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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-95181
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 19, 2000
2,703,210 Shares
KING PHARMACEUTICALS, INC.
Common Stock
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We are selling to the underwriter 2,703,210 shares of common stock at a
price of $40.50 per share, for an aggregate purchase price of $109,480,005.
The underwriter proposes to offer the shares of common stock from time to
time for sale in negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The shares of common stock will not be sold on
or through the facilities of a national securities exchange or to or through a
market maker otherwise than on an exchange.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-9 FOR MORE INFORMATION.
Delivery of the shares of common stock will be made on or about October 20,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
The date of this prospectus supplement is October 17, 2000.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT PAGE PROSPECTUS PAGE
<S> <C> <C> <C>
WHERE YOU CAN FIND MORE ABOUT THIS PROSPECTUS................ 1
INFORMATION........................ S-2 WHERE YOU CAN FIND MORE
A WARNING ABOUT FORWARD-LOOKING INFORMATION........................ 1
STATEMENTS......................... S-3 A WARNING ABOUT FORWARD-LOOKING
SUMMARY.............................. S-5 STATEMENTS......................... 2
RISK FACTORS......................... S-9 KING PHARMACEUTICALS, INC............ 2
USE OF PROCEEDS...................... S-20 RATIOS OF EARNINGS TO FIXED
PRICE RANGE OF COMMON STOCK AND CHARGES............................ 3
DIVIDEND POLICY.................... S-20 USE OF PROCEEDS...................... 3
CAPITALIZATION....................... S-21 LEGAL OWNERSHIP...................... 4
UNAUDITED PRO FORMA SUPPLEMENTARY DESCRIPTION OF DEBT SECURITIES WE MAY
CONSOLIDATED FINANCIAL OFFER.............................. 6
STATEMENTS......................... S-22 REGARDING THE TRUSTEE................ 15
DESCRIPTION OF CAPITAL STOCK......... S-30 DESCRIPTION OF DEBT WARRANTS WE MAY
UNDERWRITING......................... S-35 OFFER.............................. 15
NOTICE TO CANADIAN RESIDENTS......... S-37 DESCRIPTION OF PREFERRED STOCK WE MAY
LEGAL MATTERS........................ S-38 OFFER.............................. 18
EXPERTS.............................. S-38 PLAN OF DISTRIBUTION................. 19
VALIDITY............................. 20
INDEPENDENT ACCOUNTANTS.............. 20
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus supplement and the
accompanying prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities
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Exchange Act of 1934 prior to the sale of all the shares covered by this
prospectus supplement and the accompanying prospectus:
- Our Annual Report on Form 10-K for the year ended December 31, 1999.
- Our Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 2000.
- Our Current Reports on Form 8-K filed February 28, April 20, April 21,
June 23, June 30, July 18, September 1, September 12, September 21 and
October 19, 2000.
- Jones Pharma Incorporated's Annual Report on Form 10-K for the year ended
December 31, 1999.
- Jones Pharma Incorporated's Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 2000.
You may request a copy of these filings, at no cost, by writing or
telephoning:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Kyle P. Macione, Executive Vice President, Corporate Affairs
Telephone: 423.989.8023
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. We will
not make an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus
supplement and the accompanying prospectus is accurate as of any date other than
the date on the front of these documents.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information which are based on forecasts
of future results and estimates of amounts not yet determinable. These
statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Risk Factors," and other sections of this prospectus
supplement and in sections of our annual report on Form 10-K including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Business."
Forward-looking statements include, but are not limited to:
- anticipated developments and expansions of our business;
- increases in sales of recently acquired products or royalty payments;
- development of product line extensions;
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- future findings and determinations of the Food and Drug Administration
(to which we refer in this prospectus supplement as the "FDA");
- debt service and leverage requirements;
- the products which we expect to offer;
- the intent to market and distribute certain of our products
internationally;
- the intent to manufacture in our own facilities some of our products
currently manufactured for us by third parties;
- the intent, belief or current expectations, primarily with respect to our
future operating performance;
- expectations regarding sales growth, gross margins, manufacturing
productivity, capital expenditures and effective tax rates; and
- expectations regarding our financial condition and liquidity as well as
future cash flows and earnings.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different from those contemplated by our forward-looking statements. These other
factors include, but are not limited to, the following:
- changes in general economic and business conditions;
- dependence on continued acquisition of products or companies;
- management of growth of business and integration of acquisitions;
- changes in current pricing levels;
- development of new competitive products;
- changes in economic conditions and federal and state regulations;
- competition for acquisition of products or companies;
- manufacturing capacity constraints; and
- the availability, terms and deployment of capital.
We do not undertake to update our forward-looking statements to reflect
future events or circumstances.
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SUMMARY
This summary highlights some information from this prospectus supplement
and the accompanying prospectus. Because this is a summary, it does not contain
all the information that may be important to you. To understand this offering
fully, you should read the entire prospectus supplement and accompanying
prospectus carefully, including the Risk Factors section beginning on page S-9
and the documents incorporated by reference. You should also keep in mind the
following points as you read this prospectus supplement:
- Unless the context otherwise indicates, references in this prospectus
supplement and accompanying prospectus to "we," "us," "our" and "King"
refer to King Pharmaceuticals, Inc. and its subsidiaries.
- Unless the context indicates otherwise, references in this prospectus
supplement and the accompanying prospectus to the "senior credit
facility" include the revolving credit facility and the term loans,
including tranche A and tranche B.
WHO WE ARE
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of over 400 representatives and co-promotion
arrangements, we market our branded pharmaceutical products to general/family
practitioners, internal medicine physicians, cardiologists, endocrinologists,
pediatricians and hospitals across the country.
Our primary business strategy is to acquire established branded
pharmaceutical products and to increase their sales through focused marketing
and promotion, life cycle management as well as by securing new indications,
developing product line extensions and devising new formulations or dosages. In
pursuing product acquisitions, we seek to capitalize on opportunities in the
pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. We also seek
attractive company acquisitions that add products or product pipelines,
technologies or sales and marketing capabilities to our key therapeutic areas.
These activities are attractive for us because they may expand the market for
our branded pharmaceutical products, provide market exclusivity or sales levels
that do not attract significant competition. In addition to branded
pharmaceuticals, we also provide contract manufacturing for a number of the
world's leading pharmaceutical and biotechnology companies, including
Warner-Lambert Company, Centocor, Inc., Genetics Institute, Inc. and Hoffmann-
La Roche Inc.
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RECENT DEVELOPMENTS
In addition to the risk factors described beginning on page S-9, you should
consider the following developments since December 31, 1999 before investing in
our common stock.
- On February 25, 2000, we completed our acquisition of Medco Research,
Inc. in a transaction accounted for as a pooling of interests.
- During the quarter ended June 30, 2000, we raised significant additional
equity capital aggregating $240 million through the issuance of 6.0
million shares of our common stock in an underwritten block trade in
April 2000 and the issuance of 1.9 million shares of common stock to
American Home Products in connection with the Altace(R) co-promotion
agreement.
- Approximately $181.2 million of the additional equity raised was used to
retire or prepay indebtedness. In connection therewith, we incurred
charges of approximately $4.7 million, net of tax, in the quarter ended
June 30, 2000, relating to the write-off of unamortized financing costs
incurred in connection with the prepaid indebtedness.
- On July 7, 2000, we completed the acquisition of U.S. marketing rights to
the Nordette(R), Bicillin(R) and Wycillin(R) product lines from American
Home Products, as contemplated by the co-promotion agreement for $200
million, financed with a draw of $10.0 million on a $50.0 million bridge
loan, $25.0 million in the form of a note issued to American Home
Products, $37.5 million of the proceeds from the sale of stock to
American Home Products, $25.0 million received in connection with the
co-promotion agreement with American Home Products, $90.0 million from
the revolving credit facility and $12.5 million in cash from operations.
- On August 31, 2000 we completed our acquisition of Jones Pharma
Incorporated in a transaction accounted for as a pooling of interests.
Jones, headquartered in St. Louis, Missouri, was founded in 1981 and was
an emerging specialty pharmaceutical company with a national sales force
of over 100 sales representatives who promoted Jones' products throughout
the United States. Jones' strategy was to build a portfolio of growing
products through the acquisition of under-promoted, promotion sensitive
FDA approved products from other pharmaceutical companies. During 1999,
Jones derived revenues primarily from the sale of Thrombin-JMI(R), used
for controlling blood loss during surgery and the thyroid-disorder drugs
Levoxyl(R), Cytomel(R)/Triostat(R) and Tapazole(R). Jones' other products
included Brevital Sodium(R), an anesthetic, and veterinary
pharmaceuticals, Soloxine(R), Tussigon(R) and Pancrezyme(R). On September
27, 2000, we announced that we would incur a $45.0 million nonrecurring
charge in the third quarter of 2000 related to our acquisition of Jones
and other restructuring activities.
- On September 27, 2000, following the receipt by our facility in
Rochester, Michigan, which we refer to as "Parkedale," of a written
notification from the FDA, we decided to discontinue permanently
Fluogen(R) rather than devote additional resources to the product.
Fluogen(R)'s gross sales totaled $32.0 million, while net sales equaled
$28.7 million, for the year ended December 31, 1999. Gross profit for
Fluogen(R) equaled $6.9 million for the same period. As a result of our
discontinuance of the product, we will not recognize any revenue from
Fluogen(R) during 2000. We have generally recognized revenue from
Fluogen(R) during the third and fourth quarters of the past two calendar
years. As a result of the discontinuance of Fluogen(R), we incurred
nonrecurring charges totaling approximately $45.0 million, before tax, in
the third quarter of 2000. These estimated nonrecurring charges related
to Fluogen(R) include the write-
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off of related property, plant and equipment and intangible assets,
existing product inventory and employee severance by Parkedale.
- On October 5, 2000, the FDA approved our Supplemental New Drug
Application regarding Altace(R). This approval permits the promotion of
Altace(R) to reduce the risk of stroke, myocardial infarction (heart
attack) and death from cardiovascular causes in patients 55 and over
either with a history of coronary artery disease, stroke or peripheral
vascular disease or with diabetes and one other cardiovascular risk
factor (e.g., elevated cholesterol levels, cigarette smoking, etc.).
Altace(R) is marketed by Monarch Pharmaceuticals, Inc., our wholly owned
subsidiary, and Wyeth-Ayerst Laboratories, the pharmaceutical division of
American Home Products. American Home Products is obligated, under our
co-promotion agreement with that company, to pay us an additional $50
million following the approval of Altace(R) for these new indications. We
expect this payment to be made on November 3, 2000.
RISK FACTORS
Investing in our common stock involves risks. You should carefully consider
all of the information in this prospectus supplement and the accompanying
prospectus. In particular, you should evaluate the specific risk factors set
forth under "Risk Factors" beginning on page S-9 for a discussion of certain
risks involved with an investment in the offering.
OUR ADDRESS
King Pharmaceuticals, Inc. was incorporated in the State of Tennessee in
1993. Our principal executive offices are located at 501 Fifth Street, Bristol,
Tennessee 37620. Our telephone number is (423) 989-8000 and our facsimile number
is (423) 274-8677.
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THE OFFERING
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<S> <C>
Common stock offered by us................. 2,703,210 shares
Common stock outstanding after the 168,643,427 shares(1)
offering.................................
Use of proceeds............................ We will use the net proceeds from the sale
of the shares for general corporate
purposes, including the financing of any
potential future acquisitions, and the
repayment of approximately $54.0 million of
debt outstanding under the senior credit
facility.
For more information, see "Use of
Proceeds."
New York Stock Exchange symbol............. KG
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(1) Excludes 5,850,865 shares of common stock issuable upon the exercise of
stock options outstanding at October 16, 2000 at a weighted average exercise
price of $12.28 per share and 8,199,960 shares reserved for issuance under
our stock plans.
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RISK FACTORS
Before you purchase our securities, you should carefully consider the risks
described below and the other information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus, including our
financial statements and related notes. The risks described below are not the
only ones facing our company. Additional risks not presently known to us or that
we currently deem immaterial may also impair our business operations. If any of
the adverse events described in this risk factors section actually occurs, our
business, results of operations and financial condition could be materially
adversely affected, the trading price of our common stock could decline and you
might lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
IF WE CANNOT IMPLEMENT OUR STRATEGY TO GROW OUR BUSINESS THROUGH ACQUISITIONS,
OUR COMPETITIVE POSITION IN THE PHARMACEUTICAL INDUSTRY MAY SUFFER.
We have historically increased our sales and net income through strategic
acquisitions and related internal growth initiatives intended to develop
marketing opportunities with respect to acquired product lines. Our strategy is
focused on increasing sales and enhancing our competitive standing through
acquisitions that complement our business and enable us to promote and sell new
products through existing marketing and distribution channels. Moreover, since
we engage in limited proprietary research activity with respect to product
development, we rely heavily on purchasing product lines from other companies.
Other companies, many of which have substantially greater financial,
marketing and sales resources than we do, compete with us for products or
companies.
We may not be able to acquire rights to additional products on acceptable
terms, if at all, or be able to obtain future financing for acquisitions on
acceptable terms, if at all. The inability to effect acquisitions of additional
branded products would limit the overall growth of our business. Furthermore,
even if we obtain rights to a pharmaceutical product, we may not be able to
generate sales sufficient to create a profit or otherwise avoid a loss. For
example, our marketing strategy, distribution channels and levels of competition
with respect to acquired products may be different than those of our current
products, limiting our ability to compete favorably in those product categories.
IF WE CANNOT INTEGRATE THE BUSINESSES OF COMPANIES WE ACQUIRE, OUR BUSINESS MAY
SUFFER.
We anticipate that the integration of newly acquired companies and products
into our business will require significant management attention and expansion of
our sales force. In order to manage our acquisitions effectively, we must
maintain adequate operational, financial and management information systems and
motivate and effectively manage an increasing number of employees. Our recent
acquisitions, including the acquisition of Jones, have significantly expanded
our product offerings, operations and number of employees. Our future success
will also depend in part on our ability to retain or hire qualified employees to
operate our expanding facilities efficiently in accordance with applicable
regulatory standards. If we cannot integrate our acquisitions successfully,
these changes and acquisitions could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
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IF SALES OF OUR MAJOR PRODUCTS OR ROYALTY PAYMENTS TO US DECREASE, OUR RESULTS
OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Altace(R) accounted for approximately 23.9% of our net sales for the year
ended December 31, 1999, and Altace(R), Lorabid(R), Levoxyl(R), Thrombin-JMI(R),
and the Cortisporin(R) product lines collectively accounted for approximately
47.8% of our net sales for 1999. We believe that sales of these products will
continue to constitute a significant portion of our total revenues for the
foreseeable future. Accordingly, any factor adversely affecting sales of any of
these products or products for which we receive royalty payments could also have
a material adverse effect on our business, financial condition, results of
operations and cash flows.
WE CANNOT ASSURE YOU THAT SALES OF LORABID(R) WILL INCREASE IN THE FUTURE. IF
SALES DO NOT INCREASE, THERE MAY BE A MATERIAL ADVERSE EFFECT UPON OUR RESULTS
OF OPERATIONS.
Prior to our acquisition of Lorabid(R), sales of that product were on the
decline. Increased sales of Lorabid(R) depend upon effective marketing to
physicians which leads them to write prescriptions for our product. We cannot
assure you that sales of Lorabid(R) will increase in the future. If Lorabid(R)
sales do not increase or if they decrease, there may be a material adverse
effect upon our results of operations and cash flows.
