<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
JONES PHARMA INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount of which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
---------------------------------------------
2) Form, Schedule or Registration Statement no.:
-----------------------
3) Filing Party:
-------------------------------------------------------
4) Date Filed:
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<PAGE> 2
JONES PHARMA INCORPORATED
1945 CRAIG ROAD
P.O. BOX 46903
ST. LOUIS, MISSOURI 63146
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 1999
NOTICE IS HEREBY GIVEN to holders of the Common Stock, $.04 per share
("Common Stock"), of JONES PHARMA INCORPORATED (formerly known as "Jones Medical
Industries, Inc."), a Delaware corporation ("Company"), that the Annual Meeting
of Shareholders of the Company will be held in the Amphitheater at the
Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri, on Monday, May 17,
1999, at 3:30 P.M., local time, and at any adjournment or postponement thereof,
to consider and act upon the following matters as more fully described in the
Proxy Statement:
(1) The election of directors of the Company to serve for a term of
one year; and
(2) Such other matters as may properly come before the meeting or any
adjournment or postponement thereof.
Only holders of record of Common Stock at the close of business on April 2,
1999, are entitled to vote at this meeting or any adjournment or postponement
thereof.
The Board of Directors cordially invites you to attend this meeting.
Whether or not you plan to attend this meeting, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND
THE MEETING, YOU MAY VOTE IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY CARD.
By Order of the Board of Directors
JUDITH A. JONES
Secretary
April 2, 1999
St. Louis, Missouri
<PAGE> 3
JONES PHARMA INCORPORATED
1945 CRAIG ROAD
P.O. BOX 46903
ST. LOUIS, MISSOURI 63146
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 17, 1999
PURPOSE OF THE MEETING
The Board of Directors of JONES PHARMA INCORPORATED (formerly known as
"Jones Medical Industries, Inc."), a Delaware corporation ("Company"), furnishes
this Proxy Statement and Annual Report ("Proxy Statement") in connection with
the solicitation of proxies for use at the Company's Annual Meeting of
Shareholders to be held on May 17, 1999, at 3:30 P.M., local time, in the
Amphitheater at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri
and at any adjournment or postponement thereof ("Annual Meeting"), for the
purposes set forth in the attached Notice of Annual Meeting of Shareholders and
as further described in this Proxy Statement.
The Board of Directors of the Company ("Board") is soliciting proxies
in the form enclosed with respect to matters to be acted upon at the Annual
Meeting ("Proxy"). This Proxy Statement and related form of Proxy are first
being sent to shareholders of the Company on or about April 12, 1999.
A shareholder of the Company may revoke a Proxy at any time before it
is exercised by filing a written revocation or a duly executed Proxy bearing a
later date with the Secretary of the Company, either prior to or at the Annual
Meeting. If a Proxy is properly executed and returned, the shares represented by
that Proxy will be voted in accordance with the instructions specified on the
Proxy, or if no contrary instructions are specified, the shares will be voted in
favor of the election of all of the nominees for director. Abstentions and
broker non-votes are counted as shares present for determining if there are
sufficient shares present to hold the meeting; however, they are not counted as
votes "for" or "against" any item. Representatives of UMB Bank, N.A. will count
the votes.
The Company anticipates that it will solicit Proxies primarily by mail,
although directors, officers and employees of the Company (who will not receive
any additional remuneration for such solicitation) may solicit Proxies by
letter, personal interview and telephone. The Company will bear the total
expense of the solicitation of Proxies and requests that brokers, nominees,
fiduciaries and other custodians forward soliciting material to the beneficial
owners of shares. The Company will reimburse such parties for their reasonable
expenses incurred in forwarding such soliciting material.
As of the date of this Proxy Statement, the Board does not know of any
matters which may come before the Annual Meeting other than those which are
discussed in this Proxy Statement. If any other matters properly come before the
Annual Meeting, the Proxy holders will vote the shares represented by those
Proxies in accordance with their best judgment on such matters.
<PAGE> 4
SHAREHOLDERS ENTITLED TO VOTE,
RECORD DATE AND VOTES REQUIRED FOR APPROVAL
The Company is authorized to issue 75,000,000 shares of common stock,
$.04 par value per share ("Common Stock") and 5,000,000 shares of preferred
stock, $.01 par value per share, issuable in series. In accordance with the
Company's Bylaws, the Board established April 2, 1999 as the record date for the
determination of the shareholders entitled to notice of, and to vote at, the
Annual Meeting ("Record Date"). As of the Record Date, there were 28,813,769
shares of Common Stock issued and outstanding representing all of the shares
entitled to notice of and to vote at the Annual Meeting.
The holders of a majority of the outstanding shares of Common Stock,
present either in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. Each shareholder is entitled to
one vote for each share of Common Stock held by that shareholder on the Record
Date. There is no cumulative voting with respect to the election of directors.
Therefore, the vote of a majority of the shares of Common Stock present at the
Annual Meeting either in person or by proxy, voting together, will be required
for the election of each director.
BOARD OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation
provides for a Board constituted of not less than three (3) nor more than nine
(9) directors. The Company's Bylaws currently fix the number of directors at
nine (9). The directors elected at the Annual Meeting will serve a one-year term
and until their successors have been duly elected and shall have qualified.
