-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DD1JUsYFKkLOHdevFc63adGPjpjXTiehthnGej1R0mqqFww1PQFuAVne1taopFON MCQtybhPh8Ar897tVWfsWA== 0000950124-96-000971.txt : 19960304 0000950124-96-000971.hdr.sgml : 19960304 ACCESSION NUMBER: 0000950124-96-000971 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960301 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES MEDICAL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000793613 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 431229854 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15098 FILM NUMBER: 96530239 BUSINESS ADDRESS: STREET 1: P.O. BOX 46903 CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3145766100 MAIL ADDRESS: STREET 1: 1945 CRAIG ROAD CITY: ST. LOUIS STATE: MO ZIP: 63146 10-K405 1 10-K405 1 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 [fee required] For the Fiscal Year Ended December 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [no fee required] 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 (State or other jurisdiction of 43-1229854 incorporation or organization) (I.R.S. Employer 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 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which Registered - ------------------- ----------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.04 par value (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 ___ 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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 23, 1996, is approximately $300 million. Number of shares outstanding of registrant's Common Stock as of February 23, 1996: 14,310,663 (as adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend to be paid March 1, 1996 to holders of record as of February 23, 1996). The following documents are incorporated by reference in Part III hereof: None 2 PART I ITEM 1. BUSINESS The following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. GENERAL Jones Medical Industries, Inc. ("JMI" or the "Company") is engaged in the manufacture, marketing and sale of pharmaceuticals and nutritional supplements. Founded in 1981, the Company markets a wide variety of pharmaceuticals and branded nutritional supplements under its own trademarks and tradenames. All of the Company's product lines have been acquired through a series of 13 acquisitions which 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 1995, sales of pharmaceuticals and nutritional supplements accounted for approximately 46% and 54% of the Company's total sales, respectively. Thrombin-JMI(TM), Thrombinar(R), Brevital(R) Sodium, Bronson(TM), Bronson Pharmaceutical(TM), MD Pharmaceutical(TM), Liqui-Char(R), Therevac(R), Derma-Scrub(R), Thyroid Strong(TM), and Westhroid(TM) are trademarks owned by or under license to the Company. All other trademarks and registered trademarks used in this Form 10-K are the property of their respective owner. BUSINESS STRATEGY The Company's business strategy is to acquire specialty product lines or operations that complement or expand the marketing or distribution of existing product lines and to develop and apply marketing initiatives to such products. The key elements of the Company's strategy include: Acquire and Build Market Share in Specialty Pharmaceuticals. Since inception, the Company has purchased domestic rights to certain specialty pharmaceuticals addressing markets such as hemostasis and anesthesia. JMI intends to continue to seek the rights to products that it believes can benefit from a focused marketing effort. Leverage Established Pharmaceutical Marketing and Sales Efforts. JMI intends to maximize productivity of its sales force through replacement of existing, lower-volume products with new products with larger market opportunities. In addition, the Company intends to raise the awareness of selected products through targeted sales efforts focused on the hospital pharmacists and health care professionals in the United States. 2 3 Expand Marketing Initiatives for Nutritional Supplements to Health Care Professionals. Since the Company acquired Bronson Pharmaceuticals in early 1993, monthly orders of nutritional supplements have grown from 27,000 to over 30,000 as of January 1996, and the average order has grown from $43 to $62 as of January 1996. JMI intends to continue to expand its marketing efforts for nutritional supplements by focusing on developing recommendations and referrals to consumers through health care professionals and introducing new products to its existing customer base. Improve Margins Through Focus on High-Margin Products and Cost Control. JMI intends to increase gross and operating margins by using sales personnel efficiently, minimizing corporate overhead and focusing on high margin products. The Company believes that by focusing on a limited number of products, the Company can increase sales by maximizing the productivity of its sales force and controlling overhead costs. PRINCIPAL PRODUCTS AND PRODUCT LINES Pharmaceuticals. The Company markets and distributes a variety of branded pharmaceuticals, which accounted for approximately 36% of the Company's sales in 1995. The Company's principal branded pharmaceuticals primarily serve the critical care segment of the health care industry and are as follows: Thrombin-JMI and Thrombinar. During invasive surgical procedures, surgeons typically limit bleeding in order to control blood loss and maintain visibility of the surgical site. Surgeons may apply pressure bandages, suture severed vessels and/or use a topical hemostatic agent to maintain the surgical site. In most cases, collagen, cellulose or thrombin-based hemostatic agents are used because of their ability to rapidly begin the clotting process. The Company's products, Thrombin-JMI and Thrombinar, are thrombin-based topical hemostatic agents derived from bovine blood. The Company's thrombin products offer advantages over collagen and cellulose products because of faster activity in the surgical site. Additionally, because of their physical characteristics, JMI's thrombin products do not need to be removed from the surgical site prior to closure, whereas non-thrombin competing products need to be removed, often leading to recurrence of bleeding. Thrombin-JMI was introduced in 1995 and differs from Thrombinar in that Thrombin-JMI does not require refrigeration, and is therefore more convenient in the operating room. The topical hemostat market was estimated to be greater than $80 million in the United States in 1995. The Company's branded thrombin products accounted for 13.8% of the United States topical hemostat market and 50.4% of the United States topical bovine thrombin market in 1995. Thrombin-JMI and Thrombinar accounted for 19.7% of total Company sales in 1995. The Company's first thrombin product, Thrombinar, was acquired by JMI from Armour 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 3 4 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. Brevital is used in short-term procedures because of its rapid onset of action and minimal recovery time. Brevital's rapid onset of action also makes it a useful induction agent for long-term general anesthesia prior to the administration of another agent to maintain the anesthesia. The I.V. anesthetic market in the United States is estimated to be $500 million. Brevital accounted for 4.2% of JMI's sales in 1995 and 10.9% of the Company's sales during the last four months of 1995. Brevital was introduced by Eli Lilly & Company ("Lilly") in 1961 and exclusively licensed in perpetuity to JMI on August 31, 1995 for sale in the United States. Other Pharmaceuticals. The Company also manufactures and distributes other critical care products and other branded pharmaceuticals under numerous trademarks and tradenames, the most prominent of which are Liqui-Char, a toxin antidote, Therevac, a mini-enema for rehabilitation therapy, Derma-Scrub, a surgical scrub, and Thyroid Strong and Westhroid, natural thyroid supplements. Combined, all other branded pharmaceutical products accounted for 12% of the Company's total sales in 1995. Nutritional Supplements. The Company markets and distributes a full line of branded nutritional supplements, which accounted for approximately 42% of the Company's total sales in 1995. The Company's branded nutritional supplements are marketed under the Bronson Pharmaceutical and MD Pharmaceutical tradenames. Bronson Pharmaceutical. The Bronson Pharmaceutical product line consists of over 260 branded vitamin, mineral and herbal extract formulations. The products include multi-vitamins, mineral formulations, individual vitamins, antioxidants, herbal formulations and personal care products. The Bronson Pharmaceutical product line accounted for approximately 36% of the Company's total sales in 1995. MD Pharmaceutical. These products are sold exclusively through military base retail outlets and consist of a broad line of branded nutritional supplements which compete with national brands. The products include multi-vitamins, mineral formulations, individual vitamins and antioxidants. The MD Pharmaceutical product line accounted for approximately 6% of the Company's total sales in 1995. MARKETING AND SALES The Company markets and promotes its products primarily through a direct sales force, direct mail, telemarketing and trade publication advertising. The Company also attends major medical conventions and symposia. The Company maintains a sales and marketing staff of approximately 4 5 40 people, and employs an additional 10 people devoted to customer service and marketing support. The Company also utilizes independent sales representatives for marketing certain products. Pharmaceuticals. The Company has a 24-person marketing and sales staff for pharmaceuticals and critical care products which includes 18 field sales personnel (including three regional managers and 15 hospital territory managers), four marketing support specialists, a hospital group contract coordinator and a product manager, all reporting to the Company's Vice President-Sales. Sales activities are focused on major hospital buying groups which, in the aggregate, manage and contract for a majority of the purchasing of pharmaceuticals for private sector hospitals through bid and contract agreements. Although the Company's marketing efforts focus upon individual hospitals' Directors of Pharmacy as the ultimate decision-maker, the Company presently has contracts for one or more product lines with substantially all of the approximately 120 major hospital buying groups and distributes pharmaceuticals nationally through approximately 320 wholesale distributors. Nutritional Supplements. The Company markets the Bronson Pharmaceutical product line directly to consumers and health care and nutritional professionals through catalogs and direct mailings to a database that, as of December 31, 1995, included approximately 18,000 health care and nutritional professionals and 530,000 mail order and retail customers, of whom approximately 135,000 purchased products directly from the Company in 1995. The Company does not rent or utilize mailing lists from other sources, preferring to focus upon generating customers through professional recommendations and referrals from current customers. The Company maintains a telemarketing sales force of 16 persons which processes approximately 29,000 orders per month with an average order of approximately $60 during 1995. Prepaid orders are received through mail order, toll-free telephone numbers or by facsimile, and are filled at the Company's distribution center in St. Louis, Missouri, usually within 24 hours of receipt, and are shipped by United Parcel Service or parcel post. In addition to direct mail sales, the Bronson Pharmaceutical product line is marketed to approximately 5,000 retail accounts. The MD Pharmaceutical product line is marketed exclusively through military outlets by approximately 30 independent sales representatives. MANUFACTURING The Company manufactures pharmaceuticals at its facilities in Canton, Ohio, Middleton, Wisconsin and St. Louis, Missouri, and manufactures and formulates nutritional supplements at its facilities in Tempe, Arizona. The Company has manufactured pharmaceuticals at its United States Food and Drug Administration ("FDA") registered Canton, Ohio, facility since March 1984. The Company processes raw materials purchased from outside sources and produces products in tablet form. Content, shape and color of such products are produced within the guidelines of FDA regulations pertaining to over-the-counter drugs or prescription drugs that were marketed prior to 1938. 5 6 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, a line of proprietary thrombin products manufactured for Johnson & Johnson Medical, Inc. ("Johnson & Johnson") under distribution and development agreements. Packaging, as well as warehousing and distribution, for certain pharmaceuticals and for nutritional supplements, is primarily conducted at the Company's distribution center and headquarters located in St. Louis, Missouri. The Company also formulates and produces liquid products such as Liqui-Char and the Derma-Scrub line at its St. Louis, Missouri facility. The Company has manufactured nutritional supplements at its facilities in Tempe, Arizona, since 1984. As in the case of pharmaceuticals, the Company processes raw materials purchased from outside sources and formulates them into final dosage form. Although, prior to the acquisition of Bronson 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. With the exception of GenTrac's agreement with Johnson & Johnson, the Company does not have long-term manufacturing contracts with its customers for contract manufacturing but instead manufactures products pursuant to purchase orders as they are received. Contract manufacturing is performed primarily for generic and private label product distributors which are not involved in manufacturing and whose products primarily consist of basic generic ethical drugs, generic over-the-counter drugs and vitamins, and private formulations of vitamins, prescription and over-the-counter drugs. Notwithstanding the absence of long-term manufacturing agreements with its contract manufacturing customers, JMI has long-standing relationships with the majority of its customers for such products. There can be no assurance, however, that such relationships will continue in the future. In 1995, the Company manufactured approximately 80% of its total products sold and approximately 60% of its branded products sold. However, the Company anticipates that these historical percentages will change since all production of thrombin products has been integrated at the GenTrac facility while Brevital is produced under contract by Lilly. 6 7 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 is manufactured for the Company by Lilly from whom the product line was acquired as of August 31, 1995. Pursuant to such acquisition, the Company obtained a perpetual, exclusive license to market and distribute Brevital in the United States. The Company has entered into a 10-year manufacturing agreement with Lilly, which may be terminated by Lilly at any time after the first five years by giving at least five years notice to the Company prior to ceasing the manufacture of Brevital. In the event of such termination, Lilly must use reasonable efforts to assist the Company in obtaining all the necessary licenses and approvals to enable the Company or an alternative manufacturer to manufacture Brevital. There can be no assurance that Lilly will continue to meet FDA or product specification standards for Brevital or that the Company's Brevital product demand can be met in a consistent and timely manner. Lilly is the sole manufacturer of Brevital and any alternative manufacturer would require regulatory change-in-site qualification to manufacture the product. In the event of any interruption in the supply of Brevital from Lilly due to regulatory or other causes, there can be no assurance that the Company could make alternative manufacturing arrangements on a timely basis, if at all. Such an interruption would have a material adverse effect on the Company's business, financial condition and results of operations. PRINCIPAL CUSTOMERS AND SUPPLIERS No one customer accounted for 10% or more of the Company's sales in 1995. GenTrac's sales of thrombin products to Johnson & Johnson were $3.5 million or 6.1% of the Company's total sales in 1995. 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 7 8 Company's ability to manufacture products is not dependent on any particular raw material supplier except as to thyroid raw materials. The Company relies on certain suppliers of key raw materials to provide an adequate supply of such materials for production of finished products. Certain materials are purchased from single sources. In particular, the manufacture of Brevital is dependent upon Lilly's ability to procure certain raw materials used in the manufacture of Brevital. Although the Company has no reason to believe that Lilly will be unable to procure adequate supplies of such raw materials on a timely basis, disruptions in supplies of Brevital, including delays due to Lilly's inability to procure raw materials, would have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The manufacture and sale of pharmaceuticals is highly competitive. Many of the Company's competitors are large well-known pharmaceutical, chemical and health care companies which have considerably greater financial, sales, marketing and technical resources than those of the Company. Additionally, many of the Company's present and potential competitors have research and development capabilities that may allow such competitors to develop new or improved products that may compete with the Company's product lines. The pharmaceutical industry is characterized by rapid product development and technological change. The Company's pharmaceuticals could be rendered obsolete or uneconomical by the development of new pharmaceuticals to treat the conditions addressed by the Company's products or as the result of technological advances affecting the cost of production, or as a result of marketing or pricing action by one or more of the Company's competitors. The Company's business, financial condition and results of operations could be materially and adversely affected by any one or more of such developments. The Company's thrombin product lines compete with those produced for and marketed by Johnson & Johnson and with thrombin products distributed by Parke-Davis, a division of the Warner-Lambert Company. The Company's thrombin products also compete with other hemostatic agents, including Gelfoam, manufactured by Pharmacia & Upjohn, Inc., and Surgicel, manufactured by Johnson & Johnson. 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. 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 8 9 Company. Many of the Company's existing and potential competitors in the nutritional supplements market have greater financial, marketing and research capabilities than the Company. TRADEMARKS The branded products sold by the Company are sold under a variety of trademarks. While the Company believes that it has valid proprietary interests in all currently used trademarks, only certain of the trademarks are registered with the United States government. The Company's license to the Brevital trademark is limited to the United States and its right to utilize the MD Pharmaceutical brand name is restricted to the United States military and its outlets. GOVERNMENT REGULATION The manufacturing, processing, formulation, packaging, labeling, storage, promotion, distribution and advertising of the Company's products are subject to extensive regulation by one 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 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, to halt manufacturing operations that are not in compliance with CGMP, and to impose civil penalties and seek criminal penalties. The restriction or prohibition on sales of products 9 10 marketed by the Company could materially adversely affect the Company's business, financial condition, and results of operation. The Company manufactures and distributes biological drugs, including thrombin, which are also regulated by the FDA. The Company's Thrombin-JMI line of products has been approved by the FDA, and the Company's GenTrac facility is licensed by the FDA to produce Thrombin-JMI and Thrombogen, a line of proprietary thrombin products manufactured for Johnson & Johnson. The Company has a pending application for a new pre-mixed liquid thrombin formulation product line. Although the Company believes that this application is in the final approval phase, additional clinical testing of the product may be required and there can be no assurance as to when or if favorable FDA action will be forthcoming. While the Company intends to pursue completion of the application process, development of the product will depend in part upon the Company's assessment of market demand for the product and upon satisfactory resolution of claims by Johnson & Johnson to certain rights in the product. See "Item 3. Legal Proceedings." 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 Drug Enforcement Administration ("DEA") of the Department of Justice. The Company has experienced regulatory challenges with respect to compliance with the foregoing regulations which have been resolved, but no assurance can be given that restrictions or fines which could have a material adverse effect upon the Company's business, financial condition and results of operations will not be imposed upon the Company. Nutritional Supplements. Although the manufacturing and production of nutritional supplements has historically been subject to less intensive regulation than pharmaceutical products, government oversight in this area is currently increasing. Under the Dietary Supplement Health & Education Act of 1994, the FDA may exercise increased authority over the labeling and sales of vitamin and mineral supplements. In addition, the United States Postal Service and the FTC regulate advertising claims with respect to the Company's products sold by solicitation through the mail. Recent proposed regulations issued by the FDA require the relabeling of dietary supplements with regard to nutrition labeling ingredient information and nutrient content claims. The proposed rules are not due to become effective until January 1997 and may be modified prior to final adoption. The FDA and other federal authorities are also reviewing alternative approaches to assure the safety of vitamins, minerals, herbal extracts and other products sold as nutritional supplements. Although no current regulatory approval is required prior to or after the introduction of a new nutritional supplement, the FDA must be notified regarding the use of new dietary ingredients and future regulation could result in a recall or discontinuance of certain products. The Company believes that it is in material compliance with applicable laws and regulations concerning nutritional supplements. Moreover, the Company believes that its experience in the manufacture and sale of pharmaceuticals, and its use of certain manufacturing processes and controls uniformly across all product lines, will enable the Company to comply with regulations, record 10 11 keeping, testing and manufacturing standards which may be applied to nutritional supplements. Nevertheless, increased regulatory oversight could subject the Company and other manufacturers of nutritional supplements to increased production and compliance costs and possibly require capital expenditures. 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, 1996, the Company had 334 full-time employees: 191 in manufacturing, 50 in sales, 40 in finance and administration, 29 in quality assurance, and 24 in distribution. The Company believes that its relationship with its employees is good. 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 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 12 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. L-Tryptophan Claims. Many distributors and marketers of nutritional supplements have been subjected to claims relating to the manufacture or distribution of L-Tryptophan. The Company is, and has in the past been, a defendant in such lawsuits filed throughout the United States. The plaintiffs in these lawsuits generally allege damages resulting from the ingestion of a product known as L-Tryptophan. In suits involving the Company, the Company has been one of many defendants, and the manufacturer of L-Tryptophan, Showa Denko, has agreed to indemnify the Company (including Bronson) from all costs and damages with respect thereto to the extent that the product distributed by the Company was produced by Showa Denko. Any such lawsuits involving Bronson have been tendered to Bronson's insurance carrier under a policy which does not exclude L-Tryptophan claims. As a result of the indemnity provided by Showa Denko with respect to these types of lawsuits, and the product liability insurance maintained by Bronson prior to its acquisition by the Company, it is not anticipated that the Company will have any material liability with respect to these types of lawsuits. However, in the event that Showa Denko is unable to satisfy or fulfill its obligations under the indemnity, the Company would have to defend such lawsuits and be responsible for damages, if any, which are awarded against it or for amounts in excess of Bronson's insurance coverage of $1.0 million per claim and $1.0 million in the aggregate. Johnson & Johnson Claims. Under development and distribution agreements between GenTrac and Johnson & Johnson entered into prior to the Company's acquisition of GenTrac, Johnson & Johnson acquired certain rights to new thrombin products and thrombin product improvements developed by GenTrac. Johnson & Johnson has notified the Company that it believes that it is entitled to exclusive distribution rights for Thrombin-JMI and a liquid thrombin product for which FDA approval is currently pending. Although the Company strongly disagrees with and will vigorously contest such claims by Johnson & Johnson, any resolution of the claims in favor of Johnson & Johnson could have a materially adverse effect on the Company's business, financial condition or results of operations, notwithstanding provisions in the product development agreement which would (i) require Johnson & Johnson to reimburse GenTrac for all development costs associated with such products, and (ii) provide the Company's GenTrac facility with the right to manufacture such products for Johnson & Johnson. Even if the Company is successful in contesting Johnson & Johnson's claim and manufactures and markets the liquid thrombin product, the Company would be obligated to pay a royalty to Johnson & Johnson equal to five percent of the Company's net sales of such product, up to an aggregate maximum royalty payment of $240,000. The Company and Johnson & Johnson are currently attempting to negotiate an amicable resolution of such claims. 12 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the 4th quarter of 1995 to a vote of security holders of the Company through the solicitation of proxies or otherwise. 13 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 quarterly high and low sales prices for the Common Stock reported by Nasdaq for the periods indicated (as adjusted to the nearest 1/16 to reflect the three-for-two stock split effected in the form of a 50% stock dividend to be paid on March 1, 1996 to holders of record as of February 23, 1996):
High Low ---- --- 1994 First Quarter $10 5/16 $7 3/4 Second Quarter 8 1/2 6 11/16 Third Quarter 7 3/16 4 5/16 Fourth Quarter 6 1/16 4 1/4 1995 First Quarter 6 1/16 4 3/16 Second Quarter 8 5 7/16 Third Quarter 12 1/16 7 7/16 Fourth Quarter 16 1/2 10 11/16
As of February 15, 1996, there were approximately 1,000 holders of record and the Company believes approximately 5,000 non-record beneficial owners of the Common Stock. During 1994 and 1995, cash dividends of $0.06 2/3 and $0.07 1/3 per share, respectively, were declared with respect to the Common Stock. On February 7, 1996, in connection with the three-for-two split of the outstanding shares of Common Stock, the Company declared a dividend of $0.025 per share payable on April 1, 1996. 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. 14 15 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data of the Company for each of the prior five fiscal years has been derived from the consolidated financial statements of the Company. The selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto contained herein. The selected financial data set forth below has been adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend to be paid on March 1, 1996 to holders of record on February 23, 1996.