SALES OF ALTACE(R) MAY BE AFFECTED BY THE PERCEPTION OF A CLASS EFFECT, AND
ALTACE(R) AND OUR OTHER PRODUCTS MAY BE SUBJECT TO VARIOUS SOURCES OF
COMPETITION FROM ALTERNATE THERAPIES.
Although the FDA has approved new indications for Altace(R), we may be
unable to meet investors' expectations regarding sales of Altace(R) due to a
perceived class effect or the inability to market Altace(R)'s new uses and
indications effectively.
All prescription drugs currently marketed by pharmaceutical companies may
be grouped into existing drug classes, but the criteria for inclusion vary from
class to class. For some classes, specific biochemical properties may be the
defining characteristic. For example, Altace(R) (ramipril) is a member of a
class of products known as Angiotensin Converting Enzyme Inhibitors, which we
refer to as ACE inhibitors, because ramipril is one of several chemicals that
inhibits the production of enzymes that convert angiotensin, which could
otherwise lead to hypertension.
When one drug from a class is demonstrated to have a particularly
beneficial or previously undemonstrated effect (e.g., the benefit of Altace(R)
as shown by the HOPE Study), many marketers of other drugs in the same class
(for example, other ACE inhibitors) will represent that their products offer the
same benefit simply by virtue of membership in the same drug class.
Consequently, other companies with ACE inhibitors that compete with Altace(R)
will represent that their products are equivalent to Altace(R). By doing so,
these companies will represent that their products offer the same efficacious
results demonstrated by the HOPE Study. Regulatory agencies do not decide
whether products within a class are quantitatively equivalent in terms of
efficacy or safety. Because comparative data among products in the same drug
class are rare, marketing forces often dictate a physician's decision to use one
ACE inhibitor over another. We may not be able to overcome other companies'
representations that their ACE inhibitors will offer the same benefits as
Altace(R) as demonstrated by the HOPE Study. As a result, sales of Altace(R) may
suffer from the perception of a class effect.
Currently, there is no generic form of Altace(R) available. That is, there
is no product that has the same active ingredient as Altace(R). Although no
generic substitute for Altace(R) has been approved by the FDA, there are other
ACE inhibitors whose patents will expire in the next few years and there are
generic forms of other ACE inhibitors. Also there are different therapeutic
agents that may be
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used to treat the same conditions treated by Altace(R). For example, the group
of products known as beta-blockers, calcium channel blockers and diuretics, may
be prescribed to treat certain conditions that Altace(R) is used to treat. New
ACE inhibitors, increased sales of generic forms of other ACE inhibitors or of
other therapeutic agents that compete with Altace(R) may adversely affect the
sales of Altace(R).
WE HAVE ENTERED INTO A CO-PROMOTION AGREEMENT FOR THE PROMOTION OF ALTACE(R)
WITH AMERICAN HOME PRODUCTS CORPORATION WHICH COULD BE TERMINATED BEFORE WE CAN
REALIZE ALL OF THE BENEFITS OF THE AGREEMENT.
Our exclusive co-promotion agreement for Altace(R) with American Home
Products Corporation could be terminated before we realize all of the benefits
of the agreement. We and American Home Products each have the right to terminate
the agreement if annualized net sales of Altace(R) have not reached $300.0
million after three years from the initiation of the co-promotion activities.
There are other reasons why either we or American Home Products could terminate
the co-promotion agreement. If the co-promotion agreement is terminated for any
reason, we may not realize increased sales which we believe may result from the
expanded promotion of Altace(R). If the co-promotion agreement is terminated, we
must return some of the money previously paid to us by American Home Products
upon the signing of the co-promotion agreement, and American Home Products will
have the right to reacquire its interests in Nordette(R) for a fixed sum. If we
must unwind our co-promotion efforts because of the reasons mentioned above or
we are unable to maintain a sufficient supply of raw materials or finished
product to meet the demands generated by the co-promotion efforts, there may be
a material adverse effect on the sales of Altace(R).
IF WE ARE NOT ABLE TO DEVELOP OR LICENSE NEW PRODUCTS, OUR BUSINESS MAY SUFFER.
We compete with other pharmaceutical companies, including large
pharmaceutical companies with financial resources and capabilities substantially
greater than ours, in the development and licensing of new products. We cannot
assure you that we will be able to
- develop, license or successfully commercialize new products on a timely
basis or at all, or
- develop or license new products in a cost effective manner.
Further, other companies may license or develop products or may acquire
technology for the development of products that are the same as or similar to
the products we have in development or that we license. Because there is rapid
technological change in the industry and because many other companies may have
more financial resources than we do, other companies may
- develop or license their products more rapidly than we can,
- complete any applicable regulatory approval process sooner than we can,
- market or license their products before we can market or license our
products, or
- offer their newly developed or licensed products at prices lower than our
prices,
and thereby have a negative impact on the sales of our newly developed or
licensed products. Technological developments or the FDA's approval of new
therapeutic indications for existing products may make our existing products or
those products we are licensing or developing obsolete or may make them more
difficult to market successfully, which could have a material adverse effect on
our business, financial condition, results of operations and cash flows.
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WE DO NOT HAVE PROPRIETARY PROTECTION FOR MOST OF OUR BRANDED PHARMACEUTICAL
PRODUCTS, AND OUR SALES COULD SUFFER FROM COMPETITION BY GENERIC SUBSTITUTES.
Although most of our revenue is generated by products not subject to
competition from generic products, there is no proprietary protection for most
of our branded pharmaceutical products, and generic substitutes for most of
these products are sold by other pharmaceutical companies. In addition,
governmental and other pressure to reduce pharmaceutical costs may result in
physicians prescribing products for which there are generic substitutes.
Increased competition from the sale of generic pharmaceutical products may cause
a decrease in revenue from our branded products and could have a material
adverse effect on our business, financial condition and results of operations.
In addition, our branded products for which there is no generic form available
may face competition from different therapeutic agents used for the same
indications for which our branded products are used. For example, in 2000
Tapazole(R), with net sales of $26.5 million in 1999, began to face generic
competition, which will likely result in a decrease in market share.
THIRD PARTIES MANUFACTURE OR SUPPLY MATERIALS FOR MANY OF OUR PRODUCTS, AND ANY
DELAYS OR DIFFICULTIES EXPERIENCED BY THEM MAY REDUCE OUR PROFIT MARGINS AND
REVENUES OR HARM OUR REPUTATION.
More than fifteen of our product lines, including Altace(R), Lorabid(R) and
Cortisporin(R), are currently manufactured by third parties. Until these
products can be moved to our manufacturing facilities, our dependence upon third
parties for the manufacture of our products may adversely impact our profit
margins or may result in unforeseen delays or other problems beyond our control.
If for any reason we are unable to obtain or retain third-party manufacturers on
commercially acceptable terms, we may not be able to distribute our products as
planned. If we encounter delays or difficulties with contract manufacturers in
producing or packaging our products, the distribution, marketing and subsequent
sales of these products would be adversely affected, and we may have to seek
alternative sources of supply or abandon or sell a product line on
unsatisfactory terms. We might not be able to enter into alternative supply
arrangements at commercially acceptable rates, if at all. We also cannot assure
you that the manufacturers we utilize will be able to provide us with sufficient
quantities of our products or that the products supplied to us will meet our
specifications.
We require a supply of quality raw materials and components to manufacture
and package pharmaceutical products for us and for third parties with which we
have contracted. Generally, we have not had difficulty obtaining raw materials
and components from suppliers in the past. Currently, we rely on over 400
suppliers to deliver the necessary raw materials and components. The loss of any
one of these suppliers is not expected to have a material adverse effect on our
ability to acquire raw materials and components. We have no reason to believe
that we will be unable to procure adequate supplies of raw materials and
components on a timely basis. However, if we are unable to obtain sufficient
quantities of any of the raw materials or components required to produce and
package our products, we may not be able to distribute our products as planned.
In this case, our business, financial condition and results of operations could
be materially and adversely affected.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT OUR ABILITY TO
OPERATE OUR BUSINESS.
Virtually all aspects of our activities are regulated by federal and state
statutes and government agencies. The manufacturing, processing, formulation,
packaging, labeling, distribution and advertising of our products, and disposal
of waste products arising from these activities, are subject to regulation by
one or more federal agencies, including the FDA, the Drug Enforcement Agency,
the Federal Trade Commission, the Consumer Product Safety Commission, the U.S.
Department of Agriculture, the Occupational Safety and Health Administration and
the Environmental Protection Agency, as well as by foreign governments.
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Noncompliance with applicable FDA policies or requirements could subject us
to enforcement actions, such as suspension of manufacturing or distribution,
seizure of products, product recalls, fines, criminal penalties, injunctions,
failure to approve pending drug product applications or withdrawal of product
marketing approvals. Similar civil or criminal penalties could be imposed by
other government agencies, such as the Drug Enforcement Agency, the
Environmental Protection Agency or various agencies of the states and localities
in which our products are manufactured and sold, and could have ramifications
for our contracts with government agencies such as the Veteran's Administration.
These enforcement actions could have a material adverse effect on our business,
financial condition and results of operations.
All manufacturers of human pharmaceutical products are subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act or the Public Health Service Act or both. New drugs, as defined in
the Federal Food, Drug and Cosmetic Act, and new human biological drugs, as
defined in the Public Health Service Act, must be the subject of an FDA-
approved new drug or biologic license application before they may be marketed in
the United States. Some prescription and other drugs are not the subject of an
approved marketing application but, rather, are marketed subject to the FDA's
regulatory discretion and/or enforcement policies. Any change in the FDA's
enforcement discretion and/or policies could have a material adverse effect on
our business, financial condition and results of operations.
We manufacture some pharmaceutical products containing controlled
substances and, therefore, are also subject to statutes and regulations enforced
by the Drug Enforcement Agency and similar state agencies which impose security,
recordkeeping, reporting and personnel requirements on us. Additionally, we
manufacture biological drug products for human use and are subject to regulatory
burdens as a result of these aspects of our business. There are additional FDA
and other regulatory policies and requirements covering issues such as
advertising, commercially distributing, selling, sampling and reporting adverse
events associated with our products with which we must continuously comply.
Noncompliance with any of these policies or requirements could result in
enforcement actions which could have a material adverse effect on our business,
financial condition and results of operations.
The FDA has the authority and discretion to withdraw existing marketing
approvals and to review the regulatory status of marketed products at any time.
For example, the FDA may require an approved marketing application for any drug
product marketed if new information reveals questions about the drug's safety or
effectiveness. All drugs must be manufactured in conformity with current Good
Manufacturing Practices, which we refer to as "cGMP" requirements, and drug
products subject to an approved application must be manufactured, processed,
packaged, held and labeled in accordance with information contained in the
approved application.
While we believe that all of our currently marketed pharmaceutical products
comply with FDA enforcement policies or have received the requisite agency
approvals, our marketing is subject to challenge by the FDA at any time. Through
various enforcement mechanisms, the FDA can ensure that noncomplying drugs are
no longer marketed. In addition, modifications, enhancements, or changes in
manufacturing sites of approved products are in many circumstances subject to
additional FDA approvals which may or may not be received and which may be
subject to a lengthy FDA review process. Our manufacturing facilities and those
of our third-party manufacturers are continually subject to inspection by
governmental agencies. Manufacturing operations could be interrupted or halted
in any of those facilities if the government is unsatisfied with the results of
its inspections. Any interruptions of this type could have a material adverse
effect on our business, financial condition, results of operations and cash
flows.
S-13
<PAGE> 14
We cannot determine what effect changes in regulations, enforcement
positions, statutes or legal interpretation, when and if promulgated, adopted or
enacted, may have on our business in the future. Changes could, among other
things, require changes to manufacturing methods or facilities, expanded or
different labeling, new approvals, the recall, replacement or discontinuance of
certain products, additional record keeping and expanded documentation of the
properties of certain products and scientific substantiation. These changes, or
new legislation, could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
OUR PARKEDALE FACILITY HAS BEEN THE SUBJECT OF FDA CONCERNS. IF WE CANNOT
ADEQUATELY ADDRESS THE FDA'S CONCERNS, WE MAY BE UNABLE TO OPERATE THE PARKEDALE
FACILITY AND, ACCORDINGLY, OUR BUSINESS MAY SUFFER.
Our Parkedale facility, located in Rochester, Michigan, manufactures both
drug and biological pharmaceutical products. Parkedale was one of six
Warner-Lambert facilities subject to a consent decree issued by the U.S.
District Court of New Jersey in August 1993 as a result of FDA concerns about
compliance issues within Warner-Lambert facilities in the period before the
decree was entered.
The Parkedale facility was inspected by the FDA's Team Biologics in March
and April 1998. During that inspection, the FDA made observations about our
compliance with cGMPs in a written report provided to us. This written report is
known as an "FDA Form 483" or simply as a "483." We provided the FDA with a
written response to the 483 including an action plan to address the
observations.
As a continuation of the inspections in March and April 1998, the FDA
inspected the Parkedale facility in May 1999 to verify actions taken in response
to the 1998 inspection and to review our compliance with the FDA's cGMP
requirements. At the end of that inspection, the FDA issued another 483 listing
its observations. We submitted a written response to that 483 and met with FDA
representatives to present our plans for addressing the observations. In August
1999, the FDA asked us to clarify and supplement our responses to the 483 that
resulted from the May 1999 inspection. The FDA also stated it would require
additional product testing for the product Histoplasmin. Since revenues
attributable to Histoplasmin were minimal we discontinued the manufacture and
distribution of the product, and we subsequently informed the FDA of our
decision.
In October 1999, as part of its program for inspection of all manufacturers
of influenza virus vaccine, the FDA's Team Biologics inspected our production of
Fluogen(R) at the Parkedale facility and issued a 483 listing certain cGMP
observations.
On September 27, 2000, following the receipt by Parkedale of a written
notification from the FDA, we decided to discontinue permanently Fluogen(R)
rather than devote additional resources to the product.
Fluogen(R)'s gross sales totaled $32.0 million, while net sales equaled
$28.7 million, for the year ended December 31, 1999. Gross profit for Fluogen(R)
equaled $6.9 million for the same period. As a result of our discontinuance of
the product, we will not recognize any revenue from Fluogen(R) during 2000. We
have generally recognized revenue from Fluogen(R) during the third and fourth
quarters of the past two calendar years. As a result of the discontinuance of
Fluogen(R), we incurred nonrecurring charges totaling approximately $45.0
million, before tax, in the third quarter of 2000. These estimated nonrecurring
charges related to Fluogen(R) include the write-off of related property, plant
and equipment and intangible assets, existing product inventory and employee
severance by Parkedale.
In March 2000, the FDA also wrote to provide comments and requests for
further information and clarification of previous information submitted by
Parkedale to the FDA in relation to certain process validation issues of
Aplisol(R) (tuberculin purified protein derivative diluted). The FDA's
correspondence does not require Parkedale to discontinue or delay, in any
manner, the production and
S-14
<PAGE> 15
distribution of Aplisol(R), and the FDA continues to approve the release and
distribution of Aplisol(R) by Parkedale.
OUR QUARTERLY RESULTS MAY FLUCTUATE, AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT
OUR PROFITABILITY.
