<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1996
JONES MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-15098 43-1229854
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1945 Craig Road, St. Louis, MO 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 576-6100
--------------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OF ASSETS
On December 31, 1996 (the "Closing Date"), Abana Pharmaceuticals, Inc., a
Delaware corporation ("Abana"), was merged (the "Merger") with and into a
wholly-owned subsidiary of Jones Medical Industries, Inc. ("Registrant") in
accordance with Section 251 of the Delaware General Corporation Law ("DGCL").
Pursuant to the Merger, (i) each outstanding share of the common stock of
Abana (other than noted below) was converted into twenty-two one-hundredths
(0.22) of a share of the Common Stock of the Registrant; (ii) fractional share
interests in the Common Stock of the Registrant arising from the Merger and
conversion were settled in cash, based on the closing bid price of $36.25 per
share of the Registrant's Common Stock on the Closing Date as quoted by the
Nasdaq National Market; and (iii) shares of the common stock of Abana held in
Abana's treasury or which were beneficially owned by the Registrant were
canceled and retired. No holders of the common stock of Abana exercised
statutory appraisal or dissenters' rights in respect of the Merger under
Section 262 of the DGCL nor did they object in writing to the adoption of the
Merger and the agreements relating to the Merger by Messrs. Perry N. Cole and
Dale E. Eads, holders of approximately 58% of the outstanding common stock of
Abana (the "Principal Holders"). Accordingly, an aggregate of 420,554 shares
of the Registrant's Common Stock were issued to the Abana shareholders,
together with cash in the amount of approximately $677 in settlement of
fractional share interests.
<PAGE> 2
Under the terms of the agreements relating to the Merger, an aggregate of
60,000 shares of the Registrant's Common Stock received by the Principal
Holders has been placed in escrow to provide indemnification to the Registrant
in connection with certain representations and covenants contained in said
agreements. Holders of the common stock of Abana other than the Principal
Holders were not required to provide indemnification to the Registrant or to
escrow any shares of the Common Stock of the Registrant received pursuant to
the Merger. As of March 31, 1998, the number of shares held in escrow will be
reduced to approximately 10,000 shares the Registrant's Common Stock (plus such
additional number of shares of the Registrant's Common Stock , if any, as may
be needed in respect of claims pending, but not resolved, as of March 31,
1998); provided, however, that if the time for asserting claims has expired, no
retention of shares of the Registrant's Common Stock will be required. Final
distribution of the shares held in escrow shall occur at the later of (i) the
date upon which all pending claims against the escrow are resolved and (ii)
September 15, 1999.
Abana, formed in 1988 by the Principal Holders, is engaged in the
marketing, distribution and sale of generic pharmaceutical products marketed as
prescription drugs. Headquartered in Birmingham, Alabama, Abana's primary area
of operations is in the southeastern and south-central United States, where it
markets its products through a network of trained medical sales
representatives. Abana distributes seven (7) generic pharmaceuticals under its
own trademarks and trade names. Abana has grown to approximately $6 million in
annual sales and sixty-five (65) employees which include fifty-five (55)
full-time pharmaceutical sales representatives.
Abana is a distributor of its own brand name prescription pharmaceutical
products. Abana's customers are drug wholesale companies, which distribute the
products to retail pharmacies. Abana's sales respresentatives make sales
presentations and sample the products directly to the prescribing physicians.
Abana's product line is categorized in three (3) distinct areas: analgesics;
cough and cold products; and weight control products.
The offer and sale of the Common Stock of the Registrant in connection
with the Merger (other than with respect to respect to shares of the
Registrant's Common Stock issuable to the Principal Holders) was registered
under the Securities Act of 1933, as amended (the "Securities Act"), by the
filing of a Registration Statement on Form S-4 ("Registration Statement") with
the Securities and Exchange Commission ("Commission") on November 8, 1996
(Registration No. 333-15889). The Registration Statement was declared
effective by the Commission on November 21, 1996. Included in the Registration
Statement are: (i) the Financial Statements of Abana for the years ended
December 31, 1993, 1994 and 1995; and (ii) the Unaudited Pro Forma Condensed
Combined Financial Statements of the Registrant and Abana for the nine months
ended September 30, 1996.
