<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KING PHARMACEUTICALS, INC.
(exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 2834 54-1684963
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
(423) 989-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------
JOHN M. GREGORY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
(423) 989-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
WITH COPIES TO:
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<S> <C> <C>
CHARLES E. H. LUEDDE, ESQ. JOHN A. A. BELLAMY, ESQ. LINDA M. CROUCH, ESQ.
GREENSFELDER, HEMKER & GALE, P.C. KING PHARMACEUTICALS, INC. BAKER, DONELSON, BEARMAN &
10 SOUTH BROADWAY 501 FIFTH STREET CALDWELL
ST. LOUIS, MO 63102 BRISTOL, TN 37620 207 MOCKINGBIRD LANE, SUITE 300
(314) 241-9090 (423) 989-8000 JOHNSON CITY, TN 37604
(423) 928-0181
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value, including
Preferred Stock Purchase Rights........ 73,715,875 shares $33.18 $2,298,460,983 $606,793
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</TABLE>
(1) Represents the approximate maximum number of shares issuable upon
consummation of the merger as described in the Registration Statement, based
upon the anticipated maximum number of outstanding shares of Jones Pharma
Incorporated common stock at the merger's effective time.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Section 6(b) of the Securities Act of 1933, and Rule
457(f)(1) and 457(c) thereunder on the basis of 73,715,875, the anticipated
maximum number of Jones shares that may be exchanged pursuant to the merger,
multiplied by $33.18, the average of the high and low sales prices of King
common stock as reported by the NYSE on July 27, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
(KING PHARMACEUTICALS LOGO) (JONESLOGO)
Dear Shareholders of King and Jones:
The boards of directors of King Pharmaceuticals, Inc. and Jones Pharma
Incorporated have approved a merger designed to create a larger emerging
specialty pharmaceutical company. We believe the combined company will be able
to create substantially more shareholder value than could be achieved by either
company individually.
The King shareholders are cordially invited to attend the special meeting
of shareholders of King Pharmaceuticals, Inc. to be held on
August , 2000 at 10:00 a.m., Eastern Daylight Time, New York, New York at
. At this meeting you will be asked to approve the issuance of
shares of King common stock to Jones shareholders in connection with the
proposed merger of a wholly owned subsidiary of King into Jones.
The Jones shareholders are cordially invited to the special meeting of
shareholders of Jones Pharma Incorporated to be held on , August
, 2000 at 10:00 a.m. Eastern Daylight Time, at , New York, New
York. At this meeting, the Jones shareholders will be asked to vote upon the
proposal to merge a wholly owned subsidiary of King into Jones.
If we complete the merger, holders of Jones common stock will receive
shares of King common stock in exchange for their Jones shares. The exchange
will be tax-free to Jones shareholders. Jones shareholders will be entitled to
receive 1.125 shares of King common stock in exchange for each share of Jones
common stock.
Jones may elect not to proceed with the transaction if the average trading
price of King common stock falls below $29.33 per share, unless King elects to
increase the exchange ratio to a number equal to $33.00 per share divided by the
average trading price per share of King common stock. The average trading price
per share will be the average sales price per share of King common stock as
reported on the New York Stock Exchange determined over a 20 consecutive trading
day period ending on the 6th trading day immediately preceding the Jones
shareholders meeting. Based on the closing price of King common stock on
, 2000, the merger values each share of Jones common
stock at $ .
You should consider the matters discussed under the section entitled "Risk
Factors" on page 18 of the enclosed joint proxy statement/prospectus.
King will issue approximately 74.0 million shares of its common stock to
Jones shareholders in the merger. These shares will represent approximately
44.5% of the outstanding King common stock after the merger.
The board of directors of King recommends that King shareholders approve
the issuance of shares. The board of directors of Jones recommends that Jones
shareholders
<PAGE> 3
approve and adopt the merger agreement and approve the merger. We cannot
complete the merger unless the holders of a majority of the shares of King
represented in person or by proxy at the special meeting of shareholders approve
the issuance of shares (provided a quorum is present) and unless the holders of
a majority of the outstanding shares of Jones common stock vote to approve and
adopt the merger agreement and approve the merger. As the merger requires the
approval of a majority of the outstanding shares of Jones common stock, the
effect of Jones shareholders not voting is the same as voting against the
transaction.
Whether or not you plan to attend the special meeting of the shareholders
of your company, please be sure to sign, date and mail the enclosed proxy in the
postage-paid envelope as promptly as possible. Shareholders whose shares of King
or Jones are held by their bank or broker may vote by proxy or take the
opportunity to vote electronically by telephone or via the internet. Your vote
is important regardless of the number of shares you own.
/S/ JOHN M. GREGORY /S/ DENNIS M. JONES
John M. Gregory Dennis M. Jones
Chairman of the Board Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
King Pharmaceuticals, Inc. Jones Pharma Incorporated
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF KING COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE ILLEGAL.
This joint proxy statement/prospectus is dated August , 2000 and first
being mailed to shareholders on August , 2000.
<PAGE> 4
[Alternate Letter to HOLDRs participants]
(KING PHARMACEUTICALS LOGO) (JONESLOGO)
Dear Participants holding interests in the Pharmaceutical HOLDRs Trust:
The boards of directors of King Pharmaceuticals, Inc. and Jones Pharma
Incorporated have approved a merger designed to create a larger emerging
specialty pharmaceutical company. We believe the combined company will be able
to create substantially more shareholder value than could be achieved by either
company individually.
As a holder of shares in the Pharmaceutical HOLDRs Trust (AMEX:PPH), you
are an indirect owner of shares of the common stock of both King and Jones. The
ballot accompanying this joint proxy statement/prospectus relates to your
interest in Jones common stock. You will receive a ballot relating to your
interest in King common stock in a separate mailing.
The King shareholders are cordially invited to attend the special meeting
of shareholders of King Pharmaceuticals, Inc. to be held on ,
2000 at 10:00 a.m., Eastern Daylight Time, , Kingsport,
Tennessee. At this meeting you will be asked to approve the issuance of shares
of King common stock to Jones shareholders in connection with the proposed
merger of a wholly owned subsidiary of King into Jones.
The Jones shareholders are cordially invited to the special meeting of
shareholders of Jones Pharma Incorporated to be held on , ,
2000 at 10:00 a.m. Eastern Daylight Time, at , New York, New
York. At this meeting, the Jones shareholders will be asked to vote upon the
proposal to merge a wholly owned subsidiary of King into Jones.
If we complete the merger, holders of Jones common stock will receive
shares of King common stock in exchange for their Jones shares. The exchange
will be tax-free to Jones shareholders. Jones shareholders will be entitled to
receive 1.125 shares of King common stock in exchange for each share of Jones
common stock.
Jones may elect not to proceed with the transaction if the average trading
price of King common stock falls below $29.33 per share, unless King elects to
increase the exchange ratio to a number equal to $33.00 per share divided by the
average trading price per share of King common stock. The average trading price
per share will be the average sales price per share of King common stock as
reported on the New York Stock Exchange determined over a 20 consecutive trading
day period ending on the 6th trading day immediately preceding the Jones
shareholders meeting. Based on the closing price of King common stock on
, 2000, the merger values each share of Jones common
stock at $ .
You should consider the matters discussed under the section entitled "Risk
Factors" on page 18 of the enclosed joint proxy statement/prospectus.
<PAGE> 5
King will issue approximately 74.0 million shares of its common stock to
Jones shareholders in the merger. These shares will represent approximately
44.5% of the outstanding King common stock after the merger.
The board of directors of King recommends that King shareholders approve
the issuance of shares. The board of directors of Jones recommends that Jones
shareholders approve and adopt the merger agreement and approve the merger. We
cannot complete the merger unless the holders of a majority of the shares of
King represented in person or by proxy at the special meeting of shareholders
approve the issuance of shares (provided a quorum is present) and unless the
holders of a majority of the outstanding shares of Jones common stock vote to
approve and adopt the merger agreement and approve the merger. As the merger
requires the approval of a majority of the outstanding shares of Jones common
stock, the effect of Jones shareholders not voting is the same as voting against
the transaction.
/S/ JOHN M. GREGORY /S/ DENNIS M. JONES
John M. Gregory Dennis M. Jones
Chairman of the Board Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
King Pharmaceuticals, Inc. Jones Pharma Incorporated
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF KING COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE ILLEGAL.
This joint proxy statement/prospectus is dated August , 2000 and first
being mailed to shareholders on August , 2000.
<PAGE> 6
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
PHONE: (423) 989-8002
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Time:
10:00 a.m., Eastern Daylight Time
Date:
, , 2000
Place:
Kingsport, Tennessee
Purpose:
To approve the issuance of shares of common stock of King in connection
with the merger of a wholly owned subsidiary into Jones Pharma Incorporated, as
described in more detail in the accompanying joint proxy statement/prospectus
and to consider and act upon such other proposals as may properly be brought
before the meeting.
Only shareholders of record on the close of business on July 31, 2000 may
vote at the meeting. Only shareholders or their proxy holders and King guests
may attend the meeting.
Your vote is important. Please complete, date, sign and return your proxy
card, which is solicited by the board of directors of King, in the enclosed
envelope promptly.
By Order of the Board of Directors
/S/ JOHN M. GREGORY
John M. Gregory
Chairman of the Board
and Chief Executive Officer
Bristol, Tennessee
August , 2000
<PAGE> 7
JONES PHARMA INCORPORATED
1945 CRAIG ROAD
ST. LOUIS, MISSOURI 63146
PHONE: (314) 576-6100
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Time:
10:00 a.m., Eastern Daylight Time
Date:
, , 2000
Place:
New York, New York
Purpose:
To approve and adopt the merger agreement and approve the merger with a
wholly owned subsidiary of King Pharmaceuticals, Inc., as described in more
detail in the accompanying joint proxy statement/prospectus and to consider and
act upon such other proposals as may properly be brought before the meeting.
Only shareholders of record on the close of business on July 31, 2000 may
vote at the meeting. Only shareholders or their proxy holders and Jones guests
may attend the meeting.
Your vote is important. Please complete, date, sign and return your proxy
card, which is solicited by the board of directors of Jones, in the enclosed
envelope promptly.
By Order of the Board of Directors
/S/ DENNIS M. JONES
Dennis M. Jones
Chairman of the Board
and Chief Executive Officer
St. Louis, Missouri
August , 2000
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. 1
SUMMARY............................... 5
The Companies....................... 5
Summary of the Transaction.......... 5
Conditions to Completion of the
Merger........................... 6
Vote Required for Approval.......... 7
Termination of the Merger
Agreement........................ 9
Payment of Termination Fee.......... 10
No Other Negotiations Involving
Jones............................ 11
RECENT DEVELOPMENTS................... 12
THE KING MEETING OF SHAREHOLDERS...... 14
Date, Time, Place and Purpose of
King's Meeting................... 14
Record Date and Outstanding
Shares........................... 14
Vote and Quorum Required............ 14
Share Ownership of Management....... 14
Broker Non-Votes; Abstentions....... 14
Expenses of Proxy Solicitation...... 14
Voting of Proxies................... 15
No Dissenters' Rights............... 15
THE JONES MEETING OF SHAREHOLDERS..... 16
Date, Time, Place and Purpose of
Jones Meeting.................... 16
Record Date and Outstanding
Shares........................... 16
Vote and Quorum Required............ 16
Share Ownership of Management....... 16
Broker Non-Votes; Abstentions....... 16
Expenses of Proxy Solicitation...... 16
Voting of Proxies................... 17
No Appraisal Rights................. 17
RISK FACTORS.......................... 18
Risks Relating to the Merger........ 18
Risks Relating to King's Business... 21
Risks Relating to Jones' Business... 32
Risks Relating to the Industry...... 34
KING PHARMACEUTICALS, INC. UNAUDITED
SELECTED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA............ 36
KING SELECTED CONSOLIDATED FINANCIAL
DATA................................ 38
JONES SELECTED CONSOLIDATED FINANCIAL
DATA................................ 39
THE MERGER............................ 40
The Companies....................... 40
Background of the Merger............ 40
Our Reasons for the Merger.......... 47
Factors Considered By, and
Recommendation of, the Board of
Directors of King................ 48
</TABLE>
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Factors Considered By, and
Recommendation of, the Board of
Directors of Jones............... 52
Opinions of Financial Advisors...... 52
Interests of Jones' Directors and
Executive Officers in the
Merger........................... 64
Completion and Effectiveness of the
Merger........................... 66
Structure of the Merger and
Conversion of Jones Common
Stock............................ 66
Exchange of Jones Stock Certificates
for King Stock Certificates...... 67
Federal Income Tax Consequences of
the Merger....................... 67
Accounting Treatment of the
Merger........................... 69
Restrictions on Sales of Shares by
Affiliates of Jones and King..... 69
Regulatory Filings and Approvals
Required to Complete the
Merger........................... 70
Listing on the NYSE of King Common
Stock to be Issued in the
Merger........................... 70
Operations after the Merger......... 70
THE MERGER AGREEMENT.................. 71
Representations and Warranties...... 71
Jones' Conduct of Business Before
the Merger's Completion.......... 73
King's Conduct of Business Before
the Merger's Completion.......... 74
Other Agreements.................... 75
No Other Negotiations Involving
Jones............................ 76
Treatment of Jones Stock Options.... 77
Conditions to Completion of the
Merger........................... 78
Termination of the Merger
Agreement........................ 79
Payment of Termination Fee.......... 81
Extension, Waiver and Amendment of
the Merger Agreement and
Expenses......................... 82
Shareholders' Voting Agreements..... 82
SHARE OWNERSHIP AFTER THE MERGER......
COMPARATIVE MARKET PRICE AND PER SHARE
DATA................................ 84
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION............... 87
COMPARISON OF RIGHTS OF HOLDERS OF
KING COMMON STOCK AND JONES COMMON
STOCK............................... 98
Authorized Capital Stock............ 98
Removal of Directors................ 99
Conflict-of-Interest Transactions... 99
Special Meetings of Shareholders.... 100
</TABLE>
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Required Vote for Authorization of
Certain Actions.................. 100
Shareholder Proposals and
Nominations...................... 101
Action by Written Consent........... 101
Inspection Rights................... 101
Amendment of Certificate of
Incorporation or Charter and
Bylaws........................... 102
Voluntary Dissolution............... 103
Indemnification..................... 103
Business Combination Statute........ 103
Control Share Acquisition Act....... 105
Investor Protection Act............. 105
Authorized Corporation Protection
Act.............................. 105
Greenmail Act....................... 106
Dividends and Other Distributions... 107
Dissenters' Rights.................. 107
</TABLE>
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OTHER MATTERS......................... 107
SHAREHOLDER PROPOSALS................. 108
DOCUMENTS INCORPORATED BY REFERENCE IN
THIS JOINT PROXY
STATEMENT/PROSPECTUS................ 108
WHERE YOU CAN FIND MORE INFORMATION... 109
STATEMENTS REGARDING FORWARD-LOOKING
INFORMATION......................... 110
EXPERTS............................... 111
LEGAL MATTERS......................... 111
ANNEX A -- AGREEMENT AND PLAN OF
MERGER.............................. A-1
ANNEX B -- OPINION OF CREDIT SUISSE
FIRST BOSTON........................ B-1
ANNEX C -- OPINION OF CHASE SECURITIES
INC. ............................... C-1
</TABLE>
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about King and Jones from other documents that are not
included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain these documents, which are incorporated by reference in
this joint proxy statement/prospectus, by requesting them in writing or by
telephone from the appropriate company at the following addresses and telephone
numbers:
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KING PHARMACEUTICALS, INC. JONES PHARMA INCORPORATED
INVESTOR RELATIONS INVESTOR RELATIONS
501 FIFTH STREET 1945 CRAIG ROAD
BRISTOL, TENNESSEE 37620 ST. LOUIS, MISSOURI 63146
(423) 989-8023 (800) 525-8466
</TABLE>
If you would like to request documents, please do so by , 2000 in
order to receive them before the special meetings. See "Where You Can Find More
Information" beginning on page .
INFORMATION ADJUSTED FOR STOCK SPLITS
You should note that all share data, historical financial information and
market prices appearing in this joint proxy statement/prospectus have been
restated for all prior periods to reflect (1) in the case of King, 3 for 2 stock
splits that were effective November 11, 1999 and June 21, 2000; and (2) in the
case of Jones, 3 for 2 stock splits that were effective August 6, 1999 and March
1, 2000.
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<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHO ARE THE PARTIES TO THE MERGER?
A: There are three parties to the merger agreement:
KING PHARMACEUTICALS, INC. King, headquartered in Bristol, Tennessee,
manufactures, markets and sells branded prescription pharmaceutical
products. During 1999 King derived revenues primarily from the sales of
Altace(R), Lorabid(R), Fluogen(R) and Cortisporin(R).
JONES PHARMA INCORPORATED. Jones, headquartered in St. Louis, Missouri,
also manufactures, markets and sells branded prescription and critical
care pharmaceutical products. During 1999, Jones derived revenues
primarily from the sale of Thrombin-JMI(R), Levoxyl(R),
Cytomel(R)/Triostat(R) and Tapazole(R).
SPIRIT ACQUISITION CORP. Spirit is a wholly owned subsidiary of King
formed to facilitate the transaction.
Q: WHAT IS THE MERGER?
A: In the merger, Spirit will merge into Jones which will become a wholly
owned subsidiary of King.
Q: WHY ARE THE COMPANIES PLANNING TO MERGE?
A: The directors of both King and Jones believe that the combined company
will be a stronger, more diversified company and that it may provide
more attractive growth opportunities than are currently available to or
for either company operating independently.
Q: WHAT WILL THE SHAREHOLDERS OF JONES RECEIVE IN THE MERGER?
A: Jones shareholders will receive 1.125 shares of King common stock for
each share of Jones common stock that they own.
Q: WHAT HAPPENS TO FRACTIONAL SHARES?
A: No fractional shares of King common stock will be issued in the merger.
Instead, shareholders of Jones who would be entitled to receive a
fractional share of King common stock will receive a cash payment based
on the closing market price of King common stock on the closing date of
the merger.
Q: WHAT HAPPENS TO EXISTING KING SHAREHOLDERS?
A: King shareholders will continue to own their shares of King common stock
after the merger.
Q: DO THE BOARDS OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE MERGER?
A: Yes. The boards of directors of both Jones and King unanimously
recommend that their shareholders vote in favor of the merger agreement,
the issuance of shares and the merger, as the case may be. For a more
complete description of the
1
<PAGE> 11
recommendations of each of the boards of directors, see the section entitled
"The Proposed Merger" on page .
Q: ARE THERE RISKS THAT SHAREHOLDERS OF JONES AND KING SHOULD CONSIDER IN
DECIDING WHETHER TO VOTE IN FAVOR OF THE MERGER?
A: Yes.
In evaluating the merger, shareholders of King and Jones should
carefully consider the following and other factors discussed in the
section entitled "Risk Factors" on page .
The value per share of the stock to be received by Jones shareholders
cannot be determined in advance of the closing date and will fluctuate
thereafter. For example, the value of the shares of King that
shareholders of Jones will receive in the merger may go up or down as
the market price of King common stock goes up or down. If Jones, in the
exercise of its business judgment, elects to terminate the merger
because King's average trading price per share during the 20 consecutive
trading days ending the sixth trading day preceding the Jones
shareholders meeting is below $29.33 and if King elects to increase the
exchange ratio so that Jones shareholders receive King common stock
worth $33.00 per share, the exchange ratio will be increased resulting
in the issuance of additional King shares and a corresponding decrease
in the proportionate ownership of the existing King shareholders.
Additionally, even if King elects to increase the exchange ratio, there
is no guarantee that the value of the King shares received will be
$33.00 per share at the closing date. WE URGE YOU TO OBTAIN CURRENT
MARKET QUOTATIONS OF KING COMMON STOCK AND JONES COMMON STOCK.
Q: WHAT DO I NEED TO DO NOW?
A: Even if you plan to attend and vote at your shareholders' meeting, vote
now by marking your proxy card, signing it, and mailing it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the shareholders meeting. If you properly sign and return
your card but do not include instructions on how to vote your shares,
they will be voted "FOR" approval and adoption of the merger agreement
and approval of the merger and the issuance of King shares, as the case
may be. For a more complete description of voting, see the section
entitled "Voting of Proxies" on page .
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: If you want to change your vote, send to the secretary of Jones, if you
are a Jones shareholder, or to the secretary of King, if you are a King
shareholder, a later-dated, signed proxy card before the meeting or
attend the meeting in person and vote. You may also revoke your proxy by
sending written notice to the appropriate secretary before the meeting.
For a more complete description of how to change your vote, see the
section entitled "Voting of Proxies" on page .
2
<PAGE> 12
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote by following the instructions your broker will provide you.
For a more complete description of voting shares held in "street name,"
see the section entitled "Voting of Proxies" on page .
Q: SHOULD SHAREHOLDERS OF JONES SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. After the merger is completed, King will send written instructions
to the record holders of Jones common stock for exchanging Jones stock
certificates for King stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We
hope to complete the merger by the end of this year. If the merger is
not completed by January 9, 2001 (unless the date is extended as
described in the merger agreement), then both Jones and King have the
right to terminate the merger agreement. For a more complete description
of the conditions to the merger, see the section entitled "Conditions to
Completion of the Merger" on page .
Q: WILL SHAREHOLDERS OF JONES RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: If the merger is completed, Jones shareholders should not recognize gain
or loss for United States federal income tax purposes, except for any
gain or loss that results from cash received instead of fractional
shares. However, Jones shareholders should consult their own tax
advisors to determine their particular tax consequences. For a more
complete description of the tax consequences, see the section entitled
"Federal Income Tax Consequences of the Merger" on page .
Q: HAS THERE BEEN AN INDEPENDENT DETERMINATION THAT THE TRANSACTION IS FAIR TO
KING AND TO THE JONES SHAREHOLDERS?
A: Yes. In deciding to approve the merger, the King board of directors
considered an opinion from its financial advisor in connection with the
merger, Credit Suisse First Boston, and the Jones board of directors
considered an opinion from its financial advisor, Chase Securities Inc.
Credit Suisse First Boston rendered to the board of directors of King an
opinion, dated July 13, 2000, to the effect that, as of that date and
based on and subject to the matters described in the opinion, the
exchange ratio was fair to King from a financial point of view. Chase
Securities delivered its opinion dated July 11, 2000 to the Jones board
of directors to the effect that, as of the date of its opinion and based
upon the assumptions made, matters considered and limits of review as
described in its opinion, the exchange ratio was fair to holders of
Jones common stock from a financial point of view.
Q: WHAT ABOUT CASH DIVIDENDS PAID TO SHAREHOLDERS?
A: King has not declared any cash dividends and does not intend to do so in
the foreseeable future. Until the merger is completed, Jones
shareholders will continue
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to receive regular quarterly dividends as they are declared by the Jones
board of directors.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Neither shareholders of Jones nor shareholders of King are entitled to
dissenters' or appraisal rights in the merger.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE MERGER?
A: King shareholders should call King Investor Relations at (423) 989-8023.
Jones shareholders should call Jones Investor Relations at (800)
525-8466. You may also obtain additional information about King and
Jones from documents each of us files with the Securities and Exchange
Commission by following the instructions in the section entitled "Where
You Can Find More Information" on page .
Q: IF MY SHARES ARE HELD IN THE PHARMACEUTICAL HOLDRS TRUST, WILL THE TRUST VOTE
MY SHARES FOR ME AND CONVERT MY JONES STOCK INTO KING STOCK?
A: No. The common stock of both Jones and King is included in the
securities "basket" traded as Pharmaceutical HOLDRs (AMEX: symbol PPH).
Shares of PPH represent an undivided interest of the beneficial
ownership of the securities held in this basket and you will be able to
vote your interest in Jones common stock and King common stock
separately. Upon completion of the merger, the trustee of the trust will
be responsible for exchanging Jones shares for additional King shares
which will continue to be held in the trust. Based upon the exchange
ratio of 1.125 shares of King for each share of Jones, each 100 shares
of PPH will include 3.1875 shares of King common stock.
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SUMMARY
THE COMPANIES
Both King and Jones are vertically integrated pharmaceutical companies
engaged primarily in the manufacture, marketing and sale of branded prescription
pharmaceutical products. Both King and Jones are characterized as "emerging
specialty pharmaceutical companies" meaning that
- they generally direct their marketing initiatives toward pharmaceutical
products serving niche markets which they believe can benefit from
focused attention;
- they endeavor to acquire additional products or product lines
(particularly products which may no longer receive marketing attention
from major pharmaceutical firms) which they believe can be promoted
efficiently with existing product portfolios; and
- they endeavor to increase gross and operating margins, as well as gross
revenues, through price increases and selling and manufacturing
efficiencies.
In addition, King is seeking FDA approval for utilization of existing
products to treat new indications and conditions and, as a result of its
acquisition of Medco Research, Inc. completed in February 2000, engages in late
stage development activities in the pharmaceutical markets.
SUMMARY OF THE TRANSACTION
In the merger, Jones will become a wholly owned subsidiary of King. We have
attached a copy of the merger agreement to this joint proxy statement/prospectus
as Annex A. We encourage you to read the merger agreement carefully. We discuss
the merger agreement more fully beginning on page .
We believe that the two companies may be integrated with relative ease and
that the merger will provide the combined companies with the opportunity to
realize several benefits, including the following:
- the merger will create a larger, more diversified pharmaceutical company,
enabling us to compete more effectively for promising pharmaceutical
opportunities;
- the merger will combine the growth prospects related to Jones' portfolio
of products with King's and both portfolios are expected to benefit from
the availability of a larger combined sales force;
- the merger will create opportunities to cross-market each company's
products into complementary customer bases, for example to market Jones'
Levoxyl(R) product through King's sales force focused on general and
family practitioners, and to market King's Altace(R) products through
Jones' sales force to endocrinologists;
- the merger enhances King's balance sheet and cash flow and improves its
financial flexibility to pursue future growth opportunities;
- the merger is expected to result in the elimination of some duplicative
costs and the achievement of some operating efficiencies;
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- the merger is expected to provide improved liquidity to shareholders of
both King and Jones; and
- the merger reduces or moderates reliance on any one product group, thus
reducing attendant risks.
There are also potential detriments to the merger, including the following:
- potential duplication of some efforts or costs, and
- the gain in sales or income of products in either portfolio may not be
matched in gain in sales or income of products held in the other
portfolio so that either King or Jones shareholders may suffer a
potential decrease in each of their share of possible gains were the
companies to remain independent.
Each of King and Jones believes the merger's potential benefits outweigh
the potential detriments. However, the merger's potential benefits may not be
achieved. See the sections entitled "Risks Relating to the Merger" on page and
"Reasons for the Merger" on page .
CONDITIONS TO COMPLETION OF THE MERGER
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of conditions. The conditions that must be satisfied or
waived before we can complete the merger include the following, subject to
exceptions and qualifications:
- Jones shareholders must approve and adopt the merger agreement and
approve the merger, and King shareholders must approve the issuance of
shares in connection with the merger;
- no injunction or order preventing the merger's completion may be in
effect;
- King common stock to be issued in the merger or upon the exercise of
options under Jones' option plans must have been included for listing on
the NYSE upon official notice of issuance;
- any applicable waiting periods under antitrust laws must have expired or
be terminated;
- all material permits, authorizations, consents and approvals needed to
complete the merger must have been obtained;
- the independent accountants of King and Jones must each have delivered
letters to the effect that they concur with management's conclusion that
the merger will qualify for pooling-of-interests accounting treatment;
- King and Jones must have received from their respective legal counsel an
opinion to the effect that the merger will qualify as a tax-free
reorganization;
- no material adverse effect may have occurred with respect to King or
Jones;
- King and Jones must have each complied in all material respects with its
respective agreements in the merger agreement; and
- King must have executed a consulting agreement, a non-competition
agreement, and a severance agreement with Dennis M. Jones, Chairman of
the Board and
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Chief Executive Officer of Jones, and a non-competition and severance
agreement with Judith A. Jones, Executive Vice President of Corporate
Affairs of Jones.
If Jones or King waives any conditions, we will then make a determination
as to whether we should resolicit proxies from you.
For a more complete description of the conditions to completion of the
merger, see the section entitled "Conditions to Completion of the Merger" on
page .
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the votes cast by holders of King's
shares owned as of July 31, 2000, the King record date, present at the meeting
must approve the issuance of shares of King common stock in the merger (provided
that a quorum is present). King shareholders are entitled to cast one vote per
share of King common stock. King affiliates holding approximately % of King
common stock as of the King record date have already agreed to vote in favor of
the issuance of King common stock in the merger.
The holders of a majority of the outstanding shares of Jones common stock
owned as of July 31, 2000, the Jones record date, must approve and adopt the
merger agreement and approve the merger. Jones shareholders are entitled to cast
one vote per share of Jones common stock. Jones affiliates holding approximately
% of Jones common stock as of the Jones record date have already agreed to
vote in favor of the merger.
For a more complete description of the votes required for approval of the
merger, see the sections entitled "Vote and Quorum Required" on page , and
"Voting of Proxies" on page .
THE VOTING AGREEMENTS
All of Jones' directors and certain affiliates who own, on the Jones record
date, shares of Jones common stock, or approximately % of the
outstanding shares, have entered into a voting agreement with King. Under the
voting agreement, these persons have agreed to vote their shares in favor of
approval and adoption of the merger agreement and approval of the merger. For a
more complete description of the voting agreement, see the section entitled
"Jones Shareholders' Voting Agreement" on page .
All of King's directors who own, on the King record date, shares of
King common stock, or approximately % of the outstanding shares, have entered
into a voting agreement with Jones. Under the voting agreement, these persons
have agreed to vote their shares in favor of the issuance of the shares in
connection with the merger. For a more complete description of the voting
agreement, see the section entitled "King Shareholders' Voting Agreement" on
page .
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the merger, the King board of directors considered
an opinion dated July 13, 2000 from its financial advisor in connection with the
merger, Credit Suisse First Boston, to the effect that as of the date of and
based upon and subject to the matters described in the opinion, the exchange
ratio was fair to King from a financial point of view.
In deciding to approve the merger, the Jones board of directors considered
an opinion from its financial advisor, Chase Securities, as to the fairness of
the exchange ratio to the holders of Jones common stock from a financial point
of view.
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For a more complete description of the financial advisors' opinions see the
section entitled "Opinions of Financial Advisors" on page . These opinions are
attached as Annex B and C. We urge you to read them.
ACCOUNTING TREATMENT OF THE MERGER
King intends to account for the merger as a "pooling-of-interests" for
financial accounting purposes, in accordance with generally accepted accounting
principles and SEC rules. To help ensure that it can account for the merger as a
pooling-of-interests, affiliates of King and Jones have entered into agreements
that restrict their ability to sell or encumber their shares of King or Jones
common stock, as applicable, for a period of time beginning 35 days before the
closing of the merger and ending two business days after the public announcement
of financial results containing at least 30 days of combined operations. For a
more complete description of the accounting treatment of the merger see the
section entitled "Accounting Treatment of the Merger" on page . For a more
complete description of the affiliate agreements, see the section entitled
"Restrictions on Sales of Shares by Affiliates of Jones and King" on page .
COMPARATIVE MARKET PRICE INFORMATION
Shares of common stock of Jones are listed on Nasdaq and shares of common
stock of King are listed on the New York Stock Exchange. On July 12, 2000, the
last full trading day prior to the public announcement of the merger, King's
common stock closed at $45.44 per share, and Jones' common stock closed at
$43.75 per share. On , 2000, King's common stock closed at $ per
share, and Jones' common stock closed at $ per share. We urge you to obtain
current market quotations.
For a more complete description of market price information, see the
section entitled "Comparative Market Price and Per Share Data" on page .
INTERESTS OF JONES DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
You should note that the directors and executive officers of Jones have
interests in the merger as employees and/or directors that are different from,
or in addition to, the interests of Jones shareholders. These interests include:
- A consulting agreement
- Noncompetition agreements
- Severance agreements
- Indemnification provisions in the merger agreement
For more detailed information on the interests of Jones directors and executive
officers, see the section entitled "Interests of Jones Directors and Executive
Officers in the Merger" on page .
RESTRICTIONS ON THE ABILITY TO SELL KING STOCK
After the merger, all shares of King common stock received by Jones
shareholders in the merger will be freely transferable unless the holder is
considered an affiliate of either King or Jones under the federal securities
laws or the transfer is restricted by an affiliate letter signed by the holder.
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For a more complete description of transfer restrictions applicable to
affiliates of King and Jones, see the section entitled "Restrictions on Sales of
Shares by Affiliates of King and Jones" on page .
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the completion of
the merger, as summarized below.
The merger agreement may be terminated by the mutual consent of King and
Jones.
In addition, subject to qualifications, either of King or Jones may
terminate the merger agreement if:
- the other materially breaches any of its representations, warranties,
covenants or agreements contained in the merger agreement such that the
conditions to closing relating to those representations, warranties,
covenants and agreements would not be satisfied, provided, that if a
breach is curable, the non-breaching party may not terminate if the party
in breach is exercising reasonable efforts to cure the breach;
- a final court order prohibiting the merger is issued and is no longer
subject to appeal;
- the merger is not completed by January 9, 2001, without the fault of the
terminating party, unless the date is extended as described in the merger
agreement;
- the Jones shareholders do not approve the merger;
- the King shareholders do not approve the issuance of the King shares in
the merger; or
- if events have occurred which have caused a material adverse effect on
either King or Jones, as the case may be, which have not been cured.
King may, subject to qualifications, terminate the merger agreement if:
- Jones' board of directors withdraws or adversely modifies its
recommendation of the merger agreement; or
- Jones' board of directors recommends to Jones' shareholders an
acquisition proposal from a third party;
- a person makes a tender offer or exchange offer for 20% or more of Jones'
common stock and the Jones board of directors, within 10 business days
after the offer is made, either (a) does not recommend that the offer be
rejected or (b) takes no position as to the offer; or
- Any person (other than King, any affiliate of King or any beneficial
owner of more than 5% of the common stock of Jones who is eligible to
make filings in respect thereof on Schedule 13G under applicable SEC
rules and regulations) shall have acquired beneficial ownership of, or
any group shall be formed which beneficially owns, 20% or more of Jones'
outstanding capital stock.
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Jones may, subject to qualifications, terminate the merger agreement if:
- the average trading price of King's common stock is less than $29.33 for
20 consecutive trading days ending on the sixth trading day prior to the
Jones shareholders meeting, provided that Jones' termination notice will
be of no effect if King increases the exchange ratio so that Jones
shareholders receive a value of $33.00 per share;
- American Home Products exercises its right to terminate the Co-Promotion
Agreement related to the marketing of Altace(R);
- King's board of directors withdraws or adversely modifies its
recommendation of the approval of the issuance of shares of King common
stock in connection with the merger;
- prior to the effective time of the merger, the FDA denies in whole the
supplemental new drug application for Altace(R); or
- Jones' board of directors (a) determines to recommend a superior
acquisition proposal to its shareholders, (b) gives notice to King and
(c) pays a $100.0 million termination fee.
For a more complete description of the manner in which the merger agreement
may be terminated, see the section entitled "Termination of the Merger
Agreement" on page .
PAYMENT OF TERMINATION FEE
Jones will pay King a termination fee of $100.0 million upon the occurrence
of any of the following events:
1. King terminates the agreement because:
- Jones' board of directors withdraws or adversely modifies its
recommendation of the merger agreement;
- Jones' board of directors recommends to Jones' shareholders an
acquisition proposal from a third-party; or
- a person makes a tender offer or exchange offer for 20% or more of
Jones' common stock and the Jones board of directors, within 10
business days after the offer is made, either (a) does not recommend
that the offer by rejected or (b) takes no position as to the offer.
2. Jones terminates the merger agreement because its board of directors
determines to recommend a superior third-party proposal to the Jones
shareholders.
3. (A) Either Jones or King terminates the merger agreement because (i) the
Jones shareholders do not approve the merger and merger agreement; or (ii) the
merger is not completed by January 9, 2001 (without the fault of the terminating
party and provided the date is not extended as provided in the merger agreement)
and there is a prior acquisition proposal and (B) Jones consummates a
transaction whereby a third-party acquires or agrees to acquire a significant
portion of Jones' capital stock or assets within 12 months after the termination
of the merger agreement.
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King will pay Jones a termination fee of $100.0 million upon the occurrence
of any of the following events:
1. Either Jones or King terminates the merger agreement because:
- the King shareholders do not approve the merger and the issuance of
King shares incident thereto;
- at or prior to King's shareholders meeting an offer pertaining to a
transaction whereby a third-party will acquire a significant portion
of King's capital stock or assets is publicly announced;
- the terms of such offer require the termination of the merger
agreement with Jones as a condition to the offer; and
- such transaction is consummated or a definitive agreement pertaining
thereto is entered into within 12 months after the termination of the
merger agreement.
2. Jones terminates the agreement because King's board of directors
withdraws or adversely modifies its recommendation of the merger agreement.
NO OTHER NEGOTIATIONS INVOLVING JONES
Until the merger is completed or the merger agreement is terminated, Jones
has agreed not to initiate, solicit, encourage or facilitate any inquiries or
engage in discussions that could be expected to result in a proposal to acquire
a significant portion of the securities or assets of Jones. Jones has agreed to
promptly inform King if it receives any acquisition proposal. Jones has also
agreed to inform King of the status and details of any acquisition proposal.
Generally, if Jones receives a proposal that is superior to the King merger,
Jones may recommend the superior proposal to its shareholders, provided it gives
notice and makes required payments to King, and provided it believes the failure
to recommend the other proposal or the superior proposal would be a breach of
its fiduciary duties. Notwithstanding such a superior proposal to Jones, the
termination fees under the merger agreement will still apply.
For a more complete description of these limitations on Jones' actions, see
the sections entitled "Termination of the Merger Agreement" on page , "Payment
of Termination Fee" on page and "No Other Negotiations Involving Jones" on
page of this joint proxy statement/prospectus.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
reference for a more complete understanding of the merger. In particular, you
should read the documents attached to this joint proxy statement/prospectus,
including the merger agreement, which is attached as Annex A, the opinion of
Credit Suisse First Boston, which is attached as Annex B, and the opinion of
Chase Securities, which is attached as Annex C.
In addition, we incorporate by reference important business and financial
information about King and Jones into this joint proxy statement/prospectus. See
"Documents Incorporated by Reference in this Joint Proxy Statement/Prospectus"
on page . You may obtain the information incorporated by reference into this
joint proxy statement/prospectus without charge by following the instructions in
the section entitled "Where You Can Find More Information" on page .
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THE KING MEETING OF SHAREHOLDERS
DATE, TIME, PLACE AND PURPOSE OF KING'S MEETING
King's special meeting of shareholders will be held at 10:00 a.m., Eastern
Daylight Time, on , , 2000 at , Kingsport, Tennessee.
At the meeting, shareholders will be asked to approve the issuance of shares of
King common stock in connection with the merger. The merger agreement is
attached to this joint proxy statement/prospectus as Annex A.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of King common stock at the close of business on
July 31, 2000, the King record date, are entitled to notice of and to vote at
the meeting. As of the close of business on the King record date, there were
shares of King common stock outstanding and entitled to vote.
These shares were held of record by approximately shareholders,
although King has been informed that there are in excess of
beneficial owners.
VOTE AND QUORUM REQUIRED
Holders of a majority of the King common stock issued, outstanding and
entitled to vote at the meeting must be present in person or by proxy to
constitute a quorum. If a quorum is not present, the meeting may be adjourned
until a quorum is obtained. Each shareholder is entitled to one vote for each
share of King common stock held. The affirmative vote of a majority of the votes
cast by holders of shares of King common stock is required to approve the
issuance of shares in connection with the merger agreement, provided that the
total number of votes that are cast (either for or against) represents over a
50% interest of all shares of King common stock entitled to vote. If no
instructions are indicated on an otherwise properly executed proxy, the shares
of common stock represented by the proxy will be voted as recommended by the
board of directors of King.
SHARE OWNERSHIP OF MANAGEMENT
All of King's directors, who own shares of King common
stock, or approximately % of the outstanding shares, on the King record
date, have executed a voting agreement with Jones, under which they have agreed
to vote their shares in favor of the issuance of shares in connection with
approval and adoption of the merger agreement and approval of the merger. See
"King Shareholders' Voting Agreement" on page .
BROKER NON-VOTES; ABSTENTIONS
Abstentions and broker non-votes will be counted for purposes of
determining the presence (or absence) of a quorum for the transaction of
business at the special meeting but will not be counted as an affirmative vote
for purposes of determining whether the issuance of shares in connection with
the merger agreement has been approved.
EXPENSES OF PROXY SOLICITATION
King and Jones will each pay for its own expenses of soliciting proxies to
be voted at the meetings. Following the original mailing of the proxies and
other soliciting materials,
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King and its agents also may solicit proxies by mail, telephone, telegraph or in
person. King has retained the services of Corporate Investor Communications,
Inc. to assist in the solicitation of proxies and will pay a fee of $6,000 plus
reimbursement of expenses for such services. Following the original mailing of
the proxies and other soliciting materials, King and Jones will request brokers,
custodians, nominees and other record holders of common stock to forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of common stock and to request authority for the exercise of proxies. Upon the
request of the record holders, King will reimburse them for their reasonable
expenses.
VOTING OF PROXIES
The King proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the King board of directors for use at the King special
meeting. Please complete, date and sign the accompanying proxy and promptly
return it in the enclosed envelope. All properly signed proxies received by King
prior to the vote at the meeting that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, to approve the issuance of King common stock in
connection with the merger.
You may revoke your proxy at any time before it is exercised at the
meeting, by taking any of the following actions:
- delivering to the King secretary a written notice bearing a date later
than the date of the proxy, stating that the proxy is revoked;
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting; or
- if you are a record holder, attending the meeting and voting in person,
although attendance at the meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee, you should contact your broker, bank or other nominee to
change your vote or to determine the proper procedure for voting your shares at
the meeting.
NO DISSENTERS' RIGHTS
Holders of King common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger.
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THE JONES MEETING OF SHAREHOLDERS
DATE, TIME, PLACE AND PURPOSE OF JONES MEETING
Jones special meeting of shareholders will be held at a.m., Eastern
Daylight Time, on , 2000 at , New York, New York. At
the meeting, shareholders will be asked to approve and adopt the merger
agreement and approve the merger. The merger agreement is attached to this joint
proxy statement/prospectus as Annex A.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Jones common stock at the close of business on
July 31, 2000, the Jones record date, are entitled to notice of and to vote at
the meeting. As of the close of business on the Jones record date, there were
shares of Jones common stock outstanding and entitled to vote. These
shares were held of record by approximately shareholders, although Jones
has been informed that there are in excess of beneficial owners.
VOTE AND QUORUM REQUIRED
Holders of a majority of the Jones common stock issued, outstanding and
entitled to vote at the meeting must be present in person or by proxy to
constitute a quorum. If a quorum is not present, the meeting may be adjourned
until a quorum is obtained. Each shareholder is entitled to one vote for each
share of Jones common stock held. The affirmative vote of a majority of the
outstanding shares of Jones common stock is required to approve and adopt the
merger agreement and approve the merger. If no instructions are indicated on an
otherwise properly executed proxy, the shares of common stock represented by the
proxy will be voted as recommended by the board of directors of Jones.
