<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
-----------
Filed by the Registrant ? Filed by a Party other than the Registrant ?
Check the appropriate box:
[X] Preliminary proxy statement. [ ] Confidential, For Use
of the Commission
[ ] Definitive proxy statement. Only (as permitted by
[ ] Definitive additional materials. Rule 14a-6 (e) (2).
[ ] Soliciting material under 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:
<PAGE> 2
JONES PHARMA INCORPORATED
1945 CRAIG ROAD
P. O. BOX 46903
ST. LOUIS, MISSOURI 63146
APRIL 7, 2000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
================================================================================
The annual meeting of shareholders of JONES PHARMA INCORPORATED will be
held in the Amphitheater at the Ritz-Carlton Hotel, 100 Carondelet Plaza,
Clayton, Missouri, on Thursday, May 25, 2000, at 3:30 P.M., local time, for the
following purposes:
1. to elect seven directors for terms expiring at the 2001 annual
meeting of shareholders;
2. to approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized
capital stock to 250,000,000 shares of common stock;
3. to ratify the adoption of the 1999 Equity Participation Plan for
Non-Management Directors; and
4. to transact such other business as may properly come before the
meeting.
By Order of the Board of Directors
Judith A. Jones
Secretary
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS, PLEASE
SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE
PROVIDED. NO POSTAGE IS REQUIRED IF THE PROXY CARD IS MAILED IN THE UNITED
STATES.
<PAGE> 3
JONES PHARMA INCORPORATED
1945 CRAIG ROAD
P. O. BOX 46903
ST. LOUIS, MISSOURI 63146
PROXY STATEMENT
================================================================================
PURPOSE OF THE MEETING
-----------------------------
The Board of Directors of JONES PHARMA INCORPORATED is soliciting
proxies from its shareholders for the annual meeting of shareholders to be held
at 3:30 P.M. in the Amphitheater at the Ritz-Carlton Hotel, 100 Carondelet
Plaza, Clayton, Missouri, on Thursday, May 25, 2000.
The Company is authorized to issue 75,000,000 shares of common stock,
$.04 par value per share, and 5,000,000 shares of preferred stock, $.01 par
value per share. You are entitled to vote at that meeting if you were a
shareholder of record at the close of business on April 7, 2000. On April 7,
2000, there were ________________ common shares outstanding. There is no
cumulative voting with respect to the election of directors. Shareholders are
entitled to one vote per share on all matters.
On or about April 17, 2000, the Company first began mailing to all such
shareholders a proxy card, this proxy statement, and the Company's 1999 Annual
Report.
Your signed proxy card will appoint Judith A. Jones and Dennis M. Jones
as proxy holders, or your representatives, to vote your shares. If you sign and
return your proxy card without giving voting directions, the proxy holders will
vote your shares:
- for all of the nominees for director;
- for the amendment to the Amended and Restated Certificate of
Incorporation increasing the number of authorized shares of common
stock; and
- for the ratification of the adoption of the 1999 Equity
Participation Plan For Non-Management Directors.
The proxy card permits you to direct the proxy holders to: (i) withhold
your votes from particular nominees; (ii) vote "for," "against," or "abstain"
from approval of the amendment to the Amended and Restated Certificate of
Incorporation increasing the number of authorized common shares; and (iii) vote
"for," "against," or "abstain" from the ratification of the adoption of the 1999
Equity Participation Plan for Non-Management Directors.
Signing and returning your proxy card will not prevent you from voting
in person at the meeting. If you vote in person at the meeting, your previously
voted proxy will be automatically revoked. You may also revoke your proxy any
time before it is voted by sending notice to the Secretary of the Company either
before or at the meeting. If you submit more than one proxy, each later-dated
proxy will revoke all previous proxies.
<PAGE> 4
The Board of Directors expects all nominees for director named below to
be available for election. In case any nominee is not available, the proxy
holders may vote your shares for a substitute if you have submitted a signed
proxy card.
As far as the Company knows, the only matters to be brought before the
meeting are those referred to in this proxy statement. As to any other matters
presented at the meeting, if you send in a signed proxy card, the proxy holders
may vote your shares in their discretion.
No business can be conducted at the meeting unless a majority of all
outstanding shares entitled to vote are either present at the meeting in person
or represented by proxy.
In order for each nominee for director to be elected, a majority of the
shares present at the meeting, either in person or by proxy, will be required.
In order for the adoption of the 1999 Equity Participation Plan for
Non-Management Directors to be ratified and the amendment to the Amended and
Restated Certificate of Incorporation to be approved, a majority of all
outstanding shares must be voted "for" each such matter.
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. Because approval of
both the amendment to the Amended and Restated Certificate of Incorporation and
the 1999 Equity Participation Plan for Non-Management Directors require a
majority of all outstanding shares, abstentions and broker non-votes have the
same effect as votes "against" each such matter; however, the Company does not
anticipate receiving any broker non-votes as the matters to be approved at the
annual meeting are routine. Representatives of UMB Bank, N.A. will count the
votes.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
--------------------
The Company's Amended and Restated Certificate of Incorporation
provides for a Board 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 nominees for director 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.
David A. McLaughlin and L. John Polite, Jr. will retire as directors at
the close of this annual meeting. As a result of these retirements, the Board
will adopt a resolution amending the Company's Bylaws to reduce the number of
directors from nine (9) members to seven (7) members.
The Board of Directors held four (4) meetings during the fiscal year
ended December 31, 1999. The committees of the Board and the number of meetings
held by each committee in 1999 were:
--------------------------------- -------------------------
NUMBER OF MEETINGS
COMMITTEE NAME HELD DURING 1999
--------------------------------- -------------------------
Audit Committee 1
--------------------------------- -------------------------
Compensation Committee 1
--------------------------------- -------------------------
2
<PAGE> 5
The Company has no standing nominating committee of the Board or
committees performing similar functions.
Audit Committee. J. Hord Armstrong, III, Thomas F. Patton and L. John
Polite, Jr. were elected as members of the Company's audit committee during the
fiscal year ended December 31, 1999, with Dr. Patton serving as Chairman. The
audit committee acts as a liaison between the Board and the Company's
independent accountants and reviews the results of the audit, the Company's
internal controls, the audit procedures and the independent accountants'
recommendations to management.