Directors appointed by the Board to fill vacancies or newly created
directorships serve for the remainder of the term of the directorship which is
vacant or the newly created directorship. From time to time, the Board
determines the size of the Board within the foregoing range.
The Board held four (4) meetings during the fiscal year ended December
31, 1998. The Board also acted by unanimous written consent on three (3)
occasions during 1998. The committees of the Board and the number of meetings
held by each committee in 1998 were:
NUMBER OF MEETINGS
COMMITTEE NAME HELD DURING 1998
-------------- ----------------
Audit Committee 1
Compensation Committee 1
The Company has no standing nominating committee of the Board or
committees performing similar functions.
Audit Committee. Stanley L. Lopata, Thomas F. Patton and Judith A.
Jones were elected as members of the Company's audit committee for the fiscal
year ended December 31, 1998, with Dr. Patton serving as Chairman. The audit
committee acts as a liaison between the Board and the Company's independent
auditors and reviews the results of the audit, the Company's internal controls,
the audit procedures, and the independent auditor's recommendations to
management.
Compensation Committee. Stanley L. Lopata, Thomas F. Patton and Edward
A. Chod were elected as members of the Company's compensation committee for the
fiscal year ended December 31, 1998, with Mr. Chod serving as Chairman. The
compensation committee has administered the Company's 1989 Incentive Stock
Option Plan, 1994 Incentive Stock Plan and 1997 Incentive Stock Plan and advises
the Company's chief executive officer with respect to executive compensation
matters.
2
<PAGE> 5
The following biographies and other information indicate the principal
occupation or employment for the past five years, the age, and the year first
elected as director with respect to each nominee to become a director.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE BIOGRAPHY SINCE
---- --- --------- -----
<S> <C> <C>
Dennis M. Jones(1) 60 Chairman of the Board, President and Chief Executive Officer 1981
since he founded the Company in March 1981. Mr. Jones has been
involved primarily in the pharmaceutical industry since 1964 in
various marketing, management and administrative positions.
Judith A. Jones(1) 58 Secretary and Treasurer of the Company since April 1982. 1981
Effective July 1, 1998, Mrs. Jones became the Executive Vice
President of Corporate Affairs. Mrs. Jones served as Vice
President of the Company from March 1985 to February 1994 and
has been an Executive Vice President of the Company since
February 1994.
Michael T. Bramblett 56 Effective July 1, 1998, Mr. Bramblett became the Executive Vice 1987
President of Business Development. From February 1994 to July
1998, he served as an Executive Vice President of the Company and
from January 1991 to February 1994, he served as Vice President -
Marketing of the Company.
G. Andrew Franz(2) 46 Effective July 1, 1998, Mr. Franz became the Executive Vice 1994
President of Operations. From February 1994 to July 1998, he
served as Senior Vice President-Operations-Pharmaceuticals of
the Company. Mr. Franz has also served as the Vice
President-Operations of JMI-Canton since the facility was acquired
in March 1984.
David A. McLaughlin 51 Effective July 1, 1998, Mr. McLaughlin became Senior Vice 1994
President of Operations. From February 1994 to July 1998, he
served as Senior Vice President-Operations-Nutritionals of the
Company. Mr. McLaughlin has also served in various management
and executive capacities with the Company since 1986.
Stanley L. Lopata(3) 84 President of Lopata Research and Development Corp. since 1988. 1988
Prior to 1988, Mr. Lopata was the Chairman of the Board of
Directors and Chief Executive Officer of Carboline Corporation,
a manufacturer of specialty paint and coating products, from 1960
through 1988.
L. John Polite, Jr. 77 Chairman of Peridot (New Jersey) Chemicals, Inc. since December 1989
1989. Mr. Polite was the Chairman of the Board, President and
Chief Executive Officer of Essex Chemical Corporation from April
1978 to October 1988. Mr. Polite also serves as a director of
Rotonics Manufacturing, Inc., a manufacturer of plastic containers
for commercial, pharmaceutical, refuse, marine, health care and
residential applications.
Thomas F. Patton, Ph.D. 50 President of the St. Louis College of Pharmacy since June 1994. 1995
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. Dr. Patton also serves
as a director of D&K Healthcare Resources, Inc., a drug wholesaler.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE BIOGRAPHY SINCE
---- --- --------- -----
<S> <C> <C> <C>
Edward A. Chod 45 Officer and shareholder in the law firm of Greensfelder, Hemker 1991
& Gale, P.C. which he joined in 1978 and which has served as
counsel to the Company since 1982. Mr. Chod also serves as the
Assistant Secretary of the Company.
J. Hord Armstrong, III 57 Chairman and Chief Executive Officer of D&K Healthcare Resources, Nominee
Inc., a drug wholesaler, since he founded it in 1987.
</TABLE>
(1) Dennis M. Jones and Judith A. Jones are husband and wife.
(2) G. Andrew Franz is the son-in-law of Dennis M. Jones and Judith A. Jones.
(3) Stanley L. Lopata will retire at the close of the Company's 1999 Annual
Meeting. Mr. Armstrong has been nominated by the Company to fill Mr.
Lopata's seat.
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 $4,000 per meeting of the Board of Directors attended by such
non-employee director, subject to a minimum (as of December 31, 1998) of $10,000
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, as set forth in the table
below, 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 ("FSO Plan").