SHARE OWNERSHIP OF MANAGEMENT
All of the directors and certain affiliates of Jones who own shares
of Jones common stock, or approximately % of the outstanding shares, on the
Jones record date, have executed a voting agreement with King, under which they
have agreed to vote their shares in favor of approval and adoption of the merger
agreement and approval of the merger. See "Jones Shareholders' Voting Agreement"
on page .
BROKER NON-VOTES; ABSTENTIONS
Abstentions and broker non-votes will be counted for purposes of
determining the presence (or absence) of a quorum for the transaction of
business at the special meeting but will not be counted as an affirmative vote
for purposes of determining whether the merger has been approved.
EXPENSES OF PROXY SOLICITATION
Jones and King will each pay for its own expenses of soliciting proxies to
be voted at the meetings. Following the original mailing of the proxies and
other soliciting materials, Jones and its agents also may solicit proxies by
mail, telephone, telegraph or in person. Jones has retained the services of
Corporate Investor Communications, Inc. to assist in the
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solicitation of proxies and will pay a fee of $ plus reimbursement of
expenses for such services. Following the original mailing of the proxies and
other soliciting materials, Jones will request brokers, custodians, nominees and
other record holders of common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and to
request authority for the exercise of proxies. Upon the request of the record
holders, Jones will reimburse them for their reasonable expenses.
VOTING OF PROXIES
The Jones proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the Jones board of directors for use at the Jones special
meeting. Please complete, date and sign the accompanying proxy and promptly
return it in the enclosed envelope. All properly signed proxies received by
Jones prior to the vote at the meeting that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, to approve and adopt the merger agreement and approve
the merger.
You may revoke your proxy at any time before it is exercised at the
meeting, by taking any of the following actions:
- delivering to the Jones secretary a written notice bearing a date later
than the date of the proxy, stating that the proxy is revoked;
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting; or
- if you are a record holder, attending the meeting and voting in person,
although attendance at the meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote them at the meeting, you must bring
to the meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
NO APPRAISAL RIGHTS
Holders of Jones common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger.
HOLDERS OF JONES COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
JONES COMMON STOCK AT THIS TIME. FOLLOWING THE EFFECTIVE TIME OF THE MERGER,
HOLDERS OF JONES COMMON STOCK WILL RECEIVE INSTRUCTIONS FOR THE SURRENDER OF
THEIR CERTIFICATES REPRESENTING SHARES OF JONES COMMON STOCK IN EXCHANGE FOR
CERTIFICATES REPRESENTING SHARES OF KING COMMON STOCK.
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RISK FACTORS
The terms of the merger involve certain risk factors. By voting in favor
of the merger, Jones shareholders will also be choosing to invest in King common
stock, which in itself involves risks and King shareholders will be subject to
the risks of the combined operation of the companies. In addition to the other
information contained or incorporated by reference in this joint proxy
statement/prospectus, you should carefully consider the following risk factors
in deciding whether to vote for the merger.
RISKS RELATING TO THE MERGER
THE VALUE OF THE KING COMMON STOCK RECEIVED BY THE JONES SHAREHOLDERS IN THE
MERGER COULD BE REDUCED IF THE MARKET VALUE OF KING'S COMMON STOCK DECREASES.
Since the announcement of the transaction, the Jones common stock has
tended to trade in relation to the price of the stock of King as the acquiring
party. The share prices of both Jones common stock and King common stock are
subject to price fluctuations in the market for publicly-traded equity
securities and have each experienced significant volatility. We cannot predict
the market prices for either Jones common stock or King common stock at any time
before the completion of the merger or the market price for King common stock
after the completion of the merger. A decrease in King's stock price after the
shareholders' meetings will result in a decrease in the value that Jones
shareholders will receive in the merger.
If the average trading price per share of King common stock calculated over
a 20-day period prior to the sixth day preceding the Jones shareholder meeting
falls below $29.33, Jones has the right, but is not required, to terminate the
merger agreement unless King elects to increase the exchange ratio to provide
Jones shareholders with common stock worth $33.00 per share. We cannot assure
you that Jones would elect to terminate the agreement or that King will elect to
increase the exchange ratio. Even if Jones elects to terminate and King elects
to increase the exchange ratio, the value of stock Jones shareholders receive
may not be $33.00 on the effective date or any subsequent date.
Any decision by Jones' board of directors to elect to terminate the
agreement because the average market price of a share of King common stock is
below the $29.33 per share floor will be made by the board in its business
judgment after careful consideration of all existing conditions at that time.
We encourage you to obtain current market quotations of Jones common stock
and King common stock.
WE MAY NOT REALIZE THE MERGER'S POTENTIAL BENEFITS.
We entered into the merger agreement with the expectation that the merger
will result in revenue enhancement through synergies. King found Jones' niche
products, profit margins and general strength of financial condition to
represent potential benefits resulting from the merger. Jones perceived
potential benefits to the merger to include (1) the potential for growth of
King's products, (2) greater production capacity (which could, if necessary, be
available for some of Jones' products), (3) King's greater experience and
expertise in product life cycle management and (4) King's greater experience and
presence in marketing and selling products in a managed care environment. We can
only achieve these synergies if we can integrate our cultures, operations and
personnel timely and
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<PAGE> 26
efficiently. If we fail to do this, expected synergies may not be achieved. This
integration could also divert our attention from operations. We may not be able
to integrate our businesses timely or successfully and may not be able to
realize any of the merger's anticipated benefits. If we fail to do these things,
it could affect the value of King's common stock and impair King's finances and
business prospects after the merger.
IF WE FAIL TO COMPLETE THE MERGER, WE EACH MAY SUFFER FINANCIAL HARM.
If we do not complete the merger, we may be subject to a number of material
risks, including the following:
- Jones or King, as the case may be, may be required to pay the other party
a termination fee of $100.0 million, depending on the circumstances;
- Jones may be at risk from the perception that the company is for sale
which may in turn affect its ability to acquire additional products or
attract sales and management personnel; and
- King's ability to implement its growth strategy through acquisitions may
be adversely affected.
Also, the public announcement of our failure to complete the merger could have
an adverse effect on each of our:
- stock values and
- ability to attract and retain key management and technical personnel.
You should note that each of us also will have to pay our respective costs
related to the merger, such as legal, accounting, and financial advisor fees,
even if we do not close the merger. These costs could adversely affect the net
income of each of us.
If the merger is terminated and the Jones board of directors determines to
seek another merger or business combination, Jones may, in some situations, be
required to pay King $100.0 million as a termination fee. Because of the
termination fee Jones may be required to pay King, we cannot assure you that
Jones will be able to find a partner willing to pay an equivalent or more
attractive price than the merger consideration. In addition, while the merger
agreement is in effect, subject to exceptions, Jones is prohibited from
soliciting, initiating, encouraging, or entering into extraordinary transactions
such as, a merger, sale of assets, or other business combination with any party
other than King.
If the merger agreement is terminated because King shareholders fail to
approve the issuance of shares and prior to the King shareholder vote an offer
is made by a third party to merge with King which requires King to terminate its
agreement with Jones and this new transaction is completed within 12 months of
the execution of the agreement with Jones, King will be required to pay Jones a
termination fee of $100.0 million. In addition, if King's board of directors
withdraws or modifies its recommendation and Jones terminates the agreement,
King is required to pay Jones a termination fee of $100.0 million.
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<PAGE> 27
SHAREHOLDERS OF JONES WILL EXPERIENCE SIGNIFICANT DILUTION IN THE NET TANGIBLE
BOOK VALUE PER SHARE OF JONES COMMON STOCK UPON THE SURRENDER AND EXCHANGE OF
JONES SHARES FOR KING SHARES.
The pro forma net tangible book value per share of King common stock to be
held by Jones shareholders as a result of the merger is significantly less than
the current net tangible book value per share of Jones common stock. The
historical book value of King's assets includes a significant value attributable
to intangible assets, substantially all of which is attributable to King's
acquisition of other businesses, product lines and related assets. Certain of
these intangible assets are subject to amortization and will be charged against
earnings in future years. As a result, holders of Jones common stock will
experience immediate and substantial dilution between the net tangible book
value per share of Jones common stock on a stand-alone basis and the resulting
net tangible book value per share of King common stock on a pro forma basis. In
addition, in the event that King's consolidated working capital is used in the
acquisition of additional product lines following the merger it is likely that
such working capital will be used to acquire trademarks and other intangible
assets which will result in increased dilution to the former shareholders of
Jones common stock.
The table below presents comparative selected historical per share data of
King and Jones, and pro forma combined per share data for King and Jones and
equivalent pro forma per share data for Jones. The financial data presented
below is based on, and should be read in conjunction with, the historical
consolidated financial statements and the notes to those financial statements of
King and Jones. The pro forma combined data is not necessarily indicative of
results which will be obtained on a combined basis.
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -------------------------
2000 1999 1998 1997
--------- ------ ------ -----
<S> <C> <C> <C> <C>
NET TANGIBLE BOOK VALUE (a) PER COMMON
SHARE:
King - Historical...................... $(4.11) $(4.13) $(3.90) $0.13
Jones - Historical..................... $ 3.63 $ 3.33 $ 2.57 $1.73
King - Pro Forma Combined(b)........... $(0.70) $(0.85) $(1.06) $0.88
Jones - Pro Forma Equivalent(c)........ $(0.79) $(0.96) $(1.19) $0.99
</TABLE>
-------------------------
(a) Net tangible book value per share is equal to total tangible assets of King,
Jones or King on a pro forma basis, as the case may be, less total
liabilities divided by the respective number of shares of common stock
deemed outstanding as of the end of the period.
(b) Pro forma combined amounts shown above reflect the transaction on a
"pooling-of-interests" basis for each period shown as if the merger had
occurred as of January 1, 1997.
(c) Jones equivalent pro forma per share amounts are calculated by multiplying
the pro forma combined amounts by 1.125, the exchange ratio used in the
merger.
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<PAGE> 28
RISKS RELATING TO KING'S BUSINESS
You should carefully consider these risk factors, as well as the other
information contained in this joint proxy statement/prospectus. The risks
described below are not the only ones facing King.
IF KING CANNOT IMPLEMENT ITS STRATEGY TO GROW ITS BUSINESS THROUGH ACQUISITIONS,
KING'S COMPETITIVE POSITION IN THE INDUSTRY MAY SUFFER.
King has historically increased its sales and net income through strategic
acquisitions and related internal growth initiatives intended to develop
marketing opportunities with respect to acquired product lines. King's strategy
is focused on increasing sales and enhancing its competitive standing through
acquisitions that complement its business and enable it to promote and sell new
products through existing marketing and distribution channels. Moreover, since
King engages in limited proprietary research activity with respect to product
development, King relies heavily on purchasing product lines from other
companies.
Other companies, many of whom have substantially greater financial,
marketing and sales resources than King does, compete with King for products or
companies.
King 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 will prevent King from introducing new products and limit the
overall growth of its business. Furthermore, even if King obtains rights to a
pharmaceutical product, King may not be able to generate sales sufficient to
create a profit or otherwise avoid a loss. For example, King's marketing
strategy, distribution channels and levels of competition with respect to
acquired products may be different than those of its current products, limiting
its ability to compete favorably in those product categories.
IF SALES OF KING'S MAJOR PRODUCTS OR ROYALTY PAYMENTS TO KING DECREASE, KING'S
RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Altace(R) accounted for approximately 35.2% of net sales for the year ended
December 31, 1999 and Altace(R), Lorabid(R), Fluogen(R), and the Cortisporin(R)
product lines, collectively accounted for approximately 58.6% of net sales for
1999. King believes that sales of these products will continue to constitute a
significant portion of its total revenues for the foreseeable future.
Accordingly, any factor adversely affecting sales of any of these products or
products for which King receives royalty payments could also have a material
adverse effect on King's business, financial condition, results of operation and
cash flows.
KING 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 KING'S
RESULTS OF OPERATIONS.
Prior to King's 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 King's product. Lorabid
accounted for approximately 7.1% of net sales for the year ended December 31,
1999. King 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 King's results of operations and cash flows.
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<PAGE> 29
THE FDA MAY NOT APPROVE SOME OR ALL OF THE NEW INDICATIONS FOR ALTACE(R) FOR
WHICH KING HAS APPLIED WHICH COULD CAUSE THE MARKET PRICE OF KING'S COMMON STOCK
TO DROP SIGNIFICANTLY.
King has filed a Supplemental New Drug Application with the FDA to request
approval for new and unique indications for Altace(R). King's Supplemental New
Drug Application is based on the results of a clinical study called the "HOPE
Study." Until new indications for Altace(R) are approved by the FDA, however,
there are restrictions on King's dissemination of information about Altace(R) in
connection with the HOPE Study. King may not promote Altace(R) for the new
indications until the FDA approves the new indications. If the FDA does not
approve some or all of the new indications, King will not be able to market
Altace(R) for these new indications. King can give you no assurance that the FDA
will approve any or all of the new indications for Altace(R). The FDA review
process also may take longer than King expects, delaying by several months any
revenue recognition King would otherwise derive from these new indications. If
King violates governmental regulations applicable to dissemination of the HOPE
Study results or fails to secure new indications for Altace(R), there may be a
material adverse effect on King's business, financial condition, results of
operation and cash flows. In addition, any failure or perceived failure by King
regarding Altace(R) could cause the price of its common stock to decline.
IF THE FDA APPROVES KING'S NEW AND UNIQUE INDICATIONS FOR ALTACE(R) BASED ON THE
HOPE STUDY, SALES OF ALTACE(R) MAY BE AFFECTED BY THE PERCEPTION OF A CLASS
EFFECT, AND ALTACE(R) AND KING'S OTHER PRODUCTS MAY BE SUBJECT TO VARIOUS
SOURCES OF COMPETITION FROM ALTERNATE THERAPIES.
King can give you no assurance that the FDA will approve its application
for new indications for Altace(R). Even if the FDA approves some or all of the
new indications for Altace(R), King may be unable to meet investors'
expectations regarding sales of Altace(R) due to a perceived class effect and
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 claim 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 claim that their products are equivalent to Altace(R). By doing so, these
companies will be able to claim 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 and because comparative data among products in the same drug
class is rare, marketing forces often dictate a physician's decision to use one
ACE inhibitor over another. We may
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<PAGE> 30
not be able to overcome other companies' claims that their ACE inhibitors will
offer the same benefits of Altace(R) as demonstrated by the HOPE Study. As a
result, sales of Altace(R) may suffer from the perception of 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 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).
KING HAS ENTERED INTO A CO-PROMOTION AGREEMENT FOR THE PROMOTION OF ALTACE(R)
WITH AMERICAN HOME PRODUCTS CORPORATION WHICH COULD BE TERMINATED BEFORE KING
CAN REALIZE ANY BENEFIT FROM THE AGREEMENT.
King's exclusive co-promotion agreement for Altace(R) with American Home
Products Corporation could be terminated before King realizes any benefit from
the agreement. King has filed a Supplemental New Drug Application with the FDA
to request approval for new and unique indications for Altace(R). If the new
indications for Altace(R) have not been approved by January 31, 2001, then
American Home Products will have the right to terminate the co-promotion
agreement. Also, American Home Products and King each has 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 King or American Home Products could
terminate the co-promotion agreement. If the co-promotion agreement is
terminated for any reason, King may not realize increased sales which King
believes may result from the expanded promotion of Altace(R). If the
co-promotion is terminated, King must return some of the money previously paid
to it by American Home Products on the signing of the co-promotion and American
Home Products will have the right to reacquire its interests in Nordette(R) for
a fixed sum. If King must unwind its co-promotion efforts because of the reasons
mentioned above or King is 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 KING CANNOT INTEGRATE THE BUSINESSES OF COMPANIES KING ACQUIRES, ITS BUSINESS
MAY SUFFER.
King anticipates that the integration of newly-acquired products, and other
assets into its business will require significant management attention and
expansion of its sales force. In order to effectively manage its acquisitions,
King must maintain adequate operational, financial and management information
systems and motivate and effectively manage an increasing number of employees.
King's recent acquisitions have significantly expanded its product offerings,
operations and number of employees. King's future success will also depend in
part on its ability to retain or hire qualified employees to operate its
expanding facilities efficiently in accordance with applicable regulatory
standards. If King cannot integrate its 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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<PAGE> 31
IF KING IS NOT ABLE TO DEVELOP OR LICENSE NEW PRODUCTS, ITS BUSINESS MAY SUFFER.
King competes with other pharmaceutical companies, including large
pharmaceutical companies with financial resources and capabilities substantially
greater than King's, in the development and licensing of new products. King
cannot assure you that it 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 King has in development or that it licenses. Because there is rapid
technological change in the industry and because other companies have more
resources than King does, other companies may
- develop or license their products more rapidly than King can,
- complete any applicable regulatory approval process sooner than King can,
- market or license their products before King can market or license its
products,
- offer their newly developed or licensed products at prices lower than
King's
and thereby negatively impact the sales of King's newly developed or licensed
products. Technological developments or the FDA's approval of new therapeutic
indications for existing products may make King's existing products or those
products it is licensing or developing obsolete or may make them more difficult
to market successfully, which could have a material adverse effect on its
business, financial condition, results of operations and cash flows.
KING'S SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT ITS FINANCIAL HEALTH.
King has a high level of debt. As of June 30, 2000, its total debt was
approximately $294.4 million and its total debt, as a percentage of total
capitalization, was approximately 38.2%. Its high level of debt could have a
significant adverse future effect on its business. For example:
- King will have limited ability to borrow additional amounts for working
capital, capital expenditures, acquisitions, debt service requirements,
execution of its growth strategy, research and development costs or other
purposes;
- a substantial portion of its cash flow will be used to pay principal and
interest on its debt, which will reduce the funds available for working
capital, capital expenditures, acquisitions and other purposes;
- King's senior credit facility covenants require it to meet certain
financial objectives and impose other significant restrictions on its
business operations. These covenants and the covenants contained in the
indenture governing its senior subordinated notes will limit its ability
to borrow additional funds or dispose of assets, pay dividends and limit
its flexibility in planning for and reacting to changes in its business;
- King may be more vulnerable to adverse changes in general economic,
industry and competitive conditions and adverse changes in government
regulation;
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<PAGE> 32
- King's high debt level and the various covenants contained in the
indenture related to its senior subordinated notes and the documents
governing its other existing indebtedness may place it at a relative
competitive disadvantage as compared to certain of its competitors; and
- borrowings under its senior credit facility are at floating rates of
interest, which could result in higher interest expense in the event of
an increase in interest rates.
King's ability to pay principal of and interest on its senior subordinated
notes, to service its other debt and to refinance indebtedness when necessary
depends on its financial and operating performance, each of which is subject to
prevailing economic conditions and to financial, business and other factors
beyond its control.
King cannot assure you that it will generate sufficient cash flow from
operations or that it will be able to obtain sufficient funding to satisfy all
of its obligations, including the senior subordinated notes. If King is unable
to meet its debt obligations, it will be required to pursue one or more
alternative strategies, such as selling assets, refinancing or restructuring its
indebtedness or selling additional equity capital. However, King cannot assure
you that any alternative strategies will be feasible at the time or prove
adequate. Also, certain alternative strategies will require the consent of
King's senior secured lenders.
KING DOES NOT HAVE PROPRIETARY PROTECTION FOR MOST OF ITS BRANDED PHARMACEUTICAL
PRODUCTS AND ITS SALES COULD SUFFER FROM COMPETITION BY GENERIC SUBSTITUTES.
Although most of King's revenue is generated by products not subject to
competition from generic products, there is no proprietary protection for most
of its 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 King's branded products and could have a material
adverse effect on its business, financial condition and results of operations.
While King will seek to mitigate the effect of this substitution through, among
other things, creation of strong brand name recognition and product line
extensions for our branded pharmaceutical products, King may not be successful
in these efforts. In addition, King's branded products for which there is no
generic form available may face competition from different therapeutic agents
used for the same indications for which King's branded products are used.
THIRD PARTIES MANUFACTURE OR SUPPLY MATERIALS FOR MANY OF KING'S PRODUCTS, AND
ANY DELAYS OR DIFFICULTIES EXPERIENCED BY THEM MAY REDUCE KING'S PROFIT MARGINS
AND REVENUES OR HARM ITS REPUTATION.
Fifteen of King's product lines, including Altace(R), Lorabid(R) and
Cortisporin(R), are currently manufactured by third parties. Until these
products can be moved to King's manufacturing facilities, its dependence upon
third parties for the manufacture of its products may adversely impact its
profit margins or may result in unforeseen delays or other problems beyond its
control. If for any reason King is unable to obtain or retain third-party
manufacturers on commercially acceptable terms, King may not be able to
distribute its products as planned. If King encounters delays or difficulties
with contract manufacturers in producing or packaging its products, the
distribution, marketing and subsequent sales of these products would be
adversely affected, and King may have to seek
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<PAGE> 33
alternative sources of supply or abandon or sell a product line on
unsatisfactory terms. King might not be able to enter into alternative supply
arrangements at commercially acceptable rates, if at all. King also cannot
assure you that the manufacturers it utilizes will be able to provide it with
sufficient quantities of its products or that the products supplied to it will
meet its specifications.
King requires a supply of quality raw materials and components to
manufacture and package pharmaceutical products for King and for third parties
with which King has contracted. Generally, King has not had difficulty obtaining
raw materials and components from suppliers in the past. Currently, King relies
on approximately 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 King's ability to acquire raw materials and
components. King has no reason to believe that it will be unable to procure
adequate supplies of raw materials and components on a timely basis. However, if
King is unable to obtain sufficient quantities of any of the raw materials or
components required to produce and package its products, King may not be able to
distribute its products as planned. In this case, King's business, financial
condition and results of operations could be materially and adversely affected.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT KING'S ABILITY TO
OPERATE ITS BUSINESS.
Virtually all aspects of King's activities are regulated by Federal and
state statutes and government agencies. The manufacturing, processing,
formulation, packaging, labeling, distribution and advertising of King's
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.
Noncompliance with applicable FDA policies or requirements could subject
King 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 King's products are manufactured and sold, and could have ramifications
for King's contracts with government agencies such as the Veteran's
Administration. These enforcement actions could have a material adverse effect
on King's 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, such as any decision by the FDA to
require an
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<PAGE> 34
approved marketing application for one of our products not currently subject to
the approved marketing application, could have a material adverse effect on
King's business, financial condition and results of operations.
King manufactures some pharmaceutical products containing controlled
substances and, therefore, is 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 King. Additionally, King
manufactures biological drug products for human use and is subject to regulatory
burdens as a result of these aspects of its 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 King's products with which King must continuously comply.
Noncompliance with any of these policies or requirements could result in
enforcement actions which could have a material adverse effect on King's
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 cGMPs 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 King believes that all of its currently marketed pharmaceutical
products comply with FDA enforcement policies or have received the requisite
agency approvals, King's 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. King's
manufacturing facilities and those of its 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. This could have a
material adverse effect on King's business, financial condition, results of
operation and cash flows.
King cannot determine what effect changes in regulations, enforcement
positions, statutes or legal interpretation, when and if promulgated, adopted or
enacted, may have on its 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 King's business,
financial condition, results of operation and cash flows.
KING'S PARKEDALE FACILITY HAS BEEN THE SUBJECT OF FDA CONCERNS. IF KING CANNOT
ADEQUATELY ADDRESS THE FDA'S CONCERNS, KING MAY BE UNABLE TO OPERATE THE
PARKEDALE FACILITY AND, ACCORDINGLY, KING'S BUSINESS MAY SUFFER.
King's Parkedale facility, located in Rochester, Michigan, manufactures
both drug and biological pharmaceutical products. Parkedale was one of six
Warner-Lambert facilities
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<PAGE> 35
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 King's
compliance with cGMPs in a written report provided to King. This written report
is known as an "FDA Form 483" or simply as a "483." King 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 King's compliance with the FDA's cGMP
requirements. At the end of that inspection, the FDA issued another 483 listing
its observations. King submitted a written response to that 483 and met with FDA
representatives to present King's plans for addressing the observations. In
August 1999, the FDA asked King to clarify and supplement its 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 King discontinued the manufacture and
distribution of the product, and King subsequently informed the FDA of its
decision. Most, but not all, of King's actions in response to the May 1999
inspection and the August 1999 FDA letter have been completed, and King has
continued to inform the FDA in writing of its progress in implementing those
actions.
In October 1999, as part of its program for inspection of all manufacturers
of influenza virus vaccine, the FDA's Team Biologics inspected King's production
of Fluogen(R) at the Parkedale facility and issued a 483 listing certain cGMP
observations. In November 1999, King submitted a written response containing its
plan to address those observations.
On March 10, 2000, the FDA notified King that the methods, facilities and
controls used by the Parkedale facility in the manufacture, processing and
packaging of Fluogen(R) were not in compliance with cGMP requirements. The FDA
therefore informed King, pursuant to the consent decree, that King must suspend
production and distribution of Fluogen(R) until the Parkedale facility meets the
applicable cGMP standards for the manufacture and distribution of Fluogen(R).
The FDA has received King's initial response to its March 10 notification and
following discussions with the FDA, King has filed with the FDA its written
certification of conformance that it is now sufficiently in compliance with cGMP
manufacturing standards to resume the manufacture of Fluogen(R) and King has now
resumed the manufacture of Fluogen(R). The distribution of Fluogen(R) remains
suspended pursuant to the FDA's order. King is working to meet all of the FDA's
requirements to resume distribution of Fluogen(R), which can occur upon the
FDA's verification that Parkedale has satisfactorily completed all required
corrective measures and is in substantial compliance with cGMP standards.
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. King generally recognizes revenue from
Fluogen(R) during the third and fourth quarters of each calendar year.
On Friday, June 9, 2000, representatives of King met with the FDA to
discuss the status of its compliance program for Fluogen. The FDA was encouraged
by King's efforts to that date and agreed to continue to work closely with
Parkedale in an attempt to resolve remaining issues. While King is pursuing all
actions reasonably necessary to assure
26
<PAGE> 36
Fluogen(R)'s availability during the upcoming flu season commencing September
2000, King cannot assure you that we will be able to satisfy the FDA's concerns
respecting the cGMP standards applicable to Fluogen(R). Consequently, King
cannot assure you that King will be able to market or distribute any amount of
Fluogen(R) in the future.
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 distribution of Aplisol(R), and the FDA continues to
approve the release and distribution of Aplisol(R) by Parkedale.
KING COULD BE FORCED TO WRITE OFF CERTAIN AMOUNTS OF FLUOGEN(R) INVENTORY AND
THE ANNUAL YIELDS OF THE STRAINS OF THE INFLUENZA VIRUS VACCINE ARE
UNPREDICTABLE.
Even if the FDA permits King to resume distribution of Fluogen(R), the FDA
could also prevent distribution of some or all of King's influenza vaccine
inventory.
The three influenza virus strains that comprise each year's vaccine are
selected annually by governmental authorities based on epidemiologic data
collected worldwide. The growth characteristics of each of the three strains are
unpredictable, resulting in potentially significant variations of vaccine
component yields. Since the final vaccine is comprised of equal proportions of
each strain, a low yield of any one strain will reduce the total number of
vaccine doses available for distribution.
A write off of in-process or finished inventory of Fluogen(R) or an
unexpectedly low yield of any one strain of the vaccine components could have a
material adverse effect on King's business, financial condition and results of
operations.
KING'S QUARTERLY RESULTS MAY FLUCTUATE, AND THESE FLUCTUATIONS MAY ADVERSELY
AFFECT KING'S PROFITABILITY.
King's 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 King or our competitors, the mix of products King
sells, 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 King's
customers may order pharmaceutical products in larger than normal quantities.
The ordering of excess quantities in any quarter could cause sales of some of
King's branded pharmaceutical products to be lower in the subsequent quarter
than they would have been otherwise. These factors could also affect King's
annual results of operations as well as its ability to satisfy certain of the
covenants in King's senior credit facility and the indenture related to the
notes. King cannot assure you that King will be successful in maintaining or
improving its profitability or avoiding losses in any future period.
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<PAGE> 37
AN INCREASE IN PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS OR PRODUCT RETURNS
COULD HARM KING'S BUSINESS.
King faces an inherent business risk of exposure to product liability
claims in the event that the use of its technologies or products is 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 King has taken, and will continue to take,
what King believes are appropriate precautions, King may not be able to avoid
significant product liability exposure. King currently has 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, King 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 King's 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 King's 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 King's 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 for intravenous infusion only 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. King cannot assure you that additional
product recalls will not occur in the future. Any product recalls could have a
material adverse effect on King's business, financial condition, results of
operations and cash flows.
Although product returns were approximately 2.7% of gross sales for the
year ended December 31, 1999, King cannot assure you that actual levels of
returns will not increase or significantly exceed the amounts King has
anticipated.
THE LOSS OF KING'S KEY PERSONNEL COULD HARM ITS BUSINESS.
King is highly dependent on the principal members of its management staff,
the loss of whose services might impede the achievement of its acquisition and
development objectives. Although King believes that it is adequately staffed in
key positions and that it will be successful in retaining skilled and
experienced management, operational, scientific and development personnel, King
cannot assure you that it 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 King, especially in light of its recent growth. King
does not maintain key-person life insurance on any of its employees. In
addition, King does not have employment agreements with any of its key
employees.
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<PAGE> 38
KING'S RECENTLY ESTABLISHED INTERNATIONAL DIVISION IS NOT YET PROFITABLE, AND
THERE CAN BE NO ASSURANCE THAT IT WILL BE PROFITABLE IN THE FUTURE.
In January 1999, King established its International Division in Charlotte,
North Carolina in order to seek new international markets for product lines for
which King has international rights. The marketing and distribution of these
products in foreign countries generally require the prior registration of the
products in those countries. King does not have a distribution mechanism in
place for distribution outside the United States and Puerto Rico and would need
to enter into distribution agreements with local companies to distribute the
products effectively. King cannot assure you that it will be successful in
securing the registrations outside the U.S. or that it will do so in a timely
manner. King cannot assure you that its International Division will be
successful in entering into distribution agreements or that King will be able to
secure additional products with international rights in the future. Initial
sales generated from the International Division may not exceed the associated
costs of its operations.
IF KING IS UNABLE TO SECURE OR ENFORCE PATENT RIGHTS, TRADEMARKS, TRADE SECRETS
OR OTHER INTELLECTUAL PROPERTY, KING'S BUSINESS COULD BE HARMED.
King may not be successful in securing or maintaining proprietary patent
protection for products it develops or technologies it licenses. In addition,
King's competitors may develop products similar to King's using methods and
technologies that are beyond the scope of King's intellectual property
protection, which could reduce its sales. The validity of patents can be subject
to expensive litigation. King can give you no assurance that its patents will
not be challenged. Competitors may be able to develop similar and competitive
products outside the scope of King's 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 King's patents, physicians could
use those third party products in place of King's products even though the third
party products were not approved by the FDA for the same indications as its
products. Any off-label use of third party products could have a material
adverse effect on sales of King's products and the amount of royalty revenues
King receives.
King also relies 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.
King cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to
King's trade secrets or disclose the technology, or that King can adequately
protect its trade secrets.
OWNERSHIP OF KING IS CONCENTRATED IN A FEW INDIVIDUALS WHO CAN INFLUENCE ITS
MANAGEMENT AND POLICIES.
King's present executive officers and directors (16 persons) and their
affiliates beneficially own approximately 30.1% of the outstanding shares of
common stock. Accordingly, they have the ability to exercise significant
influence over the management and policies of King. 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, King's
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 King and its shareholders generally
and its executive officers or
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<PAGE> 39
directors. King does not intend to implement any formal procedures to address
any of these potential conflicts of interest.
RISKS RELATING TO JONES' BUSINESS
Jones' results of operations in future periods, both annually and from
quarter-to-quarter, are subject to a variety of factors affecting Jones and the
industries and markets in which it operates, including those discussed below.
IF SALES OF JONES KEY PRODUCTS DECREASE, JONES' RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED.
Jones' revenues and earnings are primarily attributable to a limited number
of key products which currently enjoy high gross margins. During 1999, sales of
synthetic thyroid, treatment products (principally Levoxyl(R), Tapazole(R),
Cytomel(R) and Triostat(R)) and Jones thrombin products (principally
Thrombin-JMI(R)) represented, in the aggregate, approximately 80.4% of total
sales. Any factor adversely affecting either the availability of these products,
or the market or pricing for these products, would have a material adverse
effect upon Jones' business and the results of its operations. Gross margins
applicable to the sale of thrombin products in 2000 will be reduced somewhat due
to sales of Thrombogen(R) of approximately $6.6 million in this concluding year
of Jones' supply commitment to Johnson & Johnson's Ethicon subsidiary. Sales of
Thrombogen(R) in 1999 and 1998 were $1.6 million and $0, respectively.
JONES RELIES ON THIRD-PARTY MANUFACTURERS FOR MANY OF ITS PRODUCTS, AND ANY
DELAYS OR DIFFICULTIES EXPERIENCED BY THEM MAY REDUCE JONES' PROFIT MARGINS AND
REVENUES OR HARM ITS REPUTATION.
Tapazole(R), Triostat(R), Cytomel(R) and Brevital(R), which collectively
represented approximately 38.0% of 1999 sales, are produced for Jones by third
party manufacturers under agreements arising from Jones' acquisition of these
product lines. Jones depends upon these suppliers and they, in turn, generally
depend on sole-source suppliers for key raw materials used in these products.
Alternative sources of these products are not readily available and any transfer
of production would be subject to FDA site-change approval. Although Jones
believes its contracts for these products are with reliable and substantial
entities, interruption in product deliveries and/or the need to enter into new
agreements upon the expiration of the current term with the same or another
manufacturer present the risk that Jones may not be able to obtain adequate
supplies in a timely fashion or at all.
Disruption in the available supply of Tapazole(R), Triostat(R), Cytomel(R)
or Brevital(R), or an inability to obtain sources of supply upon the expiration
of current manufacturing arrangements would be materially adverse to Jones'
business and financial condition and to the results of its operations. Changes
in manufacturing arrangements for these products, whether resulting in a new
supplier or new contract terms with an existing supplier, may result in an
increase in Jones' costs of good sold. Even if prices are raised to offset some
or all of these additional costs, gross margins may be adversely affected.
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<PAGE> 40
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT JONES' ABILITY TO
OPERATE ITS BUSINESS.
The manufacturing, processing, formulation, packaging, labeling,
advertising and sampling of pharmaceutical products are subject to extensive
regulation by various federal and state agencies including the FDA, the Federal
Trade Commission, the Drug Enforcement Agency, the Consumer Products Safety
Commission, the Environmental Protection Agency and the U. S. Department of
Agriculture. In addition to other costs of compliance with such regulations,
Jones is subject to possible risks arising from changes in these regulations or
based upon alleged violations of regulations. These risks could render Jones'
products unavailable to the market or unmarketable or result in product recalls.
Any of these developments could materially and adversely affect Jones'
reputation, business, and financial condition and its results of operations.
- A pending change in the status of levothyroxine products requires that
Jones obtain approval of Levoxyl(R) as a "new drug." Failure to obtain
such approval in a timely fashion would materially and adversely affect
Jones' business and financial condition and the results of its
operations.
- The FDA has adopted regulations under the Modernization Act of 1997
restricting the ability of pharmaceutical companies, including Jones, to
market products for "off labeled" indications.
- In January 2000 Jones received a Warning Letter from the FDA challenging
terminology used in an advertisement for Levoxyl(R). Jones has complied
with steps requested in the letter and does not currently anticipate that
the FDA will seek to impose further sanctions.
AN INCREASE IN PRODUCT LIABILITY CLAIMS COULD HARM JONES' BUSINESS.
In addition to government regulation, Jones faces an inherent risk of
exposure to product liability claims. These claims might allege that the use of
a product manufactured or distributed by Jones resulted in adverse effects for a
patient or consumer. Product liability claims could materially and adversely
affect Jones' reputation, business and financial condition and the results of
its operations. These risks exist even with respect to products which are
manufactured in regulated facilities or otherwise possess regulatory approval
for commercial sale. These risks exist even though Jones has taken and continues
to take what it believes are appropriate quality control and precautions in its
operations.
JONES RECENTLY IMPLEMENTED CHANGES IN ITS MARKETING STRATEGIES WHICH COULD
ADVERSELY AFFECT SALES LEVELS.
During 1999 Jones implemented modifications to its marketing approach to
- unify its field sales staff to concentrate on its endocrine product line
and other products subject to competitive markets, and
- renegotiate contract pricing agreements which provide incentive discounts
and rebates.
Jones' current promotional emphasis could adversely affect sales levels of
its critical care products which now receive less promotion. Changes in
available incentive discounts and rebates may result in greater resistance to
price increases. Despite these risks, Jones
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<PAGE> 41
believes that the intended benefits from these strategic measures will favorably
affect operating results in future periods.
JONES IS A DEFENDANT IN LITIGATION WHICH IS CURRENTLY BEING HANDLED BY ITS
INSURANCE CARRIER. SHOULD THIS COVERAGE BE SUBSEQUENTLY DENIED AND JONES WERE TO
LOSE ALL OF THESE LAWSUITS, JONES RESULTS OF OPERATIONS COULD BE ADVERSELY
AFFECTED.
Jones 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." Jones did, following an acquisition in 1996,
act as a distributor of Obenix, 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, we are 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. The lawsuits are in various states. 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 RELATING TO THE INDUSTRY
ANY REDUCTION IN REIMBURSEMENT LEVELS BY MANAGED CARE ORGANIZATIONS OR OTHER
THIRD-PARTY PAYORS MAY HAVE AN ADVERSE EFFECT ON KING'S AND JONES' 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. Neither King nor
Jones can assure you that their respective 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 their operations.
In addition, a number of legislative and regulatory proposals aimed at
changing the health care system, including the levels at which pharmaceutical
companies are reimbursed for sales of their products, have been proposed. While
neither King nor Jones can predict when or whether any of these proposals will
be adopted or the effect these proposals may have on their respective 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
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<PAGE> 42
material adverse effect on each of King's and Jones' financial condition,
results of operations or cash flows.
THE INDUSTRY IS HIGHLY COMPETITIVE.
In the industry, smaller pharmaceutical companies like King and Jones
compete with large, global pharmaceutical companies with substantially greater
financial resources for the acquisition of products, technologies and companies.
Neither King nor Jones can assure you that
- it 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 its business,
financial condition and results of operations.
King and Jones 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 King's or Jones' 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 King's or Jones'. King and Jones believe that competition for sales
of their products will be based primarily on product efficacy, safety,
reliability, availability and price.
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RECENT DEVELOPMENTS
In addition to the risk factors described on the preceding pages,
shareholders of both King and Jones should consider the following developments
since December 31, 1999, both as they affect each company individually and as
they affect the combined company that would result from the merger.
KING
- King completed its acquisition of Medco Research, Inc. on February 25,
2000, in a transaction accounted for as a pooling of interests.
- During the quarter ended June 30, 2000, King raised significant
additional equity capital aggregating $240 million through the issuance
of 6.0 million shares of its 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.
- Under the terms of the Altace(R) co-promotion agreement, American Home
Products will share in the revenues, net of certain costs, of future
sales of Altace(R) in excess of specified levels in exchange for its
marketing efforts. If King receives FDA approval of its supplemental New
Drug Application for the use of Altace(R) to treat indications cited in
the Hope Study, American Home Products is obligated to pay an additional
$50 million to King.
- Approximately $181.2 million of the additional equity raised by King was
used to retire or prepay indebtedness. In connection therewith, King
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, King completed the acquisition of US 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.
Certain of the foregoing transactions have significantly affected King's
balance sheet. King's debt to equity ratio has decreased from 264% at December
31, 1999, to 62% at June 30, 2000. The 7.9 million additional shares of King's
common stock sold during the second quarter represent 8.5% of its stock
outstanding at June 30, 2000.
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<PAGE> 44
JONES
- In late March 2000, the FDA approved two generic formulations of
methimazole products similar to its Tapazole(R) products. Jones
subsequently acquired the rights to one of these generic products with a
view to introducing a generic alternative thyroid treatment to the
veterinary market. Jones understands that sales of the other generic
formulation, as a product intended for human use, commenced in June 2000.
- Triostat(R) was previously produced for Jones under a supply agreement
with SB Pharmco Puerto Rico Inc. (an affiliate of SmithKline Beecham plc)
which expired in June 2000. Jones is negotiating a long-term supply
contract for the manufacture and supply of this product with Akorn
Incorporated. FDA approval of the site transfer for manufacturing of
Triostat(R) has been obtained. Jones received its first shipment of
product manufactured by Akorn in July 2000, consisting of an estimated
five months inventory supply.
- Jones anticipates near term capital expenditures approximating $3.5
million in order to adopt and apply viral inactivation processes to the
manufacture and packaging of its thrombin-based products, which are
derived from bovine blood. Jones does not anticipate that implementation
of the processes, which are required under applicable FDA regulations,
will adversely affect the stability or other properties of Thrombin-
JMI(R).
- For many years, Jones has supplied Thrombogen(R), a line of
thrombin-based products manufactured under a distribution and development
agreement with Ethicon, Inc, a subsidiary of Johnson & Jonson Products,
Inc. This agreement is scheduled to expire in October 2000. Ethicon is
seeking an extension of the supply relationship and in connection
therewith has claimed in correspondence to Jones that a failure of Jones
to continue production on behalf of Ethicon may violate federal antitrust
laws. Jones' Gentrac facility in Madison, Wisconsin is the sole domestic
facility currently licensed by the FDA to produce natural thrombin
products.
SECOND QUARTER EARNINGS RELEASES
JONES. On July 19, 2000, Jones announced operating results for the quarter
and six months ended June 30, 2000. For the quarter and six months then ended,
Jones reported sales of $51.6 million and $97.4 million, respectively, compared
to sales of $31.3 million and $60.8 million, respectively for the prior year
periods. The year 2000 results represent a 65% increase in sales for the second
quarter and a 60% increase in sales for the six months. Jones' earnings for the
second quarter were $0.30 per share, up 77% from $0.17 in 1999. Jones' earnings
for the six months ended June 30, 2000, were $0.58 per share, up 81% from $0.32
in 1999.
KING. On July 24, 2000, King announced operating results for the quarter
and six months ended June 30, 2000. For the quarter and six months then ended,
King reported revenues of $103.1 million and $194.6 million, respectively,
compared to revenues of $84.9 million and $152.5 million, respectively for the
prior year periods. The year 2000 results represent a 21% increase in revenues
for the second quarter and a 28% increase in revenues for the six months.
King's earnings for the second quarter, prior to extraordinary charges of
$4.7 million for the writeoff of certain deferred financing costs relating to
repayment of indebtedness
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under its senior credit facility, were $0.19 per share, up 19% from $0.16 in
1999. Total debt decreased 48.2%, or $273.5 million, from $567.9 million at
December 31, 1999 to $294.4 million at June 30, 2000 due to this repayment.
King's earnings for the six months ended June 30, 2000, prior to the
extraordinary charges and prior to non-recurring merger and restructuring costs
relating to its acquisition of Medco, were $0.32 per share, up 19.0% from
comparable earnings of $0.27 in 1999.