Compensation Committee. J. Hord Armstrong, III, Thomas F. Patton and
Edward A. Chod were elected as members of the Company's compensation committee
during the fiscal year ended December 31, 1999, with Mr. Chod serving as
Chairman. The compensation committee administers 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.
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> <C>
Dennis M. Jones(1) 61 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.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
G. Andrew Franz(2) 47 Effective January 1, 2000, Mr. Franz was appointed to the newly 1994
created position of Chief Operating Officer. Mr. Franz has served
as Executive Vice President of Operations since July 1998. Prior
to July 1998, Mr. Franz served as Senior Vice
President-Operations-Pharmaceuticals.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
Judith A. Jones(1) 59 Executive Vice President of Corporate Affairs since July 1998 and 1981
Secretary and Treasurer since April 1982. Mrs. Jones served as
Vice President of the Company from March 1985 to February 1994
and as Executive Vice President of the Company from February 1994
to July 1998.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
Michael T. Bramblett 57 Executive Vice President of Business Development since July 1998. 1987
Mr. Bramblett served as Vice President - Marketing from January
1991 to February 1994 and as an Executive
Vice President from February 1994 to July
1998.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
David A. McLaughlin(3) 52 Senior Vice President of Operations since July 1998. Mr. 1994
McLaughlin served as Senior Vice
President-Operations-Nutritionals from February 1994 to July
1998. Mr. McLaughlin has also served in various management and
executive capacities with the Company since 1986.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
Edward A. Chod 46 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
Assistant Secretary of the Company.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
Thomas F. Patton, Ph.D. 51 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>
L. John Polite, Jr. (3) 78 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.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
J. Hord Armstrong, III 58 Chairman, Chief Executive Officer, Treasurer and a Director of 1999
D&K Healthcare Resources, Inc., a drug wholesaler, which he
founded in 1987. Prior to joining D&K Healthcare Resources,
Inc., Mr. Armstrong served as Vice President and Chief Financial
Officer of Arch Mineral Corporation, a coal mining and sales
corporation, from 1981 to 1987 and as its Treasurer from 1978 to
1981.
- ----------------------------- ------- ------------------------------------------------------------------- -----------
</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) Mr. McLaughlin and Mr. Polite will retire as directors at the close of the
annual meeting of shareholders. As a result of such individuals'
retirements, we will amend our By-Laws to reduce our Board of Directors
from nine members to seven members.
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 in
addition to the following fees:
- $4,000 for each meeting of the Board of Directors attended in person
in 1999 (subject to a minimum of $10,000 for such year).
- $5,000 for each meeting of the Board of Directors attended in person
and $500 for each meeting attended by telephone for the year 2000 and
thereafter (subject to a minimum of $15,000 per year).
- $500 for each meeting of the compensation or audit committee
attended, provided, however, if a committee meeting is held on the
same day as a full meeting of the Board, no additional fee is
paid.
Finally, as set forth in the table below, our present non-employee
directors hold stock options pursuant to our 1994 Formula Stock Option Plan for
Non-Management Directors ("FSO Plan") or our 1999 Equity Participation Plan for
Non-Management Directors ("Equity Plan") as indicated in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NO. OF NO. OF OPTIONS(1) PER SHARE
DATE OF OPTIONS ----------------------- EXERCISE EXPIRATION
NAME PLAN GRANT HELD VESTED UNVESTED PRICE DATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
L. John Polite, Jr. FSO Plan 7/1/98 25,312 5,062 20,250 $14.72 5/1/04
- ------------------------- ------------- ---------- ------------ ---------- ------------ ------------- --------------
Thomas F. Patton FSO Plan 6/1/95 17,437 12,375 5,062 $1.98 5/1/01
- ------------------------- ------------- ---------- ------------ ---------- ------------ ------------- --------------
Edward A. Chod Equity Plan 7/13/99 33,750 6,750 27,000 $18.11 5/1/05
- ------------------------- ------------- ---------- ------------ ---------- ------------ ------------- --------------
J. Hord Armstrong, III Equity Plan 7/13/99 33,750 6,750 27,000 $18.11 5/1/05
- ------------------------- ------------- ---------- ------------ ---------- ------------ ------------- --------------
</TABLE>
(1)These options generally vest over a five year period.
4
<PAGE> 7
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
-----------------------
Dennis M. Jones, G. Andrew Franz, Judith A. Jones, Michael T. Bramblett,
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.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES.
AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK (PROPOSAL NO. 2)
-----------------
GENERAL
Article III of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") presently authorizes the issuance of
75,000,000 shares of common stock, $.04 par value per share, and 5,000,000
shares of preferred stock, $.01 par value per share, in various classes or
series, with such designations, voting powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
and restrictions thereof as the Company's Board of Directors may determine. No
shares of preferred stock are presently outstanding.
The proposed amendment to Article III of the Certificate would increase
the number of shares of common stock which the Company is authorized to issue
from 75,000,000 to 250,000,000. The full text of the proposed amendment to
Article III of the Certificate is attached to this Proxy Statement as Appendix I
which shareholders are urged to read carefully.
As a result of two recent three-for-two stock splits of the Company's
common stock (one effective August 6, 1999 and one effective March 1, 2000), the
Company has utilized substantially all of its presently authorized common stock.
As of April 7, 2000, __________ shares of common stock were issued and
outstanding. In addition, options to acquire 3,937,088 shares of common stock
have been granted and remain outstanding under the Company's various stock
option and incentive stock plans described elsewhere in this proxy statement. In
addition, the Company's existing stock option and incentive plans would permit
the Company to issue to employees rights in respect of up to an additional
1,949,030 shares of common stock as well as future awards under the 1999 Equity
Participation Plan for Non-Management Directors.
The additional shares of common stock for which authorization is sought
would be a part of the existing class of common stock and, if and when issued,
would have the same rights and privileges as the shares of common stock
presently outstanding. Such additional shares would not (and the shares of
common stock presently outstanding do not) entitle the holders thereof to
preemptive rights.