<TABLE>
<CAPTION>
Date of No. of Per Share Initial
Name Grant Options Granted Exercise Price Exercise Date Expiration Date
---- ----- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Stanley L. Lopata 6/1/94 11,250 $ 4.67 6/1/94 6/1/99
Stanley L. Lopata 7/1/98 11,250* $33.125 5/1/99 5/1/04*
L. John Polite, Jr. 6/1/94 11,250 $ 4.67 6/1/94 6/1/99
L. John Polite, Jr. 7/1/98 11,250 $33.125 5/1/99 5/1/04
Edward A. Chod 6/1/94 11,250 $ 4.67 5/1/95 5/1/00
Thomas F. Patton 6/1/95 11,250 $ 4.45 5/1/96 5/1/01
</TABLE>
* Due to Mr. Lopata's retirement from the Board of Directors, only the
initial installment of 2,250 shares will become exercisable and such
options must be exercised, if at all, on or prior to June 17, 1999.
No additional options may be granted under the FSO Plan after May 31,
1999. Due to forthcoming changes in accounting for options granted to
non-employees, the Company is reviewing compensation to outside directors.
4
<PAGE> 7
SECURITY OWNERSHIP OF DIRECTORS, NAMED EXECUTIVES AND
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
The following table sets forth information regarding the record and
beneficial ownership of the Common Stock of the Company on the indicated date
by: (i) each director or nominee for director and the Named Executives (as such
term is defined below in "Executive Compensation -- Summary Compensation Table")
of the Company; and (ii) all directors or nominees for director and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF FEBRUARY 26, 1999
Name and Address of Percentage of Shares
Beneficial Owner (1) Shares Beneficially Owned (2) Beneficially Owned (3)
-------------------- ----------------------------- ----------------------
<S> <C> <C>
Dennis M. Jones 3,356,365 (4)(5) 11.5%
Chairman of the Board of Directors
and President
Judith A. Jones 1,101,937 (6) 3.8%
Executive Vice President of Corporate
Affairs, Secretary, Treasurer and
Director
Michael T. Bramblett 155,726 (7)(8) 0.5%
Executive Vice President of Business
Development and Director
G. Andrew Franz 372,252 (9) 1.3%
Executive Vice President of Operations
and Director
David A. McLaughlin 113,000 (10) *
Senior Vice President of Operations
and Director
Stanley Lopata 169,760 (11) 0.6%
Director
900 South Hanley Road
St. Louis, Missouri 63105
L. John Polite, Jr. 39,250 (12) *
Director
211 Oldwoods Road
Franklin Lakes, New Jersey 07417
Edward A. Chod 26,825 (13) *
Director
10 South Broadway, Suite 2000
St. Louis, Missouri 63102
Thomas F. Patton, Ph.D. 9,000 (14) *
Director
4588 Parkview Place
St. Louis, Missouri 63110
J. Hord Armstrong, III - 0- N/A
Nominee for Director
800 Maryland Avenue
St. Louis, Missouri 63105
All Directors and Executive Officers 5,357,615 (15) 18.3%
as a Group
(consisting of twelve persons)
* Less than one-half of one percent.
</TABLE>
5
<PAGE> 8
(1) Except as otherwise indicated, the address for each individual named is
c/o JONES PHARMA INCORPORATED, 1945 Craig Road, St. Louis, Missouri
63146. Each beneficial owner has sole voting and investment power with
respect to the shares of Common Stock shown as beneficially owned except
that an individual may be deemed to have only indirect shared voting and
investment power with respect to shares held by the individual's spouse
as reflected in other footnotes.
(2) Includes shares deemed owned as a result of purchase options which are
presently or will become exercisable on or prior to June 1, 1999.
(3) The number of shares of Common Stock deemed outstanding as of February
26, 1999 includes: (i) 28,810,069 shares of Common Stock outstanding as
of such date, and (ii) shares of Common Stock issuable pursuant to
options held by the directors and executive officers that are currently
exercisable or will become exercisable on or before June 1, 1999, by the
person or group in question.
(4) Includes 324,000 shares under option rights issued by the Company and
held by Mr. Jones. Does not include 1,101,937 shares or options held by
his spouse, Judith A. Jones, with respect to which he disclaims
beneficial ownership.
(5) As a result of call options written and sold by Mr. Jones, an aggregate
of 200,000 of the shares reflected as owned by him are subject to
purchase by third parties at $32.50 per share under option rights
expiring on June 18, 1999.
(6) Includes 81,000 shares under option rights issued by the Company and held
by Mrs. Jones. Does not include 3,356,365 shares or options held by her
spouse, Dennis M. Jones, with respect to which she disclaims beneficial
ownership.
(7) Includes 18,461 shares held by Mr. Bramblett's wife with respect to which
he disclaims beneficial ownership. Also includes 27,000 shares under
option rights issued by the Company.
(8) As a result of call options written and sold by Mr. Bramblett, an
aggregate of: (i) 20,000 of the shares reflected as owned by him were
subject to purchase by third parties at $35 per share under option rights
expiring March 19, 1999; and (ii) 20,000 of the shares reflected as owned
by him are subject to purchase by third parties at $32.50 per share under
option rights expiring June 18, 1999.