With respect to shares of Common Stock of the Registrant issued
to the Principal Holders pursuant to the Merger, the offer and sale of such
Common Stock of the Registrant is not being registered under the Securities Act
of 1933, as amended (the "Securities Act"), in reliance by the Registrant upon
the availability of one or more exemptions from the requirements of Section 5
of the Securities Act. The certificates evidencing such shares issued to the
Principal Holders are
2
<PAGE> 3
subject to "stop transfer" restrictions and bear appropriate restrictive
legends which will be removed from such certificates at such times as the
holding period under Rule 144 of the Securities Act ("Rule 144") establishes
that, in accordance with paragraph (k) of Rule 144, volume limitations and
notice of sale requirements are no longer applicable. Pursuant to the
agreements relating to the Merger, the Registrant has provided certain
Securities Act registration rights to the Principal Holders in the event that
they elect to sell shares received in the transaction prior to the time at
which Rule 144 becomes available.
Each of the Registrant and Abana have agreed to bear their respective
expenses incurred in connection with the Merger. Funds for the payment of
expenses relating to the Merger, estimated at $200,000 with respect to the
Registrant, and $75,000 with respect to Abana, were provided from the available
working capital of the Registrant or Abana, as the case may be.
Since June 1, 1992, the Registrant has been the holder of an aggregate of
362,159 shares of the common stock of Abana, representing approximately 16% of
the outstanding common stock of Abana. Dennis M. Jones, Chairman of the Board
and President of the Registrant, served as a director of Abana from June, 1992,
until October, 1996, in accordance with rights granted to the Registrant in
connection with its acquisition of such shares of the common stock of Abana.
As a result of the Registrant's investment in Abana and Mr. Jones' position as
a member of the board of directors of Abana, the Registrant has been familiar
with the development of Abana's product lines and marketing and sales efforts
since 1992.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
(c) Exhibits.
Exhibit No. Exhibit
2.1 Plan of Reorganization and Agreement
dated as of October 24, 1996, by and among
Registrant, Abana Pharmaceuticals, Inc.,
Dale Eads and Perry Cole (included as
Exhibit 2.1 to the Registrant's
Registration Statement on Form S-4
(Registration No. 333-15889) filed with the
Securities and Exchange Commission on
November 8, 1996).
3
<PAGE> 4
2.2 Indemnification and Escrow Agreement
dated as of December 31, 1996 by and among
Registrant, Dale Eads, Perry Cole and Mark
Twain Bank as Escrow Agent.
2.3 Certificate of Merger of Abana
Pharmaceuticals, Inc. into Abana
Acquisition Corporation.
99 .1 Registrant's Press Release announcing
completion of the acquisition transaction.
The Registrant agrees to furnish supplementally a copy of any schedules
or other attachments to the above exhibits to the Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JONES MEDICAL INDUSTRIES, INC.
By: /s/ Dennis M. Jones
----------------------------
Name: Dennis M. Jones
Title: President
Date: January 9, 1997
4
<PAGE> 1
INDEMNIFICATION AND ESCROW AGREEMENT
This Agreement is made and entered into this 31st day of
December, 1996, by and among JONES MEDICAL INDUSTRIES, INC., a
Delaware corporation ("JMED"), Dale Eads and Perry Cole, individually and as
Principal Holders of the capital stock of Abana Pharmaceuticals, Inc.
("Abana"), a Delaware corporation, and Mark Twain Bank, a Missouri banking
association, as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Plan of Reorganization and Agreement,
dated as of October 24, 1996 (the "Reorganization Agreement"), by
and among JMED, Abana, and the Principal Holders, Abana is to be
merged (the "Merger") with and into Abana Acquisition Corporation
("AAC," a wholly-owned subsidiary of JMED); and
WHEREAS, the Reorganization Agreement provides that the
obligations of JMED to the transactions contemplated thereby are
subject to the execution and delivery as of the Closing Date (as
defined in the Reorganization Agreement) of this Agreement
providing (i) for indemnification of JMED (and of AAC as the
surviving corporation in the Merger) by the Principal Holders in
respect of certain matters and (ii) for the delivery of certain
shares of the Common Stock of JMED into Escrow to secure such
indemnification and provide for pro-rata participation by the
Principal Holders in accordance with their respective deposits of
such shares; and
WHEREAS, the Escrow Agent is willing to act as escrow agent hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual promises,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE ONE: INDEMNIFICATION
Section 1.1 Indemnification
1.1.1 Each Principal Holder jointly and severally agrees to indemnify and
hold JMED harmless from and against any loss, claim, damage, liability or
expense (hereinafter, collectively "Claims") suffered by JMED, or by AAC as the
Surviving Corporation under the transactions contemplated by the Reorganization
Agreement, including reasonable attorneys' fees and expenses incurred by JMED
or AAC in the defense of such claims, and arising from:
<PAGE> 2
(i) any failure of Abana to observe, perform and discharge its
covenants, agreements and undertakings set forth in the
Reorganization Agreement, including without limitation, those set
forth in Sections 3.4 and 3.5 of the Reorganization Agreement;
(ii) any breach, failure, omission or untruth of the
representations and warranties of Abana and the Principal Holders
with respect to the representations and warranties set forth in
Article VII of the Reorganization Agreement; and
(iii) the amounts, if any, (A) of any claims to entitlement to
business, financial advisory fees or other brokerage fees or
commissions arising in connection with the transactions
contemplated by the Reorganization Agreement on behalf of Abana or
any Principal Holder or (B) by which expenses incurred by or on
behalf of Abana for consulting, legal and accounting fees and cost
reimbursements in connection with the Reorganization Agreement and
the transactions contemplated thereby exceed $75,000, or (C) by
which bonuses paid or payable by Abana to the Principal Holders or
to any other employee exceed the bonus amounts disclosed on
Schedule 3.4 to the Reorganization Agreement;
provided, however, that such indemnification shall be limited as hereinafter
provided.