Additional information concerning Jones' and King's three months and six
months ended June 30, 2000, will be included in their respective quarterly
reports on Form 10-Q which will be filed with the Securities and Exchange
Commission on or before August 14, 2000. These filings will be incorporated in
this joint proxy statement/prospectus by reference when made. You are urged to
read and consider this financial information. See the section entitled "Where
You Can Find More information."
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KING PHARMACEUTICALS, INC.
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables present unaudited selected pro forma combined
condensed financial data for King after giving effect to the merger with Jones.
The merger with Jones will be accounted for using a pooling-of-interests method
of accounting. The selected pro forma financial data presented below reflect the
operations of King and Jones for the three-month periods ended March 31, 2000
and 1999, and for the years ended December 31, 1999, 1998 and 1997. In addition,
the information for the year ended December 31, 1999 reflects King's acquisition
of the Lorabid(R) product line on August 19, 1999 as if it occurred on January
1, 1999. The unaudited selected pro forma combined condensed financial data are
presented for illustrative purposes only and are not necessarily indicative of
the results that would have been obtained if the merger had occurred at the
beginning of the periods presented (in the case of statement of operations
items) or at the dates of the balance sheet (in the case of balance sheet
items), or that may be obtained in the future. The selected unaudited pro forma
combined condensed financial data should be read in conjunction with the
Unaudited Pro Forma Combined Condensed Financial Information appearing elsewhere
in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
FOR THE THREE-
MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- --------------------------------
2000 1999(1) 1999(1) 1998(1) 1997(1)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
DATA:
Total revenues................................... $137,175 $ 97,046 $544,262 $294,421 $156,690
-------- -------- -------- -------- --------
Operating Costs and Expenses:
Cost of revenues............................... 30,477 23,395 151,728 91,189 39,552
Selling, general and administrative............ 33,728 21,074 118,530 61,189 41,613
Depreciation and amortization.................. 9,277 7,786 36,655 15,566 8,576
Research and development costs................. 3,665 3,146 17,659 10,866 7,792
Merger and restructuring costs(2).............. 20,789 -- -- -- --
Nonrecurring charges(3)........................ -- -- -- 10,500 --
-------- -------- -------- -------- --------
Total operating costs and expenses....... 97,936 55,401 324,572 189,310 97,533
-------- -------- -------- -------- --------
Operating income............................... 39,239 41,645 219,690 105,111 59,157
Other income (expense):
Interest (expense)............................. (14,032) (12,719) (61,255) (15,081) (3,025)
Interest income................................ 4,021 2,167 10,507 7,961 4,672
Other income (expenses)........................ (126) (71) (3,239) 4,016 673
-------- -------- -------- -------- --------
Income from continuing operations before income
taxes.......................................... 29,102 31,022 165,703 102,007 61,477
Income tax expense............................... (18,463) (11,738) (62,714) (36,877) (19,608)
-------- -------- -------- -------- --------
Income from continuing operations................ $ 10,639 $ 19,284 $102,989 $ 65,130 $ 41,869
======== ======== ======== ======== ========
PER SHARE INCOME FROM CONTINUING OPERATIONS(4):
Basic.......................................... $ 0.07 $ 0.12 $ 0.66 $ 0.43 $ 0.29
======== ======== ======== ======== ========
Diluted........................................ $ 0.07 $ 0.12 $ 0.65 $ 0.43 $ 0.29
======== ======== ======== ======== ========
Weighted average common shares(4):
Basic.......................................... 156,771 155,658 155,848 151,172 142,144
======== ======== ======== ======== ========
Diluted........................................ 160,396 158,061 158,668 153,095 143,902
======== ======== ======== ======== ========
</TABLE>
37
<PAGE> 47
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 228,247
Total assets................................................ 1,138,014
Total long-term liabilities................................. 502,305
Total shareholders' equity.................................. 491,321
</TABLE>
-------------------------
(1) King completed various product purchase acquisitions for which the results
of operations of the acquired products are included in King's consolidated
results of operations from the respective dates of the acquisitions (see
footnote 7 to King's consolidated financial statements).
(2) Reflects merger and transaction costs associated with King's completed
merger with Medco Research, Inc. on February 25, 2000.
(3) Reflects a non-cash accounting charge related to an impairment of certain
under-performing long-lived assets (see footnote 3 to Jones' consolidated
financial statements).
(4) Retroactively reflects King's 3 for 2 stock split effective June 21, 2000.
38
<PAGE> 48
KING SELECTED CONSOLIDATED FINANCIAL DATA
The tables below contain selected consolidated financial data for King. The
results of operations of King's purchase accounting acquisitions are included in
King's consolidated results of operations from the respective dates of the
acquisitions. This information has been derived from King's consolidated
financial statements, which are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ---- -------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................... $91,441 $67,569 $379,921 $191,007 $67,909 $33,911 $35,211
------- ------- -------- -------- ------- ------- -------
Operating Costs and Expenses:
Cost of revenues....................... 22,585 17,139 118,865 68,925 16,019 11,356 16,086
Selling, general and administrative.... 25,711 13,920 80,213 36,193 19,950 14,964 12,427
Depreciation and amortization.......... 7,858 6,442 27,734 9,963 3,071 1,177 1,913
Research and development costs......... 3,434 2,907 16,316 10,749 7,792 5,788 8,526
Merger and restructuring costs(2)...... 20,789 -- -- -- -- -- --
------- ------- -------- -------- ------- ------- -------
Total operating costs and
expenses....................... 80,377 40,408 243,128 125,830 46,832 33,285 38,952
------- ------- -------- -------- ------- ------- -------
Sale of product line..................... -- -- -- -- -- -- 13,102
------- ------- -------- -------- ------- ------- -------
Operating income......................... 11,064 27,161 136,793 65,177 21,077 626 9,361
Interest expense......................... (14,032) (12,719) (55,371) (14,866) (2,787) (1,272) (2,006)
Interest income.......................... 822 771 3,314 2,875 2,110 2,345 2,238
Other income, net........................ (181) (88) (3,052) 4,004 682 2,363 1,367
------- ------- -------- -------- ------- ------- -------
Income before income taxes and
extraordinary item..................... (2,327) 15,125 81,684 57,190 21,082 4,062 10,960
Income tax (expense) benefit............. (6,206) (5,617) (29,986) (15,627) (4,257) 20 (5,158)
------- ------- -------- -------- ------- ------- -------
Income (loss) before extraordinary
item................................... (8,533) 9,508 51,698 41,563 16,825 4,082 5,802
Extraordinary item net of income taxes... -- (705) (705) (4,411) -- -- 528
------- ------- -------- -------- ------- ------- -------
Net income (loss)........................ $(8,533) $ 8,803 $ 50,993 $ 37,152 $16,825 $ 4,082 $ 6,330
======= ======= ======== ======== ======= ======= =======
Basic income per common share(1):
Income (loss) before extraordinary
item................................. $ (0.10) $ 0.12 $ 0.62 $ 0.53 $ 0.24 $ 0.12 $ 0.18
Extraordinary item..................... -- (0.01) (0.01) (0.06) -- -- 0.02
------- ------- -------- -------- ------- ------- -------
Net income (loss)...................... $ (0.10) $ 0.11 $ 0.61 $ 0.47 $ 0.24 $ 0.12 $ 0.20
======= ======= ======== ======== ======= ======= =======
Diluted income per common share(1):
Income (loss) before extraordinary
item................................. $ (0.10) $ 0.12 $ 0.62 $ 0.53 $ 0.24 $ 0.12 $ 0.18
Extraordinary item..................... -- (0.01) (0.01) (0.06) -- -- 0.02
------- ------- -------- -------- ------- ------- -------
Net income (loss)...................... $ (0.10) $ 0.11 $ 0.61 $ 0.47 $ 0.24 $ 0.12 $ 0.20
======= ======= ======== ======== ======= ======= =======
Shares used in basic net income (loss)
per share(1)........................... 83,213 82,737 82,795 78,460 69,796 34,740 31,877
======= ======= ======== ======== ======= ======= =======
Shares used in diluted net income (loss)
per share(1)........................... 84,257 83,460 83,663 78,858 69,872 34,740 31,877
======= ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $ 36,913 $ 72,683 $ 60,023 $ 19,735 $29,986 $35,334
Total assets.................................. 805,658 881,341 730,352 154,476 81,907 77,064
Total long-term liabilities................... 496,850 567,493 520,258 53,094 20,276 8,388
Total shareholders' equity.................... 209,829 215,408 159,495 73,990 52,196 46,111
</TABLE>
-------------------------
(1) Retroactively reflects King's 3 for 2 stock split that was effective June
21, 2000.
(2) Reflects merger and transaction costs associated with King's completed
merger with Medco Research, Inc. on February 25, 2000.
39
<PAGE> 49
JONES SELECTED CONSOLIDATED FINANCIAL DATA
The tables below contain selected consolidated financial data of Jones.
This information has been derived from Jones' consolidated financial statements
which are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales from continuing operations....... $45,734 $29,477 $132,544 $103,414 $ 88,781 $ 64,181 $39,937
------- ------- -------- -------- -------- -------- -------
Operating costs and expenses:
Cost of sales........................ 8,305 6,584 25,077 23,839 25,430 20,277 14,639
Selling general and administrative... 8,183 7,301 29,484 25,359 21,914 17,745 15,150
Research and development............. 231 239 1,343 117 -- 410 452
Amortization......................... 840 869 3,538 3,665 3,357 2,011 824
Non-recurring charges................ -- -- -- 10,500 -- 5,743 --
------- ------- -------- -------- -------- -------- -------
Total operating costs and
expenses..................... 17,559 14,993 59,442 63,480 50,701 46,186 31,065
------- ------- -------- -------- -------- -------- -------
Operating income from continuing
operations........................... 28,175 14,484 73,102 39,934 38,080 17,995 8,872
Other income (expense)................. 3,254 1,413 7,006 4,883 2,315 1,755 (484)
------- ------- -------- -------- -------- -------- -------
Income before taxes from continuing
operations........................... 31,429 15,897 80,108 44,817 40,395 19,750 8,388
Income tax expense..................... (12,257) (6,121) (31,164) (21,250) (15,351) (8,232) (3,074)
------- ------- -------- -------- -------- -------- -------
Income from continuing operations(1)... $19,172 $ 9,776 $ 48,944 $ 23,567 $ 25,044 $ 11,518 $ 5,314
======= ======= ======== ======== ======== ======== =======
Income from continuing operations per
common share:
Basic................................ $ 0.29 $ 0.15 $ 0.75 $ 0.36 $ 0.39 $ 0.19 $ 0.10
======= ======= ======== ======== ======== ======== =======
Diluted.............................. $ 0.28 $ 0.15 $ 0.73 $ 0.36 $ 0.38 $ 0.18 $ 0.09
======= ======= ======== ======== ======== ======== =======
Weighted average common shares
outstanding:
Basic................................ 65,385 64,819 64,936 64,633 64,309 60,798 53,915
======= ======= ======== ======== ======== ======== =======
Diluted.............................. 67,679 66,312 66,671 65,988 65,804 62,522 55,231
======= ======= ======== ======== ======== ======== =======
Cash dividends declared per share...... $ 0.02 $ 0.01 $ 0.06 $ 0.05 $ 0.04 $ 0.03 $ 0.02
======= ======= ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................. $209,534 $191,084 $142,255 $ 78,550 $ 70,519 $18,932
Total assets................................. 332,356 300,465 248,778 203,729 177,233 86,238
Total long-term liabilities.................. 5,455 5,135 4,386 5,922 5,282 15,894
Total shareholders' equity................... 299,692 279,604 232,670 191,726 161,919 55,939
</TABLE>
-------------------------
(1) In the years 1998, 1997, 1996, and 1995, Jones had income from discontinued
operations net of tax, of $18,768, $6,926, $6,621, and $7,075, respectively.
The effect on basic earnings per share of the discontinued operations for
the years ended December 31, 1998, 1997, 1996 and 1995 was $0.29, $0.11,
$0.11, and $0.13, respectively. The effect on diluted earnings per share of
the discontinued operations for the years ended December 31, 1998, 1997,
1996 and 1995 was $0.28, $0.11, $0.11, and $0.13, respectively.
40
<PAGE> 50
THE MERGER
This section of the joint proxy statement/prospectus briefly describes the
business of King and Jones and certain aspects of the proposed merger. While we
believe that the description covers the material terms of the merger and the
related transactions, this summary may not contain all of the information that
is important to you. You should read this entire document and the other
documents we refer to carefully for a more complete understanding of the merger.
In addition, we incorporate by reference important business and financial
information about King and about Jones into this joint proxy
statement/prospectus. See "Documents Incorporated by Reference in this Joint
Proxy Statement/Prospectus" on page . You may obtain the information
incorporated by reference in this joint proxy statement/prospectus without
charge by following the instructions in the section entitled "Where You Can Find
More Information" on page .
THE COMPANIES
KING PHARMACEUTICALS, INC.
501 Fifth Street
Bristol, Tennessee 37620
Phone: (423) 989-8000
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of almost 300 representatives and through
co-promotion arrangements, it markets its branded pharmaceutical products to
general/family practitioners and internal medicine physicians and hospitals
across the United States and Puerto Rico.
JONES PHARMA INCORPORATED
1945 Craig Road
St. Louis, Missouri 63146
Phone: (314) 576-6100
Jones manufactures and markets specialty pharmaceutical products. Jones'
principal product lines currently consist of thyroid treatment products directed
to the endocrine therapy market, thrombin products used as hemostatic agents in
the critical care market and methohexital products used as general anesthetic
agents in the critical care market. Jones markets its products with a national
sales force of 125 dedicated sales representatives who promote its products
throughout the United States.
BACKGROUND OF THE MERGER
King began its operations in 1994 as a private company principally engaged
in contract manufacturing and in manufacturing and marketing generic
pharmaceutical products. King rapidly evolved into a publicly-traded company
focused on the manufacturing, selling and distribution of branded prescription
pharmaceutical products. King's growth has primarily been fueled by the
acquisition of existing branded pharmaceutical products (as opposed to the
internal development of new chemical entities) or the discovery of new
therapeutic indications for existing compounds. As part of its operations,
King's management regularly scrutinizes the pharmaceutical industry, including
the recent wave of consolidation in the industry, searching for opportunities to
expand and complement its product portfolio and to fill perceived voids in its
vertically integrated structure.
41
<PAGE> 51
In February 2000, King acquired Medco Research, Inc. as a step towards
increasing its vertical integration. Medco is a cardiovascular development
operation, which allows King to have an expanded research and development
capability, and a unique patented technology platform for the internal
development of products or the in-licensing of new technologies. For some time,
King's senior management has perceived value in acquiring a company which would
permit the combined entity to compete more aggressively in the market place.
Toward this end, King has considered, to varying degrees, the possibility of
acquisitions or combinations with several companies and the potential strategic
fit with them based on their lines of businesses, intellectual property assets,
existing revenue streams, potential for revenue growth, existing cash reserves
and their management and employee cultures.
Jones has experienced similar evolutionary growth since its beginnings in
1981 as one of the country's first emerging pharma companies. Jones has also
achieved significant growth primarily through acquisitions of products or
businesses which complemented or expanded its existing business, initially
operating in both the pharmaceutical and nutritional supplements fields. Jones'
most recent acquisitions were of the Triostat(R) and Cytomel(R) synthetic
thyroid product lines in June 1997, complementing its acquisition of Daniels
Pharmaceuticals, Inc. (the developer, manufacturer and marketer of Levoxyl(R))
in August 1996 in a pooling of interests transaction.
In April 1998 Jones sold its nutritional supplements business and
discontinued its contract manufacturing business to focus on the production of
its own pharmaceutical products with higher gross profit margins and a greater
potential for growth. As the key elements of Jones' business strategy evolved
after this sale, Jones sought to maximize the productivity of its sales force
through the targeted marketing of promotion-sensitive, niche market
pharmaceuticals and its marketing initiatives permitted it to increase net unit
revenue while maintaining or expanding market share. Although Jones continued to
review and evaluate possible acquisitions of additional products or product
lines, and to consider an entry into development of new pharmaceuticals or for
treatments of new indications, Jones recognized in its Form 10-K and Annual
Report for 1999 that pursuit of growth by these latter means presented risks and
conflicts between short-term and long-term objectives. These risks led
management of Jones to consider the possibility of a larger transaction that
might combine the growth and earnings prospects of Jones' existing portfolio
with additional products having attractive growth prospects and also having new
product development or new application capability. After reviewing alternatives,
it was decided that such a transaction might provide additional capabilities
while reducing dependence on a limited number of product lines. King was
identified as the company which best fit the desired profile and as the only
company having current market capitalization and growth prospects to permit a
possible acquisition of Jones on a mutually attractive basis.
In early May, Dennis M. Jones, Chief Executive Officer and Chairman of the
Board of Jones called John M. Gregory, Chief Executive Officer and Chairman of
the Board of King regarding a potential strategic business combination. Mr.
Jones invited John M. Gregory and Joseph R. Gregory, Vice Chair of Operations of
the Board of King, to his home in St. Louis, Missouri to discuss the
possibilities of a merger. Mr. Jones and John Gregory agreed to meet in St.
Louis on May 31, 2000.
On May 31, 2000, John Gregory and Joseph Gregory met with Dennis Jones and
his wife, Judith A. Jones, Executive Vice President of Corporate Affairs of
Jones, together with G. Andrew Franz, Chief Operating Officer of Jones and
Michael T. Bramblett,
42
<PAGE> 52
Executive Vice President of Business Development of Jones at the residence of
Dennis and Judith Jones in St. Louis, Missouri. Dennis Jones began the meeting
by stating that Jones' senior management had for some time been observing the
tremendous growth of King and had noted that the two companies had both
successfully employed a strategy of growth through acquisitions. Mr. Jones
commented that a combination of Jones with King could offer several synergies.
The participants discussed rationales for a merger. The parties believed that a
unified company would have multiple opportunities for growth through combined
product lines, would offer top-line product synergies (i.e., by marketing Jones'
Levoxyl(R) product to the family practitioners and general practitioners which
King targets in selling its products and by promoting King's Altace(R) product
to the endocrinologists targeted by Jones) and would produce a combined company
with a market capitalization and revenues in line with some of the largest
emerging pharma companies. In addition to reviewing the record of King's prior
growth, John Gregory shared with Jones' management the anticipated parameters
and timing relating to a co-promotion agreement for Altace(R).
Both parties noted that they would regard such a combination as a strategic
merger and would consider the transaction only if it was structured as a
tax-free reorganization and could be accounted for as a pooling of interests.
Dennis Jones commented that in order to facilitate the integration of management
of a combined operation and to reduce management costs at Jones in the event of
a merger, he and his wife would be willing to consider retirement although
remaining available on a consulting or advisory basis. Mr. Franz and Mr.
Bramblett indicated their interest in continuing involvement with the combined
company. Dennis Jones indicated that as part of the transaction, he wanted to
ensure that the Jones employees were treated fairly after the merger. The
parties discussed the engagement of investment bankers and Dennis Jones
indicated that Jones would expect an exchange ratio that resulted in a premium
over the market price of Jones stock. Finally, the parties confirmed that no
member of either entity's board had been apprised of this potential transaction.
John Gregory indicated that he would discuss with the King board of directors
Jones' interest in a merger.
Following the Gregorys' departure from St. Louis, Mr. and Mrs. Jones, Mr.
Franz and Mr. Bramblett, as the senior executive management of Jones and also
constituting a majority of its Board of Directors, shared with each other their
reactions to the Gregorys and the information about King's products, operations
and strategy as shared with them in the course of the meeting, including the
potential for other products King expected to acquire when it selected a
co-promotion partner for Altace(R). Following that discussion, Dennis Jones
contacted Edward A. Chod, corporate counsel for and a director of Jones, and
requested that Mr. Chod and other representatives of Greensfelder, Hemker &
Gale, P.C., Jones' outside counsel, meet with Mr. Jones and Mr. Franz on the
following day to discuss the possible transaction. During that meeting, Mr.
Jones' rationale in proposing and considering a possible combination with King
was reviewed and questions concerning the anticipated structural, procedural and
timing aspects of such a transaction were also reviewed and discussed.
On June 1, 2000, John Gregory and Joseph Gregory first informed the board
of their conversations with Mr. Jones and summarized their meeting for the other
members of King's board of directors (which included all of King's directors who
were serving at that time, namely, Ernest C. Bourne, Jefferson J. Gregory, Frank
W. DeFriece, Jr., D. Greg Rooker and Richard C. Williams). Brian G. Shrader,
King's Chief Financial Officer and Kyle P. Macione, Executive Vice President of
Corporate Affairs, were also in attendance.
43
<PAGE> 53
Following general discussion of the opportunities presented by the merger, the
King board members unanimously voted to explore further a potential merger with
Jones.
John Gregory called Dennis Jones on June 2, 2000 to inform him of the
decision by King's board of directors to explore a potential merger with Jones.
Mr. Jones told John Gregory that a majority of the Jones board of directors had
similarly approved moving forward and they agreed to meet with their respective
counsel, consultants and management teams on June 7, 2000 in Bristol, Tennessee
at King's headquarters to discuss material terms of the transaction. Dennis
Jones and John Gregory also agreed to move forward with due diligence matters if
the meeting on June 7 was successful.
On June 5, 2000, members of King's senior management, three of its
directors (Ernest C. Bourne, D. Greg Rooker and Richard C. Williams) and
representatives from King's outside counsel, consultants and advisors discussed
the events to date with respect to the proposed merger. There was discussion
concerning the engagement of financial advisors. John Gregory reported that
Jones was not currently engaged in discussions with other strategic partners.
John Gregory explained to the group that it would be important for this
transaction to be immediately accretive to King and to be accounted for as a
pooling of interests. He noted the importance of further due diligence on Jones'
products, including analyzing the competitive landscape surrounding Jones' key
products. Other matters discussed included Jones' phentermine litigation, its
majority shareholders, its key employees, and the need for outside consultants
and intensive regulatory due diligence. The meeting concluded with a discussion
of material terms to be discussed with Jones' management at the meeting in
Bristol on June 7, 2000.
In anticipation of continued discussions, confidentiality agreements were
exchanged by King and Jones on June 6, 2000.
A meeting was held in Bristol, Tennessee at King's headquarters on June 6
among King management, outside counsel and representatives of Credit Suisse
First Boston. At this meeting the potential merger was discussed generally as
were preliminary financial matters. Those present also discussed the material
terms of the merger to be negotiated on the following day with Jones'
management.
On June 7, 2000, a meeting was held in Bristol among management
representatives of King and Jones, their respective counsel and King's
accountants to discuss the structure and principal terms of the transaction. The
parties had a general understanding by the end of the meeting about the
following terms, even though they were subject to continuing negotiation, due
diligence investigations, and approval by the boards of each company:
a. Subject to completion of the parties' respective due diligence, an
exchange ratio of 1.125 shares of King for each share of Jones (as
adjusted to reflect King's previously announced 3 for 2 stock split
which occurred on June 21, 2000) with the expectation that the deal
would be at least $0.01 accretive to King for 2001.
b. Although the exchange ratio would not have price protection in the form
of a "collar," Jones would have the right to terminate the transaction
if the average price of King's stock resulted in a market value per
share for Jones' stock of less than $33.00 per share unless King elected
to increase the exchange ratio to provide that market value.
c. Termination fees of approximately 3% of the deal value, not exceeding
$100 million, would be due from Jones or from King under certain
circumstances,
44
<PAGE> 54
principally relating to rejection of King's offer in favor of other
offers. It was agreed that a portion of such fees might arise from cash
settlement of options for shares of stock in either Jones or King,
subject to review of the amount, circumstances and terms of such option
arrangements.
d. G. Andrew Franz would become a King board member and President and Chief
Executive Officer of the Jones subsidiary.
e. King would join in the indemnity provided to officers and directors of
Jones for actions occurring prior to the closing date to avoid concern
that any use of Jones' funds by King would reduce existing protection.
f. The merger agreement and the representations and warranties therein
would be mutual to a large extent.
A variety of other issues, including arrangements with respect to Jones'
employees generally and severance, consulting and other arrangements for Dennis
and Judith Jones, and a registration rights agreement for affiliates were
deferred pending King's review of arrangements and policies currently in place.
Timing for the transaction was also discussed and it was agreed that the
parties' respective due diligence investigations should commence as promptly as
practicable and that the parties and their respective counsel would endeavor to
negotiate and draft the terms of agreements so that such agreements could be
available in definitive form as promptly as practicable upon completion of their
respective investigations. At the conclusion of the meeting on June 7, it was
agreed that matters relating to access to facilities and documents for purposes
of due diligence would be coordinated by Richard Williams on behalf of King and
by Michael Bramblett on behalf of Jones with a view to keeping knowledge of the
discussions between King and Jones confidential. Matters relating to negotiation
of documents and terms of the transaction were to be handled by King's and
Jones' respective counsel during this period rather than by direct negotiation
between the parties.
From June 8 through June 11, King management prepared preliminary lists of
due diligence assignments and established parameters for functional
responsibilities. Discussions among King management personnel and outside
consultants were held regarding due diligence matters. Due diligence request
lists were prepared and a comprehensive due diligence plan was devised. On June
12, 2000, outside counsel for King, its consultants and financial advisors met
with Richard Williams to discuss the coordination of the due diligence review of
Jones.
After returning from the meeting on June 7, Dennis Jones contacted
investment banking and merger personnel at Chase Securities to advise them of
the proposed combination of Jones with King and to engage their services as an
advisor to Jones. On June 9 representatives of Chase Securities met with
management of Jones and representatives of Jones' counsel and accountants to
provide a preliminary valuation analysis and strategic assessment of the
proposed transaction and to review the material terms of the transaction as
outlined at the June 7 meeting with King. Following this meeting terms of the
formal engagement of Chase Securities by Jones were reviewed with Dennis Jones
and Jones' counsel.
45
<PAGE> 55
From June 12 through June 26, both King and Jones conducted their
respective corporate business, financial, intellectual property, legal,
regulatory, environmental and strategic review of each other's operations and
facilities.
- In addition to its management, counsel, outside consultants, accountants
and financial advisors, King was assisted in its due diligence reviews of
Jones by Dr. Robert C. Smallridge of the Mayo Clinic as an external
endocrinologist consultant. King's due diligence focused not only on
Jones' existing products, operations and prospects but also on the
synergies which might develop from the merger transaction and certain
estimates of such synergies were shared by management of King with Chase
Securities in its role as an advisor to Jones.
- In addition to its management, counsel, accountants and financial
advisors, Jones was assisted in its due diligence reviews of Altace(R),
the HOPE Study and the supplemental new drug application for Altace(R) by
Dr. Thomas A. Garvey, III. A material focus of Jones' due diligence
efforts was toward evaluation of prospects for Altace(R) and the
co-promotion and related transactions between King and American Home
Products. Jones also reviewed other key products of King, its management
team and assessed the FDA and related regulatory issues disclosed by King
as "risk factors," particularly with respect to King's Parkedale
facility.
On June 16, 2000, Hogan & Hartson on behalf of King forwarded to Jones'
counsel, Greensfelder, Hemker & Gale, an initial draft of the merger agreement
without proposed exhibits or other ancillary documents. On June 21, 2000,
Richard Williams of King met with Mr. Bramblett and Mr. Franz and Edward A. Chod
of Greensfelder, Hemker & Gale, P.C., Jones' outside legal counsel, regarding
facility visits, open due diligence items of both parties and issues related to
the severance arrangements for Dennis and Judith Jones, including existing
agreements relating to split-dollar and key-man life insurance policies,
consulting agreements and other severance-related matters. On June 23, 2000,
counsel to Jones provided comments to the draft merger agreement.
On June 21, Dennis Jones contacted by telephone the remaining outside
directors of Jones to advise them of the existence of negotiations between Jones
and King relating to a possible combination and to arrange a meeting of the
board of directors of Jones at which the rationale for the transaction and the
proposed terms could be more fully reviewed.
On June 23, the full board of directors of Jones met to review the
background of the transaction to date, including the bases for management's
belief that the transaction would be in the best long-term interest of the
holders of Jones' common stock. Publicly available information concerning King
was reviewed and discussed together with the preliminary analysis received from
Chase Securities. Mr. J. Hord Armstrong, III and Dr. Thomas F. Patton, each an
outside director of Jones, each indicated that they were scheduled to be out of
town on vacation for the following two weeks but that they would be available to
return to St. Louis if necessary to consider and act upon the proposal. The
Jones, board was also advised generally by Mr. Chod as to the state of
negotiations relating to documentation of the proposed transaction and that
Greensfelder, Hemker & Gale would be providing a redraft and commentary on
changes to the draft merger agreement. Although Jones had not at this date
completed its own due diligence reviews relating to King, the Jones board was
advised that recent extensive independent due diligence reviews of King had been
made by American Home Products in connection with the Altace(R) agreement and
stock purchase and incident to a recent underwritten offering of King's
securities.
46
<PAGE> 56
A meeting of King's board of directors and members of senior management was
held on June 23, 2000, following King's annual shareholders meeting, during
which an update on the proposed merger was given to King's board. At this
meeting Richard Williams provided an in-depth discussion and analysis of due
diligence efforts to date, including a description of the roles of outside
resources and various employees of King. Public information concerning Jones was
distributed to all in attendance. The board carefully reviewed a preliminary
summary prepared by Credit Suisse First Boston which addressed certain financial
and business aspects of the potential merger. After extended discussion, John
Gregory emphasized the confidentiality of this transaction and requested the
board to continue to review in depth the documents they had received. The board
was told that a special meeting would be held in the near future to determine
whether King should pursue the Jones merger.
On June 27, 2000, King's management held an all day meeting with outside
consultants participating by telephone, for the purpose of discussing status
reports from financial, accounting, legal, regulatory, business, environmental,
strategic, intellectual property, and other consultants and the reports of
internal senior management.
From June 26 through June 30 King reviewed the trading prices of the stock
of both companies and focused on the business review by outside consultants and
Credit Suisse First Boston's financial analyses together with other information
gathered during the due diligence process. During these days, calls were
exchanged among Dennis Jones and other members of Jones' management and King
representatives and King consultants to obtain answers to questions of concern
to the parties and to discuss open material issues. On June 30, 2000, King's
counsel circulated revised drafts of the merger agreement. On July 1, 2000 King
and Jones agreed to the exchange ratio at 1.125, subject to the agreement on
other outstanding issues.
Through the course of July 2-6, several telephone conferences occurred
among Richard Williams, John Gregory, Andrew Franz, Mike Bramblett, King's
counsel, Jones' counsel and Jones and King management to address and negotiate
open issues in the transaction. Information was sent to King's board members in
anticipation of a special called meeting to be held on July 7, 2000.
On July 5, 2000, the management of Jones met with counsel, including Mr.
Chod, to review the status and open issues remaining with respect to Jones' due
diligence investigation of King and the unresolved issues relating to the
proposed merger agreement. On the basis of information shared during the course
of such meeting, Jones management determined to continue the negotiations.
On July 7, 2000 King convened an all day board meeting to consider and
evaluate the transaction with Jones. One member of the board was traveling
outside the United States and could not participate in this meeting.
Representatives from King's counsel, consultants and advisors made presentations
to the board and answered questions posed by board members and King's senior
management. Representatives of Credit Suisse First Boston reviewed the financial
terms of the proposed transaction and financial aspects of the merger. The
members of King's board present unanimously voted to authorize management to
continue negotiations.
From July 7 through July 12, 2000, Jones' counsel and King's counsel
continued negotiations and exchanged drafts of the transaction documents.
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In telephone calls with Mr. Armstrong and Dr. Patton on July 9 and 10,
Dennis Jones advised them of developments in the negotiations with King during
their absence and that meetings of the Jones board of directors would be held to
consider the transaction in detail on July 11. At that meeting, which was
attended by all members of Jones' board and by representatives of Greensfelder,
Hemker & Gale, Ernst and Young LLP and Chase Securities, the terms of the
proposed transaction and merger agreement (including issues then remaining
unresolved) were reviewed in detail. Management of Jones reported to the
directors on the results of the due diligence procedures undertaken and Jones'
counsel and accountants commented on certain legal and accounting matters. Chase
Securities provided its valuation analysis to the Jones board and delivered its
opinion as to the fairness, from a financial point of view, of the exchange
ratio of 1.125 to the holders of Jones common stock. The Jones board agreed that
in order to further evaluate and reflect on the information provided it would
meet again the following day to consider the proposal formally. On July 12, 2000
the Jones board met and unanimously authorized the transaction.
King's board of directors and members of senior management also met on July
12, 2000 with one member absent because he was traveling on business outside the
United States. Representatives of Credit Suisse First Boston made a presentation
to King's board regarding the financial terms of the proposed merger. In
addition, Credit Suisse First Boston delivered an oral opinion, which was
confirmed in writing, that the exchange ratio was fair to King from a financial
point of view as of that date and subject to the matters described in its
opinion. The King board members present then voted unanimously to authorize the
transaction.
The final terms of the merger agreement and related documentation,
including final disclosure schedules to the merger agreement, were negotiated
during the remainder of the day on July 12. On the morning of July 13, after
King had received the written fairness opinion of Credit Suisse First Boston,
John Gregory, Joseph Gregory, Jefferson Gregory and Richard Williams, on behalf
of King, and Mr. and Mrs. Jones, Mr. Franz, Mr. Bramblett, on behalf of Jones,
met in St. Louis and counterparts of executed documents were exchanged by King's
and Jones' counsel.
On July 13, 2000, a joint press release was made and a joint conference
call was held to announce the merger.
OUR REASONS FOR THE MERGER
On July 12, 2000, the boards of directors of both Jones and King (with Mr.
Earnest Deavenport, a King board member, being unavailable) concluded
unanimously that the merger, the merger agreement and the transactions
contemplated thereby are advisable and fair to, and in the best interests of,
each of the companies and their shareholders, and determined to recommend that
the shareholders of both companies adopt and approve the merger agreement,
approve the merger and approve the issuance of shares of King common stock, as
the case may be.
The decision of the board of directors of both Jones and King was based
upon several potential benefits of the merger, including the following:
- the merger will create a larger, more diversified pharmaceutical company,
enabling us to compete more effectively for promising pharmaceutical
opportunities;
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<PAGE> 58
- the merger will combine the growth prospects related to Jones' portfolio
of products with King's and both portfolios are expected to benefit from
the availability of a larger combined sales force;
- the merger will create opportunities to cross-market each company's
products into complementary customer bases, for example to market Jones'
Levoxyl product through King's sales force focused on general and family
practitioners, and to market King's Altace products through Jones' sales
force to endocrinologists;
- the merger enhances King's balance sheet and cash flow and improves its
financial flexibility to pursue future growth opportunities;
- the merger is expected to result in the elimination of some duplicative
costs and the achievement of some operating efficiencies;
- the merger is expected to provide improved liquidity to shareholders of
both King and Jones; and
- the merger reduces or moderates reliance on any one product group, thus
reducing attendant risks.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF KING
In the course of reaching its decision to adopt the merger agreement,
King's board of directors consulted with King's management, as well as its legal
counsel and its financial advisors, and considered the following material
factors:
(1) information concerning the financial performance and condition,
results of operations, asset quality, prospects and businesses of each of
King and Jones as separate entities and on a combined basis, including:
- the revenues of the companies, their complementary businesses and the
potential for cost savings and revenue enhancement;
- the recent historical stock price performance of King common stock and
Jones common stock; and
- the percentage of the combined company King's shareholders would own
following the merger.
(2) the strategic nature of the transaction which places King's pro
forma market capitalization and revenues in line with the largest, highest
quality specialty pharmaceutical companies.
(3) the merger provides King the opportunity to own multiple products
with strong growth prospects including Altace(R), Levoxyl(R),
Thrombin-JMI(R), and Cytomel(R).
(4) the merger provides King with a presence in attractive niche
markets.
(5) the merger strengthens King's existing sales force by adding 123
persons focused on endocrinologists and general/family practitioners.
(6) the merger enhances the liquidity of the King common stock by
increasing the public float and the transaction reduces King's leverage
ratio.
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(7) the merger provides potential synergies by providing opportunities
to market Jones' product Levoxyl(R) to King's general/family practitioners
and King's Altace(R) to endocrinologists.
(8) the merger provides potential annual pre-tax revenue synergies.
(9) the opinion of Credit Suisse First Boston to the effect that, as
of the date of the opinion and based on and subject to the matters set out
in its opinion, which is described below, under "Opinions of Financial
Advisors -- Opinion of King's Financial Advisor," the exchange ratio was
fair to King from a financial point of view.
(10) the intended accounting of the merger as a pooling-of-interests
which results in combined financial statements prepared on a basis
consistent with the underlying view that shareholders interests in the two
companies have simply been combined.
(11) the structure of the transaction as a tax-free reorganization for
United States federal income tax purposes.
(12) the terms of the merger agreement regarding payment to Jones of a
termination fee of $100 million in the event that a potential offer of a
business combination with King occurs at or prior to the King shareholders
meeting which requires the termination of the merger agreement with Jones
as a condition to its offer and this business combination or a definitive
agreement related to a business combination occurs within 12 months after
termination of the agreement with Jones.
(13) the terms of the merger agreement regarding the payment to Jones
of a termination fee of $100.0 million in the event the King board
withdraws or modifies its support of the merger.
(14) the agreement that G. Andrew Franz, Chief Operating Officer and
director, of Jones will become the president of Jones as a subsidiary of
King and a member of the King board of directors.
(15) the challenges of combining the businesses of two corporations
and the risks of diverting management resources for an extended period of
time.
(16) the opportunity of the King shareholders to vote on the proposed
merger with Jones.
King's board considered all these factors in reaching the conclusions and
recommendation described above. These factors generally figured positively, as
advantages or opportunities, with the following exceptions:
- the risk that the potential benefits of the merger might not be fully
realized;
- the risk that the combined company might not be able to sustain King's
current price/earnings multiple and rate of growth;
- the risk that the combined company could experience slower growth
relative to King's prior growth rate;
- other applicable risks described in this joint proxy statement/prospectus
under "Risk Factors";
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- the factor described above in (12) related to the payment of a
termination fee, but which the King board felt was outweighed by the
other benefits of the transaction; and
- the factor described in (15) above, which figured negatively as a risk,
although one which the King board felt could be managed successfully,
particularly in light of the factor described in (14).
King's board believed that certain of these risks were unlikely to occur or
unlikely to have a material impact on the combined company, while others could
be avoided or mitigated by King or by Jones, and that, overall, the risks
associated with the merger were outweighed by the potential benefits.
The discussion of the information and factors considered by the King board
is not intended to be exhaustive. In view of the variety of factors and the
amount of information considered, Kings' board did not find it practicable to
and did not quantify, rank or otherwise assign relative weights to the specific
factors it considered in reaching its decision. The determination was made after
consideration of all of the factors as a whole.
THE KING BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE MEMBER ABSENT)
APPROVED THE MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, KING AND ITS SHAREHOLDERS. THE
KING BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE OF THE
KING STOCK IN CONNECTION WITH THE MERGER.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF JONES
In its evaluation of the merger, the Jones board reviewed several factors,
including the following:
- the terms and conditions of the merger agreement and the merger,
including the consideration Jones shareholders will receive in the merger
and the fairness of the terms and conditions;
- the complementary characteristics of the respective businesses,
management philosophies and corporate cultures of King and Jones as well
as the fact that both companies operate under parallel business models;
- the benefit of the depth and breadth of King's experienced management and
aggressive track record compiled by King's management team within a
relatively short time;
- a review of the potential value of Jones as an independent company
compared with the potential value to Jones shareholders as substantial
owners of King;
- the fact that the merger (1) represented a strategic opportunity to
resolve certain of the conflicts inherent in the long-term and short-term
objectives of Jones' business strategy; (2) permitted the holders of
Jones to get fair value and to share in the anticipated synergies and
benefits of the transaction and (3) represented the opportunity to
continue to participate in the specialty pharmaceutical market as part of
an entity with a substantially increased market capitalization;
- the presentation delivered by Chase Securities and opinion of Chase
Securities which is described below under "Opinions of Financial
Advisor-Opinion of Jones'
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Financial Advisor" to the effect that, as of the date of its opinion and
based upon the assumptions made, matters considered and limits of review
set forth in its opinion, the exchange ratio was fair to the holders of
Jones common stock from a financial point of view;
- historical information concerning King's and Jones' respective
businesses, financial performance and condition, operations and
management, including reports filed with the SEC;
- current and historical market conditions and market prices, volatility
and trading information;
- presentations from management, legal, financial and accounting advisors
as to the results of due diligence investigations of King;
- the expectation that the merger will qualify as a non-taxable
reorganization; and
- King's willingness to commit to act fairly with respect to Jones'
employees, including commitments made with respect to the continued
operation of the St. Louis facility;
- the market potential for Altace and the perceived benefits of King's
co-promotion agreement with American Home Products relating to Altace(R);
and
- the expectation that the merger will be accounted for as a
pooling-of-interests.
The Jones board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
- the risk that the potential benefits of the merger might not be fully
realized;
- with respect to the market for King common stock the risk that the
combined company might not be able to sustain King's current
price/earnings multiple and rate of growth;
- with respect to financial performance, the risk that the combined company
would experience slower growth relative to Jones' prior growth rate;
- the loss of control over the future operations of Jones following the
merger;
- the loss of the regular quarterly dividend paid to Jones shareholders;
- the fixed nature of the exchange ratio and the resulting risk that in the
event of a significant decrease in the market value of King common stock
(1) King might be unwilling to increase the exchange ratio in the event
that Jones were to exercise its right to terminate agreement and (2) even
if King were to agree to make the adjustment to the exchange ratio it is
possible that the market value of the shares of King received in the
merger would (either as of the effective date or any subsequent date) be
lower than the $33.00 per Jones share referenced in the agreement;
- the risk that the prospects for Altace(R) will not materialize as
anticipated, either with respect to the co-promotion agreement with
American Home Products or the FDA approval of new indications based upon
the HOPE Study recommendations; and
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- other applicable risks described in this joint proxy statement/prospectus
under "Risk Factors."
Jones' board believed that, overall, the risks associated with the merger
were outweighed by the potential benefits.
The discussion of the information and factors considered by the Jones board
is not intended to be exhaustive. In view of the variety of factors considered
in connection with its evaluation of the merger, the Jones board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination.
RECOMMENDATION OF JONES' BOARD OF DIRECTORS
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF JONES HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND IN THE BEST INTERESTS OF JONES AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT JONES SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
In considering the recommendation of the Jones board of directors with
respect to the merger, you should be aware that Dennis M. Jones, the Chairman of
the Board and Chief Executive Officer has an interest in the merger that is
different from, or is in addition to, the interests of Jones shareholders
generally. Please see the section entitled "Interests of Jones' Directors and
Executive Officers in the Merger" on page .
OPINIONS OF FINANCIAL ADVISORS
OPINION OF KING'S FINANCIAL ADVISOR
Credit Suisse First Boston has acted as King's financial advisor in
connection with the merger. King selected Credit Suisse First Boston based on
Credit Suisse First Boston's experience, expertise and reputation, and its
familiarity with King's business. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, King requested
that Credit Suisse First Boston evaluate the fairness, from a financial point of
view, to King of the exchange ratio. On July 12, 2000 at a meeting of the board
of directors of King held to evaluate the merger, Credit Suisse First Boston
rendered to the board of directors of King an oral opinion, which opinion was
confirmed by delivery of a written opinion dated July 13, 2000, to the effect
that, as of that date and based on and subject to the matters described in the
opinion, the exchange ratio was fair, from a financial point of view, to King.
