to an Employee who terminates employment on or after January 1,
1997.
<PAGE> 2
ARTICLE 1: DEFINITIONS
As used in the Plan and the Trust, the words and phrases hereinafter set
forth shall have the following meanings:
ADMINISTRATOR: The person or persons appointed to administer the Plan
under the provisions of Article 8.
ANNUAL VALUATION DATE: The last day of each Plan Year.
AUTHORIZED LEAVE OF ABSENCE: An absence of an Employee which is
authorized by an Employer under its standard personnel practices, treating all
persons under similar circumstances alike, and for a period not longer than two
(2) years, provided that the Employee resumes active employment with the
Employer within the period of authorized absence or the Employee's Retirement
occurs within the period of authorized absence. Absence of an Employee due to
service in the Armed Forces of the United States caused by war or other
emergency or required under the laws of conscription in time of peace shall be
deemed an Authorized Leave of Absence, provided that the Employee resumes
active employment with an Employer within the period and under conditions
required by the Veterans Reemployment Act or any successor law.
BENEFICIARY: An individual or other legal entity designated by a
Participant or Former Participant in the manner provided in Section 6.9 to
receive any Benefit payable after his death on account of his Participation in
the Plan; provided, if no designated Beneficiary survives the Former
Participant, any Benefit remaining payable after his death shall be paid to his
estate, subject to Sections 6.2(b) and 6.6(b).
BENEFIT: The amount of a Former Participant's vested (nonforfeitable)
interest in his Individual Account which becomes payable to him or to his
Spouse or Beneficiary.
CODE: The Internal Revenue Code of 1986, as amended.
COMPENSATION: The amount paid by an Employer to a Participant during a
Plan Year in consideration for services performed as an Employee, as defined
for the Wages, Tips and Other Compensation Box on Form W-2, plus any amounts by
which the Participant elects that his Compensation be reduced during the Plan
Year under a plan maintained by the Employer which is designed to comply with
Section 125 of the Code, plus any amounts the Participant elects to defer in
accordance with Section 3.2 of this Plan with respect to the Plan Year;
provided that annual Compensation shall be limited to no more than One Hundred
Fifty Thousand Dollars ($150,000), as adjusted pursuant to Code Section
401(a)(17)(B). If a determination period consists of fewer than twelve (12)
months,the annual compensation limit will be multiplied by a fraction, the
numerator of which is the
JMI s Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 1
<PAGE> 3
number of months in the determination period, and the denominator of which is
twelve (12).
CONTROLLED GROUP MEMBER: Any entity which is:
(a) a member of the controlled group of corporations which includes
the Plan Sponsor or any Employer, as determined in accordance with Section
414(b) of the Code; or
(b) a trade or business under common control with the Plan Sponsor
or any Employer, as determined in accordance with Code Section 414(c); or
(c) a member of an affiliated service group which includes the Plan
Sponsor or any Employer, as determined in accordance with Code Section 414(m);
or
(d) any other entity required to be aggregated with the Plan Sponsor
or any Employer pursuant to regulations promulgated under Code Section 414(o).
DEATH BENEFIT: Any Benefit of a Former Participant which is paid after the
Former Participant's death.
DEFERRED RETIREMENT DATE: The Retirement Date of a Participant whose
Participation continues after his Normal Retirement Date.
DISABILITY RETIREMENT DATE: The date on which a Participant retires on
account of a permanent disability, determined in accordance with Article 7.
EARLY RETIREMENT DATE: The Last Day of the Plan Year in which a
Participant attains age fifty-five (55) and has completed at least ten (10)
Years of Vesting Service with an Employer or Controlled Group Member.
EFFECTIVE DATE: January 1, 1997, except as otherwise provided herein.
EMPLOYEE: Any person who renders services for which he is entitled to
remuneration from an Employer or other Controlled Group Member, including
Leased Employees but not including any independent contractor who is not a
Leased Employee.
EMPLOYER: Jones Medical Industries, Inc. and any Controlled Group Member
which maintains this Plan from time to time.
EMPLOYER MATCHING ACCOUNT: A sub-account of a Participant's or Former
Participant's Individual Account representing the portion attributable to
Employer matching contributions made pursuant to Section 3.3.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 2
<PAGE> 4
EMPLOYER PROFIT-SHARING ACCOUNT: A sub-account of a Participant's or
Former Participant's Individual Account representing the portion attributable
to Employer profit-sharing contributions made pursuant to Section 3.4.
EMPLOYER STOCK: The voting common stock of the Plan Sponsor, which shares
constitute "qualifying employer securities" under Code Section 4975(e)(8).
EMPLOYMENT COMMENCEMENT DATE: The first day as of which any Employee is
or has been credited with an Hour of Service with any Employer or Controlled
Group Member.
ENTRY DATE: The first day of January and the first day of July of each
Plan Year.
ERISA: The Employee Retirement Income Security Act of 1974, Pub. L. No.
93-406, 88 Stat. 829 as amended from time to time.
FIDUCIARIES: The Plan Sponsor, the Employers, the Administrator, the
Trustee, Smith Barney Corporate Trust Company, any Investment Manager and any
insurance company investing assets of the Trust Fund, but only with respect to
their respective specific responsibilities for Plan and Trust administration,
all as assigned in Article 8 and throughout the Plan and the Trust and the
Supplemental Trust or pursuant thereto, but none of them shall be a Fiduciary
with respect to any responsibility not specifically and expressly assigned to
it.
FORFEITURE: The portion of a Former Participant's Employer Matching
Account which is determined not to constitute a vested (nonforfeitable) Benefit
in accordance with Section 5.3 or an amount treated as a Forfeiture in
accordance with Sections 4.8 or 14.4.
FORMER PARTICIPANT: A person who was a Participant and whose
Participation has ended, as provided in Article 2.
HIGHLY COMPENSATED EMPLOYEE: Any Employee who
(a) was a five percent (5%) owner at any time during the Plan Year
or the preceding Plan Year or
(b) for the preceding Plan Year
(i) had Compensation from an Employer in excess of Eighty
Thousand Dollars ($80,000) [as adjusted pursuant to Code Section
4.14(q)(1)] and
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 3
<PAGE> 5
(ii) if the Employer elects application of this paragraph
(b) for such preceding year, was in the top-paid group of
Employees as defined in Code Section 414(q)(4).
HOUR OF SERVICE:
(a) An Hour of Service is:
(1) An hour for which an Employee is paid or entitled to
payment from an Employer or Controlled Group Member for the performance of
duties; or
(2) An hour for which an Employee is paid or entitled to
payment from an Employer or Controlled Group Member on account of a period
of time during which no duties are performed (irrespective of whether the
employment relationship has terminated), due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty or leave of absence; or
(3) An hour for which back pay has been awarded or agreed to by
an Employer or Controlled Group Member with respect to an Employee,
irrespective of mitigation of damages.
(b) Solely for the purpose of determining a 1-Year Break in Service,
in the case of an Employee who is absent from work by reason of the Employee's
pregnancy, the birth of a child of the Employee, placement of a child with the
Employee in connection with the adoption of such child by such Employee, or for
purposes of caring for such child for a period beginning immediately following
such birth or placement, Hours of Service which otherwise would normally have
been credited to such Employee but for such absence shall be taken into
account. Hours of Service credited hereunder shall be credited to the Plan
Year in which the absence from work begins, if a Participant would be prevented
from incurring a 1-Year Break in Service in such Plan Year solely because the
period of absence is treated as Hours of Service, or in any other case, in the
immediately following Plan Year. No credit for Hours of Service shall be given
pursuant to this paragraph (b) unless the affected Employee furnishes such
timely information to the Administrator as is reasonably required to establish
that the absence from work is for reasons set forth in this paragraph (b) and
the number of days of such absence.
(c) Hours of Service required to be taken into account pursuant to
paragraphs (a) and (b) of this definition shall be determined and credited to
the Employee in a manner consistent with Code Sections 410(a)(5)(E) and
411(a)(6)(E) and Department of Labor Regulations Sections 2530.200b-2(b) and
(c); provided:
(1) an Employee shall not receive credit for the same hour
under more than one of parts (1), (2) or (3) of paragraph (a) hereof;
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 4
<PAGE> 6
(2) no more than five hundred one (501) Hours of Service shall
be credited to an Employee under parts (2) or (3) of paragraph (a) on
account of any single continuous period during which the Employee performs
no duties, or under paragraph (b) on account of the birth, adoption or
placement of a child; and
(3) Hours of Service shall not be credited to an Employee on
account of payments under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation
or disability insurance laws, or payments which solely reimburse an
Employee for medical or medically related expenses.
(d) Notwithstanding any other provision of the Plan, no Employee
shall be credited with any Hours of Service for any purpose under the Plan with
respect to any period of employment with an Employer after it ceases to be a
Controlled Group Member.
(e) Nothing contained in this definition of Hour of Service shall be
construed to alter, amend, modify, invalidate, impair or supersede any law of
the United States or any rule or regulation promulgated under any such law; nor
as denying an Employee credit for an Hour of Service if credit is required by
separate Federal law.
INDIVIDUAL ACCOUNT: The separate account maintained for the share of each
Participant and Former Participant in the Trust Fund, including one or more of
the following sub-accounts: Employer Matching Account, Employer Profit-Sharing
Account, Salary Deferral Account, Participant Rollover Account, Qualified
Non-Elective Contribution Account and Transfer Account.
INVESTMENT FUND: Any fund maintained by the Trustee for investment
pursuant to Section 4.2 of the Plan, including those funds specified on Exhibit
A attached hereto as amended by the officers of the Plan Sponsor from time to
time.
INVESTMENT MANAGER: Any person or entity appointed as Investment Manager
by the Plan Sponsor in accordance with the provisions of the Plan and Trust.
LEASED EMPLOYEE: Any person (other than a direct common law employee of a
Controlled Group Member) who pursuant to an agreement between the Controlled
Group Member and any other person ("leasing organization") has performed
services for the Controlled Group Member (or for the Controlled Group Member
and related persons determined in accordance with Section 414(n)(6) of the
Code) on a substantially full-time basis for a period of at least one (1) year,
which services are of a type historically performed by employees in the
business field and are performed under the primary direction or control of the
Controlled Group Member. Contributions or benefits provided a Leased Employee
by the leasing organization which are attributable to services
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 5
<PAGE> 7
performed for the Controlled Group Member shall be treated as provided by
the Controlled Group Member.
A Leased Employee shall not be considered an Employee if:
(a) such employee is covered by a money purchase pension plan
providing:
(1) a nonintegrated employer contribution rate of at least ten
percent (10%) of compensation, as defined in Section 415(c)(3) of the
Code, but including amounts contributed by the employer pursuant to a
salary reduction agreement which are excludable from the employee's gross
income under Section 125, Section 402(a)(8), Section 402(h) or Section
403(b) of the Code,
(2) immediate participation, and
(3) full and immediate vesting; and
(b) Leased Employees do not constitute more than 20 percent (20%) of
the nonhighly compensated workforce of all Controlled Group Members and all
organizations related to any Controlled Group Member pursuant to Section
414(n)(6) of the Code.
NONHIGHLY COMPENSATED EMPLOYEE: Any Employee of a Controlled Group Member
who is not a Highly Compensated Employee.
NORMAL RETIREMENT AGE: The later of the date on which a Participant or
Former Participant attains age sixty-five (65) or the fifth (5th) anniversary
of the first day of the Plan Year in which the Participant or Former
Participant commenced participation.
1-YEAR BREAK IN SERVICE: A calendar year with respect to which a
Participant or Former Participant has been credited with five hundred (500) or
fewer Hours of Service; provided that a Participant shall not incur a 1-Year
Break in Service by reason of an Authorized Leave of Absence.
PARTICIPANT: An Employee eligible to participate in the Plan in
accordance with the provisions of Article 2.
PARTICIPANT ROLLOVER ACCOUNT: A sub-account of a Participant's or Former
Participant's Individual Account representing the portion attributable to
amounts accepted by the Plan pursuant to Section 3.10.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 6
<PAGE> 8
PARTICIPATION: The period commencing with the date an Employee becomes
a Participant and ending on the date on which his status as a Participant ends,
as determined pursuant to Article 2.
PLAN: JMI's Employee Profit-Sharing and 401(k) Plan (Amended and Restated
as of January 1, 1997) (formerly known as JMI's Employee Retirement 401(k)
Plan), the Plan set forth herein, as amended from time to time.
PLAN SPONSOR: Jones Medical Industries, Inc. or any other entity which
may succeed to the rights, powers, duties and liabilities of the Plan Sponsor
under the Plan.
PLAN YEAR: The period coinciding with the calendar year.
QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT: A sub-account of a
participant's or Former Participants Individual Account representing the
portion attributable to Employer qualified non-elective contributions made
pursuant to Section 3.5.
RETIREMENT: Termination of a Participant's Participation on his Normal
Retirement Age, Deferred Retirement Date or Disability Retirement Date.
RETIREMENT BENEFIT: Any Benefit which is paid prior to a Former
Participant's death on account of his Retirement.
RETIREMENT DATE: The date of a Participant's Retirement, or in the case
of a Former Participant whose Participation ended for reasons other than his
Retirement or death, his Normal Retirement Age.
SALARY DEFERRAL ACCOUNT: A sub-account of a Participant's or Former
Participant's Individual Account representing the portion attributable to
Employer contributions to the Plan pursuant to Section 3.2.
SPOUSE: The individual to whom a Participant or Former Participant is
married on the date his Benefit is paid or on the date of his death, whichever
occurs first.
SUPPLEMENTAL TRUST: The Smith Barney Corporate Trust Company Trust
Agreement maintained as a supplement to the Trust.
TERMINATION BENEFIT: Any Benefit which is paid prior to a Former
Participant's death on account of termination of the Former Participant's
Participation for reasons other than his Retirement.
TRANSFER ACCOUNT: A sub-account of a Participant's or Former
Participant's Individual Account representing the Participant's or Former
Participant's share of the Trust
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 7
<PAGE> 9
Fund attributable to amounts transferred to the Plan from the JMI-Daniels
Pharmaceuticals, Inc. 401(k) Plan and earnings thereon.
TRUST: JMI's Employee Profit-Sharing and 401(k) Trust, including the trust
document and the Supplemental Trust maintained in accordance with the terms of
the Trust instrument, as amended from time to time.
TRUSTEE: The corporation, individual or individuals appointed by the Plan
Sponsor from time to time to act as Trustee under the Trust.
TRUST FUND: All monies and other property of the Trust and all
investments and reinvestments made therefrom, less the payments which have been
made by the Trustee as provided in the Plan, the Trust and/or the Supplemental
Trust.
VALUATION DATE: Each day when the New York Stock Exchange is open and any
other date as of which the value of the Trust Fund is determined in accordance
with Section 4.3.
YEAR OF BENEFIT SERVICE: A Plan Year during which a Participant completes
more than five hundred (500) Hours of Service or is employed on the last day of
the Plan Year or dies, retires or becomes disabled during the Plan Year.