Our results of operations may vary from quarter to quarter due to many
factors. These factors include expenditures related to the acquisition, sale and
promotion of pharmaceutical products, a changing customer base, the availability
and cost of raw materials, interruptions in supply by third-party manufacturers,
new products introduced by us or our competitors, the mix of products we sell,
seasonality of certain product sales, changes in sales due to anticipated price
increases, changes in sales and marketing expenditures, competitive pricing
pressures and general economic and industry conditions that may affect customer
demand. For example, in advance of a price increase, many of our customers may
order pharmaceutical products in larger than normal quantities. The ordering of
excess quantities in any quarter could cause sales of some of our branded
pharmaceutical products to be lower in the subsequent quarter than they would
have been otherwise. These factors could also affect our annual results of
operations as well as our ability to satisfy certain of the covenants in our
senior credit facility and the indenture related to the notes. We cannot assure
you that we will be successful in maintaining or improving our profitability or
avoiding losses in any future period.
AN INCREASE IN PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS OR PRODUCT RETURNS
COULD HARM OUR BUSINESS.
We face an inherent business risk of exposure to product liability claims
in the event that the use of our technologies or products are alleged to have
resulted in adverse effects. These risks will exist for those products in
clinical development and with respect to those products that receive regulatory
approval for commercial sale. While we have taken, and will continue to take,
what we believe are appropriate precautions, we may not be able to avoid
significant product liability exposure. We currently have product liability
insurance in the amount of $50.0 million for aggregate annual claims with a
$50,000 deductible per incident and a $500,000 aggregate annual deductible;
however, we cannot assure you that the level or breadth of any insurance
coverage will be sufficient to cover fully all potential claims. Also, adequate
insurance coverage might not be available in the future at acceptable costs, if
at all.
Product recalls may be issued at our discretion or at the discretion of the
FDA, other government agencies or other companies having regulatory authority
for pharmaceutical product sales. In November 1998, the Parke-Davis division of
Warner-Lambert initiated a voluntary Class III recall for one lot of
Procanbid(R) manufactured prior to our acquisition of Procanbid(R). A Class III
recall is one in which use of, or exposure to, the product is not likely to
cause adverse consequences. These recalls were instituted because the lots at
issue failed a dissolution test as part of the routine stability program at the
18-month interval. In December 1999, Warner-Lambert initiated a voluntary Class
III recall for one lot of Procanbid(R) manufactured prior to our acquisition of
the product because it had failed the same dissolution test at the 24-month
interval. In February 2000, American Pharmaceutical Partners, Inc., which
manufactures Adenoscan(R), initiated a Class II recall for 30 mL single-dose
vials used only for intravenous infusion because of chipped and leaking vials
and the possible presence of glass particles in vials. A Class II recall is one
in which the use of, or exposure to, the product may cause temporary or
medically reversible adverse health consequences or where the probability of
serious adverse health consequences is remote. The FDA estimated that 100,000
vials remained on the market at the time of the recall. In April 2000, we
initiated a voluntary Class II recall for one lot of Vira-A(R) ophthalmic
ointment, as a result of leaking tubes. We cannot assure you that additional
product recalls will not occur in the future. Any product recalls could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.
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<PAGE> 16
Although product returns were approximately 2.5% of gross sales for the
year ended December 31, 1999, we cannot assure you that actual levels of returns
will not increase or significantly exceed the amounts we have anticipated.
THE LOSS OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.
We are highly dependent on the principal members of our management staff,
the loss of whose services might impede the achievement of our acquisition and
development objectives. Although we believe that we are adequately staffed in
key positions and that we will be successful in retaining skilled and
experienced management, operational, scientific and development personnel, we
cannot assure you that we will be able to attract and retain key personnel on
acceptable terms. The loss of the services of key personnel could have a
material adverse effect on us, especially in light of our recent growth. We do
not maintain key-person life insurance on any of our employees. In addition, we
do not have employment agreements with any of our key employees.
IF WE ARE UNABLE TO SECURE OR ENFORCE PATENT RIGHTS, TRADEMARKS, TRADE SECRETS
OR OTHER INTELLECTUAL PROPERTY, OUR BUSINESS COULD BE HARMED.
We may not be successful in securing or maintaining proprietary patent
protection for products we develop or technologies we license. In addition, our
competitors may develop products similar to ours using methods and technologies
that are beyond the scope of our intellectual property protection, which could
reduce our sales. The validity of patents can be subject to expensive
litigation. We can give you no assurance that our patents will not be
challenged. Competitors may be able to develop similar and competitive products
outside the scope of our patents. For example, should third parties patent or
otherwise develop and receive governmental clearance to commercialize an
adenosine product for a use not covered by our patents, physicians could use
those third party products in place of our products even though the third party
products were not approved by the FDA for the same indications as our products.
Any off-label use of third party products could have a material adverse effect
on sales of our products and the amount of royalty revenues we receive.
We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation, where patent protection is not believed to
be appropriate or attainable, in order to maintain our competitive position. We
cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to our
trade secrets or disclose the technology, or that we can adequately protect our
trade secrets.
OUR OWNERSHIP IS CONCENTRATED IN A FEW INDIVIDUALS WHO CAN INFLUENCE OUR
MANAGEMENT AND POLICIES.
Our present executive officers and directors (17 persons) and their
affiliates beneficially own approximately 16.0% of the outstanding shares of
King common stock. Accordingly, they have the ability to exercise significant
influence over our management and policies. Independent directors do not
currently, and may not in the future, constitute a majority of the board of
directors. In the absence of a majority of independent directors, our executive
officers, who also are principal shareholders and directors, could establish
policies and enter into transactions without independent review and approval
thereof. Transactions without an independent review could present the potential
for a conflict of interest between us and our shareholders generally and our
executive officers or directors. We do not intend to implement any formal
procedures to address any of these potential conflicts of interest.
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<PAGE> 17
OUR WHOLLY OWNED SUBSIDIARY JONES PHARMA INCORPORATED IS A DEFENDANT IN
LITIGATION WHICH IS CURRENTLY BEING HANDLED BY ITS INSURANCE CARRIERS. SHOULD
THIS COVERAGE BE INADEQUATE OR SUBSEQUENTLY DENIED AND WE WERE TO LOSE SOME OF
THESE LAWSUITS, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Our wholly owned subsidiary, Jones Pharma Incorporated, is a defendant in
more than 2,500 multi-defendant lawsuits involving the manufacture and sale of
dexfenfluramine, fenfluramine phentermine, which is usually referred to as
"fen/phen." Following Jones' acquisition of this product in 1996, Jones acted as
a distributor of Obenix(R), a branded phentermine product. Jones also
distributed a generic phentermine product. Jones believes that its phentermine
products have been identified in less than 100 of the foregoing cases. The
plaintiffs in these cases claim injury as a result of ingesting a combination of
these weight-loss drugs. They seek compensatory and punitive damages as well as
medical care and court-supervised medical monitoring. The plaintiffs claim
liability based on a variety of theories including but not limited to, product
liability, strict liability, negligence, breach of warranties and
misrepresentation. These suits are filed in various jurisdictions throughout the
United States, and in each of these suits Jones is one of many defendants,
including manufacturers and other distributors of these drugs. Jones denies any
liability incident to the distribution of its phentermine product and intends to
pursue all defenses available to it. Jones has tendered defense of these
lawsuits to its insurance carriers for handling and they are currently defending
Jones in these suits. It is too early to determine, what, if any, liability
Jones will have with respect to the claims set forth in these lawsuits. In the
event that Jones' insurance coverage is inadequate to satisfy any resulting
liability, Jones will have to resume defense of these lawsuits and be
responsible for the damages, if any, that are awarded against it.
RISKS RELATED TO THIS OFFERING
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND, AS A RESULT,
SHAREHOLDERS WILL NEED TO SELL SHARES TO REALIZE ANY RETURN ON THEIR INVESTMENT.
We have never declared or paid any cash dividends on our common stock.
Furthermore, the payment of any dividend or distribution on any shares of our
capital stock is limited by the senior credit facility. We intend to retain any
future earnings to finance the operation and expansion of our business and do
not anticipate paying any cash dividends in the foreseeable future.
Consequently, shareholders will need to sell shares of common stock in order to
realize a return on their investment, if any.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
If our existing shareholders sell a large number of shares of our common
stock or the public market perceives that existing shareholders might sell
shares of common stock, the market price of the common stock could significantly
decline. All of the shares offered under this prospectus supplement and the
accompanying prospectus will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The shares subject to a lock-up agreement with Credit Suisse First Boston
Corporation may be sold 15 days after the effective date of this offering.
Finally, it is possible that Credit Suisse First Boston Corporation will
release shares subject to the lock-up agreements referred to above prior to the
scheduled expiration dates. This would result in the shares of our common stock
that are subject to such agreements becoming eligible for sale in the public
market at an earlier time than currently anticipated. The decision as to whether
to release the shares subject to these lock-up agreements is in the discretion
of Credit Suisse First Boston Corporation.
S-17
<PAGE> 18
OUR SHAREHOLDER RIGHTS PLAN AND BYLAWS DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS
AND COULD PREVENT YOU FROM REALIZING A PREMIUM FOR YOUR COMMON STOCK.
We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our charter and bylaws contain provisions that may discourage
unsolicited takeover proposals that shareholders may consider to be in their
best interests. These provisions include:
- a classified board of directors;
- the ability of the board of directors to designate the terms of and issue
new series of preferred stock;
- advance notice requirements for nominations for election to the board of
directors; and
- special voting requirements for the amendment of our charter and bylaws.
We are also subject to antitakeover provisions under Tennessee law, each of
which could delay or prevent a change of control. Together these provisions and
the rights plan may discourage transactions that otherwise could involve payment
of a premium over prevailing market prices for your common stock. For
information about these laws, see "Description of Capital Stock."
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING. INVESTORS MAY NOT BE ABLE TO
RESELL THEIR SHARES AT OR ABOVE THE PRICE TO THE PUBLIC.
The trading price of our common stock is likely to be volatile. The stock
market in general and the market for emerging growth companies, such as King in
particular, have experienced extreme volatility. Many factors contribute to this
volatility, including
- announcements of technological innovations,
- changes in marketing, product pricing and sales strategies or development
of new products by us or our competitors,
- changes in domestic or foreign governmental regulations or regulatory
approval processes,
- variations in our results of operations,
- perceptions about market conditions in the pharmaceutical industry, and
- general market conditions.
This volatility may have a significant impact on the market price of our common
stock. Moreover, the possibility exists that the stock market (and in particular
the securities of emerging growth companies such as King) could experience
extreme price and volume fluctuations unrelated to operating performance. The
volatility of our common stock imposes a greater risk of capital losses on our
shareholders than would a less volatile stock. In addition, such volatility
makes it difficult to ascribe a stable valuation to a shareholder's holdings of
our common stock.
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<PAGE> 19
RISKS RELATED TO OUR INDUSTRY
ANY REDUCTION IN REIMBURSEMENT LEVELS BY MANAGED CARE ORGANIZATIONS OR OTHER
THIRD-PARTY PAYORS MAY HAVE AN ADVERSE EFFECT ON OUR REVENUES.
Commercial success in producing, marketing and selling products depends, in
part, on the availability of adequate reimbursement from third-party health care
payors, such as government and private health insurers and managed care
organizations. Third-party payors are increasingly challenging the pricing of
medical products and services. For example, many managed health care
organizations are now controlling the pharmaceutical products that are on their
formulary lists. The resulting competition among pharmaceutical companies to
place their products on these formulary lists has reduced prices across the
industry. In addition, many managed care organizations are considering formulary
contracts primarily with those pharmaceutical companies that can offer a full
line of products for a given therapy sector or disease state. We cannot assure
you that our products will be included on the formulary lists of managed care
organizations or that downward pricing pressures in the industry generally will
not negatively impact our operations.
NEW LEGISLATION OR REGULATORY PROPOSALS MAY ADVERSELY AFFECT OUR REVENUES.
A number of legislative and regulatory proposals aimed at changing the
health care system, including the cost of prescription products, reimportation
of prescription products and changes in the levels at which pharmaceutical
companies are reimbursed for sales of their products, have been proposed. While
we cannot predict when or whether any of these proposals will be adopted or the
effect these proposals may have on our business, the pending nature of these
proposals, as well as the adoption of any proposal, may exacerbate industry-wide
pricing pressures and could have a material adverse effect on our financial
condition, results of operations or cash flows.
THE INDUSTRY IS HIGHLY COMPETITIVE.
In the industry, smaller pharmaceutical companies like us compete with
large, global pharmaceutical companies with substantially greater financial
resources for the acquisition of products, technologies and companies. We cannot
assure you that
- we will be able to continue to acquire commercially attractive
pharmaceutical products, companies or technologies,
- additional competitors will not enter the market, or
- competition for acquisition of products, companies, technologies and
product lines will not have a material adverse effect on our business,
financial condition and results of operations.
We also compete with pharmaceutical companies in developing, marketing and
selling pharmaceutical products. The selling prices of pharmaceutical products
typically decline as competition increases. Further, other products now in use
or acquired by other pharmaceutical companies may be more effective or offered
at lower prices than our current or future products. Competitors may also be
able to complete the regulatory approval process sooner and, therefore, may
begin to market their products in advance of us. We believe that competition for
sales of our products will be based primarily on product efficacy, safety,
reliability, availability and price.
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to us from the sale of common stock in this offering are
estimated to be $109.0 million, after deducting the estimated offering expenses
payable by us. The net proceeds of the offering will be used for general
corporate purposes, including the financing of any potential future
acquisitions, and the repayment of approximately $54.0 million of debt
outstanding under the senior credit facility.
The senior credit facility includes a six-year $100.0 million revolving
line of credit, a six-year $150.0 million amortizing Tranche A term loan
facility, which has been paid in full, and an eight-year $275.0 million Tranche
B term loan facility, under which there is approximately $12.9 million in
principal amount outstanding at October 16, 2000, with customary covenants,
financial ratios and events of default and with a floating interest rate based
on either LIBOR, the prime rate, or the federal funds rate, plus an applicable
margin, selected at our discretion. At October 16, 2000, interest rates for the
various components of the senior credit facility ranged from approximately 9.87%
to 11.75%.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth the range of high and low sales prices per
share for our common stock as reported on the New York Stock Exchange, where our
stock trades under the symbol "KG," for the periods indicated. The initial
public offering price of our common stock on June 25, 1998 was $6.22 per share
($14.00 per share before adjusting for a 3 for 2 stock split effective November
11, 1999 and a 3 for 2 stock split effective June 21, 2000).
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
------------------
HIGH LOW
------ ------
<S> <C> <C>
1998:
Second Quarter (from June 25, 1998).................... $ 6.33 $ 6.11
Third Quarter.......................................... 9.50 5.67
Fourth Quarter......................................... 12.78 4.72
1999:
First Quarter.......................................... $13.28 $ 8.61
Second Quarter......................................... 14.50 9.22
Third Quarter.......................................... 18.55 10.89
Fourth Quarter......................................... 45.33 13.42
2000:
First Quarter.......................................... $45.83 $19.75
Second Quarter......................................... 46.00 21.00
Third Quarter.......................................... 47.25 27.75
Fourth Quarter (through October 16, 2000).............. 43.75 33.50
</TABLE>
On October 16, 2000, the closing price of the common stock as reported on
the New York Stock Exchange was $42.4375. As of September 30, 2000, there were
approximately 2,500 holders of record of the common stock.
We have never paid cash dividends on our common stock. Furthermore, the
payment of any dividend or other distribution on any shares of our capital stock
is limited by the senior credit facility to an aggregate amount of up to $1.0
million provided that no event of default under the senior credit facility has
occurred or is continuing. Assuming removal of this limitation, the payment of
cash dividends is subject to the discretion of the board of directors and will
be dependent upon many factors, including our earnings, our capital needs, and
our general financial condition. We anticipate that for the foreseeable future,
we will retain our earnings, if any, in order to finance the expansion and
development of our business.