5
<PAGE> 8
PURPOSE AND EFFECT OF THE AMENDMENT
The Board of Directors believes that it is desirable to have additional
authorized shares of common stock available for possible future financing and
acquisition transactions, stock dividends or splits and other corporate
purposes. Having such authorized shares available for issuance in the future
would give the Company greater flexibility and allow shares of common stock to
be issued without the expense and delay of a special shareholders' meeting. The
shares of common stock would be available for issuance without further action by
the shareholders unless such action is required by applicable law or the rules
of any stock exchange on which the Company's securities may be listed.
The authorization of the increase in the Company's authorized number of
shares of common stock is not being sought to address any specific financing or
acquisition as of the date of this proxy statement. Although authorization is
not being sought in response to any indication or proposal that the Company is a
target for take-over activity, holders of the Company's common stock should
consider the fact that the increase in the authorized number of shares of common
stock of the Company, coupled with the Board's power to authorize the issuance
of the shares and the ability of the Board to set the terms of the preferred
stock, means that the Board could in the future act to cause the issuance of
shares in a manner or on terms which might thwart or complicate efforts of a
third party to attempt to gain control of the Company.
VOTE REQUIRED
Under the Delaware corporation law, the affirmative vote of the holders
of a majority of the shares of common stock entitled to notice of, and to vote
at, the annual meeting of shareholders is required to adopt the proposal to
increase the number of authorized shares of common stock of the Company.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY.
RATIFICATION OF THE ADOPTION OF THE 1999 EQUITY PARTICIPATION PLAN FOR
NON-MANAGEMENT DIRECTORS (PROPOSAL NO. 3)
-----------------------
Effective July 13, 1999, the Board of Directors adopted the JONES
PHARMA INCORPORATED 1999 Equity Participation Plan for Non-Management Directors
("1999 Equity Participation Plan"). The purpose of the 1999 Equity Participation
Plan is to encourage the highest level of performance of non-management
directors by providing those directors with a proprietary interest in the
Company's success and progress through grants of options to purchase shares of
the Company's common stock and other equity-based awards. The maximum number of
shares of common stock which may be issued under the 1999 Equity Participation
Plan is 337,500 shares (as adjusted for the two recent three-for-two stock
splits). A copy of the 1999 Equity Participation Plan is attached as Appendix II
to this Proxy Statement.
Under the 1999 Equity Participation Plan, formula stock options to
purchase shares of the Company's common stock ("Formula Options") are
automatically granted to non-management directors ("Participants") on the first
day of the month following the date on which a Participant is elected or
appointed to the Board; provided, however, that no Participant may be granted a
Formula Option if: (i) such individual holds any unvested Formula Options
pursuant to the 1999 Equity Participation Plan or the Company's 1994 Formula
Stock Option Plan ("1994 FSO Plan"); or (ii) such individual has previously been
granted and holds any other equity awards under the 1999 Equity Participation
Plan as to which all vesting or service contingencies have not been fulfilled.
6
<PAGE> 9
Each Formula Option granted shall entitle the Participant to purchase
33,750 shares of the Company's common stock at a price equal to the fair market
value of the common stock on the date of grant of the Formula Option. Formula
Options are exercisable in annual increments of 6,750 shares each, with the
first 6,750 shares exercisable eleven months following the date of the grant of
such Formula Option ("Initial Exercise Date") and an additional 6,750 shares of
the Formula Option becoming exercisable on each annual anniversary of the
Initial Exercise Date. Such Formula Options must be exercised, if at all, on or
before the first to occur of: (i) the date that is ninety (90) days after the
effective date of a Participant's termination of service (unless such
termination occurs due to the death of such Participant, then such period is
increased to 280 days); and (ii) the fifth anniversary of the Initial Exercise
Date.
In addition to Formula Options, the Board is authorized under the 1999
Equity Participation Plan to grant and award other equity incentives to
Participants based upon the Company's common stock ("Other Awards"); provided,
however, that no such Other Award shall be issued to any Participant who holds
an outstanding unvested Formula Option under the 1999 Equity Participation Plan
or under the 1994 FSO Plan unless such unvested option is waived and forfeited
by written agreement between the Company and the Participant.
Any such Other Award may take the form of an option to purchase shares
of the Company's common stock having an expiration date not more than ten years
from the date of grant or may take the form of restricted share grants or of
stock appreciation rights payable in cash or in stock, provided that all
contingencies associated with any such Other Award are to be fully resolved
within not more than ten years from the date of grant.
Any Formula Option or Other Award granted pursuant to the 1999 Equity
Participation Plan may not be transferred (other than by will or the laws of
descent and distribution) and shall be exercisable, during the lifetime of a
Participant, only by such Participant or the Participant's guardian or legal
representative.
Upon exercise of a Formula Option or Other Award, the recipient must
pay tax on ordinary income in an amount equal to the difference between the fair
market value of the underlying stock as of the date of exercise and the exercise
price, and the Company is entitled to a corresponding tax deduction in an amount
equal to the income realized by such recipient.
The following table sets forth information with respect to options
granted as Other Awards from July 13, 1999 (the date of the adoption of the 1999
Equity Participation Plan) through the date of this proxy statement:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NO. OF NO. OF OPTIONS(1) PER SHARE
DATE OF OPTIONS ----------------------- EXERCISE EXPIRATION DATE
NAME PLAN GRANT HELD VESTED UNVESTED PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward A. Chod Equity Plan 7/13/99 33,750 6,750 27,000 $18.11 5/1/05
- ----------------------------------------------------------------------------------------------------------------------
J. Hord Armstrong, III Equity Plan 7/13/99 33,750 6,750 27,000 $18.11 5/1/05
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Twenty percent (20%) of the options granted vested immediately upon the
date of grant with the remaining options vesting in annual twenty
percent (20%) increments beginning on May 1, 2001.
7
<PAGE> 10
Any Formula Options granted under the 1999 Equity Participation Plan
prior to approval by the shareholders of the Company of said plan shall be
contingent upon such approval and shall be void if not so approved at an annual
or special meeting of shareholders. Shareholder approval is not required with
respect to any Other Awards granted under the 1999 Equity Participation Plan.
Ratification of the adoption of the 1999 Equity Participation Plan
requires the affirmative vote of a majority of the shares of common stock.