YEAR OF ELIGIBILITY SERVICE: An Employee shall be credited with a "Year
of Eligibility Service" on the earliest of the following dates:
(a) The date of the Employee's completion of a period of six (6)
consecutive months commencing on the Employee's Employment Commencement Date
during which the Employee is credited with at least one (1) Hour of Service, or
(b) The date of the Employee's completion of a period of twelve (12)
months commencing on the Employee's Employment Commencement Date during which
the Employee is credited with at least one thousand (1,000) Hours of Service,
or
(c) The last day of the first Plan Year commencing after the
Employee's Employment Commencement date during which the Employee is credited
with at least one thousand (1,000) Hours of Service.
YEAR OF VESTING SERVICE: A calendar year with respect to which an
Employee is credited with at least one thousand (1,000) Hours of Service,
including any calendar year beginning before the Effective Date which is
included in the Employee's most recent continuous period of employment with the
Employer or Controlled Group Member which includes the Effective Date.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 8
<PAGE> 10
ARTICLE 2: ELIGIBILITY AND PARTICIPATION
2.1 GENERAL ELIGIBILITY REQUIREMENTS. An Employee of an Employer who is
eligible to participate in the JMI's Employee Profit-Sharing and 401(k) Plan as
of December 31, 1996 shall be eligible to participate in this Plan on January
1, 1997. Any other Employee who is employed by an Employer shall become a
Participant on the Entry Date next following the later of his attainment of age
eighteen (18) or his completion of a Year of Eligibility Service.
2.2 EXCLUSIONS.
(a) Notwithstanding any other provisions of the Plan, no Employee
shall be a Participant while he is a member of a unit of Employees represented
by a collective bargaining agreement if retirement benefits were the subject of
good faith bargaining incident to such representation.
(b) Notwithstanding any other provisions of the Plan, no Employee
shall be a Participant while he is a Leased Employee.
2.3 TRANSFER. Upon transfer of a Participant to employment in a
classification of Employees which is not eligible to participate in the Plan,
his Participation shall end for all purposes other than:
(a) determination of his Years of Vesting Service for purposes of
Section 5.3;
(b) selection of the Investment Funds in which his Individual
Account is invested pursuant to Section 4.2;
(c) Investment of a portion of his Individual Account in loans to
himself pursuant to Section 4.10; and
(d) distribution of his Benefit pursuant to Article 6.
2.4 TERMINATION OF PARTICIPATION. A Participant's Participation shall
end for all purposes upon the occurrence of his Retirement, death, resignation
or discharge from the employ of all Controlled Group Members, or upon the
commencement of an absence without Compensation other than an Authorized Leave
of Absence.
2.5 RESUMPTION OF PARTICIPATION. A Former Participant shall resume
Participation on the date on which he resumes employment with an Employer in a
classification of Employees eligible to participate in the Plan. An Employee
who satisfies
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the Plan's eligibility conditions but who terminates employment with the
Employer prior to becoming a Participant shall become a Participant on the
later of the Plan Entry Date on which he would have entered the Plan had he not
terminated employment or the date of his re-employment.
2.6 DETERMINATION OF EMPLOYMENT CLASSIFICATIONS. An Employee's
employment classification shall be determined for purposes of the Plan in
accordance with his Employer's standard personnel practices, treating all
individuals similarly situated alike.
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ARTICLE 3: CONTRIBUTIONS
3.1 APPLICATION OF CONTRIBUTIONS. All contributions under this Plan
shall be paid to the Trustee and deposited in the Trust Fund. All assets of
the Trust Fund, including investment income, shall be retained for the
exclusive benefit of Participants, Former Participants and Beneficiaries and
shall be used to pay Benefits to such persons or to pay administrative expenses
of the Plan and Trust to the extent not paid by an Employer or any Participant,
and assets of the Trust Fund shall not revert or inure to the benefit of any
Employer, except as provided in the Plan or otherwise in accordance with
applicable law.
3.2 SALARY DEFERRAL CONTRIBUTIONS.
(a) (1) Effective as of the Entry Date on which an Employee becomes
a Participant or as of any subsequent Entry Date occurring while he is a
Participant, the Participant may elect to defer a portion of his
Compensation equal to any whole percentage of his Compensation per
paycheck, not in excess of fifteen percent (15%) of Compensation per
paycheck, as the Participant may determine. A Participant's election
pursuant to this Section 3.2(a)(1) shall continue in effect for all
payroll payments made by his Employer until the earlier of the date as of
which the Participant changes or discontinues his election in accordance
with Section 3.2(a)(2) or (3), or until the date as of which his
Participation ends.
(2) Effective as of any Entry Date, a Participant may change
his election regarding the percentage of his Compensation to be deferred
from each paycheck to any other percentage permitted under Section
3.2(a)(1).
(3) A Participant may elect to discontinue salary deferral
contributions under the Plan as of any date and a Participant who so
elects may resume salary deferral contributions effective as of the next
Entry Date.
(4) Any election pursuant to this Section 3.2(a) shall be made
in written form prescribed by and delivered to the Administrator prior to
the date on which such election is to be effective in accordance with the
applicable provision of this Section 3.2(a).
(b) A Participant's Employer shall make contributions to the
Participant's Salary Deferral Account on behalf of the Participant in amounts
by which the Participant's Compensation is reduced pursuant to his elections
under Section 3.2(a).
(c) The total amount of salary deferral contributions of any
Participant for a Plan Year shall not exceed the amount determined pursuant to
Code Section 402(g), adjusted at the same time and in the same manner as under
Code Section 415(d).
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(d) Amounts contributed in accordance with this Section 3.2 shall be
allocated to the Salary Deferral Accounts of Participants pursuant to Section
4.4(b).
(e) Excess Deferrals. Notwithstanding any other provisions of this
Plan, a Participant may file a written claim with the Administrator stating
that the Participant's salary deferral contributions under this Plan, and the
Participant's elective contributions under any other plan or arrangement under
Code Sections 401(k), 403(b), 408(k)(6) or 501(c)(18) are in excess of the
applicable Code Section 402(g) limit, adjusted at the same time and in the same
manner as under Code Section 415(d). Such claim shall request that the
Administrator make a corrective distribution of a specified amount of excess
deferrals. If the claimant is a Participant in more than one elective deferral
arrangement described in this paragraph, such Participant may allocate the
excess deferrals among such plans and shall notify the Administrator of such
allocation.
(1) Any claim pursuant to this Section 3.2(e) shall be in
written form prescribed by and delivered to the Administrator not later
than March 1 of the Participant's taxable year next following the year in
which the excess deferrals were made.
(2) The Administrator shall distribute to the Participant the
amount of excess deferrals allocated to the Plan, plus any income
attributable thereto not later than April 15 of the Participant's taxable
year next following the year in which the excess deferrals were made. The
income or loss attributable to a Participant's excess deferrals for the
Plan Year shall be determined under the Plan's generally applicable
accounting methods.
(f) The Administrator shall monitor the Plan's compliance with the
antidiscrimination tests of Section 401(k) of the Code as set forth in Section
4.6. The Administrator shall have the authority to take any action it deems
appropriate to ensure compliance with the antidiscrimination tests including
but not limited to (1) amending or revoking a salary deferral election of any
Participant at any time, except that the Administrator may not increase the
amount of contributions hereunder without a Participant's consent, (2) delaying
or holding Employer contributions until it can be determined that no amount in
excess of the limitations set forth in Section 4.6 will be contributed, (3)
distributing amounts in excess of the limitations set forth in Section 4.6 and
any income allocable thereto prior to the close of the next following Plan Year
in accordance with Section 4.7.
3.3 MATCHING CONTRIBUTIONS.
(a) For each Plan Year, the officers of the Plan Sponsor may direct
the Employers to make a specified matching contribution on behalf of each of
their Participants and Former Participants who make salary deferral
contributions during such Plan Year.
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(b) Amounts contributed in accordance with this Section 3.3 shall be
allocated to the Employer Matching Accounts of Participants and Former
Participants pursuant to Section 4.4(c).
3.4 PROFIT-SHARING CONTRIBUTIONS.
(a) For each Plan Year, the officers of the Plan Sponsor may direct
the Employers to make a specified profit-sharing contribution on behalf of
their Participants and Former Participants who have been credited with a Year
of Benefit Service.
(b) Employer profit-sharing contributions may be made in cash or in
Employer Stock, as the Plan Sponsor shall determine in its sole discretion.
(c) Amounts contributed in accordance with this Section 3.4 shall be
allocated to the Employer Profit-Sharing Accounts of Participants and Former
Participants pursuant to Section 4.4(d).
3.5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS.
(a) For each Plan Year, the officers of the Plan Sponsor may direct
the Employers to make qualified non-elective contributions in cash on behalf of
Participants and Former Participants who are Nonhighly Compensated Employees
eligible to receive matching contributions in an amount sufficient to satisfy
the special Code Section 401(k) and 401(m) provisions of Section 4.6.
(b) Amounts contributed in accordance with this Section 3.5 shall be
allocated to the Employer Profit-Sharing Accounts of Participants and Former
Participants pursuant to Section 4.4(e).
3.6 TIME OF CONTRIBUTIONS.
(a) Contributions authorized in accordance with Section 3.2 with
respect to each calendar month shall be paid over by each Employer to the
Trustee within a reasonable time after the end of such calendar month, but in
any event, not later than the fifteenth (15th) business day of the month
following the month in which such amounts would otherwise have been payable to
the Participant in cash.
(b) Contributions authorized in accordance with Sections 3.3, 3.4,
and 3.5 with respect to a Plan Year shall be paid over by each Employer to the
Trustee at such time or times as the officers of the Plan Sponsor shall
determine, but in any event, not later than the date by which payment of
contributions to a qualified profit-sharing trust must be made in order to be
deductible by the Employers with respect to such Plan Year under the applicable
Code provisions.
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(c) The Employers shall not be liable for interest on any
contributions authorized under Sections 3.2, 3.3, 3.4 or 3.5.
3.7 CONTRIBUTIONS LIMITED TO DEDUCTIBLE AMOUNTS. An Employer's
contributions for a Plan Year shall not exceed the maximum amount which may be
deducted by the Employer for such Plan Year under the applicable Code
provisions.
3.8 DETERMINATION OF EMPLOYER CONTRIBUTIONS. For purposes of this
Article 3, determination of the amount of an Employer's contributions to the
Plan shall be made by the chief accounting or other fiscal officer of the
Employer in accordance with generally accepted accounting principles, and any
determination made by such officer shall be final and conclusive and shall not
be subject to any later adjustment. No Trustee, Participant, Former
Participant, Employee or Beneficiary, or other person or entity shall have any
right or duty to inquire into the amount of such contributions or the method
used in determining Employer contributions.
3.9 PROFIT-SHARING PLAN. This Plan is designed to be a profit-sharing
plan for purposes of Code Section 401(a)(27), whether or not any Employer has
any current or accumulated profits from time to time when contributions are
permitted or required hereunder, and the presence or absence of current or
accumulated profits from time to time shall not limit an Employer's right or
duty to make contributions in accordance with the remaining provisions of this
Article 3.
3.10 ROLLOVER CONTRIBUTIONS.
(a) This Plan and the Trust shall accept a rollover contribution
from an Employee, provided that the rollover amount is derived from a
tax-qualified plan or trust and such contribution is otherwise eligible for
rollover treatment under the applicable provisions of the Code and such
contribution is tendered to the Administrator within the period allowed
therefor under the applicable Code provisions.
(b) The Administrator shall establish a separate Participant
Rollover Account for each Participant from whom the Plan and Trust accept a
rollover contribution, as of the date of such acceptance.
(c) The Administrator may establish such rules and regulations, to
be applied on a uniform basis with regard to all persons similarly situated, as
may be necessary or convenient to facilitate acceptance of rollover amounts.
(d) The Participant shall be entitled to direct the investment of
any amounts allocated to his Participant Rollover Account in accordance with
the provisions of Section 4.2.
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ARTICLE 4: PARTICIPANTS' ACCOUNTS
4.1 MAINTENANCE OF INDIVIDUAL ACCOUNTS. The Administrator shall create
and maintain adequate records to disclose the interest in the Trust Fund of
each Participant, Former Participant, Spouse and Beneficiary. Such records
shall be in the form of Individual Accounts and sub-accounts thereunder,
including a Salary Deferral Account, an Employer Matching Account, an Employer
Profit-Sharing Account, Participant Rollover Account and/or Transfer Account.
The maintenance of Individual Accounts and sub-accounts is for accounting
purposes only, and segregation of the assets of the Trust Fund shall not be
required.
4.2 INVESTMENT OF INDIVIDUAL ACCOUNTS.
(a) Subject to the restrictions respecting investment in the
Employer Stock Fund provided in Section 4.2(e), each Participant or Former
Participant shall be entitled to direct the investment of his Individual
Account among the Investment Funds then available under the Plan in increments
of any whole percentage. A Participant's initial investment direction shall be
made in written form prescribed by and delivered to the Administrator prior to
the Entry Date as of which his Participation begins.
(b) Subject to the restrictions respecting investment in the
Employer Stock Fund provided in Section 4.2(e), a Participant or Former
Participant may elect to change his investment direction with respect to his
Individual Account on any day. Any such change in investment direction shall
be communicated by notice in written, telephonic or electronic mode prescribed
by the Administrator prior to the date as of which such change is to be
effective.
(c) Such investment direction or change of investment direction
shall be acknowledged in writing and shall be complied with, provided that no
Fiduciary shall be obligated to comply with any direction or change of
direction that
(1) is not in accordance with the terms of this Plan and the Trust
insofar as such documents are consistent with the provisions of Title I of
ERISA; or
(2) would cause a Fiduciary to maintain the indicia of ownership of
any assets of the Plan outside the jurisdiction of the district courts of
the United States other than as permitted by Section 404(b) of ERISA and
29 CFR 2550.404b-1; or
(3) would jeopardize the Plan's tax-qualified status; or
(4) could result in a loss in excess of the Participant's account
balance; or
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(5) would result in a direct or indirect sale, exchange, lease or
loan as described in Regulation Section 2550.404c-1(d)(2)(ii)(E); or
(6) would result in a prohibited transaction under ERISA Section 406
or Code Section 4975; or
(7) would generate income that would be taxable to the Plan.
(d) If a Participant fails to make an initial investment direction
as provided for in Section 4.2(a), the Trustee shall direct investment of his
Individual Account until such time as the Participant makes an initial
investment direction in accordance with Section 4.2(a).
(e) The President of the Plan Sponsor may determine that it is
appropriate to establish the Employer Stock Fund. In the event such Employer
Stock Fund is established, the following provisions shall apply.
(1) No Participant shall be required to invest any portion of his
Individual Account in the Employer Stock Fund. However, if the
Participant elects to make such an investment, the following restrictions
shall apply:
(i) For each Plan Year, treating all similarly situated
Participants alike, the Plan Administrator shall determine in its
sole discretion a percentage or fixed dollar amount of the Employers'
matching contributions which will be available for investment in the
Employer Stock Fund. Only the amounts so designated may be invested
in the Employer Stock Fund. If a Participant or Former Participant
intends to invest these amounts credited to his Employer Matching
Account in the Employer Stock Fund, he must make such an election at
the time the amounts are credited to the Employer Matching Account
before these amounts have been invested in any other Investment Fund.