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<PAGE> 21
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE DATA)
This table sets forth our capitalization as of June 30, 2000
(1) supplementary for the merger with Jones; and
(2) supplementary pro forma to reflect cash and proceeds from
investments sold as a result of the merger with Jones as adjusted to
reflect the issuance of 2,703,210 shares pursuant to this offering and the
application of the net proceeds.
The net proceeds of $109.0 million from this offering and $286.6 million
cash and proceeds from the sale of investments will be used to repay borrowings
under the senior credit facility. This table should be read together with the
information in the section entitled "Unaudited Pro Forma Supplementary
Consolidated Financial Statements" and the information contained in the
documents incorporated by reference in this prospectus supplement as described
on page S-2.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------------
SUPPLEMENTARY
PRO FORMA AS
SUPPLEMENTARY ADJUSTED
------------- -------------
(UNAUDITED)
<S> <C> <C>
Long-term debt (including current portion)(1):
Senior credit facility.................................... $ 137,540 $ --
Senior subordinated notes................................. 150,000 150,000
Other debt(1)............................................. 6,844 6,844
---------- ----------
Total debt............................................. 294,384 156,844
---------- ----------
Shareholders' equity:
Common stock, no par value; 300,000,000 shares authorized;
165,757,960 issued and outstanding, Supplementary; and
168,461,170 shares issued and outstanding, Supplementary
Pro Forma As Adjusted(2).................................. 488,809 598,289
Retained earnings(3)........................................ 306,848 304,351
---------- ----------
Total shareholders' equity............................. 795,657 902,640
---------- ----------
Total capitalization................................... $1,090,041 $1,059,484
========== ==========
</TABLE>
---------------
(1) For additional information relating to long-term obligations, see notes 2
and 9 to the consolidated financial statements included in our annual report
and our current report on Form 8-K dated June 22, 2000 restating, for the
Medco merger and a 3 for 2 stock split, the consolidated financial
statements for the years ended December 31, 1997, 1998 and 1999, which
appeared in our Form 10-K for the fiscal year ended December 31, 1999, which
is incorporated by reference herein.
(2) Excludes 8,199,960 shares available for grants under our stock option plans.
(3) Reflects write-off of unamortized deferred financing costs of $2.5 million
from the term loans outstanding under the senior credit facility, net of
taxes of $1.4 million.
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<PAGE> 22
UNAUDITED PRO FORMA SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS
We have presented below the unaudited pro forma supplementary consolidated
balance sheet as of June 30, 2000, and the unaudited pro forma supplementary
consolidated statements of operations for the year ended December 31, 1999 and
the six months ended June 30, 2000. These unaudited pro forma supplementary
financial statements have been derived from
- the audited consolidated financial statements of King included in
our current report on Form 8-K dated June 22, 2000, restating for the Medco
merger and the 3 for 2 stock split, the consolidated financial statements
for the years ended December 31, 1997, 1998 and 1999, which appeared in our
Form 10-K for the fiscal year ended December 31, 1999 incorporated by
reference herein;
- the unaudited consolidated financial statements of King included in
our Form 10-Q for the six months ended June 30, 2000, incorporated by
reference herein;
- the unaudited pro forma consolidated financial statements of King
reflecting the Acquisition defined below included in our current report on
Form 8-K dated September 21, 2000 incorporated by reference herein; and
- the audited supplementary consolidated financial statements
reflecting the Jones merger and the notes thereto included in our current
report on Form 8-K dated October 19, 2000 incorporated by reference herein.
The unaudited pro forma supplementary financial statements reflect
adjustments to give pro forma effect to
- the net reduction in interest expense due to repayment of debt
outstanding under the senior credit facility;
- the elimination of interest income;
- the reflection of a 36.5% effective tax rate on the unaudited pro
forma income before taxes; and
- the acquisition of the Nordette(R), Bicillin(R) and Wycillin(R)
product lines (to which we refer in this document as the "Acquisition").
The unaudited pro forma supplementary consolidated balance sheet as of June
30, 2000 gives effect to the above as if they occurred on June 30, 2000. The
unaudited pro forma supplementary consolidated statements of operations for the
year ended December 31, 1999 and the six months ended June 30, 2000 give effect
to the above as if they had occurred at the beginning of the periods presented.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that we believe are reasonable under the circumstances. The
unaudited pro forma supplementary consolidated financial statements do not
purport to represent what King's results of operations or financial condition
would actually have been had the above in fact occurred at the beginning of the
periods presented, nor do they purport to project King's results of operations
or financial condition for any future period or date.
The unaudited pro forma supplementary as adjusted information reflects the
reduction in interest expense from the assumed retirement of existing debt under
the senior credit facility with the proceeds of this offering. This information
also reflects incremental income tax expense at an effective rate of 36.5%.
These adjustments also resulted in a write-off of unamortized deferred financing
costs.
The unaudited pro forma supplementary as adjusted consolidated balance
sheet information as of June 30, 2000 gives effect to the above as if they
occurred on June 30, 2000. The unaudited supplementary pro forma as adjusted
consolidated statement of operations data give effect to the above as if they
occurred at the beginning of the periods presented.
The information set forth below should be read together with the
information contained under the caption "Capitalization" and information
contained in the documents incorporated by reference in this prospectus
supplement as described on page S-2.
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<PAGE> 23
UNAUDITED PRO FORMA SUPPLEMENTARY CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE PRO FORMA AS
SUPPLEMENTARY ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTED
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 234,252 $(73,554)(1) $ (160,698)(1) $ -- $ 58,128(1)
Investments, held to
maturity............. 52,347 (52,347)(2) -- --
Accounts receivable,
net.................. 106,939 106,939 106,939
Inventory.............. 71,219 71,219 71,219
Deferred income
taxes................ 16,657 16,657 16,657
Prepaid expenses and
other current
assets............... 9,971 9,971 9,971
---------- -------- ---------- ---------- ----------
Total current
assets............. 491,385 (73,554) (213,045) 204,786 262,914
---------- -------- ---------- ---------- ----------
Property and equipment,
net.................. 126,339 126,339 126,339
Other assets........... 18,130 411(3) (2,618)(3) 15,923 14,608(3)
Intangible assets,
net.................. 610,993 201,832(6) 812,825 812,825
---------- -------- ---------- ---------- ----------
Total assets......... $1,246,847 $128,689 $ (215,663) $1,159,873 $1,216,686
========== ======== ========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....... $ 51,471 $ -- $ -- $ 51,471 $ 51,471
Accrued expenses and
other liabilities.... 54,420 1,832(4) 56,252 56,252
Income taxes payable... 7,870 (956)(5) 6,914 6,434(5)
Notes payable.......... -- 35,000(9) (35,000)(9) -- --
Current portion of long
term debt............ 2,912 2,912 2,912
---------- -------- ---------- ---------- ----------
Total current
liabilities........ 116,673 36,832 (35,956) 117,549 117,069
---------- -------- ---------- ---------- ----------
Long-term debt:
Revolving credit
facility........... -- 91,857(7) (91,857)(7) -- --
Term loans........... 137,540 (86,188)(8) 51,352 --(8)
Senior subordinated
notes.............. 150,000 150,000 150,000
Other................ 3,932 3,932 3,932
Deferred income
taxes................ 16,545 16,545 16,545
Other long-term
liabilities.......... 26,500 26,500 26,500
---------- -------- ---------- ---------- ----------
Total liabilities.... 451,190 128,689 (214,001) 365,878 314,046
Shareholders' equity... 795,657 (1,662)(10) 793,995 902,640(10)
---------- -------- ---------- ---------- ----------
Total liabilities and
shareholders'
equity............. $1,246,847 $128,689 $ (215,663) $1,159,873 $1,216,686
========== ======== ========== ========== ==========
</TABLE>
See notes to Unaudited Pro Forma
Supplementary Consolidated Balance Sheet.
S-23
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA SUPPLEMENTARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(1) Cash -- to reflect adjustments to record the following:
<TABLE>
<CAPTION>
THE PRO FORMA AS ADJUSTED
ACQUISITION ADJUSTMENTS ADJUSTMENTS
----------- ----------- -----------
<C> <S> <C> <C> <C>
To record the reduction for cash used
to finance a portion of the
Acquisition.......................... $ (73,554) $ -- $ --
========= ========= =========
To record the reduction for cash used
for the repayment of a portion of the
revolving credit facility and term
loans under the senior credit
facility............................. $ -- $(160,698) $ --
========= ========= =========
To record excess cash remaining from
this offering........................ $ -- $ -- $ 58,128
========= ========= =========
(2) Investments held to maturity -- to
record the sale of investments held
to maturity in order to repay a
portion of the revolving credit
facility and term loans under the
senior credit facility............... $ -- $ (52,347) $ --
========= ========= =========
(3) Other assets -- to reflect adjustments
to record the following:
To record deferred financing costs
associated with the bridge loan...... $ 411 $ -- $ --
========= ========= =========
To write-off unamortized deferred
financing costs related to the bridge
loan and term loans of the senior
credit facility...................... $ -- $ (2,618) $ (1,315)
========= ========= =========
(4) Accrued expenses -- to record
liabilities assumed in the
Acquisition.......................... $ 1,832 $ -- $ --
========= ========= =========
(5) Income taxes payable -- to record
income tax benefit related to
write-off of deferred financing costs
from the term loans of the senior
credit facility at an assumed 36.5%
tax rate............................. $ -- $ (956) $ (480)
========= ========= =========
(6) Intangibles assets -- to record
intangibles from the Acquisition..... $ 201,832 $ -- $ --
========= ========= =========
(7) Revolving credit facility -- to reflect
adjustments to record the following:
Proceeds from the senior credit
facility used to finance a portion of
the Acquisition...................... $ 91,857 $ -- $ --
========= ========= =========
Repayment of the revolving credit
facility with proceeds from the sale
of investments and cash.............. $ -- $ (91,857) $ --
========= ========= =========
(8) Long-term debt -- to reflect
adjustments to record the following:
Repayment of a portion of term loans
with proceeds from the sale of
investments and cash of Jones and net
proceeds from this offering.......... $ -- $ (86,188) $ --
========= ========= =========
Repayment of a portion of term loans
with net proceeds of this offering... $ -- $ -- $ (51,352)
========= ========= =========
</TABLE>
S-24
<PAGE> 25
<TABLE>
<CAPTION>
THE PRO FORMA AS ADJUSTED
ACQUISITION ADJUSTMENTS ADJUSTMENTS
----------- ----------- -----------
<C> <S> <C> <C> <C>
(9) Notes payable -- to reflect the
following:
Record the issuance of a note payable
and borrowings from the bridge
loan................................. $ 35,000 $ -- $ --
========= ========= =========
Record repayment of note payable and
bridge loan.......................... $ -- $ (35,000) $ --
========= ========= =========
(10) Shareholders' equity -- to reflect
adjustments to record the
following:
To record the write-off of the
unamortized deferred financing costs
from the bridge loan and the term
loans of the senior credit facility,
net of tax effect.................... $ -- $ (1,662) $ (835)
To record net proceeds from the
issuance of common stock in this
offering............................. $ -- -- 109,480
--------- --------- ---------
$ -- $ (1,662) $ 108,645
========= ========= =========
</TABLE>
S-25
<PAGE> 26
UNAUDITED PRO FORMA SUPPLEMENTARY CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO FORMA
SUPPLEMENTARY ACQUISITION(1) ADJUSTMENTS PRO FORMA AS ADJUSTED
------------- -------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total net revenues.............. $291,951 $31,676 $ -- $323,627 $323,627
-------- ------- -------- --------- --------
Operating costs and expenses:
Cost of revenues.............. 70,617 4,704 -- 75,321 75,321
Selling, general and
administrative.............. 67,183 2,288 -- 69,471 69,471
Depreciation and
amortization................ 17,531 -- 4,037(2) 21,568 21,568
Research and development
expense..................... 9,681 -- -- 9,681 9,681
Merger and restructuring
costs....................... 20,789 -- -- 20,789 20,789
-------- ------- -------- --------- --------
Total operating costs and
expenses................. 185,801 6,992 4,037 196,830 196,830
-------- ------- -------- --------- --------
Operating income.............. 106,150 24,684 (4,037) 126,797 126,797
-------- ------- -------- --------- --------
Other income (expenses):
Other, net.................... (114) -- -- (114) (114)
Interest income............... 7,004 -- (5,736)(4) 1,268 1,268
Interest expense.............. (24,156) -- 4,607(3) (19,549) (16,577)(3)
-------- ------- -------- --------- --------
Total other income
(expense)................ (17,266) -- (1,129) (18,395) (15,423)
-------- ------- -------- --------- --------
Income before income taxes and
extraordinary item.......... 88,884 24,684 (5,166) 108,402 111,374
Income tax expense.............. 41,576 -- 7,124(5) 48,700 49,785(5)
-------- ------- -------- --------- --------
Income before extraordinary
item........................ $ 47,308 $24,684 $(12,290) $ 59,702 $ 61,589
======== ======= ======== ========= ========
Income per common share before
extraordinary item:
Basic......................... $ 0.30 -- -- $ 0.37 $ 0.38
======== ========= ========
Diluted....................... $ 0.29 -- -- $ 0.37 $ 0.38
======== ========= ========
Weighted average common shares
used in computing income per
common share before
extraordinary item:
Basic......................... 159,326 -- -- 159,326 160,594(6)
======== ========= ========
Diluted....................... 162,808 -- -- 162,808 164,076(6)
======== ========= ========
</TABLE>
See notes to Unaudited Pro Forma
Supplementary Consolidated Statement of Operations.
S-26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA SUPPLEMENTARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
(1) Represents the historical results of operations of the Acquisition
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
ADJUSTMENTS ADJUSTMENTS
----------- -----------
<S> <C> <C>
(2) Represents amortization of intangible assets over the
estimated average preliminary life of 25 years for the
Acquisition............................................ $ 4,037 $ --
======== =======
(3) Represents the changes in interest expense resulting
from:
Increase in borrowings on revolving credit facility
($91.9 million at 9.71%)(a).......................... $ (4,460) $ --
Increase from issuing note to seller ($25.0 million at
10%)................................................. (1,250) --
Increase from borrowings on bridge loan ($10.0 million
at 10.75%)........................................... (538) --
Amortization of finance costs on above debt........... (411) --
Reduced interest expense from assumed retirement of
approximately $213.0 million of existing debt with
cash and proceeds from sale of Jones investments..... 11,079
Reduced interest expense from assumed retirement of
$51.4 million of existing debt with proceeds from
this offering........................................ -- 2,878
Reduced interest expense from write-off of a portion
of unamortized deferred financing costs related to
the term loans....................................... 187 94
-------- -------
$ 4,607 $ 2,972
======== =======
</TABLE>
---------------
(a) The interest rate is the rate that was in effect
immediately following the transaction. A change
in the interest rate of 1/8% (0.125%) would
change interest expense, income before income
taxes and extraordinary item and income before
extraordinary item by $57.
<TABLE>
<S> <C> <C>
(4) Adjustment to reflect the elimination of historical
interest income on cash and investments used to retire
existing debt.......................................... $ (5,736) $ --
======== =======
(5) Adjustment to reflect a 36.5% effective tax rate
applied to the incremental pro forma income before
income taxes and the results of the Acquisition.
(6) Reflects 1,267,951 shares from this offering from which
proceeds were used to pay down existing debt.