1.1.2 JMED and each Principal Holder further agree that except as
otherwise agreed in writing between JMED and Abana at or prior to the Closing
Date, any waiver given by JMED to any breach or failure of any covenant or
representation which is a condition to JMED's obligations to the transactions
contemplated by the Reorganization Agreement shall not prevent JMED from
asserting a Claim if such breach or failure is otherwise entitled to
indemnification under the provisions of this Agreement; however, in the event
of a Claim based upon any such breach or failure disclosed in writing to JMED
at or prior to the Closing Date, then in the event that JMED elects to proceed
with Closing, the indemnification to JMED provided for herein shall be limited
to sixty percent (60%) of the aggregate loss, claim, damage or expense
resulting from such breach or failure.
Section 1.2 Limitation as to Maximum Amount of Claim.
The indemnification pursuant to Section 1.1 shall be provided solely from
the assets deposited into and held as the Escrow Fund pursuant to Article Two
of this Agreement and except for the pro-rata beneficial interest of each
Principal Holder in the assets comprising the Escrow Fund, no Principal Holder
shall be directly liable to JMED or AAC as a result of the indemnification
provided herein.
Section 1.3 Limitation as to Minimum Amounts of Certain Claims.
JMED agrees with each Principal Holder that it shall not be entitled to
indemnification in respect of Claims unless the amount of any Claim or Claims
asserted equals or exceeds the following threshold amounts:
2
<PAGE> 3
(i) as to Claims arising under clause (i) or clause (iii) of Section
1.1 above and with respect to Claims, if any, from a breach,
failure, omission or misrepresentation of or in the representations
contained in paragraph 7.6 of the Reorganization Agreement, no
minimum or threshold shall be required and JMED shall be entitled
to assert, establish and collect with respect to all such Claims;
and
(ii) as to Claims arising under clause (ii) of Section 1.1 above
other than with respect to Claims arising pursuant to paragraph 7.6
of the Reorganization Agreement, no indemnification shall be
required until the aggregate of all Claims equals $50,000 but if
such aggregate is reached, JMED shall be entitled to
indemnification in respect of all such Claims.
In determining whether the $50,000 threshold established in clause (ii) above
is reached, there shall be excluded Claims under clause (i) above as to which
no threshold applies.
Section 1.4 Limitation in Respect of Time to assert Certain Claims.
1.4.1 Except with respect to Claims arising under paragraph 7.5 of the
Reorganization Agreement, JMED shall not assert Claims for indemnification
hereunder after March 31, 1998. JMED may assert Claims arising under paragraph
7.5 of the Reorganization Agreement until the earlier of (i) thirty (30) days
following the completion of any and all audits of the federal and state tax
returns of Abana for periods ending on or prior to the Closing Date or (ii)
September 15, 1999. Notwithstanding the foregoing, JMED acknowledges that (i)
the preparation, filing and final payment with respect to federal and state
income tax returns of Abana for periods subsequent to December 31, 1995
(collectively, the "Final Returns") will be the responsibility of AAC as the
Surviving Corporation and, therefore, subject to control by JMED and (ii) that
JMED's entitlement to assert any Claim for taxes due in such Final Returns
shall be limited to the amount, if any by which payments or accruals in respect
of such taxes, as reflected on the Abana Interim Statements, are less than the
amount of such payments or accruals which should have been made or reflected as
of September 30, 1996.