Unless otherwise instructed, the proxy holders will vote for the ratification of
the adoption of the 1999 Equity Participation Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE ADOPTION OF THE COMPANY'S 1999 EQUITY
PARTICIPATION PLAN FOR NON-MANAGEMENT DIRECTORS
SELECTION OF INDEPENDENT ACCOUNTANTS
----------------------
The Board re-appointed the accounting firm of Ernst & Young LLP ("Ernst
& Young") as independent accountants for the Company for fiscal year 2000. Ernst
& Young has served as the Company's independent accountants since December,
1985. Audit services performed by Ernst & Young during fiscal year 1999
consisted of the examination of annual financial statements of the Company and
services related to filings with the Securities and Exchange Commission ("SEC").
Representatives of Ernst & Young will be present at the annual meeting
and will be given an opportunity to make a statement if they so desire and to
respond to appropriate questions.
8
<PAGE> 11
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 on Page 10 under "Executive Compensation -- Summary Compensation
Table"); and (ii) all directors or nominees for director and executive officers
as a group:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP AS OF MARCH 1, 2000
----------------------------------------------------------
NAME AND ADDRESS OF PERCENTAGE OF SHARES
BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED (2) BENEFICIALLY OWNED (3)
-------------------- ----------------------------- ----------------------
- -------------------------------------------------------- -------------------------------- --------------------------
<S> <C> <C> <C>
DENNIS M. JONES 5,353,792 (4) 8.03%
Chairman of the Board of Directors, Chief Executive
Officer and President
- -------------------------------------------------------- ----------------- -------------- --------------------------
G. ANDREW FRANZ 611,906 (5) (6) 0.92%
Executive Vice President, Chief Operating Officer
and Director
- -------------------------------------------------------- ----------------- -------------- --------------------------
JUDITH A. JONES 2,540,107 (7) 3.81%
Executive Vice President of Corporate Affairs,
Secretary, Treasurer and Director
- -------------------------------------------------------- ----------------- -------------- --------------------------
MICHAEL T. BRAMBLETT 129,627 (8) *
Executive Vice President of Business Development
and Director
- -------------------------------------------------------- ----------------- -------------- --------------------------
DAVID A. MCLAUGHLIN 116,437 (9) *
Senior Vice President of Operations and Director
- -------------------------------------------------------- ----------------- -------------- --------------------------
L. JOHN POLITE, JR. 65,812 (10) *
Director
211 Oldwoods Road
Franklin Lakes, New Jersey 07417
- -------------------------------------------------------- ----------------- -------------- --------------------------
EDWARD A. CHOD 26,794 (11) *
Director
10 South Broadway, Suite 2000
St. Louis, Missouri 63102
- -------------------------------------------------------- ----------------- -------------- --------------------------
THOMAS F. PATTON, PH.D. 25,312 (12) *
Director
4588 Parkview Place
St. Louis, Missouri 63110
- -------------------------------------------------------- ----------------- -------------- --------------------------
J. HORD ARMSTRONG, III 9,000 (13) *
Director
8000 Maryland Avenue, Suite 900
St. Louis, Missouri 63105
- -------------------------------------------------------- ----------------- -------------- --------------------------
ALL DIRECTORS AND EXECUTIVE OFFICERS 8,878,787 13.31%
AS A GROUP (consisting of nine persons)
- -------------------------------------------------------- ----------------- -------------- --------------------------
</TABLE>
* Less than one-half of one percent.
(1) Except as otherwise indicated, the address for each individual named
is c/o JONES PHARMA INCORPORATED, 1945 Craig Road, St. Louis,
Missouri 63146. Each beneficial owner has sole voting and investment
power with respect to the shares of the Company's 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.
9
<PAGE> 12
(2) Includes shares deemed owned as a result of purchase options which
are presently or will become exercisable on or prior to June 1, 2000.
(3) The number of shares of the Company's common stock deemed outstanding
as of March 1, 2000 includes: (i) 65,429,778 shares outstanding as of
such date, and (ii) shares issuable pursuant to options held by the
directors and executive officers that are currently exercisable or
will become exercisable on or before June 1, 2000, by the person or
group in question.
(4) Includes 972,000 shares under option rights issued by the Company and
held by Mr. Jones. Does not include 2,540,107 shares or options held
by his spouse, Judith A. Jones, with respect to which he disclaims
beneficial ownership.
(5) Includes 16,087 shares under option rights issued by the Company,
219,052 shares owned by Mr. Franz' wife, 83,835 shares held by his
wife as custodian for the Franz' children, 64,879 shares held by his
wife as a co-trustee for the benefit of the Franz' children and
31,371 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.
(6) As a result of call options written and sold by Mr. Franz, an
aggregate of: (i) 56,250 of the shares reflected as owned by him were
subject to purchase by third parties as $20 per share under option
rights expiring March 17, 2000; and (ii) 15,000 of the shares
reflected as owned by him are subject to purchase by third parties at
$20 per share under option rights expiring June 16, 2000.
(7) Includes 243,000 shares under option rights issued by the Company and
held by Mrs. Jones. Does not include 5,353,792 shares or options held
by her spouse, Dennis M. Jones, with respect to which she disclaims
beneficial ownership.
(8) Includes 25,411 shares held by Mr. Bramblett's wife with respect to
which he disclaims beneficial ownership.
(9) Includes 11,250 shares under option rights issued by the Company. As
a result of call options written and sold by Mr. McLaughlin, an
aggregate of: (i) 45,000 of the shares reflected as owned by him were
subject to purchase by third parties at $20.00 per share under option
rights expiring March 17, 2000; and (ii) 30,000 of shares reflected
as owned by him are subject to purchase by third parties at $23.33
per share under option rights expiring June 16, 2000.
(10) Includes 10,125 shares under option rights issued by the Company.
(11) Includes 6,750 shares under option rights issued by the Company.
(12) Includes 17,437 shares under option rights issued by the Company.
(13) Includes 6,750 shares under option rights issued by the Company.
EXECUTIVE COMPENSATION
---------------------
SUMMARY COMPENSATION TABLE
The table on the next page sets forth all compensation received in each
of the three fiscal years ended December 31, 1999, 1998 and 1997 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, 1999 (such five
individuals being referred to as the "Named Executives").