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: 1991 1992 1993 1994 1995 ---------------- ---------------- ---------------- ---------------- ---------------- Sales $20,512,826 $24,056,872 $43,215,498 $47,548,803 $56,397,095 Cost of sales 10,365,530 12,352,520 21,909,428 24,685,826 27,165,896 ---------------- ---------------- ---------------- ---------------- ---------------- Gross profit 10,147,296 11,704,352 21,306,070 22,862,977 29,231,199 Selling, general and administrative expenses 5,453,166 6,367,622 11,314,160 13,497,583 13,905,278 ---------------- ---------------- ---------------- ---------------- ---------------- Operating income 4,694,130 5,336,730 9,991,910 9,365,394 15,325,921 Other income (expense) 451,271 695,618 (44,097) (326,887) (400,617) ---------------- ---------------- ---------------- ---------------- ---------------- Income before taxes 5,145,401 6,032,348 9,947,813 9,038,507 14,925,304 Provision for taxes 1,851,000 2,300,000 3,744,000 3,299,000 5,597,000 ---------------- ---------------- ---------------- ---------------- ---------------- Net income(1) $ 3,294,401 $ 3,732,348 $ 6,203,813 $ 5,739,507 $ 9,328,304 ---------------- ---------------- ---------------- ---------------- ---------------- Weighted average shares outstanding 13,875,822 14,168,821 14,256,640 14,391,084 14,589,150 Earnings per common and common equivalent share(1) .24 .26 .44 .40 .64 ================ ================ ================ ================ ================ Cash dividends declared per share .04 .05 .06 .06 2/3 .07 1/3 ================ ================ ================ ================ ================
_______________ (1) Net income and earnings per share in 1993 do not reflect cumulative effect of change in accounting principle of $207,100. 15 16
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 ---------------- ---------------- ---------------- ---------------- ---------------- BALANCE SHEET DATA: Total assets $33,392,783 $35,185,070 $51,823,590 $54,927,284 $74,696,643 Current assets $18,042,778 $19,730,787 $18,325,578 $20,793,359 $25,012,149 Current liabilities $ 3,295,228 $ 3,741,253 $ 6,330,082 $ 5,778,744 $11,563,477 Working capital $14,747,550 $15,989,534 $11,995,496 $15,014,615 $13,448,672 Long-term debt $ 2,737,804 $ 500,000 $ 5,399,986 $ 3,799,978 $ 9,124,986 Shareholders equity $26,786,800 $30,120,866 $36,236,110 $41,490,364 $49,890,134 Per share book value(2) $ 1.94 $ 2.17 $ 2.59 $ 2.94 $ 3.52 Current ratio 5.5:1 5.3:1 2.9:1 3.6:1 2.2:1
_______________ (2) Per share book value is computed assuming conversion of the outstanding preferred stock. 16 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 may differ significantly from the results discussed in the forward-looking statements. OVERVIEW The Company was founded in 1981 to market and distribute specialty pharmaceuticals and nutritional supplements. To date, the Company has completed 13 acquisitions of products and businesses which complement or expand the Company's business, while adding selected manufacturing capacity to support certain product lines. The Company has achieved significant increases in sales and net income through such acquisition activity and through related internal growth initiatives to develop marketing opportunities with respect to the acquired product lines. Sales and net income have increased from $19.7 million and $2.8 million in 1990, respectively, to $56.4 million and $9.3 million in 1995, respectively, representing five-year compounded annual growth rates of approximately 23.4% in sales and 27.0% in net income. Sales are reported net of returns during the period in which product is shipped. These sales are subsequently adjusted for reserves incurred due to volume or other contractual discounts on certain pharmaceuticals under contracts with hospitals and hospital buying groups. As of December 31, 1995, the Company maintained a reserve of $1.5 million for such anticipated discounts. The reserve was increased from $1.1 million as of year-end 1994 due to higher sales levels of the products involved. Product returns, both of unused pharmaceuticals and of nutritional supplements sold to consumers subject to a limited money-back refund policy, are less than 1% of gross annual sales. Sales are reflected prior to royalties due on sales of certain pharmaceuticals arising from product line acquisitions. Such royalties are recorded as a selling expense. Royalty arrangements typically extend for a fixed period from the date of acquisition and do not require minimum payments to maintain ownership or any rights to products. During the year ending December 31, 1995, sales were $56.4 million comprised of $25.9 million of pharmaceutical sales and $30.5 million of nutritional supplement sales. The relative contributions of pharmaceuticals and nutritional supplements to the Company's sales can be influenced by acquisition activity in each product category as well as by marketing activity and customer demand. In 1993 the Company increased its presence in the marketing of nutritional supplements as a result of its acquisition of the operations of Bronson. 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. During the last four months of 1995, sales of Brevital represented approximately 10.9% of total Company sales. 17 18 The Company intends to seek additional acquisitions of product lines of niche-market pharmaceuticals to leverage its existing distribution channels and marketing infrastructure and to market aggressively new formats or formulations of existing products. The success of the Company's efforts is subject to a number of risks and uncertainties including its dependence upon key pharmaceuticals and integration of new product acquisitions, its reliance upon third-party manufacturers to produce certain key products, its ability to effectively manage a changing business, uncertainties related to pharmaceutical pricing and reimbursement and on the uncertainty of competitive forces within the pharmaceutical and nutritional supplement industries which affect both the market for its products and the availability of suitable product lines of acquisition. The future results of operations, both annually and from quarter-to-quarter, are subject to a variety of factors applicable to the Company and to the industries and markets in which it operates. 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.
Percentage of Sales Year Ended December 31, ------------------------ 1993 1994 1995 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 50.7 51.9 48.2 -------- -------- -------- Gross profit on sales 49.3 48.1 51.8 Selling, general & administrative expenses 26.2 28.4 24.7 -------- -------- -------- Operating income 23.1 19.7 27.1 Other income (expenses) Interest income 0.4 0.2 0.3 Interest expense (0.8) (1.1) (0.8) Other miscellaneous income (expenses) 0.3 0.2 (0.2) -------- -------- -------- Income before income tax* 23.0 19.0 26.4 -------- -------- -------- Net income* 14.4% 12.1% 16.5% ======== ======== ========
- --------------- * Before cumulative effect of change in accounting principle of $207,100 in 1993. 18 19 Sales The following summarizes approximate sales activity by product categories:
Sales by Product Category 1993 % 1994 % 1995 % - ---------------- ------------ ----- ------------ ----- ------------ ----- Pharmaceuticals $21,168,000 49.0% $21,925,000 46.1% $25,936,000 46.0% Nutritional Supplements 22,047,000 51.0% 25,624,000 53.9% 30,461,000 54.0% ----------- ----- ------------ ----- ------------ ----- Total Sales $43,215,000 100% $47,549,000 100% $56,397,000 100%
Sales for the year ended December 31, 1995 increased 18.6% to $56.4 million from $47.5 million for the year ended December 31, 1994 and 10.0% to $47.5 million from $43.2 million for the year ended December 31, 1993. The Company's sales increased in 1995 as the result of unit and dollar growth in both pharmaceuticals and nutritional supplements and increased in 1994 as the result of unit and dollar growth in nutritional supplements. Sales of pharmaceuticals in 1995 grew 18.5% to $25.9 million from $21.9 million in 1994 due primarily to increases in sales of the Company's critical care pharmaceutical products, including four months of Brevital sales. Sales of nutritional supplements in 1995 grew 18.9% to $30.5 million from $25.6 million in 1994 due to a 14.5% increase in Bronson Pharmaceutical product sales and a 102.2% increase in sales of contract manufactured products, offset in part by a 27.5% decline in sales of the MD Pharmaceutical products. Sales of pharmaceuticals in 1994 grew 3.6% to $21.9 million from $21.1 million in 1993 due primarily to increases in sales of Therevac and Liqui-Char. Sales of Thrombinar were essentially flat due to the inability of the Company's supplier to meet fully the Company's requirements. Sales of nutritional supplements in 1994 increased 16.2% to $25.6 million from $22.0 million in 1993 resulting from the inclusion of a full 12 months of sales of the Bronson Pharmaceutical product line which was acquired in March 1993. Gross Profit Gross profit during 1995 increased 27.9% or $6.4 million to $29.2 million from $22.9 million in 1994. As a percentage of sales, margins grew to 51.8% in 1995 from 48.1% in 1994 as a result of greater manufacturing efficiencies and sales increases in higher margin products. 19 20 Gross profit during 1994 increased 7.3% or $1.6 million to $22.9 million from $21.3 million in 1993. As a percentage of sales, margins declined to 48.1% in 1994 from 49.3% in 1993 as a result of increases in labor and overhead components in cost of goods. Selling, General and Administrative Expenses Selling expenses increased 4.8% or $388,000 to $8.4 million in 1995 from $8.0 million in 1994 primarily as a result of adding five hospital territory managers in the fourth quarter of 1995 and due to higher direct marketing expenses associated with larger and more frequent mailings of the Bronson Pharmaceutical catalogue. As a percentage of sales, these expenses decreased to 15.0% in 1995 from 16.9% in 1994. Selling expenses increased 25.0% or $1.6 million to $8.0 million in 1994 from $6.4 million in 1993 as a result of the inclusion of a full 12 months of Bronson Pharmaceutical selling expenses and greater shipping and direct marketing expenses associated with sales of Bronson Pharmaceutical products. Additionally, the Company added one major market hospital representative during 1994. Selling expenses as a percentage of sales in 1994 increased to 16.9% from 14.9% in 1993. General and administrative expenses in 1995 remained essentially unchanged at approximately $4.0 million, but declined as a percentage of sales to 7.2% in 1995 from 8.4% in 1994. General and administrative expenses in 1994 increased 18.3% or $619,000 to $4.0 million from $3.4 million in 1993 primarily due to the inclusion of a full 12 months of Bronson Pharmaceutical expenses and to a lesser extent due to increases in overhead. As a percentage of sales, these expenses increased to 8.4% in 1994 from 7.8% in 1993 for the same reasons. Research and development expenses were eliminated in 1995 after declining to $101,000 in 1994 from $377,000 in 1993 due to the reduction of ongoing expenses by GenTrac associated with the development of pre-mixed liquid thrombin formulations. Amortization expenses associated with intangible assets and included in selling, general and administrative expenses remained essentially unchanged in 1995 at approximately $1.4 million, as the impact of the Brevital product line acquisition was substantially offset by declining amortization on other products. As a percentage of sales these expenses decreased to 2.5% in 1995 from 2.9% in 1994. Amortization expenses increased 20.8% or $234,000 to $1.4 million in 1994 from $1.1 million in 1993 as a result of the Bronson Pharmaceutical and Derma System product acquisitions and the corresponding full 12 months of amortization of the associated intangible assets acquired. Also, as a percent of sales, amortization expenses increased 2.9% in 1994 from 2.6% in 1993. 20 21 Operating Income Operating income during 1995 increased 63.6% or $6.0 million to $15.3 million from $9.4 million in 1994, and increased as a percentage of sales to 27.1% from 19.7% in 1994, as the result of higher overall gross profits and marginal increases in operating expenses. Operating income during 1994 decreased 6.3% or $627,000 to $9.4 million from $10.0 million in 1993, and decreased as a percentage of sales to 19.7% from 23.1% in 1993, as a result of an increase in cost of sales and in selling, general and administrative expenses. Other Income (Expense) Other income during 1995 reflects a one time loss of $126,000 associated with the sale of certain real property which the Company was unable to use and the reduction in the associated rental income. Interest and dividends from investing activities decreased to $101,000 in 1994 from $189,000 in 1993 due to lower cash balances resulting from the uses of cash in 1993 associated with the Company's acquisition program and the purchase of a 150,000 square foot distribution and headquarters facility. Interest expense increased to $516,000 in 1994 from $354,000 in 1993 due to borrowings associated with the acquisitions and facility purchase. Income Taxes The provision for income taxes increased to 37.5% of pre-tax income in 1995 compared to 36.5% of pre-tax income in 1994, primarily as the result of a 1% higher federal tax rate on annual profits exceeding $10 million. The provision for income taxes decreased to 36.5% of pre-tax income in 1994 compared to 37.6% of pre-tax income in 1993. The lower rate was due to lower effective state income tax rates. Net Income Net income increased 62.5% or $3.6 million to $9.3 million in 1995 from $5.7 million in 1994, and increased as a percentage of sales to 16.5% in 1995 from 12.1% in 1994. Net income decreased 7.5% or $464,000 to $5.7 million in 1994 from $6.2 million in 1993, and decreased as a percentage of sales to 12.1% in 1994 from 14.4% in 1993 as a result of lower operating and interest income and higher interest expense. 21 22 Fourth Quarter Sales during the fourth quarter of 1995 increased $4.7 million, or 40.6%, to $16.4 million from $11.7 million during the fourth quarter of 1994. Net income during the fourth quarter of 1995 increased $1.5 million, or 112%, to $2.8 million from $1.3 million during the fourth quarter of 1994. Earnings per share during the fourth quarter of 1995 were $.19, with 14.6 million shares outstanding, compared to $.09 per share earnings, with 14.4 million average shares outstanding during the fourth quarter of 1994. The 1995 increases resulted from improvements in operations throughout 1995 and a full quarter of Brevital sales. Sales during the fourth quarter of 1994 decreased $445,000, or 3.7% to $11.7 million from $12.1 million during the fourth quarter of 1993. Net income during the fourth quarter of 1994 decreased $547,000, or 29.2% to $1.3 million from $1.8 million during the fourth quarter of 1993. Earnings per share during the fourth quarter of 1994 were $.09, compared to $.13 during the fourth quarter of 1993, with an average of 14.4 million shares outstanding during both periods. Decreases in sales and net income during the fourth quarter of 1994 were in large part the result of a product shortage of $1.1 million of Thrombinar which was produced for the Company under contract by Armour. FINANCIAL CONDITION Balance Sheet Information The Company's current ratio declined to 2.2:1 as of December 31, 1995 from 3.6:1 as of December 31, 1994, working capital decreased to $13.4 million as of December 31, 1995 from $15.0 million as of December 31, 1994, and debt as a percentage of equity increased to 29.6% as of December 31, 1995 from 13.0% as of December 31, 1994, primarily as a result of the August 31, 1995 acquisition of the Brevital product line and the associated debt incurred in connection therewith. Liquidity and Capital Resources Since inception the Company has financed its operations primarily through cash flow from operations, public and private sales of equity securities and borrowings under revolving credit facilities. At December 31, 1995 and 1994, respectively, the Company had cash and cash equivalents of $5.4 million and $7.0 million, respectively. Total assets increased $19.8 million to $74.7 million at December 31, 1995 from $54.9 million at December 31, 1994 and total liabilities increased $11.4 million to $24.8 million at December 31, 1995 from $13.4 million at December 31, 1994. Inventories increased to $10.7 million at December 31, 1995 from $8.3 million at December 31, 1994 principally from higher thrombin product inventories and the acquired Brevital inventories. Accounts receivable increased 22 23 to $7.1 million at December 31, 1995 from $4.2 million at December 31, 1994 due to higher year end sales in 1995. For the same reason, in days outstanding, accounts receivable increased to 46 days at December 31, 1995 from 33 days at December 31, 1994. Net property, plant and equipment increased by $2.8 million to $15.4 million at December 31, 1995, from $12.6 million at December 31, 1994, primarily due to the expansion of the Company's GenTrac facility. In August 1995, the Company borrowed $8.7 million to fund its cash requirements in connection with its acquisition of the exclusive United States license to sell Brevital and to refinance existing term loan indebtedness of $1.7 million, with interest thereon at the rate of 0.5% below prime, payable in equal monthly installments until paid in full in September 2000. Such indebtedness is secured by substantially all of the Company's assets. The Company may prepay such indebtedness without penalty. As of December 31, 1995, the outstanding balance of this term loan was $7.8 million. In addition, the Company is indebted to Lilly in the principal amount of $7.0 million bearing interest at 7.0% and due in installments of $4.0 million in August 1996 and $3.0 million in August 1997. Under revolving credit and other borrowing lines available to the Company at January 31, 1996, the Company had an unused line of credit aggregating $4.0 million. Such line of credit is secured by substantially all of the Company's assets and contains certain restrictive provisions, including maintaining a maximum tangible net worth ratio, maintaining a minimum current ratio, obtaining prior approval of acquisition financings in excess of $3.0 million and limiting the amount of additional borrowings. The Company will be in default under its revolving credit and borrowing lines if (i) Dennis Jones ceases to be the Company's Chairman of the Board and Chief Executive Officer, or (ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the outstanding shares of Common Stock of the Company, or (iii) a third party acquires 50% or more of the shares of the Company's capital stock without the lender's prior approval. The Company has experienced only moderate raw material and labor price increases in recent years. While the Company has passed some price increases along to customers, the Company has primarily benefitted from rapid sales growth, negating most inflationary pressures. 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 Adoption of FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the adoption of FASB Statement No. 123, "Accounting for Stock Based Compensation", which are effective for the Company in 1996, are not anticipated to have a material effect on the Company's consolidated financial statements. 23 24 Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of adopting Statement No. 109 as of January 1, 1993 was to increase net income by $207,100. Application of the new income tax rules for 1993 did not have a significant effect on net income before cumulative effect of the accounting change. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Reference is made to the Financial Statements contained in Part IV hereof. 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. 24 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. Name Age Position - ---- --- -------- Dennis M. Jones 57 Chairman of the Board, President and Chief Executive Officer Judith A. Jones(1) 55 Executive Vice President, Secretary, Treasurer and Director Michael T. Bramblett 53 Executive Vice President and Director G. Andrew Franz 43 Senior Vice President-Operations- Pharmaceuticals and Director David A. McLaughlin 48 Senior Vice President-Operations- Nutritionals and Director Edward A. Chod(2) 42 Director Stanley L. Lopata(1)(2) 81 Director Thomas F. Patton(1) 47 Director L. John Polite, Jr.(1)(2) 74 Director - --------------- (1) Member of the Audit Committee of the Board of Directors. (2) Member of the Compensation Committee of the Board of Directors. 