1.4.2 JMED agrees that it will not, without the written consent of the
Principal Holders, consent or agree or permit AAC to consent or agree to any
extension or waiver of the statute of limitations with respect to the federal
income tax returns of Abana.
Section 1.5 Notice of All Claims to the Principal Holders.
In addition to notices to the Escrow Agent and to the Principal Holders in
respect of Claims by JMED for indemnification from the Escrow Fund as
hereinafter provided, JMED shall give notice to the Principal Holders in
respect of Claims as to which it is not currently entitled to indemnification
as a result of the thresholds applicable under Section 1.3 above. The amount of
such Claims shall be recorded and applied against the applicable threshold
unless either Principal Holder objects in writing to such Claims within thirty
(30) days, in which event the Claims will be resolved as set forth in Section
2.2 hereof.
3
<PAGE> 4
Section 1.6 Third-Party Claims; Participation in Defense.
In the case of any Claim which arises as the result of an assertion of a
claim against JMED or AAC by a third party, including without limitation any
government or regulatory body, JMED agrees that the Principal Holders may, at
their expense (subject to reimbursement as provided in Article Two below),
participate in the defense of such third party claim, provided, however, that
unless JMED shall otherwise consent in writing JMED shall have the sole right
to defend, settle or compromise as to any such third party claim which (a)
affects either the reputation or future operations of JMED or AAC or (b) has an
aggregate value exceeding the then value of the Escrow Fund in excess of any
pending asserted Claims. Notwithstanding the right of the Principal Holders to
participate in the defense of certain third party claims, the right to settle
or compromise such claims shall rest solely with the party or parties of record
against whom such claim is asserted by the third party; provided, however, that
(i) no Claim for indemnification hereunder shall exist with respect to the
amount, if any, by which the ultimate cost of such claim (including the defense
thereof) exceeds the sum of the amount of any settlement or compromise thereof
rejected by JMED but accepted by both Principal Holders and by the third party
claimant(s) plus the cost of defense in respect thereof as of the date of such
consent and (ii) in the event that JMED or AAC shall elect to settle or
compromise such third party claim over the objection of the Principal Holders,
JMED shall have the burden in any Claim asserted by it hereunder against the
Principal Holders in establishing that the amount of such settlement was fair
and reasonable in the circumstances.
Section 1.7 JMED Claim to Include Certain Costs and to Reflect Certain
Recoveries.
1.7.1 Subject only to the limitation in Section 1.2 above, the amount of
any indemnification to which JMED is otherwise entitled under this Agreement
shall include, without limitation, its reasonable costs and expenses in
enforcing its rights under this Agreement but only to the extent that it is
entitled to an award or payment in respect of the matter as to which its Claim
relates.
1.7.2 The amount of any loss, claim, damage or liability included by JMED
in any Claim for indemnification hereunder shall be computed net of any net
benefit or recovery (other than the benefit or recovery due from the Principal
Holders hereunder) received or receivable by JMED. Accordingly and without
limiting the generality of the foregoing, (i) any claim arising from the
assertion of additional tax liabilities due from Abana shall be offset to the
extent of any current or future tax deduction or benefit due JMED, adjusted to
reflect, if appropriate, the loss of use of funds pending the realization of
any such future benefit and (ii) any claim or loss which is partially or wholly
offset by insurance recovery shall be reduced by such recover, net of any
increase in future insurance costs arising directly therefrom.
4
<PAGE> 5
ARTICLE TWO: THE ESCROW
Section 2.1. Establishment of Escrow Fund.
Simultaneously with the execution of this Agreement, JMED and the
Principal Holders are delivering to the Escrow Agent stock certificates
evidencing 60,000 shares of the Common Stock, par value $0.04 per share of JMED
(the "Jones Stock"), to be registered in the name of Escrow Agent. The Jones
Stock is delivered equally on behalf of the Principal Holders and each
Principal Holder shall have a pro-rata interest in the assets comprising the
Escrow Fund in accordance with such Principal Holder's percentage of the
aggregate shares of the Jones Stock initially deposited to constitute the
Escrow Fund, as the same may be modified due to any "non-pro rata"
distributions to the Principal Holders in accordance with the provisions of
this Agreement. The Escrow Agent hereby acknowledges receipt of the
certificate evidencing the Jones Stock.
Section 2.2. Claims Against the Escrow Fund.
2.2.1 Purpose of Escrow. The Escrow Fund shall secure the obligations of
the Principal Holders pursuant to Article One of this Agreement subject to the
release or distribution of the shares constituting the Escrow Fund as provided
in this Agreement.