</TABLE>
S-27
<PAGE> 28
UNAUDITED PRO FORMA SUPPLEMENTARY CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO FORMA AS
SUPPLEMENTARY ACQUISITION(1) ADJUSTMENTS PRO FORMA ADJUSTED
------------- -------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total net revenues........... $512,465 $57,369 $ -- $ 569,834 $569,834
-------- ------- -------- --------- --------
Operating costs and expenses:
Cost of revenues........... 136,473 12,091 -- 148,564 148,564
Selling, general and
administrative.......... 108,913 4,847 -- 113,760 113,760
Royalty expense............ 5,661 -- -- 5,661 5,661
Depreciation and
amortization............ 33,864 -- 8,073(2) 41,937 41,937
Research and development
expense................. 17,659 -- -- 17,659 17,659
-------- ------- -------- --------- --------
Total operating costs
and expenses.......... 302,570 16,938 8,073 327,581 327,581
-------- ------- -------- --------- --------
Operating income........... 209,895 40,431 (8,073) 242,253 242,253
-------- ------- -------- --------- --------
Other income (expenses):
Other, net................. (3,239) -- -- (3,239) (3,239)
Interest income............ 10,507 -- (7,193)(4) 3,314 3,314
Interest expense........... (55,371) -- 9,624(3) (45,747) (39,803)(3)
-------- ------- -------- --------- --------
Total other income
(expense)............. (48,103) -- 2,431 (45,672) (39,728)
-------- ------- -------- --------- --------
Income before income
taxes................... 161,792 40,431 (5,642) 196,581 202,525
Income tax expense........... 61,150 -- 12,698(5) 73,848 76,018(5)
-------- ------- -------- --------- --------
Income before extraordinary
item....................... $100,642 $40,431 $(18,340) $ 122,733 $126,507
======== ======= ======== ========= ========
Income per common share
before extraordinary
item:
Basic...................... $ 0.64 -- -- $ 0.79 $ 0.81
======== ========= ========
Diluted.................... $ 0.63 -- -- $ 0.77 $ 0.79
======== ========= ========
Weighted average common
shares used in computing
income per common share
before extraordinary
item:
Basic...................... 155,848 -- -- 155,848 157,116(6)
======== ========= ========
Diluted.................... 158,668 -- -- 158,668 159,936(6)
======== ========= ========
</TABLE>
See notes to Unaudited Pro Forma
Supplementary Consolidated Statement of Operations.
S-28
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA SUPPLEMENTARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
(1) Represents the historical results of operations of the Acquisition.
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
--------- -----------
<S> <C> <C>
(2) Represents amortization of intangible assets over
the estimated average preliminary life of 25 years
for the Acquisition................................ $ 8,073 $ --
======== =======
(3) Represents the changes in interest expense:
Increase from borrowings on revolving credit
facility ($91.9 million at 9.71%)(a).......... $ (8,919) --
Income from issuing note to seller ($25.0 million
at 10.0%)..................................... (2,500) --
Increase from borrowings on bridge loan ($10.0
million at 10.75%)............................ (1,075) --
Amortization of finance costs on above debt...... (411) --
Reduced interest expense from assumed retirement
of approximately $213.0 million of existing
debt with cash and proceeds from the sale of
Jones investments............................. 22,155 --
Reduced interest expense from assumed retirement
of $51.4 million of existing debt with
proceeds from this offering................... -- 5,757
Reduced interest expense from write-off of a
portion of unamortized deferred financing
costs related to the term loans............... 374 187
-------- -------
$ 9,624 $ 5,944
======== =======
</TABLE>
---------------
(a) The interest rate is the rate that was in
effect immediately following the
transaction. A change in the interest rate
of 1/8% (0.125%) would change interest
expense, income before income taxes and
extraordinary item and income before
extraordinary item by $114.
<TABLE>
<S> <C> <C>
(4) Adjustment to reflect the elimination of historical
interest income on cash and investments used to
retire existing debt............................... $ (7,193) $ --
======== =======
(5) Adjustment to reflect a 36.5% effective tax rate
applied to the incremental pro forma income before
income taxes and the results of the Acquisition.
(6) Reflects 1,267,951 shares from this offering for
which proceeds were used to pay down existing
debt.
</TABLE>
S-29
<PAGE> 30
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Our authorized capital stock consists of 300,000,000 shares of common
stock, no par value, and 15,000,000 shares of preferred stock, no par value.
Upon consummation of the offering, shares of common stock will be
issued and outstanding and no shares of preferred stock will be outstanding. The
following summary of our capital stock is qualified in its entirety by the
provisions of our charter and bylaws, which have been filed as exhibits to the
registration statement of which this prospectus supplement and the accompanying
prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of common stock are validly issued, fully
paid and nonassessable. Subject to the prior rights of any preferred stock, the
holders of outstanding shares of common stock are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the board of directors may from time to time determine. See "Price Range of
Common Stock and Dividend Policy." The shares of common stock are not redeemable
or convertible, and the holders thereof have no preemptive or subscription
rights to purchase any of our securities. Upon our liquidation, dissolution or
winding up, the holders of common stock are entitled to receive pro rata our
assets that are legally available for distribution after payment of all debts
and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding. Each outstanding share of common stock is
entitled to one vote on all matters submitted to a vote of shareholders. The
common stock is listed on the New York Stock Exchange under the symbol "KG."
PREFERRED STOCK
The board of directors has the authority to authorize the issuance of
shares of preferred stock in series, and may, at the time of issuance, determine
the rights, preferences and limitations of each series without any further
action by the shareholders. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds available
for the payment of dividends on shares of common stock. Holders of shares of
preferred stock may be entitled to receive a preference payment in the event of
our liquidation, dissolution or winding-up before any payment is made to the
holders of shares of common stock. Under certain circumstances, the issuance of
shares of preferred stock may have the effect of delaying, deferring or
preventing a change in control of our company, or could delay or prevent a
transaction that might otherwise give our shareholders an opportunity to realize
a premium over the then prevailing market price of the common stock. The board
of directors, without shareholder approval, may issue shares of preferred stock
with voting and conversion rights which could adversely affect the holders of
shares of common stock. Currently, there are no shares of preferred stock
outstanding, and we do not presently intend to issue any shares of preferred
stock.
CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS AND STATUTORY PROVISIONS
The charter provides that the board of directors will be divided into three
classes, with each class serving for three years, and one class being elected
each year. A majority of the remaining directors then in office, though less
than a quorum, will be empowered to fill any vacancy on the board of directors
that arises during the term of a director. The provision for a classified board
may be amended, altered or repealed only upon the affirmative vote of the
holders of at least 80.0% of the outstanding shares of our voting stock. The
classification of the board of directors may discourage a
S-30
<PAGE> 31
third party from making a tender offer or otherwise attempting to gain control
of our company and may have the effect of maintaining the incumbency of the
board of directors.
The bylaws provide that special meetings of our shareholders can be called
only by a majority of the entire board of directors or by certain officers. In
addition, the bylaws provide that shareholders seeking to bring business before
or to nominate directors at any annual meeting of shareholders must provide
timely notice thereof in writing. To be timely, the shareholders' notice must be
delivered to, or mailed and received at, our principal executive offices not
less than 60 days nor more than 90 days prior to the annual meeting or, if less
than 70 days' notice was given for the meeting, within 10 days following the
date on which the notice was given. The bylaws also specify the requirements for
a shareholders' notice to be in proper written form. These provisions restrict
the ability of shareholders to bring matters before the shareholders or to make
nominations for directors at meetings of shareholders.
We are subject to some antitakeover provisions provided under Tennessee
law.
Business Combination Statute. Tennessee's Business Combination Act
provides that a party owning 10.0% or more of stock in a "resident domestic
corporation" (this party is called an "interested shareholder") cannot engage in
a business combination with the resident domestic corporation unless the
combination (i) takes place at least five years after the interested shareholder
first acquired 10.0% or more of the resident domestic corporation, and (ii)
either (A) is approved by at least two-thirds of the non-interested voting
shares of the resident domestic corporation or (B) satisfies certain fairness
conditions specified in the Business Combination Act.
These provisions apply unless one of two events occurs. A business
combination with an entity can proceed without delay when approved by the target
corporation's board of directors before that entity becomes an interested
shareholder, or the resident corporation may enact a charter amendment or bylaw
to remove itself entirely from the Business Combination Act. This charter
amendment or bylaw must be approved by a majority of the shareholders who have
held shares for more than one year prior to the vote and, may not take effect
for at least two years after the vote. We have not adopted a charter or bylaw
amendment removing the company from coverage under the Business Combination Act.
An interested shareholder, for purposes of the Combination Act, is any
person who is an affiliate or associate of the corporation, or the beneficial
owner, directly or indirectly, of 10% or more of the outstanding voting shares
of the corporation.
The Business Combination Act further provides an exemption from liability
for officers and directors of resident domestic corporations who do not approve
proposed business combinations or charter amendments and bylaws removing their
corporations from the Business Combination Act's coverage. This exemption from
liability is available as long as the officers and directors act in "good faith
belief" that the proposed business combination would adversely affect their
corporation's employees, customers, suppliers, or the communities in which their
corporation operates and when these factors are permitted to be considered by
the board of directors under the charter.
Control Share Acquisition Act. The Tennessee Control Share Acquisition Act
strips a purchaser's shares of voting rights any time an acquisition of shares
in a covered Tennessee corporation brings the purchaser's voting power to
one-fifth, one-third or a majority of all voting power. The purchaser's voting
rights can be established only by a majority vote of the other shareholders. The
purchaser may demand a meeting of shareholders to conduct such a vote. The
purchaser can demand a meeting for this purpose before acquiring a control share
only if it holds at least 10.0% of outstanding shares and announces a good faith
intention to make the control share
S-31
<PAGE> 32
acquisition. A target corporation may or may not redeem the purchaser's shares
if the shares are not granted voting rights.
Investor Protection Act. Tennessee's Investor Protection Act applies to
tender offers directed at corporations (called "offeree companies") that have
"substantial assets" in Tennessee and that are either incorporated in or have a
principal office in Tennessee. This act requires an offeror making a tender
offer for an offeree company to file with the Commissioner of Commerce and
Insurance a registration statement. When the offeror intends to gain control of
the offeree company, the registration statement must indicate any plans the
offeror has for the offeree company. The Commissioner may require additional
information material to the takeover offer and may call for hearings. This act
does not apply to an offer that the offeree company's board of directors
recommends to shareholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, This act requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. This act prohibits "fraudulent, deceptive, or manipulative
acts or practices" by either side, and gives the Commissioner standing to apply
for equitable relief to the Chancery Court of Davidson County, Tennessee, or to
any other chancery court having jurisdiction whenever it appears to the
Commissioner that the offeror, the offeree company, or any of its respective
affiliates has engaged in or is about to engage in a violation of this act. Upon
proper showing, the Chancery Court may grant injunctive relief. This act further
provides civil and criminal penalties for violations.
Tennessee Greenmail Act. The Tennessee Greenmail Act prohibits us from
purchasing or agreeing to purchase any of our securities, at a price higher than
fair market value, from a holder of 3% or more of any class of our securities
who has beneficially owned the securities for less than two years. We can make
this purchase if the majority of the outstanding shares of each class of voting
stock issued by us approves the purchase or we make an offer of at least equal
value per share to all holders of shares of that class.
The effect of the above may make a change of control of us harder by
delaying, deferring or preventing a tender offer or takeover attempt that you
might consider to be in your best interest, including those attempts that might
result in the payment of a premium over the market price for your shares. They
may also promote the continuity of our management by making it harder for you to
remove or change the incumbent members of the board of directors.
RIGHTS AGREEMENT
The board of directors has declared a dividend of one right for each share
of common stock outstanding. The holders of any additional common stock
subsequently issued before the earliest of the distribution date, the redemption
of the rights, the exchange of the rights or the expiration of the rights also
will be entitled to one right for each additional share. The rights entitle the
registered holder under certain circumstances to purchase from the company
one-thousandth of a share of Junior Participating Preferred Stock, Series A, at
a price of $60 per one-thousandth of a share of preferred stock, subject to
adjustment. The Rights Agreement sets forth the description and terms of the
rights.
The rights will be evidenced by the common stock certificates and not by
separate certificates until the earlier of:
(1) the day following the first date of public disclosure that an acquiring
person or group, together with persons affiliated, or associated with
the acquiring person, has acquired, or
S-32
<PAGE> 33
obtained the right to acquire, beneficial ownership of 15.0% of the
outstanding common stock and
(2) the tenth business day after the date of commencement or public
disclosure of an intention to commence a tender offer or exchange offer
by a person if, upon consummation of the offer, this person or group,
together with persons affiliated or associated with it would acquire
beneficial ownership of 15.0% or more of the outstanding common stock.
Until the earlier of the two dates described in (1) and (2) above, (or earlier
redemption, exchange, or expiration of the rights); (A) the rights will be
transferable only with the common stock (except with redemption of the rights);
(B) common stock certificates will contain a notation incorporating the Rights
Agreement by reference and (C) the surrender for transfer of any certificates
for common stock will also constitute the transfer of the right associated with
the common stock represented by such certificate. For the discussion above,
Messrs. John M., Joseph R. and Jefferson J. Gregory are not considered acquiring
persons.
As soon as practicable following the earlier of the two dates described in
(1) and (2) above, separate certificates evidencing the rights will be mailed to
holders of record of the common stock as of the close of business on this date.
From and after this date, the separate rights certificates alone will evidence
the rights.
The rights will become exercisable on or after the earlier of the two dates
described in (1) and (2) above, (unless sooner redeemed or exchanged). The
rights will expire at the close of business on the tenth anniversary of the date
of initial issuance unless earlier redeemed or exchanged by the company as
described below.
The purchase price payable and the number of shares of preferred stock or
other securities, cash or other property issuable upon exercise of the rights
are subject to adjustment from time to time to prevent dilution (1) in the event
of a stock dividend or distribution on, or a subdivision or combination of, or
reclassification of the preferred stock, (2) upon the grant to holders of the
preferred stock of some rights, options, or warrants to subscribe for preferred
stock or securities convertible into Preferred Stock at less than the current
market price of the Preferred Stock, or (3) upon the distribution to holders of
the preferred stock of other securities, cash (excluding regular periodic cash
dividends), property, evidences of indebtedness, or assets.
If a person becomes an acquiring person, the rights will "flip-in" and
entitle each holder of a right, except as provided below, to purchase, upon
exercise at the then-current purchase price, that number of shares of common
stock having a market value of two times the purchase price. In addition,
following a "flip-in," the board of directors has the option of exchanging all
or part of the rights, except as provided below, for common stock.
In the event that, following a "flip-in," we are acquired in a merger or
other business combination in which the common stock does not remain outstanding
or is exchanged or 50% or more of our consolidated assets or earning power is
transferred or disposed of (in one transaction or a series of related
transactions), the rights will "flip-over" and entitle each holder (other than
the acquiring person and certain related persons or transferees) of a right to
purchase, upon the exercise of the right at the then-current purchase price,
that number of shares of common stock of the acquiring company (or, in certain
circumstances, one of its affiliates) which at the time of such transaction
would have a market value of two times such purchase price.
Any rights beneficially owned at any time on or after the earlier of the
distribution date and the stock acquisition date by an acquiring person or an
affiliate or associate (other than an exempt person) of an acquiring person
(whether or not such ownership is subsequently transferred) will
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become null and void upon the occurrence of a "Triggering Event," and any holder
of those rights will have no right to exercise the rights or have the rights
exchanged as provided above. A "Triggering Event" will be deemed to occur in the
event that the person becomes an acquiring person.