The full text of Credit Suisse First Boston's written opinion dated July
13, 2000 to the board of directors of King, which sets forth, among other
things, the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex B to this joint proxy
statement/prospectus and is incorporated into this joint proxy
statement/prospectus by reference. Holders of King common stock are
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encouraged to, and should, read this opinion carefully and in its entirety.
Credit Suisse First Boston's opinion is addressed to the board of directors of
King and relates only to the fairness of the exchange ratio, from a financial
point of view, to King, does not address any other aspect of the merger or any
related transaction and does not constitute a recommendation to any shareholder
as to any matter relating to the merger. The summary of Credit Suisse First
Boston's opinion in this joint proxy statement/prospectus is qualified in its
entirety by reference to the full text of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed certain
publicly available business and financial information relating to Jones and
King, as well as the merger agreement. Credit Suisse First Boston also reviewed
certain other information, including financial forecasts, provided to Credit
Suisse First Boston by Jones and King, and met with Jones' and King's management
to discuss the business and prospects of Jones and King. Credit Suisse First
Boston also relied upon the views of the Jones' and King's management concerning
the operational and strategic benefits and implications of the merger, including
financial forecasts provided to it by Jones and King, relating to the
synergistic values and operating cost savings expected to be achieved through
the combination of the operations of Jones and King. Credit Suisse First Boston
considered certain financial and stock market data of Jones and King, and
compared those data with similar data for other publicly held companies in
businesses similar to those of Jones and King and considered the financial terms
of certain other business combinations and other transactions which have
recently been effected. Credit Suisse First Boston also considered other
information, financial studies, analyses and investigations and financial,
economic and market criteria which it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
was provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to the financial
forecasts, Credit Suisse First Boston assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Jones' and King's management as to the future financial performance
of Jones and King and as to the cost savings and other potential synergies
(including the amount, timing and achievability thereof) anticipated to result
from the merger.
Credit Suisse First Boston also assumed that the merger will be treated as
a tax-free reorganization for federal income tax purposes and accounted for as a
pooling of interests in accordance with generally accepted accounting
principles. In addition, Credit Suisse First Boston was not requested to make,
and did not make, an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Jones or King, nor was Credit Suisse
First Boston furnished with any evaluations or appraisals.
Credit Suisse First Boston's opinion was necessarily based on financial,
economic, market and other conditions as they existed and could be evaluated, on
the date of the opinion. Credit Suisse First Boston did not express any opinion
as to what the value of King common stock actually will be when issued to
Jones's shareholders pursuant to the merger or the prices at which shares of
King common stock will trade subsequent to the merger.
In preparing its opinion to the board of directors of King, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete
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description of the analyses underlying Credit Suisse First Boston's opinion. The
preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, Credit Suisse First
Boston made qualitative judgments as to the significance and relevance of each
analysis and factor that it considered. Accordingly, Credit Suisse First Boston
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Jones and
King. No company, transaction or business used in Credit Suisse First Boston's
analyses as a comparison is identical to Jones or King or the merger, and an
evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involved complex considerations and judgments concerning
financial and operating characteristics and other facts that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed. The estimates contained in Credit Suisse First
Boston's analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by the analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
Credit Suisse First Boston's analyses and estimates are inherently subject to
substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses was only one of
many factors considered by the board of directors of King in its evaluation of
the merger and should not be viewed as determinative of the views of the board
of directors of King or its management with respect to the merger or the
exchange ratio.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion and
reviewed with the board of directors of King at its meeting held on July 12,
2000. The financial analyses summarized below include information presented in
tabular format. In order to fully understand Credit Suisse First Boston's
financial analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Credit Suisse First Boston's financial
analyses.
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EXCHANGE RATIO ANALYSIS. Credit Suisse First Boston reviewed the average
of the ratios of the closing price of Jones common stock divided by the closing
price of King common stock over various periods ending July 11, 2000. Credit
Suisse First Boston then calculated the premium or discount represented by the
exchange ratio over the average ratios computed for the various periods. This
analysis indicated the following:
<TABLE>
<CAPTION>
EXCHANGE RATIO
PERIOD PRIOR TO AVERAGE RATIO PREMIUM/(DISCOUNT)
JULY 11, 2000 OVER PERIOD OVER AVERAGE RATIO
-------------------------------------- ------------- ------------------
<S> <C> <C>
Current market........................ 0.9850x 14.2%
One-month............................. 0.8934x 25.9%
Three-month........................... 0.9528x 18.1%
Six-month............................. 1.1288x (0.3%)
Nine-month............................ 1.0730x 4.8%
One-year.............................. 1.1515x (2.3%)
</TABLE>
COMPARABLE COMPANIES ANALYSIS. Credit Suisse First Boston compared
selected financial, operating and stock market data of Jones and King to
corresponding data of the following publicly traded companies in the specialty
pharmaceutical industry:
- Forest Laboratories, Inc.
- Elan Corp., PLC
- Shire Pharmaceuticals Group, Inc.
- Alza Corp.
- Allergan Incorporated
- Medicis Pharmaceutical Corp.
For each company, Credit Suisse First Boston calculated adjusted market
value (fully diluted equity market value, plus total debt, less cash and cash
equivalents) as a multiple of EBITDA (earnings before interest, taxes,
depreciation and amortization) for the last twelve months (LTM). Credit Suisse
First Boston also compared P/E (price to earnings) multiples using estimated net
income for calendar years 2000 and 2001. This analysis indicated the ranges and
medians for multiples as set forth below, and Credit Suisse First Boston
compared this information to the multiples for Jones and King.
<TABLE>
<CAPTION>
ADJUSTED
MARKET
VALUE P/E
AS A MULTIPLE ----------------------
OF LTM 2000 2001
EBITDA ESTIMATED ESTIMATED
------------- --------- ---------
<S> <C> <C> <C>
High.................................. 53.1x 62.2x 45.6x
Low................................... 26.4x 34.2x 28.0x
Median................................ 32.5x 46.7x 39.6x
Jones................................. 30.3x 44.5x 39.1x
King.................................. 27.4x 52.3x 42.7x
</TABLE>
Credit Suisse First Boston then applied reference range multiples to LTM
EBITDA and estimated net income for calendar year 2000 and 2001 for Jones and
King. This analysis indicated a reference range for the equity value per share
of Jones common stock of $42.00 to $52.00, and an implied equity value per share
of King common stock of $39.50 to $49.00. Equity values were calculated based on
closing stock prices on July 11, 2000. Estimated financial data for the selected
comparable companies were based on publicly available information with respect
to LTM EBITDA and research analyst consensus estimates with respect to 2000 and
2001 earnings per share and estimated financial data for Jones and King was
based on management's base case for each of them.
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COMPARABLE ACQUISITIONS ANALYSIS. Using publicly available information,
Credit Suisse First Boston analyzed the purchase prices and implied transaction
multiples in seven acquisition transactions in the biopharmaceutical industry
announced since June 1999.
Credit Suisse First Boston calculated the adjusted purchase price (fully
diluted equity market value, plus total debt, less cash and cash equivalents) in
each of the selected acquisitions as a multiple of EBITDA and EBIT (earnings
before interest and taxes) for the last twelve months, as well as the target's
equity purchase price as a multiple of net income for the last twelve months.
Credit Suisse First Boston also reviewed the premium represented by the purchase
price over the market price of the target's stock both one day and one month
prior to announcement of each of the selected transactions. Based on these
calculations, Credit Suisse First Boston noted the ranges for, and mean and
median of the multiples and premiums in each of the selected acquisitions as
summarized in the following table and compared these multiples and premiums to
those for Jones.
<TABLE>
<CAPTION>
ADJUSTED PURCHASE PRICE AS A
MULTIPLE OF LTM PREMIUM
----------------------------- -----------------
EBITDA EBIT LTM P/E 1 DAY 1 MONTH
------------ ------------- ----------- ------ -------
<S> <C> <C> <C> <C> <C>
High................. 54.8x 83.0x 57.4x 23.2% 59.5%
Low.................. 17.7x 18.6x 23.4x 6.3% 20.4%
Mean................. 32.1x 43.7x 46.2x 14.9% 38.7%
Median............... 26.3x 32.5x 50.3x 15.0% 39.7%
Jones................ 30.3x 32.5x 51.7x 14.2% 36.6%
</TABLE>
Credit Suisse First Boston then applied reference range multiples to the
EBITDA, EBIT, and net income of Jones for the last twelve months and reference
range of premiums to the closing price of Jones common stock on July 11, 2000.
This analysis indicated an implied value of Jones common stock ranging from
$39.00 to $49.00 per share. All multiples for the selected transactions were
based on financial information publicly available at the time of the
announcement of the relevant transaction.
DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston performed a
discounted cash flow analysis in order to estimate the present value of the sum
of estimated future stand-alone, unlevered, after-tax free cash flows of Jones
and King plus their terminal values derived from estimated calendar year 2005
unlevered net income and estimated calendar year 2004 EBITDA multiples. Credit
Suisse First Boston performed its analysis for Jones based on three scenarios,
management's conservative case, management's base case and management's upside
case. Credit Suisse First Boston performed its analysis for King based on two
scenarios, management's conservative case and management's base case. Cash flows
were discounted at rates ranging from 11.0% to 14.0%. The following chart shows
the reference ranges of multiples used in determining the terminal values for
Jones and King.
<TABLE>
<CAPTION>
JONES KING
------------------------- -------------------------
2005 NET 2004 2005 NET 2004
INCOME EBITDA INCOME EBITDA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Conservative case.......... 31.0x-37.0x 19.0x-25.0x 36.0x-42.0x 22.0x-28.0x
Base case.................. 33.0x-39.0x 23.0x-29.0x 36.0x-42.0x 23.0x-29.0x
Upside case................ 33.0x-39.0x 23.0x-29.0x
</TABLE>
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This analysis indicated the ranges of implied equity value per share of
Jones common stock and King common stock set forth on the following table.
<TABLE>
<CAPTION>
JONES EQUITY KING EQUITY
VALUE VALUE
PER SHARE PER SHARE
------------ -----------------
<S> <C> <C>
Conservative case................................ $33-$37 $33-$40
Base case........................................ $40-$48 $40-$48
Upside case...................................... $48-$58 --
</TABLE>
SYNERGIES DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston
performed a discounted cash flow valuation in order to estimate the present
value of Jones and King managements' estimates of incremental cash flows
expected to result from the synergies related to the merger. Cash flows were
discounted at rates ranging from 11.0% to 14.0%. The analysis indicated a
reference range for the present value of incremental cash flows per share
ranging from $5.00 to $8.00.
CONTRIBUTION ANALYSIS. Credit Suisse First Boston estimated the
contribution of each of King and Jones to the pro forma combined company with
respect to revenues, EBITDA, EBIT and net income for fiscal years 2000 and 2001,
based on management's base case for King and Jones. The analysis indicated that
holders of King common stock would own approximately 55% of the pro forma
combined company and that King would contribute approximately 53% and 55% of
2000 and 2001 estimated net income, respectively.
PRO FORMA MERGER ANALYSIS. Credit Suisse First Boston prepared a pro forma
analysis of the financial impact of the merger on King. Based on estimates of
calendar year 2000 and 2001 earnings per share contained in management's base
case for King and Jones as well as publicly available research analysts'
estimates, the merger would be expected to be accretive to holders of King
common stock in 2000 and 2001.
MISCELLANEOUS. King has agreed to pay Credit Suisse First Boston for its
financial advisory services in connection with the merger a fee of up to $8.0
million, a portion of which was deliverable upon the issuance of Credit Suisse
First Boston's opinion. King also has agreed to reimburse Credit Suisse First
Boston for its reasonable out-of-pocket expenses, including fees and expenses of
legal counsel and any other advisor retained by Credit Suisse First Boston, and
to indemnify Credit Suisse First Boston and related parties against liabilities,
including liabilities under the federal securities laws, arising out of its
engagement.
Credit Suisse First Boston and its affiliates have in the past performed
certain investment banking services for King and have received customary fees
for those services. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities of
Jones and King for their own accounts and for the account of customers and,
accordingly, may at any time hold long or short positions in those securities.
OPINION OF JONES' FINANCIAL ADVISOR
At the July 11, 2000 meeting of Jones' board of directors, Chase Securities
delivered its oral opinion, subsequently confirmed in writing in an opinion
dated as of July 11, 2000, to Jones' board of directors, to the effect that, as
of that date and based upon the
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assumptions made, matters considered and limits of review set forth in its
opinion, the exchange ratio was fair to the holders of the Jones common stock,
from a financial point of view.
The full text of Chase Securities' written opinion dated as of July 11,
2000, which sets forth the assumptions made, matters considered and certain
limitations on the scope of review undertaken by Chase Securities, is attached
as Annex C to this joint proxy statement/prospectus. Shareholders are urged to
read this opinion in its entirety. Chase Securities' opinion was provided for
the use and benefit of Jones' board of directors in its evaluation of the
merger, was directed only to the fairness to the holders of the Jones common
stock of the exchange ratio from a financial point of view, and does not
constitute a recommendation as to how any shareholder should vote with respect
to the merger or any other matters relating to the merger. This summary of Chase
Securities' opinion is qualified in its entirety by reference to the full text
of its opinion, which is attached to this proxy statement as Annex C.
In arriving at its opinion, Chase Securities, among other things:
- reviewed a draft dated July 7, 2000 of the merger agreement;
- reviewed certain publicly available business and financial information
Chase Securities deemed relevant relating to Jones and King and the
industries in which they operate;
- reviewed certain internal non-public financial and operating data and
forecasts provided to Chase Securities by the managements of Jones and
King relating to their respective businesses, as well as the amount and
timing of the revenue enhancements expected to result from the merger,
which are referred to as the "synergies," furnished to Chase Securities
by King;
- discussed, with members of the senior managements of Jones and King,
Jones' and King's operations, historical financial statements and future
prospects, before and after giving effect to the merger;
- compared the financial and operating performance of Jones and King with
publicly available information concerning other companies Chase
Securities deemed comparable and reviewed the relevant historical stock
prices of the Jones common stock and the King common stock and certain
publicly traded securities of other companies;
- compared the proposed financial terms of the merger with the financial
terms of recent transactions Chase Securities deemed reasonably
comparable to the merger and otherwise relevant to Chase Securities'
inquiry; and
- made any other analyses and examinations as Chase Securities deemed
necessary or appropriate.
In rendering its opinion, Chase Securities assumed and relied upon, without
assuming any responsibility for verification, the accuracy and completeness of
all of the financial and other information provided to, discussed with or
reviewed by or for Chase Securities, or publicly available, for purposes of its
opinion, and further relied upon the assurance of the managements of Jones and
King that they were not aware of any facts that would make this information
inaccurate or misleading. Chase Securities neither made nor obtained any
independent evaluations or appraisals of the assets or liabilities of Jones or
King, nor did
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Chase Securities conduct a physical inspection of the properties or facilities
of Jones or King. Chase Securities assumed that the financial forecasts and the
synergies provided to or discussed with Chase Securities by Jones and King had
been reasonably determined on bases reflecting the best currently available
estimates and judgments of the management of Jones and King as to the future
financial performance of their respective companies and the synergies. Chase
Securities expressed no view as to the forecast or projection information or the
assumptions on which they were based.
For purposes of rendering its opinion, Chase Securities assumed that, in
all respects material to its analysis, the representations and warranties of
each party contained in the agreement were true and correct, that each party
would perform all of the covenants and agreements required to be performed by it
under the merger agreement and that all conditions to the consummation of the
merger would be satisfied and none would be waived. Chase Securities further
assumed that all material governmental, regulatory or other consents and
approvals would be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which either Jones or King is a
party, as contemplated by the merger agreement, no restrictions would be imposed
or amendments, modifications or waivers made that would have any material
adverse effect on the contemplated benefits of the merger. In addition, Chase
Securities further assumed that the merger would be accounted for as a pooling
of interests under United States generally accepted accounting principles and
that it would qualify as a tax-free reorganization for U.S. federal income tax
purposes. Chase Securities further assumed that the definitive merger agreement
would not differ in any material respects from the draft that was furnished to
Chase Securities.
In connection with the preparation of its opinion, Chase Securities was not
authorized by Jones or its board of directors to solicit, nor did it solicit,
third-party indications of interest for the acquisition of all or any part of
Jones.
Chase Securities' opinion was necessarily based on market, economic and
other conditions as they existed and could be evaluated on the date of its
opinion. Chase Securities' opinion was limited to the fairness, from a financial
point of view, to the holders of Jones common stock of the exchange ratio, and
Chase Securities expressed no opinion as to the merits of the underlying
decision by Jones to engage in the merger. Chase Securities' opinion does not
constitute a recommendation to any holder of Jones common stock as to how any
holder should vote with respect to the merger or any other related matters.
Chase Securities expressed no opinion as to the prices at which the Jones common
stock or the King common stock would trade following the announcement or the
consummation of the merger, as the case may be.
The following is a summary of the financial and comparative analyses
performed by Chase Securities in arriving at its opinion. Some of these
summaries of financial analyses include information presented in tabular format.
In order to understand fully the financial analyses used by Chase Securities,
the tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analyses.
Comparable Public Companies Analysis. Chase Securities compared certain
financial and operating information and ratios for Jones and King, using both
publicly available information as well as forecasts prepared by each of the
managements of Jones and King, with corresponding publicly available financial
and operating information and ratios for the
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following companies in lines of business believed to be generally comparable to
those of Jones and King, as follows:
- Shire Pharmaceuticals Group plc
- Forest Laboratories, Inc.
- Watson Pharmaceuticals, Inc.
- Medicis Pharmaceutical Corporation
- Dura Pharmaceuticals, Inc.
The analysis indicated that:
- the ratio of the enterprise value, meaning equity value on a fully
diluted basis plus debt minus cash, to estimated earnings before interest
and taxes, which is referred to as EBIT, ranged from 16.5x to 95.7x for
2000, with a mean of 37.6x and a median of 27.5x, and ranged from 13.8x
to 77.8x for 2001, with a mean of 34.0x and a median of 24.4x; and
- the ratio of the share price, using the closing price per share on July
7, 2000, to estimated earnings per share ranged from 28.2x to 57.7x for
2000, with a mean of 41.8x and a median of 43.8x, and ranged from 22.4x
to 50.0x for 2001, with a mean of 37.7x and a median of 38.5x.
Using publicly available information for Jones and King, Chase Securities
calculated a range of implied exchange ratios by comparing the implied per share
equity values of the Jones common stock and the King common stock that were
estimated based upon the range of multiples derived from the analysis conducted
for the companies listed above. The analysis yielded the following implied
exchange ratios (rounded to the nearest thousandth), in each case compared to
the proposed exchange ratio of 1.125:
<TABLE>
<CAPTION>
IMPLIED
EXCHANGE
COMPARISON RATIO
---------- --------
<S> <C>
Highest estimated valuation of the Jones common stock
to lowest estimated valuation of King common
stock.............................................. 1.343x
Lowest estimated valuation of the Jones common stock
to highest estimated valuation of the King common
stock.............................................. 0.844x
</TABLE>
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Using forecasts prepared by each of the managements of Jones and King,
Chase Securities calculated a range of implied exchange ratios by comparing the
implied per share equity values of the Jones common stock and the King common
stock that were estimated based upon the range of multiples derived from the
analysis conducted for the companies listed above. The analysis yielded the
following implied exchange ratios (rounded to the nearest thousandth), in each
case compared to the proposed exchange ratio of 1.125:
<TABLE>
<CAPTION>
IMPLIED
EXCHANGE
COMPARISON RATIO
---------- --------
<S> <C>
Highest estimated valuation of the Jones common stock
to lowest estimated valuation of King common
stock.............................................. 1.429x
Lowest estimated valuation of the Jones common stock
to highest estimated valuation of the King common
stock.............................................. 0.870x
</TABLE>
Discounted Cash Flow Analysis. Chase Securities performed a discounted
cash flow analysis for each of Jones and King using financial forecasts for
Jones provided by Jones and financial forecasts for King provided by King. Chase
Securities calculated a discounted cash flow analysis for each company assuming
discount rates ranging from 13% to 14%, and terminal multiples of earnings
before interest after taxes, which is referred to as EBIAT, in the year 2006
ranging from 30.0x to 40.0x. Based upon the implied per share equity values of
the Jones common stock and the King common stock that were estimated using this
methodology, Chase Securities calculated a range of implied exchange ratios of a
share of King common stock to a share of Jones common stock. The analysis
yielded the following implied exchange ratios (rounded to the nearest
thousandth), in each case compared to the proposed exchange ratio of 1.125:
<TABLE>
<CAPTION>
IMPLIED
EXCHANGE
COMPARISON RATIO
---------- --------
<S> <C>
Highest estimated valuation of Jones common stock to
lowest estimated valuation of King common stock
(without synergies)................................ 1.548x
Lowest estimated valuation of Jones common stock to
Highest estimated valuation of King common stock
(without synergies)................................ 0.927x
</TABLE>
Based upon the implied per share equity values of the Jones common stock
and the King common stock that were estimated using the methodology described
above, Chase Securities also calculated a range of implied exchange ratios of a
share of King common stock to a share of Jones common stock taking into
consideration the synergies. The
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analysis yielded the following implied exchange ratios (rounded to the nearest
thousandth), in each case compared to the proposed exchange ratio of 1.125:
<TABLE>
<CAPTION>
IMPLIED
EXCHANGE
COMPARISON RATIO
---------- --------
<S> <C>
Highest estimated valuation of Jones common stock to
lowest estimated valuation of King common stock
(with synergies)................................... 1.413x
Lowest estimated valuation of Jones common stock to
Highest estimated valuation of King common stock
(with synergies)................................... 0.843x
</TABLE>
Comparable Transactions Analysis. Chase Securities reviewed publicly
available information regarding 19 selected transactions with comparable
post-transaction ownership structures announced since May 1997 in which the
transaction value ranged from $1.0 billion to $5.0 billion. The following table
shows the range, mean and median of the per share consideration paid in the
transactions as a percentage premium to the average closing price of the target
company's stock during the period indicated, except for the one day prior
period, which uses the actual closing price of target company stock on the day
prior to announcement:
<TABLE>
<CAPTION>
PERIOD PRIOR TO
ANNOUNCEMENT RANGE MEAN MEDIAN
--------------- ---------------- ----- ------
<S> <C> <C> <C>
One Day:........................... (16.1)% to 56.6% 14.5% 14.0%
Last 1 Week:....................... (11.5)% to 58.5% 18.5% 14.1%
Last 1 Month:...................... (8.8)% to 56.6% 21.5% 20.9%
Last 3 Months:..................... (18.3)% to 73.8% 21.7% 19.9%
Last 6 Months:..................... (19.5)% to 85.2% 24.2% 17.6%
</TABLE>
Based upon the closing price per share of King common stock of $43.50 on
July 7, 2000 and the exchange ratio of 1.125, the following table shows the
premium to the average closing price per share of Jones common stock during the
period stated (except for the one day prior period, which uses the actual
closing price of Jones common stock on the day prior to announcement)
represented by the implied offer price of $48.94 per share of Jones common
stock:
<TABLE>
<CAPTION>
PERIOD ENDING
JULY 7, 2000 PREMIUM
------------- -------
<S> <C>
July 7, 2000:................................. 10.4%
Last 1 Week:.................................. 13.7%
Last 1 Month:................................. 32.4%
Last 3 Months:................................ 39.8%
</TABLE>
Historical Exchange Ratio Analysis. Chase Securities reviewed the per
share daily closing market price movements of the Jones common stock and the
King common stock for various time periods ending on July 7, 2000, and
calculated the historical exchange ratios during this period implied by dividing
the daily closing prices per share of the Jones common stock by those of the
King common stock and the averages of those historical trading ratios for the
one-week, one-month, 3-month, 6-month, 12-month, 18-month and since the King
initial public offering (June 25, 1998) periods ending July 7, 2000. The
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analysis resulted in the following high, low and mean historical trading ratios
for the periods indicated (rounded to the nearest thousandth), compared to the
proposed exchange ratio of 1.1250x:
<TABLE>
<CAPTION>
IMPLIED EXCHANGE RATIO
-----------------------
PERIOD ENDING JULY 7, 2000 HIGH MEAN LOW
-------------------------- ----- ----- -----
<S> <C> <C> <C>
Last 1 Week.................................... 1.019x 0.994x 0.965x
Last 1 Month................................... 1.019 0.885 0.740
Last 3 Months.................................. 1.143 0.958 0.740
Last 6 Months.................................. 1.938 1.126 0.740
Last 12 Months................................. 1.938 1.149 0.573
Last 18 Months................................. 1.938 1.201 0.573
Since King IPO (June 25, 1998)................. 2.586 1.407 0.573
</TABLE>
Contribution Analysis. Chase Securities estimated the contribution of each
of Jones and King to the pro forma combined company with respect to sales, EBIT
and net income for fiscal years 2000 and 2001. The analysis indicated that
holders of Jones common stock would own approximately 45% of the equity of the
pro forma combined company, and that Jones would contribute approximately:
- 28% of 2000 estimated sales;
- 39% of 2000 estimated EBIT;
- 56% of 2000 estimated net income;
- 47% of 2001 estimated net income.
The summary set forth above does not purport to be a complete description
of the analyses performed by Chase Securities in arriving at its opinion.
Arriving at a fairness opinion is a complex process not necessarily susceptible
to partial analysis or summary description. Chase Securities believes that its
analyses must be considered as a whole and that selecting portions of analyses
and of the factors considered by it, without considering all of the factors and
analyses, could create a misleading view of the processes underlying its
opinion. Chase Securities did not assign relative weights to any of its analyses
in preparing its opinion. The matters considered by Chase Securities in its
analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Jones' and King's control
and involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Chase Securities are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. None of the comparable companies used in the
comparable public companies analysis described above is identical to Jones or
King, and none of the comparable transactions used in the comparable
transactions analysis described above is identical to the merger. Accordingly,
an analysis of publicly traded comparable companies and transactions is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared.
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Jones' board of directors selected Chase Securities to act as its financial
advisor on the basis of the reputation of Chase Securities as an internationally
recognized investment banking firm with substantial expertise in transactions
similar to the merger and because it is familiar with Jones and its business. As
part of its financial advisory business, Chase Securities is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions and valuations for estate, corporate and other purposes. Chase
Securities has acted as financial advisor to the board of directors in
connection with the merger and will receive a fee for its services, payment of a
significant portion of which is contingent upon the consummation of the merger.
In the ordinary course of business, Chase Securities or its affiliates may trade
in the debt and equity securities of Jones and King for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
The terms of the engagement of Chase Securities by the board of directors
are set forth in a letter dated July 5, 2000. Pursuant to the terms of the
letter agreement, Jones will pay to Chase Securities a fee of $9 million, $1
million of which was payable upon the public announcement by Jones of completion
of an agreement in principle with respect to a transaction, and the remainder of
which is payable upon consummation of the transaction. In addition to this
compensation, Jones has also agreed to reimburse Chase Securities for its
reasonable out-of-pocket expenses (including the fees of its legal counsel) and
to indemnify Chase Securities and certain related persons from and against
certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws, arising out of its engagement.
INTERESTS OF JONES' DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
When considering the recommendations of Jones' board of directors, you
should be aware that certain members of management and the board of directors of
Jones have certain interests in the merger that are different from, or in
addition to the interest of Jones shareholders generally. All of these interests
are described below to the extent they are material. The Jones board of
directors was aware of, and considered the interests of, its directors and
officers when it approved the merger agreement and the merger.
Agreements with Mr. and Mrs. Jones. Dennis M. Jones, Chairman and Chief
Executive Officer of Jones, and his wife, Judith A. Jones, Executive Vice
President of Corporate Affairs for Jones, have agreed to terminate their
employment with Jones as of the effectiveness of the merger. In connection
therewith, King will enter agreements with Mr. and Mrs. Jones providing as
follows:
- Severance payments of $1.6 million to Mr. Jones and $549,984 to Mrs.
Jones, representing payments equal to two years of their compensation in
effect during 1999;
- Consulting payments of $100,000 for three years to Mr. Jones, together
with reimbursement of reasonable expenses;
- Payments of $100,000 per year to each of Mr. and Mrs. Jones for three
years in consideration of their agreements not to compete with King in
the United States and its territories during such period.
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The agreements also provide that:
- Mr. Jones will have the right to acquire Jones' timeshare interest in a
corporate aircraft upon the expiration of the current term of agreements
relating to such interest, at fair market value.
- Each of Mr. and Mrs. Jones may acquire from Jones, at book value, which
is substantially equivalent to fair market value, automobiles currently
provided for their use.
In accordance with agreements among Jones, Mr. and Mrs. Jones and
affiliated trusts, Mr. and Mrs. Jones or the trust will pay or cause to be paid
to Jones approximately $2.1 million, representing the amount due upon
termination of their employment arising from unrecovered premium costs paid by
Jones under so-called split-dollar insurance arrangements. If the trusts elect
to keep the insurance in force under all of these policies, the amount received
by Jones could be greater.
Under other insurance arrangements previously in effect among Jones, Mr.
and Mrs. Jones and affiliated trusts,
- Jones is obligated to maintain in effect and to continue to pay the
premium on $40,000,000 of life insurance on the joint lives of Mr. and
Mrs. Jones under split-dollar arrangement in which the premium cost is
recoverable solely from the proceeds of the policies, and
- Jones is obligated to maintain in effect and to continue to pay the
premium on $40,000,000 of life insurance on the joint lives of Mr. and
Mrs. Jones under "key man insurance" as to which Jones is the
beneficiary. Any proceeds received by Jones under this insurance is
required to be used to repurchase or redeem shares of stock in Jones or
its successor held by Mr. or Mrs. Jones' estate or certain affiliated
trusts.
Options. Under the terms of option agreements issued by Jones on January 2,
1996, as of the effective date of the merger currently unvested options held by
Mr. and Mrs. Jones covering an aggregate of 303,750 shares of Jones common stock
having an exercise price of $4.74 per share will become vested. If the merger
were not to occur, such unvested options would vest as of January 2, 2001 or,
under certain conditions, as of January 2, 2004. The option agreements provide
that such options, together with currently vested options covering an aggregate
of 1,215,000 shares of Jones common stock, may be exercised at any time within
one year following the termination of Mr. and Mrs. Jones' employment. Assuming
no adjustment of the exchange ratio in the merger, such options will be
converted into the right to acquire 1,708,593 shares of King common stock at a
price of $4.21 per share.
No other options held by any affiliate or employee of Jones will accelerate
due to the merger becoming effective.
Options not currently vested covering an aggregate of 87,750 shares of
Jones common stock at a weighted average price of $25.33 per share held by
Jones' non-management directors will lapse and terminate as of the effective
date of the merger.
Indemnification of Jones' Directors and Officers. Current and former directors,
officers, employees and agents of Jones are indemnified by Jones to the maximum
extent provided in Delaware law as incorporated into Jones' certificate of
incorporation and by-laws. The
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merger agreement provides, as to claims based upon acts or omissions occurring
prior to the effective time, that:
- Jones will continue to provide such indemnification rights in full force
for at least six years from the effective time of the year; and
- King will be jointly and severally liable to the directors and officers
of Jones to provide such indemnification in the event that Jones should
improperly refuse or be unable to provide such indemnification.
The agreement permits Jones, at its election, to extend its present
directors and officers indemnification insurance policy for a six year period
provided that the cost of such extension does not exceed 200% of the most recent
premium for such insurance.
Restrictions on Resale; Registration. Since the directors and executive
officers of Jones may be deemed to be "affiliates" of Jones for certain
securities law and accounting regulations, they:
- have agreed with King not to make sales of shares of Jones common stock
or the King common stock received in the merger in exchange for Jones
common stock (if such sales would jeopardize pooling of interest
accounting treatment) for a period beginning 35 days prior to the
effective date of the merger and ending two days following the date upon
which King publicly announces financial results including a period of at
least 30 days of combined operations of King and Jones following the
effective date of the merger.
- are subject to the resale limitations of Rule 145 under the Securities
Act, which generally provides that sales during any 90 day period cannot
exceed the greater of 1% of King's outstanding shares or the average
weekly trading volume in King's outstanding shares.
The Rule 145 limitations are applicable for a period of one year following
the effective date except that Mr. Franz, who will become an affiliate of King
upon his election to the Board of Directors of King, will be subject to such
restrictions for two years following the effective date.
Registration Rights Agreement and Waiver. The merger agreement provided that
King would file a registration statement for the benefit of affiliates of Jones.
This provision was subsequently waived.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived. This includes approval and adoption of the
merger agreement and approval of the merger by the Jones shareholders and the
approval of the issuance of King common stock by the King shareholders. The
merger will become effective upon the filing of a certificate of merger with the
State of Delaware.
STRUCTURE OF THE MERGER AND CONVERSION OF JONES COMMON STOCK
In the merger a newly formed and wholly owned subsidiary of King will be
merged with and into Jones. As a result of the merger, Jones will become a
wholly owned subsidiary of King.
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When we complete the merger, each outstanding share of Jones common stock,
will be converted into the right to receive 1.125 shares of King common stock.
Jones may elect not to proceed with the transaction if the average trading price
of King common stock falls below $29.33 per share, unless King elects to
increase the exchange ratio to a number which will provide Jones shareholders
with a value of $33.00 per share.
The number of shares of King common stock issuable in the merger will be
proportionately adjusted for any stock split, stock dividend or similar event
with respect to Jones common stock or King common stock effected between the
date of the merger agreement and the completion of the merger. Also, options to
purchase shares of Jones common stock outstanding and unexercised immediately
before the closing of the merger will be converted into options to purchase a
number of shares of King common stock equal to the number of shares of Jones
common stock subject to the option multiplied by the exchange ratio with the
exercise price being divided by the exchange ratio.
No certificate or scrip representing fractional shares of King common stock
will be issued in the merger. Instead, shareholders of Jones who would be
entitled to receive a fractional share of common stock of King will receive a
cash payment based on the closing price of common stock of King on the day the
merger is completed.
EXCHANGE OF JONES STOCK CERTIFICATES FOR KING STOCK CERTIFICATES
When the merger is completed, King's exchange agent will mail to Jones
shareholders a letter of transmittal and instructions for use in surrendering
Jones stock certificates in exchange for King stock certificates. When you
deliver your Jones stock certificates to the exchange agent along with an
executed letter of transmittal and any other required documents, your Jones
stock certificates will be canceled. You will receive King stock certificates
representing the number of full shares of King common stock to which you are
entitled under the merger agreement. Jones shareholders will receive payment in
cash, without interest, in lieu of any fractional shares of King common stock
which would have been otherwise issuable to them in the merger equal to the
closing price of King common stock on the day that the merger is completed
multiplied by such fractional shares.
Jones shareholders are not entitled to any rights as shareholders of King,
including the rights to receive any dividends or other distributions on King
common stock, until the merger is completed and they have surrendered their
Jones stock certificates in exchange for King stock certificates.
King will only issue Jones shareholders a King stock certificate or a check
in lieu of a fractional share in the name in which the surrendered Jones stock
certificate is registered. If you wish to have your certificate issued in
another name you must present the exchange agent with all documents required to
show and effect the unrecorded transfer of ownership and show that you paid any
applicable stock transfer taxes and, if requested by King, have your signature
guaranteed by a bank, brokerage firm or other financial intermediary that is a
member of a medallion guarantee program.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The closing of the merger is conditioned upon the delivery of opinions from
both Jones' and King's respective counsel stating that the merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended. The opinion is subject to assumptions,
limitations and qualifications, and is based on the
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truth and accuracy of factual representations made in the merger agreement and
in exhibits to the registration statement of which this joint proxy
statement/prospectus is a part. Assuming the merger qualifies as a tax-free
reorganization, then subject to the assumptions, limitations and qualifications
referred to in the opinion, the merger should result in the following federal
income tax consequences:
- No gain or loss will be recognized by the Jones shareholders upon the
exchange of Jones common stock solely for King common stock. The cash
payment to Jones shareholders in lieu of fractional shares of King common
stock will be treated as if the fractional shares were issued as part of
the exchange and then redeemed by King. Under section 302(a) of the Code,
those cash payments will be treated as distributions in full payment in
exchange for the fractional King shares hypothetically redeemed.
Therefore, Jones shareholders receiving cash in lieu of fractional shares
generally will recognize gain (or loss) to the extent that the amount of
cash exceeds (or is exceeded by) the portion of their adjusted tax basis
of Jones common stock that is allocable to the fractional shares;
- Each Jones shareholder's aggregate tax basis in the King common stock
received in the merger will equal the aggregate tax basis of the Jones
common stock it surrendered in the merger. If an exchanging Jones
shareholder recognizes gain or loss upon receiving cash in lieu of
fractional shares in the merger, that shareholder's basis in King common
stock actually received will be reduced. The amount of the reduction will
equal the portion of the shareholder's tax basis in its surrendered stock
that is allocable to the fractional share interest considered to be
exchanged for cash;
- A Jones shareholder's holding period for King common stock received in
the merger will include the time period during which it held the Jones
common stock, provided the Jones common stock is held as a capital asset
at the time of the merger; and
- Neither King nor Jones will recognize gain or loss solely as a result of
the merger.
The Internal Revenue Service has not issued a ruling in connection with the
merger. The opinions delivered by Jones' and King's respective counsel do not
bind the IRS, and the IRS is not precluded from asserting a contrary position.
Jones shareholders will be required to attach a statement to their tax
returns for the year of the merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). The statement must include each
shareholder's tax basis in the shareholder's Jones common stock and a
description of the King common stock received.
This tax discussion does not deal with all tax considerations that may be
relevant to you, such as (a) shareholders who are dealers in securities; (b)
foreign persons; (c) shareholders who acquired their shares in connection with
previous mergers involving Jones or an affiliate; or (d) shareholders who
acquired their shares in connection with stock option or stock purchase plans or
in other compensatory transactions.
This tax discussion also does not address the tax consequences of other
transactions effectuated before or after the merger (whether or not these
transactions are in connection with the merger). The discussion does not address
foreign, state or local tax considerations. ACCORDINGLY, JONES SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
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MERGER, INCLUDING APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
TO THEM.
This tax discussion is based on the interpretation of the Code, applicable
Treasury Regulations, judicial authority and administrative rulings and
practice, all as of the date of this joint proxy statement/prospectus. We cannot
assure you that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions. Any changes or interpretations could be applied retroactively and
could affect the tax consequences of the merger to the Jones shareholders.
ACCOUNTING TREATMENT OF THE MERGER
King intends to account for the merger as a pooling-of-interests for
financial reporting and accounting purposes, under generally accepted accounting
principles. One of the merger's closing conditions is that the independent
accountants of King and Jones must each have delivered to both of us a letter to
the effect that the merger will qualify for pooling-of-interests accounting
treatment. Under the pooling-of-interests method of accounting:
- Jones' recorded assets and liabilities will be carried forward to the
combined company at their recorded amounts;
- the combined company's revenues and expenses will include Jones' revenues
and expenses for the entire fiscal year of the combined company and Jones
in which the merger occurs; and
- Jones' reported revenues and expenses for prior periods will be combined
with those of King, whose financial statements will then be restated.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF JONES AND KING
King will register under the Securities Act the shares of King common stock
to be issued in the merger. These shares will be freely transferable under the
Securities Act, except for shares of King common stock issued to any person who
is an affiliate of either of us. Persons who may be deemed to be affiliates
include individuals or entities that control, are controlled by, or are under
common control with, either of us and may include our executive officers and
directors, as well as our principal shareholders. Affiliates may not sell their
shares of King common stock acquired in the merger except under:
- an effective registration statement under the Securities Act covering the
resale of those shares,
- Rule 145 under the Securities Act, or
- an exemption under the Securities Act.
Also, each of us has delivered to the other affiliate agreements. Under
these agreements, our directors may not dispose of or encumber any of their
shares of King common stock until financial results covering at least 30 days of
post-merger combined operations of our companies are publicly reported. The
affiliates are entering these agreements to help assure that the merger
qualifies as a pooling-of-interests.
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REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which prevents certain transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the appropriate waiting periods end or expire. The required information and
materials were filed with the Department of Justice and the Federal Trade
Commission on July 26, 2000.
Neither of us is aware of any other material governmental or regulatory
approval required for completion of the merger.
LISTING ON THE NEW YORK STOCK EXCHANGE OF KING COMMON STOCK TO BE ISSUED IN THE
MERGER
It is a condition to the closing of the merger that the shares of King
common stock to be issued in the merger or upon the exercise of options under
Jones' option plans be approved for listing on the New York Stock Exchange,
subject to official notice of issuance. We expect this to occur upon closing of
the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Jones will operate as a wholly owned subsidiary of
King. Jones' shareholders will become King shareholders. The King charter and
bylaws and Tennessee law govern the rights of shareholders of King. See
"Comparison of Rights of Holders of King Common Stock and Jones Common Stock" on
page .
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THE MERGER AGREEMENT
In this section of the joint proxy statement/prospectus, we describe the
merger agreement. While we believe that our description covers the merger
agreement's material terms, our summary may not contain all of the information
that is important to you. We have attached the merger agreement to this joint
proxy statement/prospectus as Annex A. We urge you to read it carefully, in its
entirety.
REPRESENTATIONS AND WARRANTIES
Jones and King each made a number of representations and warranties in the
merger agreement. The representations and warranties cover aspects of each
company's business, financial condition, structure and other facts pertinent to
the merger. The representations and warranties in the merger agreement are
complicated and not easily summarized. You are urged to carefully read the
articles of the merger agreement entitled "Representations and Warranties of
Jones" and "Representations and Warranties of King."
JONES' REPRESENTATIONS AND WARRANTIES
Jones' representations and warranties include representations as to:
- its corporate organization and qualification to do business;
- the effectiveness of, and its compliance with provisions of, its
certificate of incorporation and bylaws;
- its capitalization, including its common stock, its preferred stock and
options to purchase its common stock;
- its board's approval of and authority to enter into the merger and the
binding obligation on it of those agreements;
- the non-existence of conflicts between the merger agreement's provisions
and (1) its certificate of incorporation and bylaws, (2) other Jones
agreements and (3) applicable law;
- the filing of, and the veracity of the information contained in, its SEC
filings, including its financial statements;
- its cash reserves and lack of indebtedness;
- its disclosure of its material liabilities and no material adverse effect
having occurred which is not disclosed in the merger agreement;
- its litigation;
- its licenses and permits;
- its compliance with applicable law, no unlawful payments having been made
and the payment of taxes;
- its intellectual property;
- its material contracts;
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- its employee benefit plans and labor relations and compliance with
employment and workplace related laws;
- its title to or right to use the properties it owns and leases, and its
assets;
- environmental matters;
- its insurance coverage and policies;
- its board's approval of the merger agreement and its recommendation to
the Jones shareholders;
- Jones' financial advisor and the financial advisor's fairness opinion;
- brokers engaged by Jones in connection with the merger;
- the inapplicability of Delaware's anti-takeover statute to the merger;
- its and its affiliates' actions as they pertain to the merger's proposed
accounting and tax treatment;
- information supplied by Jones in this joint proxy statement/prospectus
and the related registration statement filed by King; and
- its regulatory compliance.