2.2.2 Notices. If at any time on or before the expiration of the Escrow
Fund as hereinafter provided, JMED shall claim a right to payment pursuant to
Article One of this Agreement, JMED shall notify the Escrow Agent and the
Principal Holders in writing. Such notice shall specify the basis of such
Claim. If such Claim is liquidated in amount, the notice shall so state, and
such amount shall be deemed the amount of the Claim of JMED against the Escrow
Fund. If the amount is not liquidated, then (i) the notice shall so state and
shall state JMED's good faith estimate of the amount of such Claim, and a claim
shall be deemed asserted against the Escrow Fund on behalf of JMED, but no
payment shall be made on account thereof until the amount of such Claim is
liquidated and (ii) promptly after the amount of such unliquidated Claim shall
have become liquidated, JMED shall notify the Escrow Agent and the Principal
Holders in writing of the liquidated amount of such Claim, and such amount
shall be deemed the amount of the claim of JMED against the Escrow Fund. Any
notice of a Claim pursuant to this Section 2.2.2 that states the liquidated
amount of such Claim of JMED against the Escrow Fund shall be referred to
herein as a "Liquidated Claim Notice."
2.2.3 Consent to Validity of Claim. If neither Principal Holder, within
thirty (30) days after the mailing of a Liquidated Claim Notice, advises the
Escrow Agent in writing that he disputes JMED's rights asserted in such notice,
then the Escrow Agent shall pay to JMED, in accordance with the provisions of
Section 2.3 of Article Two hereof, the amount of JMED's Claim stated in such
notice. Such payment shall be made promptly after the end of the thirty-day
period mentioned above.
2.2.4 Dispute. If either or both of the Principal Holders shall, within
the thirty-day period referred to in Section 2.2.3 hereof, notify the Escrow
Agent in writing that he or they, as the case may be, dispute JMED's rights
asserted in any Liquidated Claim Notice, then said Principal Holder(s) shall
give written notice to JMED of such dispute. As promptly thereafter as
possible, JMED and the
5
<PAGE> 6
Principal Holder(s) shall endeavor to settle and compromise the subject Claim,
or may agree to submit the same to arbitration, and, if unable to agree on any
settlement or compromise or on submission to arbitration, such Claim shall be
settled by litigation or by any other means chosen by the parties jointly or
individually. Upon final determination of the merits of such Claim, JMED and
the Principal Holder(s) shall notify the Escrow Agent (either by means of a
written instrument executed by JMED and the Principal Holder(s), a certified
copy of the arbitration decision, or a certified copy of any court judgment) of
the terms of such determination. Upon receipt of such document (the
"Settlement Document"), the Escrow Agent shall thereupon pay the amount (if
any) indicated in such Settlement Document to JMED in accordance with the
provisions of Section 2.3 of Article Two hereof. Nothing set forth in this
Agreement shall prevent a Principal Holder (without the consent of any other
Principal Holder) from settling all or part of a Claim with respect to his pro
rata share of the Escrow Fund.
2.2.5 No Payment on Claims Unless Threshold Met. Anything to the contrary
in this Agreement notwithstanding, no payment in respect of a Claim shall be
made unless such Claim meets or exceeds the applicable minimum set forth in
Section 1.3 above.
Section 2.3. Payments by Escrow Agent.
2.3.1 Transfer of Cash to JMED. If the Escrow Agent is required to make
any payment to JMED pursuant to this Agreement, then to the extent any cash is
available in the Escrow Fund, any and all payments made to JMED shall first be
made from said cash in the Escrow Fund. If the cash available in the Escrow
Fund shall be insufficient to make such payment in full, then Escrow Shares or
other property shall be transferred to JMED as set forth in Section 2.3.2.
2.3.2 Transfer of Escrow Shares or Other Property to JMED. If there is
insufficient cash in the Escrow Fund to satisfy any payments to JMED required
by Sections 2.2.3 or 2.2.4 hereof, then the Escrow Agent shall make such
payment, or any unpaid balance thereof, by transferring to JMED a portion of
the shares or other securities or property in the Escrow Fund, or any
combination thereof, having a value (determined in accordance with Section
2.3.3 hereof) equal to the dollar amount of such required payment or unpaid
balance thereof.
2.3.3 Valuation of Escrow Shares or Other Property. For purposes of any
transfer pursuant to Section 2.3.2, the value of such shares of the Jones
Stock held in the Escrow Fund shall be an amount equal to the average closing
price per share for the JMED Common Stock as reported by the Nasdaq National
Market quotation system for the ten trading days preceding the date of the
Escrow Agent's payment to JMED. In the event of any exchange listing for JMED
Common Stock, such exchange closing price shall replace the Nasdaq National
Market quotation system.