(9) Includes 166,165 shares owned by Mr. Franz' wife, 42,840 shares held by
his spouse as custodian for their children, 27,886 shares held by his
wife as a co-trustee for the benefit of the Franz' children and 13,943
shares held by his wife as a co-trustee for the benefit of her nephew.
Mr. Franz disclaims beneficial ownership of all of the shares held by his
wife. Also includes 11,250 shares under option rights issued by the
Company.
(10) As a result of call options written and sold by Mr. McLaughlin, an
aggregate of 20,000 of the shares reflected as owned by him are subject
to purchase by third parties at $35.00 per share under option rights
expiring June 18, 1999.
(11) Includes 64,950 shares held in revocable trust created by Mr. Lopata's
wife and with respect to which he disclaims beneficial ownership. Also
includes 2,250 shares under vested and unexercised options. Mr. Lopata
will retire at the close of the Company's 1999 Annual Meeting.
(12) Includes 13,500 shares under option rights issued by the Company.
(13) Includes 11,250 shares under option rights issued by the Company.
(14) Includes 9,000 shares under option rights issued by the Company.
(15) Includes the shares listed as beneficially owned for each individual
included in the table as well as (i) 10,000 shares under option rights
issued by the Company and held by Tina A. Kaufman, Senior Vice President
of Finance; and (ii) 3,500 shares under option rights issued by the
Company and held by Thomas G. Lewandowski, Senior Vice President of
Sales.
6
<PAGE> 9
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), requires the Company's directors and officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
United States Securities and Exchange Commission ("SEC"). Directors, officers
and greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
forms received by the Company and written representations from certain reporting
persons that no Forms 5 or other reports were required for those persons, the
Company believes that, during the fiscal year ended December 31, 1998, its
directors, officers and greater than 10% beneficial owners complied with all
applicable filing requirements except as follows: Michael T. Bramblett,
Executive Vice President of Business Development, and G. Andrew Franz, Executive
Vice President of Operations, each filed a Form 4, one month late, with respect
to the expiration of call options they each wrote and sold in 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AS OF DECEMBER 31, 1997
As set forth above in the table reflecting security ownership of the
Company's directors and executive officers, Dennis M. Jones and Judith A. Jones
beneficially own an aggregate of 4,458,302 shares, or approximately 15.3% of the
Company's outstanding Common Stock.
Based upon filings with the SEC under the Exchange Act, the Company is
advised that as of December 31, 1998, the following investment advisor held
discretionary authority over accounts holding, in the aggregate, the indicated
numbers of shares of the Company's Common Stock, in each case representing 5% or
more of the then outstanding shares of Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF INVESTMENT ADVISOR SHARES
-------------------------------------- ------
<S> <C>
AMVESCAP PLC 3,211,100 (11.17%)
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
7
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth all compensation received in each of the three
fiscal years ended December 31, 1998, 1997 and 1996 for services rendered in all
capacities to the Company and its subsidiaries by the Chief Executive Officer
and the other four (4) highest-compensated Executive Officers of the Company
during the fiscal year ended December 31, 1998 (the "Named Executives").
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------------ ---------
Compensation
------------
Awards
------
Securities
----------
Other Annual Underlying All Other
------------ ---------- ---------
Name and Principal Position Year Salary Bonus Compensation (1) Options Compensation
- --------------------------- ---- ------ ----- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Jones, Chairman 1998 $510,780 $100,000 0 0 $32,114(2)
of the Board, Director and
President and Chief 1997 $400,000 0 0 0 $29,864(2)
Executive Officer
1996 $360,000 $100,000 0 540,000 $17,599(2)
- ---------------------------------------------------------------------------------------------------------------
Judith A. Jones, Director, 1998 $251,575 $75,000 0 0 $14,812(3)
Executive Vice President
of Corporate Affairs, 1997 $220,000 $30,000 0 0 $ 9,500(3)
Secretary and Treasurer
1996 $180,000 $50,000 0 135,000 $ 7,518(3)
- ---------------------------------------------------------------------------------------------------------------
Michael T. Bramblett, 1998 $251,070 $75,000 0 0 $10,000(4)
Director and Executive
Vice President of Business 1997 $220,000 $30,000 0 0 $9,500(4)
Development
1996 $180,000 $50,000 0 63,000 $7,500(4)
- ---------------------------------------------------------------------------------------------------------------
G. Andrew Franz, Director 1998 $223,228 $75,000 0 50,000 $10,000(4)
and Executive Vice
President of Operations 1997 $175,000 $25,000 0 0 $9,500(4)
1996 $144,000 $40,000 0 0 $7,500(4)
- ---------------------------------------------------------------------------------------------------------------
David A. McLaughlin, 1998 $202,948 $50,000 0 25,000 $10,000(4)
Director and Senior Vice
President of Operations 1997 $175,000 $25,000 0 0 $9,500(4)
1996 $144,000 $40,000 0 0 $7,500(4)
</TABLE>
(1) No Named Executive received Other Annual Compensation which is required
to be reported in this column.
(2) Consists of a Company contribution to a 401(k) plan ($10,000 in 1998,
$9,500 in 1997 and $7,500 in 1996) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mr. Jones, of
which $22,114, $17,780 and $10,099 constituted his reportable economic
benefit in the years 1998, 1997 and 1996, respectively. See "Certain
Relationships and Related Transactions" for additional information
concerning insurance relationships.