10
<PAGE> 13
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
--------------------------------------------------------
Awards
-------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $550,008 $150,000 $95,216(1) 0 $32,144(2)
Dennis M. Jones, Chairman of -------------------------------------------------------------------------------------
the Board, Director, President 1998 $510,780 $100,000 $0 0 $31,614(2)
and Chief Executive Officer -------------------------------------------------------------------------------------
1997 $400,000 $0 $0 0 $27,280(2)
- ----------------------------------------------------------------------------------------------------------------------
1999 $274,992 $150,000 $0 0 $9,600(3)
G. Andrew Franz, Director, -------------------------------------------------------------------------------------
Executive Vice President and 1998 $223,228 $75,000 $0 112,500 $9,500(3)
Chief Operating Officer -------------------------------------------------------------------------------------
1997 $175,000 $25,000 $0 0 $9,500(3)
- ----------------------------------------------------------------------------------------------------------------------
1999 $274,992 $0 (1) 0 $26,121(4)
Judith A. Jones, Director, -------------------------------------------------------------------------------------
Executive Vice President of 1998 $251,575 $75,000 $0 0 $14,312(4)
Corporate Affairs, Secretary -------------------------------------------------------------------------------------
and Treasurer 1997 $220,000 $30,000 $0 0 $14,103(4)
- ----------------------------------------------------------------------------------------------------------------------
1999 $274,992 $100,000 $0 0 $9,600(3)
Michael T. Bramblett, Director -------------------------------------------------------------------------------------
and Executive Vice President 1998 $251,070 $75,000 $0 0 $9,500(3)
of Business Development -------------------------------------------------------------------------------------
1997 $220,000 $30,000 $0 0 $9,500(3)
- ----------------------------------------------------------------------------------------------------------------------
1999 $220,000 $75,000 $0 0 $9,600(3)
David A. McLaughlin, Director -------------------------------------------------------------------------------------
and Senior Vice President of 1998 $202,948 $50,000 $0 56,250 $9,500(3)
Operations -------------------------------------------------------------------------------------
1997 $175,000 $25,000 $0 0 $9,500(3)
-------------------------------------------------------------------------------------
</TABLE>
(1) Benefits to Mr. and Mrs. Jones which may be deemed to constitute
reportable "other compensation" aggregated $95,216 during 1999 and
consisted of $47,958 for (unreimbursed) personal use of an airplane of
which the Company owns a fractional interest, $36,077 for costs related
to employees providing domestic services at their residence (which is
utilized by the Company for business-related entertainment and
meetings), and $11,181 for automobile related expenses. It is expected
that during the year 2000 and future years the costs related to
employees providing domestic services at the Jones' residence will
increase materially since 1999 costs include certain such personnel for
only a three month period. Certain of these benefits constitute taxable
income to Mr. and Mrs. Jones although a portion of the employee costs
referred to above are deducted by the Company as business-related
expenses. In years prior to 1999, the aggregate of similar benefits
enjoyed by Mr. and Mrs. Jones did not exceed $30,000 in the aggregate.
No other Named Executive received any perquisites or other personal
benefits which in the aggregate exceeded the lesser of either $50,000
or ten percent (10%) of the total of annual salary and bonus reported
for the Named Executive.
(2) Consists of a Company contribution to a 401(k) plan ($9,600 in 1999,
$9,500 in 1998 and $9,500 in 1997) and the dollar value of premiums
paid by the Company for a split-dollar life insurance policy on Mr.
Jones, of which $22,544, $22,114 and $17,780 constituted his reportable
economic benefit in the years 1999, 1998 and 1997, respectively. See
"Certain Relationships and Related Transactions" elsewhere in this
proxy statement for additional information concerning insurance
relationships.
(3) Consists of a Company contribution to a 401(k) plan.
(4) Consists of a Company contribution to a 401(k) plan ($9,600 in 1999,
$9,500 in 1998 and $9,500 in 1997) and the dollar value of premiums
paid by the Company for a split-dollar life insurance policy on Mrs.
Jones, of which $16,521, $4,812 and $4,603 constituted her reportable
economic benefit in the years 1999, 1998 and 1997, respectively. See
"Certain Relationships and Related Transactions" elsewhere in this
proxy statement for additional information concerning insurance
relationships.
11
<PAGE> 14
STOCK OPTIONS AND INCENTIVE AWARDS
The Company's shareholders have approved the adoption of employee stock
option and incentive stock plans which are administered by the compensation
committee of the Board of Directors. At December 31, 1999, we had outstanding
stock options for an aggregate of 3,937,088 shares of the Company's common stock
at a weighted average price of $8.73 per share held by 221 employees (including
the options held by the Named Executives and the four (4) non-management
directors). Our stock option and incentive stock plans permit "exchange
exercises" in which an optionee is permitted to pay the exercise price of vested
options by surrendering previously owned shares of our common stock having a
market value equal to the exercise price of the option being exercised.
Option/SAR Grants. Although permitted under certain of the stock option
and incentive stock plans, the Company did not issue or have outstanding in
1999, stock appreciation rights ("SARs") or restricted share grants to any Named
Executive. In addition, none of the Named Executives were granted stock options
by the Company in 1999.
Aggregate Option Exercises during 1999 and Year End Option Values. The
following table provides information with respect to the stock options exercised
during the fiscal year ended December 31, 1999 and the value as of December 31,
1999 of unexercised in-the-money options held by the Named Executives. The value
realized on the exercise of options is calculated using the difference between
the option exercise price and the fair market value of our common stock on the
date of the exercise. The value of unexercised in-the-money options at fiscal
year end is calculated using the difference between the option exercise price
and the fair market value of our common stock at fiscal year end, December 31,
1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Value of
Shares Number of Unexercised In-the-
Acquired Unexercised Options at Money Options at
On Exercise Value December 31, 1999 December 31, 1999
(#) Realized (#) ($)
Name ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dennis M. Jones 0 $0 729,000/486,000 $17,656,380/$11,770,920
-------------------------- ------------ ------------- ---------------------------- -------------------------------
G. Andrew Franz 50,624 $895,792 22,500/90,000 $451,575/$1,787,450
-------------------------- ------------ ------------- ---------------------------- -------------------------------
Judith A. Jones 0 $0 182,250/121,500 $4,414,095/$2,942,730
-------------------------- ------------ ------------- ---------------------------- -------------------------------
Michael T. Bramblett 60,750 $733,252 0/81,000 $0/$1,961,820
-------------------------- ------------ ------------- ---------------------------- -------------------------------
David A. McLaughlin 25,312 $490,040 11,250/45,000 $225,787/$903,150
-------------------------- ------------ ------------- ---------------------------- -------------------------------
</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 our employees with a convenient way to save on a regular and
long-term basis and encourages employees to make and continue careers with us.