The number of outstanding rights and the number of one-thousandths of a
share of preferred stock issuable upon exercise of each right and the purchase
price are subject to adjustment. The adjustment will occur prior to the
distribution date in the event of a stock dividend on the common stock payable
in common stock or subdivision or combination of the common stock.
At any time prior to the earlier of the stock acquisition date and the
expiration date, we may redeem the rights.
The holder of a right will have no rights as a shareholder of King until a
right is exercised, including, without limitation, the right to vote or to
receive the dividends or distributions.
At any time prior to the stock acquisition date, a majority of the
directors, continuing in office may, without the approval of a holder of the
rights (except, in certain circumstances, an exempt person), supplement or amend
any provision of the rights agreement (including the date on which the
distribution date will occur after announcement of commencement of a tender
offer). Thereafter, the rights agreement may be amended by a majority of the
directors continuing in office without the approval of any holder of the rights
only to cure ambiguities, to correct defective or inconsistent provisions, or in
ways that do not adversely affect the rights holders. Notwithstanding the
foregoing, the rights agreement may not be amended to change the purchase price,
the number of shares of preferred stock, other securities, cash or other
property obtainable upon exercise of a right, the redemption price or the
expiration date.
The rights have certain anti-takeover effects. The right may cause
substantial dilution to a person or group other than an exempt person that
attempts to acquire us on terms not approved by the board of directors, except
pursuant to an offer conditioned on a substantial number of rights being
acquired. The rights should not interfere with any merger or other business
combination approved by the board of directors prior to the time a person or
group other than an exempt person has acquired beneficial ownership of 15.0% or
more of the common stock, because until such time the rights may be redeemed by
King at $.01 per right.
The foregoing description of the rights is qualified in its entirety by
reference to the rights agreement, a copy of the form of which is filed with the
SEC.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The charter limits the liability of directors to the fullest extent
permitted by the Tennessee Business Corporation Act. In addition, the charter
provides that we shall indemnify our directors and officers to the fullest
extent permitted by law.
TRANSFER AGENT, REGISTRAR, RIGHTS AGENT AND CUSTODIAN
The transfer agent, registrar and rights agent for our common stock and the
preferred stock purchase rights and the custodian for the selling shareholders
is Union Planters Bank, N.A., Belleville, Illinois.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated October 17, 2000, we will sell to Credit Suisse First Boston
Corporation the shares of Common Stock offered hereby.
The underwriter will offer the shares of common stock for sale from time to
time in one or more transactions (which may include block transactions), in
negotiated transactions or otherwise, or a combination of both methods of sale,
at market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The shares of common stock will not be
sold on or through the facilities of a national securities exchange or to or
through a market maker otherwise than on an exchange. The underwriter may do so
by selling the shares of common stock to or through broker/dealers, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the underwriter and/or the purchasers of the shares of common
stock for whom they may act as agents. In connection with the sale of the shares
of common stock, the underwriter may be deemed to have received compensation
from us in the form of underwriting discounts, and the underwriter may also
receive commissions from the purchasers of the shares of common stock for whom
it may act as agent. The underwriter and any broker/dealers that participate
with the underwriter in the distribution of the shares of common stock may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of the shares of common stock by them may be deemed to
be underwriting discounts or commissions.
The underwriter is purchasing the shares of common stock from us at $40.50
per share (representing $109,480,005 aggregate proceeds to us, before we deduct
our out-of-pocket expenses of approximately $480,005). The underwriting
agreement provides that the underwriter is obligated to purchase all the shares
of common stock if any are purchased.
We have agreed to indemnify the underwriter against liabilities under the
Securities Act of 1933, or contribute to payments that the underwriter may be
required to make in that respect.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
(the "Securities Act") relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 15 days after the date of this prospectus,
except issuances of common stock pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants, outstanding
on the date hereof, grants of employee stock options pursuant to a plan
outstanding on the date hereof or issuances of common stock pursuant to the
exercise of such options or issuances of common stock pursuant to our dividend
reinvestment.
In connection with the offering the underwriter may engage in stabilizing
transactions and over-allotment transactions, syndicate covering transactions
and penalty bids, in accordance with Regulation M under the Securities Exchange
Act of 1934 (the "Exchange Act").
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a short position. The short position may be either a covered
short position or a naked short position. In a covered short position,
the number of shares over-allotted by the underwriters is not greater
than the number of
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<PAGE> 36
shares that they may purchase in the over-allotment option. In a naked
short position, the number of shares involved is greater than the number
of shares in the over-allotment option. The underwriters may close out
any short position by either exercising their over-allotment option
and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to close
out the short positions, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
- Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding a decline in the market price of the
common stock. As a result the price of our common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
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<PAGE> 37
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, that the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under Resale Restrictions.
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon the issuer
or such persons. All or a substantial portion of the assets of the issuer and
such persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
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<PAGE> 38
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
The validity of our common stock offered in this offering will be passed
upon for King by Baker, Donelson, Bearman & Caldwell, Johnson City, Tennessee.
The underwriters have been represented by Cravath, Swaine & Moore, New York, New
York.
EXPERTS
The consolidated financial statements and supplementary pooled consolidated
financial statements as of December 31, 1998 and 1999 and for each of the three
years in the period ended December 31, 1999, either incorporated by reference or
included in this prospectus supplement have been so incorporated or included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
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<PAGE> 39
Prospectus
$350,000,000
KING PHARMACEUTICALS, INC.
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
DEBT WARRANTS
-------------------------
King Pharmaceuticals, Inc. may offer and sell shares of common stock,
shares of preferred stock, debt securities and debt warrants. These securities
may be offered and sold from time to time for an aggregate offering price of up
to $350,000,000. We will provide the specific terms and the initial public
offering prices of these securities in an accompanying prospectus supplement.
We may sell the securities to or through underwriters and also to other
purchasers or through agents. The names of any underwriters or agents will be
stated in an accompanying prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is April 19, 2000.
<PAGE> 40
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
U.S. Securities and Exchange Commission using a shelf registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total of
$350,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add to or update other information
contained in this prospectus. You should read both this prospectus and the
accompanying prospectus supplement together with additional information
described below under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus our Annual Report on Form 10-K for the year ended December
31, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Kyle P. Macione, Executive Vice President, Investor Relations
Telephone: 423.989.8077
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We will not make an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
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<PAGE> 41
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains (or
incorporates by reference) certain "forward-looking statements," such as
statements concerning our anticipated financial or product performance and other
non-historical facts. Since these statements are based on factors that involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such factors include,
among others:
- anticipated developments and expansions of our business;
- increases in sales of recently acquired products;
- development of product line extensions;
- the products which we expect to offer;
- the intent to market and distribute certain of our products
internationally;
- the intent to manufacture certain products in our own facilities which
are currently manufactured for us by third parties;
- the intent, belief or current expectations of King's directors or
officers with respect to its future operating performance;
- expectations regarding sales growth, gross margins, manufacturing
productivity, capital expenditures and effective tax rates;
- expectations or beliefs regarding regulatory matters or conditions; and
- expectations regarding King's financial condition and liquidity as well
as future cash flows and earnings.
KING PHARMACEUTICALS, INC.
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of over 290 representatives, we market our
branded pharmaceutical products to general/family practitioners and internal
medicine physicians and hospitals across the country. Our business strategy is
to acquire established branded pharmaceutical products and to increase their
sales by focused marketing and promotion and through product life cycle
management. In pursuing acquisitions, we seek to capitalize on opportunities in
the pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. We also create value
by developing product line extensions for our branded pharmaceutical products
such as new formulations, dosages or new indications. These product line
extensions are profitable for us because they may have market exclusivity or
sales levels that do not attract significant competition. In addition to branded
pharmaceuticals, we also provide contract manufacturing for a number of the
world's leading pharmaceutical and biotechnology companies, including Amgen,
Inc., Warner-Lambert Company, Mallinckrodt Chemical Inc., Genetics Institute and
Hoffman-LaRoche, Inc.
We are a Tennessee corporation. Our executive offices are located at 501
Fifth Street, Bristol, Tennessee 37620, and our telephone number is (423)
989-8000.
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RATIOS OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges for each of the years
ended December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Ratios of earnings to fixed charges(a)...................... 3.6x 4.8x 2.3x
</TABLE>
-------------------------
(a) For purposes of computing this consolidated ratio, earnings consist of
income before:
- income taxes and
- fixed charges excluding capitalized interest.
Fixed charges consist of:
- all interest expense;
- the portion of net rental expense which is deemed representative of the
interest factor;
- the amortization expense of debt issuance costs; and
- capitalized interest.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying prospectus supplement, we
will use the net proceeds from the sale of the securities for general corporate
purposes, including the reduction of debt and the financing of future
acquisitions. We may temporarily invest funds that we do not immediately need
for these purposes in short-term marketable securities.
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<PAGE> 43
LEGAL OWNERSHIP
"STREET NAME" AND OTHER INDIRECT HOLDERS
Investors who hold securities in accounts at banks or brokers will
generally not be recognized by us as legal holders of securities. When we refer
to the "holders" of securities, we mean only the actual legal holders of the
securities. Holding securities in accounts at banks or brokers is called holding
in "street name." If you hold securities in "street name," we will recognize
only the bank or broker, or the financial institution the bank or broker uses to
hold its securities. These intermediary banks, brokers and other financial
institutions pass along principal, interest and other payments on the
securities, either because they agree to do so in their customer agreements or
because they are legally required to. If you hold securities in "street name,"
you should check with your own institution to find out:
- How it handles securities payments and notices.
- Whether it imposes fees or charges.
- How it would handle voting if ever required.
- Whether and how you can instruct it to send you securities registered in
your own name so you can be a direct holder as described below.
- How it would pursue rights under the securities if there were a default
or other event triggering the need for holders to act to protect their
interests.
DIRECT HOLDERS
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to persons who are
registered as holders of securities. As noted above, we do not have obligations
to you if you hold in "street name" or other indirect means, either because you
choose to hold securities in that manner or because the securities are issued in
the form of global securities as described below. For example, once we make
payment to the registered holder, we have no further responsibility for the
payment even if that holder is legally required to pass the payment along to you
as a "street name" customer but does not do so.
GLOBAL SECURITIES
A global security is a special type of indirectly held security, as
described above under "'Street name' and other indirect holders." If we choose
to issue securities in the form of global securities, the ultimate beneficial
owners can only be indirect holders. We do this by requiring that the global
security be registered in the name of a financial institution we select and by
requiring that the securities included in the global security not be transferred
to the name of any other direct holder unless the special circumstances
described below occur. The financial institution that acts as the sole direct
holder of the global security is called the "depositary." Any person wishing to
own a security must do so indirectly by virtue of an account with a broker, bank
or other financial institution that in turn has an account with the depositary.
The prospectus supplement indicates whether your series of securities will be
issued only in the form of global securities.
SPECIAL INVESTOR CONSIDERATIONS FOR GLOBAL SECURITIES. As an indirect
holder, an investor's rights relating to a global security will be governed by
the account rules of the investor's financial institution and of the depositary,
as well as general laws relating to securities transfers. We do not recognize
this
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<PAGE> 44
type of investor as a holder of securities and instead deal only with the
depositary that holds the global security.
You should be aware that if securities are issued only in the form of
global securities:
- You cannot get securities registered in your own name.
- You cannot receive physical certificates for your interest in the
securities.
- You will be a "street name" holder and must look to your own bank or
broker for payments on the securities and protection of your legal rights
relating to the securities. See "Street name' and other indirect holders"
on page 4.
- You may not be able to sell interests in the securities to some insurance
companies and other institutions that are required by law to own their
securities in the form of physical certificates.
- The depositary's policies will govern payments, transfers, exchange and
other matters relating to your interest in the global security. We and
the trustee have no responsibility for any aspect of the depositary's
actions or for its records of ownership interests in the global security.
We and the trustee also do not supervise the depositary in any way.
Payment for purchases and sales in the market for corporate bonds and notes
is generally made in next-day funds. In contrast, the depositary will usually
require that interests in a global security be purchased or sold within its
system using same-day funds. This difference could have some effect on how
global security interests trade, but we do not know what that effect will be.
SPECIAL SITUATIONS WHEN A GLOBAL SECURITY WILL BE TERMINATED. In a few
special situations described later, the global security will terminate and
interests in it will be exchanged for physical certificates representing
securities. After that exchange, the choice of whether to hold securities
directly or in "street name" will be up to the investor. Investors must consult
their own bank or brokers to find out how to have their interests in securities
transferred to their own name, so that they will be direct holders. The rights
of "street name" investors and direct holders in the securities have been
previously described in the subsections entitled "'Street name' and other
indirect holders" on page 4 and "Direct holders" on page 4.
The special situations for termination of a global security are:
- When the depositary notifies us that it is unwilling, unable or no longer
qualified to continue as depositary.
- When an Event of Default on the securities has occurred and has not been
cured. Defaults are discussed later under "Default and related matters"
on page 14.
The prospectus supplement may also list additional situations for
terminating a global security that would apply only to the particular series of
securities covered by the prospectus supplement. When a global security
terminates, the depositary (and not we or the trustee) is responsible for
deciding the names of the institutions that will be the initial direct holders.
IN THE REMAINDER OF THIS DESCRIPTION "YOU" MEANS DIRECT HOLDERS AND NOT
"STREET NAME" OR OTHER INDIRECT HOLDERS OF SECURITIES. INDIRECT HOLDERS SHOULD
READ THE PREVIOUS SUBSECTION ON PAGE 4 ENTITLED "'STREET NAME' AND OTHER
INDIRECT HOLDERS."
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<PAGE> 45
DESCRIPTION OF DEBT SECURITIES WE MAY OFFER
As required by federal law for all bonds and notes of companies that are
publicly offered, the debt securities are governed by a document called the
"indenture." The indenture is a contract between us and , which
acts as trustee. The trustee has two main roles. First, the trustee can enforce
your rights against us if we default. There are some limitations on the extent
to which the trustee acts on your behalf, described later on page 14 under
"Remedies if an event of default occurs."
Second, the trustee performs administrative duties for us, such as sending
you interest payments, transferring your debt securities to a new buyer if you
sell and sending you notices.
The indenture and its associated documents contain the full legal text of
the matters described in this section. The indenture and the debt securities are
governed by New York law. A copy of the indenture has been filed with the SEC as
part of our Registration Statement. See "Where You Can Find More Information" on
page 1 on how to obtain a copy.
We may issue as many distinct series of debt securities under the indenture
as we wish. This section summarizes all the material terms of the debt
securities that are common to all series unless otherwise indicated in the
prospectus supplement relating to a particular series.
Because this section is a summary, it does not describe every aspect of the
debt securities. This summary is subject to and qualified in its entirety by
reference to all the provisions of the indenture, including definitions of
various terms used in the indenture. For example, in this section we describe
the meaning for only the more important terms that have been given special
meaning in the indenture. We also include references in parentheses to
applicable sections of the indenture. Whenever we refer to particular sections
or defined terms of the indenture in this prospectus or in the prospectus
supplement, those sections or defined terms are incorporated by reference here
or in the prospectus supplement.
We may issue the debt securities as original issue discount securities,
which will be offered and sold at a substantial discount below their stated
principal amount. A prospectus supplement relating to original issue discount
securities will describe federal income tax consequences and other special
considerations applicable to them. The debt securities may also be issued as
indexed securities or securities denominated in foreign currencies or currency
units, as described in more detail in a prospectus supplement relating to any of
these types of debt securities. A prospectus supplement relating to indexed debt
securities or foreign currency debt securities will also describe any additional
tax consequences or other special considerations applicable to these types of
debt securities.