(ii) Amounts invested in any of the Investment Funds other than
the Employer Stock Fund may not be transferred into the Employer
Stock Fund.
(iii) A Participant or Former Participant may transfer
amounts from the Employer Stock Fund in accordance with the remaining
provisions of this Section 4.2.
(iv) The value of Employer Stock shall be determined under
rules set forth in this paragraph (iv).
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(A) If the Employer Stock is not publicly traded and
if no market or an extremely thin market exists for the
Employer Stock so that a reasonable valuation may not be
obtained form the market place, then such Employer Stock must be
valued at least annually by an independent appraiser who is not
associated with the Employer, the Administrator, the Trustee or
any person related to any fiduciary under the Plan. The
independent appraiser may be associated with a person who is
merely a contract administrator with respect to the Plan, but
who exercises no discretionary authority and is not a Plan
fiduciary.
(B) If there is a public market for Employer Stock of the
type held by the Plan, then the Administrator may use as the
value of the shares the price at which such shares are traded in
such market or an average of the bid and asked prices for such
shares in such market, provided that such value is
representative of the fair market value of such shares in the
opinion of the Administrator. If the Employer Stock is not
traded on the Annual Valuation Date or if the market is very
thin on such date, then the Administrator may use the average of
trade prices for a period of time ending on such date, provided
that such value is representative of the fair market value of
such shares in the opinion of the Administrator.
(C) For purposes of determining the annual valuation of
the Plan and for reporting to Participants and regulatory
authorities, the assets of the Plan shall be valued at least
annually on the Annual Valuation Date. The fair market value of
Employer Stock shall be determined on the Annual Valuation Date.
The average of the bid and asked prices of Employer Stock as of
the date of the transaction shall apply for purposes of valuing
distributions and other transactions of the Plan to the extent
such value is representative of the fair market value of such
shares in the opinion of the Administrator.
(D) All purchases of Employer Stock shall be made at a
price or prices which, in the judgment of the Administrator, do
not exceed the fair market value of the Employer Stock.
(v) If the Trustee acquires shares of Employer Stock by
purchase from a disqualified person as defined in Code Section
4975(e)(2) in exchange for cash or other assets of the Trust, the
terms of such purchase shall contain the provision that if there is a
final determination by the Internal Revenue Service or court of
competent jurisdiction that the fair market value of such shares of
Employer Stock as of the date of purchase was less than
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the purchase price paid by the Trustee, then the seller shall pay or
transfer, as the case may be, to the Trustee an amount of cash,
shares of Employer Stock, or any combination thereof equal in value
to the difference between the purchase price and the fair market
value for all such shares. If cash and/or shares of Employer Stock
are paid and/or transferred to the Trustee under this provision,
shares of Employer Stock shall be valued at their fair market value
as of the date of said purchase, and the seller shall pay interest on
the amount of cash paid at a reasonable rate from the date of
purchase to the date of payment.
(vi) The Administrator may direct the Trustee to sell, resell or
otherwise dispose of Employer Stock to any person, including the
Employer, provided that any such sales to any disqualified person,
including the Employer, will be made at not less than the fair market
value and no commission is charged. Any such sale shall be conform
with Section 408(e) of ERISA.
(vii) If the Administrator directs the Trustee to dispose of
any Employer Stock held as Trust assets under circumstances which
require registration and/or qualification of the securities under
applicable federal or state securities laws, then the Employer at its
own expense will take or cause to be taken any and all such action
as may be necessary or appropriate to effect such registration and/or
qualification.
(viii) Participants who are directors, officers, ten percent
(10%) stockholders of the Employer and other persons subject to
Section 16 of the Securities Exchange Act of 1934 (the "1934 Act")
will be permitted to change the level of investment in the Employer
Stock Fund only once every six (6) months. Additionally,
Participants who are directors, officers, ten percent (10%)
stockholders of the Employer and other persons subject to Section 16
of the 1934 Act who cease to invest in the Employer Stock Fund or who
reduce their investment in the Employer Stock Fund to a nominal level
may not direct that investments be made on their behalf in the
Employer Stock Fund again for at least six (6) months. Intra-plan
transfer by such Participants between the Employer Stock Fund and
other Investment Funds may only be made pursuant to an investment
election made during the period beginning on the third business day
following the release of annual or quarterly financial information by
the Employer and ending on the twelfth business day following such
date. Subject to certain limited exceptions, Participants who are
directors, officers, ten percent (10%) stockholders of the Employer
and other persons subject to Section 16 of the 1934 Act making
withdrawals of investments in the Employer Stock Fund must cease
further investment in the Employer Stock Fund for six (6) months.
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(ix) With respect to Participants who are directors, officers,
ten percent (10%) stockholders of the Employer and other persons
subject to the 1934 Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors
under the 1934 Act. To the extent any provisions of the Plan or any
action by the Administrator fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by
the Administrator.
(f) Notwithstanding Section 4.2(b) or any other provision of the
Plan or Trust, changes in investment direction may result in financial
detriments or penalties to a Participant's or Former Participant's Individual
Account. Also, the ability of a Participant or Former Participant to change
investment direction may be limited by the Administrator so long as such
limitations apply uniformly to all persons similarly situated and are
communicated to affected Participants and Former Participants in advance.
(g) Notwithstanding any other provision of the Plan or Trust,
neither the Trustee nor the Administrator shall have any authority, discretion,
responsibility or liability with respect to any Participant's or Former
Participant's selection of or failure to select any Investment Fund in which
any portion of his Individual Account shall be invested, the entire authority,
discretion and responsibility for such selection or failure to select being
that of the Participant or Former Participant.
(h) All dividends, interest, gains and distributions of any nature
received in respect of an Investment Fund shall be reinvested in that Fund
until such time as a change is directed pursuant to Section 4.2(b).
(i) Any investment direction by a Participant or Former Participant
shall remain in effect until affirmatively changed by such person pursuant to
Section 4.2(b).
(j) This Plan is intended to comply with the provisions of Section
404(c) of the Employee Retirement Income Security Act of 1974, as amended.
4.3 DETERMINATION OF TRUST INCOME AND PROFITS. As of each Valuation
Date, the Trustee shall determine the sum of:
(a) The net investment income earned by each Individual Account
since the next preceding Valuation Date,
(b) The net profit or loss realized on the disposition of assets of
each Individual Account since the next preceding Valuation Date, and
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(c) The net unrealized profit or loss resulting from changes in the
fair market value of assets of each Individual Account since the next preceding
Valuation Date or since the date of the acquisition of such assets, if later.
(d) The expenses charged to the Trust Fund since the next preceding
Valuation Date.
4.4 ALLOCATIONS TO INDIVIDUAL ACCOUNTS.
(a) As of each Valuation Date, the income, profits and expenses of
each Individual Account determined as of such Valuation Date pursuant to
Section 4.3 shall be allocated thereto, and the amount so allocated to each
Individual Account shall be further allocated to the sub-accounts thereunder in
the proportion which the amount of each such sub-account bears to the amount of
the Individual Account, determined as of the next preceding Valuation Date.
(b) The amount of salary deferral contributions paid to the Trust in
accordance with each Participant's or Former Participant's elections pursuant
to Section 3.2 shall be allocated to such Participant's or Former Participant's
Salary Deferral Account.
(c) The amount of Employer matching contributions paid over to the
Trustee with respect to the Plan Year in accordance with Section 3.3 shall be
allocated to the Employer Matching Accounts of Participants and Former
Participants with respect to the Plan Year in proportion to the amounts added
to their Salary Deferral Accounts for the Plan Year pursuant to Section 4.4(b).
(d) As of the Annual Valuation Date of each Plan Year, Employer
profit-sharing contributions pursuant to Section 3.4 with respect to the Plan
Year shall be allocated to the Employer Profit-Sharing Accounts of Participants
and Former Participants who are credited with a Year of Benefit Service for the
Plan Year, in proportion to their Compensation for the Plan Year.
(e) As of the Annual Valuation Date of each Plan Year, the amount of
qualified non-elective contributions paid over to the Trustee with respect to
the Plan Year in accordance with Section 3.5 shall be allocated among the
Qualified Non-Elective Contribution Accounts of Participants and Former
Participants who are Nonhighly Compensated Employees eligible to receive
matching contributions in the proportion which the Compensation of each such
eligible Employee bears to the Compensation of all such eligible Employees.
(f) As of each Annual Valuation Date, any Forfeiture arising
pursuant to Section 5.3 as of such Annual Valuation Date shall first be applied
to reinstate forfeited account balances of Former Participants, if any, in
accordance with Section 5.3(b)(5). The
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remaining Forfeitures of matching contributions, if any, shall be allocated
among the Employer Matching Accounts in proportion to matching contributions
for the Plan Year, and the remaining Forfeitures of Employer profit-sharing
contributions, if any, shall be allocated among the Employer Profit-Sharing
Accounts as an additional profit-sharing contribution.
(g) The amount transferred from the JMI-Daniels Pharmaceuticals,
Inc. 401(k) Plan on behalf of each Participant or Former Participant shall be
held in his Transfer Account.
4.5 LIMITATIONS ON ANNUAL ADDITIONS TO A PARTICIPANT'S ACCOUNT.
(a) For purposes of this Section 4.5,
(1) All Controlled Group Members [substituting the phrase "more
than 50%" for the phrase "at least 80%" wherever it appears in Code
Section 1563(a)(1)] of a controlled group which includes the Employer
shall be considered as the Employer.
(2) All defined contribution plans of the Employer shall be
considered as one plan.
(3) A Former Participant shall be considered a Participant.
(4) The "Limitation Year" shall be the Plan Year.
(5) "Annual Additions" means the sum of:
(A) The Employer's contribution under all defined
contribution plans of the Employer, including any amount attributable
to medical benefits allocated to an account established on behalf of
a key employee pursuant to Code Section 419A(d);
(B) The Participant's contributions under all defined
contribution plans of the Employer.
(i) The Participant's contributions shall include both
mandatory Employee contributions within the meaning of Code
Section 411(c)(2)(C) and voluntary contributions.
(ii) The Participant's contributions shall not include
Employee rollover contributions, repayment of any loans made to
the Participant from the Plan, repayment of amounts to a defined
benefit or defined contribution plan in accordance with Code
Section 411(a)(7)(C), direct
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transfer of the Participant's Employee contributions from one
plan to another or Employee contributions to a simplified
employee pension which are excludable from income under Code
Section 408(k)(6); and
(C) Any forfeited amounts allocated to the Participant's
Individual Account under all defined contribution plans of the
Employer.
(b) Notwithstanding any other provision of the Plan, the Annual
Additions to the Individual Account of any Participant for any Limitation Year
shall not exceed the lesser of:
(1) Thirty Thousand Dollars ($30,000), as adjusted pursuant to
Code Section 415(d) or
(2) Twenty-five percent (25%) of the Participant's Compensation
for the Plan Year, as determined in accordance with Treasury Regulation
Section 1.415-2(d).
(c) To the extent that the Annual Additions to the Individual
Account of any Participant exceed the limitations set forth in Section 4.5(b),
the excess Annual Additions shall be allocated and reallocated among the other
Participants in the Plan. If such allocation and reallocation would cause the
limitations of this Section 4.5 to be exceeded with respect to each
Participant in the Plan, the remaining excess Annual Additions shall be held in
an unallocated suspense account and shall be allocated and reallocated in
succeeding Limitation Years before any additional Annual Additions may be made.
(d) Notwithstanding the foregoing, the otherwise permissible Annual
Additions for any Participant under this Plan may be further limited to the
extent necessary, as determined by the Administrator, to prevent
disqualification of the Plan under Code Section 415. The Administrator shall
advise any affected Participant of any such additional limitation of his Annual
Additions.
4.6 SPECIAL CODE SECTION 401(K) AND 401(M) LIMITATIONS.
(a) Limitations on salary deferral contributions.
(1) The "Actual Deferral Percentage" for the group of
Participants who are Highly Compensated Employees shall not exceed the
greater of:
(A) The Actual Deferral Percentage for the group of
Participants who are Nonhighly Compensated Employees multiplied by
one and twenty-five one-hundredths (1.25), or
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(B) The Actual Deferral Percentage for the group of
Participants who are Nonhighly Compensated Employees multiplied by
two (2), provided that the Actual Deferral Percentage for the group
of Participants who are Highly Compensated Employees for the Plan
Year does not exceed the Actual Deferral Percentage for the group of
Participants who are Nonhighly Compensated Employees by more than two
(2) percentage points.
(2) For purposes of this Section 4.6, the Actual Deferral
Percentage for the group of Highly Compensated Employees and for the group
of Nonhighly Compensated Employees shall be determined in accordance with
Code Section 401(k) and the applicable Regulations thereunder; provided
however, that the Actual Deferral Percentage for any Employee shall not
include salary deferral contributions which are distributed to such person
in order to correct excess Annual Additions in accordance with Section
4.5(b).
(b) Limitations on Employer matching contributions.
(1) The "Average Contribution Percentage" for the group of
Participants who are Highly Compensated Employees shall not exceed the
greater of:
(A) The Average Contribution Percentage for the group of
Participants who are Nonhighly Compensated Employees multiplied by
one and twenty-five one-hundredths (1.25), or
(B) The Average Contribution Percentage for the group of
Participants who are Nonhighly Compensated Employees multiplied by
two (2), provided that the Average Contribution Percentage for the
group of Participants who are Highly Compensated Employees does not
exceed the Average Contribution Percentage for the group of
Participants who are Nonhighly Compensated Employees by more than two
(2) percentage points.
(2) For purposes of this Section 4.6, the Average Contribution
Percentage for the group of Highly Compensated Employees and for the group
of Nonhighly Compensated Employees shall be determined in accordance with
Code Section 401(m) and the applicable Regulations thereunder.
(c) Multiple use limitations.
(1) If the Actual Deferral and Average Contribution Percentages
for the group of Eligible Participants who are Highly Compensated
Employees
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exceed the limits set forth in Sections 4.6(a)(1)(A) and (b)(1)(A),
respectively, the sum of such Actual Deferral and Average Contribution
Percentages shall not exceed the "aggregate limit," as determined in
accordance with Code Section 401(m) and the applicable Regulations
thereunder.
(2) If the aggregate limit is exceeded with respect to any Plan
Year, the Actual Deferral Percentage for the group of Eligible
Participants who are Highly Compensated Employees shall be reduced as
required in the applicable Regulations promulgated under Code Sections
401(k) and (m), and the amount of such reduction shall be distributed to
the Highly Compensated Employees whose Salary Deferral Accounts were
reduced.
4.7 DISTRIBUTION OF EXCESS CONTRIBUTIONS. Notwithstanding any other
provision of the Plan, if the aggregate amount of salary deferral contributions
paid over to the Trustee on behalf of Highly Compensated Employees for the Plan
Year exceeds the deferral limits of Section 4.6(a), such excess contributions
plus earnings thereon shall be distributed to the Participants on whose behalf
such excess contributions were made not later than the last day of the Plan
Year next following the Plan Year during which such contributions were made, in
accordance with Code Section 401(k)(8) and the applicable Regulations
thereunder. The Employer shall be responsible for paying any excise tax
assessed against excess contributions which are not distributed within two and
a half (2 1/2) months after the close of the Plan Year in which the excess
contributions were made.