(3) Consists of a Company contribution to a 401(k) plan ($10,000 in 1998,
$9,500 in 1997 and $4,375 in 1996) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mrs. Jones, of
which $4,812, $4,603 and $3,143 constituted her reportable economic
benefit in the years 1998, 1997 and 1996, respectively. See "Certain
Relationships and Related Transactions" for additional information
concerning insurance relationships.
(4) Consists of a Company contribution to a 401(k) plan.
8
<PAGE> 11
STOCK OPTIONS AND INCENTIVE AWARDS
Shareholders of the Company have approved the adoption of stock option
and incentive stock plans which are administered by the Compensation Committee
of the Board of Directors of the Company. At December 31, 1998, the Company had
outstanding stock options for an aggregate of 1,963,301 shares of Common Stock
at a weighted average price of $18.38 per share held by 216 employees (including
the options held by the Named Executives as described below) and the four (4)
non-management directors. The Company's stock option plans permit "exchange
exercises" in which an optionee is permitted to pay the exercise price of vested
options by surrendering previously owned shares of the Company's Common Stock
having a market value equal to the exercise price of the option being exercised.
Option/SAR Grants. Although permitted under certain of the stock option
and incentive stock plans, the Company did not issue or have outstanding in 1998
stock appreciation rights ("SARs") or restricted share grants to any Named
Executive. During 1998, the Company granted stock options to the Named
Executives as set forth in the table below.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of
Total Shares Potential Realizable Value at
Number of Underlying Assumed Annual Rates of
Shares Shares Stock Price
Underlying Granted Per Share Appreciation
Options to Employees Exercise Expiration ---------------------------
Name Granted in 1998 Price Date 5% 10%
- ------------------- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
G. Andrew Franz 28,110(1) 4.1% $20.00 9/1/2004 $228,872 $483,570
G. Andrew Franz 21,890(2) 3.2% $21.00 9/1/2004 $156,339 $354,679
David A. McLaughlin 25,000(3) 3.6% $20.00 10/8/2004 $203,550 $430,070
</TABLE>
(1) These options granted to Mr. Franz represent non-statutory options. 7,150
shares underlying the non-statutory options become exercisable on
September 1, 1999 with 5,240 share installments becoming exercisable on
September 1, 2000 and each year thereafter through 2003.
(2) These options granted to Mr. Franz are intended to qualify as "incentive
stock options" for federal income tax purposes. 2,850 shares underlying
the incentive stock options become exercisable September 1, 1999 with
4,760 share installments becoming exercisable on September 1, 2000 and
each year thereafter through 2003.
(3) The non-statutory options granted to Mr. McLaughlin become exercisable in
5,000 share installments on October 8, 1999 and each year thereafter
through 2003.
Aggregate Option Exercises during 1998 and Year End Option Values. The
following table provides information with respect to the stock options exercised
during the fiscal year ended December 31, 1998 and the value as of December 31,
1998 of unexercised in-the-money options held by the Named Executives. The value
realized on the exercise of options is calculated using the difference between
the option exercise price and the fair market value of the Company's stock on
the date of the exercise. The value of unexercised in-the-money options at
fiscal year end is calculated using the difference between the option exercise
price and the fair market value of the Company's stock at fiscal year end,
December 31, 1998.
9
<PAGE> 12
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-the-
Shares Unexercised Options Money Options at
Acquired Value at December 31, 1998 December 31, 1998
on Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis M. Jones 0 $ 0 216,000/324,000 $5,579,280/$8,368,920
Judith A. Jones 0 $ 0 54,000/81,000 $1,394,820/$2,092,230
Michael T. Bramblett 0 $ 0 18,000/45,000 $464,940/$1,162,350
G. Andrew Franz 11,250 $409,950 11,250/61,250 $370,575/$1,173,685
David A. McLaughlin 22,500 $637,088 0/36,250 $0/$783,075
</TABLE>
Employee Profit-Sharing and 401(k) Plan. The Company maintains an
Employee Profit-Sharing and 401(k) Plan (the "401(k) Plan") which was originally
adopted as of January 1, 1987. The 401(k) Plan provides employees with a
convenient way to save on a regular and long-term basis and encourages employees
to make and continue careers with the Company.
To become eligible to participate in the 401(k) Plan, an employee must
have completed six months of service and have reached his or her eighteenth
birthday ("Eligible Employee"). Pursuant to the 401(k) Plan, an Eligible
Employee who participates ("Participant") may direct that a portion of his or
her compensation be contributed to the 401(k) Plan ("Elective Contributions").
Elective Contributions are treated as salary deferrals for federal income tax
purposes and under current federal tax law may not exceed $10,000 per year. The
amount of a Participant's Elective Contribution may also be limited under the
Employee Retirement Income Security Act in the case of highly-compensated
individuals, including the Named Executives. Participants are not allowed to
make any voluntary contributions to the 401(k) Plan, other than their Elective
Contributions.