25 26 Dennis M. Jones, the founder of the Company, has been JMI's Chairman of the Board, President and Chief Executive Officer since its inception in March 1981. Mr. Jones has been involved primarily in the pharmaceutical industry since 1964 in various marketing, management and administrative positions. He was a co-founder of O'Neal, Jones and Feldman Pharmaceuticals, which was acquired by Chromalloy American Pharmaceuticals, Inc. in 1978 and subsequently acquired by Forest Laboratories, Inc., a specialty pharmaceutical company, in 1984. Mr. Jones has been a director of Mark Twain State Bank, a subsidiary of Mark Twain Bancshares, Inc., since 1988. Judith A. Jones joined the Company in October 1981 and has been in charge of the financial affairs and books of the Company since that time. Mrs. Jones has been a Director of the Company since December 1981, and the Secretary and Treasurer since April 1982. Mrs. Jones served as Vice President of the Company from March 1985 to February 1994 and has been Executive Vice President of the Company since February 1994. Michael T. Bramblett, a Director of the Company since 1987, served as Vice President - Marketing of the Company from January 1991 to February 1994 and has served as Executive Vice President since February 1994. From May 1988 through December 1990, Mr. Bramblett served as Marketing Director of Carlson Marketing Group, and from June 1987 until May 1988, he served as Corporate Vice President of S&H Motivation Company. G. Andrew Franz, a Director of the Company since 1994, became Senior Vice President-Operations-Pharmaceuticals for the Company in February 1994. He served as the Vice President-Operations of JMI-Canton since the facility was acquired by JMI-Canton from Bowman Pharmaceuticals, Inc. in March 1984 until February 1994. Prior to March 1984, Mr. Franz held various management positions for 14 years within Bowman Pharmaceuticals, Inc., including Chief Chemist and Vice President-Operations. David A. McLaughlin, a Director of the Company since 1994, became Senior Vice President-Operations-Nutritionals in February 1994. He served as the Vice President-Operations of JMI's 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 26 27 manufacturer of specialty paint and coating products, from 1960 through 1988. Mr. Lopata has been a director of Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc., since 1983. Thomas F. Patton, Ph.D., a Director since 1995, is President of the St. Louis College of Pharmacy and has served in that capacity since June 1994. From April 1993 until January 1994 and from January 1994 until May 1994, Dr. Patton served as Executive Director of Pharmaceutical Research and Development and as Vice President of Pharmaceutical Research and Development, respectively, at Dupont-Merck Pharmaceutical Co., a pharmaceutical company. From March 1990 through March 1993, Dr. Patton served as Director and Senior Director of Pharmaceutical Research and Development at Merck and Co., Inc., a pharmaceutical company. In 1993, Dr. Patton was President of the American Association of Pharmaceutical Scientists. Dr. Patton's 20 year career also includes tenures as Professor of Pharmaceutical Chemistry and Pharmacy Practice at the University of Kansas, Associate Director Control Development at the Upjohn Co., a pharmaceutical company, and Vice President of Operations at Oread Laboratories, Inc., a pharmaceutical company. L. John Polite, Jr., a Director since 1989, is Chairman of Peridot (New Jersey) Chemicals, Inc., and has served in that capacity since December 1989. He was the Chairman of the Board, President and Chief Executive Officer of Essex Chemical Corporation ("Essex") from April 1978 to October 1988 when Essex merged into Dow Chemical Company, a chemical company. Mr. Polite also serves as a director of Witco Corporation, a manufacturer and marketer of a wide range of specialty chemicals, petroleum products and engineered materials. Dennis M. Jones and Judith A. Jones are husband and wife. G. Andrew Franz is the son-in-law of Dennis M. and Judith A. Jones. Directors of the Company are elected by the Company's stockholders and hold office until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier resignation or removal. All executive officers are appointed by and serve at the discretion of the Board of Directors. 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 $2,500 per meeting of the Board of Directors attended by such non-employee director, subject to a minimum (as of December 31, 1995) of $5,000 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: 27 28
No. of Options Per Share Exercise Initial Exercise Name Date of Grant Granted(1) Price(1) Date Expiration Date - ------------------- ------------- -------------------- -------------------- -------------------- --------------- Stanley L. Lopata 6/1/94 7,500 $7.00 6/1/94 6/1/99 L. John Polite, Jr. 6/1/94 7,500 $7.00 6/1/94 6/1/99 Edward A. Chod 6/1/94 7,500 $7.00 5/1/95 5/1/00 Thomas F. Patton 6/1/95 7,500 $6.67 5/1/96 5/1/01
- --------------- (1) Adjusted to reflect the three-for-two split effected in the form of a 50% stock dividend to be paid on March 1, 1996 to holders of record on February 23, 1996. 28 29 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, 1993, 1994 and 1995 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, 1995 (the "Named Executives").
SUMMARY COMPENSATION TABLE Annual Compensation Long-Term ---------------------------------------------- Compensation ------------ Awards -------------------- Securities Other Annual Underlying Options All Other Name and Principal Position Year Salary Bonus Compensation (1) (#) Compensation - --------------------------- ----- -------- ------- -------------------- -------------------- -------------------- Dennis M. Jones, Chairman 1995 $300,000 $75,000 0 0 $17,401(2) of the Board, Director and 1994 250,000 50,000 0 0 13,971(2) President and Chief 1993 200,000 50,000 0 0 15,204(2) Executive Officer Judith A. Jones, Director, 1995 $150,000 $35,000 0 0 $9,719(3) Executive Vice President, 1994 125,000 25,000 0 0 10,023(3) Secretary and Treasurer 1993 100,000 25,000 0 0 8,920(3) Michael T. Bramblett, 1995 $150,000 $35,000 0 0 $6,771(4) Director and Executive 1994 125,000 25,000 0 0 5,990(4) Vice President 1993 100,000 25,000 0 0 5,750(4) G. Andrew Franz, Director 1995 $120,000 $20,000 0 0 $5,125(4) and Senior Vice President 1994 90,000 10,000 0 37,500(5) 4,813(4) - - Operations - 1993 72,000 8,000 0 0 3,066(4) Pharmaceuticals David A. McLaughlin, 1995 $120,000 $20,000 0 0 $5,125(4) Director and Senior Vice 1994 90,000 10,000 0 37,500(5) 4,813(4) President - Operations - 1993 80,000 10,000 0 0 4,500(4) Nutritionals
- --------------- (1) None of the Named Executives received Other Annual Compensation which is required to be reported in this column. 29 30 (2) Consists of a Company contribution to a 401(k) plan ($9,240 in 1995, $6,264 in 1994 and $8,004 in 1993) and the dollar value of premiums paid by the Company for a split-dollar life insurance policy on Mr. Jones, of which $8,161, $7,707 and $7,200 constituted his entire economic benefit in the years 1995, 1994 and 1993, respectively. (3) Consists of a Company contribution to a 401(k) plan ($6,771 in 1995, $7,239 in 1994 and $6,160 in 1993) and the dollar value of premiums paid by the Company for a split-dollar life insurance policy on Mrs. Jones, of which $2,948, $2,784 and $2,760 constituted her entire economic benefit in the years 1995, 1994 and 1993, respectively. (4) Consists of a Company contribution to a 401(k) plan. (5) As adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend to be paid on March 1, 1996 to holders of record on February 23, 1996. Stock Option/SAR Grants. The Company granted no stock options and no stock appreciation rights ("SARs") to the Named Executives during the fiscal year ended December 31, 1995. Aggregated Option Exercises in Last Fiscal Year and FY-end Option Values. The following table provides information with respect to the stock options exercised during the fiscal year ended December 31, 1995 and the value as of December 31, 1995 of unexercised in-the-money options held by the Named Executives. The value realized on the exercise of options is calculated using the difference between the option exercise price and the fair market value of the Company's stock on the date of the exercise. The value of unexercised in-the-money options at fiscal year end is calculated using the difference between the option exercise price and the fair market value of the Company's stock at fiscal year end, December 31, 1995. The Named Executives exercised no SARs during the fiscal year ended December 31, 1995 and held no SARs as of December 31, 1995. The information in the following table is adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend, to be paid on March 1, 1996 to holders of record on February 23, 1996.
Value of Number of Unexercised In-the- Shares Unexercised Options Money Options at Acquired Value at FY-End FY-end on Exercise Realized (#) ($) Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable - -------------------- ----------- --------- ------------------------- ------------------------- Dennis M. Jones 0 0 0/0 N.A. Judith A. Jones 0 0 0/0 N.A. Michael T. Bramblett 0 0 150,000/0 $2,087,500/0 G. Andrew Franz 6,000 $47,000 7,500/30,000 $80,625/322,500 David A. McLaughlin 60,000 $670,000 7,500/30,000 $80,625/322,500
30 31 Cash or Deferred Profit-Sharing Plan and Trust. Effective as of January 1, 1987, the Company adopted a Cash or Deferred Profit-Sharing Plan and Trust known as JMI's Employee Retirement 401(k) Plan ("401(k) Plan"). The 401(k) Plan has been amended from time-to-time and was amended and restated as of January 1, 1995. 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. During 1995, the Company made matching contributions to the 401(k) Plan of $33,032 to the Named Executives. 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"). As of January 1, 1996, the Company had approximately 275 Eligible Employees, including the directors who are also Named Executives (Dennis M. Jones, Judith A. Jones, Michael T. Bramblett, G. Andrew Franz and David A. McLaughlin). 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"). The Company will contribute a matching amount determined by the Company each year (five percent in each of 1993, 1994 and 1995) of the Participant's compensation ("Company Contributions"). In addition to matching contributions, the Company may make a discretionary contribution which is allocated among Participants in proportion to compensation. The Participants are not allowed to make any voluntary contributions to the 401(k) Plan, other than their Elective Contributions. The Company Contributions are subject to a vesting schedule described below and may not be withdrawn from the 401(k) Plan until age 59 1/2, retirement, termination of employment, or other condition specified in the 401(k) Plan. In addition, Participants may withdraw their Elective Contributions to the 401(k) Plan at any time after they are made for reasons of hardship as described in the 401(k) Plan. Elective Contributions are always 100% vested. Company Contributions become vested according to the following schedule: Years of Percentage Service Vested ----------- ---------- 2............ 20% 3............ 40% 4............ 60% 5............ 80% 6............ 100%
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. 31 32 The 401(k) Plan Trustee may invest in investments as described in the 401(k) Plan, including stocks, bonds, notes and other property. Participants may not obtain loans from their accounts under any circumstances. Company Contributions have, at times, been invested in shares of the Company's Common Stock acquired in the open market. On February 15, 1996, the 401(k) Plan held 90,000 shares of Common Stock (as adjusted for the three-for-two stock split effected in the form of a 50% stock dividend to be paid March 1, 1996 to holders of record as of February 23, 1996). 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. The 401(k) Plan may be modified by the Board at any time, provided that no modification shall adversely affect the rights of the Participants or divert any of the trust fund to purposes other than the benefit of the Participants. 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 (as adjusted to reflect the three-for-two stock split effected in the form of a 50% stock dividend to be paid on March 1, 1996 to holders of record on February 23, 1996) 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 owning of record or beneficially five percent (5%) or more of the outstanding Common Stock:
BENEFICIAL OWNERSHIP AS OF FEBRUARY 15, 1996 Name and Address of Beneficial Percentage of Shares Owner(1) Shares Beneficially Owned(2) Beneficially Owned(3) - ---------------------------------- ---------------------------- --------------------- Dennis M. Jones 2,781,840(4)(5) 19.4% Chairman of the Board of Directors and President Judith A. Jones 680,625(4)(6) 4.8% Executive Vice President, Secretary, Treasurer and Director
32 33 Michael T. Bramblett 162,576(7) 1.1% Executive Vice President and Director G. Andrew Franz 325,183(8) 2.3% Senior Vice President - Operations - Pharmaceuticals and Director David A. McLaughlin 82,500(9) * Senior Vice President - Operations - Nutritionals and Director Stanley Lopata 151,500(10) 1.1% Director 900 South Hanley Rd. St. Louis, MO 63106 1.1% L. John Polite, Jr 25,500(11) * Director 211 Oldwoods Rd. Franklin Lakes, NJ 07417 Edward A. Chod 17,250(12) * Director 10 South Broadway, Ste. 2000 St. Louis, MO 63102 Thomas F. Patton, Ph.D. 0 * Director All Directors and 4,226,974 29.3% Executive Officers as a Group (consisting of nine persons)
- --------------- * Less than one percent. (1) Except as otherwise indicated, the officers and directors of the Company named in the above table have sole voting and investment power with respect to all shares of Common Stock 33 34 shown as beneficially owned by them and their respective addresses are 1945 Craig Road, St. Louis, Missouri 63146. (2) Includes shares deemed owned as a result of options to purchase 96,000 shares which are presently or will become exercisable within 60 days of February 15, 1996. (3) The number of shares of Common Stock deemed outstanding as of February 15, 1996 includes (i) 14,310,663 shares of Common Stock outstanding, (ii) an aggregate of 737 shares of Common Stock issuable upon conversion of all of the shares of the Company's Preferred Stock, Series A outstanding at February 15, 1996 (which conversion is presently in progress), and (iii) shares of Common Stock issuable pursuant to options held by the directors and executive officers that are currently exercisable or will become exercisable within 60 days of February 15, 1996 by the person or group in question. (4) Excludes 90,000 shares owned by the Company's 401(k) Plan (of which Dennis and Judith Jones are co-trustees) and with respect to which Dennis and Judith Jones disclaim beneficial ownership. (5) Only includes shares owned directly by Mr. Jones. Does not include 680,625 shares owned by his spouse, with respect to which he disclaims beneficial ownership. (6) Only includes shares owned directly by Mrs. Jones. Does not include 2,781,840 shares owned by her spouse, with respect to which she disclaims beneficial ownership. (7) Includes 83,250 shares owned directly by Mr. Bramblett, 2,400 by his IRA, 1,926 shares held by his spouse's IRA and with respect to which he disclaims beneficial ownership, and vested and unexercised options to purchase 75,000 shares of Common Stock pursuant to the Company's 1989 Incentive Stock Option Plan. (8) Includes 114,007 shares owned directly by Mr. Franz, 154,110 shares owned by his spouse and with respect to which he disclaims beneficial ownership, 34,560 shares held by his spouse as custodian for his children and with respect to which he disclaims beneficial ownership, 15,006 shares held by his spouse as trustee for his children and with respect to which he disclaims beneficial ownership and vested and unexercised options to purchase 7,500 shares of common stock pursuant to the Company's 1989 Incentive Stock Option Plan. (9) Includes 75,000 shares owned directly by Mr. McLaughlin and vested and unexercised options to purchase 7,500 shares of Common Stock pursuant to the Company's 1989 Incentive Stock Option Plan. (10) Includes 109,500 shares owned directly by Mr. Lopata, 40,500 shares owned by Mr. Lopata through his spouse's revocable trust and with respect to which he disclaims beneficial 34 35 ownership, and vested and unexercised options to purchase 1,500 shares of Common Stock pursuant to the Company's 1994 Formula Stock Option Plan for Non-Management Directors. (11) Includes 22,500 shares owned directly by Mr. Polite and vested and unexercised options to purchase 3,000 shares of Common Stock pursuant to the Company's 1994 Formula Stock Option Plan for Non-Management Directors. (12) Includes 15,750 shares owned directly by Mr. Chod and vested and unexercised options to purchase 1,500 shares of Common Stock pursuant to the Company's 1994 Formula Stock Option Plan for Non-Management Directors. Based upon filings with the Securities and Exchange Commission, the Company is advised that as of December 31, 1995, each of the following investment advisors held discretionary authority over accounts holding, in the aggregate, the indicated numbers of shares of the Common Stock (as adjusted to reflect the three-for-two stock split), in each case representing approximately 5% of the then outstanding shares of Common Stock (as adjusted to reflect the three-for-two stock split):
Name & Address of Investment Advisor Shares ------------------------------------- ------------------ Nicholas Applegate Capital Management 715,350 shares 600 West Broadway, 29th Floor San Diego, CA 92101 Kennedy Capital Management 683,100 shares 425 N. New Ballas Road, Suite 181 St. Louis, MO 63141
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, 1995 did not exceed five percent (5%) of such firm's gross revenues for its applicable fiscal year. 35 36 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 F-1. 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 F-1. 3. Exhibits: (3.1) Restated Certificate of Incorporation of the Company dated June 21, 1988. (3.2) Certificate of Amendment of the Certificate of Incorporation of the Company dated May 14, 1990. (3.3) Certificate of Amendment of the Certificate of Incorporation of the Company dated May 30, 1991. (3.4) Certificate of Designation of Convertible Preferred Stock, Series A, as filed with the Secretary of State of Delaware on May 15, 1991, is incorporated by reference from Form 8-K dated May 29, 1991. (3.5) Amended By-Laws of the Company as of June 14, 1988. (3.6) Amendment to Section 3.02 of By-Laws of the Company as of April 1, 1992. (10.1) The Company's 1989 Incentive Stock Option Plan. (10.2) The Company's Cash or Deferred Profit Sharing Plan and Trust amended and restated as of January 1, 1995 (to be filed by amendment). (10.3) Agreement and Plan of Reorganization dated as of December 27, 1990, as Amended and Restated as of March 15, 1991, between the Company and GenTrac, Inc., is incorporated by reference from Form 8-K dated May 29, 1991. (10.4) Asset Purchase Agreement dated as of February 12, 1993, between the Company and Tsumura International, Inc., is incorporated by reference from Form 8-K dated February 18, 1993. 36 37 (10.5) Stock Purchase Agreement dated as of March 22, 1993, among the Company and each of the stockholders of Bronson Pharmaceuticals, is incorporated by reference from Form 8-K dated April 7, 1993. (10.6) The Company's 1994 Incentive Stock Plan effective June 1, 1994, is incorporated by reference from the Company's Proxy Statement dated April 21, 1995 for the Annual Meeting of Stockholders held May 15, 1995. (10.7) The Company's 1994 Formula Stock Option Plan for Non-Management Directors effective May 25, 1994, is incorporated by reference from the Company's Proxy Statement dated April 21, 1995 for the Annual Meeting of Stockholders held May 15, 1995. (10.8) Licensing Agreement dated August 31, 1995 between the Company and Eli Lilly & Company is incorporated by reference from Form 8-K dated September 15, 1995. (10.9) Manufacturing Agreement dated August 31, 1995 between the Company and Eli Lilly & Company, is incorporated by reference from Form 8-K dated September 15, 1996. (11.1) Statement re: computation of per share earnings. (21.1) Subsidiaries of the Registrant. (23.1) Consent of Ernst & Young LLP. (27.1) Financial Data Schedule. (b) No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. 