KING'S REPRESENTATIONS AND WARRANTIES
King's representations and warranties include representations as to:
- its corporate organization and qualification to do business;
- the effectiveness of, and its compliance with provisions of, its articles
of incorporation and bylaws;
- its capitalization, including its common stock and options to purchase
its common stock;
- its board's approval of and authority to enter into the merger and the
binding obligation on it of the merger agreement;
- the non-existence of conflicts between the merger agreement's provisions
and (1) its articles of incorporation and bylaws, (2) other King
agreements and (3) applicable law;
- the filing of, and the veracity of the information contained in, its SEC
filings, including its financial statements;
- its disclosure of its material liabilities and no material adverse effect
having occurred which is not disclosed in the merger agreement;
- its litigation;
- its licenses and permits;
- its compliance with applicable law, no unlawful payments having been made
and the payment of taxes;
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- its intellectual property;
- its material contracts;
- its employee benefit plans and labor relations and compliance with
employment and workplace related laws;
- its title to or right to use the properties it owns and leases and its
assets;
- environmental matters;
- its insurance coverage and policies;
- its board's approval of the merger agreement and its recommendation to
the King shareholders;
- King's financial advisor and the financial advisor's fairness opinion;
- brokers engaged by King in connection with the merger;
- its and its affiliates' actions as they pertain to the merger's proposed
accounting and tax treatment;
- information supplied by King in this joint proxy statement/prospectus and
the related registration statement it filed; and
- its regulatory compliance.
JONES' CONDUCT OF BUSINESS BEFORE THE MERGER'S COMPLETION
Jones has agreed, subject to certain conditions, that, until the merger
closes or unless King consents in writing, Jones will:
- operate its business in the usual and ordinary course consistent with
past practices;
- preserve intact its present business organization;
- maintain its rights, franchises and insurance;
- retain the services of its respective officers and employees (subject to
termination as management of Jones deems reasonably appropriate);
- maintain its relationship with its respective principal customers and
suppliers;
- keep its properties and assets in good repair and condition;
- keep its insurance in force; and
- timely prepare and file tax returns and materially accurate SEC reports.
In addition, Jones has agreed that, until the merger closes or unless King
consents in writing, Jones will conduct its business in compliance with specific
restrictions relating to the following:
- declaring or paying dividends or making other distributions (except for
regular quarterly dividends in a manner and in amounts consistent with
past practice);
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- splitting, combining, reclassifying, repurchasing and redeeming
securities (except in connection with the exercise of any outstanding
options or pursuant to any redemption agreement disclosed to King);
- the issuance of securities and the filing of any registration statement
related to any of its securities (except for stock option grants to
employees in the ordinary course not to exceed 125,000 shares prior to
December 31, 2000 and the issuance of stock upon the exercise of
options);
- agreeing to acquire an equity interest in another company;
- making or committing to make capital expenditures exceeding $200,000
individually or $1 million in the aggregate;
- selling, leasing or encumbering any of its assets except in the ordinary
course of business;
- taking action with respect to its employees and employee benefits;
- modifying Jones' certificate of incorporation and bylaws;
- changing its methods of accounting;
- changing tax elections;
- borrowing money;
- entering into transactions and agreements with affiliates;
- entering into or amending material contracts;
- settling material claims exceeding $200,000 individually or $1.0 million
in the aggregate;
- transferring or licensing any rights to its intellectual property to a
third party;
- taking actions which are intended or would likely make the party's
representations and warranties in the merger agreement untrue; and
- taking actions that would likely prevent pooling-of-interests accounting
treatment for the merger.
KING'S CONDUCT OF BUSINESS BEFORE THE MERGER'S COMPLETION
King has agreed that, subject to certain conditions, until the merger
closes or unless Jones consents in writing, King will:
- operate its business in the usual and ordinary course consistent with
past practices;
- preserve intact its present business organization;
- maintain its rights, franchises and insurance;
- retain the services of its respective officers and employees
- maintain its relationship with its respective principal customers and
suppliers;
- keep its properties and assets in good repair and condition;
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- keep its insurance in force; and
- timely prepare and file tax returns and materially accurate SEC reports.
In addition, King has agreed that, until the merger closes or unless Jones
consents in writing, King will conduct its business in compliance with specific
restrictions relating to the following:
- declaring or paying dividends or making other distributions;
- the issuance of securities;
- agreeing to acquire an equity interest in another company;
- incurring new indebtedness in excess of $100 million;
- modifying King's certificate of incorporation and bylaws;
- changing its methods of accounting;
- taking actions that would likely make the party's representations and
warranties in the merger agreement untrue;
- taking actions that would likely prevent pooling-of-interests accounting
treatment for the merger; and
- intentionally taking or failing to take any action which would reasonably
be expected to materially delay the consummation of the merger.
The agreements related to the conduct of Jones' and King's respective
businesses in the merger agreement are complicated and not easily summarized.
You are urged to carefully read the section of the merger agreement entitled
"Covenants."
OTHER AGREEMENTS
Jones and King have also reached additional agreements regarding:
- providing reasonable access to one another's personnel, advisors,
properties and information;
- restricting activities of the affiliates of both Jones and King in the
common stock of both companies, which would jeopardize
pooling-of-interests accounting treatment for the merger;
- confidentiality;
- holding the special meeting of Jones' shareholders and the special
meeting of King's shareholders;
- filing documents to comply with the Hart-Scott-Rodino Act;
- making public announcements regarding the merger;
- indemnification of Jones officers and directors after the merger;
- using commercially reasonable efforts and taking further action to
complete the merger;
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- listing King common stock issued in the merger or upon exercise of
options under Jones' option plans on the New York Stock Exchange;
- complying with state securities laws;
- notifying each other of events which are likely to cause the merger not
to happen;
- causing the merger to qualify as a tax-free reorganization;
- causing the merger to be accounted for as a "pooling-of-interests";
- taking necessary actions to cause G. Andrew Franz to be appointed to the
King board of directors until King's annual meeting in 2001;
- taking action to make the issuance of King common stock to Jones insiders
exempt from liability pursuant to Rule 16b-3 of the Exchange Act;
- providing current employees of Jones with employee benefits and
compensation that are comparable with those provided to King's employees
and providing for a severance package for Jones' employees who are
terminated other than for cause until January 1, 2004; and
- maintaining the operations of the St. Louis facility of Jones until
January 1, 2004.
NO OTHER NEGOTIATIONS INVOLVING JONES
Until the merger is completed or the merger agreement is terminated, Jones
has agreed not to directly or indirectly take any of the following actions:
- initiate, solicit, encourage or facilitate any inquiries or proposals
that constitute or may lead to an Acquisition Proposal (as defined
below);
- participate in any discussions or negotiations regarding any Acquisition
Proposal; or
- agree to, approve, recommend or endorse any Acquisition Proposal.
Jones has also agreed promptly to (a) inform King of any inquiries and proposals
related to these matters, (b) provide to King copies of any written Acquisition
Proposal and a summary of its material terms, (c) keep King informed as to any
discussions or negotiations regarding any activities relating to any Acquisition
Proposal and (d) provide King any non-public information concerning Jones that
was provided to any other person in connection with any Acquisition Proposal
which was not previously provided to King.
Under the merger agreement, if Jones' board of directors receives an
unsolicited bona fide written Acquisition Proposal, the board may (a) furnish
information to, or discuss or negotiate with, the person who made the proposal,
or (b) recommend this type of Acquisition Proposal to Jones' shareholders if and
only to the extent that the Jones board of directors:
- concludes in good faith after consulting with its financial advisor that
the proposal would reasonably be expected to constitute a Superior
Proposal (as defined below);
- determines in good faith after consulting with its outside legal counsel
that it would breach its fiduciary duties to its shareholders if it did
not recommend the proposal to them;
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- provides prompt written notice to King, prior to negotiating or
discussing the proposal with, or providing information to, the proposal's
proponent; and
- enters a confidentiality agreement no less favorable to Jones than the
confidentiality agreement we have regarding the merger, prior to
providing information to the proposal's proponent.
Under the merger agreement, the term:
- "Acquisition Proposal" means an inquiry, offer or proposal regarding any
of the following (other than the transactions contemplated by the merger)
involving Jones or its subsidiaries: (a) any merger, reorganization,
consolidation, share exchange, recapitalization, business combination,
liquidation, dissolution, or other similar transaction involving, or, any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
of, all or any significant portion of the assets or 25% or more of the
equity securities of, Jones or any of its subsidiaries, in a single
transaction or series of related transactions; (b) the acquisition by any
person (other than any beneficial owner of more than 5% of Jones common
stock as long as such beneficial owner is eligible to make filings in
respect thereof on Schedule 13G under applicable SEC rules and
regulations) of beneficial ownership of 10% or more of the outstanding
shares of Jones common stock (including Jones common stock currently
beneficially owned by such person); (c) any tender offer or exchange
offer for 20% or more of the outstanding capital stock of Jones or any of
its subsidiaries or the filing of a registration statement under the
Securities Act in connection therewith; or (d) any public announcement of
a proposal, plan or intention to do any of the foregoing or any agreement
to engage in any of the foregoing; and
- "Superior Proposal" means a bona fide Acquisition Proposal made by any
person that the Jones board of directors determines in its good faith
judgment to be more favorable to the Jones shareholders than the merger
(after consideration of, among other information, the written opinion of
Jones' independent financial advisor that the consideration provided for
in the proposal is fair from a financial point of view) and for which
financing, to the extent required, is then committed or which, in the
good faith judgment of the board of directors (in consultation with
Jones' independent financial advisor), is reasonably capable of being
obtained by such person.
TREATMENT OF JONES STOCK OPTIONS
When we complete the merger, each option to purchase Jones common stock
will be converted, in accordance with its terms, into an option to purchase King
common stock. Upon conversion, each option will be exercisable for a number of
shares of King common stock equal to the number of shares of Jones common stock
which could have been obtained upon exercise of the option before the merger
multiplied by the exchange ratio, rounded to the nearest whole number. The
exercise price will be equal to the exercise price per share of Jones common
stock subject to the option before conversion divided by the exchange ratio,
rounded to the nearest whole cent. The other terms of each option and the Jones
option plans, under which the options were granted, will continue to apply.
After the merger is completed, King will register on Form S-8 the shares of
King common stock issuable with respect to options granted under the Jones stock
option plans.
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King will use reasonable efforts to maintain the effectiveness of that
registration statement for as long as any of the options remain outstanding.
CONDITIONS TO COMPLETION OF THE MERGER
The respective obligations of Jones and King to complete the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
- the merger agreement must be approved and adopted and the merger must be
approved by the holders of a majority of the outstanding shares of Jones;
- the shareholders of King must approve the issuance of shares in
connection with the merger agreement by a majority of the votes cast,
provided that the total number of votes that are cast represents over 50%
interest of all shares of King common stock;
- King's registration statement must be effective, no stop order suspending
its effectiveness may be in effect and no proceedings for suspension of
its effectiveness may be pending before or threatened by the SEC;
- no law, regulation or order may be enacted or issued which has the effect
of preventing or prohibiting completion of the merger;
- the shares of King common stock to be issued in the merger or upon
exercise of options under Jones' option plans must have been authorized
for listing on the New York Stock Exchange, upon official notice of
issuance;
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated;
- the independent accountants of King and Jones must have each delivered
letters to the effect that the merger will qualify for
pooling-of-interests accounting treatment, one dated as of the closing
date of the merger and one dated as of the effective date of the
registration statement; and
- Jones and King must have received from their respective legal counsel an
opinion to the effect that the merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
The obligation of King to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before completion of the merger:
- Jones must have obtained all consents and approvals needed to complete
the merger;
- Jones must have no litigation pending or imminently threatened which
would impede the merger's closing, seek damages that may be material to
King, materially adversely affect the combined company's operations or
would have a material adverse effect on either Jones or King;
- Mr. Jones must have executed and delivered the consulting agreement to
King;
- Mr. and Mrs. Jones must have each executed and delivered a noncompetition
agreement to King; and
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- Mr. and Mrs. Jones must have each executed and delivered a severance
agreement to King.
The obligation of Jones to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before completion of the merger:
- King must have obtained all consents and approvals needed to complete the
merger;
- King must have no litigation pending or imminently threatened which would
impede the merger's closing, seek damages that may be material to King,
materially adversely affect the combined company's operations or would
have a material adverse effect on either Jones or King;
- King must have executed and delivered the consulting agreement to Mr.
Jones; and
- King must have executed and delivered the noncompetition agreements and
severance agreements with each of Mr. and Mrs. Jones.
Jones' and King's obligations to complete the merger and the other
transactions contemplated by the merger agreement is subject to the satisfaction
by the other or the waiver of each of the following additional conditions before
completion of the merger:
- all representations and warranties must have been true and correct as of
July 13, 2000 and at and as of the date the merger is to be completed at
and as if made as of such time, except to the extent the representations
and warranties address matters only as of a particular date or time, in
which case they must be true and correct as of that date or time;
- all respective obligations under agreements and covenants in the merger
agreement must be performed; and
- no material adverse effect shall have occurred, or be reasonably likely
to occur, since July 13, 2000.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the merger's
completion, whether before or after Jones' shareholders or King's shareholders
approve the proposals at their respective special meetings, in the circumstances
we have listed below.
The merger agreement may be terminated by both King and Jones if both
companies consent.
The merger agreement may be terminated by either King or Jones if any of
the following events occurs:
- the other materially breaches any of its representations, warranties,
covenants or agreements contained in the merger agreement and causes the
conditions to closing relating to those representations, warranties,
covenants and agreements to be unsatisfied, provided, that if a breach is
curable, the non-breaching party may not terminate if the party in breach
is exercising reasonable efforts to cure the breach;
- there exists any final and nonappealable order preventing the merger,
provided, the party seeking to terminate the merger agreement has used
reasonable efforts to vacate or lift the order;
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- without the fault of the terminating party, the merger is not completed
by January 9, 2001 or by no later than April 9, 2001 if additional
information is required by regulatory authorities reviewing the merger;
- the Jones shareholders do not approve and adopt the merger agreement and
approve the merger;
- the King shareholders do not approve the issuance of shares in connection
with the merger; or
- if there is a material adverse effect on the other party which cannot be
cured within 30 days.
King may terminate the agreement if:
- the board of directors of Jones withdraws or modifies its recommendation
of the merger agreement or the merger or resolves, or publicly announces
or discloses to a third party its intention, to do any of the same;
- the board of directors of Jones recommends or resolves to recommend to
Jones' shareholders an Acquisition Proposal;
- a person makes a tender offer or exchange offer for 20% or more of Jones'
outstanding common stock and the Jones board of directors, within 10
business days after the offer is made, either (a) fails to recommend that
the offer be rejected or (b) takes no position as to the offer; or
- any person (other than King, any affiliate of King or any beneficial
owner of more than 5% of Jones' common stock who is eligible to make
filings on a Schedule 13G), or any group which may be formed, other than
King, Jones and their affiliates, beneficially owns 20% or more of Jones'
outstanding capital stock; or
Jones may terminate the merger agreement if:
- its board of directors (a) determines to recommend a Superior Proposal to
its shareholders, (b) gives notice to King and (c) pays a $100.0 million
termination fee;
- the average trading price of King's common stock is less than $29.33 for
20 consecutive trading days, provided that King may agree to increase the
exchange ratio and deliver the number of shares to provide a maximum
purchase price of $33.00 per share of Jones common stock;
- King's board of directors withdraws or modifies its recommendation of the
merger agreement or the merger or the board of directors resolves,
publicly announces or discloses to any third party its intention to do
any of these things;
- American Home Products exercises its right to terminate the Co-Promotion
Agreement with King which right expired July 22, 2000; or
- prior to the effective time of the merger, the FDA denies in whole King's
supplemental new drug application for Altace(R).
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PAYMENT OF TERMINATION FEE
Jones will pay King a termination fee of $100.0 million immediately upon
termination of the merger agreement by:
(a) King because:
- Jones' board of directors withdraws or modifies its recommendation to
Jones' shareholders of the merger agreement or the merger, or the
board of directors resolves or publicly announces or discloses to any
third party its intention to do any of these things;
- Jones' board of directors recommends, or resolves to recommend, to
Jones' shareholders any Acquisition Proposal; or
- a person makes a tender offer or exchange offer for 20% or more of
Jones' outstanding common stock or a registration statement with
respect to such an offer is filed and the Jones board of directors,
within 10 business days after the offer is made or the registration
statement is filed, either (a) does not recommend that the offer be
rejected or (b) takes no position as to the offer;
or
(b) Jones because its board of directors determines to recommend a
superior proposal
Jones will also pay King a termination fee of $100.0 million if (A) either
Jones or King terminates the merger agreement because (1) the stockholders of
Jones fail to approve the merger and the merger agreement; or (2) the merger
shall not have been consummated by January 9, 2001, or April 9, 2001 if
additional information is required by regulatory authorities reviewing the
merger, and there is a prior Acquisition Proposal (B) Jones consummates an
Acquisition Proposal or enters into a definitive agreement with respect to an
Acquisition Proposal within 12 months after the termination of the merger
agreement. This termination fee will be paid at or prior to the consummation of
the acquisition proposal or immediately upon the effective date of the
definitive agreement, whichever is earlier.
King will pay Jones a termination fee of $100.0 million if and only if all
of the following are true:
- either King or Jones terminates the agreement as a result of the failure
to receive the requisite vote for approval of the issuance of shares from
King's shareholders at the meeting of its shareholders;
- at or prior to King's shareholders meeting an offer for a King Business
Combination (as defined below) shall have been publicly announced;
- the terms of the King Business Combination shall have required
termination of the agreement as a condition of effecting the King
Business Combination; and
- the King Business Combination is thereafter consummated or King enters
into a definitive agreement with respect to such King Business
Combination within 12 months after such termination of the agreement.
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Under the merger agreement, the term "King Business Combination" means any
of the following transactions involving King and a party other than Jones or any
affiliate of Jones which has been approved and recommended by King's board of
directors:
- any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution, or
other similar transaction involving, or any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or substantially
all of the assets or the equity securities of King in a single
transaction or series of related transactions, or
- any tender offer or exchange offer for all or substantially all of the
outstanding shares of capital stock of King.
King will also pay Jones a termination fee of $100.0 million if Jones
terminates the merger agreement because the board of directors of King withdraws
or modifies its recommendation to King's shareholders of the merger agreement or
the merger, or the board of directors resolves or publicly announces or
discloses to any third party its intention to do any of these things.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT AND EXPENSES
Jones and King may amend the merger agreement before completing the merger
provided we comply with applicable law.
Either Jones or King may extend the other's time for the performance of any
of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
Each of Jones and King will pay its own costs and expenses including
attorney's fees, accounting fees and expenses. However, King and Jones will
share equally costs and expenses related to printing, filing and mailing this
joint proxy statement/prospectus, the registration statement of which it is a
part and regulatory applications.
SHAREHOLDERS' VOTING AGREEMENTS
In connection with the merger, directors of King and Jones who are
shareholders have entered into voting agreements. The voting agreements provide
that these shareholders of King on the one hand and Jones on the other will vote
all of the shares of common stock owned by these shareholders in favor of the
merger.
As of the King record date, the shareholders who entered into the voting
agreement collectively owned shares of King common stock. Their
share ownership represented approximately % of the outstanding King common
stock. None of the King shareholders who are parties to the agreement were paid
additional consideration for entering into the agreement.
As of the Jones record date, the shareholders who entered into the voting
agreement collectively owned shares of common stock. Their share
ownership represented approximately % of the outstanding Jones common
stock. None of the Jones shareholders who are parties to the voting agreement
were paid additional consideration for entering into the agreement.
83
<PAGE> 93
The shareholders' voting agreements will terminate upon the earliest to
occur of:
- the date and time that the merger becomes effective;
- the date the merger agreement is terminated; or
- if the merger agreement is terminated under certain circumstances and
Jones is obligated to pay King a termination fee, the date the fee is
paid.
84
<PAGE> 94
SHARE OWNERSHIP AFTER THE MERGER
The following table sets forth certain information regarding the ownership
of King common stock following the merger, based upon holdings of King and Jones
common stock as of June 30, 2000, for (i) each person owning more than 5% of the
common stock, (ii) each director and the highest paid executive officers and
(iii) all executive officers and directors as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK(1)
-------------------------
AFTER THE MERGER
-------------------------
PERCENTAGE
NUMBER OF OUTSTANDING
EXECUTIVE OFFICERS, DIRECTORS AND 5% SHAREHOLDERS SHARES SHARES
------------------------------------------------- ---------- -----------
<S> <C> <C>
John M. Gregory(2)....................................... 16,338,758 9.8
Joseph R. Gregory(3)..................................... 6,234,229 3.7
Jefferson J. Gregory(4).................................. 2,146,052 1.3
James E. Gregory(5)...................................... 208,529 *
Ernest C. Bourne(6)...................................... 288,756 *
Earnest W. Deavenport, Jr................................ 0 *
Frank W. DeFriece, Jr.(7)................................ 37,500 *
D. Greg Rooker(8)........................................ 157,417 *
Richard C. Williams(9)................................... 183,445 *
G. Andrew Franz(10)...................................... 499,951 *
All executive officers and directors of King as a group
(17 persons)........................................... 26,765,843 16.1
The Summit Fund, LLC(11)................................. 9,760,336 5.9
Dennis M. Jones and Judith A. Jones(12).................. 8,865,111 5.3
</TABLE>
---------------
* Less than 1%
(1) Unless otherwise indicated, beneficial ownership consists of sole voting
and investing power based on (i) 92,042,085 shares of King common stock
issued and outstanding as of June 30, 2000, plus (ii) 65,525,222 shares of
Jones common stock issued and outstanding as of June 30, 2000, multiplied
by the 1.125 exchange ratio. Options to purchase shares which are
exercisable or will become exercisable within 60 days of June 30, 2000, or
as of the effectiveness of the merger are deemed to be outstanding for
purpose of computing the percentage of outstanding shares owned by such
person to whom a portion of such options relate but are not deemed to be
outstanding for the purpose of computing the percentage owned by any other
person.
(2) Includes 12,137,771 shares jointly owned with Mr. Gregory's spouse;
4,115,712 shares owned by S.J., LLC, a limited liability company, the
primary members of which are Mr. Gregory's children and 85,275 shares
registered in the name of The Lazarus Foundation, Inc., a private
foundation controlled by John M. Gregory. Mr. Gregory's address is 501
Fifth Street, Bristol, Tennessee 37620.
(3) Includes 2,115,562 shares owned through Kingsway L.L.C., a limited
liability company, the primary members of which are Mr. Gregory, his spouse
and his son and 93,749 shares issuable upon the exercise of options. Mr.
Gregory's address is 501 Fifth Street, Bristol, Tennessee 37620.
(4) Includes 1,800,411 shares jointly beneficially owned by Ms. Terri
White-Gregory and Jefferson J. Gregory and 130,500 shares beneficially
owned by Gregory Investments,
85
<PAGE> 95
L.P., the general partners of which are Mr. Gregory and Ms. White-Gregory
and 93,749 and 16,875 shares issuable upon the exercise of options granted
to Mr. Gregory and Ms. White-Gregory, respectively.
(5) Includes 178,829 shares jointly owned with Mr. Gregory's spouse, 1,575
shares owned by Mr. Gregory's spouse and 28,125 shares issuable upon the
exercise of options.
(6) Includes 59,999 shares issuable upon the exercise of options.
(7) Includes 37,500 shares issuable upon the exercise of options.
(8) Includes 37,500 shares held in trust for the benefit of Mr. Rooker's
children; 6,412 shares owned by Mr. Rooker's spouse, 13,065 shares owned by
The Jason Foundation, a non-profit public charity of which Mr. Rooker is
co-founder, and 37,500 shares issuable upon the exercise of options.
(9) Includes 101,455 shares jointly owned with Mr. Williams' spouse and 67,700
shares issuable upon the exercise of options.
(10) Share holdings are based upon the exchange ratio of 1.125 times an
aggregate of 444,401 shares of Jones common stock comprised of: 105,395
shares and exercisable options for 16,087 shares held by Mr. Franz; 33,490
shares held jointly by Mr. Franz and his wife; 219,052 shares held by Mrs.
Franz and an aggregate of 70,377 shares held by Mrs. Franz as custodian for
their minor children.
(11) The Summit Fund, LLC is an affiliate of The United Company. The Summit
Fund, LLC along with other affiliates of The United Company beneficially
owned in the aggregate 12,739,331 shares representing approximately 7.7% of
the outstanding shares following the merger. The address of The Summit
Fund, LLC is 1005 Glenway Avenue, Bristol, Virginia 24201.
(12) Share holdings are based upon the exchange ratio of 1.125 times an
aggregate of 7,880,099 shares of Jones common stock comprised of: 4,064,242
shares owned by Dennis M. Jones, 2,297,107 shares owned by Judith A. Jones,
currently exercisable options covering 972,000 shares for Mr. Jones and
243,000 shares for Mrs. Jones and additional options (which will become
effective upon the effective date of the merger) covering 243,000 shares as
to Mr. Jones and 60,750 shares as to Mrs. Jones. The address for Mr. and
Mrs. Jones is c/o JONES PHARMA INCORPORATED, 1945 Craig Road, St. Louis,
Missouri 63146.
86
<PAGE> 96
COMPARATIVE MARKET PRICE AND PER SHARE DATA
King common stock has been traded on the New York Stock Exchange under the
symbol KG since May 23, 2000. King common stock was previously traded on Nasdaq
under the symbol KING commencing on June 25, 1998, when King completed its
initial public offering. Jones common stock is traded on Nasdaq under the symbol
JMED.
The following table sets forth, for the quarters indicated, the high and
low sale prices per share of King common stock on the NYSE and Jones on Nasdaq.
<TABLE>
<CAPTION>
KING(1) JONES
--------------------- ---------------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
QUARTER ENDED:
1998
March 31........................................ N/A N/A 17.94 15.53
June 30......................................... 6.33 6.11 16.72 12.83
September 30.................................... 9.50 5.67 15.81 9.22
December 31..................................... 12.78 4.72 16.78 11.61
1999
March 31........................................ 13.28 8.61 16.14 11.62
June 30......................................... 14.50 9.22 17.58 13.63
September 30.................................... 18.55 10.89 22.90 15.81
December 31..................................... 45.33 13.42 32.83 17.66
2000
March 31........................................ 45.83 19.75 52.94 27.39
June 30......................................... 46.00 21.00 43.23 24.61
July 1 through July 27.......................... 47.25 28.75 48.25 31.31
</TABLE>
-------------------------
(1) All King share data reflects the 3 for 2 stock splits that were effective
November 11, 1999 and June 21, 2000. King commenced its initial public
offering on June 25, 1998 at a price of $6.22 per share ($14.00 per share
before the stock splits). Prior to such date, there was no public market for
King common stock.
The following table sets forth per share closing prices of King's and
Jones' common stock on the NYSE or Nasdaq, respectively, as of the dates
specified and the pro forma equivalent market value of the King common stock to
be issued for the Jones common stock in the merger.
<TABLE>
<CAPTION>
Jones
Common Stock
Last Reported Sale Price Pro Forma
--------------------------- -----------------
King Jones Equivalent Market
Date Common Stock Common Stock Value(a)
---- ------------ ------------ -----------------
<S> <C> <C> <C>
July 12, 2000(b).................... $45.44 $43.75 $ (a)
, 2000(c)................. $ $ $ (d)
</TABLE>
-------------------------
(a) Determined by multiplying the closing sales prices of King common stock, as
reported in the Wall Street Journal, for the date specified by 1.125, the
assumed exchange ratio.
(b) Last trading date prior to announcement of the execution of the merger
agreement.
(c) The most recent practicable date prior to the date of this joint proxy
statement/prospectus.
87
<PAGE> 97
(d) Under the merger agreement, if the average trading price is less than $29.33
and if Jones exercises its right to terminate the merger agreement, King may
exercise its right to deliver the number of shares of King common stock
necessary to provide a maximum purchase price of $33.00 per share of Jones
common stock.
Jones shareholders are advised to obtain current market quotations for King
common stock and Jones common stock. We cannot give you any assurance as to the
market prices of King common stock or Jones common stock at any time before the
merger closes or the market price of King common stock at any time after the
merger. The exchange ratio is fixed and will not be adjusted to compensate Jones
shareholders for decreases in the market price of King's common stock which
could occur before the merger closes unless as described above the value of King
stock is less than $29.33 per share. At that time, if Jones elects to terminate
the merger, King may increase the exchange ratio and deliver the number of
shares to provide a maximum purchase price of $33.00 per share of Jones common
stock. If the market price of King common stock decreases or increases before
the merger closes, the value of the King common stock to be received in the
merger in exchange for Jones common stock would correspondingly decrease or
increase.
King has never paid cash dividends on its shares of capital stock. Jones
presently pays a regular quarterly cash dividend. Under the merger agreement,
each of us has agreed not to pay cash dividends that are inconsistent with our
respective prior practices before the closing of the merger, without written
consent of the other. If the merger is not completed, the Jones board intends to
continue its policy of paying a quarterly dividend and retaining the remaining
earnings to finance the expansion of its business. The King board intends to
retain all earnings for use in its business and has no present intention to pay
cash dividends before or after the merger.
88
<PAGE> 98
The table below presents comparative selected historical per share data of
King and Jones, pro forma combined per share data for King and Jones and
equivalent pro forma per share data of Jones. The financial data is based on,
and should be read in conjunction with, the historical consolidated financial
statements and the notes to those financial statements of King and Jones. The
pro forma data is not necessarily indicative of results which will be obtained
on a combined basis.
<TABLE>
<CAPTION>
AT OR FOR
THE THREE-MONTH AT OR FOR THE YEAR
PERIOD ENDED ENDED DECEMBER 31,
--------------- ---------------------
MARCH 31, 2000 1999 1998 1997
--------------- ----- ----- -----
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER DILUTED COMMON SHARE:
King -- Historical(a)..................... $(0.10) $0.61 $0.47 $0.24
Jones -- Historical....................... 0.28 0.73 0.64 0.49
Pro Forma Combined(b)..................... 0.07 0.65 0.43 0.29
Jones Equivalent Pro Forma(c)............. 0.08 0.73 0.48 0.33
Dividends per share(d).................... 0.02 0.06 0.05 0.04
BOOK VALUE PER COMMON SHARE:
King -- Historical(a)..................... $ 2.52 $2.59
Jones -- Historical....................... 4.58 4.29
Pro Forma Combined(b)..................... 3.30 3.22
Jones Equivalent Pro Forma(c)............. 3.71 3.62
</TABLE>
-------------------------
(a) All King share data reflects a 3 for 2 stock split effective June 21, 2000.
(b) Pro forma combined amounts shown above reflect the proposed merger with
Jones on a "pooling-of-interests" basis for each period shown as if the
merger had occurred as of January 1, 1997.
(c) Jones equivalent pro forma per share amounts are calculated by multiplying
the pro forma combined amounts by the exchange ratio of 1.125.
(d) Dividends per share reflects Jones historical dividends declared. King has
not historically declared dividends and does not intend to declare
dividends in the future.
89
<PAGE> 99
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the proposed merger between King and Jones. We will account for
the merger as a pooling-of-interests, and the historical financial position and
operating results of King and Jones will be combined. The pro forma combined
condensed financial information reflects the financial position of King and
Jones as of March 31, 2000 and the operating results of King and Jones for the
three-month periods ended March 31, 2000 and 1999 and for the years ended
December 31, 1999, 1998 and 1997.
The unaudited pro forma combined condensed statements of operations assume
that the merger occurred at the beginning of the periods presented. The
unaudited pro forma combined condensed balance sheet assumes the merger occurred
as of March 31, 2000. The historical financial information of King as of March
31, 2000 and for the three-month periods ended March 31, 2000 and 1999, and the
years ended December 31, 1999, 1998 and 1997 has been derived from King's
historical consolidated financial statements which are incorporated by
reference. The pro forma historical purchase adjustments for the year ended
December 31, 1999 reflects an acquisition in 1999 as if it occurred on January
1, 1999.
The historical financial information of Jones as of March 31, 2000 and for
the three-month periods ended March 31, 2000 and 1999 and for the years ended
December 31, 1999, 1998 and 1997 has been derived from Jones' historical
consolidated financial statements, which are incorporated by reference.
Pro forma weighted average common shares outstanding for all periods
presented represent the historical average shares for King combined with the
historical average shares for Jones after giving effect to the conversion of all
outstanding shares of Jones into King common stock at the assumed exchange ratio
of 1.125 contemplated in the merger. Pro forma operating results do not include
estimated merger related costs of $18.2 million. The historical financial
information of Jones has been re-classified to conform to King's historical
presentation. The unaudited pro forma combined condensed financial information
should be read in conjunction with the historical consolidated financial
statements of King and Jones incorporated by reference.
The unaudited pro forma combined condensed financial information has been
included for comparative purposes only and does not purport to show what the
financial position or operating results would have been if the merger had been
consummated as of the dates indicated, nor should it be construed as
representative of future financial position or operating results.
90
<PAGE> 100
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL POOLING
KING JONES RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Total revenues..................... $ 91,441 $ 45,734 $ -- $137,175
-------- -------- ------- --------
Operating costs and expenses:
Cost of revenues(2).............. 22,585 8,305 (413) 30,477
Selling, general and
administrative(2)............. 25,711 8,183 (166) 33,728
Depreciation and
amortization(2)............... 7,858 840 579 9,277
Research and development costs... 3,434 231 -- 3,665
Merger and restructuring costs... 20,789 -- -- 20,789
-------- -------- ------- --------
Total operating costs and
expenses.................... 80,377 17,559 -- 97,936
-------- -------- ------- --------
Operating income................... 11,064 28,175 -- 39,239
Interest (expense)................. (14,032) -- -- (14,032)
Interest income.................... 822 3,199 -- 4,021
Other income (expenses)............ (181) 55 -- (126)
-------- -------- ------- --------
Income (loss) before income
taxes............................ (2,327) 31,429 -- 29,102
Income tax expense................. (6,206) (12,257) -- (18,463)
-------- -------- ------- --------
Net income (loss).................. $ (8,533) $ 19,172 $ -- $ 10,639
======== ======== ======= ========
Per share income (loss)(1):
Basic............................ $ (0.10) $ 0.29 $ 0.07
======== ======== ========
Diluted.......................... $ (0.10) $ 0.28 $ 0.07
======== ======== ========
Weighted average common shares(1):
Basic............................ 83,213 65,385 156,771
======== ======== ========
Diluted.......................... 84,257 67,679 160,396
======== ======== ========
</TABLE>
91
<PAGE> 101
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL POOLING
KING JONES RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Total revenues...................... $67,569 $29,477 $ -- $ 97,046
------- ------- ------- --------
Operating costs and expenses:
Costs of revenues(2).............. 17,139 6,584 (328) 23,395
Selling, general and
administrative(2).............. 13,920 7,301 (147) 21,074
Depreciation and
amortization(2)................ 6,442 869 475 7,786
Research and development costs.... 2,907 239 -- 3,146
------- ------- ------- --------
Total operating costs and
expenses..................... 40,408 14,993 -- 55,401
------- ------- ------- --------
Operating Income.................... 27,161 14,484 -- 41,645
Interest (expense).................. (12,719) -- -- (12,719)
Interest income..................... 771 1,396 -- 2,167
Other income (expenses)............. (88) 17 -- (71)
------- ------- ------- --------
Income from continuing operations
before income taxes............... 15,125 15,897 -- 31,022
Income tax expense.................. (5,617) (6,121) -- (11,738)
------- ------- ------- --------
Income from continuing operations... $ 9,508 $ 9,776 $ -- $ 19,284
======= ======= ======= ========
Per share income from continuing
operations(1):
Basic............................. $ 0.11 $ 0.15 $ 0.12
======= ======= ========
Diluted........................... $ 0.11 $ 0.15 $ 0.12
======= ======= ========
Weighted average common shares(1):
Basic............................. 82,737 64,819 155,658
======= ======= ========
Diluted........................... 83,460 66,312 158,061
======= ======= ========
</TABLE>
92
<PAGE> 102
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA KING PRO FORMA
HISTORICAL 1999 PURCHASE PRO HISTORICAL POOLING
KING ACQUISITION(3) ADJUSTMENTS FORMA JONES RECLASSIFICATIONS PRO FORMA
---------- -------------- ----------- ---------- ---------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............ $379,921 $ 31,797 -- $411,718 $132,544 $ -- $544,262
-------- -------- -------- -------- -------- ------- --------
Operating costs and
expenses:
Cost of revenues(2)...... 118,865 9,594 -- 128,459 25,077 (1,808) 151,728
Selling, general and
administrative(2)...... 80,213 9,617 -- 89,830 29,484 (784) 118,530
Depreciation and
amortization(2)........ 27,734 -- 2,791(4) 30,525 3,538 2,592 36,655
Research and development
costs.................. 16,316 -- -- 16,316 1,343 -- 17,659
-------- -------- -------- -------- -------- ------- --------
Total operating costs
and expenses......... 243,128 19,211 2,791 265,130 59,442 -- 324,572
-------- -------- -------- -------- -------- ------- --------
Operating income.......... 136,793 12,586 (2,791) 146,588 73,102 -- 219,690
Interest expense.......... (55,371) -- (5,884)(5) (61,255) -- (61,255)
Interest income........... 3,314 -- -- 3,314 7,193 -- 10,507
Other income (expenses)... (3,052) -- -- (3,052) (187) -- (3,239)
-------- -------- -------- -------- -------- ------- --------
Income from continuing
operations before income
taxes.................... 81,684 12,586 (8,675) 85,595 80,108 -- 165,703
Income tax expense........ (29,986) -- (1,564)(6) (31,550) (31,164) -- (62,714)
-------- -------- -------- -------- -------- ------- --------
Income from continuing
operations............... $ 51,698 $ 12,586 $(10,239) $ 54,045 $ 48,944 $ -- $102,989
======== ======== ======== ======== ======== ======= ========
Per share income from
continuing operations(1):
Basic.................... $ 0.62 $ 0.65 $ 0.75 $ 0.66
======== ======== ======== ========
Diluted.................. $ 0.62 $ 0.65 $ 0.73 $ 0.65
======== ======== ======== ========
Weighted average common
shares(1):
Basic.................... 82,795 82,795 64,936 155,848
======== ======== ======== ========
Diluted.................. 83,663 83,663 66,671 158,668
======== ======== ======== ========
</TABLE>
93
<PAGE> 103
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL POOLING
KING JONES RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Total revenues..................... $191,007 $103,414 $ -- $294,421
-------- -------- ------- --------
Operating costs and expenses:
Cost of revenues(2).............. 68,925 23,839 (1,575) 91,189
Selling, general and
administrative(2)............. 36,193 25,359 (363) 61,189
Depreciation and
amortization(2)............... 9,963 3,665 1,938 15,566
Research and development costs... 10,749 117 -- 10,866
Nonrecurring charges............. -- 10,500 -- 10,500
-------- -------- ------- --------
Total operating costs and
expenses.................... 125,830 63,480 -- 189,310
-------- -------- ------- --------
Operating income................... 65,177 39,934 -- 105,111
Interest (expense)................. (14,866) (215) -- (15,081)
Interest income.................... 2,875 5,086 -- 7,961
Other income (expenses)............ 4,004 12 -- 4,016
-------- -------- ------- --------
Income from continuing operations
before income taxes.............. 57,190 44,817 -- 102,007
Income tax expense................. (15,627) (21,250) -- (36,877)
======== ======== ======= ========
Income from continuing
operations....................... $ 41,563 $ 23,567 $ -- $ 65,130
======== ======== ======= ========
Per share income from continuing
operations(1):
Basic............................ $ 0.53 $ 0.36 $ 0.43
======== ======== ========
Diluted.......................... $ 0.53 $ 0.36 $ 0.43
======== ======== ========
Weighted average common shares(1):
Basic............................ 78,460 64,633 151,172
======== ======== ========
Diluted.......................... 78,858 65,988 153,095
======== ======== ========
</TABLE>
94
<PAGE> 104
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA POOLING
KING JONES RECLASSIFICATION PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Total revenues....................... $67,909 $88,781 $ $156,690
------- ------- ------ --------
Operating costs and expenses:
Cost of revenues(2)................ 16,019 25,430 (1,897) 39,552
Selling, general and
administrative(2)............... 19,950 21,914 (251) 41,613
Depreciation and amortization(2)... 3,071 3,357 2,148 8,576
Research and development costs..... 7,792 -- 7,792
------- ------- ------ --------
Total operating costs and
expenses...................... 46,832 50,701 -- 97,533
------- ------- ------ --------
Operating income..................... 21,077 38,080 -- 59,157
------- ------- ------ --------
Interest (expense)................... (2,787) (238) -- (3,025)
Interest income...................... 2,110 2,562 -- 4,672
Other income (expenses).............. 682 (9) -- 673
------- ------- ------ --------
Income from continuing operations
before income taxes................ 21,082 40,395 -- 61,477
Income tax expense................... 4,257 15,351 -- 19,608
------- ------- ------ --------
Income from continuing operations.... $16,825 $25,044 $ -- $ 41,869
======= ======= ====== ========
Per share income from continuing
operations(1):
Basic.............................. $ 0.24 $ 0.39 $ 0.29
======= ======= ========
Diluted............................ $ 0.24 $ 0.38 $ 0.29
======= ======= ========
Weighted average common shares:(1)
Basic.............................. 69,796 64,309 142,144
======= ======= ========
Diluted............................ 69,872 65,804 143,902
======= ======= ========
</TABLE>
95
<PAGE> 105
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL POOLING
KING JONES RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 7,491 $161,142 $ -- $ 168,633
Marketable securities........ -- 38,707 -- 38,707
Accounts receivable, net..... 59,415 19,738 -- 79,153
Inventory.................... 49,734 11,017 -- 60,751
Deferred income taxes........ 14,522 3,555 -- 18,077
Prepaid expenses and other
current assets............. 4,730 2,584 -- 7,314
-------- -------- -------- ----------
Total current assets....... 135,892 236,743 -- 372,635
-------- -------- -------- ----------
Property, plant and
equipment, net............. 97,782 27,066 -- 124,848
Intangible assets, net....... 552,248 61,961 -- 614,209
Other assets................. 19,736 6,586 -- 26,322
-------- -------- -------- ----------
Total assets............... $805,658 $332,356 $ -- $1,138,014
======== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt....................... $ 13,392 $ -- $ -- $ 13,392
Accounts payable............. 26,525 11,517 (8,829)(6) 29,213
Accrued expenses............. 51,654 -- 27,029(6)(8) 78,683
Income taxes payable......... 7,408 15,692 -- 23,100
-------- -------- -------- ----------
Total current
liabilities............. 98,979 27,209 18,200 144,388
-------- -------- -------- ----------
Long-term debt............... 482,834 -- -- 482,834
Other long-term
liabilities................ 1,500 -- -- 1,500
Deferred income taxes........ 12,516 5,455 -- 17,971
-------- -------- -------- ----------
Total liabilities.......... 595,829 32,664 18,200 646,693
-------- -------- -------- ----------
Shareholders' equity......... 209,829 299,692 (18,200)(8) 491,321
-------- -------- -------- ----------
Total liabilities and
shareholders' equity....... $805,658 $332,356 $ -- $1,138,014
======== ======== ======== ==========
</TABLE>
96
<PAGE> 106
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Retroactively reflects King's 3 for 2 stock split effective June 21, 2000.