4.8 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Notwithstanding any
other provision of this Plan, if the aggregate amount of Employer matching
contributions paid over to the Trustee on behalf of Highly Compensated
Employees for the Plan Year exceeds the contribution limits of Section 4.6(b),
such excess aggregate contributions which are vested plus earnings thereon
shall be distributed to the Participants on whose behalf such excess aggregate
contributions were made not later than the last day of the Plan Year next
following the Plan Year during which such excess aggregate contributions were
made, in accordance with Code Section 401(m)(6) and the applicable Regulations
thereunder. Excess aggregate contributions which are not vested shall be
treated as Forfeitures under Section 4.4. The Employer shall be responsible
for paying any excise tax assessed against vested excess aggregate
contributions which are not distributed within two and a half (2 1/2) months
after the close of the Plan Year in which the excess aggregate contributions
were made.
4.9 COORDINATION OF CORRECTIVE DISTRIBUTIONS. The determination of the
amount of any excess aggregate contributions in accordance with Section 4.8
shall be made after first determining the amount, if any, of excess deferrals,
provided that the Participant has filed a timely claim in accordance with
Section 3.2(e), and after next determining the amount, if any of excess
contributions in accordance with Section 4.7.
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4.10 INVESTMENT OF INDIVIDUAL ACCOUNTS IN LOANS TO PARTICIPANTS.
(a) The Trustee may make loans to Participants for the purposes set
forth below from amounts allocated to the Participant's Salary Deferral
Account. Such loans shall be made available to all Participants on a
reasonably equivalent and non-discriminatory basis; provided, that the
Administrator may treat Participants differently on the basis of their
creditworthiness. Loans shall be available only from amounts accrued under the
Participant's or Former Participant's Salary Deferral Account.
(b) A Participant may obtain a loan from his Salary Deferral Account
only on account of economic hardship. An application for a loan pursuant to
this Section 4.10 shall be approved only if the loan is on account of an
immediate and heavy financial need of the Participant and only if the loan is
necessary to satisfy such financial need. The following items are the only
events which shall qualify as an immediate and heavy financial need:
(1) Medical expenses described in Code Section 213(d) incurred
by the Participant, his Spouse or any dependent, as defined in Code
Section 152; or
(2) Purchase of a principal residence for the Participant,
excluding mortgage payments; or
(3) Payment of tuition for the Participant, his Spouse,
children or dependents for the next twelve (12) months of post-secondary
education; or
(4) Payments needed to prevent the eviction from or foreclosure
on the Participant's principal residence; or
(5) Such other events as the Commissioner of Internal Revenue
may describe in published revenue rulings, notices, and other documents of
general applicability.
(c) The Administrator shall not authorize a loan in an amount
smaller than One Thousand Dollars ($1,000). The outstanding balance of all
such loans to any Participant under all tax-qualified employee plans maintained
by all controlled group members shall never exceed the lesser of:
(1) Fifty Thousand Dollars ($50,000) reduced by the excess (if any) of
(i) the highest outstanding balance of loans from the Plan
during the one (1) year period ending on the day before the date on
which such loan was made, over
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(ii) the outstanding balance of loans from the Plan on the
date on which such loan was made, or
(2) Fifty percent (50%) of the value of the Participant's
Salary Deferral Account on the date of the loan.
(d) Any loan to a Participant shall be evidenced by a loan agreement
between the Trustee and the Participant and consented to by the Participant's
spouse providing for:
(1) An effective annual rate of interest which the
Administrator determines is reasonable. The rate shall be equivalent to
the rate charged by commercial lenders in the same geographical area for
fixed rate loans of equivalent risk. In determining the interest rate,
the Administrator shall not discriminate in favor of Highly Compensated
Employees.
(2) Repayment of interest and principal not later than five (5)
years from the date of the loan in substantially equal installments not
less frequent than monthly by payroll withholding;
(3) Acceleration of the date of repayment of principal to the
earlier of the date of default of any interest or principal payment by the
Participant or the Valuation Date next following the termination of the
Participant's Participation. In the event default occurs at a time when
the Participant's Benefit could be distributed, the loan balance shall be
offset as of the date of acceleration.
(4) The Participant's pledge of such of his assets as the
Trustee deems necessary as security for the debt;
(5) In addition to the security required in accordance with
Section 4.10(d)(4), the Participant's pledge of fifty percent (50%) of his
then existing and after acquired accrued non-forfeitable interest in the
Trust Fund as security in the event of insufficiency of the assets pledged
by the Participant as security in accordance with Section 4.10(d)(4); and
(e) A Participant shall be in default on any loan upon the earlier
of the date he leaves the employment of the Employers or the date he fails
to make a scheduled payment under the terms of the loan.
(f) (1) In the event of default by a Participant or Former
Participant under the terms of his loan agreement, and the insufficiency
of the assets pledged by the Participant or Former Participant in
accordance with Section 4.10(d)(4) to satisfy the amount of principal and
interest then outstanding under his loan
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agreement, the Trustee shall pursue any and all other remedies with
respect to the deficiency which the Trustee deems prudent in its sole
discretion and the Participant or Former Participant shall remain
personally liable for the amount of any deficiency under his loan
agreement.
(2) The amount of any Benefit otherwise payable to a defaulting
Participant or Former Participant or his spouse or Beneficiary shall be
reduced by the total amount of principal and interest owed by the
Participant or Former Participant under his loan agreement as of the date
of commencement of payment of such Benefit; provided, however, that such
reduction of such Benefit shall not extinguish the portion of a defaulting
Participant's or Former Participant's then existing debt hereunder in
excess of such Benefit, if any.
(g) Notwithstanding anything herein, any loan made hereunder to a
Participant shall be treated as a separate segregated investment of the
Participant's Individual Account. At the time such loan transaction is
consummated, each Investment Fund including assets of the Participant's
Individual Account shall be reduced by an amount which shall bear the same
ratio to the Investment Fund as the amount of the loan bears to the
Participant's Individual Account. The amount of each interest and principal
payment made by the Participant under the loan shall be added to each
Investment Fund in accordance with the Participant's investment direction
pursuant to Section 4.2 which provides for contributions made after the date of
the election.
(h) Each loan shall be applied against and reduce the Participant's
Salary Deferral Account. Amounts of interest and principal paid by the
Participant under the loan agreement shall be applied to the Participant's
Salary Deferral Account.
(i) The Individual Account of the Participant shall be charged with
all expenses incurred in connection with the origination and administration of
the loan.
4.11 IN-SERVICE WITHDRAWALS.
(a) A Participant may obtain a withdrawal of his Participant
Rollover Account at any time for any reason. A fully-vested participant may
obtain a distribution of all or any portion of his Individual Account for any
reason at any time after he has attained age fifty-nine and one-half (59 1/2).
An Employee who was a participant in the JMI-Daniels Pharmaceuticals, Inc.
401(k) Plan on September 1, 1996 may obtain a distribution of the vested amount
in his Transfer Account after he has attained age fifty-nine and one-half (59
1/2).
(b) If the Plan Sponsor sells substantially all of the assets
[within the meaning of Code Section 409(d)(2)] used in a trade or business or
sells a subsidiary [within the meaning of Code Section 409(d)(3)], a
Participant who continues employment
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with the acquiring corporation is eligible for distribution from his Salary
Deferral Account as if he had a separation from service. A distribution by
reason of this paragraph (b) shall constitute a lump sum distribution in
accordance with Code Section 401(k)(10) and applicable Treasury regulations.
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ARTICLE 5: DETERMINATION OF VESTED (NONFORFEITABLE) BENEFITS
5.1 NONFORFEITABLE BENEFITS UPON RETIREMENT. If a Participant's
Participation ends by reason of his Retirement, his Individual Account shall be
one hundred percent (100%) vested.
5.2 NONFORFEITABLE BENEFITS UPON DEATH OF PARTICIPANT. If a
Participant's Participation ends by reason of his death, his Individual Account
shall be one hundred percent (100%) vested.
5.3 OTHER PARTICIPANTS' NONFORFEITABLE BENEFITS.
(a) If a Participant's Participation ends for any reason other than
his Retirement or death and if he is then credited with at least six (6) Years
of Vesting Service, his Individual Account shall be one hundred percent (100%)
vested; provided any Employee who was a participant in the Abana
Pharmaceuticals, Inc. 401(k) Plan on January 1, 1997 shall be one hundred
percent (100%) vested on the earlier of his attainment of age fifty-nine and
one-half (59 1/2) or completion of six (6) Years of Vesting Service; provided
further, any Employee who was a participant in the JMI-Daniels Pharmaceuticals,
Inc. 401(k) Plan (formerly known as Galen Drugs of Florida, Inc. 401(k) Plan)
on September 1, 1996, shall be one hundred percent (100%) vested on the earlier
of his attainment of age sixty-five (65) or completion of six (6) Years of
Vesting Service.
(b) If a Participant's Participation ends for any reason other than
his Retirement or death and if he is then credited with fewer than six (6)
Years of Vesting Service,
(1) The entire amount of his Salary Deferral Account,
Participant Rollover Account and/or Qualified Non-Elective Contribution
Account shall be one hundred percent (100%) vested.
(2) The vested and nonvested percentages of his Employer
Matching Account and Employer Profit-Sharing Account shall be determined
as of the Valuation Date next preceding payment of his Benefit in
accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF VESTING VESTED NONVESTED
SERVICE PERCENTAGE PERCENTAGE
<S> <C> <C>
Less than 2 0% 100%
2 20% 80%
3 40% 60%
4 60% 40%
5 80% 20%
6 100% 0%
</TABLE>
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(3) The amount equal to the nonvested
percentage of his Employer Matching Account and Employer
Profit-Sharing Account, determined as of the Annual Valuation Date
coincident with his fifth consecutive 1-Year Break in Service shall
constitute a Forfeiture which shall be allocated in accordance with
Section 4.4(e) as of such Annual Valuation Date.
(4) (A) Notwithstanding the foregoing, if
distribution of the Former Participant's Benefit occurs before he
has incurred five (5) consecutive 1-Year Breaks in Service, the
amount equal to the nonvested percentage of his Employer Matching
Account and his Employer Profit-Sharing Account, determined as of
the Annual Valuation Date of the Plan Year in which payment of his
Benefit occurs, shall constitute a Forfeiture which shall be
allocated in accordance with Section 4.4(e) as of such Annual
Valuation Date.
(B) If a Former Participant's employment
with an Employer terminates at a time when he is zero percent (0%)
vested, he shall be deemed to have received a distribution on the
date he separates from service.
(5) (A) If a Former Participant who incurs a
Forfeiture pursuant to Section 5.3(b)(4) resumes employment covered
under the Plan prior to the time he would otherwise have incurred
five (5) consecutive 1-Year Breaks in Service, he shall be given an
opportunity to repay the full amount of his prior distribution
within five (5) years following his resumption of employment.
(B) If such repayment occurs, in
addition to the amounts provided for in Article 3, the Employer by
which he was employed at the time his prior period of Participation
ended shall contribute an amount equal to the nonvested percentage
of the Participant's Employer Matching Account and Employer
Profit-Sharing Account as of the Valuation Date next preceding his
prior distribution; and the amount so restored and the amount
repaid by the Participant shall be reinstated to the Participant's
Salary Deferral Account, Employer Matching Account and Employer
Profit-Sharing Account as of the Annual Valuation Date of the Plan
Year in which the repayment occurs, in addition to any amounts
allocated thereto pursuant to Sections 4.4(b), (c) and (d) for such
Plan Year.
(C) The Administrator may promulgate
rules consistent with applicable law regarding the time and methods
for a Participant's repayment of amounts previously distributed
hereunder.
5.4 BREAK IN SERVICE RULES.
(a) A Participant's Years of Vesting Service credited
subsequent to five (5) consecutive 1-Year Breaks in Service shall not be taken
into account in determining the
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vested (nonforfeitable) percentage of his Employer Matching Account and his
Employer Profit-Sharing Account prior to such five (5) consecutive 1-Year
Breaks in Service.
(b) If a nonvested Participant incurs at least five (5)
consecutive 1-Year Breaks in Service, the Participant's prior Years of Vesting
Service shall be disregarded in determining the vested percentage of his
Employer Matching Account and his Employer Profit-Sharing Account subsequent to
such Breaks in Service.
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ARTICLE 6: PAYMENT OF BENEFITS
6.1 AMOUNT OF BENEFIT. A Former Participant's Benefit shall
consist of the vested (nonforfeitable) amount of his Individual Account as of
the Valuation Date next preceding the payment of his Benefit, subject to any
changes in the amount of his Individual Account pursuant to Section 4.4.
6.2 FORMS OF RETIREMENT BENEFITS AND TERMINATION BENEFITS.
(a) Unless a Former Participant, with the consent of his
Spouse, elects an optional form of Benefit as provided in Section 6.2(b), a
Former Participant's Retirement or Termination Benefit shall be paid as
follows:
(1) If the Former Participant is unmarried when
payment begins, the normal form of distribution shall be a life
annuity.
(2) If a Former Participant is survived by his
Spouse, one hundred percent (100%) of the Retirement Benefit or
Termination Benefit of the Former Participant shall be applied to
the purchase of a qualified joint and survivor annuity, unless he
has elected to waive his right to a qualified joint and survivor
annuity with the consent of his Spouse to his election and any
Beneficiary designation he makes in connection with his election.
For this purpose, a qualified joint and survivor annuity is a
nontransferable annuity contract, purchased from a legal reserve
life insurance company licensed to do business in more than one
state, providing for an annuity payable to the Former Participant
during the life of the Former Participant. If the Former
Participant is married when payment begins, the annuity contract
shall provide for an annuity payable to the Former Participant
during the life of the Former Participant and a survivor annuity
payable to his Spouse after the death of the Former Participant for
the remaining life of the Spouse which is fifty percent (50%) of
the amount of the annuity payable to the Former Participant, which
is the actuarial equivalent of an annuity payable for the life of
the Former Participant only, determined on the basis of actuarial
tables the use of which has been approved by the Internal Revenue
Service. In no event shall the cost of the annuity contract exceed
the amount of the Former Participant's vested (nonforfeitable)
Benefit as of the Annual Valuation Date next preceding purchase of
the annuity contract.