In addition, the material specific financial, legal and other terms
particular to debt securities of each series are described in the prospectus
supplement relating to the debt securities of that series. The prospectus
supplement relating to debt securities of the series will describe the following
terms of the debt securities:
- the title of the debt securities of the series;
- any limit on the total principal amount of the debt securities of the
series (including any provision for the future offering of additional
debt securities of the series beyond any such limit);
- the date or dates on which the debt securities of the series will mature;
- any annual rate or rates, which may be fixed or variable, at which the
debt securities of the series will bear interest, if any, and the date or
dates from which any interest will accrue;
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<PAGE> 46
- the date or dates on which any interest on the debt securities of the
series will be payable and the regular record date or dates we will use
to determine who is entitled to receive each interest payment;
- the place or places where the principal and any premium and interest will
be payable;
- any period or periods within which and the price or prices at which we
will have the option to redeem the debt securities of the series, and the
other detailed terms and provisions of any optional redemption right;
- any obligation we will have to redeem the debt securities of the series
under a sinking fund or analogous provision or to redeem your debt
securities at your option and the period or periods during which, the
price or prices at which and the other specific terms under which we
would be obligated to redeem the debt securities of the series under any
obligation of this kind;
- if other than integral multiples of $1,000, the denominations in which we
will issue the debt securities of the series;
- if other than U.S. dollars, the currency of payment of the principal and
any premium and interest on the debt securities of the series;
- any index or other special method we will use to determine the amount of
principal or any premium or interest we will pay on the debt securities
of the series;
- if we or you have a right to choose the currency or currency units in
which payments on any of the debt securities of the series will be made,
the currencies or currency units that we or you may elect, when the
election may be made and the other specific terms of the right to make an
election of this kind;
- if other than the principal amount, the portion of the principal amount
of the debt securities of the series which will be payable upon the
declaration of acceleration of the maturity of the debt securities of the
series;
- the applicability of the provisions described on page 13 under
"Defeasance;"
- if we will issue the debt securities of the series only in the form of
global securities as described above under "Global securities" on page 4,
the name of the depository for the debt securities of the series and the
circumstances under which the global securities may be terminated and
separate debt securities may be registered in the names of persons other
than the depositary or its nominee if other than those circumstances
described on page 5 under "Special situations when a global security will
be terminated"; and
- any other special terms of the debt securities of the series that are not
inconsistent with the provisions of the indenture.
The prospectus supplement relating to the debt securities of the series
will be attached to the front of this prospectus.
We may issue debt securities other than the debt securities described in
this prospectus. There is no requirement that any other debt securities that we
issue be issued under the indenture. Thus, any other debt securities that we
issue may be issued under other indentures or documentation. This documentation
may contain provisions different from those included in the indenture or
applicable to one or more issues of the debt securities described in this
prospectus.
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OVERVIEW OF THE REMAINDER OF THIS DESCRIPTION
The remainder of this description summarizes:
- ADDITIONAL MECHANICS relevant to the debt securities under normal
circumstances, such as how you transfer ownership and where we make
payments;
- your rights under several SPECIAL SITUATIONS, such as if we merge with
another company or, if we want to change a term of the debt securities;
- promises we make to you about how we will run our business, or business
actions we promise not to take (known as "RESTRICTIVE COVENANTS"); and
- your rights if we DEFAULT or experience other financial difficulties.
ADDITIONAL MECHANICS
FORM, EXCHANGE AND TRANSFER. The debt securities will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations that are even multiples of $1,000 unless otherwise
specified in a prospectus supplement.
You may have your debt securities broken into more debt securities of
smaller denominations or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed. This is
called an "exchange."
You may exchange or transfer debt securities at the office of the trustee.
The trustee acts as our agent for registering debt securities in the names of
holders and transferring debt securities. We may change this appointment to
another entity or perform it ourselves. The entity performing the role of
maintaining the list of registered holders is called the "security registrar."
The security registrar will also perform transfers.
You will not be required to pay a service charge to transfer or exchange
debt securities, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange will only be made if the security registrar is satisfied with your
proof of ownership.
If we have designated additional transfer agents, they are named in the
prospectus supplement. We may cancel the designation of any particular transfer
agent. We may also approve a change in the office through which any transfer
agent acts.
If the debt securities are redeemable and we redeem less than all of the
debt securities of a particular series, we may block the transfer or exchange of
debt securities during the period beginning 15 days before the day we mail the
notice of redemption and ending on the day of that mailing, in order to freeze
the list of holders to prepare the mailing. We may also refuse to register
transfers or exchanges of debt securities selected for redemption, except that
we will continue to permit transfers and exchanges of the unredeemed portion of
any security being partially redeemed.
PAYMENT AND PAYING AGENTS. We will pay interest to you if you are a direct
holder listed in the trustee's records at the close of business on a particular
day in advance of each due date for interest, even if you no longer own the
security on the interest due date. That particular day, usually about
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two weeks in advance of the interest due date, is called the "regular record
date" and is stated in the prospectus supplement. Holders buying and selling
debt securities must work out between them how to compensate for the fact that
we will pay all the interest for an interest period to the one who is the
registered holder on the regular record date. The most common manner is to
adjust the sale price of the debt securities to allocate interest fairly between
buyer and seller. This allocated interest amount is called "accrued interest."
We will pay interest, principal and any other money due on the debt
securities at the corporate trust office of the trustee in New York City. That
office is currently located at , New York, New York. You must
make arrangements to have your payments picked up at or wired from that office.
We may also choose to pay interest by mailing checks.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW THEY WILL RECEIVE PAYMENTS.
We may also arrange for additional payment offices, and may cancel or
change these offices, including our use of the trustee's corporate trust office.
These offices are called "paying agents." We may also choose to act as our own
paying agent. We must notify you of changes in the paying agents for any
particular series of debt securities.
NOTICES. We and the trustee will send notices regarding the debt
securities only to direct holders, using their addresses as listed in the
trustee's records.
Regardless of who acts as paying agent, all money paid by us to a paying
agent that remains unclaimed at the end of two years after the amount is due to
direct holders will be repaid to us. After that two-year period, you may look
only to us for payment and not to the trustee, any other paying agent or anyone
else.
SPECIAL SITUATIONS
MERGERS AND SIMILAR EVENTS. We are generally permitted to consolidate or
merge with another company or firm. We are also permitted to sell substantially
all of our assets to another firm, or to buy substantially all of the assets of
another firm. However, we may not take any of these actions unless all the
following conditions are met:
- Where we merge out of existence or sell our assets, the other company or
firm must agree to be legally responsible for the debt securities.
- The merger, sale of assets or other transaction must not cause a default
on the debt securities, and we must not already be in default (unless the
merger or other transaction would cure the default). For purposes of this
no-default test, a default would include an event of default that has
occurred and not been cured, as described later on page 14 under "Events
of default" A default for this purpose would also include any event that
would be an event of default if the requirements for giving us default
notice or our default having to exist for a specific period of time were
disregarded.
- It is possible that the merger, sale of assets or other transaction would
cause some of our property to become subject to a mortgage or other legal
mechanism giving lenders preferential rights in that property over other
lenders or over our general creditors if we fail to pay them back. We
have promised to limit these preferential rights on our property, called
"liens", as discussed later on page 11 under "Restrictive
covenants -- Restrictions on liens." If a merger or other transaction
would create any liens on our property, we must comply with that
restrictive covenant. We would do this either by deciding that the liens
were permitted, or by
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following the requirements of the restrictive covenant to grant an
equivalent or higher-ranking lien on the same property to you and the
other direct holders of the debt securities.
- We must deliver certain certificates and other documents to the trustee.
- We must satisfy any other requirements specified in the prospectus
supplement.
MODIFICATION AND WAIVER. There are three types of changes we can make to
the indenture and the debt securities.
1. Changes Requiring Your Approval. First, there are changes that cannot be
made to your debt securities without your specific approval. Following is a list
of those types of changes:
- change the stated maturity of the principal or interest on a debt
security;
- reduce any amounts due on a debt security;
- reduce the amount of principal payable upon acceleration of the maturity
of a debt security following a default,
- change the place or currency of payment on a debt security;
- impair your right to sue for payment;
- reduce the percentage of holders of debt securities whose consent is
needed to modify or amend the indenture,
- reduce the percentage of holders of debt securities whose consent is
needed to waive compliance with certain provisions of the indenture or to
waive certain defaults, and
- modify any other aspect of the provisions dealing with modification and
waiver of the indenture.
2. Changes Requiring a Majority Vote. The second type of change to the
indenture and the debt securities is the kind that requires a vote in favor by
holders of debt securities owning a majority of the principal amount of the
particular series affected. Most changes fall into this category, except for
clarifying changes and certain other changes that would not adversely affect
holders of the debt securities. The same vote would be required for us to obtain
a waiver of all or part of the restrictive covenants described under
"Restrictive covenants" on page 11, or a waiver of a past default. However, we
cannot obtain a waiver of a payment default or any other aspect of the indenture
or the debt securities listed in the first category described previously on page
10 under "Changes Requiring Your Approval" unless we obtain your individual
consent to the waiver.
3. Changes Not Requiring Approval. The third type of change does not
require any vote by holders of debt securities. This type is limited to
clarifications and certain other changes that would not adversely affect holders
of the debt securities in any material way.
FURTHER DETAILS CONCERNING VOTING. When taking a vote, we will use the
following rules to decide how much principal amount to attribute to a security:
- For original issue discount securities, we will use the principal amount
that would be due and payable on the voting date if the maturity of the
debt securities were accelerated to that date because of a default.
- For debt securities whose principal amount is not known (for example,
because it is based on an index), we will use a special rule for that
security described in the prospectus supplement.
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- For debt securities denominated in one or more foreign currencies or
currency units, we will use the U.S. dollar equivalent.
Debt securities will not be considered outstanding, and therefore not
eligible to vote, if we have deposited or set aside in trust for you money for
their payment or redemption. Debt securities will also not be eligible to vote
if they have been fully defeased as described later on page 13 under "Full
defeasance."
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding debt securities that are
entitled to vote or take other action under the indenture. In certain limited
circumstances, the trustee will be entitled to set a record date for action by
holders. If we or the trustee set a record date for a vote or other action to be
taken by holders of a particular series, that vote or action may be taken only
by persons who are holders of outstanding debt securities of that series on the
record date and must be taken within 180 days following the record date or a
shorter period that we may specify (or as the trustee may specify, if it set the
record date). We may shorten or lengthen (but not beyond 180 days) this period
from time to time.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE SEEK TO
CHANGE THE INDENTURE OR THE DEBT SECURITIES OR REQUEST A WAIVER.
RESTRICTIVE COVENANTS
RESTRICTIONS ON LIENS. Some of our property may be subject to a mortgage
or other legal mechanism that gives our lenders preferential rights in that
property over other lenders (including you and the other direct holders of the
debt securities) or over our general creditors if we fail to pay them back.
These preferential rights are called "liens." We promise that we will not become
obligated on any new debt that is secured by a lien on any of our principal
manufacturing properties, or on any shares of stock or debt of any of our
principal subsidiaries, unless we grant an equivalent or higher-ranking lien on
the same property to you and the other direct holders of the debt securities.
We do not need to comply with this restriction if the amount of all debt
that would be secured by liens on principal manufacturing properties (including
the new debt, the debt securities which we would so secure as described in the
previous sentence, and all "attributable debt," as described under "Restriction
on sales and leasebacks" below, that results from a sale and leaseback
transaction involving principal manufacturing properties) is less than 10% of
our consolidated net tangible assets.
This restriction on liens does not apply to debt secured by certain types
of liens, and we can disregard this debt when we calculate the limits imposed by
this restriction. These types of liens include:
- liens on the property of any of our principal subsidiaries, or on their
shares of stock or debt, if those liens existed at the time the
corporation became our principal subsidiary;
- liens in favor of us or our principal subsidiaries;
- liens in favor of U.S. Governmental bodies that we granted in order to
assure our payments to such bodies that we owe by law or because of a
contract we entered into;
- liens on property that existed at the time we acquired the property
(including property we may acquire through a merger or similar
transaction) or that we granted in order to purchase the property
(sometimes called "purchase money mortgages"); and
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- liens on the buildings or property of our facilities in Bristol,
Tennessee and Rochester, Michigan.
We can also disregard debt secured by liens that extend, renew or replace
any of these types of liens.
We and our subsidiaries are permitted to have as much unsecured debt as we
may choose.
RESTRICTIONS ON SALES AND LEASEBACKS. We promise that neither we nor any
of our principal subsidiaries will enter into any sale and leaseback transaction
involving a principal manufacturing property, unless we comply with this
restrictive covenant. A "sale and leaseback transaction" generally is an
arrangement between us or a principal subsidiary and a bank, insurance company
or other lender or investor where we or the principal subsidiary lease a
property which was or will be sold by us or the principal subsidiary to that
lender or investor more than 120 days after the completion of construction of
the property and the beginning of its full operation.
We can comply with this restrictive covenant in either of two different
ways. First, we will be in compliance if we or our principal subsidiary could
grant a lien on the principal manufacturing property in an amount equal to the
attributable debt for the sale and leaseback transaction without being required
to grant an equivalent or higher-ranking lien to you and the other direct
holders of the debt securities under the restrictions on liens covenant
described above on page 11. Second, we can comply if we retire an amount of
funded debt, within 120 days of the transaction, equal to at least the net
proceeds of the sale of the principal manufacturing property that we lease in
the transaction or the fair value of that property (subject to credits for
certain voluntary retirements of debt securities and funded debt we may make),
whichever is greater.
This restriction on sale and leasebacks does not apply to any sale and
leaseback transaction that is between us and one of our principal subsidiaries
or between principal subsidiaries, or that involves a lease for a period of
three years or less.
CERTAIN DEFINITIONS RELATING TO OUR RESTRICTIVE COVENANTS. Following are
the meanings of the terms that are important in understanding the restrictive
covenants previously described.
- "attributable debt" means, in connection with any sale or leaseback
transaction, the lesser of (i) the fair value of the property subject to
the sale and leaseback transaction (as determined by our board of
directors) and (ii) the total net amount of rent (discounted at a rate
per annum equal to a composite rate of interest on all outstanding debt
securities) that is required to be paid during the remaining term of the
lease on this property.
- "consolidated net tangible assets" is the total amount of assets (less
reserves and certain other permitted deductible items), after subtracting
all current liabilities and all goodwill, trade names, trademarks,
patents, unamortized debt discounts and expenses and similar intangible
assets, as such amounts appear on our most recent consolidated balance
sheet and computed in accordance with generally accepted accounting
principles.
- "funded debt" means all debt for borrowed money that either has a
maturity of 12 months or more from the date on which the calculation of
funded debt is made or has a maturity of less than 12 months from that
date but is by its terms renewable or extendible beyond 12 months from
that date at the option of the borrower.
- A "principal manufacturing property" is any building or other structure
or facility, and the land on which it sits and its associated fixtures,
that we or our principal subsidiaries use primarily for manufacturing or
processing, other than a building, structure or other facility that
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our board of directors has determined is not of material importance to
the total business that we and our principal subsidiaries conduct.
- A "principal subsidiary" means any of Monarch Pharmaceuticals, Inc.,
Parkedale Pharmaceuticals, Inc., or King Pharmaceuticals of Nevada, Inc.
DEFEASANCE
The following discussion of full defeasance and covenant defeasance will be
applicable to your series of debt securities only if we choose to have them
apply to that series. If we do so choose, we will state that in the prospectus
supplement.