2.3.4 No Fractional Shares. The number of the shares of the Jones Stock
to be transferred pursuant to Section 2.3 at any time shall not include a
fractional share; JMED may, at its sole option, elect either to waive such
fractional share interest or to purchase the balance of such fractional share
interest based on the value of the JMED Common Stock used in Section 2.3.3
above.
6
<PAGE> 7
Section 2.4. Rights as to Escrow Shares During Term of This Agreement.
2.4.1 Voting. The Escrow Agent shall exercise all rights and privileges
of election, voting and consent with respect to the shares of Jones Stock and
other securities in the Escrow Fund in accordance with the written instruments,
if any, received by the Escrow Agent from the respective Principal Holders.
2.4.2 Dividends. Any cash dividends paid with respect to the shares the
Jones Stock, and any cash dividends or interest paid with respect to other
securities in the Escrow Fund, shall be paid to the Escrow Agent. The Escrow
Agent shall promptly pay the amount of any such dividends or interest to the
Principal Holders in accordance with their pro-rata interests in the Escrow
Fund as of the date such income is received.
2.4.3 Other Distributions. All other securities or property distributed
from time to time with respect to the assets comprising the Escrow Fund,
including without limitation, any JMED securities issued as a result of any
stock dividend, stock split, consolidation of shares, reclassification, or
other reorganization, any noncash dividends, and any distributions (either cash
or noncash) in complete or partial liquidation of JMED, shall be deemed to be a
part of the Escrow Fund and shall be held by the Escrow Agent pursuant to the
provisions of this Agreement.
Section 2.5. Distributions from Escrow Fund
2.5.1. First Distribution to Principal Holders. On March 31, 1998, there
shall be released from escrow such portion of the assets then comprising the
Escrow Fund as shall exceed (i) 10,000 shares of Jones Stock plus (ii) such
additional assets as are necessary to satisfy in full any pending asserted
Claims, whether or not then liquidated in amount, as to which JMED or AAC may
be entitled to indemnification under the provisions of Article One of this
Agreement. In the event that the time for asserting Claims arising under
paragraph 7.5 of the Reorganization Agreement shall have expired as of March
31, 1998, the retention of shares of pursuant to clause (i) of this Section
2.5.1 shall not be required. In the event of any stock dividends or stock
splits applicable to the Jones Stock subsequent to the date of this Agreement,
the 10,000 share figure used herein shall be adjusted to include the additional
shares of Jones Stock arising from such stock dividends or stock splits.
2.5.2 Final Distribution to Principal Holders. Unless all assets
comprising the Escrow Fund shall have been distributed in accordance with
Section 2.5.1 above, the remaining assets comprising the Escrow Fund shall,
unless JMED shall consent to an earlier distribution in whole or in part, be
distributed and released from escrow at the later of (i) the date upon which
all pending Claims by JMED or AAC for indemnification have been resolved or
(ii) the earlier of (a) thirty (30) days following the completion of any and
all audits of the federal and state tax returns of Abana for periods ending on
or prior to the Closing Date or (b) September 15, 1999.
2.5.3 Method of Distribution. In connection with any distribution to the
Principal Holders pursuant to this Section 2.5, distribution shall be made
first to the Escrow Agent in reimbursement of any expenses incurred by it in
connection with its duties hereunder or in defense of Claims by
7
<PAGE> 8
JMED or third party claims and then pro rata to the Principal Holders in
accordance with their respective beneficial interests in the assets comprising
the Escrow Fund.
Section 2.6. Termination of Escrow Fund.
The Escrow established hereby shall terminate at the time all
distributions required under Section 2.5 above have been completed.
Section 2.7. Escrow Agent.
2.7.1 Duties. In performing any of its duties hereunder, the Escrow Agent
shall not incur any liability to anyone for any damages, losses or expenses,
except for bad faith, willful default or breach of trust, and accordingly, the
Escrow Agent shall not incur any such liability with respect to any action
taken or omitted (a) in good faith upon advice of its counsel given with
respect to any action taken or omitted (b) in good faith upon advice of its
counsel given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement, or (c) in reliance
upon any instrument not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed or presented by a proper person or
persons and to conform with the provisions of this Agreement.