Each year the Company may make contributions to match all or a portion
of Participants' Elective Contributions. The Company set the matching
contribution at six percent of Participants' compensation in 1998 and 1997, and
at five percent of Participants' compensation in 1996. In addition to matching
contributions, the Company may make a discretionary contribution which is
allocated among Participants' Accounts in proportion to compensation. No
discretionary contributions have been made in the last three years. The
Company's matching and discretionary contributions are collectively called
"Company Contributions".
A Participant's Account under the 401(k) Plan consists of the
Participant's Elective Contributions, the Company Contributions allocated to the
Participant and the earnings or investment performance arising from investment
of such funds. Generally a Participant may not make withdrawals from his 401(k)
Plan Account prior to age 59 1/2, retirement, termination of employment, or
other conditions specified in the 401(k) Plan without incurring tax penalties,
although the Plan permits a Participant to borrow up to 50% of his Elective
Contributions in certain hardship circumstances as provided in the Plan.
Elective Contributions are always 100% vested, however, Company Contributions
are subject to a vesting schedule described below.
Years of Service Vested Percentage
---------------- -----------------
2 ...............................................20%
3................................................40%
4................................................60%
5................................................80%
6...............................................100%
10
<PAGE> 13
Any unvested portion of Company Contributions allocated to a Participant at the
time of such Participant's termination of employment with the Company, other
than by retirement or death, is forfeited by the Participant. Forfeitures of
discretionary Company Contributions will be allocated to the accounts of other
Participants. Forfeitures of matching contributions are allocated in proportion
to matching contributions.
As of January 1, 1998, the Company had approximately 340 Eligible
Employees, including the Named Executives (Dennis M. Jones, Judith A. Jones,
Michael T. Bramblett, G. Andrew Franz and David A. McLaughlin). During 1998, the
Company made matching contributions to the 401(k) Plan aggregating $50,000 to
the accounts of the Named Executives and total matching contributions of
$690,971 to all Participants' Accounts.
Participants in the 401(k) Plan may direct investment of amounts
allocated to their respective accounts among various investment funds selected
by the Plan Administrator. Prior to January 1, 1997, investment of funds in the
401(k) was directed by the Trustees of the 401(k) Plan and a portion of Company
Contributions was, from time to time, invested in shares of the Common Stock of
the Company. The investment funds currently available under the 401(k) Plan do
not include a fund for investment in the Company's Common Stock for either
Elective Contributions or Company Contributions.
The Company is the 401(k) Plan Administrator and currently pays all
expenses of the 401(k) Plan other than audit fees, which are paid by the 401(k)
Plan. The Company has appointed Dennis M. Jones, Judith A. Jones and G. Andrew
Franz as Trustees of the 401(k) Plan and Smith Barney Corporate Trust Company is
an additional trustee with respect to the investment funds available to
Participants. The 401(k) Plan may be modified by the officers of the Company at
any time, provided that the aggregate additional annual cost to the Company of
any such modification does not exceed $500,000 and provided further that no
modification shall adversely affect the rights of the Participants or divert any
of the 401(k) Plan assets to purposes other than the benefit of the
Participants.
11
<PAGE> 14
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Company has established a compensation committee of the Board which
serves in an advisory capacity to Dennis M. Jones, the President and Chief
Executive Officer of the Company, with respect to compensation decisions
concerning the Company's executive officers. The compensation committee has
administered the Company's 1989 Incentive Stock Option Plan, 1994 Incentive
Stock Plan and 1997 Incentive Stock Plan.
COMPENSATION POLICIES
The guiding principle of the Company is to establish a compensation
program which aligns executive compensation with Company objectives and business
strategies as well as financial and operational performance. In keeping with
this principle, the Company seeks to:
(1) Attract and retain qualified executives who will play a
significant role in, and be committed to, the achievement of
the Company's long-term goals.
(2) Reward executives for strategic management and the long-term
maximization of shareholder value.
(3) Create a performance-oriented environment that rewards
performance with respect to the financial and operational
goals of the Company.
An executive officer's performance is reviewed in such areas as quality
and quantity of work, job and professional knowledge, decision making and
business judgment, initiative, analytical skills, communication skills,
interpersonal skills, organizational skills, commercial skills, profit and loss
sensitivity, creativity and leadership.
Executive compensation consists of both cash and equity-based
compensation. Cash compensation is comprised of base salary and bonus. Base
salary is determined with reference to market norms. Bonus compensation is tied
to the Company's success in achieving financial and non-financial performance
goals and an executive's success in attaining personal performance goals.
Equity-based compensation is comprised primarily of stock option grants. In
establishing equity-based compensation, the Company places particular emphasis
on the achievement of the Company's long-term performance goals. The Company
believes that equity-based compensation closely aligns the economic interest of
the Company's executive officers with the economic interests of the Company's
shareholders.
CHIEF EXECUTIVE OFFICER
In establishing Mr. Jones' compensation, the factors described above
are taken into account, as well as the shareholder value which Mr. Jones has
played an instrumental role in creating since the founding of the Company. Mr.
Jones has spearheaded the Company's growth strategy and has been the driving
force behind the Company's success. The Company believes that Mr. Jones' base
salary and bonus arrangement are well within industry norms and reflect his
commitment to the Company's long-term success.