(b) Optional Forms. A Participant or Former Participant
or, if applicable, the Spouse or Beneficiary may elect distribution in one of
the following optional forms:
(1) In a single sum
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(2) In periodic installments payable
monthly, quarterly, or annually for a specified number of years not
in excess of the joint life expectancy of the Former Participant
and any Beneficiary of the Former Participant, as determined not
more frequently than annually under standard mortality tables whose
use is approved by the Internal Revenue Service; provided:
(i) if the Former Participant's Spouse
is not the Beneficiary, the life expectancy of the Beneficiary
shall be determined as of the date that payment of the Former
Participant's Benefit commences and shall not be redetermined
thereafter, and the present value of the Benefit expected to
be paid to the Former Participant as of the date payment of
the Benefit commences shall exceed fifty percent (50%) of the
present value of the Benefit as of such date, all determined
under standard mortality tables whose use is approved by the
Internal Revenue Service;
(ii) if the Beneficiary is a custodian or
trustee for the benefit of any individual or individuals, the
individual or individuals who are beneficiaries under the
custodianship or trust shall be deemed to be the Beneficiary
or Beneficiaries for the purpose of determining the maximum
period of time over which payment of the Retirement Benefit or
Termination Benefit may be made;
(iii) the rate of payment after the death
of the Former Participant shall not be slower than the rate of
payment in effect at the time of the death of the Former
Participant;
(iv) the Administrator may cause the
remaining balance of a Former Participant's Retirement Benefit
or Termination Benefit to be distributed in a single sum at
any time, giving due regard as to any portion of a Former
Participant's Retirement Benefit or Termination Benefit
remaining unpaid on the date of the Former Participant's death
to any written statement of preference received by the
Administrator from the Beneficiary prior to the first payment
from the Plan after the Former Participant's death; and
(v) in the event of the death of an
individual Beneficiary after the death of the Former
Participant, the remaining payments which would have been made
to the Beneficiary but for his death shall be paid to his
estate.
(3) By the purchase of a single premium
nontransferable annuity contract from a legal reserve life
insurance company licensed to do business in more than one state,
providing for substantially nonincreasing payments not less
frequent than annual over a term of years not to exceed the
limitations set forth in Section 6.2(b)(2).
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(4) By the purchase of a joint and survivor
annuity. The Participant may elect to receive an actuarially
equivalent joint and survivor annuity with survivor benefits of
fifty percent (50%), seventy-five percent (75%) or one hundred
percent (100%) of the amounts payable to the Former Participant
during his lifetime.
6.3 DISTRIBUTION OF RETIREMENT BENEFITS.
(a) Generally. Distribution of a Former Participant's
Retirement Benefit shall commence as soon as reasonable after any Valuation
Date following the later of his Normal Retirement Age or Deferred Retirement
Date.
(b) Special Rule for Participants Who are Five Percent
(5%) Owners and Who Have Attained Age Seventy and One-Half (70 1/2) . A
Participant who is a five percent (5%) owner as defined in Code Section 416 and
who remains an Employee during the calendar year commencing after his
attainment of age seventy and one-half (70 1/2) or during any succeeding
calendar year shall receive distributions under the Plan as follows:
(1) Payment shall commence not later than April 1
of the calendar year following the calendar year in which the
Participant attains age seventy and one-half (70 1/2), and the
amount distributed during that period shall be equal to the amount
of his Individual Account as of the Annual Valuation Date prior to
his attainment of age seventy and one-half (70 1/2), divided by the
number of years remaining in the life expectancy or the joint life
expectancy of the Participant or the Participant and his
Beneficiary, as the case may be, as of such Annual Valuation Date,
determined in accordance with Table V or VI promulgated under
Treasury Regulation Section 1.72-9, subject to the maximum
limitations set forth in proposed Treasury Regulation Section
1.401(a)(9)-2, Q&A-4 or Q&A-7, whichever is applicable, or any
applicable successor provision thereto.
(2) Prior to the end of each calendar year during
which the Participant remains an Employee, the minimum
distributions required under proposed Treasury Regulation Section
1.401(a)(9)-1 and 2, or any applicable successor provisions, shall
be determined by recalculating the life expectancies (unless the
Participant elects otherwise) and distributed to the Participant.
(3) Upon termination of the Participant's
Participation, his remaining benefit shall be distributed in the
form elected by the Participant.
6.4 DISTRIBUTION OF RETIREMENT BENEFITS AFTER DISABILITY
RETIREMENT DATE. In the event that a Former Participant has retired on account
of a permanent disability, as determined in accordance with Article 7, the
Administrator shall direct the Trustee to pay such Former Participant's
Retirement Benefit as soon as reasonable after receipt of satisfactory proof
that the Former Participant's permanent disability was the reason for
termination of his Participation, provided that the time of distribution shall
be
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subject to the consent of the Former Participant, or at such time thereafter
as the Former Participant may elect.
6.5 DISTRIBUTION OF TERMINATION BENEFITS. Subject to the
provisions of Section 6.7, distribution of a Former Participant's Termination
Benefit shall occur as soon as reasonable after the Valuation Date coincident
with or next following the date his Participation ends, provided that the time
of distribution shall be subject to the consent of the Former Participant, or
at such time thereafter as the Former Participant may elect.
6.6 DEATH BENEFITS.
(a) If a Former Participant has died before distribution
of his Benefit has begun, then such Former Participant's Death Benefit shall be
paid in accordance with his Beneficiary designation within ninety (90) days
after the Former Participant's death.
(b) Notwithstanding Section 6.6(a),
(1) If a Participant or Former Participant who is
married dies before the first day of the first period for which his
Benefit is payable, the Participant's entire Individual Account
shall be applied to purchase a qualified preretirement survivor
annuity, unless the Participant or Former Participant has elected,
with the consent of his Spouse, to waive the qualified
preretirement survivor annuity or to name a Beneficiary other than
the Spouse pursuant to the provisions of Section 6.9; provided, the
surviving Spouse may elect any optional form of Benefit in lieu of
a qualified preretirement survivor annuity.
(2) Except as provided in Section 6.7, and
subject to the consent requirements of Section 6.9, payment to a
Former Participant's Spouse under this Section 6.6(b) shall
commence within a reasonable period after the Former Participant's
death, provided that the Spouse may not elect that payment commence
later than sixty (60) days after the end of the Plan Year during
which the Former Participant would have attained age sixty-five
(65) if he had lived, and provided further that if the Spouse dies
before commencement of payment, this subparagraph shall be applied
as if the Spouse were the Former Participant.
(3) For this purpose, a qualified preretirement
survivor annuity is a nontransferable annuity contract purchased
from a legal reserve life insurance company licensed to do business
in more than one state, providing for an annuity payable to the
Spouse for the life of the Spouse, determined in accordance with
actuarial tables the use of which is approved by the Internal
Revenue Service.
6.7 SMALL BENEFITS. Notwithstanding any other provision of the
Plan, if the present value of a Former Participant's entire nonforfeitable
Benefit does not exceed (and did not at the time of any prior distribution
exceed) Three Thousand Five Hundred
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Dollars ($3,500) as of the Valuation Date occurring next prior to the date of
distribution provided for in this Section 6.7, his Benefit shall be paid in a
single sum as soon as reasonable after the date his Participation ends.
6.8 NECESSARY DELAYS IN COMMENCEMENT OF BENEFIT PAYMENT.
Notwithstanding any other provision of the Plan, if the amount of a Benefit
payment cannot be determined on the date provided for pursuant to this Article
6, or if payment on such date is impossible because the whereabouts of a Former
Participant or Beneficiary are unknown, a payment retroactive to such date may
be made not later than sixty (60) days after the earliest date on which the
amount of such payment can be ascertained under the Plan or on which the
whereabouts of such Former Participant or Beneficiary are made known to the
Administrator, as the case may be.
6.9 CONSENTS, BENEFICIARY DESIGNATIONS.
(a) Except as provided in Section 6.7, as a condition
precedent to the commencement of payment of his Retirement Benefit or
Termination Benefit pursuant to Section 6.3, 6.4 or 6.5, each Former
Participant shall have made an election to receive his Retirement Benefit or
Termination Benefit in the form of a qualified joint and survivor annuity or to
waive his right to receive his Retirement Benefit or Termination Benefit in the
form of a qualified joint and survivor annuity as provided for in Section
6.2(b), if applicable, and shall have consented to the time of commencement of
payment pursuant to Section 6.4 or 6.5, if applicable.
(b) A Participant or Former Participant whose Death
Benefit is subject to Section 6.6(b) may elect to waive the qualified
preretirement survivor annuity form of Death Benefit, commencing on the date he
separates from service or the first day of the Plan Year in which he attains
age thirty-five (35), whichever is earlier. If the Participant makes a valid
election but for the fact that the Participant has not attained age thirty-five
(35), the election will be deemed valid for all purposes until the first day of
the Plan Year in which the Participant attains age thirty-five (35). The
Participant will then be required to make a new election in order to waive the
qualified preretirement survivor annuity form. Any such election or consent by
a Participant or Former Participant under the Plan shall be made in a writing
in form prescribed by the Administrator and shall be effective upon its
delivery to the Administrator prior to commencement of payment of his
Retirement Benefit or Termination Benefit or prior to his death, as the case
may be. A Participant or Former Participant may revoke, supersede, or
reinstate any such election or consent by delivery of a writing providing
therefor in form prescribed by the Administrator and delivered to the
Administrator prior to commencement of payment of his Retirement Benefit or
Termination Benefit or prior to his death, as the case may be.
(c) Any Participant or Former Participant may designate
one or more persons or entities as primary and/or contingent Beneficiary of his
Death Benefit or any portion of his Retirement Benefit or Termination Benefit
remaining unpaid on the date of his death. Any such Beneficiary designation by
a Participant or Former Participant shall
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be made in a writing in form prescribed by the Administrator and shall be
effective upon its delivery to the Administrator prior to the date payment of
his Retirement Benefit or Termination Benefit commences or prior to his death,
as the case may be. A Participant or Former Participant may revoke, supersede
or reinstate any such Beneficiary designation by delivery of a writing
providing therefor in form prescribed by the Administrator and delivered to the
Administrator prior to the date payment of his Retirement Benefit or
Termination Benefit commences or prior to his death, as the case may be.
(d) A Participant's or Former Participant's initial
election respecting the form of payment of his Retirement Benefit, Termination
Benefit or Death Benefit, his consent to the time of payment of his Retirement
Benefit or Termination Benefit, his initial Beneficiary designation, and any
revocation, supersession or reinstatement of such an election or Beneficiary
designation in accordance with Section 6.9(a), (b) or (c) shall not require the
consent of any other person, except as provided in Section 6.9(e).
(e) (1) If the provisions of Section 6.2(b) or 6.6(b)
apply to the Benefit payable to a Former Participant, any election to waive the
right to the qualified joint and survivor annuity and any election to waive the
right to the qualified preretirement survivor annuity and any Beneficiary
designation by the Former Participant shall be subject to the consent of his
Spouse in written form prescribed by and delivered to the Administrator prior
to commencement of payment of the Former Participant's Retirement Benefit or
Termination Benefit or prior to his death, as the case may be. Any such
consent shall acknowledge that the effect of the consent is to give up the
Spouse's right to the Spouse's benefit provided for in Section 6.2(b) or
6.6(b), as the case may be, and shall be witnessed by a Plan representative or
a notary public. Any such consent shall be irrevocable by the consenting
individual with respect to the election or Beneficiary designation to which it
applies, but such a consent shall not be binding on the consenting individual
with respect to any other election or Beneficiary designation by the consenting
individual's spouse, nor shall such a consent be binding on anyone other than
the consenting individual.
(2) Except as provided in Section 6.7, as a
condition precedent to commencement of payment of the Retirement Benefit or
Termination Benefit of a then married Former Participant before his Normal
Retirement Date in accordance with Section 6.4 or 6.5, his Spouse shall have
consented to the time of commencement of payment in written form prescribed by
the Administrator and delivered to the Administrator if the Spouse's consent is
required under Section 6.4 or 6.5.
(3) Except as provided in Section 6.7, as a
condition precedent to the commencement of payment of any Benefit to the Spouse
of a Former Participant in accordance with Section 6.6(b), the Spouse shall
have made an election in written form prescribed by the Administrator and
delivered to the Administrator prior to commencement of payment respecting the
time and form of payment of such Benefit. The Spouse of a Former Participant
shall be provided with the election forms prescribed by the Administrator as
soon as administratively feasible following the date the Administrator receives
acceptable proof of the death of the Former Participant. The Spouse may make
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the election respecting the time and form of payment during the ninety (90) day
period commencing on the date of delivery of the election forms.
(4) Notwithstanding any other provision of the
Plan, the consent of a Spouse shall not be required if it is established to the
satisfaction of the Administrator that the consent may not be obtained because
there is no Spouse or because the Spouse cannot be located or because of any
other circumstance prescribed by any applicable Treasury regulation.
(f) If a distribution is one to which Sections 401(a)(11)
and 417 of the Code do not apply, such distributions may commence less than
thirty (30) days after the notice required under Section 1.411(a)(11)(C) of the
Income Tax Regulations is given; provided that:
(1) The Administrator clearly informs the
Participant that the Participant has a right to a period of at
least thirty (30) days after receiving the notice to consider the
decision of whether or not to elect a distribution, and
(2) The Participant after receiving the notice
affirmatively elects a distribution.
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS.
(a) Notwithstanding any other provision of the Plan to
the contrary, a Participant, Former Participant, surviving Spouse or a former
spouse who is an alternate payee pursuant to Article 13 ("Distributee") may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover.
(b) For purposes of this Section 6.10, the following
terms shall have the meaning set forth hereinafter:
(1) Direct Rollover: A payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
(2) Eligible Rollover Distribution: Any
distribution of all or any portion of the balance to the credit of
the Distributee, except that an Eligible Rollover Distribution does
not include any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
(3) Eligible Retirement Plan: An individual
retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the Distributee's Eligible Rollover Distribution. However,
in the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
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ARTICLE 7: PERMANENT DISABILITY
7.1 DEFINITION OF PERMANENT DISABILITY. A permanent disability
for purposes of the Plan is a mental or physical disability which causes the
Participant to be unable to perform the duties of his customary position of
employment (or unable to engage in any substantial gainful activity) for an
indefinite period which the Administrator considers will be of long-continued
duration. A Participant is also disabled if he incurs the permanent loss or
use of a member or function of the body or is permanently disfigured and incurs
a separation from service.
7.2 DETERMINATION OF PERMANENT DISABILITY. Any Former Participant
who claims to have retired from employment with an Employer on account of a
permanent disability shall be required to submit to examination by a physician
or physicians selected by the Administrator in order for such physician or
physicians to determine the Participant's or Former Participant's permanent
disability. Any and all such determinations so made in good faith by any
physician or physicians selected by the Administrator shall be conclusive and
binding upon such Participant or Former Participant and all other parties in
interest, if any.
7.3 NO RIGHT TO REEMPLOYMENT. A Former Participant whose
permanent disability is determined to have ended shall have no right to require
that he be reemployed by any Employer.
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ARTICLE 8: ADMINISTRATION
8.1 NAMED FIDUCIARIES.
(a) The Plan Sponsor and the Administrator shall
constitute named Fiduciaries of the Plan for purposes of ERISA.
(b) A named Fiduciary may in writing appoint other
persons or entities to perform any of its duties and responsibilities. Any
such appointment shall be accepted by the appointee in writing and shall be
effective upon such acceptance.