37 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 1, 1996 --------------------------------- 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. SIGNATURES TITLE DATE - --------------------------- -------------------- -------------------- /s/ Dennis M. Jones President, Chief March 1, 1996 - ------------------------- Executive Officer -------------- Dennis M. Jones and Director /s/ Judith A. Jones Principal Financial March 1, 1996 - ------------------------- and Accounting -------------- Judith A. Jones Officer, Executive Vice President, Secretary, Treasurer and Director /s/ Michael T. Bramblett Executive Vice March 1, 1996 - ------------------------ President and -------------- Michael T. Bramblett Director 38 39 /s/ G. Andrew Franz Senior Vice March 1, 1996 - -------------------------- President - G. Andrew Franz Operations - Pharmaceuticals and Director /s/ David A. McLaughlin Senior Vice March 1, 1996 - -------------------------- President - David A. McLaughlin Operations - Nutritionals and Director /s/ Edward A. Chod Director March 1, 1996 - -------------------------- Edward A. Chod /s/ Stanley Lopata Director March 1, 1996 - -------------------------- Stanley Lopata /s/ L. John Polite, Jr. Director March 1, 1996 - -------------------------- L. John Polite, Jr. /s/ Thomas F. Patton, Ph.D. Director March 1, 1996 - --------------------------- Thomas F. Patton, Ph.D. 39 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Page ---- Report of Ernst & Young LLP, independent auditors F-2 Consolidated balance sheets as of December 31, F-3 1994 and 1995 Consolidated statements of income for the years F-4 ended December 31, 1993, 1994 and 1995 Consolidated statements of stockholders' equity F-5 for the years ended December 31, 1993, 1994 and 1995 Consolidated statements of cash flows for the F-6 years ended December 31, 1993, 1994 and 1995 Notes to consolidated financial statements F-7 Consolidated schedule for the years ended December 31, 1993, 1994 and 1995: II. Valuation and qualifying accounts F-16 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. F-1 41 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Jones Medical Industries, Inc. We have audited the accompanying consolidated balance sheets of Jones Medical Industries, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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 conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jones Medical Industries, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. 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. As discussed in Note 10 to the consolidated financial statements, in 1993, the Company changed its method of accounting for income taxes. ERNST & YOUNG LLP St. Louis, Missouri February 12, 1996, except for Note 16 as to which the date is February 26, 1996 F-2 42 JONES MEDICAL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1994 1995 ----------- ----------- ASSETS Current assets: Cash and cash equivalents........................................ $ 7,031,765 $ 5,410,601 Accounts receivable, less allowance for doubtful accounts of $64,794 in 1994 and $128,712 in 1995.......................... 4,242,356 7,132,458 Inventories...................................................... 8,320,590 10,746,630 Deferred income taxes............................................ 652,805 933,790 Other............................................................ 545,843 788,670 ----------- ----------- Total current assets.......................................... 20,793,359 25,012,149 Intangible assets: Customer lists................................................... 6,084,967 6,084,967 Distribution systems, trademarks and licenses.................... 11,836,110 24,336,110 Restrictive covenants and other intangibles...................... 2,208,710 3,142,328 Goodwill......................................................... 4,636,813 4,255,298 ----------- ----------- 24,766,600 37,818,703 Less accumulated amortization.................................... 4,092,394 4,883,538 ----------- ----------- Net intangible assets.............................................. 20,674,206 32,935,165 Net property, plant and equipment.................................. 12,603,165 15,442,617 Other assets....................................................... 856,554 1,306,712 ----------- ----------- Total assets.................................................. $54,927,284 $74,696,643 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses............................ $ 3,639,966 $ 4,775,141 Current portion of long-term debt................................ 1,611,246 5,633,330 Income taxes payable............................................. 292,774 871,401 Dividends payable................................................ 234,758 283,605 ----------- ----------- Total current liabilities..................................... 5,778,744 11,563,477 Long-term debt..................................................... 3,799,978 9,124,986 Deferred income taxes.............................................. 3,858,198 4,118,046 Stockholders' equity: Preferred Stock, $0.01 par value, 1,000,000 shares authorized, 99,919 shares issued and outstanding in 1994 and 1,056 in 1995 ($2,248,000 aggregate liquidation preference in 1994 and $24,000 in 1995).............................................. 999 10 Common Stock, $0.04 par value; 30,000,000 shares authorized, 13,846,519 shares issued and outstanding in 1994 and 14,178,129 in 1995............................................ 553,862 567,126 Contributed capital (including effects of unearned compensation and related amortization)..................................... 19,454,811 19,544,584 Retained earnings................................................ 21,480,692 29,778,414 ----------- ----------- Total stockholders' equity.................................... 41,490,364 49,890,134 ----------- ----------- Total liabilities and stockholders' equity.................... $54,927,284 $74,696,643 =========== ===========
See accompanying notes. F-3 43 JONES MEDICAL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------------- 1993 1994 1995 ----------- ----------- ----------- Sales.................................................. $43,215,498 $47,548,803 $56,397,095 Cost of sales.......................................... 21,909,428 24,685,826 27,165,896 ----------- ----------- ----------- Gross profit........................................... 21,306,070 22,862,977 29,231,199 Selling, general and administrative expenses: Selling.............................................. 6,436,103 8,043,229 8,430,912 General and administrative........................... 3,372,050 3,990,735 4,044,562 Research and development............................. 377,304 100,683 -- Amortization......................................... 1,128,703 1,362,936 1,429,804 ----------- ----------- ----------- Total selling, general and administrative expenses..... 11,314,160 13,497,583 13,905,278 ----------- ----------- ----------- Operating income....................................... 9,991,910 9,365,394 15,325,921 Other income (expense): Interest income...................................... 189,249 101,255 172,709 Interest expense..................................... (354,187) (516,274) (452,097) Miscellaneous........................................ 120,841 88,132 (121,229) ----------- ----------- ----------- Income before income taxes and cumulative effect of change in accounting principle....................... 9,947,813 9,038,507 14,925,304 Provision for income taxes............................. 3,744,000 3,299,000 5,597,000 ----------- ----------- ----------- Net income before cumulative effect of change in accounting principle................................. 6,203,813 5,739,507 9,328,304 Cumulative effect of change in accounting principle.... 207,100 -- -- ----------- ----------- ----------- Net income............................................. $ 6,410,913 $ 5,739,507 $ 9,328,304 =========== =========== =========== Earnings per common and common equivalent share before cumulative effect of change in accounting principle............................................ $0.44 $0.40 $0.64 Cumulative effect of change in accounting principle.... 0.01 -- -- ----- ----- ----- Earnings per common and common equivalent share........ $0.45 $0.40 $0.64 ===== ===== =====
See accompanying notes. F-4 44 JONES MEDICAL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
NUMBER OF SHARES ---------------------- PREFERRED COMMON CONTRIBUTED RETAINED PREFERRED COMMON STOCK STOCK CAPITAL EARNINGS TOTAL --------- ---------- --------- -------- ----------- ----------- ----------- Balance at December 31, 1992..... 241,200 8,817,766 $ 2,412 $352,710 $18,662,385 $11,103,359 $30,120,866 Three-for-two Common Stock split declared February 7, 1996......................... -- 4,408,883 -- 176,356 (176,356) -- -- Exercise of stock options...... -- 152,891 -- 6,116 402,154 -- 408,270 Restricted stock: Amortization of unearned compensation............... -- -- -- -- 132,500 -- 132,500 Conversion of Preferred Stock........................ (18,494) 48,519 (185) 1,941 (1,756) -- -- Net income..................... -- -- -- -- -- 6,410,913 6,410,913 Cash dividend declared -- Common Stock ($0.06 per share)....................... -- -- -- -- -- (799,218) (799,218) Cash dividend declared -- Preferred Stock ($0.16 per share)....................... -- -- -- -- -- (37,221) (37,221) ------- ---------- ------- -------- ----------- ----------- ----------- Balance at December 31, 1993..... 222,706 13,428,059 2,227 537,123 19,018,927 16,677,833 36,236,110 Exercise of stock options...... -- 96,150 -- 3,846 417,079 -- 420,925 Restricted stock: Amortization of unearned compensation............... -- -- -- -- 30,470 -- 30,470 Conversion of Preferred Stock........................ (122,787) 322,310 (1,228) 12,893 (11,665) -- -- Net income..................... -- -- -- -- -- 5,739,507 5,739,507 Cash dividend declared -- Common Stock ($0.06 2/3 per share)....................... -- -- -- -- -- (911,718) (911,718) Cash dividend declared -- Preferred Stock ($0.16 per share)....................... -- -- -- -- -- (24,930) (24,930) ------- ---------- ------- -------- ----------- ----------- ----------- Balance at December 31, 1994..... 99,919 13,846,519 999 553,862 19,454,811 21,480,692 41,490,364 Exercise of stock options...... -- 187,710 -- 7,508 436,947 -- 444,455 Restricted stock: Amortization of unearned compensation............... -- -- -- -- 29,544 -- 29,544 Conversion of Preferred Stock........................ (54,859) 143,900 (549) 5,756 (5,207) -- -- Return of escrowed Preferred Stock........................ (44,004) -- (440) (380,837) -- (381,277) Escrowed preferred dividend.... -- -- -- -- 9,326 -- 9,326 Net income..................... -- -- -- -- -- 9,328,304 9,328,304 Cash dividend declared -- Common Stock ($0.07 1/3 per share)....................... -- -- -- -- -- (1,026,400) (1,026,400) Cash dividend declared -- Preferred Stock ($0.16 per share)....................... -- -- -- -- -- (4,182) (4,182) ------- ---------- ------- -------- ----------- ----------- ----------- Balance at December 31, 1995..... 1,056 14,178,129 $ 10 $567,126 $19,544,584 $29,778,414 $49,890,134 ======= ========== ======= ======== =========== =========== ===========
See accompanying notes. F-5 45 JONES MEDICAL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 ------------ ----------- ------------ OPERATING ACTIVITIES Net income.......................................... $ 6,410,913 $ 5,739,507 $ 9,328,304 Noncash adjustments: Cumulative effect of change in accounting principle...................................... (207,100) -- -- Depreciation...................................... 652,020 797,867 967,265 Amortization...................................... 1,128,703 1,362,936 1,429,804 Provision for uncollectibles...................... 41,582 7,212 63,918 Deferred income taxes............................. (18,075) (109,156) (21,136) (Gain)/loss on sale of assets..................... -- (1,471) 126,060 Change in assets and liabilities, net of effects from acquisitions: Accounts receivable.......................... (1,282,425) 783,610 (2,954,020) Inventories.................................. (3,632,610) 1,549,648 (2,426,040) Other assets................................. (499,164) 278,391 (692,985) Accounts payable and accrued expenses........ (977,097) (261,227) 1,135,175 Income taxes payable......................... (526,089) 242,023 578,627 ------------ ----------- ------------ Net cash from operating activities........ 1,090,658 10,389,340 7,534,972 ------------ ----------- ------------ INVESTING ACTIVITIES Maturity (purchases) of certificates of deposit and U.S. government obligations....................... (224,565) 1,247,489 -- Sales of marketable equity securities............... 108,755 3,515 -- Additions to property, plant and equipment.......... (4,946,251) (3,178,365) (4,657,596) Proceeds from sale of assets........................ -- 268,938 766,108 Purchases of intangible assets in product line acquisitions...................................... (3,542,463) -- (14,072,278) Purchase of Bronson Pharmaceuticals, Inc., net of cash acquired..................................... (8,183,542) -- -- ------------ ----------- ------------ Net cash used for investing.................. (16,788,066) (1,658,423) (17,963,766) ------------ ----------- ------------ FINANCING ACTIVITIES Proceeds from long-term debt........................ 8,000,000 -- 14,000,000 Repayment of long-term debt......................... (1,500,006) (2,134,295) (4,652,908) Payments of cash dividends.......................... (789,749) (934,495) (983,917) Proceeds from exercise of stock options............. 408,270 420,925 444,455 ------------ ----------- ------------ Net cash from (used for) financing........... 6,118,515 (2,647,865) 8,807,630 ------------ ----------- ------------ Increase (decrease) in cash and cash equivalents.... (9,578,893) 6,083,052 (1,621,164) Cash and cash equivalents, beginning of year........ 10,527,606 948,713 7,031,765 ------------ ----------- ------------ Cash and cash equivalents, end of year....... $ 948,713 $ 7,031,765 $ 5,410,601 ============ =========== ============
See accompanying notes. F-6 46 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION The Company is engaged in the manufacturing, marketing, and sale of pharmaceuticals and nutritional supplements. The Company's principal customers include consumers, retail pharmacies, hospitals (through wholesale drug distributors), physicians, and the United States government, of which sales to the United States government totaled approximately $4,600,000, $4,500,000, and $3,250,000 in 1993, 1994, and 1995, respectively. No one customer accounted for more than 10% of the Company's consolidated sales in 1993, 1994, or 1995. The Company's most significant product line is a topical hemostat with sales totaling approximately $13,126,000, $12,681,000, and $14,573,000 in 1993, 1994, and 1995, respectively. The Company's only source of supply for this product line is from GenTrac, Inc. ("GenTrac"), a wholly-owned subsidiary of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Jones Medical Industries, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash equivalents in short-term money market accounts and other investments with original maturities of less than three months are stated at cost plus accrued interest and are considered to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Depreciation is computed by the straight-line method over the useful life of the assets as follows:
ESTIMATED ASSET CATEGORY USEFUL LIFE ----------------------------------------------------------------- ----------- Buildings and improvements....................................... 15-40 years Equipment and furniture.......................................... 5-10 years Automobiles...................................................... 5 years
INTANGIBLE ASSETS The cost of product line or business acquisitions is allocated first to identifiable assets and liabilities based on estimated fair values. The excess of cost over identifiable assets and liabilities is F-7 47 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recorded as goodwill. Amortization is provided using the straight-line method over the estimated useful life of the assets as follows:
ESTIMATED ASSET CATEGORY USEFUL LIFE ----------------------------------------------------------------- ----------- Customer lists................................................... 20 years Distribution systems, trademarks, and licenses................... 5-30 years Restrictive covenants and other intangibles...................... 5-10 years Goodwill......................................................... 25-40 years
The Company continually reevaluates the propriety of the carrying amount of goodwill and other intangibles as well as the related amortization period to determine whether current events and circumstances warrant adjustments to the carrying values and/or revised estimates of useful lives. This evaluation is based on the Company's projection of the undiscounted operating income before depreciation, amortization, and interest over the remaining lives of the amortization periods of related goodwill and intangible assets. The projections are based on the historical trend line of actual results since the commencement of operations and adjusted for expected changes in operating results. To the extent such projections indicate that the undiscounted operating income (as defined above) is not expected to be adequate to recover the carrying amounts of related intangibles, such carrying amounts are written down by charges to expense in amounts equal to the excess of the carrying amount of intangible assets over the respective fair values. At this time, the Company believes that no significant impairment of the goodwill and other intangibles has occurred and that no reduction of the estimated useful lives is warranted. REVENUE RECOGNITION Sales are reported net of returns during the period in which product is shipped. These sales are subsequently adjusted for reserves incurred due to volume or other contractual discounts on certain pharmaceuticals under contracts with hospitals and hospital buying groups. At December 31, 1995 and 1994, the Company maintained a reserve of $1,500,000 and $1,050,000, respectively, for such anticipated discounts. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common and common equivalent share are based on the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during each year (14,256,640 in 1993, 14,391,084 in 1994, and 14,589,150 in 1995) after giving retroactive effect to a three-for-two stock split declared February 7, 1996. The computation assumes that outstanding stock options were exercised and the proceeds used to purchase common shares. Outstanding Preferred Stock was assumed to have been converted to Common Stock at the issuance date. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's incentive stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. In connection with various nonqualified stock option plans, certain options have been granted at exercise prices below the fair market value of the Common Stock at the grant date. Differences F-8 48 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) between the option prices and fair market values at the dates of grant are charged to compensation expense ratably over the future service vesting periods. DIRECT-RESPONSE ADVERTISING Costs associated with the production of the Company's direct-response mail order catalog are capitalized and amortized over the expected period of future benefit, which typically does not extend beyond six months. At December 31, 1994 and 1995, approximately $181,000 and $392,000, respectively, of capitalized catalog costs are included in the accompanying balance sheets. Advertising expense associated with the catalog in 1993, 1994, and 1995 totalled $584,000, $902,000, and $1,223,000, respectively. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the 1993 and 1994 financial statements to conform to the 1995 presentation. 3. COMMON STOCK SPLIT On February 7, 1996, the Board of Directors declared a three-for-two stock split effected in the form of a stock dividend to be paid on March 1, 1996 to holders of record on February 23, 1996. The financial statements, including stock option, share, per share data, and market prices, have been retroactively adjusted to reflect the split. 4. ACQUISITIONS Brevital On August 31, 1995, the Company entered into a perpetual licensing agreement with Eli Lilly & Company ("Lilly") for the exclusive United States marketing rights to the Brevital product line. The purchase price of approximately $14.0 million was financed with bank debt of $7.0 million and Lilly financing of $7.0 million. Approximately $13.0 million was allocated to the perpetual license with an amortizable life of 30 years, and $1.0 million was allocated to a restrictive covenant with an amortizable life of 10 years. Bronson Pharmaceuticals On March 24, 1993, the Company acquired the outstanding stock of Bronson Pharmaceuticals ("Bronson"), a California subchapter S corporation. The cost of the acquisition of $10,500,000 has been recorded using the purchase method of accounting, and the results of Bronson's operations, since the date of acquisition, have been included in the Company's consolidated financial statements. The excess of the purchase price over the estimated fair market value of the net assets acquired of approximately $2,700,000 is being amortized over 40 years using the straight-line method. The following summarized unaudited pro forma results of operations for the year ended December 31, 1993 assume the acquisition occurred as of the beginning of the respective period. The pro forma results have been prepared for comparative purposes only and do not purport to be F-9 49 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future.