COMPENSATION COMMITTEE
Stanley L. Lopata
Thomas F. Patton
Edward A. Chod
12
<PAGE> 15
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The Securities and Exchange Commission ("SEC") requires that the
Company include in this Proxy Statement a line-graph presentation comparing
cumulative, five-year shareholder returns on an indexed basis with a broad-based
market index and either a nationally recognized industry standard or an index of
peer companies selected by the Company. This performance comparison assumes $100
was invested on December 31, 1993, in the Company's Common Stock and in each of
the indices shown and assumes reinvestment of dividends. The Company has
selected the S & P Midcap 400 Index and the S & P Health Care (Drugs-Major
Pharmaceuticals) Index for the purposes of this performance comparison. The
companies included in the S & P Health Care (Drugs-Major Pharmaceuticals) Index
are: Eli Lilly & Co., Merck & Co., Inc., Pfizer, Inc., Schering Plough Corp. and
Pharmacia & Upjohn Company. The returns of each company with respect to the S &
P Midcap 400 Index and the S & P Health Care (Drugs-Major Pharmaceuticals) Index
have been weighted according to their respective stock market capitalizations.
<TABLE>
<CAPTION>
TOTAL RETURN - DATA SUMMARY
CUMULATIVE TOTAL RETURN
---------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
<S> <C> <C> <C> <C> <C> <C>
JONES PHARMA INCORPORATED 100 50 182 624 653 626
S&P MIDCAP 400 100 96 126 150 199 228
S&P HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) 100 116 200 249 397 602
</TABLE>
13
<PAGE> 16
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Dennis M. Jones, Judith A. Jones, Michael T. Bramblett, G. Andrew
Franz, David A. McLaughlin, L. John Polite, Jr., Edward A. Chod, Thomas F.
Patton. Ph.D. and J. Hord Armstrong, III are nominees for election to membership
on the Board for one year terms. In each instance, the directors are elected to
serve until their successors shall have been duly elected and shall have
qualified.
Unless otherwise instructed, the Proxy holders will vote for the
election of the nine nominees. Although the Company does not contemplate that
any nominee will decline or be unable to serve as director, in either such
event, the Proxies will be voted for such other person as may be designated by
the Board.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES.
SELECTION OF INDEPENDENT AUDITORS
The Board reappointed the accounting firm of Ernst & Young LLP ("Ernst
& Young") as independent auditors for the Company for fiscal year 1999. Ernst &
Young has served as the Company's independent auditors since December, 1985.
Audit services performed by Ernst & Young during fiscal year 1998 consisted of
the examination of annual financial statements of the Company and services
related to filings with the Securities and Exchange Commission.
A representative of Ernst & Young will be present at the Annual Meeting
and will be given an opportunity to make a statement if he or she so desires and
to respond to appropriate questions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Life Insurance Relationships. Pursuant to agreements between the
Company and the trustees of irrevocable insurance trusts, the Company pays the
premiums associated with life insurance on the lives of Dennis M. Jones and
Judith A. Jones as "split dollar" coverage. Under such agreements, the trusts
own the policies and the Company pays the premiums on the policies. Upon the
death of the insureds, or in the event of an earlier termination of the
policies, the Company is entitled to recover the aggregate amount of the
premiums paid and the Company hold security interests in such policies to the
extent of premiums paid. The insurance trusts may terminate the "split-dollar"
arrangement with respect to any policy at any time upon reimbursement to the
Company of the aggregate amount of premiums paid with respect to such policy.
As an inducement to the Company to provide such coverage under the policies
issued in 1997 and 1998, Mr. and Mrs. Jones or certain beneficiaries of the
insurance trusts have guaranteed to the Company that the Company will recover
the full amount of premiums paid with respect to such policies. The Company is
prohibited from borrowing against such policies without the consent of the
insureds.
During 1998 the aggregate face amount of such "split-dollar" insurance
coverage was increased from $35,500,000 to $73,500,000 as the result of the
purchase of a "second to die" policy on the lives of Mr. And Mrs. Jones.
Aggregate premium expense during 1998 on such policies was #1,488,000;
aggregate premium expense to December 31, 1998 on all such policies was
$2,463,000.
In addition to such "split-dollar" insurance, during 1998 the Company
purchased "key employee" insurance policies on the joint lives of Mr. and Mrs.
Jones in policies having an aggregate death benefit of $40,000,000. The
policies represent a combination of term and whole life intended to provide for
level premium expense to the Company aggregating approximately $865,000 per
year. Contemporaneously with the purchase of these policies, the Company
entered into an agreement with Mr. and Mrs. Jones (individually and as the
trustees of their respective revocable trusts holding shares of the Company's
Common Stock).
<PAGE> 17
Pursuant to such agreement, at the time of death of the second to die of Mr. or
Mrs. Jones, their estates or the successor trustees of their trusts or any
beneficiary of such trust receiving a distribution of shares of the Company's
Common Stock is given the option to require the Company to repurchase shares of
the Company's Common Stock. The purchase price applicable to any such
repurchase will equal the average closing price for such stock for the ten days
preceding the date of death giving rise to the option.