8.2 RULES RELATING TO FIDUCIARIES GENERALLY.
(a) Fiduciaries shall have only those specific and
express powers, duties, responsibilities and obligations as are specifically
assigned them under this Plan or the Trust. It is intended under this Plan and
the Trust that each Fiduciary shall be responsible for the proper exercise of
its own powers, duties, responsibilities and obligations under this Plan and
the Trust and shall not be responsible for any act or failure to act of any
other Fiduciary.
(b) Each Fiduciary shall give directions, furnish
information and take action only in accordance with the provisions of this Plan
or the Trust, as the case may be, authorizing or providing for such directions,
information or action. Each Fiduciary may rely upon any such directions,
information or action of any other Fiduciary as proper under this Plan or the
Trust, and no Fiduciary is required under this Plan or the Trust to inquire
into the propriety of any such directions, information or action of any other
Fiduciary.
(c) No Fiduciary guarantees the Trust Fund in any manner
against investment loss or depreciation in asset value, except as a Fiduciary
may agree in a separate written instrument.
(d) Each Fiduciary shall be entitled to such reasonable
compensation for its Fiduciary services as such Fiduciary and the Plan Sponsor
may agree, provided that no Fiduciary who receives full-time pay from an
Employer for other services shall receive any remuneration as Fiduciary from
the Plan or the Trust.
(e) Any person or group of persons may serve in more than
one Fiduciary capacity.
8.3 DUTIES OF TRUSTEE. The Trustee shall have responsibility for
the administration of the Trust and the management of the assets held under the
Trust, except to the extent such assets are managed by an Investment Manager or
insurance company, all as specifically provided in the Trust.
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8.4 RIGHTS AND DUTIES OF PLAN SPONSOR GENERALLY.
(a) The Plan Sponsor shall have the sole authority to
appoint and remove any Trustee and any Investment Manager (if the Plan Sponsor
elects to appoint an Investment Manager) in accordance with the provisions of
the Trust, to direct the Trustee to invest all or a portion of the Trust Fund
at the direction of an Investment Manager or with an insurance company or
otherwise in accordance with the provisions of the Trust, and to amend or
terminate, in whole or in part, this Plan or the Trust.
(b) The Plan Sponsor shall designate an Administrator
(which may be itself or another person or persons although referred to in the
singular throughout this instrument) which shall serve at the pleasure of the
Plan Sponsor. A new Administrator shall be designated as soon as is reasonably
convenient if any Administrator is removed, resigns, dies or becomes
incapacitated.
8.5 DUTIES OF EMPLOYERS GENERALLY.
(a) Each Employer shall supply full and timely
information to the Administrator on all matters relating to its Employees'
Compensation, employment, Retirement, transfer, death or other termination of
their status as Participants or Employees and such additional pertinent facts
as are necessary to enable the Administrator to perform its functions.
(b) Each Employer shall have the sole responsibility for
making the contributions, if any, provided for in Sections 3.2, 3.3, 3.4, and
3.5. with respect to Participants who are its Employees.
8.6 DUTIES OF ADMINISTRATOR GENERALLY.
(a) The Administrator shall have sole responsibility for
the administration of the Plan, as expressly described in the Plan.
(b) The Administrator shall provide each Participant and
Former Participant with all notices and information required by law with
respect to the distribution of Benefits.
(c) The Administrator shall administer the Plan in
accordance with its terms and shall have all powers necessary to carry out the
provisions of the Plan. In its sole discretion, the Administrator shall
interpret the Plan; shall determine all questions arising in the
administration, interpretation, and application of the Plan; and shall construe
any ambiguity, supply any omission, and reconcile any inconsistency in such
manner and to such extent as the Administrator deems proper. Any
interpretation or construction placed upon any term or provision of the Plan by
the Administrator, any decisions and determinations of the Administrator
arising under the Plan, including without limiting the generality of the
foregoing,
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(1) the eligibility of an Employee to become or
remain a Participant and his status as such, his Years of Benefit
Service and his Years of Vesting Service,
(2) the allocation of contributions and any other
amounts required to be allocated under the provisions of the Plan,
(3) the time, method and amounts of payments
payable under the Plan, and
(4) the rights of Participants, Former
Participants, Spouses and Beneficiaries,
and any other action, determination or decision whatsoever taken or made by the
Administrator in good faith shall be final, conclusive and binding upon all
persons concerned, including but not limited to the Plan Sponsor, Employers,
Employees, former Employees, Participants, Former Participants, Spouses and
Beneficiaries.
(d) The Administrator may adopt such rules as it deems
necessary, desirable, or appropriate. All rules, decisions and determinations
of the Administrator shall be uniformly and consistently applied. When making
a determination or decision, the Administrator shall be entitled to rely upon
information furnished by the Plan Sponsor or any Employer, Employee,
Participant, Former Participant, Spouse, Beneficiary, or any Fiduciary.
(e) Any person or entity other than the Plan Sponsor
which is designated as Administrator shall signify acceptance by filing a
written acceptance with the Plan Sponsor. The Administrator may employ
accountants, counsel, specialists and other persons necessary to help carry out
its duties and responsibilities under the Plan. The Administrator or any
appointee shall be entitled to rely conclusively upon any opinions or reports
which shall be furnished to it or him by such accountants, counsel, specialists
and other persons.
(f) The Administrator shall issue directions to the
Trustee concerning all Benefits which are to be paid from the Trust Fund
pursuant to provisions of the Plan.
8.7 FORMS AND PROOFS; ELECTIONS, CONSENTS, BENEFICIARY
DESIGNATIONS AND CLAIMS.
(a) Each Participant, Former Participant, Spouse and
Beneficiary then eligible to receive any Benefit shall complete all forms and
furnish all information, including his post office address and any changes
thereof, and any other proofs, receipts and releases as may be required by the
Trustee or Administrator.
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(b) Any communication, statement or notice addressed to
any Participant, Former Participant, Spouse or Beneficiary then entitled to a
Benefit at his last post office address filed with the Administrator shall be
binding for all purposes of the Plan, and the Trustee and the Administrator
shall not be obligated to search for or ascertain the whereabouts of any such
person.
(c) Any election, consent or Beneficiary designation
permitted or required by the provisions of the Plan shall be valid only if made
in accordance with the applicable procedures set forth in Section 6.9.
(d) Claim Procedures. Any person may submit a written
claim to the Administrator. The Administrator shall make all decisions and
determinations respecting the right of any person to a Benefit under the Plan.
Any decision by the Administrator denying a Benefit claim in whole or in part
shall be stated in writing by the Administrator and delivered or mailed to the
claimant within ninety (90) days after receipt of the claim by the
Administrator unless special circumstances require an extension of time for
processing, but in any event within one hundred eighty (180) days after such
receipt. If such an extension of time is taken, the Administrator shall inform
the claimant of the delay in writing before the expiration of the initial
ninety (90) day period and shall state the reasons therefor and the date by
which the Administrator expects to render a decision. Any written decision
denying a claim shall set forth the specific reasons for the denial with
specific references to Plan provisions on which the denial is based, a
description of any additional material or information necessary to perfect the
claim and the reasons therefor, and an explanation of the Plan's claim review
procedure, all written in a manner calculated to be understood by the claimant.
If the claimant does not receive written notice that the claim has been denied
within the initial ninety (90) day period, or within the extended ninety (90)
day period if applicable, the claim shall be deemed to have been denied.
(e) Claim Review Procedures. Any claimant who makes a
written request within sixty (60) days after his receipt of written
notification of claim denial or within sixty (60) days after his claim is
deemed denied, shall be entitled to a full and fair review of such denial by
the Administrator, and the claimant or his authorized representative shall be
entitled to inspect pertinent documents and to submit issues and comments in
writing. The Administrator shall render a decision on review not later than
sixty (60) days after the Administrator's receipt of a timely request for
review unless special circumstances require an extension of time for
processing, but in any event within one hundred twenty (120) days after such
receipt. If such an extension of time is taken, the Administrator shall
inform the claimant of the delay in writing before the expiration of the
initial sixty (60) day period and shall state the date by which the
Administrator expects to render a decision. The decision on review shall be
stated in writing and shall be mailed or delivered to the claimant and shall
include the specific reasons for the decision with specific references to Plan
provisions upon which the decision is based, all written in a manner calculated
to be understood by the claimant. If the claimant does not receive written
notice that the claim has been denied on review within the initial sixty (60)
day period or within the extended
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sixty (60) day period if applicable, the claim shall be deemed to have been
denied on review.
8.8 BOOKS AND RECORDS; DISCLOSURES.
(a) The Administrator shall keep such books, records, and
other data as it deems necessary for proper administration of the Plan,
including but not limited to records of each Employee's Compensation, Years of
Benefit Service and Years of Vesting Service.
(b) The records of any Employer and the Administrator
shall be conclusive on all persons unless proved incorrect to the satisfaction
of the Employer or the Administrator furnishing the same.
(c) The Administrator shall comply with all reporting and
disclosure requirements of the law and shall maintain all records required by
law.
8.9 LEGAL OR OTHER INCAPACITY OF RECIPIENT. Whenever, in the
Administrator's opinion, a person entitled to receive any payment under the
Plan is under a legal disability or is incapacitated in any way so that he is
unable to manage his financial affairs, the Administrator may direct the
Trustee to make payments to such person or to his legal representative or to a
relative or friend of such person for his benefit, or the Administrator may
direct the Trustee to apply the payment for the benefit of such person in such
manner as the Administrator considers advisable. Any payment made in good
faith in accordance with the provisions of this Section 8.9 shall be a complete
discharge of any liability for the making of such payment under the provisions
of this Plan.
8.10 ADMINISTRATIVE COMMITTEE.
(a) If two or more persons are designated as
Administrator by the Plan Sponsor, then they shall act as an administrative
committee. Said administrative committee shall act as Administrator with
respect to all duties and responsibilities hereunder, except that its members
may allocate any of their duties and responsibilities among themselves by
written instrument signed by each of them and filed with the Plan Sponsor. If
duties and responsibilities are allocated among administrative committee
members in accordance with the foregoing or are delegated to other persons by
appointment in accordance with the Plan, then no administrative committee
member shall be liable for the performance of duties and responsibilities
allocated to any other administrative committee member or delegated by
appointment to other persons except to the extent required by law. In the
event that any member of the administrative committee resigns or otherwise
terminates from the employ of all Controlled Group Members, his status as a
member of the administrative committee shall automatically terminate.
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(b) Except as provided in Section 8.10(a), any and all
acts and decisions of the administrative committee shall be by a majority of
its members. Any third party may rely upon a representation by any
administrative committee member that a decision or determination has been made
by the administrative committee.
(c) The administrative committee may designate any of its
members as secretary of the administrative committee. In that event, the
secretary of the administrative committee shall have authority to sign or
execute any documents on behalf of the committee. The certificate of the
administrative committee secretary that the committee has taken or authorized
any action shall be conclusive.
8.11 PLAN AND TRUST EXPENSES. The Plan Sponsor and the
Employers shall have discretion to pay or reimburse any reasonable costs and
expenses of the Plan and the Trust, including but not limited to compensation
of Fiduciaries and costs and expenses incurred by the Administrator as a result
of the performance of its duties and responsibilities hereunder, such as, but
not limited to fees to accountants, counsel, specialists and other persons
employed or appointed to help the Administrator perform its duties and
responsibilities hereunder, in such proportions as the Plan Sponsor may deem
appropriate. Any reasonable costs and expenses of the Plan or the Trust not so
paid or reimbursed shall be paid by the Plan. Notwithstanding anything
contained herein to the contrary, no compensation shall be paid to any person
otherwise receiving full-time pay from the Plan Sponsor or any Employer.
8.12 PLAN SPONSOR AND EMPLOYER ACTIONS. Except as
otherwise expressly provided in the remaining provisions of this Plan, any
action of the Plan Sponsor or any Employer under this Plan after initial
adoption of this Plan shall be authorized by its Board of Directors.
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ARTICLE 9: EMPLOYERS OTHER THAN THE PLAN SPONSOR
9.1 ELIGIBILITY FOR EMPLOYER STATUS. Subject to the written
consent of the Trustee and the Board of Directors or other governing body of
the Plan Sponsor, a Controlled Group Member may become an Employer by
submitting a certified copy of resolutions of its Board of Directors or other
governing body evidencing its adoption of the Plan and the Trust for the
benefit of its eligible Employees.
9.2 DELEGATION OF RIGHTS AND DUTIES TO PLAN SPONSOR.
(a) Adoption of the Plan and the Trust by an Employer in
accordance with Section 9.1 shall constitute the delegation by such Employer to
the Plan Sponsor of full authority to amend the Plan and Trust, and to appoint
the Trustee, the Administrator and any Investment Manager and to direct the
Trustee in accordance with terms of the Trust.
(b) Any amendment to the Plan or the Trust adopted by the
Plan Sponsor in accordance with provisions of the Plan or Trust shall be
binding upon and effective with respect to each Employer, and each Employer
shall be deemed to have assented to any such amendment.
9.3 EMPLOYER RIGHT TO WITHDRAW. Each Employer reserves to itself
the right to terminate its status as an Employer under the Plan, to terminate
the Plan with respect to its Employees or to discontinue contributions to the
Plan with respect to its Employees. If an Employer exercises any such right,
the provisions of Article 12 of the Plan and Article 9 of the Trust shall apply
to the portion of the Trust assets consisting of the Individual Accounts of the
Participants and Former Participants of such Employer.
9.4 WITHDRAWAL FROM PLAN AND TRUST.
(a) Any Employer other than the Plan Sponsor shall
withdraw from the Plan and the Trust if it ceases to be a Controlled Group
Member, effective as of the Valuation Date coincident with or next following
the date on which it ceases to be a Controlled Group Member.
(b) Any Employer other than the Plan Sponsor may withdraw
from the Plan and the Trust without ceasing to be a Controlled Group Member
effective as of any Valuation Date, by providing written notice to the
Administrator and Trustee of its intent to withdraw at least thirty (30) days
prior to such Valuation Date.
(c) The Administrator shall certify to the Trustee the
portion of the Trust Fund constituting the Individual Accounts of Employees and
former Employees of a withdrawing Employer as of the Annual Valuation Date on
which such Employer's
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withdrawal is effective. The Trustee shall segregate such portion of the Trust
Fund as of such Annual Valuation Date, and thereafter such portion of the Trust
Fund shall be held in a separate trust, and shall be used and applied according
to the provisions of this Plan and the Trust in the same manner as if this Plan
and the Trust had been executed by and between the withdrawing Employer as Plan
Sponsor and the Trustee or any other trustee designated in writing by the
withdrawing Employer, without the execution of any other instruments.
(d) The Trustee shall determine which assets of the Trust
are to be set aside in accordance with Section 9.4(c), provided that no
discrimination in value results therefrom.
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ARTICLE 10: AMENDMENTS
10.1 AMENDMENT AUTHORITY. The Plan Sponsor reserves the
right to amend this Plan from time to time and hereby gives to its officers
continuing authority to adopt such amendments as they deem necessary or
desirable, provided, however:
(a) As a condition precedent to the adoption of any
proposed amendment, the officers shall make a good faith determination of the
projected additional annual cost of such proposed amendment.