(2) Reflects the reclassification of Jones depreciation expense from cost of
revenues and selling, general and administrative expenses to conform with
King's presentation.
(3) Represents the historical results for the Lorabid(R) product line purchase
acquisition by King for the period prior to the acquisition from January 1,
1999 through August 19, 1999.
(4) For 1999, includes amortization of intangible assets from the Lorabid(R)
acquisition over periods of 30 years for the Lorabid(R) product line
acquisition.
(5) Adjustment to reflect the increase in interest expense for the period
January 1, 1999 through August 19, 1999 as a result of the financing the
Lorabid(R) product acquisition, (in thousands):
<TABLE>
<S> <C>
Revolving credit facility ($91.65 million at
8.56%)(a)............................................. $5,884
</TABLE>
-------------------------
a. The interest rate shown above for the revolving credit facility was the rate
in effect immediately following the Lorabid acquisition on August 19, 1999. A
change in the interest rates of one-eighth of one percent (0.125%) would
change interest expense by $85 for the period above.
(6) Adjustment to reflect a 40% effective tax rate applied to the incremental
pro forma net income before income taxes.
(7) Reflects the reclassification of certain Jones' accrued expenses from
accounts payable to conform with King's presentation.
(8) Reflects accrued merger costs of $18.2 million.
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COMPARISON OF RIGHTS OF HOLDERS OF KING COMMON STOCK
AND JONES COMMON STOCK
This section of the joint proxy statement/prospectus describes differences
between King common stock and Jones common stock. We believe that the
description covers the material differences between the two. However, this
summary may not contain all of the information that is important to you,
including each of our charters and bylaws. You should read this entire document
and the other documents we refer to carefully for a more complete understanding
of the differences between King common stock and Jones common stock. You may
obtain the information incorporated by reference into this joint proxy
statement/prospectus without charge by following the instructions in the section
entitled "Where You Can Find More Information" on page .
After the merger, the holders of Jones common stock who receive King common
stock will become shareholders of King. Because Jones is a Delaware corporation
and King is a Tennessee corporation, the Tennessee Business Corporation Act, or
TBCA, will govern the rights of Jones shareholders after the merger. The Jones
certificate of incorporation and the Jones bylaws currently govern the rights of
the shareholders of Jones. As shareholders of King, the King charter, as amended
and restated, and the King bylaws, as amended and restated, will instead govern
their rights following the merger. The following paragraphs summarize
differences between the rights of King shareholders and Jones shareholders under
the charter documents and bylaws of King and Jones, as applicable. They also
summarize the material differences between the Delaware General Corporation Law,
or DGCL, and the TBCA.
AUTHORIZED CAPITAL STOCK
Jones' amended and restated certificate of incorporation authorizes the
issuance of up to 250,000,000 shares of Jones common stock and 5,000,000 shares
of preferred stock. As of June 30, 2000:
- 65,525,222 shares of common stock were issued and outstanding; and
- no shares of preferred stock were issued and outstanding.
The board of directors of Jones has authority to provide for the issuance,
from time to time, of shares of preferred stock on terms determined by the board
of directors. The board of directors may establish classes of preferred stock
and determine or alter the designations, powers, preferences, and rights and the
qualifications, limitations or restrictions granted to or imposed upon each
class of preferred stock.
Under its articles of incorporation, King is authorized to issue up to
300,000,000 shares of common stock and 15,000,000 shares of preferred stock. As
of June 30, 2000:
- 92,042,085 shares of common stock were issued and outstanding; and
- no shares of preferred stock were issued and outstanding.
King's board of directors is authorized, subject to the TBCA's limitations, to:
- authorize the issuance of the shares of preferred stock in series;
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- determine the dividend rate of each series, the conditions and dates upon
which dividends may be paid, and how dividends may be paid in relation to
other series of stock;
- determine whether the shares shall be subject to redemption by King and
the means of such redemption;
- determine the terms and amount of any sinking fund provided for the
purchase or redemption of shares;
- determine whether the shares are convertible into another sort of King's
capital stock and the means and details of such conversion;
- create restrictions on the issue or reissue of any additional series of
preferred stock;
- establish the rights of the holders of each series of preferred stock
upon the voluntary or involuntary liquidation, dissolution or winding up
of King; and
- determine the provisions as to voting and optional special rights and
preferences, such as the right to elect one or more directors.
RIGHTS AGREEMENT
King's board of directors has declared a dividend of one preferred share
purchase right for each share of common stock outstanding. A purchase right will
also be attached to each share of common stock subsequently issued. The purchase
rights will have certain anti-takeover effects. If triggered, the purchase
rights would cause substantial dilution to a person or group of persons (other
than certain exempt persons) that acquires more than 15.0% of King's common
stock on terms not approved by King's board of directors. The purchase rights
could discourage or make more difficult a merger, tender offer or other similar
transaction.
Jones does not have a similar rights agreement.
REMOVAL OF DIRECTORS
Under the DGCL, any of Jones' directors, or the entire board, may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at the election of directors.
King's bylaws provide that any director is subject to removal by a proper
vote of the shareholders. The TBCA provides that a director may be removed with
or without cause if the number of shares voted in favor of removal exceeds the
number of shares voted against removal.
CONFLICT-OF-INTEREST TRANSACTIONS
The DGCL generally permits transactions involving Jones and an interested
director of Jones if
- the material facts are disclosed and a majority of disinterested
directors consent,
- the material facts are disclosed and a majority of shares entitled to
vote thereon consents, or
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- the transaction is fair to Jones at the time it is authorized by the
Jones board of directors, a committee, or the Jones shareholders.
The TBCA generally permits transactions involving King and an interested
director of King if
- the material facts are disclosed and a majority of disinterested
directors or a committee of the King board of directors consents,
- the material facts are disclosed and a majority of disinterested shares
entitled to vote thereon consents, or
- the transaction is fair to King.
The TBCA prohibits loans to directors by King unless approved by a majority vote
of disinterested shareholders or the King board of directors determines that the
loan benefits King and either approves the specific loan or a general plan of
loans by King.
SPECIAL MEETINGS OF SHAREHOLDERS
Pursuant to Jones' bylaws, a special meeting of Jones' shareholders may be
called for any purpose by the board of directors or the President of Jones.
King's bylaws authorize the Chairman of the Board and Chief Executive
Officer, the President or a majority of the King board of directors to call a
special meeting of shareholders for any purpose. Such a call shall state the
purpose or purposes of the proposed meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The DGCL provides that the recommendation of the Jones board of directors
and the approval of a majority of the outstanding shares of Jones entitled to
vote thereon is required to effect a merger or consolidation or to sell, lease
or exchange substantially all of Jones' assets. With respect to a merger, no
vote of the Jones shareholders would be required if Jones were the surviving
corporation and
- the related agreement of merger did not amend Jones' certificate of
incorporation,
- each share of stock of Jones outstanding immediately before the merger
were an identical outstanding or treasury share of Jones after the merger
and
- the number of shares of Jones to be issued in the merger (or to be
issuable upon conversion of any convertible instruments to be issued in
the merger) did not exceed 20% of the shares of Jones common stock
outstanding immediately before the merger.
The TBCA provides that the approval of the King board of directors and of a
majority of the outstanding shares of King entitled to vote thereon would also
generally be required to approve a merger or to sell, lease, exchange or
otherwise dispose of substantially all of King's assets. In accordance with the
TBCA, submission by the King board of directors of any such action may be
conditioned on any basis, including without limitation, conditions regarding a
supermajority voting requirement or that the holders of no more than a certain
number of shares indicate that they will seek dissenters' rights.
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With respect to a merger, no vote of the shareholders of King would be
required if King were the surviving corporation and
- King's charter would remain unchanged after the merger, subject to
certain exceptions,
- each shareholder of King immediately before the merger would hold an
identical number of shares, with identical rights and preferences, after
the merger,
- the number of voting shares outstanding immediately after the merger plus
the number of voting shares issuable as a result of the merger (either by
conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by
more than 20% the number of voting shares of the surviving corporation
outstanding immediately before the merger; and
- the number of participating shares outstanding immediately after the
merger, plus the number of participating shares issuable as a result of
the merger (either by conversion of securities issued pursuant to their
merger or the exercise of rights and warrants issued pursuant to the
merger), will not exceed by more than 20% the total number of
participating shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of King, no vote of the shareholders of King would
be required if such transfer were conducted in the regular course of business or
if such transfer were made to a wholly-owned subsidiary of King. No vote of the
shareholders of King would be required for King to mortgage, pledge, encumber or
dedicate to the repayment of indebtedness any or all of its property, whether or
not in the regular course of business.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Jones' bylaws do not address requirements for shareholder proposals and
nominations.
King shareholder proposals must be in writing and received by the Secretary
of King not less than 60 nor more than 90 days prior to the date of a meeting of
shareholders; provided, however, that if fewer than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder will be timely if it is delivered or received not
later than the close of businesses on the 10th day following the day on which
such notice of the date of such meeting was mailed or the date on which such
public disclosure was made.
Nominations to King's board of directors by shareholders must be in writing
and received by the Secretary of King not less than 60 nor more than 90 days
prior to the date of the annual meeting of shareholders. If the date of the
annual meeting is changed by more than 30 days from its anniversary date, notice
by the shareholder to be timely must be received not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the meeting was made. In
the case of a special meeting at which directors are to be elected, notice must
be received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting was made.
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ACTION BY WRITTEN CONSENT
The DGCL provides for action without shareholder meetings if a written
consent setting forth the action to be taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
The TBCA provides that action may be taken without a shareholder meeting
and vote if all shareholders entitled to vote on the action consent to taking
such action without a meeting. Action by written consent of the King
shareholders is impracticable given the number of holders of King common stock.
INSPECTION RIGHTS
Both the TBCA and the DGCL contain provisions granting shareholders the
right to inspect certain records of each corporation. Under the DGCL, any
stockholder of record, either in person or by attorney or other agent, upon
written demand under oath stating the purpose thereof, has the right to inspect
certain of Jones' records during certain times. This right is limited, however,
to inspection for "a proper purpose," which is defined as "a purpose reasonably
related to such person's interest as a stockholder."
Under the TBCA, King shareholders are also entitled to inspect and copy,
during regular business hours at King's principal office, the minutes of
shareholder meetings, charter, bylaws, annual reports, and certain other records
of the corporation, provided the shareholder gives the corporation written
notice of this demand at least 5 business days before the date on which he
wishes to inspect and copy the records. In addition, a shareholder who makes a
demand in good faith, for a proper purpose, and describes with reasonable
particularity his purpose and the records he desires to inspect, and if the
records are directly connected with his purpose, may also, upon 5 days' written
notice, inspect and copy:
- accounting records of the corporation,
- the records of shareholders,
- excerpts from minutes of any meeting of the board of directors,
- records of any action of a committee of the board of directors while
acting in place of the board of directors on behalf of the corporation,
- minutes of any meeting of the shareholders, and
- records of action taken by the shareholders or board of directors without
a meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION OR CHARTER AND BYLAWS
Jones' certificate of incorporation may be amended by (1) the adoption of a
resolution by the board which sets forth the proposed amendment and declaring
its advisability, and (2) the affirmative vote of a majority of all shareholders
entitled to vote and the affirmative vote of a majority of each class of
shareholders entitled to vote. Jones' certificate of incorporation vests in the
board of directors the power to make, alter, amend or repeal the bylaws. The
bylaws provide for the amendment, repeal and adoption of new bylaws by the
affirmative vote of a majority of the board.
King's charter may be amended in minimal ways, such as changing of the
registered office of the corporation, by the board of directors without
shareholder involvement. Other
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amendments of the charter must be recommended to the shareholders by the board
and approved by a majority of the votes entitled to be cast. The TBCA may
require a greater vote or voting by groups in certain circumstances. The board
of directors may also require a greater vote or voting by groups, and it may
condition on any basis its submission of the proposed amendment to the
shareholders.
Section 6 of King's bylaws establishes classes of directors and their term
and provides that the number of directors shall be modified by resolution of
King's board of directors. This section may not be altered, amended, or repealed
by the shareholders without the affirmative vote of the shareholders of at least
80% of King's common stock. The same 80% vote is required for the shareholders
to amend portions of the bylaws which provide for special meetings of the
shareholders, the procedures for bringing business before a meeting of the
shareholders, and the nomination of directors.
VOLUNTARY DISSOLUTION
The DGCL provides that Jones may be dissolved by the approval of the Jones
board of directors and a majority of the shares of Jones entitled to vote
thereon. The DGCL also allows all the shareholders of Jones to act unanimously
in writing to effect a dissolution of Jones without the approval of the Jones
board of directors.
The TBCA provides that King may be dissolved if the King board of directors
proposes dissolution and a majority of the shares of King entitled to vote
thereon approves. The King board of directors may condition its submission of a
proposal for dissolution on any basis, including a greater shareholder vote
requirement.
INDEMNIFICATION
Both the DGCL and the TBCA provide in certain situations for mandatory and
permissive indemnification of directors and officers in substantially the same
manner. The TBCA, however, states that statutory indemnification is not to be
deemed exclusive of any other rights to which a director seeking indemnification
may be entitled; provided, however, no indemnification may be made if a final
adjudication adverse to the director or officer establishes his liability
- for any breach of loyalty to the corporation or its shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
- for unlawful distributions.
BUSINESS COMBINATION STATUTE
The DGCL regulates business combinations such as mergers, consolidations,
and asset purchases where the business acquired was, or the assets belonged to,
a public corporation, such as Jones, and where the acquiror became an
"interested stockholder" of the public corporation before the date of the
transaction unless
(1) prior to the date of the transaction the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, or
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(2) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by persons who are
directors and also officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer, or
(3) on or subsequent to the date of the transaction the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of a
least 66 2/3% of the outstanding voting stock of the disinterested
stockholders.
In the context of this law, an "interested stockholder" is any person
(other than the corporation and any direct or indirect majority-owned subsidiary
of the corporation) who directly or indirectly, alone or in concert with others,
beneficially owns or controls 15% or more of the voting stock of the public
corporation. The law prohibits business combinations with an unapproved
interested stockholder for a period of 3 years after the date on which the
person became an interested stockholder and requires that any business
combination with an unapproved interested stockholder after such 3 year period
be approved by the board of directors and authorized by the affirmative vote of
66 2/3% of the outstanding shares held by persons other than the interested
stockholders. The law is very broad in scope and is designed to inhibit
unfriendly acquisitions but it does not apply to corporations whose certificate
of incorporation or bylaws contain a provision not to be covered by this
section. Neither Jones' certificate of incorporation nor bylaws contain such a
provision.
Tennessee's Business Combination Act provides that a party owning 10% or
more of stock in a "resident domestic corporation" (such party is called an
"interested shareholder") cannot engage in a business combination with the
resident domestic corporation unless the combination
(1) takes place at least 5 years after the interested shareholder
first acquired 10% or more of the resident domestic corporation, and
(2) either
(A) is approved by at least 2/3 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. It may not take effect for
at least 2 years after the vote. King has not adopted a charter or bylaw
amendment removing King from coverage under the Business Combination Act.
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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 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 such
factors are permitted to be considered by the board of directors under the
charter.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional as it applies to target
corporations organized under the laws of states other than Tennessee (such as
Jones).
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 1/5, 1/3 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 special
meeting of shareholders to conduct such a vote. The purchaser can demand such a
meeting before acquiring a control share only if it holds at least 10% of
outstanding shares and announces a good faith intention to make the control
share acquisition. A target corporation may or may not redeem the purchaser's
shares if the shares are not granted voting rights.
The United States Court of Appeals for the Sixth Circuit, however, has held
that the Tennessee Control Share Acquisition Act is unconstitutional as it
applies to target corporations organized under the laws of states other than
Tennessee (such as Jones).
The DGCL contains no similar provisions with respect to control share
acquisitions.
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. The Investor Protection Act requires an offeror making a tender offer
for an offeree company to file with the Commissioner of Commerce and Insurance,
which we call the "Commissioner," 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. The Commissioner may require
additional information material to the takeover offer and may call for hearings.
The Investor Protection 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, the Investor Protection Act requires the offeror and the
offeree company to deliver to the Commissioner all solicitation materials used
in connection with the tender offer. The 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 the
TIPA.
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Upon proper showing, the Chancery Court may grant injunctive relief. The
Investor Protection Act further provides civil and criminal penalties for
violations.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Investor Protection Act violates the commerce clause of the United
States Constitution to the extent that it applies to target corporations
organized under the laws of states other than Tennessee (such as Jones).
The DGCL contains no similar provisions with respect to investor
protection.
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act is the vehicle through
which the Tennessee statutes attempt to permit the Business Combination Act and
the Control Share Acquisition Act to govern foreign corporations. The Act
provides that an authorized corporation can adopt a bylaw or a charter provision
electing to be subject to the operative provision of the Business Combination
Act and the Tennessee Control Share Acquisition Act, which then become
applicable "to the same extent as such provisions apply to a resident domestic
corporation." Authorized corporations are those that are required to obtain a
Certificate of Authority from the Tennessee Secretary of State and that satisfy
any two of a number of tests including
- having its principal place of business located in Tennessee;
- having a significant subsidiary located in Tennessee;
- having a majority of such corporation's fixed assets located in
Tennessee;
- having more than 10% of the beneficial owners of the voting stock or more
than 10% of such corporation's shares of voting stock beneficially owned
by residents of Tennessee;
- employing more than 250 individuals in Tennessee or having an annual
payroll paid to residents of Tennessee that is in excess of $5,000,000;
- producing goods and/or services in Tennessee that result in annual gross
receipts in excess of $10,000,000;
- or having physical assets and/or deposits located within Tennessee that
exceed $10,000,000 in value.
The United States Court of Appeals for the Sixth Circuit, however, has held
the Tennessee Authorized Corporation Protection Act unconstitutional as it
applies to target corporations organized under the laws of states other than
Tennessee (such as Jones).
The DGCL contains no similar provisions with respect to authorized
corporation protection.
GREENMAIL ACT
The Tennessee Greenmail Act applies to any corporation chartered under the
laws of Tennessee which has a class of voting stock registered or traded on a
national securities exchange or registered with the SEC pursuant to Section
12(g) of the Exchange Act. The Greenmail Act provides that it is unlawful for
any corporation or subsidiary to purchase,
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either directly or indirectly, any of its shares at a price above the market
value, as defined in the Act, from any person who holds more than 3% of the
class of the securities purchased if such person has held such shares for less
than 2 years, unless either
- the purchase is first approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued, or
- the corporation makes an offer of at least equal value per share to all
holders of shares of such class.
The DGCL contains no similar provisions with respect to greenmail.
DIVIDENDS AND OTHER DISTRIBUTIONS
The DGCL generally allows dividends to be paid out of surplus of Jones or
out of the net profits of Jones for the current fiscal year and/or the prior
fiscal year. No dividends may be paid if they would result in the capital of
Jones being less than the capital represented by the preferred stock of Jones.
There are no shares of Jones preferred stock outstanding.
The TBCA provides that King generally may make dividends or other
distributions to its shareholders unless after the distribution either (1) King
would not be able to pay its debts as they become due in the usual course of
business or (2) King's assets would be less than the sum of its liabilities plus
the amount that would be needed to satisfy the preferential dissolution rights
of its preferred stock. There are no shares of King preferred stock authorized.
DISSENTERS' RIGHTS
The DGCL provides appraisal rights for certain mergers and consolidations.
Appraisal rights are not available to holders of
- shares listed on a national securities exchange or held of record by more
than 2,000 shareholders or
- shares of the surviving corporation of the merger, if the merger did not
require the approval of the shareholders of such corporation,
unless, in either case, the holders of such stock are required pursuant to the
merger to accept anything other than
- shares of stock of the surviving corporation,
- shares of stock of another corporation which are also listed on a
national securities exchange or held by more than 2,000 holders, or
- cash in lieu of fractional shares of such stock.
Appraisal rights are not available for a sale of assets or an amendment to
the certificate of incorporation.
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect
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rights in respect of a dissenter's shares. Dissenters' rights are not available
as to any shares which are listed on an exchange registered under Section 6 of
the Securities Exchange Act of 1934 or are "national market system" securities
as defined in rules promulgated pursuant to the Exchange Act.
OTHER MATTERS
We do not expect that any matters other than those described in this joint
proxy statement/prospectus will be brought before either of the special
meetings. If any other matters are presented, however, it is the intention of
the persons named in the King and Jones proxy cards, to vote proxies in
accordance with the determination of a majority of the board of directors, as
applicable, including, without limitation, a motion to adjourn or postpone the
meeting to another time and/or place for the purpose of soliciting additional
proxies in order to approve the merger agreement or otherwise.
SHAREHOLDER PROPOSALS
If the merger agreement is approved and the merger takes place, under the
rules of the SEC, a shareholder who wishes to include a proposal in King's proxy
statement and form of proxy related to King's 2001 annual meeting must send the
proposal to Mr. Joseph R. Gregory, Secretary, at 501 Fifth Street, Bristol,
Tennessee 37620 by January 15, 2001. The use of certified mail, return receipt
requested, is advised. To be eligible for inclusion, a proposal must comply with
Rule 14a-18 and all other applicable provisions of Regulation 14A under the
Securities Exchange Act of 1934.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED IN OR DELIVERED WITH THIS DOCUMENT.
All documents filed by either King or Jones under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act, after the date hereof and before the
date of the Jones special meeting are incorporated by reference into and to be a
part of this joint proxy statement/prospectus from the date of filing of those
documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
The following documents, which King has filed with the SEC, are
incorporated by reference into this joint proxy statement/prospectus:
- annual report on Form 10-K for the year ended December 31, 1999
(excluding the financial statements which were restated on a current
report on Form 8-K filed June 23, 2000);
- quarterly reports on Form 10-Q for the period ended March 31, 2000;
- prospectus on Form 424(b)(5), filed June 23, 2000;
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- current reports on Form 8-K filed on February 28, 2000, April 20, 2000,
April 21, 2000, June 23, 2000 and June 30, 2000; and
- description of the common stock of King Pharmaceuticals, Inc. contained
in King's Registration Statement on Form S-1 (Registration No. 333-38753)
filed October 24, 1997.
The following documents, which Jones has filed with the SEC, are
incorporated by reference into this joint proxy statement/prospectus:
- annual report on Form 10-K for the year ended December 31, 1999;
- quarterly report on Form 10-Q for the period ended March 31, 2000; and
- current report on Form 8-K filed July 17, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this joint proxy statement/prospectus to the extent
that a statement contained in this document or any other subsequently filed
document that is deemed to be incorporated in this document by reference
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of
this joint proxy statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
King and Jones file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information that either of us files
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information about issuers that file electronically with the SEC. The address of
the SEC's Internet site is http://www.sec.gov. King can be found on the Internet
at http://www.KingPharm.com. Jones can be found on the Internet at
http://www.JmedPharma.com. King's common stock is traded on the New York Stock
Exchange under the trading symbol KG. Jones' common stock is traded on the
Nasdaq Stock Market's National Market Tier under the trading symbol JMED.
King has filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933 relating to King's common stock to be issued to Jones'
shareholders in the merger. As permitted by the rules and regulations of the
SEC, this joint proxy statement/prospectus does not contain all the information
set forth in the registration statement. You can obtain that additional
information from the SEC's principal office in Washington, D.C. or the SEC's
Internet site as described above. Statements contained in this joint proxy
statement/prospectus or in any document incorporated by reference into this
joint proxy statement/prospectus about the contents of any contract or other
document are not necessarily complete and, in each instance where the contract
or document is filed as an exhibit to the registration statement, reference is
made to the copy of that contract or document filed as an exhibit to the
registration statement, with each statement of that kind in this joint proxy
statement/prospectus being qualified in all respects by reference to the
document.
109
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The documents incorporated by reference into this joint proxy
statement/prospectus are available from either King or Jones, as applicable upon
request. We will provide a copy of any and all of the information that is
incorporated by reference in this joint proxy statement/prospectus not including
exhibits to the information unless those exhibits are specifically incorporated
by reference into this joint proxy statement prospectus, to you, without charge,
upon written or oral request. YOU SHOULD MAKE ANY REQUEST FOR DOCUMENTS AT THE
ADDRESSES LISTED ON PAGE BY , AUGUST , 2000 TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE KING COMMON STOCK OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN THAT JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS BEEN
NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY
REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO
JONES AND ITS SUBSIDIARIES WAS PROVIDED BY JONES AND THE INFORMATION CONTAINED
IN THIS DOCUMENT WITH RESPECT TO KING AND ITS SUBSIDIARIES WAS PROVIDED BY KING.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This joint proxy statement/prospectus and the documents incorporated in
this document by reference contain forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 with
respect to our financial condition, results of operations and business, and on
the expected impact of the merger on King's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
- the possibility that the value of the King common stock to be issued to
Jones shareholders in the merger will decrease prior to completion of the
merger and no corresponding adjustment to the number of shares of King
stock to be received by Jones shareholders will be made;
- the possibility that the merger will not be closed;
- the possibility that the anticipated benefits from the merger cannot or
will not be fully realized;
- the possibility that costs or difficulties related to the integration of
our businesses are greater than expected;
- the high cost and uncertainty of research, clinical trials, and other
development activities involving pharmaceutical products, including
pre-clinical and clinical pharmaceutical product development projects;
110
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- the unpredictability of the duration and results of the U.S. Food and
Drug Administration's review of new Drug Applications and Investigational
New Drug Applications and/or the review of other regulatory agencies
worldwide;
- the impact of competition on revenues and margins; and
- other risk factors as may be detailed from time to time in public
announcements and filings of King and Jones with the SEC.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page .
EXPERTS
The consolidated financial statements incorporated in this joint proxy
statement/prospectus by reference to the current report filed on Form 8-K dated
June 23, 2000 of King Pharmaceuticals, Inc. as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Jones Pharma Incorporated as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999, incorporated in this joint proxy statement/prospectus by
reference have been audited by Ernst & Young LLP, independent accountants, as
stated in their report also incorporated herein by reference and are included in
reliance on the reports of those independent accountants given on the authority
of that firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the King common stock to be issued in the merger has been
passed upon by Baker, Donelson, Bearman & Caldwell, a professional corporation,
Johnson City, Tennessee.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KING PHARMACEUTICALS, INC.,
JONES PHARMA INCORPORATED
AND
SPIRIT ACQUISITION CORP.
DATED AS OF JULY 13, 2000
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I. THE MERGER
SECTION 1.1 The Merger............................................. A-2
SECTION 1.2 Effective Time......................................... A-2
SECTION 1.3 Effect of the Merger................................... A-2
SECTION 1.4 Certificate of Incorporation; Bylaws................... A-2
SECTION 1.5 Directors and Officers................................. A-2
SECTION 1.6 Closing................................................ A-3
SECTION 1.7 Subsequent Actions..................................... A-3
SECTION 1.8 Tax and Accounting Treatment of the Merger............. A-3
ARTICLE II. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1 Conversion of Securities............................... A-4
SECTION 2.2 Exchange of Certificates............................... A-5
SECTION 2.3 Assumption of Obligations to Issue Stock............... A-7
SECTION 2.4 Transfer Books......................................... A-8
SECTION 2.5 Certain Adjustments.................................... A-8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF JONES
SECTION 3.1 Organization and Qualification; Subsidiaries........... A-8
SECTION 3.2 Certificate of Incorporation and Bylaws................ A-9
SECTION 3.3 Capitalization......................................... A-9
SECTION 3.4 Authority.............................................. A-10
SECTION 3.5 No Conflict; Required Filings and Consents............. A-10
SECTION 3.6 SEC Filings; Financial Statements...................... A-11
SECTION 3.7 No Undisclosed Liabilities............................. A-12
SECTION 3.8 Absence of Certain Changes or Events................... A-12
SECTION 3.9 Absence of Litigation.................................. A-13
SECTION 3.10 Licenses and Permits; Compliance with Laws............. A-13
SECTION 3.11 Unlawful Payments...................................... A-13
SECTION 3.12 Taxes.................................................. A-13
SECTION 3.13 Intellectual Property.................................. A-14
SECTION 3.14 Material Contracts..................................... A-14
SECTION 3.15 Employee Benefit Plans................................. A-15
SECTION 3.16 Properties; Assets..................................... A-16
SECTION 3.17 Labor Relations........................................ A-17
SECTION 3.18 Environmental Matters.................................. A-17
SECTION 3.19 Insurance.............................................. A-18
SECTION 3.20 Board Approval; Vote Required.......................... A-18
SECTION 3.21 Opinion of Financial Advisor........................... A-19
SECTION 3.22 Brokers................................................ A-19
SECTION 3.23 Takeover Provisions Inapplicable....................... A-19
SECTION 3.24 Pooling; Tax Matters................................... A-19
SECTION 3.25 Registration Statement; Joint Proxy
Statement/Prospectus................................. A-19
SECTION 3.26 Regulatory Compliance.................................. A-20
</TABLE>
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<TABLE>
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF MERGER SUB
SECTION 4.1 Organization and Qualification......................... A-23
SECTION 4.2 Certificate of Incorporation and Bylaws................ A-23
SECTION 4.3 Authority.............................................. A-23
SECTION 4.4 No Conflict; Required Filings and Consents............. A-24
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF KING
SECTION 5.1 Organization and Qualification; Subsidiaries........... A-24
SECTION 5.2 Certificate of Incorporation and Bylaws................ A-25
SECTION 5.3 Capitalization......................................... A-25
SECTION 5.4 Authority.............................................. A-26
SECTION 5.5 No Conflict; Required Filings and Consents............. A-26
SECTION 5.6 SEC Filings; Financial Statements...................... A-27
SECTION 5.7 No Undisclosed Liabilities............................. A-28
SECTION 5.8 Absence of Certain Changes or Events................... A-28
SECTION 5.9 Absence of Litigation.................................. A-28
SECTION 5.10 Licenses and Permits; Compliance with Laws............. A-29
SECTION 5.11 Unlawful Payments...................................... A-29
SECTION 5.12 Taxes.................................................. A-29
SECTION 5.13 Intellectual Property.................................. A-30
SECTION 5.14 Material Contracts..................................... A-30
SECTION 5.15 Employee Benefit Plans................................. A-31
SECTION 5.16 Properties; Assets..................................... A-32
SECTION 5.17 Labor Relations........................................ A-32
SECTION 5.18 Environmental Matters.................................. A-33
SECTION 5.19 Insurance.............................................. A-33
SECTION 5.20 Board Approval; Vote Required.......................... A-34
SECTION 5.21 Opinion of Financial Advisor........................... A-34
SECTION 5.22 Brokers................................................ A-34
SECTION 5.23 Pooling; Tax Matters................................... A-34
SECTION 5.24 Registration Statement; Joint Proxy
Statement/Prospectus................................. A-34
SECTION 5.25 Regulatory Compliance.................................. A-35
ARTICLE VI. COVENANTS
SECTION 6.1 Affirmative Covenants of Jones......................... A-38
SECTION 6.2 Affirmative Covenants of King.......................... A-38
SECTION 6.3 Negative Covenants of Jones............................ A-39
SECTION 6.4 Negative Covenants of King............................. A-42
SECTION 6.5 Control of Other Party's Business...................... A-42
ARTICLE VII. ADDITIONAL AGREEMENTS
SECTION 7.1 Access and Information................................. A-43
SECTION 7.2 Affiliate Agreements................................... A-43
SECTION 7.3 Confidentiality........................................ A-43
SECTION 7.4 Joint Proxy Statement/Prospectus and Registration
Statement............................................ A-44
SECTION 7.5 HSR Act Matters........................................ A-45
SECTION 7.6 Public Announcements................................... A-45
SECTION 7.7 Indemnification........................................ A-46
</TABLE>
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<TABLE>
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SECTION 7.8 Further Action; Commercially Reasonable Efforts........ A-48
SECTION 7.9 No Solicitation........................................ A-49
SECTION 7.10 NYSE Listing........................................... A-50
SECTION 7.11 Blue Sky............................................... A-50
SECTION 7.12 Event Notices.......................................... A-51
SECTION 7.13 Tax Treatment.......................................... A-51
SECTION 7.14 Pooling of Interests................................... A-51
SECTION 7.15 Exemption from Liability Under Section 16(b)........... A-51
SECTION 7.16 Board of Directors of King............................. A-52
SECTION 7.17 Employee Benefit Matters............................... A-52
ARTICLE VIII. CLOSING CONDITIONS
SECTION 8.1 Conditions to Obligations of King, Merger Sub and Jones
to Effect the Merger................................. A-52
SECTION 8.2 Additional Conditions to Obligations of King and Merger
Sub.................................................. A-54
SECTION 8.3 Additional Conditions to Obligations of Jones.......... A-55
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination............................................ A-56
SECTION 9.2 Effect of Termination.................................. A-59
SECTION 9.3 Amendment.............................................. A-59
SECTION 9.4 Extension; Waiver...................................... A-59
SECTION 9.5 Fees, Expenses and Other Payments...................... A-60
ARTICLE X. GENERAL PROVISIONS
SECTION 10.1 Effectiveness of Representations, Warranties and
Agreements........................................... A-61
SECTION 10.2 Notices................................................ A-61
SECTION 10.3 Certain Definitions.................................... A-62
SECTION 10.4 Headings............................................... A-65
SECTION 10.5 Severability........................................... A-65
SECTION 10.6 Entire Agreement....................................... A-65
SECTION 10.7 Enforcement............................................ A-65
SECTION 10.8 Assignment............................................. A-65
SECTION 10.9 Third Party Beneficiaries.............................. A-65
SECTION 10.10 Governing Law.......................................... A-66
SECTION 10.11 Counterparts........................................... A-66
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION
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<S> <C>
1989 Plan................................................... 5.3(a)
1997 Plan................................................... 5.3(a)
1998 Plan................................................... 5.3(a)
Acquisition Proposal........................................ 7.9(b)
Affiliate................................................... 10.3
Agreement................................................... PREAMBLE
AHPC........................................................ 9.1(o)
Average Trading Price....................................... 9.1(m)
beneficial owner, beneficial ownership and beneficially
own....................................................... 10.3
Benefit Plans............................................... 3.15(l)
Blue Sky Laws............................................... 3.5(b)
Business Day................................................ 10.3
CEO Severance Agreement..................................... 8.3(i)
Certificate and Certificates................................ 2.2(b)
Certificate of Merger....................................... 1.2
Claim....................................................... 7.7(b)
Closing..................................................... 1.6
Closing Date................................................ 1.6
Cobra....................................................... 3.15(f)
Code........................................................ RECITALS
Confidentiality Agreements.................................. 7.3
Consulting Agreement........................................ 8.3(g)
control, controlled by and under common control with........ 10.3
CSA......................................................... 3.26(a)
Current Cash Reserves....................................... 3.6(c)
DEA......................................................... 3.26(a)
Delaware Law................................................ 1.1
Effective Time.............................................. 1.2
Encumbrance................................................. 10.3
Environmental Laws.......................................... 3.18(d)(ii)
ERISA....................................................... 3.15(a)
EVP Severance Agreement..................................... 8.3(i)
Exchange Act................................................ 3.5(b)
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Exchange Ratio.............................................. 2.1(a)
FDA......................................................... 3.5(b)
FDCA........................................................ 3.26(a)
GAAP........................................................ RECITALS
Governmental Entity......................................... 3.5(b)
Hazardous Materials......................................... 3.18(d)(iii)
HIPAA....................................................... 3.15(f)
HSR Act..................................................... 3.5(b)
Indebtedness................................................ 10.3
Indemnified Parties......................................... 7.7(b)
Intellectual Property....................................... 10.3
Interim Period.............................................. 7.1
</TABLE>
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<TABLE>
<CAPTION>
SECTION
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<S> <C>
Joint Proxy Statement/Prospectus............................ 3.25
Jones....................................................... PREAMBLE
Jones Affiliate Agreement................................... 7.2(a)
Jones Benefit Plans......................................... 3.15(l)
Jones Common Stock.......................................... RECITALS
Jones Commonly Controlled Entity............................ 3.15(l)
Jones Environment Permits................................... 3.18(a)
Jones Environmental Claim................................... 3.18(d)(i)
Jones ERISA Plan............................................ 3.15(l)
Jones Insiders.............................................. 7.15(c)
Jones Material Contracts.................................... 3.14(a)
Jones Permits............................................... 3.10
Jones Preferred Stock....................................... 3.3(a)
Jones Real Property......................................... 3.16
Jones SEC Reports........................................... 3.6(a)
Jones Stock Option Plans.................................... 2.3(a)
Jones Stockholder Approval.................................. 3.4
Jones Stockholders Meeting.................................. 7.4(b)
Jones Subsidiary and Jones Subsidiaries..................... 3.1
Jones Tax Returns........................................... 3.12
King........................................................ PREAMBLE
King Affiliate Agreement.................................... 7.2(b)
King Benefit Plans.......................................... 5.15(k)
King Business Combination................................... 9.5(e)
King Common Stock........................................... RECITALS
King Commonly Controlled Entity............................. 5.15(k)
King Environmental Claim.................................... 5.18(d)
King Environmental Permits.................................. 5.18(a)
King ERISA Plan............................................. 5.15(k)
King Material Contracts..................................... 5.14(a)
King Permits................................................ 5.10
King Real Property.......................................... 5.16
King SEC Reports............................................ 5.6(a)
King Stock Option Plans..................................... 5.3(a)
King Stockholder Approval................................... 5.4
King Stockholders Meeting................................... 7.4(c)
King Subsidiary and King Subsidiaries....................... 5.1
King Tax Returns............................................ 5.12
Material Adverse Effect..................................... 10.3
Merger Consideration........................................ 2.1(a)
Merger Sub.................................................. PREAMBLE
Merger...................................................... 1.1
Multiemployer Plan.......................................... 3.15(c)
NASD........................................................ 3.5(b)
Nasdaq...................................................... 3.5(b)
Noncompetition Agreement.................................... 8.3(h)
NYSE........................................................ 4.4(b)
Option...................................................... 2.3(a)
Parachute Gross Up Payment.................................. 3.15(e)
</TABLE>
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<TABLE>
<CAPTION>
SECTION
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<S> <C>
Person...................................................... 10.3
Pharmaceutical Product...................................... 3.26(a)
PHSA........................................................ 3.26(a)
reasonable efforts.......................................... 10.3
Receiving Party............................................. 7.3
Registration Rights Agreement............................... 8.2(f)
Registration Statement...................................... 3.25
Representatives............................................. 7.9(a)
SEC......................................................... 3.6(a)
Section 16 Information...................................... 7.15(b)
Securities Act.............................................. 3.5(b)
Subsidiary.................................................. 10.3
Superior Proposal........................................... 7.9(c)
Surviving Corporation....................................... 1.1
Tax, Taxable and Taxes...................................... 10.3
Terminating Jones Breach.................................... 9.1(b)
Terminating King Breach..................................... 9.1(c)
Termination Fee............................................. 9.5(b)
Termination Notice.......................................... 9.1(m)
Top-up Notice............................................... 9.1(m)
Top-up Right................................................ 9.1(m)
Valuation Period............................................ 9.1(m)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 13, 2000 (this "Agreement"),
among KING PHARMACEUTICALS, INC., a Tennessee corporation ("King"), SPIRIT
ACQUISITION CORP., a Delaware corporation and a direct wholly-owned subsidiary
of King ("Merger Sub"), and JONES PHARMA INCORPORATED, a Delaware corporation
("Jones").
WITNESSETH:
WHEREAS, the Boards of Directors of Jones and King deem it advisable and in
the best interests of each corporation and its respective stockholders that
Jones and King engage in a business combination in order to advance the
long-term strategic business interests of Jones and King;
WHEREAS, the combination of Jones and King shall be effected by the terms
of this Agreement through a merger as outlined below;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Jones and King have approved the Merger (as defined below), upon the terms and
subject to the conditions set forth in this Agreement, pursuant to which each
share of common stock, par value $0.04 per share, of Jones ("Jones Common
Stock") issued and outstanding immediately prior to the Effective Time (as
defined in Section 1.2), other than shares owned or held directly by King or
directly or indirectly by Jones, will be converted into the right to receive
shares of common stock, no par value, of King ("King Common Stock") as set forth
in Section 2.1;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of King and Merger Sub to enter
into this Agreement, certain holders of Jones Common Stock, have entered into an
agreement with King (the "Jones Voting Agreement") pursuant to which, among
other things, such holders have agreed to vote their shares of Jones Common
Stock in favor of this Agreement, the Merger (as defined below) and the other
transactions contemplated by this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of Jones to enter into this
Agreement, certain holders of King Common Stock, have entered into an agreement
with Jones (the "King Voting Agreement") pursuant to which, among other things,
such holders have agreed to vote their shares of King Common Stock in favor of
the issuance of King Common Stock in the Merger (as defined below) and the
adoption and approval of this Agreement;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling-of-interests transaction under United States
generally accepted accounting principles ("GAAP").
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Delaware General Corporation Law ("Delaware Law"), at
the Effective Time (as defined in Section 1.2) Merger Sub shall be merged with
and into Jones (the "Merger"). As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and Jones shall continue as the surviving
corporation of the Merger (sometimes referred to herein as the "Surviving
Corporation") and a wholly-owned subsidiary of King.
SECTION 1.2. EFFECTIVE TIME
As promptly as practicable on the Closing Date (as defined in Section 1.6),
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, as required by, and executed in accordance with the
relevant provisions of, Delaware Law and in such form as approved by King prior
to such filing (the time of the filing of the Certificate of Merger or the time
specified therein being the "Effective Time").
SECTION 1.3. EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the rights, privileges, powers and franchises of Merger Sub
and Jones shall vest in the Surviving Corporation, and all debts, liabilities
and duties of Merger Sub and Jones shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.4. CERTIFICATE OF INCORPORATION; BYLAWS
At the Effective Time, (a) the certificate of incorporation of Merger Sub,
as in effect immediately prior to the Effective Time and as amended by the
Certificate of Merger, shall be the certificate of incorporation of the
Surviving Corporation, and (b) the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
SECTION 1.5. DIRECTORS AND OFFICERS
(a) The directors of the Surviving Corporation immediately upon the
effectiveness of the Merger shall be as set forth on Schedule 1.5 hereto, each
to hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until the
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earlier of their resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
(b) The officers of the Surviving Corporation immediately upon the
effectiveness of the Merger shall be as set forth on Schedule 1.5 hereto, each
to hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected or appointed and qualified,
as the case may be.
SECTION 1.6. CLOSING
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") will take place on August 31, 2000, or as promptly as
practicable thereafter upon the satisfaction or, if permissible, waiver of the
conditions set forth in Article VIII hereof (the "Closing Date"). The Closing
shall take place at the offices of Hogan & Hartson L.L.P., 8300 Greensboro
Drive, Suite 1100, McLean, Virginia 22102, or at such other place as agreed to
in writing by the parties hereto. It is the intention of the parties that the
Closing shall occur as soon as practicable after the Jones Stockholders Meeting
and the King Stockholders Meeting.