PRO FORMA 1993 ----------- (UNAUDITED) Year Ended December 31 Sales........................................................................ $46,717,000 Net income before cumulative effect of change in accounting principle........ $ 6,178,000 Earnings per share before cumulative effect of change in accounting principle................................................................. $ 0.44 Net income................................................................... $ 6,386,000 Earnings per share........................................................... $ 0.45
Derma System Professional Skin Care On February 12, 1993, the Company acquired the Derma System Professional Skin Care product line for approximately $3,500,000 which was paid in cash. The entire purchase price was allocated to intangible assets, the majority of which are being amortized over a useful life of 20 years. 5. SUPPLEMENTAL CASH FLOW INFORMATION The Company paid the following amounts for interest and income taxes:
1993 1994 1995 ---------- ---------- ---------- Interest................................... $ 367,812 $ 503,524 $ 299,116 Income taxes............................... $4,230,000 $3,150,000 $5,087,945
6. INVENTORIES Inventories at December 31, 1994 and 1995 are comprised of the following:
1994 1995 ---------- ----------- Raw materials........................................ $3,372,142 $ 4,870,595 Work-in-process...................................... 1,030,297 1,099,582 Finished goods....................................... 3,918,151 4,776,453 ---------- ----------- Total inventories.................................... $8,320,590 $10,746,630 ========== ===========
7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1994 and 1995 are as follows:
1994 1995 ----------- ----------- Land................................................ $ 2,178,398 $ 2,158,144 Buildings and improvements.......................... 7,216,650 8,558,253 Equipment and furniture............................. 5,258,169 7,409,091 Leasehold improvements.............................. 63,964 -- Automobiles......................................... 303,689 381,984 ----------- ----------- 15,020,870 18,507,472 Less accumulated depreciation....................... 2,417,705 3,064,855 ----------- ----------- Net property, plant and equipment................... $12,603,165 $15,442,617 =========== ===========
F-10 50 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 1994 and 1995 are comprised of the following:
1994 1995 ---------- ---------- Trade payables....................................................... $1,294,968 $1,071,840 Sales discounts...................................................... 1,050,000 1,500,000 Compensation......................................................... 395,797 635,320 Taxes other than income.............................................. 138,307 114,137 Interest............................................................. 24,000 175,285 Royalties............................................................ 109,483 174,276 Health insurance claims.............................................. 201,083 198,060 Property and equipment purchases..................................... 139,406 203,762 Catalog expenses..................................................... 1,066 163,418 Other................................................................ 285,856 539,043 ---------- ---------- Total accounts payable and accrued expenses.......................... $3,639,966 $4,775,141 ========== ==========
9. LONG-TERM DEBT Long-term debt at December 31, 1994 and 1995 consists of the following:
1994 1995 ---------- ----------- Note payable to bank at bank base rate (8.5% at December 31, 1994), secured by all corporate assets, payable $133,334 monthly plus interest; final payment due July 1998............................. $5,399,986 $ -- Note payable to bank at .5% below bank base rate (8.25% at December 31, 1995), secured by all corporate assets, payable $136,111 monthly plus interest; final payment due September 2000........... -- 7,758,316 Note payable to Lilly at 7%; payable in installments of $4,000,000 in August 1996 and $3,000,000 in August 1997...................... -- 7,000,000 Note payable to former shareholder at 5.49% interest; due on demand............................................................ 11,238 -- ---------- ----------- 5,411,224 14,758,316 Less current maturities............................................. 1,611,246 5,633,330 ---------- ----------- Total long-term debt................................................ $3,799,978 $ 9,124,986 ========== ===========
Approximately $1,167,000 of the $5,399,986 of long-term debt outstanding at December 31, 1994 was refinanced in connection with the 1995 bank note payable. Maturities of long-term debt at December 31, 1995 are as follows: 1996............................................................. $ 5,633,330 1997............................................................. 4,633,330 1998............................................................. 1,633,330 1999............................................................. 1,633,330 2000............................................................. 1,224,996 ----------- $14,758,316 ===========
F-11 51 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On March 16, 1995, the Company increased its available borrowings under the March 16, 1993 credit arrangement from $2.0 million to $4.0 million. Interest on outstanding borrowings is based on the bank base rate and is payable monthly. Borrowings on the line of credit are secured by substantially all of the assets of the Company. There were no borrowings under the line of credit agreement in 1994 and 1995. The bank credit agreement including the note payable to bank and the line of credit arrangement contain certain restrictive provisions including maintaining a maximum tangible net worth ratio, maintaining a minimum current ratio, obtaining prior approval of acquisition financings in excess of $3.0 million and limiting the amount of additional borrowings. The Company will be in default under its revolving credit and borrowing lines if (i) Dennis Jones ceases to be the Company's Chairman of the Board and Chief Executive Officer, or (ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the outstanding shares of Common Stock of the Company, or (iii) a third party acquires 50% or more of the shares of the Company's capital stock without the lender's prior approval. 10. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of adopting Statement No. 109 as of January 1, 1993 was to increase net income by $207,100. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1995 and 1994 are as follows:
1994 1995 ---------- ---------- Deferred tax liabilities: Depreciation and amortization....................... $3,858,198 $4,118,047 Deferred tax assets: Accrued sales discounts............................. 388,500 561,135 Deferred compensation on stock options.............. 85,020 85,870 Unicap adjustment on inventory...................... 95,720 143,914 Allowance for doubtful accounts..................... 23,974 48,184 Other............................................... 59,591 94,687 ---------- ---------- 652,805 933,790 ---------- ---------- Net deferred tax liabilities.......................... $3,205,393 $3,184,257 ========== ==========
Significant components of the provision for income taxes are as follows:
1993 1994 1995 ---------- ---------- ---------- Current: Federal.................................. $3,311,000 $3,120,000 $5,094,000 State.................................... 393,000 288,000 524,000 ---------- ---------- ---------- Total current......................... 3,704,000 3,408,000 5,618,000 ---------- ---------- ---------- Deferred: Federal.................................. 36,000 (98,000) (18,900) State.................................... 4,000 (11,000) (2,100) ---------- ---------- ---------- Total deferred........................ 40,000 (109,000) (21,000) ---------- ---------- ---------- Total provision for income taxes........... $3,744,000 $3,299,000 $5,597,000 ========== ========== ==========
F-12 52 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the difference between the United States federal statutory tax rates and the effective income tax rate as a percentage of net income before cumulative effect of change in accounting principle is as follows:
1993 1994 1995 ---- ---- ---- United States federal statutory tax rate................... 34.0% 34.0% 35.0% State income taxes, net of federal tax benefit............. 4.0 3.1 2.5 Other, net................................................. (.4) (.6) -- ---- ---- ---- 37.6% 36.5% 37.5% ==== ==== ====
11. PREFERRED STOCK The Company's Convertible Cumulative Preferred Stock, Series A, bears dividends at an annual dividend rate of $0.16 per share. Each preferred share has voting rights equal to one share of Common Stock and is convertible into 1.75 shares (2.625 shares after giving retroactive effect to the three-for-two stock split declared February 7, 1996) of the Company's Common Stock. During 1995, the Company reached a settlement regarding a portion of the contingent purchase price payable to the former stockholders of GenTrac. In connection with the settlement, 44,004 shares of the Company's Preferred Stock held in an escrow account, pending final dispute resolution, were released from escrow and returned to the Company. These shares of Preferred Stock with an original cost of $381,277 have been canceled by the Company. The accompanying 1995 financial statements reflect the resulting $381,277 reduction of goodwill associated with the contingent purchase price and reduction in Preferred Stock. 12. STOCK OPTION PLANS The Company has various incentive stock option ("ISO") plans for executives and employees. In connection with the ISO plans, options to purchase Common Stock are granted at option prices not less than the fair market values of the Common Stock at the time the options are granted and vest ratably over a five-year period from the grant dates. At December 31, 1995, options for 170,499 shares of Common Stock are available for future grant. There were 479,850 options granted but unexercised under the ISO plans at December 31, 1995, of which 55,500 were exercised subsequent to December 31, 1995. In addition, the Company has various nonqualified stock option ("NSO") plans for certain officers and independent directors. Certain of these options offer exercise prices below the fair market value of the Common Stock at the date of grant. In accordance with APB 25, differences between the option prices and the fair market values at the dates of grant have been accrued ratably over the five-year vesting periods. Total compensation expense in 1993, 1994, and 1995 related to the NSO plans was $67,000, $122,000, and $123,500, respectively. At December 31, 1995, there were 103,500 options granted but unexercised under the NSO plans, of which 75,000 shares were exercised subsequent to December 31, 1995. F-13 53 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Option activity for 1993, 1994, and 1995 was as follows:
1993 1994 1995 -------- -------- -------- Outstanding options, January 1.................. 756,000 723,000 648,810 Exercised..................................... (153,000) (96,150) (187,710) Granted....................................... 163,500 131,250 129,750 Cancelled..................................... (43,500) (109,290) (7,500) -------- -------- -------- Outstanding options, December 31................ 723,000 648,810 583,350 ======== ======== ======== Weighted average price of options exercised..... $3.78 $2.99 $2.37 ===== ===== ===== Weighted average price of options granted....... $6.91 $5.60 $5.50 ===== ===== ===== Weighted average price of options cancelled..... $2.41 $8.06 $4.27 ===== ===== =====
Outstanding options at December 31, 1995 are exercisable as follows:
WEIGHTED AVERAGE NUMBER OF OPTION RANGE OF SHARES PRICE OPTION PRICE --------- -------- -------------- 1995....................................... 329,400 $ 3.31 $0.33 - $8.50 1996....................................... 61,650 $ 4.89 $3.50 - $10.00 1997....................................... 51,900 $ 5.07 $3.50 - $10.00 1998....................................... 55,800 $ 5.12 $3.50 - $10.00 1999....................................... 49,200 $ 5.55 $4.33 - $10.00 2000....................................... 35,400 $ 5.70 $4.33 - $10.00 ------- ------ 583,350 $ 4.14 ======= ======
Subsequent to December 31, 1995, options to purchase 70,500 shares of Common Stock were granted to certain employees of the Company under the ISO plan. The option price of $16 per share represents the fair market value of the stock on the date the options were granted. The options vest over periods of five to seven years from the grant date. In addition, subsequent to December 31, 1995, options to purchase 450,000 shares of Common Stock were granted to certain officers of the Company under time accelerated stock option agreements pursuant the Company's 1994 Incentive Stock Plan. The option price of $16 per share represents the fair market value of the stock on the date the options were granted. The options become exercisable at the end of eight years from the grant date; however, the options may become exercisable if certain targeted Common Stock prices are attained as follows: $20 for the 1997 installment, $26.67 for the 1998 installment, $32 for the 1999 installment, $40 for the 2000 installment, and $50 for the 2001 installment. 13. EMPLOYEE BENEFIT PLAN The Company has a defined contribution plan covering substantially all employees. The plan provides the Company match 100 percent of the employee voluntary contributions up to a maximum matching contribution of 5 percent of the employee's compensation. Company contributions in 1993, 1994, and 1995 were approximately $172,000, $184,000, and $204,000, respectively. F-14 54 JONES MEDICAL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. CONTINGENCIES AND COMMITMENTS The Company currently carries product liability coverage of $10,000,000 per occurrence and $10,000,000 in the aggregate on a "claims made" basis. There is no assurance that the Company's present insurance will cover any potential claims that may be asserted in the future. In addition, the Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Under development and distribution agreements between GenTrac and Johnson & Johnson entered into prior to the Company's acquisition of GenTrac, Johnson & Johnson acquired certain rights to new thrombin products and thrombin product improvements developed by GenTrac. Johnson & Johnson has notified the Company that it believes that it is entitled to exclusive distribution rights for Thrombin-JMI and a liquid thrombin product for which FDA approval is currently pending. Although the Company strongly disagrees with and will vigorously contest such claims by Johnson & Johnson, any resolution of the claims in favor of Johnson & Johnson could have a materially adverse effect upon the Company's business, financial condition and results of operations. The Company currently relies on Lilly for the manufacture of Brevital. The Company has entered into a 10-year manufacturing agreement with Lilly, which may be terminated by Lilly at any time after the first five years by giving at least five years notice to the Company prior to ceasing the manufacture of Brevital. In the event of such termination, Lilly must use reasonable efforts to assist the Company in obtaining all the necessary licenses and approvals to enable the Company or an alternative manufacturer to manufacture Brevital. Lilly is the sole manufacturer of Brevital and any alternative manufacturer would require regulatory change-in-site qualification to manufacture the product. In the event of any interruption in the supply of Brevital from Lilly due to regulatory or other causes, there can be no assurance that the Company could make alternative manufacturing arrangements on a timely basis, if at all. Such an interruption would have a material adverse effect on the Company's business, financial condition and results of operations. In connection with certain product line acquisitions, the Company is obligated to pay royalties of up to 10 percent of certain product sales through 2005. Total royalty expense in 1993, 1994, and 1995 was approximately $621,000, $636,000, and $593,000, respectively. 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- 1994 Net sales................................. $12,141,904 $11,584,608 $12,155,518 $11,666,773 Gross profit.............................. $ 5,944,623 $ 5,700,097 $ 6,176,024 $ 5,155,895 Net income................................ $ 1,604,346 $ 1,206,894 $ 1,602,273 $ 1,325,994 Earnings per share *...................... $ 0.11 $ 0.09 $ 0.11 $ 0.09 Stock prices: * High.................................... $ 10 5/16 $ 8 1/2 $ 7 3/16 $ 6 1/16 Low..................................... $ 7 3/4 $ 6 11/16 $ 4 5/16 $ 4 1/4 1995 Net sales................................. $11,458,547 $13,282,184 $15,250,201 $16,406,163 Gross profit.............................. $ 6,191,053 $ 6,706,930 $ 7,923,992 $ 8,409,224 Net income................................ $ 2,046,258 $ 2,127,714 $ 2,337,553 $ 2,816,779 Earnings per share *...................... $ 0.14 $ 0.15 $ 0.16 $ 0.19 Stock prices: * High...................................... $ 6 1/16 $ 8 $ 12 1/16 $ 16 1/2 Low....................................... $ 4 3/16 $ 5 7/16 $ 7 7/16 $ 10 11/16
- ------------ * Adjusted to reflect the three-for-two stock split declared February 7, 1996. 16. SUBSEQUENT EVENTS On February 26, 1996, the Company filed with the Securities and Exchange Commission a Registration Statement on Form S-3 relating to the offering of 2,300,000 shares of its Common Stock. The proceeds from the equity offering will be used for repayment of certain indebtedness and for general corporate purposes, including the possible acquisition of product lines or businesses. F-15 55 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS JONES MEDICAL INDUSTRIES, INC.