(1) During any Plan Year the officers of the Plan
Sponsor shall have the authority to approve and adopt one or more
amendments which in the aggregate have a projected additional
annual cost to the Employers not exceeding Five Hundred Thousand
Dollars ($500,000).
(2) If the projected additional annual cost of an
amendment to the Employers, together with the projected additional
annual cost of all other amendments adopted by the officers during
the Plan Year, exceeds Five Hundred Thousand Dollars ($500,000),
then such amendment shall be submitted to the Board of Directors of
the Plan Sponsor.
(b) Authority to make an amendment respecting the
investment of Plan assets in Employer Stock shall be retained by the Plan
Sponsor, and the officers shall have no authority to make such an amendment.
(c) Such amendment shall be in writing executed by the
proper officers of the Plan Sponsor.
(d) The Plan Sponsor shall deliver a certified copy of
each amendment to each Employer and the Trustee.
10.2 CONDITIONS. Each amendment shall be subject to the
following:
(a) The duties of the Trustee cannot be changed
substantially without the Trustee's consent.
(b) Except as provided in the Plan or otherwise in
accordance with applicable law, any such amendment shall not result in or
permit the return or repayment to the Plan Sponsor or any Employer of any
portion of the Trust Fund or the income therefrom or result in or permit the
distribution of the Trust Fund for the benefit of anyone other than
Participants, Former Participants, Spouses and Beneficiaries.
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(c) Any such amendment shall not reduce a Participant's
accrued Benefit to less than the Benefit to which he would have been entitled
if he had separated from service with the Employer on the day prior to the
effective date of such amendment.
(d) Any amendment which would have the effect of
disqualifying the Plan shall be void from its inception.
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ARTICLE 11: SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS
11.1 CONTINUATION OF THE PLAN BY ANOTHER EMPLOYER. If any
Participants become employed by an entity other than the Plan Sponsor or any
Employer incident to the sale by the Plan Sponsor or Employer of all or
substantially all of its operating assets to such entity or incident to a
merger, consolidation or reorganization involving the Plan Sponsor or Employer
and such entity, then the Plan Sponsor or Employer and such entity by
resolutions of their respective Boards of Directors or other governing bodies
may direct that the Plan and the Trust be continued by such entity; in that
event, such entity shall be substituted for the Plan Sponsor or Employer under
the Plan without the execution of any other instruments. The substitution of
such entity shall constitute an assumption of Plan liabilities by such entity
which shall have all of the powers, duties and responsibilities of the Plan
Sponsor or Employer as applicable under the Plan, effective from and after the
date specified in the foregoing resolutions without the execution of any other
instruments.
11.2 PLAN MERGER, CONSOLIDATION OR ASSET TRANSFER.
(a) This Plan and the Trust may accept assets transferred
from any other tax-qualified profit-sharing plan and trust for employees; and
the assets of this Plan and the Trust may be transferred to any other such plan
and trust, all upon authorization by written resolutions of the Board of
Directors or other governing body of the Plan Sponsor, and subject to any terms
and conditions set forth in such resolutions.
(b) In the event of any merger or consolidation of the
Plan, or transfer of all or any portion of the assets and liabilities of the
Trust Fund to another trust fund or custodial account or contract maintained
under any other plan of deferred compensation either in existence or to be
established for the benefit of some or all of the Participants under this Plan,
the merger, consolidation or transfer of assets and liabilities of the Plan
shall be consummated only if:
(1) Each affected Participant would be entitled
to receive a Benefit in the event of termination of the other plan
immediately after the merger, consolidation or transfer in an
amount not less than the Benefit he would have been entitled to
receive in the event of termination of this Plan immediately before
such merger, consolidation or transfer;
(2) Resolutions of the Boards of Directors or
other governing bodies of the Plan Sponsor and of any new or
successor employer of the affected Participants, shall authorize
such transfer of assets, and in the case of such new or successor
employer of the affected Participants, its resolutions shall
include an assumption of liabilities with respect to such
Participants' inclusion in the new or successor employer's plan;
and
(3) Such other plan and trust, if any, are then
qualified under the applicable provisions of the Code.
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ARTICLE 12: PLAN TERMINATION
12.1 TERMINATION OF PLAN. The Plan Sponsor has established the
Plan and the Trust and has executed this instrument with the intention and
expectation that it will be able to make contributions indefinitely, but the
Plan Sponsor and each Employer shall not be under any obligation or liability
whatsoever to maintain the Plan and the Trust for any length of time. In
accordance with the procedures set forth in this Article 12, the Plan Sponsor
may terminate the Plan at any time. The Plan will terminate thirty (30) days
after the receipt by the Trustee of written notice of Plan termination from the
Plan Sponsor, or if the Plan Sponsor is judicially declared bankrupt or
insolvent.
12.2 SEGREGATION OF ASSETS ON PARTIAL TERMINATION OF PLAN. Upon a
partial termination of the Plan with respect to a group of Participants and
Former Participants, the Trustee shall in accordance with the directions of the
Administrator allocate and segregate the proportionate interest of such
Participants and Former Participants in the Trust Fund. The funds so allocated
and segregated shall be used by the Trustee to pay Benefits to or on behalf of
such Participants and Former Participants in accordance with Section 12.3.
12.3 COMPLETE DISCONTINUANCE OF CONTRIBUTIONS OR COMPLETE OR
PARTIAL TERMINATION.
(a) In the event of complete discontinuance of
contributions by the Employers or upon termination or partial termination of
the Plan, the Individual Accounts of all Participants and Former Participants
affected thereby shall be nonforfeitable.
(b) Subject to the provisions of Section 12.3(c), the
Administrator shall direct the Trustee to distribute the assets of the Trust
Fund to the persons entitled thereto. Distributions shall be made in cash.
(c) The Plan Sponsor may elect to continue the Trust with
respect to the Individual Accounts of Participants, Former Participants,
Spouses and Beneficiaries affected by a complete discontinuance of
contributions, or a complete or partial termination of the Plan until all of
their Benefits have been distributed pursuant to Article 6 of the Plan. The
Administrator shall continue to function in a manner consistent with the terms
of the Plan, and the Trust Fund shall be continued only for the benefit of
those Participants, Former Participants, Spouses and Beneficiaries with
Individual Accounts from time to time. In the event of the death or
resignation of the Administrator at a time when the Plan Sponsor is not in
existence, the Trustee shall assume the duties and responsibilities of the
Administrator until the termination of the Trust. Distributions under this
Article 12 shall be made in cash.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 51
<PAGE> 53
ARTICLE 13: QUALIFIED DOMESTIC RELATIONS ORDERS
13.1 IN GENERAL. Benefits of a Participant or Former Participant
shall be paid to alternate payees pursuant to any qualified domestic relations
order, as defined in Code Section 414(p). For this purpose, a qualified
domestic relations order is an order, judgment or decree pursuant to a State
domestic relations law (including community property law) which relates to the
provision of child support, alimony payments or marital property rights to a
spouse, former spouse, child or other dependent of the Participant or Former
Participant. The order must specify the alternate payee's right to receive a
portion of the Benefit payable under the Plan with respect to the Participant
or Former Participant and must contain sufficient information to calculate the
applicable payment and to contact the alternate payee. The order may not
conflict with a previous qualified domestic relations order, require payment in
a form not provided for by the Plan or require payment of increased Benefits
under the Plan.
13.2 PLAN PROCEDURES.
(a) The Administrator shall adopt procedures consistent with
applicable law and regulations to verify whether any judgment, decree or order
is a qualified domestic relations order.
(b) Pending determination whether a judgment, decree or
order is a qualified domestic relations order, the Administrator shall direct
the Trustee to charge the Individual Account of the affected Participant or
Former Participant with the total amount to be set aside for the benefit of
each alternate payee pursuant to the judgment, decree or order, and to
establish a segregated account in the Trust Fund on behalf of each alternate
payee in the same amount. If the Individual Account of the Participant or
Former Participant consists of two or more sub-accounts, the sub-accounts shall
be charged in proportion to their respective amounts. Following a
determination as to whether the judgment, decree or order is a qualified
domestic relations order, the segregated accounts established on behalf of the
alternate payees shall either become permanent, to be distributed in accordance
with the qualified domestic relations order, or shall be terminated and the
amounts thereof credited to the affected Participant's or Former Participant's
Individual Account and the sub-accounts thereunder in proportion to their
respective amounts, to be distributed in the manner provided for generally in
the Plan, without regard to the judgment, decree or order.
(c) If the judgment, decree or order applies to a Benefit
otherwise in pay status, payment shall be suspended for a period sufficient for
the Administrator to determine whether it is a qualified domestic relations
order, but in any event, not longer than eighteen (18) months after the date
specified for the payment to the alternate payee in the judgment, decree or
order.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 52
<PAGE> 54
(1) If the judgment, decree or order is
determined to be a qualified domestic relations order within
such period, the amount in the account established for the alternate
payee shall be paid to the alternate payee in accordance with the
qualified domestic relations order.
(2) If no determination is made as to whether a
judgment, decree or order relating to Benefits otherwise in pay
status is a qualified domestic relations order within eighteen (18)
months after the date specified for payment to the alternate payee,
or if the judgment, decree or order is determined not to be a
qualified domestic relations order before the expiration of such
period, the segregated account shall be terminated, and the amounts
thereof shall be credited to the affected Participant's or Former
Participant's Individual Account and the sub-accounts thereunder in
proportion to their respective amounts, and distribution of the
Participant's or Former Participant's Benefit shall be made as
generally provided for in the Plan, without regard to the judgment,
decree or order.
(3) If a judgment, decree or order relating to
Benefits otherwise in pay status is determined to be a qualified
domestic relations order more than eighteen (18) months after the
date specified for payment to the alternate payee, the qualified
domestic relations order shall be applied prospectively to the
extent possible, but the Administrator shall have no duty to
attempt to recover any distributions from an affected Participant's
or Former Participant's Individual Account which occurred prior to
the determination that the judgment, decree or order is a qualified
domestic relations order.
13.3 TIME AND FORM OF PAYMENT. If a qualified domestic relations
order so provides, distribution to the alternate payee thereunder shall occur
as soon as may be practical after the Administrator verifies that the judgment,
decree or order is a qualified domestic relations order. The Alternate Payee
may elect that payment be made in any form available under the plan other than
a Qualified Joint and Survivor Annuity.
13.4 AMOUNT OF BENEFIT. For purposes of determining the amount of
the Benefit of a Participant or Former Participant from time to time for any
purpose under the Plan, any permanent segregated account established with
respect to an alternate payee related to such Participant or Former Participant
and any distribution from the Plan to such an alternate payee shall be
disregarded.
13.5 INVESTMENT OF SEGREGATED ACCOUNT.
(a) During the period for which a segregated account
established on behalf of an alternate payee remains in existence under the
Plan, it shall be and remain a part of the Trust Fund. Regardless of whether
the affected Participant or Former Participant is otherwise entitled to direct
the investment of his Individual Account pursuant to the provisions of Article
4 of the Plan, the Participant or Former Participant shall have
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 53
<PAGE> 55
no right to direct the investment of the segregated account established on
behalf of the alternate payee.
(b) If the domestic relations order does not provide for
immediate distribution, the alternate payee shall be entitled to direct
investment of the segregated account after the order is determined to be a
Qualified Domestic Relations Order. The provisions of Section 4.2shall be
applicable with respect to such segregated account of the alternate payee.
13.6 DEATH. In the event of the death of an alternate payee prior
to the date an amount would otherwise have been paid to such alternate payee,
no amount shall be paid to the estate or any Beneficiary of the alternate payee
except as provided in the governing qualified domestic relations order. In the
event of the death of the Participant or Former Participant prior to the date
an amount would otherwise be payable to an alternate payee who is the former
spouse of the Participant or Former Participant, the alternate payee shall not
be treated as the Spouse of the Participant or Former Participant for purposes
of the Plan except as provided in the governing qualified domestic relations
order.
13.7 FORMS AND PROOFS. Each alternate payee shall have the sole
responsibility for notifying the Administrator of any change in the alternate
payee's name or address and for providing the Administrator with any additional
information necessary to carry out the terms of a qualified domestic relations
order.
13.8 AMOUNTS PAYABLE. Any amount to be determined pursuant to
this Article 13 shall be determined as of the Valuation Date next preceding the
date of such determination.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 54
<PAGE> 56
ARTICLE 14: MISCELLANEOUS
14.1 TAX QUALIFICATION OF PLAN AND TRUST. The Plan Sponsor
intends by the execution of this instrument that the Plan and the Trust will
constitute a qualified plan and trust under the applicable provisions of the
Code in order that the income of the Trust will be tax-exempt, and Employer
contributions to the Trust in accordance with the provisions of the Plan will
be tax deductible. Any modification or amendment of the Plan or the Trust
which the Plan Sponsor may deem necessary or advisable in order that the Plan
and the Trust constitute a qualified plan and trust may by its terms be made
retroactive as permitted by law.
14.2 EMPLOYERS NOT PLAN BENEFICIARIES; RETURN OF CERTAIN
EMPLOYER CONTRIBUTIONS. No Employer shall have any beneficial interest in the
Trust Fund or any part thereof, and no part of the Trust Fund shall ever revert
or be repaid to any Employer either directly or indirectly, except as follows:
(a) Every contribution made by an Employer under the Plan
by a mistake of fact shall be returned to the Employer within one (1) year
after payment of the contribution;
(b) Every contribution by an Employer under the Plan is
conditioned upon the deductibility of the contribution under the applicable
provisions of the Code, and, to the extent the deduction is disallowed, such
contribution shall be returned to the Employer within one (1) year after
disallowance of the deduction; and
(c) As otherwise provided by law in the case of a plan
and trust qualified under the applicable provisions of the Code.
An affected Employer shall notify the Trustee in writing of any contribution
that is to be returned to the Employer in accordance with this Section 14.2.
14.3 BENEFITS LIMITED TO TRUST ASSETS. No person shall
have any right to or interest in any assets of the Trust Fund upon termination
of his status as an Employee or otherwise, except as provided under this Plan,
and then only to the extent of Benefits payable under the Plan out of the
assets of the Trust Fund. All payments of Benefits provided for in this Plan
shall be made solely out of the assets of the Trust Fund and none of the
Fiduciaries shall be liable therefor except as required by law.
14.4 UNKNOWN WHEREABOUTS OF PERSONS ENTITLED TO BENEFITS.
If the Administrator or Trustee notifies any Former Participant, Spouse or
Beneficiary that he is entitled to a payment under the Plan and also notifies
him of the provisions of this Section 14.4 and such person fails to claim his
Benefit or make his whereabouts known to the Administrator or to the Trustee
within the shorter of a period of seven (7) years thereafter,
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 55
<PAGE> 57
or the period ending on the date of termination of the Trust, the amount held
by the Trustee representing such Benefit shall be allocated as if it were a
Forfeiture in the manner provided in Section 4.4(d) with respect to the Plan
Year during which the expiration of such period occurs. If a person makes a
claim for his Benefit after such allocation and before all assets of the Trust
Fund have been distributed, the Administrator shall direct the Trustee to pay
over to such person the amount of his Benefit as of the Valuation Date as of
which the allocation occurred, and the amount so paid shall be treated as an
expense of the Plan for the Plan Year during which it is paid.