2.7.2 Indemnity. JMED and the Principal Holders hereby jointly and
severally agree to indemnify and hold harmless the Escrow Agent against any and
all losses, claims, damages, liabilities and expenses, including reasonable
costs of investigation and counsel fees and disbursements, which may be imposed
upon the Escrow Agent or incurred by the Escrow Agent in connection with its
acceptance of appointment as the escrow agent hereunder, or the performance of
its duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof.
2.7.3 Disputes. In the event of a dispute between the parties hereto
sufficient in the discretion of the Escrow Agent to justify its doing so, the
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hand under this
Agreement, together with such legal pleadings as it deems appropriate, and
thereupon be discharged from all further duties and liabilities under this
Agreement. Any such legal action may be brought in such court as the Escrow
Agent shall determine to have jurisdiction thereof. The filing of any such
legal proceedings shall not deprive the Escrow Agent of its compensation earned
prior to such filing.
2.7.4 Fees. The Escrow Agent's fees hereunder shall be $1,000 per annum,
the first installment of which has been paid to the Escrow Agent by JMED
contemporaneously with the
8
<PAGE> 9
execution of this Agreement. Subsequent annual installments shall be paid by
JMED upon receipt of invoices therefor from the Escrow Agent.
ARTICLE THREE - MISCELLANEOUS
3.1 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon JMED, the Principal Holders and the Escrow Agent and
their respective heirs, personal representatives, successors and assigns.
3.2 Interests of Principal Holders; Non-Assignability.
Neither the Escrow Agent nor JMED shall be required to give effect to any
attempted sale or transfer of an interest in the Escrow Fund, other than a
transfer by operation of law to the estate or personal representative of a
Principal Holder.
3.3 Construction. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of the State of Missouri. No provision of this Agreement or any
related document shall be construed against or interpreted to the disadvantage
of any party hereto by any court or other governmental or judicial authority by
reason of such party's having or being deemed to have structured or drafted
such provision.
3.4 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
3.5 Notices. All notices or other communications required or permitted to
be given hereunder shall be deemed validly given if in writing and sent (i) by
certified United States Mail, postage prepaid, return receipt requested, (ii)
by prepaid independent overnight courier or delivery service, or (iii) by
confirmed tele-facsimile communication with receipt acknowledged from the
receiving machine, and addressed as follows:
If to the Principal Holders, as follows:
Dale E. Eads
259 Norwick Forest Drive
Alabaster, AL 35007
facsimile:(205) 669-6877
Perry N. Cole
3508 Altabrook Drive
Birmingham, AL 35243
facsimile:
9
<PAGE> 10
With a copy to:
Sirote & Permutt
2222 Arlington Avenue South
P.O. Box 55727
Birmingham, Alabama 35255-5727
Attn: John H. Cooper, Esq.
facsimile: 205-930-5301
If to JMED, as follows:
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, Missouri 63146
Attn: President
facsimile: 314-469-5749
With a copy to:
Greensfelder, Hemker & Gale, P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attn: Edward A. Chod, Esq.
facsimile:314-241-8624
If to the Escrow Agent, addressed to:
Mark Twain Bank
P.O. Box 14259-A
St. Louis, Missouri 63178
Attn: Hary Starr
or in any case to such other address or addresses as hereafter shall be
furnished by any party hereto to the other party.
3.6 Registration and Sale of Jones Stock. The shares of the Jones Stock
deposited as, and initially constituting, the Escrow Fund are subject to
registration rights granted by JMED in Article II of the Reorganization
Agreement. In the event that such shares shall be registered for offering and
sale under the Securities Act of 1933 at the request of the Principal Holders
in accordance with such rights, such shares may be sold by the Escrow Agent in
the discretion and as directed by a Principal
10
<PAGE> 11
Holder with respect to his pro rata share of said Jones Stock. Any such sale
shall be allocated to such selling Principal Holder. In the event of any such
sale, the proceeds shall be invested in U.S. Government securities or such
other investments to which JMED shall consent.
3.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
3.8 Modification. This Agreement may be modified only by a written
instrument signed by JMED, the Principal Holders and the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
JONES MEDICAL INDUSTRIES, INC.
By /s/ Dennis M. Jones
-----------------------
Name: Dennis M. Jones
Title: President
MARK TWAIN BANK
By /s/ Hary Starr
-----------------------
Name: Hary Starr
--------------------
The Principal Holders: Title: Executive Vice-President
-------------------------
/s/ Dale E. Eads
- -----------------------------
Dale E. Eads
/s/ Perry N. Cole
- -----------------------------
Perry N. Cole
11
<PAGE> 1
CERTIFICATE OF MERGER
OF
ABANA PHARMACEUTICALS, INC.