BALANCE AT CHARGED TO BEGINNING COSTS AND DEDUCTIONS - BALANCE AT DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS END OF PERIOD -------------------------------------------------------------- Year ended December 31, 1995 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $64,794 $63,918 $128,712 =============================================================== 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 $57,582 $55,807 $(48,595) $64,794 =============================================================== Accumulated amortization of intangibles $3,653,028 $1,362,935 $(923,569)* $4,092,394 =============================================================== Year ended December 31, 1993 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $16,000 $45,697 $(4,115) $57,582 =============================================================== Accumulated amortization of intangibles $2,524,325 $1,128,703 -- $3,653,028 ===============================================================
*Write off of fully amortized intangibles in 1995, and 1994. F-16 56 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, 1995 ------------------------------------------- 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) EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT (3.1) RESTATED CERTIFICATE OF INCORPORATION JONES MEDICAL INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is JONES MEDICAL INDUSTRIES, INC. Jones Medical Industries, Inc. was originally incorporated under the same name, and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on March 24, 1981. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and also further amends the provisions of the Certificate of Incorporation of this corporation, as heretofore amended or supplemented. 3. The text of the Restated Certificate of Incorporation is hereby restated and amended to read in its entirety as follows: ARTICLE ONE The name of the corporation is Jones Medical Industries, Inc. ARTICLE TWO The address of its registered office in the State of Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent as such address is The Corporation Trust Company. 2 ARTICLE THREE The aggregate number of shares which the corporation shall have authority to issue is Ten Million (10,000,000) shares of stock, with a par value of $.04 per share. ARTICLE FOUR No holder of any shares of stock of the corporation, whether now or hereafter authorized or outstanding, shall have any preemptive or preferential right of any kind to acquire, subscribe for or have offered to him any shares of stock or any other securities of the corporation, whether such stock or other securities are now or hereafter authorized or issued. ARTICLE FIVE The number of directors to constitute the Board of Directors from time to time shall be not less than three (3) nor more than nine (9). Said number shall be fixed in the manner set forth in the Bylaws. ARTICLE SIX The power to make, alter, amend or repeal the Bylaws of the corporation is vested in the Board of Directors. ARTICLE SEVEN The duration of the corporation is PERPETUAL. ARTICLE EIGHT The corporation is formed for the following purpose: To engage in any lawful act or activity for which corporations may be organized under the "General Corporation Law of the State of Delaware." 2 3 ARTICLE NINE No director shall be personally liable to the corporation or its shareholders for monetary damages for any breach of fiduciary duty by such director, as a director. However, a director shall be liable to the extent provided by applicable law (i) for a breach of the director's duty of loyalty to the corporation or its stockholders, or (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal of these provisions. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed under the seal of the Company this 14th day of June, 1988. JONES MEDICAL INDUSTRIES, INC. By /s/ Dennis M. Jones ---------------------------- President (SEAL) ATTEST: /s/ Judith A. Jones - ----------------------------- Secretary 3 EX-3.2 3 CERTIFICATE OF AMENDMENT DATED MAY 14, 1990 1 EXHIBIT (3.2) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION JONES MEDICAL INDUSTRIES, INC. - ------------------------------------------------------------------------------ a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Jones Medical Industries, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "Three" so that as amended said Article shall be and read as follows: "See Exhibit A attached hereto ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------" SECOND: That thereafter the annual meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 211 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by Dennis M. Jones, its President and Judith A. Jones, its Secretary this 14th day of May, 1990. By: /s/ Dennis M. Jones ------------------------- President ATTEST: /s/ Judith A. Jones ------------------------------- Secretary 2 EXHIBIT A ARTICLE THREE (a) The total number of shares of all classes of stock which the Corporation shall have the authority to issue is Eleven Million (11,000,000) shares consisting of Ten Million (10,000,000) shares of Common Stock, par value of $0.04 per share, and One Million (1,000,000) shares of Preferred Stock, par value of $0.01 per share. (b) The shares of authorized Common Stock of the Corporation shall be identical in all respects and shall have equal rights and privileges. (c) The board of directors shall have the authority, to the full extent now or hereafter permitted by law, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock from time to time on such terms as it may determine, by filing a certificate pursuant to the applicable law of the State of Delaware, and to establish from time to time the number of shares to be included in each such class or series of Preferred Stock, and to fix by resolution or resolutions the designations, powers, preferences and rights of the shares of each such class or series and the qualifications, limitations or restrictions thereof. The authority of the board of directors with respect to each class or series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that class or series and the distinctive designation of that class or series; (ii) The dividend rate on the shares of that class or series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that class or series; (iii) Whether that class or series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms and conditions of such voting rights; (iv) Whether that class or series shall have conversion privileges, and, if so, the terms and conditions of such conversion including provision for adjustment of the conversion rate upon the occurrence of such events as the board of directors shall determine; (v) Whether or not the shares of that class or series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that class or series shall have a sinking fund for the redemption or purchase of shares of the class or series, and, if so, the terms and amount of such sinking fund; 3 (vii) The rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and (viii) Any other relative rights, preferences and limitations of that class or series. 2 EX-3.3 4 CERTIFICATE OF AMENDMENT DATED MAY 30, 1991 1 EXHIBIT (3.3) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION JONES MEDICAL INDUSTRIES, INC. - ------------------------------------------------------------------------------ a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Jones Medical Industries, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "Three" so that as amended said Article shall be and read as follows: "See Exhibit A attached hereto ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------" SECOND: That thereafter the annual meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 211 of the General Corporation Law of the state of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said corporation has Caused this certificate to be signed by Dennis M. Jones, its President and Judith A. Jones , its Secretary this 30th day of May, 1991. By: /s/ Dennis M. Jones ------------------------- President ATTEST: /s/ Judith A. Jones ------------------------------- Secretary 2 EXHIBIT A ARTICLE THREE (a) The total number of shares of all classes of stock which the Corporation shall have the authority to issue is Thirty-one Million (31,000,000) shares consisting of Thirty Million (30,000,000) shares of Common Stock, par value of $0.04 per share, and One Million (1,000,000) shares of Preferred Stock, par value of $0.01 per share. (b) The shares of authorized Common Stock of the Corporation shall be identical in all respects and shall have equal rights and privileges. (c) The board of directors shall have the authority, to the full extent now or hereafter permitted by law, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock from time to time on such terms as it may determine, by filing a certificate pursuant to the applicable law of the State of Delaware, and to establish from time to time the number of shares to be included in each such class or series of Preferred Stock, and to fix by resolution or resolutions the designations, powers, preferences and rights of the shares of each such class or series and the qualifications, limitations or restrictions thereof. The authority of the board of directors with respect to each class or series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that class or series and the distinctive designation of that class or series; (ii) The dividend rate on the shares of that class or series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that class or series; (iii) Whether the class or series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms and conditions of such voting rights; (iv) Whether that class or series shall have conversion privileges, and, if so, the terms and conditions of such conversion including provision for adjustment of the conversion rate upon the occurrence of such events as the board of directors shall determine; (v) Whether or not the shares of that class or series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; 3 (vi) Whether that class or series shall have a sinking fund for the redemption or purchase of shares of the class or series, and, if so, the terms and amount of such sinking fund; (vii) The rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and (viii) Any other relative rights, preferences and limitations of that class or series. 2 EX-3.5 5 AMENDED BY-LAWS 1 EXHIBIT (3.5) June 14, 1988 AMENDED BYLAWS OF JONES MEDICAL INDUSTRIES, INC. ARTICLE I Offices Section 1.01 Principal Office. The principal office of the Corporation shall be located in St. Louis County, Missouri. Section 1.02 Registered Office. The registered office of the Corporation shall be located at 1209 Orange Street, Wilmington, New Castle County, Delaware. The name of the registered agent at such address is The Corporation Trust Company. Section 1.03 Other Offices. The Corporation may have any number of additional offices at such other places as the Board of Directors may from time to time determine, or as the affairs of the Corporation may require. ARTICLE 2 Meetings of Shareholders Section 2.01 Place of Meetings. All meetings of shareholders shall be held at the principal office of the Corporation or at such other place as shall be designated in the notice of the meeting. Section 2.02 Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held on the second Monday of June of each year at such time as is designated in the notice of the meeting, for the purpose of electing directors of the Corporation and for the transaction of such other business as may be properly brought before the meeting. Section 2.03 Substitute Annual Meeting. If the annual meeting shall not be held on the day designated by these Bylaws, a substitute annual meeting shall be called by the Board of Directors as soon thereafter as is convenient. A meeting so called shall be designated and treated for all purposes as the annual meeting. 2 Section 2.04 Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors or by the President of the Corporation. Section 2.05 Notice of Meetings. Written or printed notice stating the place, date and hour of a meeting shall be delivered not less than ten (10) nor more than sixty (60) days before the date thereof, either personally or by mail, to each shareholder of record entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the General Corporation Law of the State of Delaware or the Certificate of Incorporation of the Corporation. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless it is a matter, other than the election of directors, on which the vote of shareholders is expressly required by the provisions of the General Corporation Law of the State of Delaware or the Certificate of Incorporation of the Corporation. In the case of a special meeting, the notice of the meeting shall specifically state the purpose or purposes for which the meeting is called. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 2.06 Voting Lists. At least ten (10) days before each meeting of shareholders, the Secretary of the Corporation shall prepare an alphabetical list of the shareholders entitled to vote at any such meeting, with the address of and the number of shares held by each, which list shall be kept on file at the principal office of the Corporation for a period of ten days prior to such meeting, and shall be subject to inspection by any shareholder at any time during the usual business hours of the Corporation. This list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the entire time of the meeting. Section 2.07 Quorum. At any meeting of the shareholders, a quorum shall be constituted if holders of a majority of the shares of stock of the Corporation are present in person or by proxy. 2 3 If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. Section 2.08 Proxies. Shares may be voted either in person or by one or more agents authorized by a written proxy executed by the shareholder or by his duly authorized attorney-in-fact. A proxy is not valid after three years from the date of its execution or such earlier or later time if the person executing the proxy specifies therein a shorter or longer length of time. Section 2.09 Voting of Shares. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. The affirmative vote of a majority of the outstanding shares of stock, voting separately, at a meeting of shareholders at which a quorum is present shall be the act of the shareholders on that matter, unless the vote of a greater number is required by law or by the Certificate of Incorporation or Bylaws of this Corporation. Section 2.10 Informal Action by Shareholders. Any action which may be taken at a meeting of the shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the shareholders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted and such consent shall be filed with the Secretary of the Corporation to be kept in the corporate minute book. Section 2.11 Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the highest ranking officer of the Corporation who is present shall call to order any meeting of the shareholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 2.12 Conduct of Business. The chairman of any meeting of shareholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. 3 4 ARTICLE 3 Directors Section 3.01 General Powers. The business and affairs of the Corporation shall be managed by the Board of Directors ("Board") or by such Executive Committees as the Board may establish pursuant to these Bylaws. Section 3.02 Number, Term and Qualification. The number of directors to constitute the Board of Directors of the Corporation shall be six (6). The number of directors to constitute the Board of Directors may be changed from time to time by amendment to the By-Laws by the Board. Subject to death, resignation or removal in the manner provided by law, each director shall hold office for a term of one year, provided however, if his successor is not elected after one year, then he shall hold office until his successor is duly elected and qualified. Section 3.03 Election of Directors. Except as provided in Section 3.04, directors shall be elected at each annual meeting of shareholders. Section 3.04 Vacancies and Newly Created Directorships. Vacancies occurring in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority vote of the remaining directors, though less than a quorum, or by the sole remaining director. ARTICLE 4 Meeting of Directors Section 4.01 Regular Meetings. A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the President may provide, or the Board of Directors may provide by resolution, the time and place, either at the Corporation's principal office or at such other location, for the holding of additional regular meetings. Section 4.02 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President, or not less than forty percent (40%) of the directors then in office. Such meetings may be held either at the Corporation's principal office or at such other location, as indicated in the notice of the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 4.03 Notice of Meetings. Regular meetings of the Board of Directors may be held without notice. The persons calling a special meeting of the Board of Directors 4 5 shall, at least three days before the meeting, give notice thereof by any usual means of communication. Such notice may be waived in writing and shall specify the purpose for which the meeting is called. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called. Section 4.04 Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his contrary vote is recorded or his dissent is otherwise entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 4.05 Quorum. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time without further notice or waiver thereof. Section 4.06 Manner of Acting. Except as otherwise provided herein, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Vacancies in the Board of Directors may be filled as provided in Section 3.04 of these Bylaws. Section 4.07 Informal Action by Directors. Action taken by the directors without a meeting is nevertheless the action of the Board of Directors, if written consent to the action in question is signed by all the directors and filed with the minutes of the proceedings of the Board of Directors, whether done before or after the action so taken. Section 4.08 Committees. The Board of Directors may appoint such committees with such members as it shall determine to be necessary, as specified in Article 5. Section 4.09 Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other. Such participation shall constitute presence in person at such meeting. 5 6 Section 4.10 Powers. The Board of Directors may, except as reserved to the shareholders pursuant to the Certificate of Incorporation of the Corporation or as otherwise limited by applicable law, exercise all such powers and do all such acts and things as may be exercised or done by a corporation. Section 4.11 Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the directors. Section 4.12 Reports. The Board of Directors shall furnish the shareholders with an annual report of the Corporation's business and quarterly financial reports. ARTICLE 5 Committees Section 5.01 Committees of the Board of Directors. The Board of Directors, by action taken in accordance with Section 4.08, may from time to time designate one or more committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees, elect directors to serve as members, designating, if it desires, other directors as alternative members who may replace any absent or disqualified member at a meeting of the committee. Section 5.02 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; a simple majority of the members shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 5.03 Vacancy. Any vacancy occurring on a committee shall be filled by a majority vote of the directors at a regular or special meeting of the Board of Directors. Section 5.04 Removal. Any member of a committee may be removed at any time, with or without cause, by a majority vote of the directors. Section 5.05 Minutes. Each committee shall keep regular minutes of its proceedings and report the same to the Board when required. 6 7 Section 5.06 Responsibility of Directors. The designation of a committee and the delegation thereto of authority shall not operate to relieve the Board of Directors or any member thereof, of any responsibility or liability imposed upon it or him by law. If action taken by a committee is not thereafter formally considered by the Board, a director may dissent from such action by filing his written objection with the Secretary with reasonable promptness after learning of such action. ARTICLE 6 Officers Section 6.01 Number. The Board of Directors may elect from its own number a Chairman. The Board shall also elect or appoint from time to time a President, a Secretary and such other officers as in its opinion are desirable for the conduct of the business of the Corporation. Any two or more offices may be held by the same person, except the offices of Chairman and Secretary. Section 6.02 Election and Term. The officers of the Corporation shall be elected or appointed by the Board of Directors. Such elections may be held at any regular or special meeting of the Board. Each officer shall hold office until his death, resignation, retirement, removal or disqualification, or until his successor is elected and qualifies. Section 6.03 Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the persons so removed. Section 6.04 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors. Section 6.05 Chairman. The Chairman shall preside at all meetings of the directors and, in general, shall perform all duties incident to the office of Chairman and such other duties as may be prescribed by the Board of Directors from time to time. Section 6.06 Secretary and Assistant Secretary. The Secretary shall keep accurate records of the acts and proceedings of all meetings of shareholders and directors. He shall give all notices required by law and by these Bylaws. He shall have general charge of the corporate books and records and of the corporate seal, and he shall affix the corporate seal to any lawfully executed instrument requiring it. He shall have general charge of the stock transfer books of the Corporation and shall keep, at the registered or principal office of the Corporation, a record of the shareholders and the number and class of the shares held by each. He shall sign such instruments as may require his signature, and, in general, shall perform all 7 8 duties as may be assigned to him from time to time by the Chairman or by the Board of Directors. An Assistant Secretary may be appointed who shall render assistance to the Secretary in all the responsibilities hereinabove assigned. Section 6.07 Treasurer and Assistant Treasurer. The Treasurer shall have custody of all funds and securities belonging to the Corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He shall keep full and accurate accounts of the finances of the Corporation in books especially provided for that purpose; he shall cause a true statement of its assets and liabilities as of the close of each fiscal year, and of the results of its operations and of changes in surplus for such fiscal year, all in reasonable detail, to be made and filed at the registered or principal office of the Corporation after the end of such fiscal year. The Treasurer shall also prepare and file all reports and returns required by federal, state or local law and shall generally perform all other duties incident to his office and such other duties as may be assigned to him from time to time by the Chairman or the Board of Directors. An Assistant Treasurer may be appointed who shall render assistance to the Treasurer in all the responsibilities hereinabove assigned. Section 6.08 President. The President shall be the chief executive officer of the Corporation. He shall be appointed by the Board and act under its direction and control. He shall be responsible for the general management and operation of the business of the Corporation, as established through policies directed by the Board, shall perform other duties properly required of him by the Board, and shall have additional power and authority delegated to him by the Board. Section 6.09 Vice President. Each Vice President shall perform such duties as the Board of Directors may prescribe. In the absence or disability of the President, the Vice President who has served in such capacity for the longest time shall perform the duties and exercise the powers of the President. Section 6.10 Bonds. The Board of Directors may, by resolution, require any or all officers, agents and employees of the Corporation to give a bond to the Corporation, with sufficient securities, conditioned on faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors. 8 9 ARTICLE 7 Contracts, Loans and Deposits Section 7.01 Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 7.02 Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 7.03 Checks and Drafts. All checks, drafts or other orders for the payment of money issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 7.04 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such depositories as the Board of Directors shall direct. ARTICLE 8 Indemnification of Directors, Officers and Others Section 8.01 Scope of Indemnification. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such suit, action or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a 9 10 plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless, and only to the extent that, the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (d) The indemnification and advancement of expenses provided herein shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 8.02 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the 10 11 Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of the State of Delaware or of these By-Laws. Section 8.03 Miscellaneous. (a) The Corporation's indemnity of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be reduced by any amounts such person may collect as indemnification (i) under any policy of insurance purchased and maintain on his behalf by the Corporation, or (ii) from such other corporation, partnership, joint venture, trust or other enterprise. (b) Nothing contained in this Article 8, or elsewhere in these By-Laws, shall operate to indemnify any director or officer if such indemnification is for any reason contrary to law, either as a matter of public policy, or under the provisions of the Federal Securities Act of 1933, the Securities Exchange Act of 1934, or any other applicable state or federal law. c) For purposes of this Article 8, references to "the Corporation" include, in addition to the resulting or surviving corporation, all constituent corporations absorbed in a consolidation or merger which if its separate existence had continued, would have had power and authority to indemnify its directors, officers or employees, or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article 8 with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. (d) The indemnification and advancement of expenses provided by this Article 8 shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (e) No amendment or repeal of this Article 8 shall apply to or have any affect on indemnification allowed or compelled with respect to any acts or omissions 11 12 of an individual covered by this Article 8 which occur prior to such amendment or repeal of these provisions. ARTICLE 9 Certificates of Stock and Their Transfer Section 9.01 Certificates for Shares. Certificates representing shares of the Corporation shall be issued, in such form as the Board of Directors shall determine, to every shareholder for the fully paid shares owned by him. These certificates shall be signed by the President or Vice President and the Secretary or Treasurer (or Assistant Secretary or Assistant Treasurer). Any and all signatures on the certificate may be a facsimile. The certificates shall be consecutively numbered or otherwise identified; and the name and address of the persons to whom they are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. Section 9.02 Transfer of Shares. Transfer of shares shall be made on the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by his duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued. Section 9.03 Closing Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution of for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a period stated but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of the shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such record date in any case to be not more than sixty days, and in case of a meeting of shareholders, not less than ten days immediately preceding the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of 12 13 shareholders, or shareholders entitled to receive payment of a dividend, the date next preceding the day on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. Section 9.04 Lost, Stolen or Destroyed Certificates. The Board of Directors may authorize the issuance of a new share certificate in place of a certificate claimed to have been lost, stolen, or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss, theft or destruction. When authorizing such issuance of a new certificate, the Board may require the claimant to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost, stolen, or destroyed; or the Board may, by resolution reciting that the circumstances justify such action, authorize the issuance of the new certificate without requiring such a bond. Section 9.05 Holder of Record. The Corporation may treat as absolute owner of shares the person in whose name the shares stand of record on its books, just as if that person has full competency, capacity and authority to exercise all rights of ownership, irrespective of any knowledge or notice to the contrary or any description indicating a representative, pledge or other fiduciary relationship or any reference to any other instrument or to the rights of any other person appearing upon its record or upon the share certificate, except that any person furnishing to the Corporation proof of his appointment as a fiduciary shall be treated as if he were a holder of record of its shares. ARTICLE 10 General Provisions Section 10.01 Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law, and subject to the provisions of its Certificate of Incorporation. Section 10.02 Seal. The corporate seal of the Corporation shall consist of a circle within which appears the name of the Corporation and the state of incorporation. Section 10.03 Waiver of Notice. Whenever any notice is required to be given to any shareholder or director under the provisions of the General Corporation Law of the State of Delaware or under the provisions of the Certificate of Incorporation or Bylaws of this Corporation, a waiver thereof in writing signed by the person 13 14 or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Section 10.04 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 10.05 Amendments. These Bylaws may be amended or repealed and new Bylaws may be adopted by the affirmative vote of a majority of the Board of Directors of the Corporation. Section 10.06 Facsimile Signatures. Facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 10.07 Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 10.08 Time Periods. In applying any provision of these By-Laws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. Section 10.09 Notices. Whenever notice is required to be given to any shareholder, director, officer, or agent, such requirement shall not be construed to mean personal notice. Such notice may in every instance be effectively given by depositing a writing in a post office or letter box, in a prepaid, sealed wrapper or envelope, or by dispatching a prepaid telegram, addressed to such shareholder, director, officer, or agent at his or her address as the same appears on the books of the Corporation. The time when such notice is deposited or dispatched shall be the time of the giving of the notice. Section 10.10 Inconsistencies. In the event of any inconsistencies Between any provisions of these By-Laws and any provisions of the Certificate of Incorporation of the 14 15 corporation or applicable statute, the Certificate of Incorporation or such statute shall control. 15 EX-3.6 6 AMENDMENT TO SECTION 3.02 OF BY-LAWS 1 EXHIBIT (3.6) UNANIMOUS CONSENT OF DIRECTORS IN LIEU OF SPECIAL MEETING OF BOARD OF DIRECTORS The undersigned, being all of the directors of JONES MEDICAL INDUSTRIES, INC., a Delaware corporation, do hereby consent, effective April 1, 1992, in lieu of a special meeting of the Board of Directors of the corporation on that date to the following action: RESOLVED, that the corporation reappoints the accounting firm of Ernst & Young as independent auditors for the corporation for fiscal year 1992 and that this reappointment be submitted to the shareholders of the corporation for ratification at the next annual meeting of shareholders. RESOLVED, that the Bylaws of the corporation be, and they hereby are, amended by deleting Section 3.02 in its entirety and by substituting in lieu thereof the following: Section 3.02 Number, Term and Qualification. The number of directors to constitute the Board of Directors of the corporation shall be seven (7). The number of directors to constitute the Board of Directors may be changed from time to time by amendment to the Bylaws by the Board. Subject to death, resignation or removal in the manner provided by law, each director shall hold office for a term of one (1) year, provided, however, if his successor is not elected after one year, then he shall hold office until his successor is duly elected and qualified. RESOLVED, that J. Foster Irwin is hereby nominated as a director of the corporation subject to approval by the shareholders of the corporation at the next annual meeting of shareholders. RESOLVED, that this unanimous consent be filed by the Secretary of the corporation with its minutes. IN WITNESS WHEREOF, the undersigned have executed this unanimous consent effective as of the day and year first above written. /s/ Dennis M. Jones /s/ Stanley Lopata - ------------------------------ ------------------------------ Dennis M. Jones Stanley Lopata /s/ Judith A. Jones /s/ Edward A. Chod - ------------------------------ ------------------------------ Judith A. Jones Edward A. Chod /s/ Michael T. Bramblett /s/ L. John Polite, Jr. - ------------------------------ ------------------------------ Michael T. Bramblett L. John Polite, Jr. Being all of the Directors EX-10.1 7 1989 INCENTIVE STOCK OPTION PLAN N 1 EXHIBIT (10.1) INCENTIVE STOCK OPTION PLAN OF JONES MEDICAL INDUSTRIES, INC. JONES MEDICAL INDUSTRIES, INC. (the "Company") hereby adopts an Incentive Stock Option Plan as follows: 1. Within twelve months after adoption of the Plan by the Board of Directors, the Plan shall be submitted to the stockholders of the Company for approval. 2. The Plan shall be referred to as "The 1989 Incentive Stock Option Plan of Jones Medical Industries, Inc." 3. The incentive stock option provided for in this Plan is for the benefit of and may be exercised only by employees of the Company, or its affiliates, as designated from time to time by appropriate resolutions of the Board of Directors, whose compensation is not required to be determined on the basis of the number of hours per week actually worked for purposes of either the minimum wage provisions or the overtime wage provisions of the Fair Labor Standards Act, as amended. 4. The stock of the Company in respect of which the Plan is applicable shall be common stock as defined in the form of Agreement attached to this Plan. 5. The maximum number of shares of common stock subject to the 1989 Incentive Stock Option Plan of Jones Medical Industries, Inc. is 350,000 shares. 6. The option price shall not be less than the fair market value of the stock at the time the option is granted. 2 7. Unless otherwise permitted by applicable provisions of the Internal Revenue Code, no employee shall be granted an incentive stock option pursuant to this Plan if such employee at the time owns 10% or more of the common stock of the Company, and the number of shares of stock subject to any incentive stock option will be limited to such number as when added to the shares of common stock of the Company then owned by such employee shall not cause such employee to become an owner of 10% or more of the outstanding common stock of the Company. 8. Each incentive stock option granted pursuant to the provisions of this Plan shall not be transferable by the employee to whom such option is granted other than by will or the laws of descent and distribution and shall be exercisable, during the lifetime of such employee, only by such employee. 9. The aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by any employee during any calendar year (under this Plan and any other incentive stock option plan or plans of the Company or its affiliates) shall not exceed $100,000. 10. Each incentive stock option granted pursuant to the provisions of this Plan shall be evidenced by the execution of an Agreement substantially in one of the forms attached hereto as Exhibit A-1 and A-2, with such modifications as may be reasonably determined by the President of the Company, signed on behalf of the Company and by the employee to whom such incentive stock option is granted. 2 3 11. Each incentive stock option granted pursuant to the provisions of this Plan shall be subject to, and shall be construed so as to fully comply with all the applicable provisions of the Internal Revenue Code. 12. Every incentive stock option granted pursuant to this Plan must be granted within ten (10) years after the adoption of this Plan, and every incentive stock option so granted shall be exercisable not more than ten (10) years after the date so granted. 3 4 EXHIBIT A-1 AGREEMENT THIS AGREEMENT, is made and entered into as of the ____ day of __________, 19__, by and between JONES MEDICAL INDUSTRIES, INC., a Delaware corporation, hereinafter called the "Company", and _____________, hereinafter called "Executive". W I T N E S S E T H: WHEREAS, Executive has been, is, or is about to be employed by the Company, or one of its Affiliates, and WHEREAS, the Company and Executive desire that Executive have an incentive to increase and enhance the earnings of the Company during the period of Executive's employment by the Company (or one of its Affiliates), and WHEREAS, the parties desire that such incentive be in the form of an Incentive Stock Option ("Option") which may authorize Executive to acquire Common Stock of the Company pursuant to the provisions of this Agreement. NOW, THEREFORE, for and in consideration of the premises and the covenants herein contained, the parties agree as follows: 1.1 "Adjusted Book Value" refers to the book value as reflected on the company's fiscal year end balance sheet as prepared by the Company's accountants in accordance with 5 generally accepted accounting principles applied on a basis consistent with prior balance sheets of the Company as follows: (a) No value shall be included for any trademarks, trade names, patents or goodwill; (b) All life insurance owned by the Company shall be valued at the cash value thereof; (c) Cash received between the date hereof and the fiscal year end on which the purchase price of the Executive's stock is based as proceeds from life insurance shall be disregarded as an asset of the Company except for an amount thereof equal to the net cash value of the policy as of the day prior to the death of the respective insured; (d) Deferred compensation, if any, payable to employees pursuant to any contracts between the Company and such employees shall be treated as a liability of the Company whether or not any reserve for the payment of such deferred compensation has been created, accrued or funded; if any such deferred compensation contracts make reference to the number of years of service of the employees entitled thereto in order to measure the amount of such deferred compensation, then such measurement shall occur on the basis that all employees subject to such contracts terminated their employment with the Company as of th fiscal year end with reference to which the purchase price is determined and (e) The decision of Company's accountants as to the Adjusted Book Value of the Common Stock shall be final and binding on all parties. 2 6 1.2 "Affiliate" refers to any corporation or other entity which directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company. 1.3 "Common Stock" refers to capital stock of the Company, whether voting or non-voting, which participates without limit in the earnings and appreciation of the Company. 1.4 "Option Price" per share refers to the fair market value per share of Common Stock subject to the Option at the time of the execution of this Agreement, as determined in good faith by the Board of Directors of the Company, and for purposes of this Agreement shall be $__________ per share. 1.5 "Option Shares" refers to the number of shares of Common Stock which are subject to the option granted to Executive and for purposes of this Agreement shall be _______ shares of Common Stock. 1.6 "Shareholders" refer to the stockholders from time to time of the Company other than Executive. 1.7 "Term" of this Agreement refers to the period commencing on the date of this Agreement and ending on the earlier of (i) the date which is three (3) months following Executive's Termination of Service, and (ii) the date which is six (6) years following the date of this Agreement. 1.8 "Termination of Service" is the date as of which the employment of Executive by the Company and/or its Affiliates is discontinued because of the death, disability, discharge, retirement or resignation of Executive. 3 7 2. 2.1 The Company hereby grants Executive a non-assignable Option to purchase from it, on the terms and conditions following, all or any part of the Option Shares at a price per share equal to the Option Price per share. 2.2 (a) The Option may be exercised at various times of the Term of this Agreement with respect to all or part of the Option Shares as follows: (i) Twenty percent (20%) of the Option Shares may be purchased by Executive at any time after the one year period following the date of this Agreement. (ii) Forty percent (40%) of the Option Shares (less any Option Shares previously purchased by Executive) may be purchased by Executive at any time after the two year period following the date of this Agreement; (iii) Sixty percent (60%) of the Option Shares (less any Option Shares previously purchased by Executive) may be purchased by Executive at any time after the three year period following the date of this Agreement; (iv) Eighty percent (80%) of the Option Shares (less any Option Shares previously purchased by Executive) may be purchased by Executive at any time after the four year period following the date of this Agreement; (v) One hundred percent (100%) of the Option Shares (less any Option Shares previously purchased by Executive) may be purchased by Executive at any time after the five year period following the date of this Agreement; provided, however, that any and all Option Shares purchased by Executive must be purchased on or before the expiration of the Term of this Agreement at which time the option granted hereunder shall lapse and terminate. (b) Notwithstanding the provisions of Section 2.2(a), Executive shall be entitled to exercise his Option with respect to the particular Option Shares to be purchased, only if Executive was an employee of the Company at all times during the period beginning with the 4 8 granting of the Option and ending on the day three (3) months before the date of Executive's exercise of said Option. (c) The Option shall be exercised by written notice directed to the Company at its principal place of business, accompanied by check in payment of the Option Price for the number of shares specified and paid for. Within sixty (60) days thereafter, share certificates evidencing the shares purchased by Executive shall be delivered to Executive, duly registered in Executive's name. The share certificate shall be delivered to Executive in the same manner in which notices are given to Executive. (d) It is the intention of the parties that the Option granted to Executive pursuant to this Agreement constitute and be an "incentive stock option" within the intent and meaning of the applicable provisions of the Internal Revenue Code and regulations properly promulgated thereunder, and all provisions of this Agreement shall be construed accordingly. 2.3 Executive expressly represents, warrants and confirms that: (a) Executive has been informed and understands that the Common Stock of the Company subject to this Option has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any other securities laws, and that the Company has no present intention or obligation to so register the same; (b) In purchasing any shares of the Company's Common Stock pursuant to the provisions of this Agreement or otherwise howsoever, Executive is purchasing such stock solely for his own account, as an investment only and not with a view toward sale or distribution thereof or with any present intention of distributing or selling the same; and 5 9 (c) Executive will not sell, assign, transfer, pledge or otherwise dispose of any of his Common Stock acquired hereunder, unless or until the same are registered under the Securities Act, or unless exemption from said registration is available and until the Company shall have received a written opinion of counsel to the Company that the disposition is in compliance with the requirements of the Securities Act. 3. 3.1 Subject to the provisions of Section 3.2 hereof, if the Company be involved in any stock dividend, stock split, combination, recapitalization or similar transaction involving its Common Stock after the date hereof and prior to exercise of the Option provided for in Section 2 hereof, then an equitable adjustment shall be made in either or both of (i) the Option Price per share, or (ii) the number of shares of Common Stock subject to Option, so that the relative position of Executive after such transaction will be equivalent to his relative position prior to such transaction. 