SECTION 1.7. SUBSEQUENT ACTIONS
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to continue in, vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be and hereby are
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
assets in the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.8. TAX AND ACCOUNTING TREATMENT OF THE MERGER
It is intended by the parties hereto that the Merger shall (a) constitute a
reorganization of Merger Sub and Jones within the meaning of Section 368(a) of
the Code, and (b) be accounted for as a pooling of interests under GAAP. The
parties hereby adopt this Agreement as a "plan of reorganization" of Merger Sub
and Jones within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
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ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES
At the Effective Time, by virtue of the Merger and without any action on
the part of King, Merger Sub, Jones or the holders of any of the securities
referred to in this Section 2.1:
(a) COMMON STOCK. Each share of Jones Common Stock (excluding any
shares described in Section 2.1(b)) issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall be
converted into and exchanged for the right to receive 1.125 shares of King
Common Stock (the "Exchange Ratio"). The shares of King Common Stock
issuable to the holders of Jones Common Stock pursuant hereto, together
with the amount of cash in lieu of fractional shares payable pursuant to
Section 2.1(d), is sometimes referred to herein, collectively, as the
"Merger Consideration". All such shares of Jones Common Stock shall cease
to be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously evidencing any such shares
shall thereafter represent only the right to receive the Merger
Consideration. Except as otherwise provided herein or by applicable law,
the holders of certificates previously evidencing such shares of Jones
Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Jones Common Stock.
Each such certificate previously evidencing such shares of Jones Common
Stock shall be exchanged for the number of shares previously evidenced by
the canceled certificate upon the surrender of such certificate in
accordance with the provisions of Section 2.2 multiplied by the Exchange
Ratio.
(b) TREASURY STOCK. All shares of capital stock of Jones held in the
treasury of Jones immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof and no amount shall be
delivered or deliverable in exchange therefor.
(c) MERGER SUB STOCK. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) NO FRACTIONAL SHARES. No certificate or scrip representing any
fractional shares of King Common Stock shall be issued pursuant to Section
2.1(a), and other than the right to receive the cash payment pursuant to
this Section 2.1(d), any such fractional interests shall not entitle the
owner thereof to any rights as a securityholder of King. Notwithstanding
any other provision hereof, all holders of Jones Common Stock otherwise
entitled to receive fractional shares of King Common Stock pursuant to
Section 2.1(a) shall be entitled to receive, in lieu thereof, cash (without
interest) in an amount equal to the product of (i) such fractional part of
a share of King Common Stock to which the holder of Jones Common Stock
would otherwise be entitled under Section 2.1(a) multiplied by the closing
price per share of King Common Stock on the Closing Date. As promptly as
possible after the determination of the amount of cash to be paid to
holders of fractional interests, the Exchange Agent shall so notify King,
and King shall deposit such amount with the Exchange
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Agent and shall cause the Exchange Agent to forward payments to holders of
such fractional interests subject to and in accordance with the terms
hereof.
SECTION 2.2. EXCHANGE OF CERTIFICATES
(a) EXCHANGE AGENT. As of the Effective Time, King shall deposit with
Union Planters Bank or an exchange agent designated by King and reasonably
acceptable to Jones (the "Exchange Agent"), for the benefit of the former
holders of shares of Jones Common Stock (excluding any shares described in
Section 2.1(b)), for issuance and payment in accordance with this Article II (i)
the shares of King Common Stock issuable pursuant to Section 2.1(a) and (ii)
cash in an amount sufficient to make payment for fractional shares under Section
2.1(d) (such shares of King Common Stock and cash being hereinafter referred to
as the "Exchange Fund"). King shall cause the Exchange Agent, pursuant to
irrevocable instructions, to deliver King Common Stock (and cash for fractional
shares) contemplated to be paid pursuant to Sections 2.1(a) and (d) out of the
Exchange Fund. The Exchange Fund shall not be used for any purpose other than as
set forth in this Section 2.2(a).
(b) PAYMENT PROCEDURES. As soon as reasonably practicable after the
Effective Time, King shall cause the Exchange Agent to mail to each record
holder, as of the Effective Time, of an outstanding certificate or certificates
(each a "Certificate" and collectively, the "Certificates") that immediately
prior to the Effective Time evidenced outstanding shares of Jones Common Stock
(excluding any shares described in Section 2.1(b)): (i) a form letter of
transmittal and (ii) instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed and any
other required documents, the holder of such Certificate shall be entitled to
receive in exchange therefor the applicable amount of Merger Consideration
pursuant to Section 2.1(a) and Section 2.1(d) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(i), and
such Certificate shall forthwith be canceled. In the event of a surrender of a
Certificate representing shares of Jones Common Stock which are not registered
in the transfer records of Jones under the name of the Person surrendering such
Certificate, a certificate representing the proper number of shares of King
Common Stock may be issued to a Person other than the Person in whose name the
Certificate so surrendered is registered if (x) such Certificate shall be
properly endorsed or otherwise be in proper form for transfer to the Person
surrendering such Certificate and requesting such issuance, (y) such Person
surrendering such Certificate and requesting such issuance shall pay any
transfer or other Taxes required by reason of the issuance of shares of King
Common Stock to a Person other than the registered holder of such Certificate or
shall establish to the satisfaction of King that such Taxes have been paid or
are not applicable, and (z) such Person surrendering such Certificate shall, if
required by King, have such Person's signature guaranteed by a bank, brokerage
firm or other financial intermediary that is a member of a medallion guarantee
program. Until surrendered in accordance with the provisions of this Section
2.2, each Certificate shall represent for all purposes only the right to receive
the applicable consideration set forth in Section 2.1, without any interest
thereon.
(c) NO FURTHER RIGHTS IN STOCK. All shares of King Common Stock issued
upon the surrender for exchange of Certificates in accordance with the terms of
Sections 2.1 and 2.2 hereof (including any cash paid pursuant to this Article
II) shall be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the shares of Jones
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Common Stock theretofore represented by such Certificates, and there shall be no
further registration of transfer on the stock transfer books of the Surviving
Corporation of the shares of Jones Common Stock represented by such Certificates
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, any such Certificates are presented to King, the Surviving
Corporation or the Exchange Agent for any reason, they shall be canceled and
exchanged as provided in this Article II, except as otherwise provided by law.
(d) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by King, on a daily basis. Any
interest and other income resulting from such investments shall be paid to King.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains undistributed to the holders of Jones Common Stock for one hundred
eighty (180) days after the Effective Time shall be delivered to King, upon
demand, and any holder of Jones Common Stock that have not theretofore complied
with this Article II shall thereafter look only to King for the Merger
Consideration to which such holder is entitled pursuant hereto.
(f) NO LIABILITY. Neither King nor the Surviving Corporation shall be
liable to any holder of shares of Jones Common Stock for any King Common Stock
or cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(g) WITHHOLDING OF TAX. King or the Exchange Agent shall be entitled to
deduct and withhold from the applicable amount of the Merger Consideration
otherwise issuable to, and any cash payment in lieu of fractional shares
otherwise payable pursuant to this Agreement to, any former holder of Jones
Common Stock such amounts as King (or any Affiliate thereof) or the Exchange
Agent are required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign Tax law. To
the extent that amounts are so withheld by King (or any Affiliate thereof) or
the Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of Jones Common Stock in
respect of whom such deduction and withholding was made by King (or any
Affiliate thereof) or the Exchange Agent.
(h) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificate
evidencing shares of Jones Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit setting forth that fact by the Person
claiming such lost, stolen or destroyed Certificate and, if required by King the
posting by such Person of a bond in such reasonable amount as King may direct as
indemnity against any claim that may be made against King, the Surviving
Corporation or the Exchange Agent with respect to such Certificate, King shall
cause the Exchange Agent to pay to such Person the applicable amount of the
Merger Consideration with respect to such lost, stolen or destroyed Certificate.
(i) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED JONES COMMON STOCK. No
dividends or other distributions declared or made with respect to King Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of King Common Stock
such holder is entitled to receive pursuant to Section 2.1 until such holder
shall surrender such Certificate. Subject to applicable law and the provisions
of this Article II, following the surrender of any such Certificate there shall
be paid to the record holder of the shares of King Common Stock
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issued in exchange for such Certificate, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such shares of King
Common Stock.
SECTION 2.3. ASSUMPTION OF OBLIGATIONS TO ISSUE STOCK
(a) JONES OPTIONS. As of the Effective Time, each outstanding option to
purchase or acquire shares of Jones Common Stock (an "Option") granted under
Jones' (i) 1989 Incentive Stock Option Plan, (ii) 1994 Incentive Stock Plan,
(iii) 1994 Formula Stock Option Plan for Non-Management Directors, (iv) 1997
Incentive Stock Plan and (v) 1999 Equity Participation Plan for Non-Management
Directors (collectively, the "Jones Stock Option Plans") shall be converted into
an option to acquire King Common Stock as provided for in this Section 2.3(a).
As of the Effective Time, each Option shall continue to have, and shall be
subject to, the terms and conditions of each agreement pursuant to which such
Option was subject as of the Effective Time (including the terms and conditions
of the applicable Jones Stock Option Plan), except that (i) each Option shall be
exercisable for that number of whole shares of King Common Stock equal to the
product, rounded up to the nearest whole number, of (A) the aggregate number of
shares of Jones Common Stock subject to such Option at the Effective Time
multiplied by (B) the Exchange Ratio; and (ii) the exercise price per share of
King Common Stock issuable pursuant to each Option shall be equal to the
exercise price per share of Jones Common Stock under such Option at the
Effective Time divided by the Exchange Ratio, rounded up to the nearest whole
cent. Except for changes to the Options expressly provided for in the applicable
Jones Stock Option Plan by reason of the consummation of the transactions
contemplated hereby, the assumption and substitution of Options as provided
herein shall not give the holders of such Options additional benefits or
additional (or accelerated) vesting rights which such holders did not have as of
the Effective Time, or relieve the holders of such Options of any obligations or
restrictions applicable to their Options or the shares obtainable upon exercise
of the Options. The adjustment provided for herein with respect to any Options
that are "incentive stock options" (as defined in Section 422 of the Code) shall
be effected in a manner that is consistent with continued treatment of such
Options as "incentive stock options" under Section 424(a) of the Code. The Jones
Stock Option Plans shall be assumed by King with respect to all outstanding
Options granted under the Jones Stock Option Plans, and no further options to
purchase or acquire shares of Jones Common Stock or other awards or rights shall
be granted under the Jones Stock Option Plans after the Effective Time. The
duration and other terms of the new options provided for in this Section 2.3(a)
shall be the same as the original Options except that all references to Jones
shall be references to King. King shall take all corporate action reasonably
necessary to reserve for issuance a sufficient number of shares of King Common
Stock for delivery upon the exercise of the Options.
(b) FORM S-8. King shall (i) within three (3) Business Days after the
Effective Time, file with the SEC one or more registration statements on Form
S-8 (or amend existing registration statements on Form S-8) with respect to the
shares of King Common Stock subject to Options granted under the Jones Stock
Option Plans (as converted pursuant to Section 2.3(a)); and (ii) use
commercially reasonable efforts to maintain the effectiveness of such
registration statement(s) (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Options remain outstanding.
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SECTION 2.4. TRANSFER BOOKS
At the Effective Time, the transfer books of Jones with respect to all
shares of capital stock and other securities of Jones shall be closed and no
further registration of transfers of such shares of capital stock shall
thereafter be made on the records of Jones. On or after the Effective Time, if
any Certificates for shares of Jones Common Stock (excluding any shares
described in Section 2.1(b)) are presented to the Exchange Agent, the Surviving
Corporation or King for any reason, such Certificates shall be canceled and
exchanged as provided in this Article II, except as otherwise provided by law.
SECTION 2.5. CERTAIN ADJUSTMENTS
If between the date hereof and the Effective Time, the outstanding shares
of Jones Common Stock or of King Common Stock shall be changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within such period, the
Exchange Ratio (and any other references herein to a price per share of King
Common Stock) shall be adjusted accordingly to provide the same economic effect
as contemplated by this Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JONES
Jones hereby represents and warrants to King and Merger Sub, subject to the
exceptions set forth in Jones' disclosure schedule (which exceptions shall
specifically identify a section, subsection or clause of a single section or
subsection hereof, as applicable, to which such exception relates, it being
understood and agreed that each such exception shall be deemed to be disclosed
both under such section, subsection or clause hereof and any other section,
subsection or clause hereof to which such disclosure reasonably relates) that:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
Each of Jones and each Subsidiary (as defined below) of Jones (each a
"Jones Subsidiary" and collectively, the "Jones Subsidiaries") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each of Jones and each Jones Subsidiary is
duly qualified to conduct its business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased or
the nature of its activities makes such qualification necessary, except for such
failures which have not had and would not be reasonably likely to have a
Material Adverse Effect on Jones. Each of Jones and each Jones Subsidiary has
the requisite corporate power and authority and any necessary governmental
authority, franchise, license or permit to own, operate, lease and otherwise to
hold and operate its assets and properties and to carry on its businesses as now
being conducted, except for such failures which have not had and would not be
reasonably likely to have a Material Adverse Effect on Jones. Jones has no
Subsidiaries (as defined below) other than those listed in Schedule 3.1, each of
which is wholly-owned by Jones, or any direct or indirect beneficial ownership
of any securities, equity or other ownership interest in any Person other than
those listed on Schedule 3.1.
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SECTION 3.2. CERTIFICATE OF INCORPORATION AND BYLAWS
Jones has heretofore delivered to King a complete and correct copy of the
certificate or articles of incorporation and the bylaws of Jones and each Jones
Subsidiary, each as amended to the date of this Agreement. Each such certificate
or articles of incorporation and bylaws is in full force and effect. Neither
Jones nor any Jones Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation or bylaws.
SECTION 3.3. CAPITALIZATION
(a) The authorized capital stock of Jones consists of two hundred fifty
million (250,000,000) shares of Jones Common Stock, par value $.04 per share,
and five million (5,000,000) shares of preferred stock, par value $.01 per
share, of Jones ("Jones Preferred Stock"). As of June 30, 2000: (i) Sixty-Five
Million Five Hundred Twenty-Five Thousand Two Hundred Twenty-Two (65,525,222)
shares of Jones Common Stock were issued and outstanding; (ii) all shares of
Jones Common Stock issuable upon the exercise of the options under the Jones
Stock Option Plans have been reserved for issuance; (iii) no shares of Jones
Common Stock are held by Jones in Jones' treasury; and (iv) no shares of Jones
Preferred Stock are issued or outstanding. Schedule 3.3 sets forth a complete
and correct list, as of June 30, 2000, of the number of shares of Jones Common
Stock subject to the options, including, without limitation, those subject to
employee stock options or other rights to purchase or receive Jones Common Stock
granted under the Jones Stock Option Plans, in each case including the dates of
grant, exercise prices, vesting schedule and expiration dates for such options.
(b) All outstanding shares of capital stock of Jones are, and all shares
which may be issued upon exercise of options under any Jones Option Plan will
be, when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except as set forth in this Section 3.3,
(i) there are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of Jones, (B) any securities of Jones
or any Jones Subsidiary convertible into or exchangeable or exercisable for
shares of capital stock or voting securities or ownership interests of Jones or
any Jones Subsidiary, (C) any warrants, calls, options or other rights to
acquire from Jones or any Jones Subsidiary, and any obligation of Jones or any
Jones Subsidiary to issue, any capital stock, voting securities or other
ownership interests in, or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of, or other ownership
interests in, Jones or any Jones Subsidiary, (ii) except as set forth in
Schedule 3.3(b), there are no outstanding obligations of Jones or any Jones
Subsidiary to repurchase, redeem or otherwise acquire any such securities or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities, including, without limitation, any offer, issuance or sale in such a
manner that would constitute a public offering of securities under the
Securities Act, and (iii) except as contemplated in this Agreement, Jones is not
presently under any obligation, has not agreed or committed, and has not granted
rights, to register under the Securities Act or the Exchange Act, or otherwise
file any registration statement under any such statute covering, any of its
currently outstanding capital stock or other securities or any of its capital
stock or other securities that may be subsequently issued.
(c) Except for the option agreements under the Jones Stock Option Plans,
neither Jones nor any Jones Subsidiary is a party to any agreement restricting
the purchase or
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transfer of, relating to the voting of or granting any preemptive or
antidilutive rights with respect to, any securities of Jones or any of the Jones
Subsidiaries that are outstanding, or that may be subsequently issued upon the
conversion or exercise of any instrument or otherwise.
(d) Jones represents and warrants to King and Merger Sub that on the
Closing Date, the aggregate number of outstanding shares of Jones Common Stock
on a fully diluted basis (assuming full exercise of the Options) shall not
exceed Seventy Million (70,000,000) shares.
SECTION 3.4. AUTHORITY
Jones has the necessary corporate power and authority to enter into this
Agreement and, subject to obtaining the requisite approval of this Agreement by
Jones' stockholders required by Delaware Law ("Jones Stockholder Approval"), to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Except for Jones Stockholder Approval, the execution and
delivery of this Agreement by Jones and the consummation by Jones of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Jones are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Jones and, assuming the due authorization, execution and delivery
by King and Merger Sub, constitutes a legal, valid and binding obligation of
Jones, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Jones do not, and the
performance by Jones of its obligations under this Agreement will not, (i)
conflict with or violate the certificate or articles of incorporation or bylaws
of Jones or any Jones Subsidiary, (ii) subject to obtaining the approvals and
compliance with the requirements set forth in Section 3.5(b), conflict with or
violate any law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to Jones or any Jones Subsidiary or by which any of their respective
properties or assets is bound or affected, or (iii) except as set forth in
Schedule 3.5, result in any breach of or constitute a default (or an event which
with or without notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets of Jones or any Jones Subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Jones or any Jones
Subsidiary is a party or by which Jones, any Jones Subsidiary or any of their
respective properties or assets is bound or affected, except, in the case of
clauses (ii) and (iii) above, for any such conflicts, violations, breaches,
defaults or other alterations or occurrences that (A) would not prevent or delay
consummation of the Merger in any material respect or otherwise prevent Jones
from performing its obligations under this Agreement in any material respect,
and (B) have not had and would not be reasonably likely to have a Material
Adverse Effect on Jones.
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(b) The execution and delivery of this Agreement by Jones do not, and the
performance of this Agreement by Jones will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any federal,
state, local or foreign government, or any governmental or regulatory authority,
domestic or foreign (each a "Governmental Entity"), by or with respect to Jones
or any Jones Subsidiary, except (i) for (A) applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), state securities or
"blue sky" laws ("Blue Sky Laws"), state takeover laws, the National Association
of Securities Dealers Automated Quotation System/National Market System
("Nasdaq"), the National Association of Securities Dealers, Inc. ("NASD"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and the U.S. Food and Drug Administration (the "FDA"), (B) applicable
requirements, if any, of the consents, approvals, authorizations or permits
described in Schedule 3.5, and (C) filing and recordation of appropriate merger
documents as required by Delaware Law, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, (A) would not prevent or delay consummation of the Merger in any
material respect or otherwise prevent Jones from performing its obligations
under this Agreement in any material respect, or (B) have not had and would not
be reasonably likely to have a Material Adverse Effect on Jones.
(c) Except as set forth on Schedule 3.5, the execution and delivery of this
Agreement by Jones do not, the performance of this Agreement by Jones will not,
and the consummation of the transactions contemplated by this Agreement or the
Option Agreement will not, (i) entitle any current or former employee or officer
of Jones or any ERISA Affiliate to severance pay, unemployment compensation or
any other payment, (ii) accelerate the time of payment or vesting, or increase
the amount of compensation, due any such employee or officer, or (iii)
accelerate the vesting of any stock option or of any shares of restricted stock
or other securities of Jones.
SECTION 3.6. SEC FILINGS; FINANCIAL STATEMENTS
(a) Jones has filed all forms, reports, statements and other documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since January 1, 1995 (collectively, the "Jones SEC Reports"). As of their
respective filing dates, the Jones SEC Reports (x) complied as to form in all
material respects with the requirements of the Exchange Act and the Securities
Act, as applicable, and (y) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of Jones included in the Jones SEC Reports complied in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto. The financial statements,
including all related notes and schedules, contained in the Jones SEC Reports
(or incorporated by reference therein) present fairly in all material respects
the consolidated financial position of Jones and the Jones Subsidiaries as at
the respective dates thereof and the consolidated results of operations and cash
flows of Jones and the Jones Subsidiaries for the periods indicated, in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be noted therein) and subject in the case of interim
financial statements to normal year-end adjustments and preparation of
footnotes.
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(c) As of the date of this Agreement, the aggregate amount of (i) Jones'
cash on hand, plus (ii) liquid investments of Jones with a maturity of three
years or less ((i) and (ii) "Current Cash Reserves") is at least Two Hundred
Million Dollars ($200,000,000). Jones owns all such Current Cash Reserves free
and clear of all Encumbrances. As of the date of this Agreement, Jones has no
Indebtedness except as reflected in the audited consolidated financial
statements of Jones included in Jones' Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, and except for Indebtedness incurred in the
ordinary course of business consistent with past practice since December 31,
1999.
SECTION 3.7. NO UNDISCLOSED LIABILITIES
Neither Jones nor any of the Jones Subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
except (a) liabilities or obligations reflected in the audited consolidated
financial statements of Jones included in the Jones SEC Reports through the date
of the filing of Jones' Annual Report on Form 10-K in respect of the fiscal year
ended December 31, 1999, (b) liabilities or obligations as of December 31, 1999,
incurred in the ordinary course of business and of a character or amount not
required to be reflected in such Annual Report, (c) liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
December 31, 1999, which have not had, and are not reasonably likely to have, a
Material Adverse Effect on Jones and (d) liabilities or obligations which have
not had and are not reasonably likely to have a Material Adverse Effect on
Jones.
SECTION 3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS
Since December 31, 1999, Jones and the Jones Subsidiaries have conducted
their businesses only in the ordinary course of business consistent with past
practice, and except as set forth on Schedule 3.8, there has not been (a) any
Material Adverse Effect on Jones, (b) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of Jones' capital stock, (c) any split, combination or
reclassification of any of Jones' capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (d) (i) any granting by
Jones or any Jones Subsidiary to any current or former director, officer or
employee of Jones or any of the Jones Subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases in cash
compensation in the ordinary course of business consistent with past practice,
(ii) any granting by Jones or any of the Jones Subsidiaries to any such current
or former director, officer or employee of any increase in severance or
termination pay, (iii) any entry by Jones or any of the Jones Subsidiaries into,
or any amendment of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, officer or employee or (iv) any amendment to, or modification
of, any option outstanding under the Jones Stock Option Plans, (e) any damage,
destruction or loss, whether or not covered by insurance, that would be
reasonably likely to have a Material Adverse Effect on Jones, (f) any change in
accounting methods, principles or practices by Jones materially affecting its
assets, liabilities or businesses, except insofar as may have been required by a
change in GAAP, or (g) any Tax election that would be reasonably likely to have
a Material Adverse Effect on Jones or any of its tax attributes or any
settlement or compromise of any material income tax liability.
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SECTION 3.9. ABSENCE OF LITIGATION
Except as set forth on Schedule 3.9 and except as set forth in Jones'
annual report on Form 10-K filed with the SEC on March 17, 2000 or Jones'
quarterly report on Form 10-Q for Jones' fiscal quarter ended March 31, 2000,
filed with the SEC on May 13, 2000, there are (a) no claims, actions, suits,
investigations, or proceedings pending or, to the knowledge of Jones, threatened
against Jones or any Jones Subsidiary before any court, administrative,
governmental, arbitral, mediation or regulatory authority or body, domestic or
foreign, that would be reasonably likely to have a Material Adverse Effect on
Jones or that challenge or seek to prevent, enjoin, alter or materially delay
the transactions contemplated hereby, and (b) no judgments, decrees, injunctions
or orders of any Governmental Entity or arbitrator outstanding against Jones or
any Jones Subsidiary that would be reasonably likely to have a Material Adverse
Effect on Jones.
SECTION 3.10. LICENSES AND PERMITS; COMPLIANCE WITH LAWS
Jones and the Jones Subsidiaries hold all permits, licenses, franchises,
authorizations and approvals from all Governmental Entities (the "Jones
Permits") which are necessary for the operation of the businesses of Jones and
the Jones Subsidiaries as presently conducted and for Jones and the Jones
Subsidiaries to own, lease and operate their respective properties, except where
the failure to have any such permits, licenses or approvals would not have a
Material Adverse Effect on Jones. Jones and the Jones Subsidiaries are in
compliance with the terms of the Jones Permits and all applicable statutes,
laws, ordinances, rules and regulations, except where the failure so to comply
would not have a Material Adverse Effect on Jones.
SECTION 3.11. UNLAWFUL PAYMENTS
None of Jones, any Jones Subsidiary, or any officer, director, employee,
agent or representative of Jones or any Jones Subsidiary has made, directly or
indirectly, any bribe or kickback, illegal political contribution, payment from
corporate funds which was incorrectly recorded on the books and records of Jones
or any Jones Subsidiary, unlawful payment from corporate funds to governmental
or municipal officials in their individual capacities for the purpose of
affecting their action or the actions of the jurisdiction which they represent
to obtain favorable treatment in securing business or licenses or to obtain
special concessions of any kind whatsoever, or illegal payment from corporate
funds to obtain or retain any business.
SECTION 3.12. TAXES
Except as set forth on Schedule 3.12, Jones and the Jones Subsidiaries have
prepared and filed on a timely basis with all appropriate Governmental Entities
all material returns, reports, information statements and other documentation
(including extensions) required to be filed by Jones and the Jones Subsidiaries
in respect of Taxes (the "Jones Tax Returns") and all such Jones Tax Returns are
correct and complete in all material respects. Jones and the Jones Subsidiaries
have paid in full all Taxes due (other than Taxes, the failure of which to pay
would not have a Material Adverse Effect on Jones) and, in the case of material
Taxes accruing but not due, Jones has made adequate provisions in its books and
records and financial statements for such payments. Jones and the Jones
Subsidiaries have withheld from payments made to its present or former
employees, contractors, officers and directors or other third parties, all
amounts required by
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law to be withheld, except where the liability for which would not have a
Material Adverse Effect on Jones, and have, where required, remitted such
amounts within the applicable periods to the appropriate Governmental Entities.
In addition, except as set forth on Schedule 3.12, (a) there are no assessments
of, or claims against, Jones or the Jones Subsidiaries with respect to Taxes,
the liability for which would have a Material Adverse Effect on Jones, that are
outstanding; (b) no Governmental Entity is conducting an examination or audit of
Jones or any Jones Subsidiary in respect of Taxes and neither Jones nor any
Jones Subsidiary has received notice of any such examination or audit from any
Governmental Entity; and (c) neither Jones nor any Jones Subsidiary has executed
or filed any agreement extending the period of assessment or collection of any
Taxes which remain in effect.
SECTION 3.13. INTELLECTUAL PROPERTY
Except as, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Jones and except as disclosed in the Jones SEC
Reports filed prior to the date of this Agreement, (a) Jones and each Jones
Subsidiary owns, or is licensed to use (in each case, free and clear of any
Encumbrances), all Intellectual Property used in or necessary for the conduct of
its business as currently conducted; (b) the use of any Intellectual Property by
Jones and the Jones Subsidiaries does not infringe on or otherwise violate the
rights of any Person and is in accordance with any applicable license pursuant
to which Jones or any Jones Subsidiary acquired the right to use any
Intellectual Property; (c) to the knowledge of Jones, no Person is challenging,
infringing on or otherwise violating any right of Jones or any Jones Subsidiary
with respect to any Intellectual Property owned by and/or licensed to Jones or
any Jones Subsidiary; (d) neither Jones nor any Jones Subsidiary has received
any written notice or otherwise has knowledge of any pending claim, order or
proceeding with respect to any Intellectual Property used by Jones and the Jones
Subsidiaries; and (e) to the knowledge of Jones, no Intellectual Property owned
and/or licensed by Jones or the Jones Subsidiaries is being used or enforced in
a manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property.
SECTION 3.14. MATERIAL CONTRACTS
(a) All of the agreements filed as an exhibit to the Jones SEC Reports
which remain in full force and effect and all of the agreements that would have
been required to be filed as an exhibit to the Jones SEC Reports if any such
agreements have been entered into as of the date of filing of any such Jones SEC
Report (collectively "Jones Material Contracts") are valid and in full force and
effect on the date hereof except to the extent they have previously expired in
accordance with their terms, and neither Jones nor any Jones Subsidiary has (or
has any knowledge that any party thereto has) violated any provision of, or
committed or failed to perform any act which with or without notice, lapse of
time or both would constitute a default under the provisions of, any Jones
Material Contract, except defaults which would not reasonably be expected to
have a Material Adverse Effect on Jones. True and complete (in all material
respects) copies of all Jones Material Contracts have been made available to
King.
(b) Except as disclosed on Schedule 3.14, neither Jones nor any Jones
Subsidiary has, since December 31, 1999, entered into any agreement which would
have been required to be filed as an exhibit to Jones' SEC Annual Report on Form
10-K if such agreement had been in effect as of December 31, 1999. Each of such
agreements is valid
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and in full force and effect on the date hereof, and neither Jones nor any Jones
Subsidiary has (or has any knowledge that any party thereto has) violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default under the provisions
of, any such agreement, except defaults which would not reasonably be expected
to have a Material Adverse Effect on Jones.
SECTION 3.15. EMPLOYEE BENEFIT PLANS
(a) Schedule 3.15 sets forth a list of all Jones Benefit Plans. Each Jones
Benefit Plan (as defined below) intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined by the Internal Revenue Service
to be so qualified and no circumstances exist that could reasonably be expected
by Jones to result in the revocation of any such determination. Each Jones
Benefit Plan is in compliance with the applicable terms, if any, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the Code and
any other applicable laws, rules and regulations, except where the breach or
violation of which would not result in a Material Adverse Effect on Jones.
(b) Neither Jones nor any Jones Controlled Common Entity has a defined
benefit pension plan.
(c) No Jones Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither Jones nor
any Jones Commonly Controlled Entity has completely or partially withdrawn from
any Multiemployer Plan. No termination liability to the Pension Benefit Guaranty
Corporation or withdrawal liability to any Multiemployer Plan that is material
in the aggregate has been or is reasonably expected to be incurred with respect
to any Multiemployer Plan by Jones or any Jones Commonly Controlled Entity.
(d) Jones has furnished or made available to King complete copies, as of
the date hereof, of all of Jones Benefit Plans that have been reduced to
writing, together with all documents establishing or constituting any related
trust, annuity contract, insurance contract or other funding instrument, and
copies of all "employee benefit plans" as that term is defined in Section 3(3)
of ERISA, including a summary of such plans, if material, that have not been
reduced to writing. Jones has furnished or made available to King complete
copies of all existing current plan summaries, employee booklets, personnel
manuals and other material documents or written materials concerning Jones
Benefit Plans. Jones has provided to King a written summary of any Jones Benefit
Plan that has not been reduced to writing.
(e) Except as set forth in Schedule 3.15(e), no amount that could be
received by (whether in cash or property or the vesting of property), or benefit
provided to, any officer, director or employee of Jones or any of its Affiliates
who is a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would be an "excess parachute payment" (as such term is defined in Section
280G(b)(1) of the Code). Except as set forth in Schedule 3.15(e), no such Person
is entitled to receive any additional payment from Jones, the Surviving
Corporation or any other Person (a "Parachute Gross Up Payment") in the event
that the excise tax of Section 4999(a) of the Code is imposed on such Person.
Except as set forth in Schedule 3.15(e), the Board of Directors of Jones has not
granted to any officer, director or employee of Jones or any Jones Subsidiary
any right to receive any Parachute
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Gross Up Payment. Schedule 3.15(e) sets forth the "base amount" (as such term is
defined in Section 280G(b)(3) of the Code) for each disqualified individual
(defined as set forth above) whose Options will vest pursuant to their terms in
connection with this Agreement or the Merger.
(f) All required reports and descriptions, if any (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions have been
filed or distributed appropriately with respect to each Jones Benefit Plan. The
requirements of Part 6 of Subtitle B of Title 1 of ERISA and of Section 4980B of
the Code ("Cobra") and the Health Insurance Portability and Accountability Act
of 1996 ("HIPAA") have been met with respect to each Jones Benefit Plan.
(g) No Jones Benefit Plan is an ESOP or otherwise invests in "employer
securities" (as such term is defined in Section 409(l) of the Code).
(h) Jones has made all contributions and other payments required by and due
under the terms of each Jones Benefit Plan and has taken no action (including,
without limitation, actions required by law) relating to any Jones Benefit Plan
that will increase Jones' or any Jones Commonly Controlled Entity's obligation
under any Jones Benefit Plan.
(i) No Jones Benefit Plan is a "qualified foreign plan" (as such term is
defined in Section 404A of the Code), and no Jones Benefit Plan is subject to
the laws of any jurisdiction other than the United States of America or one of
its political subdivisions.
(j) No Jones Benefit Plan promises or provides post-retirement medical life
insurance or other benefits due now or in the future to current, former or
retired employees of Jones or any Jones Common Controlled Entity other than
benefits required pursuant to COBRA.
(k) No "pension plans", as such term is defined in Section 3(2) of ERISA,
maintained by Jones or an Jones Commonly Controlled Entity, have been frozen or
terminated in the last three (3) calendar years.
(l) As used herein, (i) "Benefit Plans" means any pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation or bonus plans or agreements or other incentive plans or
agreements, all other employee programs, arrangements or agreements and all
other employee benefit plans or fringe benefit plans, including, without
limitation, all "employee benefit plans" as that term is defined in Section 3(3)
of ERISA; (ii) "Jones Benefit Plans" mean the Benefit Plans currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by Jones or
any Jones Commonly Controlled Entity for the benefit of present and former
employees or directors of Jones and of each Jones Subsidiary or their
beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity; (iii) "Jones Commonly Controlled Entity" means an
entity required to be aggregated with Jones which is a member of the "controlled
group of corporations" which includes Jones within the meaning of Section 414(b)
or (c) of the Code; and (iv) "Jones ERISA Plan" means any Jones Benefit Plan
which is an "employee pension benefit plan", as that term is defined in Section
3(2) of ERISA.
SECTION 3.16. PROPERTIES; ASSETS
Except as disclosed in the Jones SEC Reports or as described in clause (c)
below or as set forth on Schedule 3.16: (a) neither Jones nor any Jones
Subsidiary owns or leases
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any real property; (b) each of Jones and the Jones Subsidiaries has good, valid
and marketable title to, or a valid leasehold interest in, as applicable, all
real property owned or leased by Jones or a Jones Subsidiary (the "Jones Real
Property") and all other properties and assets reflected in the consolidated
balance sheet of Jones at December 31, 1999, included in Jones' Annual Report on
Form 10-K filed with the SEC on March 17, 2000, and (c) none of such properties
or assets are subject to any Encumbrance, except for liens for taxes not yet due
and payable, and easements and restrictions of record, if any, which are not
substantial in amount, do not materially detract from the value of the property
or assets subject thereto and do not impair the operations of Jones and the
Jones Subsidiaries thereon. Except as set forth in Schedule 3.16, Jones and the
Jones Subsidiaries have obtained owner's title insurance on all of Jones Real
Property owned by Jones or any Jones Subsidiary, in each case insuring good and
marketable fee simple title to such Jones Real Property, in an amount at least
equal to the aggregate value of such Jones Real Property together with all
improvements thereon as of the date of issuance of such title insurance policy.
SECTION 3.17. LABOR RELATIONS
Neither Jones nor any Jones Subsidiary is a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of the employees of Jones or any Jones
Subsidiary. Jones and each Jones Subsidiary is in compliance with all laws
relating to the employment or the workplace, including, without limitation,
provisions relating to wages, hours, collective bargaining, safety and health,
work authorization, equal employment opportunity, affirmative action plans,
immigration and the withholding of income taxes, unemployment compensation,
worker's compensation, employee privacy and right to know and social security
contributions, except for any noncompliance which would not have a Material
Adverse Effect on Jones.
SECTION 3.18. ENVIRONMENTAL MATTERS
(a) Except for matters which would not have a Material Adverse Effect on
Jones and except as otherwise disclosed on Schedule 3.18, (i) Jones and each
Jones Subsidiary are in compliance with all applicable Environmental Laws (as
defined below); (ii) neither Jones nor any Jones Subsidiary has received any
written communication that alleges that Jones or any Jones Subsidiary is not in
compliance with applicable Environmental Laws; (iii) all permits and other
governmental authorizations currently held by Jones and each Jones Subsidiary
pursuant to the Environmental Laws ("Jones Environmental Permits") are in full
force and effect, Jones and each Jones Subsidiary are in compliance with all of
the terms of such Jones Environmental Permits, and no other permits or other
governmental authorizations are required by Jones or any Jones Subsidiary for
the conduct of their respective businesses; and (iv) the management, handling,
storage, transportation, treatment, and disposal by Jones and each Jones
Subsidiary of any Hazardous Materials (as defined below) is and has been in
compliance with all applicable Environmental Laws.
(b) Except for matters which would not have a Material Adverse Effect on
Jones, there is no Jones Environmental Claim (as defined below) pending or, to
the knowledge of Jones, threatened against or involving Jones, any of the Jones
Subsidiaries or against any Person whose liability for any Environmental Claim
Jones or any of the Jones Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
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(c) Except for matters which would not have a Material Adverse Effect on
Jones, to the knowledge of Jones, there are no past or present actions or
activities by Jones, any Jones Subsidiary or any other Person involving the
storage, treatment, release, emission, discharge, disposal or arrangement for
disposal of any Hazardous Materials, that could reasonably form the basis of any
Jones Environmental Claim against Jones or any Jones Subsidiary or against any
Person whose liability for any Jones Environmental Claim Jones or any Jones
Subsidiary may have retained or assumed either contractually or by operation of
law.
(d) As used herein, these terms shall have the following meanings:
(i) "JONES ENVIRONMENTAL CLAIM" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any Person or Governmental Entity alleging
potential liability arising out of, based on or resulting from the
presence, or release or threatened release into the environment of, or any
exposure to, any Hazardous Materials at any property or location owned or
leased by Jones or any Jones Subsidiary or other circumstances forming the
basis of any violation or alleged violation of any Environmental Law.
(ii) "ENVIRONMENTAL LAWS" means all applicable foreign, federal, state
and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of asbestos in
buildings.
(iii) "HAZARDOUS MATERIALS" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants under any Environmental Laws, including,
without limitation, substances defined as "hazardous substances", "toxic
substances", "radioactive materials, including sources of ionizing and
nonionizing radiation", "petroleum products or wastes" or other similar
designations in, or otherwise subject to regulation under, any
Environmental Law.
SECTION 3.19. INSURANCE
Jones and the Jones Subsidiaries maintain insurance policies which: (a)
insure against such risks, and are in such amounts, as are appropriate and
reasonable, in the judgment of Jones' management, considering Jones and the
Jones Subsidiaries' properties, businesses and operations; (b) are in full force
and effect; and (c) are valid, outstanding, and enforceable. Neither Jones nor
any of the Jones Subsidiaries has received or given notice of cancellation with
respect to any such insurance policies which are currently in effect.
SECTION 3.20. BOARD APPROVAL; VOTE REQUIRED
The Board of Directors of Jones has determined that the transactions
contemplated by this Agreement are advisable and in the best interests of Jones
and its stockholders and has resolved to recommend to such stockholders that
they vote in favor of this Agreement. The affirmative vote at the Jones
Stockholders Meeting of the holders of a majority of all outstanding shares of
Jones Common Stock to adopt this Agreement is the only vote of
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the holders of any class or series of Jones' capital stock necessary to approve
and adopt this Agreement and the transactions contemplated hereby, including the
Merger.
SECTION 3.21. OPINION OF FINANCIAL ADVISOR
The Board of Directors of Jones has received the written opinion of Chase
Securities Inc., Jones' financial advisor, that the Exchange Ratio is fair from
a financial point of view to the holders of shares of Jones Common Stock. A copy
of such opinion has been delivered to King, and such opinion has not been
withdrawn or modified in any material respect.
SECTION 3.22. BROKERS
Except for Chase Securities Inc., no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Jones. Prior to the date of this Agreement, Jones has
furnished or made available to King a complete and correct copy of all
agreements between Jones and Chase Securities Inc. pursuant to which such firm
will be entitled to any payment relating to the transactions contemplated by
this Agreement.
SECTION 3.23. TAKEOVER PROVISIONS INAPPLICABLE
The provisions of Section 203 of the Delaware Law are not applicable to the
transactions contemplated by this Agreement. No other state takeover statute or
similar statute or regulation applies to or purports to apply to this Agreement,
the Merger or the other transactions contemplated by this Agreement.
SECTION 3.24. POOLING; TAX MATTERS
Neither Jones nor any of its Affiliates has taken or agreed to take any
action or failed to take any action that would prevent the Merger from (a) being
treated for financial accounting purposes as a "pooling of interests" in
accordance with GAAP and the regulations and interpretations of the SEC, or (b)
constituting a reorganization within the meaning of Section 368(a) of the Code.
SECTION 3.25. REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS
The information supplied by Jones or required to be supplied by Jones
(except to the extent revised or superseded by amendments or supplements) for
inclusion or incorporation by reference in the registration statement on Form
S-4, or any amendment or supplement thereto, pursuant to which the shares of
King Common Stock to be issued in the Merger will be registered under the
Securities Act (including any amendments or supplements, the "Registration
Statement") shall not, at the time the Registration Statement (including any
amendments or supplements thereto) is filed with the SEC, is amended or
supplemented or is declared effective by the SEC, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Jones or required to be supplied by Jones (except to the extent
revised or superseded by amendments or supplements) for inclusion in the proxy
statement relating to Jones Stockholders Meeting and the King Stockholders
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Meeting (such joint proxy statement, together with the prospectus relating to
the shares of King Common Stock to be issued in the Merger, in each case as
amended or supplemented from time to time, the "Joint Proxy
Statement/Prospectus") shall not, on the date the Joint Proxy
Statement/Prospectus (or any amendment or supplement thereto) is first mailed to
Jones' stockholders and King's stockholders, at the time of the Jones
Stockholders Meeting and the King Stockholders Meeting, or at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies by or on behalf of Jones for the Jones Stockholders
Meeting or by or on behalf of King for the King Stockholders Meeting which has
become false or misleading. The Joint Proxy Statement will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations of the SEC thereunder. Notwithstanding the foregoing, Jones makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by King which is contained in or omitted from any of the
foregoing documents.