INTO
ABANA ACQUISITION CORPORATION
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Abana Pharmaceuticals, Inc. Delaware
Abana Acquisition Corporation Delaware
SECOND: That an agreement of merger ("Agreement of Merger") between the
parties to the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 251 of the General Corporation Law of Delaware.
THIRD: That the Agreement of Merger was duly adopted pursuant to Section
228 of the General Corporation Law of Delaware by the written consent of the
stockholders holding 1,323,864 shares of the capital stock of Abana
Pharmaceuticals, Inc., same being more than a majority of the shares issued and
outstanding having voting power.
FOURTH: That written notice of adoption of the Agreement of Merger has
been given as provided in Section 228 of the General Corporation Law of
Delaware to every stockholder entitled to such notice.
<PAGE> 2
FIFTH: That the name of the surviving corporation of the merger is Abana
Acquisition Corporation.
SIXTH: That the Certificate of Incorporation of Abana Acquisition
Corporation, a Delaware corporation, which will survive the merger, shall be
the Certificate of Incorporation of the surviving corporation with the
exception that the Certificate of Incorporation is hereby amended by deleting
Article One in its entirety and inserting in lieu thereof a new Article One to
read in words and figures as follows:
ARTICLE ONE
The name of the Corporation is JMI-Abana Pharmaceuticals, Inc.
SEVENTH: That the executed Agreement of Merger is on file at the
principal place of business of the surviving corporation, the address of which
is 1945 Craig Road, St. Louis, Missouri 63146.
EIGHTH: That a copy of the Agreement of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
NINTH: That this Certificate of Merger shall be effective on December 31,
1996.
Dated: December 31, 1996
ABANA ACQUISITION CORPORATION
By /s/ Dennis M. Jones
---------------------------
Dennis M. Jones, President
2
<PAGE> 1
[Jones Medical Industries, Inc. Letterhead]
FOR IMMEDIATE RELEASE JANUARY 2, 1997
JONES MEDICAL COMPLETES ABANA PHARMACEUTICALS
ACQUISITION
St. Louis, MO - Jones Medical Industries, Inc. (NASDAQ: JMED) today announced
the completion of the acquisition of Abana Pharmaceuticals, Inc., of
Birmingham, Alabama, effective as of the close of business on December 31,
1996. JMED issued an aggregate of approximately 420,000 shares of its common
stock in exchange for the 84% of Abana held by other investors.
Abana is a growing regional marketer of specialty prescription pharmaceuticals,
principally branded generic products used by internists in the treatment of
chronic conditions and respiratory ailments. The company has grown to
approximately $6 million in annual sales and sixty-five employees which include
fifty-five full-time sales representatives. Abana generated its first
profitable year in 1995. In 1992 Jones Medical acquired approximately 16% of
Abana.
Dennis M. Jones, Chairman and CEO of JMED, observed that "The Abana acquisition
increases our total field sales headcount to more than 100 sales personnel and
represents a fitting strategic conclusion to a year of extraordinary growth for
the company. The established physician sales force, in place as a result of
the August 1996 acquisition of Daniels and the Abana acquisition, enables us to
expand our strategy of aggressively promoting our recently expanded portfolio
of prescription driven drug products. I believe that the growth of Tapazole(R)
and Levoxyl(R) will accelerate with an 85 person national sales force directed
toward prescribing physicians."
<PAGE> 2
Jones Medical Industries, Inc., founded in 1981, is an emerging specialty
pharmaceutical manufacturer and niche marketer of prescription pharmaceuticals,
hospital pharmaceuticals and nutritional products. The Company has five
manufacturing facilities and employs approximately 500 people.
Jones Medical has now made a total of fifteen strategic acquisitions, four of
which were completed in the past fourteen months. In September, 1995, the
Company acquired the exclusive U.S. marketing rights to Eli Lilly and Company's
I.V. anesthetic, Brevital(R), which competes within a $525 million U.S. market.
In March, 1996, the Company acquired the exclusive U.S. marketing rights to
Eli Lilly and Company's anti-thyroid product, Tapazole(R), which is for the
treatment of hyperthyroidism (Graves Disease). In August, 1996, the Company
acquired Daniels Pharmaceuticals whose leading product is the second most
widely prescribed brand of Levothyroxine, Levoxyl(R), which is for the
treatment of hypothyroidism and competes within a $300 million U.S. market.
Jones Medical has an ongoing strategy of screening strategic acquisition
opportunities in its quest to achieve $250 million in annual sales by the year
2000.
For further information contact Investor Relations at (314) 576-6100.
2