To become eligible to participate in the 401(k) Plan, an employee must
have completed 90 days 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.
12
<PAGE> 15
Participants are not allowed to make any voluntary contributions to the
401(k) Plan other than their Elective Contributions.
The Company must make a matching contribution equal to 100% of a
Participant's Elective Contributions not in excess of 6% of a Participant's
compensation. In addition to matching contributions, we may make a discretionary
contribution which is allocated among Participants' accounts in proportion to
compensation, however, no discretionary contributions have been made in the last
three years. Our matching and discretionary contributions are collectively
referred to in this report as "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 or her
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 or
her Elective Contributions in certain hardship circumstances as provided in the
Plan. Elective Contributions and Company Contributions are always 100% vested.
As of January 1, 1999, we had approximately 315 Eligible Employees,
including the Named Executives. During 1999, we made matching contributions to
the 401(k) Plan aggregating $48,000 to the accounts of the Named Executives and
total matching contributions of $733,680 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 our common stock.
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, including audit fees. We have appointed Dennis M.
Jones, Judith A. Jones and G. Andrew Franz as Trustees of the 401(k) Plan. 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.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
- -----------------------------------------------
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 also
administers the Company's 1989 Incentive Stock Option Plan, 1994 Incentive Stock
Plan and 1997 Incentive Stock Plan.
13
<PAGE> 16
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
J. Hord Armstrong, III
Thomas F. Patton
Edward A. Chod
14
<PAGE> 17
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
- -----------------------------------------------
The 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,
1994, 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.
[LINE GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C> <C>
JONES PHARMA INCORPORATED 100.00 367.30 1257.32 1316.96 1261.31 2259.62
S & P MIDCAP 400 100.00 130.94 156.08 206.43 236.21 270.99
S & P HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) 100.00 171.49 213.87 340.62 516.78 425.00
</TABLE>
15
<PAGE> 18
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
Section 16(a) of 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 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,
1999, its directors, officers and greater than 10% beneficial owners complied
with all applicable filing requirements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF
DECEMBER 31, 1999
--------------------------------------
The following table is based upon filings with the SEC under the
Exchange Act and reflects those shareholders known to the Company to hold 5% or
more of its common stock.
<TABLE>
<CAPTION>
------------------------------------- ------------------------ ---------------------
NAME AND ADDRESS SHARES REPORTED AS OF
------------------------------------- ------------------------ ---------------------
<S> <C> <C>
AMVESCAP PLC
11 Devonshire Square 7,906,537 (12.13%) December 31, 1999
London EC2M 4YR
England
------------------------------------- ------------------------ ---------------------
Dennis M. and Judith A. Jones 7,893,899 (11.84%) March 1, 2000
1945 Craig Road
St. Louis, Missouri 63146
------------------------------------- ------------------------ ---------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
--------------------------------------
LIFE INSURANCE RELATIONSHIPS.
Pursuant to agreements between the Company and the trustees of
irrevocable insurance trusts, we pay 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 we pay the premiums on
the policies. Upon the death of the insureds, or in the event of an earlier
termination of the policies, we are entitled to recover the aggregate amount of
the premiums paid and we 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 us 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 us that we will recover the full amount of premiums
paid with respect to such policies. We are prohibited from borrowing against
such policies without the consent of the insureds.
16
<PAGE> 19
The aggregate face amount of such "split-dollar" insurance coverage is
$73,500,000. Annual premiums paid during 1999 on such policies were
approximately $1,553,000.
In addition to such "split-dollar" insurance, in 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 us aggregating approximately $865,000 per year.
Contemporaneously with the purchase of these policies, we entered into an
agreement with Mr. and Mrs. Jones (individually and as the trustees of their
respective revocable trusts holding shares of our common stock). Pursuant to
such agreement, at the time of the 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 our common stock
is given the option to require us to repurchase such shares. 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 twenty days after the end of
the eight month period. The agreement limits our obligation to effect such
repurchases to the amount of the insurance proceeds received by us pursuant to
the policies. We may not borrow against any cash values in the policies or
cancel the insurance without the consent of Mr. and Mrs. Jones. Mr. and Mrs.
Jones have agreed with us that in the event of any termination of the policies
under circumstances in which we do not recover in full our premium costs, they
will reimburse such unrecovered costs to us. We believe that such insurance and
the application of the proceeds to the repurchase of shares of our common stock
as provided in the agreement, will work to reduce any negative impact on us and
the market for our common stock arising from the deaths of Mr. and Mrs. Jones.
RELATED PARTY TRANSACTIONS
Edward A. Chod, a director, is an officer and a shareholder in the law
firm of Greensfelder, Hemker & Gale, P.C., which has served as our outside
counsel since 1982. The amount of legal fees paid by us to Greensfelder, Hemker
& Gale, P.C. during the fiscal year ended December 31, 1999 did not exceed five
percent (5%) of such firm's gross revenues for its applicable fiscal year.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
--------------------------------------
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 2001 must
be received by the Company at its principal executive offices no later than
December 13, 2000 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 the year 2001 must be received by
the Company no later than February 26, 2001 to be presented at such annual
meeting. If a shareholder delivers any such proposal to the Company after
February 26, 2001, 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.
17
<PAGE> 20
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.
OTHER MATTERS
--------------------------------------
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.
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 APRIL
7, 2000.
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 17, 2000
18
<PAGE> 21
APPENDIX I
PROPOSED AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
ARTICLE THREE
(a) The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Two Hundred Fifty-Five Million
(255,000,000) shares consisting of Two Hundred Fifty Million (250,000,000)
shares of Common Stock, par value of $0.04 per share, and Five Million
(5,000,000) 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;
(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.