The option may only be exercised by notice given not earlier than
seven nor later than eight months after the date of death giving rise to the
option and any resulting repurchase shall be made within thirty days of such
notice of exercise. The agreement limits the Company's obligation to effect
such repurchases to the amount of the insurance proceeds received by the
Company pursuant to the policies, but provides that the Company may not borrow
against cash values in the policies or cancel the insurance without the consent
of Mr. and Mrs. Jones. Mr. and Mrs. Jones have agreed with the Company that in
the event of any termination of the policies under the circumstances in which
the Company does not recover in full its premium costs, they will reimburse
such unrecovered costs to the Company. The Company believes that such
insurance and the application of the proceeds to the repurchase of shares of
the Company's Common Stock as provided in the agreement, will work to reduce
any negative impact on the Company and the market for its Common Stock arising
from the deaths of Mr. and Mrs. Jones.
Related Party Transactions. Edward A. Chod, a 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, 1998 did not exceed five percent (5%) of such
firm's gross revenues for its applicable fiscal year.
OTHER MATTERS
The Board knows of no other matters which may come before the Annual
Meeting. If any matters other than those referred to above should properly come
before the Annual Meeting, the persons designated by the Board to serve as
proxies intend to vote such proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Under the SEC's proxy rules, any shareholder proposal to be presented
at the Company's annual meeting of shareholders to be held in the year 2000 must
be received by the Company at its principal executive offices no later than
December 18, 1999 for inclusion in the Company's Proxy Statement and form of
proxy relating to such annual meeting. In addition, under the SEC's proxy rules,
proposals which shareholders of the Company intend to present at the Company's
annual meeting of shareholders to be held in year 2000 must be received by the
Company no later than March 3, 2000 to be presented at such annual meeting. If a
shareholder delivers any such proposal to the Company after March 3, 2000, any
proxies received by the Board of Directors from shareholders in response to its
solicitation will be voted by the Company's designated proxies in their
discretion on such matter, regardless of whether specific authority to vote on
such matter has been received from the shareholders submitting such proxies.
Each proposal submitted should be accompanied by the name and address
of the shareholder submitting the proposal, the number of shares of Common Stock
owned of record or beneficially and the date on which such shares were acquired.
If the proponent is not a shareholder of record, proof of beneficial ownership
should also be submitted. All proposals must be a proper subject for action and
comply in all respects with the rules and regulations of the SEC.
14
<PAGE> 18
AVAILABILITY OF ANNUAL REPORT TO
SECURITIES AND EXCHANGE COMMISSION
UPON RECEIPT OF A WRITTEN REQUEST, WITHOUT CHARGE, THE COMPANY WILL
PROVIDE ANY BENEFICIAL OWNER OF THE COMMON STOCK (AS OF THE RECORD DATE) WITH A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FILED WITH
THE SEC FOR THE COMPANY'S MOST RECENT FISCAL YEAR. A BENEFICIAL OWNER WHO IS NOT
A RECORD OWNER AS OF THE RECORD DATE SHOULD INCLUDE IN SUCH A REQUEST A
REPRESENTATION THAT THE INDIVIDUAL OR ENTITY WAS A BENEFICIAL OWNER AS OF THE
RECORD DATE. PLEASE DIRECT ALL REQUESTS TO:
Judith A. Jones, Secretary
JONES PHARMA INCORPORATED
1945 Craig Road
P.O. Box 46903
St. Louis, Missouri 63146
By Order of the Board of Directors of
JONES PHARMA INCORPORATED
Judith A. Jones
Secretary
April 9, 1999
15
<PAGE> 19
PROXY
JONES PHARMA INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--MAY 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints JUDITH A. JONES and DENNIS M. JONES,
and each of them, proxy, with full power of substitution, to vote all the shares
the undersigned is entitled to vote at the Annual Meeting of Shareholders of
JONES PHARMA INCORPORATED to be held in the Amphitheater at the Ritz-Carlton
Hotel, 100 Carondelet Plaza, Clayton, Missouri, on May 17, 1999 at 3:30 p.m.,
and at any adjournment or postponement thereof, and to take action on the
proposal listed hereon and any other business that may lawfully come before the
meeting, hereby revoking all proxies as to said shares heretofore given by the
undersigned and ratifying and confirming all that said proxy may lawfully do by
virtue hereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL LISTED BELOW: IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
In his/her discretion, each proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
PROPOSAL 1--Election of Directors
|_| FOR all nominees listed below. |_| WITHHOLD AUTHORITY for all nominees.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR NOMINEES, LINE
THROUGH OR STRIKE OUT THE NOMINEE'S NAME OR NOMINEES' NAMES BELOW:
J. Hord Armstrong, III, Michael T. Bramblett, Edward A. Chod, G. Andrew Franz,
Dennis M. Jones, Judith A. Jones, David A. McLaughlin, L. John Polite, Jr.,
Thomas F. Patton, Ph.D.
The Board of Directors Recommends a Vote FOR all nominees listed.
Form of Proxy Card - 1
<PAGE> 20
The shares represented by this proxy will be voted as directed by the
Shareholder. If no direction is given when the duly executed proxy is returned,
such shares will be voted FOR the nominees for director.
Date , 1999
-----------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
Please date and sign as your name
appears above and return in the
enclosed envelope. If acting as
attorney, executor, administrator,
trustee or guardian, you should so
indicate when signing. If the signor
is a corporation, please sign the
full corporate name, by duly
authorized officer. If shares are
held jointly, each shareholder named
should sign.
Form of Proxy Card - 2