14.5 MISTAKES IN BENEFIT PAYMENTS. In the event and to
the extent that any Benefit payment to a Former Participant, Spouse or
Beneficiary is determined by the Administrator to have been in error, the
Administrator and the Trustee shall determine the extent of the error and shall
take action to correct the error in an equitable manner as determined in the
sole discretion of the Administrator, consistent with the following:
(a) In the event that an amount paid in error is less
than the amount which should have been paid, the Administrator shall direct the
Trustee to distribute to the Former Participant, Spouse or Beneficiary the
difference between the amount paid and the amount which should have been paid;
(b) In the event that the amount paid in error exceeds
the amount which should have been paid, the Administrator, to the extent
possible, shall reduce any Benefit then remaining payable to the Former
Participant, Spouse or Beneficiary by the excess of the amount paid over the
amount which should have been paid and shall make other reasonable efforts to
recover such excess from the Former Participant, Spouse or Beneficiary. If the
Administrator is unable to recover such excess from such Former Participant,
Spouse or Beneficiary, the Employer shall hold the Plan harmless and indemnify
the Plan by paying over to the Plan the amount of such excess.
(c) The Administrator shall equitably adjust the
Individual Accounts of Participants, Former Participants, Spouses and
Beneficiaries to reflect any amount paid from or received by the Plan in
accordance with this Section 14.5.
14.6 SPENDTHRIFT CLAUSE. Except as provided by applicable
law, Benefits payable under this Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary. Any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge or otherwise dispose of any right to Benefits payable
hereunder shall be void, and the Trust Fund shall not in any manner be liable
for, or subject to the debts, contracts, liabilities, engagements or torts of
any Participant, Former Participant, Spouse or Beneficiary.
14.7 NO GUARANTEE OF EMPLOYMENT. Participation in the
Plan shall not be construed as giving a Participant any right to continue in
the employ of any Employer. Any
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 56
<PAGE> 58
Employee shall remain subject to discharge by any Employer to the same extent
as if this instrument had not been executed.
14.8 WAIVER OF NOTICE. Any notice required by the Plan or
the Trust may be waived by the person entitled thereto.
14.9 PLAN PROVISIONS BINDING. The provisions of the Plan
shall be binding upon all persons entitled to Benefits under the Plan and their
respective heirs and legal representatives, upon the Plan Sponsor, Employers,
their successors and assigns, upon the Trustee and the Trustee's successors and
upon the Administrator.
14.10 CONSTRUCTION OF TERMS. Words of gender shall include
persons and entities of any gender, the plural shall include the singular, and
the singular shall include the plural. Section headings exist for reference
purposes only, and shall not be construed as part of the Plan.
14.11 EXECUTION OF COUNTERPARTS. This Plan may be executed
in two or more counterparts, any one of which shall constitute an original
without reference to the others.
14.12 MISSOURI LAW CONTROLS. Except as otherwise provided
by the Employee Retirement Income Security Act of 1974, this Plan, as amended
from time to time shall be administered, construed and enforced according to
the laws of the State of Missouri and in Courts situated in that State.
14.13 MINIMUM STANDARDS IN TOP-HEAVY PLAN YEARS.
Notwithstanding any other provision of the Plan, the following provisions shall
apply with respect to any Plan Year as to which the Plan is top-heavy.
(a) The sum of all contributions which are allocated with
respect to such Plan Year to the Individual Account of any Participant credited
with at least one thousand (1,000) Hours of Service for such Plan Year and any
other Employee who is a Participant on the last day of such Plan Year shall not
be less than the lesser of three percent (3%) of his Compensation, or such
smaller amount which bears the same ratio to the Compensation of the
Participant as the highest such ratio determined with respect to any key
employee for such Plan Year, provided in determining the amount of
contributions allocated to the Individual Account of any key employee, salary
deferral contributions and Employer matching contributions shall be taken into
account, but salary deferral contributions and Employer matching contributions
of non-key employees shall not be taken into account..
(b) In determining the percentage of Compensation
allocated to the Individual Account of any Participant under Section 14.13(a),
all defined contribution plans of the Plan Sponsor and any other Controlled
Group Members shall be treated as one plan, and the Participant's Compensation
from all Controlled Group Members shall be
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 57
<PAGE> 59
taken into account. The Plan Sponsor shall direct the Employers to make such
contributions under this Plan as the Plan Sponsor in its sole discretion may
determine to satisfy the requirement of Section 14.13(a).
(c) The vested percentage of the Employer Matching
Account of each Participant who is a non-key employee and who is credited with
at least one (1) Hour of Service with respect to such Plan Year shall be
determined as of the last day of such Plan Year in accordance with the
following schedule in lieu of any schedule set forth in Section 5.3:
<TABLE>
<CAPTION>
YEARS OF VESTING VESTED PERCENTAGE NONVESTED
SERVICE PERCENTAGE
<S> <C> <C>
Less than 2 0% 100%
2 20% 80%
3 40% 60%
4 60% 40%
5 80% 20%
6 100% 0%
</TABLE>
(d) In the event that the Plan is top-heavy in one or
more Plan Years and is not top-heavy in a subsequent Plan Year, the vesting
schedule described in Section 5.3 shall again be applied in determining a
Participant's vested percentage in his Employer Matching Account; provided that
(1) The nonforfeitable percentage of a
Participant's accrued Benefit, as determined immediately before the
time at which the Plan ceased to be top-heavy, shall not be
reduced; and
(2) A Participant who is credited with at least
three (3) Years of Vesting Service shall be given the option to
remain under the vesting schedule set forth in Section 14.13(c).
(e) For purposes of this Section 14.13,
(1) The Plan shall be top-heavy for any Plan Year
if the aggregate of the Individual Accounts of all Participants and
Former Participants who are key employees for such Plan Year
exceeds sixty percent (60%) of the aggregate of the Individual
Accounts of all Participants and Former Participants, determined as
of the determination date for such Plan Year in accordance with
Code Section 416(g) and applicable Treasury regulations; provided
that the Individual Account of any Participant or Former
Participant who has not performed at least one (1) Hour of Service
for any Employer during the five (5) Year period ending on the
determination date shall not be taken into account.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 58
<PAGE> 60
(2) The phrase "key employee" shall have
the meaning set forth in Code Section 416(i)(1), taking into
account an individual's annual compensation from the Employer or
other Controlled Group Member for the calendar year ending with or
within the Plan Year; provided that the phrase "annual compensation"
shall mean compensation as defined in Code Section 415(c)(3), but
including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross
income under Code Sections 125, 402(a)(8), 402(h) or 403(b). The
phrase "non-key employee" shall mean any employee who is not a key
employee. The phrase "determination date" shall mean the Annual
Valuation Date of the next preceding Plan Year.
(3) This Plan shall be aggregated with any and
all other tax-qualified plans of any Controlled Group Member under
which a key employee is a participant for such Plan Year, and with
any and all other such plans which are aggregated with this Plan
for purposes of Code Sections 401(a)(4) or 410 for such Plan Year.
This Plan may be aggregated with any other tax-qualified plan of
deferred compensation for employees pursuant to which the Employer
or any other Controlled Group Member makes contributions for the
benefit of Employees, as the Administrator may determine in its
sole discretion.
IN WITNESS WHEREOF, Jones Medical Industries, Inc., as Plan
Sponsor, has caused this instrument to be executed this ________ day of
____________________________, 199____________.
JONES MEDICAL INDUSTRIES, INC.
By:
----------------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 59
<PAGE> 61
EXHIBIT A
JMI'S EMPLOYEE PROFIT-SHARING AND 401(K) PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 1997)
INVESTMENT FUNDS
LARGE CAPITALIZATION VALUE EQUITY INVESTMENTS is co-advised by Newbold's Asset
Management, Inc. and Parametric Portfolio Associates, Inc. The objective of
this fund is total return consisting of capital appreciation and dividend
income by investing primarily in a diversified portfolio of highly liquid
common stocks that have above average price appreciation potential at the time
of purchase. The Portfolio's assets will be invested primarily in common
stocks of issuers with total market capitalization of One Billion Dollars
($1,000,000,000) or greater at the time of purchase.
LARGE CAPITALIZATION GROWTH EQUITY INVESTMENTS is co-advised by Provident
Investment Counsel and Boston Structured Advisors. The objective of this fund
is substantial capital appreciation by investing primarily in a diversified
portfolio of common stocks that, in the advisor's opinion, are characterized by
a growth of earnings at a rate faster than that of the Standard & Poor's 500.
The Portfolio's assets will be invested primarily in common stocks of issuers
with total market capitalization of One Billion Dollars ($1,000,000,000) or
greater at the time of purchase.
INTERNATIONAL EQUITY INVESTMENTS is co-advised by Oechsle International
Advisors, L/P. and State Street Global Advisors. The objective of this fund is
to achieve capital appreciation through investing primarily in equity
securities of companies domiciled outside the United States.
SMALL CAPITALIZATION GROWTH EQUITY INVESTMENTS is co-advised by Pilgrim Baxter
& Associates, Ltd. and Mellon Capital Management Corporation. The objective of
this fund is to achieve maximum capital appreciation through investing
primarily in the common stock of "emerging growth" companies with total market
capitalization of less than One Billion Dollars ($1,000,000,000). At least
one-third (1/3) of the Portfolio's assets will be invested in common stocks of
companies with total market capitalization of Five Hundred Fifty Million
Dollars ($550,000,000) or less at the time of purchase.
INTERMEDIATE FIXED INCOME INVESTMENTS is advised by Standish, Ayer & Wood, Inc.
The objective of this fund is current income and reasonable stability of
principal through investing primarily in high-quality fixed-income securities.
GOVERNMENT MONEY INVESTMENTS is advised by Standish, Ayer & Wood, Inc. The
objective of this fund is to provide maximum current income to the extent
consistent with the maintenance of liquidity and preservation of capital by
investing exclusively in short-term securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements with
respect to those securities.
JMI's Employee Profit-Sharing and 401(k) Plan
(Amended and Restated as of January 1, 1997) Page 60
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
(amounts in thousands, except per share data)
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 28,016 23,963 25,261
Net effect of dilutive stock options and warrants (1) 33 807 476
Assumed conversion of preferred stock -- 74 624
Total 28,049 24,844 26,631
======== ======== ======
Net Income $ 18,139 $ 12,389 $ 7,520
======== ======== ======
Earnings per common and common equivalent share $ 0.65 $ 0.50 $ 0.29
======== ======== ======
FULLY DILUTED
Average shares outstanding 28,016 23,963 25,261
Net effect of dilutive stock options and warrants (1) 33 807 476
Assumed conversion of preferred stock -- 74 624
Total 28,049 24,844 26,361
======== ======== ======
Net income $ 18,139 $ 12,389 $ 7,520
======== ======= =====
Earnings per common and common equivalent share $ 0.65 $ 0.50 $ 0.29
======== ======== ======
</TABLE>
(1) The impact on the computation of per share earnings between using the
average market price for the primary computation and the year-end market
price (if higher than average market price) for the fully diluted
computation is less than 3% of the applicable outstanding shares.
<PAGE> 1
EXHIBIT (21.1)
SUBSIDIARIES OF THE REGISTRANT
------------------------------
JMI Phoenix Laboratories, Inc.
JMI-Canton Pharmaceuticals, Inc.
GenTrac, Inc.
JMI-Abana Pharmaceuticals, Inc.*
JMI-Daniels Pharmaceuticals, Inc.
*Merged into the Registrant effective January 2, 1997.
<PAGE> 1
EXHIBIT (23.1)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3, File No. 333-20893) of Jones Medical Industries, Inc. and in the
related Prospectus of our report dated February 14, 1997 with respect to the
financial statements and schedule of Jones Medical Industries, Inc. included in
this Annual Report (Form 10-K) for the year ended December 31, 1996.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, File No. 33-40184) pertaining to the 1982 Incentive Stock Option
Plan and the 1989 Incentive Stock Option Plan of Jones Medical Industries, Inc.
of our report dated February 14, 1997 with respect to the consolidated
financial statements and schedule of Jones Medical Industries, Inc. in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, File No. 333-15879) pertaining to the 1994 Formula Stock Option Plan
for Non-Management Directors and the 1994 Incentive Stock Plan of Jones Medical
Industries, Inc. of our report dated February 14, 1997, with respect to the
consolidated financial statements and schedule of Jones Medical Industries,
Inc. in this Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
St. Louis, Missouri
March 10, 1997
<PAGE> 1
EXHIBIT (23.2)
CONSENT OF HACKER, JOHNSON, COHEN & GRIEB, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3, File No. 333-20893) of Jones Medical Industries, Inc. and in the
related Prospectus of our report dated April 25, 1996 (except for note 16 as to
which the date is July 30, 1996) with respect to the consolidated balance
sheets of Galen Drugs of Florida, Inc. and subsidiaries as of September 30,
1995, and the related consolidated statements of earnings, stockholders' equity
and cash flows for the years ended September 30, 1995 and 1994, which
report is included in this Annual Report (Form 10-K) of Jones Medical
Industries, Inc. for the year ended December 31, 1996.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, File No. 33-40184) pertaining to the 1982 Incentive Stock Option
Plan and the 1989 Incentive Stock Option Plan of Jones Medical Industries, Inc.
of our report dated April 25, 1996 (except for note 16 as to which the date is
July 30, 1996) with respect to the consolidated balance sheets of Galen Drugs
of Florida, Inc. and subsidiaries as of September 30, 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for the years ended September 30, 1995 and 1994, which report is included in
this Annual Report (Form 10-K) of Jones Medical Industries, Inc. for the year
ended December 31, 1996.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, File No. 333-15879) pertaining to the 1994 Formula Stock Option Plan
for Non-Management Directors and the 1994 Incentive Stock Plan of Jones Medical
Industries, Inc. of our report dated April 25, 1996 (except for note 16 as to
which the date is July 30, 1996) with respect to the consolidated balance
sheets of Galen Drugs of Florida, Inc. and subsidiaries as of September 30,
1995, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years ended September 30, 1995 and 1994, which
report is included in this Annual Report (Form 10-K) of Jones Medical
Industries, Inc. for the year ended December 31, 1996.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JONES
MEDICAL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 52,171,684
<SECURITIES> 120,000
<RECEIVABLES> 11,689,360
<ALLOWANCES> 388,109
<INVENTORY> 12,752,523
<CURRENT-ASSETS> 80,550,805
<PP&E> 29,590,764
<DEPRECIATION> 5,420,411
<TOTAL-ASSETS> 177,233,388
<CURRENT-LIABILITIES> 10,031,359
<BONDS> 0
0
0
<COMMON> 1,137,419
<OTHER-SE> 160,782,303
<TOTAL-LIABILITY-AND-EQUITY> 177,233,388
<SALES> 100,153,086
<TOTAL-REVENUES> 100,153,086
<CGS> 39,825,723
<TOTAL-COSTS> 39,825,723
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</TABLE>