FULL DEFEASANCE. If there is a change in federal tax law, as described
below, we can legally release ourselves from any payment or other obligations on
the debt securities (called "full defeasance") if we put in place the following
other arrangements for you to be repaid:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates.
- There must be a change in current federal tax law or an IRS ruling that
lets us make the above deposit without causing you to be taxed on the
debt securities any differently than if we did not make the deposit and
just repaid the debt securities ourselves. (Under current federal tax
law, the deposit and our legal release from the debt securities would be
treated as though we took back your debt securities and gave you your
share of the cash and notes or bonds deposited in trust. In that event,
you could recognize gain or loss on the debt securities you give back to
us.)
- We must deliver to the trustee a legal opinion of our counsel confirming
the tax law change described above.
If we ever did accomplish full defeasance, as described above, you would
have to rely solely on the trust deposit for repayment on the debt securities.
You could not look to us for repayment in the unlikely event of any shortfall.
Conversely, the trust deposit would most likely be protected from claims of our
lenders and other creditors if we ever become bankrupt or insolvent.
COVENANT DEFEASANCE. Under current federal tax law, we can make the same
type of deposit described above and be released from some of the restrictive
covenants in the debt securities. This is called "covenant defeasance." In that
event, you would lose the protection of those restrictive covenants but would
gain the protection of having money and securities set aside in trust to repay
the debt securities. In order to achieve covenant defeasance, we must do the
following:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates.
- We must deliver to the trustee a legal opinion of our counsel confirming
that under current federal income tax law we may make the above deposit
without causing you to be taxed on the debt securities any differently
than if we did not make the deposit and just repaid the debt securities
ourselves.
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If we accomplish covenant defeasance, the following provisions of the
indenture and the debt securities would no longer apply:
- Our promises regarding conduct of our business previously described under
"Restrictive covenants" on page 11, and any other covenants applicable to
the series of debt securities and described in the prospectus supplement.
- The condition regarding the treatment of liens when we merge or engage in
similar transactions, as previously described on page 9 under "Mergers
and similar events."
- The events of default relating to breach of covenants and acceleration of
the maturity of other debt, described later under "Default and related
matters".
If we accomplish covenant defeasance, you can still look to us for
repayment of the debt securities if there were a shortfall in the trust deposit.
In fact, if one of the remaining events of default occurred (such as our
bankruptcy) and the debt securities become immediately due and payable, there
may be such a shortfall. Depending on the event causing the default, you may not
be able to obtain payment of the shortfall.
DEFAULT AND RELATED MATTERS
RANKING. The debt securities are not secured by any of our property or
assets. Accordingly, your ownership of debt securities means you are one of our
unsecured creditors. The debt securities are not subordinated to any of our
other debt obligations and therefore they rank equally with all our other
unsecured and unsubordinated indebtedness.
EVENTS OF DEFAULT. You will have special rights if an event of default
occurs and is not cured, as described later in this subsection.
The term "event of default" means any of the following:
- We do not pay the principal or any premium on a debt security on its due
date.
- We do not pay interest on a debt security within 30 days of its due date.
- We do not deposit any sinking fund payment on its due date.
- We remain in breach of a restrictive covenant described beginning on page
11 or any other term of the indenture for 60 days after we receive a
notice of default stating we are in breach. The notice must be sent by
either the trustee or holders of 10% of the principal amount of debt
securities of the affected series.
- We file for bankruptcy or certain other events in bankruptcy, insolvency
or reorganization occur.
- Any other event of default described in the prospectus supplement occurs.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under the indenture.
REMEDIES IF AN EVENT OF DEFAULT OCCURS. If an event of default has
occurred and has not been cured, the trustee or the holders of 25% in principal
amount of the debt securities of the affected series may declare the entire
principal amount of all the debt securities of that series to be due and
immediately payable. This is called a declaration of acceleration of maturity.
If an event of default occurs because of certain events in bankruptcy,
insolvency or reorganization, the principal amount of
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all the debt securities of that series will be automatically accelerated,
without any action by the trustee or any holder. A declaration of acceleration
of maturity may be canceled by the holders of at least a majority in principal
amount of the debt securities of the affected series.
Except in cases of default, where the trustee has some special duties, the
trustee is not required to take any action under the indenture at the request of
any holders unless the holders offer the trustee satisfactory protection from
expenses and liability. This protection is called an "indemnity."
If satisfactory indemnity is provided, the holders of a majority in
principal amount of the outstanding debt securities of the relevant series may
direct the time, method and place of conducting any lawsuit or other formal
legal action seeking any remedy available to the trustee. These majority holders
may also direct the trustee in performing any other action under the indenture.
Before you bypass the trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
- You must give the trustee written notice that an event of default has
occurred and remains uncured.
- The holders of 25% in principal amount of all outstanding debt securities
of the relevant series must make a written request that the trustee take
action because of the default, and must offer reasonable indemnity to the
trustee against the cost and other liabilities of taking that action.
- The trustee must have not taken action for 60 days after receipt of the
above notice and offer of indemnity.
- The holders of a majority in principal amount of all outstanding debt
securities of the relevant series must not have given the trustee a
direction that is inconsistent with the above notice.
However, you are entitled at any time to bring a lawsuit for the payment of
money due on your debt security on or after its due date.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO OR MAKE A REQUEST
OF THE TRUSTEE AND TO MAKE OR CANCEL A DECLARATION OF ACCELERATION.
We will furnish to the trustee every year a written statement of certain of
our officers certifying that to their knowledge we are in compliance with the
indenture and the debt securities, or else specifying any default.
REGARDING THE TRUSTEE
The Bank of New York currently acts as trustee under the indenture for our
$150 million 10 3/4% Senior Subordinated Notes due 2009.
DESCRIPTION OF DEBT WARRANTS WE MAY OFFER
We may issue warrants for the purchase of debt securities. Debt warrants
may be issued separately or together with debt securities.
The debt warrants are to be issued under debt warrant agreements to be
entered into between King Pharmaceuticals, Inc. and one or more banks or trust
companies, as debt warrant agent, all as
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will be set forth in the prospectus supplement relating to the debt warrants
being offered by the prospectus supplement. A form of debt warrant agreement,
including a form of debt warrant certificate representing the debt warrants,
reflecting the alternative provisions that may be included in the debt warrant
agreements to be entered into with respect to particular offerings of debt
warrants, is included as an exhibit to the registration statement. See "Where
You Can Find More Information" on page 1 for information on how to obtain a copy
of the form of debt warrant agreement.
The following description of the debt warrant agreements and the debt
warrant certificates and summaries of some provisions of the debt warrant
agreements and the debt warrant certificates do not describe every aspect of the
debt warrants and are subject to, and are qualified in their entirety by
reference to, all the provisions of the applicable debt warrant agreements and
the debt warrant certificates, including definitions of terms used in the debt
warrant agreements and not otherwise defined in this prospectus. For example, in
this section we use some terms that have been given special meaning in the debt
warrant agreements. We also include references in parentheses to some sections
of the debt warrant agreements. Whenever we refer to particular sections or
defined terms of the debt warrant agreement in this prospectus, those sections
or defined terms are incorporated by reference here or in the relevant
prospectus supplement.
TERMS OF THE DEBT WARRANTS ARE TO BE DESCRIBED IN THE PROSPECTUS SUPPLEMENT
The particular terms of each issue of debt warrants, the debt warrant
agreement relating to the debt warrants and the debt warrant certificates
representing debt warrants will be described in the applicable prospectus
supplement. This description will include:
- the initial offering price;
- the currency or currency unit in which the price for the debt warrants is
payable;
- the title, aggregate principal amount and terms of the debt securities
purchasable upon exercise of the debt warrants;
- the title and terms of any related debt securities with which the debt
warrants are issued and the number of the debt warrants issued with each
debt security;
- the date, if any, on and after which the debt warrants and the related
debt securities will be separately transferable;
- the principal amount of debt securities purchasable upon exercise of each
debt warrant and the price at which that principal amount of debt
securities may be purchased upon exercise of each debt warrant;
- the date on which the right to exercise the debt warrants will commence
and the date on which this right will expire;
- the identity of the debt warrant agent;
- if applicable, a discussion of United States federal income tax,
accounting or other considerations applicable to debt warrants; and
- any other terms of the debt warrants.
Debt warrant certificates will be exchangeable for new debt warrant
certificates of different denominations and, if in registered form, may be
presented for registration of transfer, and debt warrants may be exercised, at
the corporate trust office of the debt warrant agent or any other office
indicated in the related prospectus supplement. Before the exercise of debt
warrants, holders of debt
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warrants will not be entitled to payments of principal, premium, if any, or
interest, if any, on the debt securities purchasable upon exercise of the debt
warrants, or to enforce any of the covenants in the indenture.
EXERCISE OF DEBT WARRANTS
Unless otherwise provided in the related prospectus supplement, each debt
warrant will entitle the holder of debt warrants to purchase for cash the
principal amount of debt securities at the exercise price that will in each case
be set forth in, or be determinable as set forth in, the related prospectus
supplement. Debt warrants may be exercised at any time up to the close of
business on the expiration date specified in the prospectus supplement relating
to the debt warrants. After the close of business on the expiration date or any
later date to which the expiration date may be extended by King, unexercised
debt warrants will become void.
Debt warrants may be exercised as set forth in the prospectus supplement
relating to the debt warrants. Upon receipt of payment and the debt warrant
certificate properly completed and duly executed at the corporate trust office
of the debt warrant agent or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the debt securities
purchasable upon exercise of the debt warrants to the person entitled to them.
If fewer than all of the debt warrants represented by the debt warrant
certificate are exercised, a new debt warrant certificate will be issued for the
remaining amount of debt warrants.
If you hold your interest in a debt warrant indirectly, you should check
with the institution through which you hold your interest in the debt warrant to
determine how these provisions will apply to you. See "Legal Ownership" on page
4 for a general description of the procedures and rights applicable to indirect
owners of debt warrants.
MODIFICATIONS
The debt warrant agreement may be amended by King and the debt warrant
agent, without the consent of the holder of any debt warrant certificate, for
the purpose of curing any ambiguity, or of curing, correcting or supplementing
any defective provision contained in the debt warrant agreement, or making any
provisions in regard to matters or questions arising under the debt warrant
agreement that we may deem necessary or desirable; provided that the amendment
may not adversely affect the interest of the holders of debt warrant
certificates in any material respect. We and the debt warrant agent also may
modify or amend the debt warrant agreement and the terms of the debt warrants,
with the consent of the owners of not less than a majority in number of the then
outstanding unexercised debt warrants affected. However, any modification or
amendment that increases the exercise price, shortens the period of time during
which the debt warrants may be exercised or otherwise materially and adversely
affects the exercise rights of the owners of debt warrants or reduces the number
of debt warrants the consent of whose owners is required for modification or
amendment of the debt warrant agreement or the terms of the debt warrants may be
made only with the consent of the owners affected by the modification or
amendment.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
Under the debt warrant agreement, we may, to the extent permitted in the
indenture, consolidate with, or sell or convey all or substantially all of our
assets to, or merge with or into, any other corporation. If at any time there is
a merger, consolidation, sale, transfer, conveyance or other disposition of
substantially all of the assets of King, the successor or assuming corporation
will succeed to and be substituted for King, with the same effect as if it had
been named in the debt
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warrant agreement and in the debt warrants as King. We will then be relieved of
any further obligation under the debt warrant agreement or under the debt
warrants.
ENFORCEABILITY OF RIGHTS; GOVERNING LAW
The debt warrant agent will act solely as an agent of King in connection
with the issuance and exercise of debt warrants and will not assume any
obligation or relationship of agency or trust for or with any holder of a debt
warrant certificate or any owner of a beneficial interest in debt warrants. The
holders of debt warrant certificates, without the consent of the debt warrant
agent, the trustee, the holder of any debt securities issued upon exercise of
debt warrants or the holder of any other debt warrant certificates, may, on
their own behalf and for their own benefit, enforce, and may institute and
maintain any suit, action or proceeding against King suitable to enforce, or
otherwise in respect of, their rights to exercise debt warrants evidenced by
their debt warrant certificates. Except as may otherwise be provided in the
related prospectus supplement, each issue of debt warrants and the applicable
debt warrant agreement will be governed by and construed in accordance with the
law of the State of New York.
DESCRIPTION OF PREFERRED STOCK WE MAY OFFER
Each series of preferred stock will have specific financial and other terms
which will be described in a prospectus supplement. The description of the
preferred stock that is set forth in any prospectus supplement is not complete
without reference to the Second Amended and Restated Charter of King of King
Pharmaceuticals, Inc.
Our Charter authorizes the Board of Directors to issue up to 15,000,000
shares of preferred stock, no par value per share, in one or more series. As of
December 31, 1999, we had neither designated nor issued shares of preferred
stock. The number of authorized shares of preferred stock may be increased or
decreased by the affirmative vote of the holders of a majority of the
outstanding stock of King without the separate vote of holders of preferred
stock as a class.
Our Board of Directors is authorized to designate, for each series of
preferred stock, the following items, among others:
- the maximum number of shares in the series;
- the designation of the series;
- the dividend rate, or basis for determining such rate, if any, on the
shares of the series;
- whether dividends will be cumulative and, if so, from which date or
dates;
- whether the shares of the series will be redeemable and, if so, the
dates, prices and other terms and conditions of redemption;
- whether we will be obligated to purchase or redeem shares of the series
pursuant to a sinking fund or otherwise, and the prices, periods and
other terms and conditions upon which the shares of the series will be
redeemed or purchased;
- whether the shares of the series will be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the rate or rates of conversion or exchange, the terms of adjustment,
if any, and whether the shares of the series will be convertible or
exchangeable at our option or the option of holders of preferred shares,
or both;
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- whether the shares of the series will have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of those voting
rights;
- the rights of the shares of the series in the event of the voluntary or
involuntary liquidation, dissolution or winding up of King; and
- any other relative rights, powers, preferences, qualifications,
limitations or restrictions relating to the shares of the series.
The shares of preferred stock of any one series will be identical with each
other except for the dates from which dividends will cumulate, if at all. The
shares of preferred stock will be fully paid and nonassessable.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus through agents,
underwriters or dealers, directly or indirectly to one or more purchasers.
The accompanying prospectus supplement will identify or describe:
- any underwriters, dealers or agents;
- their compensation;
- the net proceeds to King;
- the purchase price of the securities;
- the initial public offering price of the securities; and
- any exchange on which the securities are listed.
AGENTS. We may designate agents who agree to use their reasonable efforts
to solicit purchases for the period of their appointment to sell securities on a
continuing basis.
UNDERWRITERS. If we use underwriters for a sale of securities, the
underwriters will acquire the securities for their own account. The underwriters
may resell the securities in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be changed from time to
time.
DIRECT SALES. We may also sell securities directly to one or more
purchasers without using underwriters or agents.
Underwriters, dealers, and agents that participate in the distribution of
the securities may be underwriters as defined in the Securities Act of 1933, and
any discounts or commissions they receive from us and any profit on their resale
of the debt securities may be treated as underwriting discounts and commissions
under the Securities Act. We may have agreements with the underwriters, dealers
and agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us in the ordinary course of
their businesses.
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VALIDITY
The validity of the securities offered by this prospectus will be passed
upon for King by Baker, Donelson, Bearman & Caldwell, Johnson City, Tennessee,
and for any underwriters or agents by counsel named in the prospectus
supplement.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of King as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
incorporated in this registration statement by reference to the financial
statements in the Annual Report on Form 10-K, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in auditing and accounting.
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(KING PHARMACEUTICALS LOGO)
KING PHARMACEUTICALS, INC.