Appendix I-1
<PAGE> 22
APPENDIX II
JONES PHARMA INCORPORATED
1999 EQUITY PARTICIPATION PLAN FOR NON-MANAGEMENT DIRECTORS
1. PURPOSE. The purpose of this 1999 Equity Participation Plan is to
provide certain long-term equity incentives to eligible directors of the Company
in order to encourage the highest level of performance of non-management
directors by providing those directors with a proprietary interest in the
Company's success and progress through grants of options to purchase shares of
the Company's Common Stock and other equity-based awards in accordance with the
terms and conditions set forth below.
2. DEFINITIONS. Whenever used herein, the following shall have the
meanings set forth below:
(a) "Affiliate" refers to any corporation or other entity which
directly, or through one or more intermediaries, controls, is controlled by, or
is under common control with the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Jones Pharma Incorporated.
(e) "Eligible Director" shall mean an individual who is a member of
the Board and who is not at the time of the grant, an employee of the Company or
any subsidiary of the Company.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "FSO Plan" shall mean the 1994 Formula Stock Option Plan for non-
management directors of the Company.
(h) "Formula Stock Option" shall mean an option granted to an Eligible
Director pursuant to Section 6 of this Plan.
(i) "Initial Exercise Date" with respect to any Formula Stock Option
shall mean the date which is eleven (11) months following the date on which an
Eligible Director becomes a Participant in this Plan.
(j) "Option Period" with respect to any Formula Stock Option shall
mean the period of time during which a Participant may exercise his Formula
Stock Option as more specifically set forth in paragraph (d) of Section 6 of
this Plan.
(k) "Option Price" with respect to any Formula Stock Option or any
option right provided in any Other Award shall mean the price per share of
Common Stock at which a Participant may purchase Common Stock and shall be
subject to adjustment as provided in Section 4(c) below.
(l) "Option Shares" shall mean the shares of Common Stock which are
subject to any stock option granted or awarded pursuant to this Plan, whether or
not a Formula Stock Option and the number of Option Shares shall be subject to
adjustment as provided in Section 4(c) below.
(m ) "Other Award" means an equity-based incentive award granted under
this Plan other than a Formula Stock Option.
Appendix II-1
<PAGE> 23
(n) "Participant" shall mean an Eligible Director to whom a Formula
Stock Option or Other Award has been granted pursuant to this Plan.
(o) "Plan" means this 1999 Equity Participation Plan for Non-
Management Directors.
(p) "Termination of Service" is the date as of which (i) the service
of a director as a member of the Board is discontinued because of the death,
removal, resignation or expiration of term without re-election, or (ii) a
director becomes an employee of the Company or any Affiliate of the Company,
whichever is the first to occur.
(q) "Year of Service" with respect to any Formula Stock Option means
each continuous twelve (12) month period following the Initial Exercise Date
during which a Participant serves as a director of the Company.
3. ADMINISTRATION. This Plan shall, to the extent necessary, be
administered by the President of the Company, or such other person or persons as
may be appointed by the President (the "Administrator"). The Administrator shall
take such action necessary so as to comply with the provisions of this Plan. The
grant of a Formula Stock Option shall be evidenced by the execution of a Formula
Stock Option Agreement in the form of Exhibit A attached hereto executed by each
Participant. Grants of Other Awards must be approved by (i) a majority of the
entire Board of Directors and (ii) a majority of those members of the Board of
Directors who are not Eligible Directors.
4. SHARES AVAILABLE FOR FORMULA STOCK OPTIONS AND OTHER AWARDS.
(a) There is hereby reserved for issuance under this Plan an aggregate
of 150,000 shares of Common Stock, subject to adjustment as provided in
paragraph (c) of this Section 4.
(b) In the event of a lapse, expiration, termination or cancellation
of any Formula Stock Options or Other Awards granted under this Plan without the
issuance of shares of Common Stock, the shares subject to or reserved for such
Formula Stock Options or Other Awards (including any shares of Common Stock
forfeited and returned to the Company under the terms of any such Other Award)
may again be used for new grants and awards hereunder; provided that in no event
may the number of shares issued under this Plan exceed the total number of
shares reserved for issuance in accordance with paragraph (a) of this Section 4.
(c) In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights offering,
or any other change in the corporate structure or shares of Common Stock of the
Company, an equitable adjustment shall be made in the number and kind of shares
authorized by this Plan, and in the number and kind of shares covered by any
Formula Stock Options or Other Awards granted so that the position of each
Participant after such transaction will be equivalent to his relative position
prior to such transaction including, in the case of any Formula Stock Option or
any stock option forming a part of any Other Award, an appropriate adjustment in
the Option Price per share.
5. ELIGIBILITY. The individuals who are eligible to receive Formula
Stock Options or any Other Award hereunder shall be limited to Eligible
Directors. An Eligible Director of the Company shall become a Participant in
this Plan on the first day of the month following the date (subsequent to the
Effective Date of this Plan set forth in Section 13) on which said Eligible
Director is elected or appointed to the Board (whether elected by shareholders
of the Company or appointed by the Board itself to fill a vacancy on the Board).
Appendix II-2
<PAGE> 24
6. GRANT OF FORMULA STOCK OPTIONS.
(a) Grant to Participants. Each Eligible Director shall be granted a
Formula Stock Option on the day that said Eligible Director becomes a
Participant as provided in Section 5, provided, however, that no Eligible
Director shall be awarded a Formula Stock Option under this Plan (i) if such
Eligible Director has previously been granted, and currently holds any unvested
Formula Stock Options pursuant to the FSO Plan or this Plan, or (ii) if such
Eligible Director has previously been granted and holds any Other Award under
this Plan as to which all vesting or service contingencies relating to such
Other Award shall not have been fulfilled.
(b) Option Price. The Option Price per share of Common Stock with
respect to each Formula Stock Option shall be equal to the fair market value of
the Common Stock on the date that the Formula Stock Option is granted. During
any period in which the Common Stock is listed for trading on a registered
national securities exchange or on the NASDAQ National Market System, the fair
market value shall be equal to the lower of (i) the closing price, and (ii) the
average of the high and low prices (or the average of the low bid and high asked
prices, as appropriate), on the date of grant.
(c) Option Shares. The number of Option Shares subject to each Formula
Stock Option granted to a Participant shall be Fifteen Thousand (15,000) shares
of Common Stock subject to adjustment pursuant to the provisions of paragraph
(c) of Section 4. Each Formula Stock Option shall be subject to the vesting
provisions set forth in Section 7 below.