3.2 Nothing contained in this Agreement shall prevent the Company from issuing shares of Common Stock or shares of stock of any other class to any other person or entity and no adjustment shall be made to the number of Option Shares subject to this Agreement as a result of such issuance of additional shares of Common Stock by the Company. 4. 4.1 As part of the consideration for the Company entering into this Agreement, Executive agrees that for the period commencing on the date hereof and ending two (2) years following his Termination of Service, Executive will not, directly or indirectly, for his own account or benefit or for the account or benefit of any other person or party, engage or be interested in, as owner, partner, employee, director, officer, agent, shareholder, advisor, lender of 6 10 funds or credit, or otherwise, any business or enterprise which competes with the business in which the Company or any of its then Affiliates is engaged at the time of Executive's Termination of Service. 4.2 If Executive is in breach or default of the provisions of Section 4.1, then in addition to and not in lieu of all other remedies to which the Company may be entitled, as and for liquidated damages and not as a penalty and in respect of Common Stock. (a) Executive shall not be entitled to exercise the option provided for in this Agreement and said option shall lapse and terminate; and (b) If Executive owns Common Stock (whether acquired pursuant to this Agreement or otherwise howsoever), the Company shall be entitled to purchase the same from Executive and the price shall be the lower of (1) the Adjusted Book Value at the time the Company exercises its option, or (2) the Option Price; and (c) The sale and purchase of the Common Stock shall be closed within ninety (90) days after the Company becomes aware of Executive's breach of the provisions of Section 4.1. The time and place of closing shall be stated by the Company in a notice sent by the Company to Executive at least ten (10) days prior to the closing date designated by the Company in such notice. At the closing, the Company may pay the purchase price for the Common Stock, at the Company's option, in either of the two following ways: (i) The Company may pay the full purchase price in cash; or (ii) The Company shall pay one-fifth (1/5th) of the purchase price in cash and pay the balance of the purchase price by executing and delivering to Executive its promissory note in the form attached hereto as Exhibit A dated as of 7 11 the date of closing payable to Executive in four (4) equal consecutive annual installments of principal, with the first such installment being due one year after date, and with interest payable annually with each installment of principal at the rate of 8% per annum. At such time as the Company tenders payment of the purchase price for the Common Stock, the Company shall be deemed to have full title to the Common Stock and may cancel the shares of said Common Stock on its books; and Executive shall do all acts and execute all receipts, assignments and other documents that the Company may reasonably request in order to evidence the fact that full title to the Common Stock is vested in the Company. The right and obligation to purchase the Common Stock may be assigned by the Company, however, such assignment shall not relieve the Company of its liability to Executive to purchase said stock pursuant to the terms hereof. 4.3 Nothing contained in this Section 4 shall be deemed to prohibit Executive from owning as an investment not more than two percent (2%) of the outstanding stock or other ownership interests of any business or enterprise which competes with the business in which the Company is engaged, if such stock or other ownership interests are publicly traded. 5. Nothing in this Agreement shall be construed to be evidence of any agreement, contract or understanding, express or implied, that the Company (or any of its Affiliates) will employ Executive in any particular capacity or at any particular rate of compensation or for any particular period of time or that Executive agrees to be employed or remain in the employ of the 8 12 Company (or any of its Affiliates) in any particular capacity or at any particular rate of compensation or for any particular period of time. 6. The Option granted hereunder is not transferable by Executive other than by will or the laws of descent and distribution, and is exercisable, during Executive's lifetime, only by Executive. 7. 7.1 Subject to the provisions of Section 6 hereof, this Agreement is binding on and shall inure to the benefit of the parties hereto and their respective voluntary and involuntary successors, assigns, heirs, executors, administrators and personal representatives. 7.2 Any notice provided for in this Agreement shall be in writing and shall be given by mailing the same by certified mail, postage prepaid, return receipt requested, addressed to the party to whom given at the respective address set forth below the party's signature hereto. Notices shall be deemed given as of the date mailed. Either party may change its address for notices hereunder by giving notice to the other as herein set forth. 7.3 Any Common Stock purchased by Executive pursuant to the terms of this Agreement shall contain a legend to the effect that such stock is subject to the terms of this Agreement and to all other applicable transfer restrictions. 7.4 This Agreement constitutes the entire understanding of Executive and the Company in respect of the subject matter hereof and may not be modified or amended except by an instrument in writing executed by Executive and the Company. 9 13 7.5 This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 7.6 As used herein, singular and plural nouns and pronouns shall mean the singular or plural and the masculine, feminine or neuter genders as permitted by the context in which and such words are used. IN WITNESS WHEREOF, this Agreement is executed in several counterparts as of the day and year first above written. EXECUTIVE: COMPANY: JONES MEDICAL INDUSTRIES, INC. - -------------------------------------- By ------------------------------ Duly Authorized - -------------------------------------- 11710 Lackland Industrial Dr. - -------------------------------------- St. Louis, Missouri 63146 - -------------------------------------- Attention: President 10 14 EXHIBIT A NOTE ________________(2)_____________________ ___________(3)____________,19__(3)______ FOR VALUE RECEIVED, the undersigned, JONES MEDICAL INDUSTRIES, INC., a corporation ("Company"), promises to pay _____________________________________ _________(1)_______ Dollars ($_____(1)_______) to ("Payee"), payable in four (4) equal annual installments, the first such annual installment being due and payable one year after date, and each subsequent installment becoming due and payable on each anniversary of this Note thereafter, together with simple interest on the from time-to-time outstanding principal balance, payable with each principal installment, at the rate of eight percent (8%) per annum. This Note shall, at the option of the holder, become immediately due and payable if default be made in the punctual payment of principal or interest due hereon if such default continues for ten (10) days after written notice of such default is received by the Company from the holder. If this Note is then not paid and is placed in the hands of an attorney for collection, the Company will pay the cost of collecting this Note, including an attorney's fee of fifteen percent (15%) of the principal and interest thereof remaining unpaid, and simple interest after maturity shall be at a rate per annum equal to one hundred fifty percent (150%) of the simple interest rate per annum prior to maturity. The Company reserves the right to prepay this Note, in whole or in part, on any installment due date without premium or penalty, all such prepayments to apply to the installments next due. The Company, for itself, its successors and assigns, covenants and agrees, and the Payee, by the acceptance hereof, likewise covenants and agrees that the payment of the principal of and the interest on this Note is hereby expressly subordinated in right of payment to the payment of any and all indebtedness of the Company for funds borrowed from banks, trust companies, insurance companies, finance companies and other lenders, whether existing at the time of the execution of this Note or which may be incurred by the Company after the execution of this Note, hereinafter sometimes called "Loans", as follows: (a) On the maturity of any Loans by lapse of time, acceleration or otherwise, the principal of and the interest due thereon shall first be paid in full before any payment is made thereafter on account of the principal of or interest on this Note. (b) On the happening of any default with respect to any Loans, then unless and until such defaults have ceased to exist, no payment shall be made by the Company with 11 15 respect to the principal of or interest on this Note without the written consent of the holders of such Loans, and in the event that the Company shall make any payment without such written consent, such payment shall be deemed to be held in trust for the benefit of and shall be paid over, to the extent necessary, to the then holders of such Loans on account of the amounts then due and owing them. (c) In the event of any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, dissolution, liquidation, reorganization or other similar proceedings relative to the Company or its creditors or its property, then in such event the indebtedness represented by this Note shall be subordinated to all Loans. All payments under this Note are subject to set-off by the Company in respect of any amounts due or which become due Company or any of Company's wholly-owned subsidiaries or majority-owned subsidiaries from Payee or the holder hereof on account of any debts, claims or other matters now existing or hereafter arising. This Note is issued in payment of amounts due Payee pursuant to a certain Agreement dated the _____ day of ________, 19 ___ (a copy of which is on file with the Company), and payment hereunder is subject to the provisions of said Agreement. All notice, other than the ten day notice hereinbefore provided, protest and dishonor are hereby waived. JONES MEDICAL INDUSTRIES, INC. By ___________________________ Its: Payable at ______________(2)________________ 12 16 EXHIBIT A-2 AGREEMENT THIS AGREEMENT, is made and entered into as of the _____ day of __________, 19__, by and between JONES MEDICAL INDUSTRIES, INC., a Delaware corporation, hereinafter called the "Company", and ____________________, hereinafter called "Employee", W I T N E S S E T H: WHEREAS, Employee has been, is, or is about to be employed by the Company, or one of its Affiliates, and WHEREAS, the Company and Employee desire that Employee have an incentive to increase and enhance the earnings of the Company during the period of Employee's employment by the Company (or one of its Affiliates), and WHEREAS, the parties desire that such incentive be in the form of an Incentive Stock Option ("Option") which may authorize Employee to acquire Common Stock of the Company pursuant to the provisions of this Agreement, NOW, THEREFORE, for and in consideration of the premises and the covenants herein contained, the parties agree as follows: 1. 1.1 "Affiliate" refers to any corporation or other entity which directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company. 17 1.2 "Common Stock" refers to capital stock of the Company, whether voting or non-voting, which participates without limit in the earnings and appreciation of the Company. 1.3 "Option Price" per share refers to the fair market value per share of Common Stock subject to the Option at the time of the execution of this Agreement, as determined in good faith by the Board of Directors of the Company, and for purposes of this Agreement shall be $_______ per share. 1.4 "Option Shares" refers to the number of shares of Common Stock which are subject to the option granted to Employee and for purposes of this Agreement shall be ______ shares of Common Stock. 1.5 "Shareholders" refer to the stockholders from time to time of the Company other than Employee. 1.6 "Term" of this Agreement refers to the period commencing on the date of this Agreement and ending on the earlier of (i) the date which is three (3) months following Employee's Termination of Service, and (ii) the date which is six (6) years following the date of this Agreement. 1.7 "Termination of Service" is the date as of which the employment of Employee by the Company and/or its Affiliates is discontinued because of the death, disability, discharge, retirement or resignation of Employee. 2 18 2. 2.1 The Company hereby grants Employee a non-assignable Option to purchase from it, on the terms and conditions following, all or any part of the Option Shares at a price per share equal to the Option Price per share. 2.2 (a) The Option may be exercised at various times of the Term of this Agreement with respect to all or part of the Option Shares as follows: (i) Twenty percent (20%) of the Option Shares may be purchased by Employee at any time after the one year period following the date of this Agreement; (ii) Forty percent (40%) of the option Shares (less any Option Shares previously purchased by Employee) may be purchased by Employee at any time after the two year period following the date of this Agreement; (iii) Sixty percent (60%) of the Option Shares (less any Option Shares previously purchased by Employee) may be purchased by Employee at any time after the three year period following the date of this Agreement; (iv) Eighty percent (80%) of the Option Shares (less any option Shares previously purchased by Employee) may be purchased by Employee at any time after the four year period following the date of this Agreement; (v) One hundred percent (100%) of the Option Shares (less any option Shares previously purchased by Employee) may be purchased by Employee at any time after the five year period following the date of this Agreement; provided, however, that any and all Option Shares purchased by Employee must be purchased on or before the expiration of the Term of this Agreement at which time the option granted hereunder shall lapse and terminate. (b) Notwithstanding the provisions of Section 2.2(a), Employee shall be entitled to exercise his Option with respect to the particular Option Shares to be purchased, only if Employee was an employee of the Company at all times during the period beginning with the 3 19 granting of the Option and ending on the day three (3) months before the date of Employee's exercise of said Option. (c) The Option shall be exercised by written notice directed to the Company at its principal place of business, accompanied by check in payment of the Option Price for the number of shares specified and paid for. Within sixty (60) days thereafter, share certificates evidencing the shares purchased by Employee shall be delivered to Employee, duly registered in Employee's name. The share certificate shall be delivered to Employee in the same manner in which notices are given to Employee. (d) It is the intention of the parties that the Option granted to Employee pursuant to this Agreement constitute and be an "incentive stock option" within the intent and meaning of the applicable provisions of the Internal Revenue Code and regulations properly promulgated thereunder, and all provisions of this Agreement shall be construed accordingly. 2.3 Employee expressly represents, warrants and confirms that: (a) Employee has been informed and understands that the Common Stock of the Company subject to this Option has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any other securities laws, and that the Company has no present intention or obligation to so register the same; (b) In purchasing any shares of the Company's Common Stock pursuant to the provisions of this Agreement or otherwise howsoever, Employee is purchasing such stock solely for his own account, as an investment only and not with a view toward sale or distribution thereof or with any present intention of distributing or selling the same; and 4 20 (c) Employee will not sell, assign, transfer, pledge or otherwise dispose of any of his Common Stock acquired hereunder, unless or until the same are registered under the Securities Act, or unless exemption from said registration is available and until the Company shall have received a written opinion of counsel to the Company that the disposition is in compliance with the requirements of the Securities Act. 3. 3.1 Subject to the provisions of Section 3.2 hereof, if the Company be involved in any stock dividend, stock split, combination, recapitalization or similar transaction involving its Common Stock after the date hereof and prior to exercise of the Option provided for in Section 2 hereof, then an equitable adjustment shall be made in either or both of (i) the Option Price per share, or (ii) the number of shares of Common Stock subject to Option, so that the relative position of Employee after such transaction will be equivalent to his relative position prior to such transaction. 3.2 Nothing contained in this Agreement shall prevent the Company from issuing shares of Common Stock or shares of stock of any other class to any other person or entity and no adjustment shall be made to the number of Option Shares subject to this Agreement as a result of such issuance of additional shares of Common Stock by the Company. 4. Nothing in this Agreement shall be construed to be evidence of any agreement, contract or understanding, express or implied, that the Company (or any of its Affiliates) will employ Employee in any particular capacity or at any particular rate of compensation or for any particular period of time or that Employee agrees to be employed or remain in the employ of the 5 21 Company (or any of its Affiliates) in any particular capacity or at any particular rate of compensation or for any particular period of time. 5. The Option granted hereunder is not transferable by Employee other than by will or the laws of descent and distribution, and is exercisable, during Employee's lifetime, only by Employee. 6. 6.1 Subject to the provisions of Section 5 hereof, this Agreement is binding on and shall inure to the benefit of the parties hereto and their respective voluntary and involuntary successors, assigns, heirs, executors, administrators and personal representatives. 6.2 Any notice provided for in this Agreement shall be in writing and shall be given by mailing the same by certified mail, postage prepaid, return receipt requested, addressed to the party to whom given at the respective address set forth below the party's signature hereto. Notices shall be deemed given as of the date mailed. Either party may change its address for notices hereunder by giving notice to the other as herein set forth. 6.3 Any Common Stock purchased by Employee pursuant to the terms of this Agreement shall contain a legend to the effect that such stock is subject to the terms of this Agreement and to all other applicable transfer restrictions. 6.4 This Agreement constitutes the entire understanding of Employee and the Company in respect of the subject matter hereof and may not be modified or amended except by an instrument in writing executed by Employee and the Company. 6 22 6.5 This Agreement may be executed in several couterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 6.6 As used herein, singular and plural nouns and pronouns shall mean the singular or plural and the masculine, feminine or neuter genders as permitted by the context in which any such words are used. IN WITNESS WHEREOF, this Agreement is executed in several counterparts as of the day and year first above written. Employee: COMPANY: JONES MEDICAL INDUSTRIES, INC. - ------------------------------- ---------------------------------------- Duly Authorized 11710 Lackland Industrial Dr. St. Louis, Missouri 63146 Attention: President 7 EX-11.1 8 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1 -- Statement Re: Computation of Per Share Earnings
YEAR ENDED DECEMBER 31, (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------------ 1995 1994 1993 ------------------------------------------ Primary Average shares outstanding 14,002 13,658 13,290 Net effect of dilutive stock options and warrants(2) 538 317 409 Assumed conversion of preferred stock 49 416 558 ------------------------------------------ Total 14,589 14,391 14,257 ========================================== Net income(1) $ 9,328 $ 5,740 $ 6,204 ========================================== Earnings per common and common equivalent share(1) $ .64 $ .40 $ .44 ========================================== FULLY DILUTED Average shares outstanding 14,002 13,658 13,290 Net effect of dilutive stock options and warrants(2) 538 317 409 Assumed conversion of preferred stock 49 416 558 ------------------------------------------ Total 14,589 14,391 14,257 ========================================== Net income(1) $ 9,328 $ 5,740 $ 6,204 ========================================== Earnings per common and common equivalent share(1) $ .64 $ .40 $ .44 ==========================================
(1) Net income and earnings per common and common equivalent share in 1993 do not reflect the cumulative effect of a change in accounting principle of $207,100 or $.01 per share. (2) 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. EX-21.1 9 SUBSIDIARIES OF REGISTRANT 1 Exhibit (21.1) SUBSIDIARIES OF THE REGISTRANT JMI Phoenix Laboratories, Inc. JMI-Canton Pharmaceuticals, Inc. GenTrac, Inc. EX-23.1 10 CONSENT OF ERNST & YOUNG LLP 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 No. 33-00000) of Jones Medical Industries, Inc. and in the related Prospectus of our report dated February 12, 1996 (except for Note 16, as to which the date is February 26, 1996), with respect to the consolidated financial statements and schedule of Jones Medical Industries, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1995. We also consent to the incorporation by reference in the Registration Statement (Form S-8 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 12, 1996 (except for Note 16, as to which the date is February 26, 1996), with respect to the consolidated financial statements and schedule of Jones Medical Industries, Inc. in this Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP St. Louis, Missouri February 28, 1996 EX-27.1 11 ART. 5 FDS FOR 1995 FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JONES MEDICAL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 DEC-31-1995 5,410,601 120,000 7,261,170 128,712 10,746,630 25,012,149 18,507,472 3,064,855 74,696,643 11,563,477 9,124,986 10 0 567,126 49,322,998 74,696,643 56,397,095 56,397,095 27,165,896 27,165,896 121,229 63,918 452,097 14,925,304 5,597,000 9,328,304 0 0 0 9,328,304 .64 .64
-----END PRIVACY-ENHANCED MESSAGE-----