(d) Option Period. Each Formula Stock Option must be exercised, if at
all, on or before the first to occur of (i) the date that is ninety (90) days
after the effective date of the Termination of Service of a Participant,
provided, however, that if the Termination of Service is a result of the death
of a director or is a result of a director becoming an employee of the Company
or any Affiliate, then two hundred eighty (280) days after the date of such
Termination of Service and (ii) the fifth anniversary of the Initial Exercise
Date, at which time the entire Formula Stock Option granted to such Participant
(or such portion thereof that has not been exercised) shall lapse, terminate and
be of no further force and effect.
(e) Payment. The Option Price shall be payable in cash by the
Participant at the time the Formula Stock Option is exercised, provided,
however, that if the Company permits "exchange exercise" features with respect
to option plans for employees, such "exchange exercise" features shall be
applicable to options granted under this Plan also. No shares shall be issued
until full payment therefore has been made. A grantee of a Formula Stock Option
shall have none of the rights of a shareholder of the Company until the shares
are issued.
7. EXERCISE OF FORMULA STOCK OPTIONS.
During the Option Period, a Formula Stock Option shall vest and may be
exercised at the times and in the amounts as follows: (i) twenty percent (20%)
of the Option Shares may be purchased by the Participant at any time during the
period commencing with the Initial Exercise Date and ending on the last day of
the Option Period; and (ii) an additional twenty percent (20%) of the Option
Shares may be purchased by the Participant for each Year of Service of said
Participant following the Initial Exercise Date during the Option Period.
Appendix II-3
<PAGE> 25
8. OTHER AWARDS.
The Board of Directors is authorized under this Plan to grant and award
other equity incentives to Eligible Directors based upon the Company's Common
Stock, provided, however, that no such Other Award shall be issued to any
Eligible Director who holds an outstanding unvested Formula Stock Option under
this Plan or under the 1994 FSO Plan unless such unvested option is waived and
forfeited by written agreement between the Company and the Eligible Director.
Any such Other Award may take the form of an option to purchase shares of the
Company's Common Stock having an expiration date not more than ten years from
the date of grant or may take the form of restricted share grants or of stock
appreciation rights payable in cash or in stock, provided that all contingencies
associated with any such Other Award are to be fully resolved within not more
than ten years from the date of grant.
9. THE DISCONTINUANCE OR AMENDMENT OF PLAN. The Board may discontinue
this Plan at any time and may from time to time amend or revise the terms of the
Plan as permitted by applicable statutes, except that it may not revoke or
alter, in any manner unfavorable to Plan Participants, any Formula Stock Options
or Other Awards outstanding, nor may the Board amend this Plan without
shareholder approval, where the absence of such approval would cause this Plan
to fail to comply with Rule 16b-3 under the Exchange Act, or any other
requirement of applicable law or regulation. Furthermore, the provisions of this
Plan shall not be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code of 1986, as amended (the "Code"), the
Employee Retirement Income Security Act, or the rules thereunder.
No Formula Stock Option or Other Award shall be granted under this
Plan after June 30, 2009, but Formula Stock Options and Other Awards granted
theretofore may extend beyond that date is accordance with their terms
10. NON-TRANSFERABILITY. No Formula Stock Option or Other Award
granted under this Plan shall be transferable other than by will or the laws of
descent and distribution and shall be exercisable, during the grantee's
lifetime, only by the grantee or the grantee's guardian or legal representative.
11. NO RIGHT OF DIRECTORSHIP. Nothing in this Plan shall be deemed to
create any obligation on the part of the Board to nominate any director for
re-election as a director by the shareholders of the Company nor to create any
right to continue as a director of the Company.
12. RESTRICTION ON RESALE OF STOCK. Each Formula Stock Option or Other
Award issued hereunder shall be subject to the requirement that if at any time
the Administrator shall determine, in his discretion, that the listing,
registration or qualification of the shares subject to the Formula Stock Option
or Other Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the granting of such option
or the issue or purchase of shares thereunder, such Formula Stock Option or
Other Award may not be exercised in whole or in part unless and until such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Administrator.
Certificates representing shares of stock issued pursuant to this Plan shall
bear the following legend unless the shares have been registered under the
referenced laws:
Appendix II-4
<PAGE> 26
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED WITHOUT AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY EFFECTED IN
THE ABSENCE OF SUCH REGISTRATION."
13. EFFECTIVE DATE. This Plan shall be effective as of July 13, 1999.
14. EXPENSES OF PLAN. The expenses of this Plan shall be borne by the
Company.
15. SHAREHOLDER APPROVAL OF FORMULA STOCK OPTION GRANTS. Any other
provision of this Plan notwithstanding, no Formula Stock Option shall be issued
pursuant hereto prior to approval of the Plan by holders of a majority of the
outstanding Common Stock of the Company at an annual or special meeting of the
shareholders of the Company. Any failure of the shareholders to approve the Plan
to permit issuance of Formula Stock Options hereunder shall not affect any Other
Awards authorized hereunder, whether such authorization occurs prior or
subsequent to any shareholder vote with respect to the Plan.
Appendix II-5
<PAGE> 27
PROXY
JONES PHARMA INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--MAY 25, 2000
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 25, 2000 at 3:30 p.m.,
and at any adjournment or postponement thereof, and to take action on the
proposals 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 PROPOSALS 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
<TABLE>
<CAPTION>
<S> <C>
[ ] FOR all nominees listed below. [ ] WITHHOLD AUTHORITY for all nominees.
</TABLE>
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR NOMINEES, LINE
THROUGH OR STRIKE OUT THE NOMINEE'S OR NOMINEES' NAME OR NAMES BELOW:
J. Hord Armstrong, III, Michael T. Bramblett, Edward A. Chod, G. Andrew Franz,
Dennis M. Jones, Judith A. Jones, Thomas F. Patton, Ph.D.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED.
PROPOSAL 2--Approval of Amendment to Amended and Restated Certificate
of Incorporation to increase the authorized number of
shares of Common Stock to 250,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3--Ratification of the Adoption of the 1999 Equity
Participation Plan for Non-Management Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Form of Proxy Card - 1
<PAGE> 28
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 all proposals listed
Date , 2000
------------------------
------------------------------
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