SECTION 3.26. REGULATORY COMPLIANCE
(a) As to each product subject to the jurisdiction of the FDA under the
Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder
("FDCA") and the Public Health Services Act, as amended ("PHSA") and the
regulations thereunder, and each product subject to the jurisdiction of the Drug
Enforcement Administration ("DEA") under the Controlled Substances Act, as
amended, and Controlled Substances Import and Export Act, as amended ("CSA") and
the regulations thereunder (each such product, a "Pharmaceutical Product") that
is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
by Jones or any Jones Subsidiary, such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed by
Jones or any Jones Subsidiary in compliance with all applicable requirements
under FDCA, PHSA, CSA, and similar laws, rules and regulations relating to
registration, investigational use, premarket clearance, licensure, or
application approval, good manufacturing practices, good laboratory practices,
good clinical practices, product listing, quotas, labeling, advertising, record
keeping and filing of reports except where the failure to be in compliance would
not have a Material Adverse Effect on Jones. Except as disclosed in the Jones
SEC Reports or as set forth in Schedule 3.26, since January 1, 1995, none of
Jones or any Jones Subsidiary has received any notice, warning letter or other
communication from the FDA, DEA, or any other Governmental Entity (i) contesting
the premarket clearance, licensure, registration, or approval of, the uses of,
the distribution of, the manufacturing or packaging of, the testing of, sale of,
controlled substance scheduling of and quotas for, or the labeling and promotion
of any Pharmaceutical Product described in this Section 3.26 or (ii) otherwise
alleging any violation of any laws, rules or regulations by Jones or any Jones
Subsidiary, and which would have a Material Adverse Effect on Jones.
(b) Except as set forth on Schedule 3.26, since January 1, 1995, no
Pharmaceutical Products of Jones or any Jones Subsidiary have been recalled,
withdrawn, replaced, suspended or discontinued nor have any DEA registrations
been terminated by Jones or any Jones Subsidiary in the United States or outside
the United States (whether voluntarily or otherwise) which would have a Material
Adverse Effect on Jones.
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(c) As to each Pharmaceutical Product of Jones or the Jones Subsidiaries
for which a human biological license application, human establishment license
application, human product license application, new human drug application,
investigational new human drug application, abbreviated or supplemental new
human drug application, investigational new animal drug application, new animal
drug application, or abbreviated or supplemental new animal drug application,
registration or quota issued by the DEA, or similar state or foreign regulatory
application has been approved, Jones and the Jones Subsidiaries are in
compliance with 21 U.S.C. sec. 355, 360b, 42 U.S.C. sec. 351, and 21 U.S.C. sec.
822, and 21 C.F.R. Parts 312, 314, 511, 514, 601, and 1301 et seq.,
respectively, and similar laws and all terms and conditions of such
applications, except where the failure to be in compliance would not have a
Material Adverse Effect on Jones. As to each such application or other
submission that Jones or the Jones Subsidiaries has submitted to, but not yet
gained approval or other permission from FDA or DEA, Jones has provided all
additional information and taken all additional action reasonably required by
the FDA or DEA in connection with the application or submission. In Jones' good
faith opinion, there are no facts or circumstances that would reasonably be
expected to delay, in any material respect, outside the ordinary course of
business, or prevent approval of any pending applications or other submissions
to FDA or DEA. As to each such Pharmaceutical Product, Jones and any relevant
Jones Subsidiary, and the officers, employees or agents of Jones and such Jones
Subsidiary have included in the application for such Pharmaceutical Product,
where required, the certification described in 21 U.S.C. sec. 335a(k)(1) or any
similar law and the list described in 21 U.S.C. sec. 335a(k)(2) or any similar
law, and such certification and such list was in each case true and accurate
when made and remained true and accurate thereafter. In addition, Jones and the
Jones Subsidiaries are in material compliance with all applicable registration
and listing requirements set forth in 21 U.S.C. sec. 360 and 21 C.F.R. Part 207
and all similar laws.
(d) Each article of any Pharmaceutical Product manufactured and released
and/or distributed by Jones or any of the Jones Subsidiaries is not adulterated
within the meaning of 21 U.S.C. sec. 351 (or similar laws) or misbranded within
the meaning of 21 U.S.C. sec. 352 (or similar laws), except where such failure
in compliance with the foregoing would not have a Material Adverse Effect on
Jones.
(e) Neither of Jones nor any Jones Subsidiary, or any officer, employee or
agent of Jones or any Jones Subsidiary has made any untrue statement of a
material fact or fraudulent statement to the FDA or other Governmental Entity,
failed to disclose a fact required to be disclosed to the FDA or any other
Governmental Entity, or committed an act, made a statement, or failed to make a
statement that, at the time such disclosure was made, could reasonably be
expected to provide a basis for the FDA or any other Governmental Entity to
invoke its policy respecting "Fraud, Untrue Statements of Material Facts,
Bribery, and Illegal Gratuities", set forth in 56 Fed. Reg. 46191 (September 10,
1991) or any similar policy. Neither Jones nor any Jones Subsidiary nor any
officer, employee or agent of Jones or any Jones Subsidiary has been convicted
of any crime or engaged in any conduct for which debarment is mandated by 21
U.S.C. sec. 335a(a) or any similar law or authorized by 21 U.S.C. sec. 335a(b)
or any similar law.
(f) Except as set forth on Schedule 3.26, since January 1, 1995, neither
Jones nor any Jones Subsidiary has received any written notice that the FDA or
any other Governmental Entity has commenced, or threatened to initiate, any
action, including lawsuits, arbitrations, or legal or administrative or
regulatory proceedings, charges, complaints, or investigations, nor are there
any completed or pending efforts to withdraw its approval of,
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request the recall of, suspension of, seizure of, change the quotas for
controlled substances, or change the controlled substances schedules of any
Pharmaceutical Product of Jones or any Jones Subsidiary, or commenced, or
threatened to initiate, any action to impose a clinical hold on any clinical
investigation by Jones or any Jones Subsidiary, withdraw advertising or sales
promotion materials, or any action to enjoin production at, or suspend or revoke
the DEA registration or any facility of, or enter into a Consent Decree of
Permanent Injunction with Jones or any Jones Subsidiary which would have a
Material Adverse Effect on Jones.
(g) Jones and each of the Jones Subsidiaries are not in violation of and
are in compliance with, all applicable laws, rules and regulations regarding the
conduct of pre-clinical and clinical investigations, including, but not limited
to, good laboratory practices, good clinical practices, investigational new drug
requirements and requirements regarding informed consent and Institutional
Review Boards designed to ensure the protection of the rights and welfare of
human subjects, including, but not limited to, the requirements provided in 21
C.F.R. Parts 50, 56, 58 and 312, except where the failure to be in compliance
would not have a Material Adverse Effect on Jones. Each clinical trial with
respect to Pharmaceutical Products of Jones and each of the Jones Subsidiaries
has been conducted in accordance with its clinical trial protocol and Jones or
one of the Jones Subsidiaries has filed all required notices (and made available
to King copies thereof) of adverse drug experiences, injuries or deaths relating
to clinical trials of such Pharmaceutical Products, and Jones or one of the
Jones Subsidiaries has filed all required notices of any such occurrence, except
where the failure to be in compliance with the protocol or relevant reporting
requirements would not have a Material Adverse Effect on Jones.
(h) Jones or the Jones Subsidiaries are authorized to sell Pharmaceutical
Products in each of the countries in which such Pharmaceutical Products are
currently being sold and all permits necessary for such sale are held by Jones
or one of the Jones Subsidiaries. To the extent that any biological drugs or
other drug is intended for export from the United States, each of Jones and any
Jones Subsidiary is in full compliance with all of the requirements in 21 U.S.C.
sec. 381(e) or sec. 382, and the Controlled Substances Import and Export Act 21
U.S.C. sec. 951, et. seq., except where the failure to be in compliance would
not have a Material Adverse Effect on Jones.
(i) All manufacturing, warehousing, distributing, and testing operations
conducted by or for the benefit of Jones and each of the Jones Subsidiaries are
not in violation of and have been and are being conducted in compliance with,
the good manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and
211, except where the failure to be in compliance would not have a Material
Adverse Effect on Jones.
(j) No person has filed a claim for loss or potential loss under any
indemnity covering participants in clinical trials of Pharmaceutical Products of
Jones or one of the Jones Subsidiaries.
(k) No material modifications to the process by which Pharmaceutical
Products of Jones or any of the Jones Subsidiaries that have been or are being
used in clinical trials will be necessary in order to manufacture commercial
quantities of such Pharmaceutical Products.
(l) Jones does not manufacture, sell or distribute, and has not developed
and is not currently developing any veterinary biological products,
radiopharmaceuticals, or medical devices.
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(m) Jones has provided or made available to King all documents in its
possession or the possession of the Jones Subsidiaries concerning communication
to or from FDA or DEA, or prepared by FDA or DEA which bear in any material
respect on compliance with FDA or DEA regulatory requirements, including, but
not limited to, any deficiency letter, warning letter, non-approvable
letter/order, withdrawal letter/order, or similar communications.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
King and Merger Sub jointly and severally represent and warrant to Jones as
follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION
Merger Sub is a corporation duly organized, validly existing and in good
standing under Delaware Law. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. As of the date of
this Agreement, except for obligations or liabilities incurred in connection
with its incorporation and organization and otherwise in connection with the
transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.
SECTION 4.2. CERTIFICATE OF INCORPORATION AND BYLAWS
Merger Sub has heretofore made available to Jones a complete and correct
copy of the certificate of incorporation and the bylaws of Merger Sub, each as
amended to date. Such certificate of incorporation and bylaws are in full force
and effect. Merger Sub is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
SECTION 4.3. AUTHORITY
Merger Sub has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. Merger Sub has the requisite corporate power
and authority and any necessary governmental authority, franchise, license or
permit to own, operate, lease and otherwise to hold and operate its assets and
properties and to carry on its business as now being conducted, except for such
failures which have not had and would not reasonably be likely to have a
Material Adverse Effect on Merger Sub. The execution and delivery of this
Agreement by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery of this
Agreement by Jones and King, constitutes a legal, valid and binding obligation
of Merger Sub, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
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SECTION 4.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Merger Sub do not, and
the performance by Merger Sub of its obligations under this Agreement will not,
(i) conflict with or violate the certificate of incorporation or bylaws of
Merger Sub, (ii) subject to compliance with the requirements set forth in
Section 4.4(b) below, conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to Merger Sub or by which
any of its properties or assets is bound or affected, or (iii) except as set
forth in Schedule 5.5, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any of the
properties or assets of Merger Sub pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Merger Sub is a party or by which Merger Sub
or any of its properties or assets is bound or affected, except, in the case of
clauses (ii) and (iii) above, for any such conflicts, violations, breaches,
defaults or other alterations or occurrences that would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent Merger
Sub from performing its obligations under this Agreement in any material
respect.
(b) The execution and delivery of this Agreement by Merger Sub does not,
and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) applicable requirements, if any,
of the Exchange Act, Securities Act, state takeover laws, the New York Stock
Exchange ("NYSE"), the HSR Act and the FDA, (B) applicable requirements, if any,
of the consents, approvals, authorizations or permits described in Schedule 5.5,
and (C) filing and recordation of appropriate merger documents as required by
Delaware Law, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF KING
King represents and warrants to Jones subject to the exceptions set forth
herein and in King's disclosure schedules (which exceptions shall specifically
identify a section, subsection or clause of a single section or subsection
hereof, as applicable, to which such exception relates, it being understood and
agreed that each such exception shall be deemed to be disclosed both under such
section, subsection or clause hereof and any other section, subsection or clause
hereof to which such disclosure reasonably relates) that:
SECTION 5.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
Each of King and each Subsidiary of King, (each a "King Subsidiary" and
collectively, the "King Subsidiaries") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each of King and each King Subsidiary is duly qualified to conduct
its business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failures which have not had
and would not be reasonably likely to have a Material Adverse Effect on
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King. Each of King and each King Subsidiary has the requisite corporate power
and authority and any necessary governmental authority, franchise, license or
permit to own, operate, lease and otherwise to hold and operate its assets and
properties and to carry on its business as now being conducted, except for such
failures which have not had and would not be reasonably likely to have a
Material Adverse Effect on King. King has no Subsidiaries other than those
listed in Schedule 5.1, each of which is wholly-owned by King, or any direct or
indirect beneficial ownership of any securities, equity or other ownership
interest in any Person other than those listed on Schedule 5.1.
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS
King has heretofore delivered to Jones a complete and correct copy of the
articles of incorporation and the bylaws of King and each King Subsidiary, each
as amended to date. Each such articles of incorporation and bylaws is in full
force and effect. Neither King nor any King Subsidiary is in violation of any of
the provisions of its articles of incorporation or bylaws.
SECTION 5.3. CAPITALIZATION
(a) The authorized capital stock of King consists of Three Hundred Million
(300,000,000) shares of King Common Stock. As of June 30, 2000: (i) Ninety-Two
Million Forty-Two Thousand Eighty-Five (92,042,085) shares of King Common Stock
were issued and outstanding; (ii) all shares of King Common Stock issuable upon
the exercise of outstanding employee stock options or other rights to purchase
or receive King Common Stock granted under King's 1997 Incentive and
Nonqualified Stock Option Plan (the "1997 Plan") have been reserved for
issuance; (iii) all shares of King Common Stock issuable upon the exercise of
outstanding stock options or other rights to receive King Common Stock granted
under King's 1998 Non-employee Director Stock Option Plan (the "1998 Plan") have
been reserved for issuance; (iv) all shares of King Common Stock issuable upon
the exercise of outstanding stock options under the 1989 Stock Option and Stock
Appreciation Rights Plan (the "1989 Plan", and together with the 1997 Plan and
the 1998 Plan, the "King Stock Option Plans") have been reserved for issuance;
and (iv) no shares of King Common Stock were held by King in King's treasury.
Schedule 5.3 sets forth a complete and correct list, as of June 30, 2000, of the
number of shares of King Common Stock subject to employee stock options or other
rights to purchase or receive King Common Stock granted under the King Stock
Option Plans, the dates of grant and exercise prices thereof.
(b) All outstanding shares of capital stock of King are duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in this Section 5.3 and except for changes resulting
from the issuance of shares of King Common Stock pursuant to the King Stock
Option Plans or as expressly permitted by this Agreement, as of the date hereof
(i) there are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of King, (B) any securities of King or
any King Subsidiary convertible into or exchangeable or exercisable for shares
of capital stock or voting securities of or ownership interests in King or any
King Subsidiary, (C) any warrants, calls, options or other rights to acquire
from King or any King Subsidiary, and any obligation of King or any King
Subsidiary to issue, any capital stock, voting securities or other ownership
interests in, or securities convertible into or exchangeable or exercisable for
capital stock or voting securities of or other ownership interests in, King or
any King Subsidiary, (ii) there are no outstanding obligations of King
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or any King Subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities, including, without limitation, any offer, issuance or
sale in such a manner that would constitute a public offering under the
Securities Act and (iii) except as contemplated in this Agreement, King is not
presently under any obligation, has not agreed or committed, and has not granted
rights, to register under the Securities Act or the Exchange Act, or otherwise
file any registration statement under any such statute covering, any of its
currently outstanding capital stock or other securities or any of its capital
stock or other securities that may be subsequently issued.
(c) Except as described in Schedule 5.3, as of the date hereof, neither
King nor any King Subsidiary is a party to any agreement restricting the
purchase or transfer of, relating to the voting of, or granting any preemptive
or antidilutive rights with respect to, any securities of King or any King
Subsidiary that are outstanding as of the date hereof, or that may be
subsequently issued upon the conversion or exercise of any instrument or
otherwise.
(d) King represents and warrants to Jones that on the Closing Date, the
aggregate number of outstanding shares of King Common Stock on a fully diluted
basis (assuming full exercise of stock options or other rights to purchase or
receive King Common Stock) shall not exceed Ninety Two Million Forty-Two
Thousand Eighty-Five (92,042,085) shares.
SECTION 5.4. AUTHORITY
King has the necessary corporate power and authority to enter into this
Agreement and, subject to obtaining the requisite approval of the stockholders
of King (the "King Stockholder Approval") of the issuance of King Common Stock
in the Merger and the adoption and approval of this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Except for the King Stockholder Approval, the execution and delivery of this
Agreement by King and the consummation by King of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other proceedings on the part of King are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by King and, assuming the due
authorization, execution and delivery by Jones, constitutes a legal, valid and
binding obligation of King, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity. King, as the sole stockholder of Merger Sub, has approved
the Merger and this Agreement.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by King do not, and the
performance by King of its obligations under this Agreement will not, (i)
conflict with or violate the articles of incorporation or bylaws of King, (ii)
subject to obtaining the approvals and compliance with the requirements set
forth in Section 5.5(b), conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to King or any King
Subsidiary or by which any of their respective properties or assets are bound or
affected, or (iii) except as set forth in Schedule 5.5, result in any breach of
or
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constitute a default (or an event which with or without notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of King or any
King Subsidiary pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which King or any King Subsidiary is a party or by which King, any King
Subsidiary or any of their respective properties or assets are bound or
affected, except, in the case of clauses (ii) and (iii) above, for any such
conflicts, violations, breaches, defaults or other alterations or occurrences
that (A) would not prevent or delay consummation of the Merger in any material
respect or otherwise prevent King from performing its obligations under this
Agreement in any material respect, and (B) have not and would not be reasonably
likely to have a Material Adverse Effect on King.
(b) The execution and delivery of this Agreement by King does not, and the
performance of this Agreement by King will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity by or with respect to King, except (i) for (A) applicable requirements,
if any, of the Securities Act, Blue Sky Laws, Exchange Act, state takeover laws,
the NYSE, the HSR Act and the FDA, (B) applicable requirements, if any, of the
consents, approvals, authorizations or permits described in Schedule 5.5, and
(C) filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (A) would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent King from performing its obligations under this Agreement in
any material respect, and (B) have not had and would not reasonably likely to
have a Material Adverse Effect on King.
SECTION 5.6. SEC FILINGS; FINANCIAL STATEMENTS
(a) King has filed all forms, reports, statements and other documents
required to be filed with the SEC since January 1, 1998, and has heretofore
delivered to Jones, in the form filed with the SEC since such date, together
with any amendments thereto, all of its (i) Annual Reports on Form 10-K, (ii)
Quarterly Reports on Form 10-Q, (iii) proxy statements relating to meetings of
stockholders (whether annual or special), (iv) reports on Form 8-K and (v) other
reports or registration statements filed by King and such King Subsidiaries
(collectively, the "King SEC Reports"). As of their respective filing dates, the
King SEC Reports (x) complied as to form in all material respects with the
requirements of the Exchange Act and the Securities Act, as applicable, and (y)
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of King included in the King SEC Reports complied in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto. The financial statements,
including all related notes and schedules, contained in the King SEC Reports (or
incorporated by reference therein) present fairly in all material respects the
consolidated financial position of King and the King Subsidiaries as at the
respective dates thereof and the consolidated results of operations and cash
flows of King and the King Subsidiaries for the periods indicated, in accordance
with GAAP applied on a consistent basis throughout the periods involved
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(except as may be noted therein) and subject in the case of interim financial
statements to normal year-end adjustments.
SECTION 5.7. NO UNDISCLOSED LIABILITIES
Neither King nor any of the King Subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
except (a) liabilities or obligations reflected in the audited consolidated
financial statements of King included in the King SEC Reports through the date
of the filing of King's Annual Report on Form 10-K in respect of the fiscal year
ended December 31, 1999, (b) liabilities or obligations as of December 31, 1999,
incurred in the ordinary course of business and of a character or amount not
required to be reflected in such Annual Report, (c) liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
December 31, 1999, which have not had, and are not reasonably likely to have, a
Material Adverse Effect on King and (d) liabilities or obligations which have
not had and are not reasonably likely to have a Material Adverse Effect on King.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS
Since December 31, 1999, King and the King Subsidiaries have conducted
their businesses only in the ordinary course of business consistent with past
practice, and except as set forth on Schedule 5.8, there has not been (a) any
Material Adverse Effect on King, (b) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of King's capital stock, (c) any split, combination or
reclassification of any of King's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (d) (i) any granting by King
or any King Subsidiary to any current or former director, officer or employee of
King or any of the King Subsidiaries of any increase in compensation, bonus or
other benefits, except for normal increases in cash compensation in the ordinary
course of business consistent with past practice, (ii) any granting by King or
any of the King Subsidiaries to any such current or former director, officer or
employee of any increase in severance or termination pay, (iii) any entry by
King or any of the King Subsidiaries into, or any amendment of, any employment,
deferred compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, officer or employee or (iv)
any amendment to, or modification of, any option outstanding under the King
Stock Option Plans, (e) any damage, destruction or loss, whether or not covered
by insurance, that would be reasonably likely to have a Material Adverse Effect
on King, (f) any change in accounting methods, principles or practices by King
materially affecting its assets, liabilities or businesses, except insofar as
may have been required by a change in GAAP, or (g) any Tax election that would
be reasonably likely to have a Material Adverse Effect on King or any of its tax
attributes or any settlement or compromise of any material income tax liability.
SECTION 5.9. ABSENCE OF LITIGATION
Except as set forth on Schedule 5.9 and except as set forth in King's
annual report on Form 10-K filed with the SEC on March 30, 2000 or King's
quarterly report on Form 10-Q for King's fiscal quarter ended March 31, 2000,
filed with the SEC on May 15, 2000, there are (a) no claims, actions, suits,
investigations, or proceedings pending or, to King's knowledge, threatened
against King or any King Subsidiary before any court,
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administrative, governmental, arbitral, mediation or regulatory authority or
body, domestic or foreign, that would be reasonably likely to have a Material
Adverse Effect on King or that challenge or seek to prevent, enjoin, alter or
materially delay the transactions contemplated hereby, and (b) no judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator
outstanding against King or any King Subsidiary that would be reasonably likely
to have a Material Adverse Effect on King.
SECTION 5.10. LICENSES AND PERMITS; COMPLIANCE WITH LAWS
King and the King Subsidiaries hold all permits, licenses, franchises,
authorizations and approvals from Governmental Entities (the "King Permits")
which are necessary for the operation of the businesses of King and the King
Subsidiaries as presently conducted and for King and the King Subsidiaries to
own, lease and operate their respective properties, except where the failure to
have any such permits, licenses or approvals would not have a Material Adverse
Effect on King. King and the King Subsidiaries are in compliance with the terms
of the King Permits and all applicable statutes, laws, ordinances, rules and
regulations, except where the failure so to comply would not have a Material
Adverse Effect on King.
SECTION 5.11. UNLAWFUL PAYMENTS
None of King, any King Subsidiary, or any officer, director, employee,
agent or representative of King or any King Subsidiary has made, directly or
indirectly, any bribe or kickback, illegal political contribution, payment from
corporate funds which was incorrectly recorded on the books and records of King
or any King Subsidiary, unlawful payment from corporate funds to governmental or
municipal officials in their individual capacities for the purpose of affecting
their action or the actions of the jurisdiction which they represent to obtain
favorable treatment in securing business or licenses or to obtain special
concessions of any kind whatsoever, or illegal payment from corporate funds to
obtain or retain any business.
SECTION 5.12. TAXES
King and the King Subsidiaries have prepared and filed on a timely basis
with all appropriate Governmental Entities all material returns, reports,
information statements and other documentation (including extensions) required
to be filed by King and the King Subsidiaries in respect of Taxes (the "King Tax
Returns") and all such King Tax Returns are correct and complete in all material
respects. King and the King Subsidiaries have paid in full all Taxes due (other
than Taxes, the failure of which to pay have not had and are not reasonably
likely to have a Material Adverse Effect on King) and, in the case of material
Taxes accruing but not due, King has made adequate provision in its books and
records and financial statements for such payments. King and the King
Subsidiaries have withheld from payments made to its present or former
employees, contractors, officers and directors, creditors or other third
parties, all amounts required by law to be withheld, except where the liability
for which would not have a Material Adverse Effect on King, and have, where
required, remitted such amounts within the applicable periods to the appropriate
Governmental Entities. In addition, (a) there are no assessments of, or claims
against, King or any King Subsidiaries with respect to Taxes, the liability for
which would have a Material Adverse Effect on King, that are outstanding; (b) no
Governmental Entity is conducting an examination or audit of King or any King
Subsidiary in respect of Taxes and neither King nor any King Subsidiary has
received notice of any such examination or
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audit from any Governmental Entity; and (c) neither King nor any King Subsidiary
has executed or filed any agreement extending the period of assessment or
collection of any Taxes which remain in effect.
SECTION 5.13. INTELLECTUAL PROPERTY
Except as, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on King and except as disclosed in the King SEC Reports
filed prior to the date of this Agreement, (a) King and each King Subsidiary
owns, or is licensed to use (in each case, free and clear of any Encumbrances),
all Intellectual Property used in or necessary for the conduct of its business
as currently conducted; (b) the use of any Intellectual Property by King and
King Subsidiaries does not infringe on or otherwise violate the rights of any
Person and is in accordance with any applicable license pursuant to which King
or any King Subsidiary acquired the right to use any Intellectual Property; (c)
to the knowledge of King, no Person is challenging, infringing on or otherwise
violating any right of King or any King Subsidiary with respect to any
Intellectual Property owned by and/or licensed to King or any King Subsidiary;
and (d) neither King nor any King Subsidiary has received any written notice or
otherwise has knowledge of any pending claim, order or proceeding with respect
to any Intellectual Property used by King and King Subsidiaries; and (e) to the
knowledge of King, no Intellectual Property owned and/or licensed by King or
King Subsidiaries is being used or enforced in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
SECTION 5.14. MATERIAL CONTRACTS
(a) All of the agreements filed as an exhibit to the King SEC Reports which
remain in full force and effect and all of the agreements that would have been
required to be filed as an exhibit to the King SEC Reports if any such
agreements have been entered into as of the date of filing of any such King SEC
Report (collectively "King Material Contracts") are valid and in full force and
effect on the date hereof except to the extent they have previously expired in
accordance with their terms, and neither King nor any King Subsidiary has (or
has any knowledge that any party thereto has) violated any provision of, or
committed or failed to perform any act which with or without notice, lapse of
time or both would constitute a default under the provisions of, any King
Material Contract, except defaults which would not reasonably be expected to
have a Material Adverse Effect on King.
(b) Except as disclosed on Schedule 5.14, neither King nor any King
Subsidiary has, since December 31, 1999, entered into any agreement which would
have been required to be filed as an exhibit to King's SEC Annual Report on Form
10-K if such agreement had been in effect as of December 31, 1999. Each of such
agreements is valid and in full force and effect on the date hereof, and neither
King nor any King Subsidiary has (or has any knowledge that any party thereto
has) violated any provision of, or committed or failed to perform any act which
with or without notice, lapse of time or both would constitute a default under
the provisions of, any such agreement, except defaults which would not
reasonably be expected to have a Material Adverse Effect on King
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SECTION 5.15. EMPLOYEE BENEFIT PLANS
(a) Schedule 5.15 sets forth a list of all King Benefit Plans. Each King
Benefit Plan (as defined below) intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined by the Internal Revenue Service
to be so qualified and no circumstances exist that could reasonably be expected
by King to result in the revocation of any such determination. Each King Benefit
Plan is in compliance with the applicable terms of ERISA and the Code and any
other applicable laws, rules and regulations, except where the breach or
violation of which would not result in a Material Adverse Effect on King.
(b) Except as provided in Schedule 5.15(b), no King ERISA Plan which is a
defined benefit pension plan has any "unfunded current liability", as that term
is defined in Section 302(d)(8)(A) of ERISA, and the present fair market value
of the assets of any such plan equals or exceeds the plan's "benefit
liabilities", as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements and the assets of each such
plan are sufficient to satisfy plan liabilities on a termination basis.
(c) No King Benefit Plan is or has been a Multiemployer Plan. Neither King
nor any King Commonly Controlled Entity has completely or partially withdrawn
from any Multiemployer Plan. No termination liability to the Pension Benefit
Guaranty Corporation or withdrawal liability to any Multiemployer Plan that is
material in the aggregate has been or is reasonably expected to be incurred with
respect to any Multiemployer Plan by King or any King Commonly Controlled
Entity.
(d) King has furnished or made available to Jones complete copies, as of
the date hereof, of all of King Benefit Plans that have been reduced to writing,
together with all documents establishing or constituting any related trust,
annuity contract, insurance contract or other funding instrument, and copies of
all "employee benefit plans" as that term is defined in Section 3(3) of ERISA,
including a summary of such plans that have not been reduced to writing. King
has furnished or made available to Jones complete copies of all existing current
plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning King Benefit Plans. King has provided
to Jones a written summary of any King Benefit Plan that has not been reduced to
writing.
(e) All required reports and descriptions, if any (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been
filed or distributed appropriately with respect to each King Benefit Plan. The
requirements of COBRA and HIPAA have been met with respect to each King Benefit
Plan.
(f) No King Benefit Plan is an ESOP or otherwise invests in "employer
securities" (as such term is defined in Section 409(l) of the Code).
(g) King has made all contributions and other payments required by and due
under the terms of each King Benefit Plan and has taken no action (including,
without limitation, actions required by law) relating to any King Benefit Plan
that will increase King's or any King Commonly Controlled Entity's obligation
under any King Benefit Plan.
(h) No King Benefit Plan is a "qualified foreign plan" (as such term is
defined in Section 404A of the Code), and no King Benefit Plan is subject to the
laws of any jurisdiction other than the United States of America or one of its
political subdivisions.
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(i) No King Benefit Plan promises or provides post-retirement medical life
insurance or other benefits due now or in the future to current, former or
retired employees of King or any King Common Controlled Entity other than
benefits required pursuant to COBRA.
(j) No "pension plans", as such term is defined in Section 3(2) of ERISA,
maintained by King or an King Commonly Controlled Entity, have been frozen or
terminated in the last three (3) calendar years.
(k) As used herein, (i) "King Benefit Plans" mean the Benefit Plans
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by King or any King Commonly Controlled Entity for the benefit of
present and former employees or directors of King and of each King Subsidiary or
their beneficiaries, or providing benefits to such persons in respect of
services provided to any such entity; (ii) "King Commonly Controlled Entity"
means an entity required to be aggregated with King which is a member of the
"controlled group of corporations" which includes King within the meaning of
Section 414(b) or (c) of the Code; and (iii) "King ERISA Plan" means any King
Benefit Plan which is an "employee pension benefit plan", as that term is
defined in Section 3(2) of ERISA.
SECTION 5.16. PROPERTIES; ASSETS
Except as disclosed in the King SEC Reports and as described in clause (c)
below: (a) neither King nor any King Subsidiary owns or leases any real
property; (b) each of King and the King Subsidiaries has good, valid and
marketable title to, or a valid leasehold interest in, as applicable, all real
property owned or leased by King or a King Subsidiary (the "King Real Property")
and all other properties and assets reflected in the consolidated balance sheet
of King at December 31, 1999, included in King's Annual Report on Form 10-K
filed with the SEC on March 30, 2000, and (c) none of such properties or assets
are subject to any Encumbrance, except for liens for taxes not yet due and
payable, and easements and restrictions of record, if any, which are not
substantial in amount, do not materially detract from the value of the property
or assets subject thereto and do not impair the operations of King and the King
Subsidiaries thereon. Except as set forth in Schedule 5.16, King and the King
Subsidiaries have obtained owner's title on all of the King Real Property owned
by King or any King Subsidiary, in each case insuring good and marketable fee
simple title to such King Real Property, in an amount at least equal to the
aggregate value of such King Real Property together with all improvements
thereon as of the date of issuance of such title insurance policy.
SECTION 5.17. LABOR RELATIONS
Except as disclosed in Schedule 5.17, neither King nor any King Subsidiary
is a party to any collective bargaining agreement or other contract or agreement
with any labor organization or other representative of any of the employees of
King or any King Subsidiary. King and each King Subsidiary is in compliance in
all material respects with all laws relating to the employment or the workplace,
including without limitation, provisions relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
affirmative action plans, immigration and the withholding of income taxes,
unemployment compensation, worker's compensation, employee privacy and right to
know and social security contributions, except for any noncompliance which would
not have a Material Adverse Effect on King.
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SECTION 5.18. ENVIRONMENTAL MATTERS
(a) Except for matters which would not have a Material Adverse Effect on
King, (i) King and each King Subsidiary is in compliance with all applicable
Environmental Laws; (ii) neither King nor any King Subsidiary has received any
written communication that alleges that King or any King Subsidiary is not in
compliance with applicable Environmental Laws; (iii) all permits and other
governmental authorizations currently held by King and each King Subsidiary
pursuant to the Environmental Laws ("King Environmental Permits") are in full
force and effect, and King and each King Subsidiary are in compliance with all
of the terms of such King Environmental Permits, and no other permits or other
governmental authorizations are required by King or any King Subsidiary for the
conduct of their respective businesses; and (iv) the management, handling,
storage, transportation, treatment, and disposal by King and each King
Subsidiary of any Hazardous Materials is and has been in compliance with all
applicable Environmental Laws.
(b) Except for matters which would not have a Material Adverse Effect on
King, there is no King Environmental Claim (as defined below) pending or, to the
knowledge of King, threatened against or involving King or any of the King
Subsidiaries or against any Person whose liability for any King Environmental
Claim King or any of the King Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
(c) Except for matters which would not have a Material Adverse Effect on
King, to the knowledge of King, there are no past or present actions or
activities by King, any King Subsidiary or any other Person involving the
storage, treatment, release, emission, discharge, disposal or arrangement for
disposal of any Hazardous Materials, that could reasonably form the basis of any
King Environmental Claim against King or any King Subsidiary or against any
Person whose liability for any King Environmental Claim King or any King
Subsidiary may have retained or assumed either contractually or by operation of
law.
(d) As used herein, "King Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any Person or Governmental
Entity alleging potential liability arising out of, based on or resulting from
the presence, or release or threatened release into the environment of, or any
exposure to, any Hazardous Materials at any property or location owned or leased
by King or any King Subsidiary or other circumstances forming the basis of any
violation or alleged violation of any Environmental Law.
SECTION 5.19. INSURANCE
King and the King Subsidiaries maintain insurance which: (a) insure against
such risks, and are in such amounts, as are appropriate and reasonable, in the
judgment of King's Board of Directors, considering King and King Subsidiaries'
properties, businesses and operations; (b) are in full force and effect; and (c)
are valid, outstanding, and enforceable. Neither King nor any of the King
Subsidiaries has received or given notice of cancellation with respect to any
such insurance policies which are currently in effect.
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SECTION 5.20. BOARD APPROVAL; VOTE REQUIRED
The Board of Directors of King has determined that the transactions
contemplated by this Agreement are in the best interests of King and its
stockholders and has resolved to recommend to such stockholders that they adopt
and approve this Agreement and approve the issuance of King Common Stock
pursuant to this Agreement. The affirmative vote at the King Stockholders
Meeting of the holders of a majority of all outstanding shares of King Common
Stock to adopt and approve this Agreement and to approve the issuance of the
King Common Stock pursuant to this Agreement (a) is a condition to the approval
of the King Common Stock to be issued pursuant hereto for listing on the NYSE
and (b) is the only vote of the holders of any class or series of King's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby, including the Merger.
SECTION 5.21. OPINION OF FINANCIAL ADVISOR
The Board of Directors of King has received the written opinion of Credit
Suisse First Boston, King's financial advisor, to the effect that, as of the
date of this Agreement, the Exchange Ratio is fair, from a financial point of
view, to the holders of shares of King Common Stock. A copy of such opinion has
been delivered to Jones, and such opinion has not been withdrawn or modified in
any material respect.
SECTION 5.22. BROKERS
Except for Credit Suisse First Boston, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of King. Prior to the date of this Agreement,
King has provided to Jones a complete and correct copy of all agreements between
King and Credit Suisse First Boston pursuant to which such firm will be entitled
to any payment relating to the transactions contemplated by this Agreement.
SECTION 5.23. POOLING; TAX MATTERS
Neither King nor any of its Affiliates has taken or agreed to take any
action or failed to take any action that would prevent the Merger from (a) being
treated for financial accounting purposes as a "pooling of interests" in
accordance with GAAP and the regulations and interpretations of the SEC, or (b)
from constituting a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 5.24. REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS
The information supplied by King or required to be supplied by King (except
to the extent revised or superseded by amendments or supplements) for inclusion
or incorporation by reference in the Registration Statement, or any amendment or
supplement thereto, shall not, at the time the Registration Statement (including
any amendments or supplements thereto) is filed with the SEC, is amended or
supplemented or is declared effective by the SEC, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by King or required to be supplied by King (except to the extent
revised or
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superseded by amendments or supplements) for inclusion in the Joint Proxy
Statement/Prospectus shall not, on the date the Joint Proxy Statement/Prospectus
(or any amendment or supplement thereto) is first mailed to Jones' stockholders
and King's stockholders at the time of the Jones Stockholders Meeting and the
King Stockholders Meeting, or at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies by or on behalf of Jones for the Jones Stockholders Meeting or by or on
behalf of King for the King Stockholders' Meeting which has become false or
misleading. The Registration Statement and Joint Proxy Statement/Prospectus will
comply as to form in all material respects with the provisions of the Exchange
Act and the Securities Act and the rules and regulations of the SEC thereunder.
Notwithstanding the foregoing, King makes no representation, warranty or
covenant with respect to any information supplied or required to be supplied by
Jones which is contained in or omitted from any of the foregoing documents.
SECTION 5.25. REGULATORY COMPLIANCE
(a) As to each Pharmaceutical Product that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by King or any King
Subsidiary, such Pharmaceutical Product is being manufactured, packaged,
labeled, tested, distributed, sold and/or marketed by King or any King
Subsidiary in compliance with all applicable requirements under FDCA, PHSA, CSA,
and similar laws, rules and regulations relating to registration,
investigational use, premarket clearance, licensure, or application approval,
product listing, quotas, good manufacturing practices, good laboratory
practices, good clinical practices, security requirements, labeling,
advertising, record keeping, and filing of reports, except as set forth in
Schedule 5.25 or where the failure to be in compliance would not have a Material
Adverse Effect on King. Except as disclosed in the King SEC Reports or as set
forth in Schedule 5.25, since January 1, 1995, none of King or any King
Subsidiary has received any notice, warning letter, or other communication from
the FDA, DEA, or any other Governmental Entity (i) contesting the premarket
clearance, licensure, registration, or approval of, the uses of, the
distribution of, the manufacturing or packaging of, the testing of, sale of,
controlled substance scheduling of and quotas for, or the labeling and promotion
of any Pharmaceutical Product described in this Section 5.25 or (ii) otherwise
alleging any violation of any laws, rules or regulations by King or any King
Subsidiary, and which would have a Material Adverse Effect on King or has been
disclosed previously to Jones.
(b) Except as set forth on Schedule 5.25, since January 1, 1995, no
Pharmaceutical Products of King or any King Subsidiary have been recalled,
withdrawn, replaced, suspended or discontinued nor have any DEA registrations
been terminated by King or any King Subsidiary in the United States or outside
the United States (whether voluntarily or otherwise), which would have a
Material Adverse Effect on King.
(c) As to each Pharmaceutical Product of King or King Subsidiaries for
which a human biological license application, human establishment license
application, human product license application, new human drug application,
investigational new human drug application, abbreviated or supplemental new
human drug application, investigational new animal drug application, new animal
drug application, abbreviated or supplemental new
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animal drug application, registration or quota issued by the DEA, or similar
state or foreign regulatory application has been approved, King and King
Subsidiaries are in compliance with 21 U.S.C. sec. 355, 360b, 42 U.S.C. sec.
351, and 21 U.S.C. sec. 822, and 21 C.F.R. Parts 312, 314, 511, 514, 601, and
1301 et seq., respectively, and similar laws and all terms and conditions of
such applications, except where the failure to be in compliance would not have a
Material Adverse Effect on King. As to each such application or other submission
that King or King Subsidiaries has submitted to, but not yet gained approval or
other permission from FDA or DEA, King has provided all additional information
and taken all additional action reasonably required by the FDA or DEA in
connection with the application or submission. In King's good faith opinion,
there are no facts or circumstances that would reasonably be expected to delay,
in any material respect, outside the ordinary course of business, or prevent
approval of any pending applications or other submissions to FDA or DEA. As to
each such Pharmaceutical Product, King and any relevant King Subsidiary, and the
officers, employees or agents of King and such King Subsidiary have included in
the application for such Pharmaceutical Product, where required, the
certification described in 21 U.S.C. sec. 335a(k)(1) or any similar law and the
list described in 21 U.S.C. sec. 335a(k)(2) or any similar law, and such
certification and such list was in each case true and accurate when made and
remained true and accurate thereafter. In addition, King and King Subsidiaries
are in material compliance with all applicable registration and listing
requirements set forth in 21 U.S.C. sec. 360 and 21 C.F.R. Part 207 and all
similar laws.
(d) Each article of any Pharmaceutical Product manufactured and released
and/or distributed by King or any of King Subsidiaries is not adulterated within
the meaning of 21 U.S.C. sec. 351 (or similar laws) or misbranded within the
meaning of 21 U.S.C. sec. 352 (or similar laws), except where such failure in
compliance with the foregoing would not have a Material Adverse Effect on King.
(e) Neither King nor any King Subsidiary, or any officer, employee or agent
of King or any King Subsidiary has made any untrue statement of a material fact
or fraudulent statement to the FDA or other Governmental Entity, failed to
disclose a fact required to be disclosed to the FDA or any other Governmental
Entity, or committed an act, made a statement, or failed to make a statement
that, at the time such disclosure was made, could reasonably be expected to
provide a basis for the FDA or any other Governmental Entity to invoke its
policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities", set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any
similar policy. Neither King nor any King Subsidiary nor any officer, employee
or agent of King or any King Subsidiary has been convicted of any crime or
engaged in any conduct for which debarment is mandated by 21 U.S.C. sec. 335a(a)
or any similar law or authorized by 21 U.S.C. sec. 335a(b) or any similar law.
(f) Except as set forth on Schedule 5.25, since January 1, 1995, neither
King nor any King Subsidiary has received any written notice that the FDA or any
other Governmental Entity has commenced, or threatened to initiate, any action,
including lawsuits, arbitrations, or legal or administrative or regulatory
proceedings, charges, complaints, or investigations, nor are there any completed
or pending efforts to withdraw its approval of, request the recall of,
suspension or, seizure of, change the quotas for controlled substances, or
change the controlled substances schedules of any Pharmaceutical Product of King
or any King Subsidiary, or commenced, or threatened to initiate, any action to
impose a clinical hold on any clinical investigation by King or any King
Subsidiary, withdraw advertising or sales promotion materials, or any action to
enjoin production at, or suspend
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or revoke the DEA registration or any facility of, or enter into a Consent
Decree of Permanent Injunction with King or any King Subsidiary which would have
a Material Adverse Effect on King.
(g) King and each of King Subsidiaries are not in violation of and are in
compliance with, all applicable laws, rules and regulations regarding the
conduct of pre-clinical and clinical investigations, including, but not limited
to, good laboratory practices, good clinical practices, investigational new drug
requirements and requirements regarding informed consent and Institutional
Review Boards designed to ensure the protection of the rights and welfare of
human subjects, including, but not limited to, the requirements provided in 21
C.F.R. Parts 50, 56, 58 and 312, except where the failure to be in compliance
would not have a Material Adverse Effect on King. Each clinical trial with
respect to Pharmaceutical Products of King and each of King Subsidiaries has
been conducted in accordance with its clinical trial protocol and King or one of
King Subsidiaries has filed all required notices (and made available to Jones
copies thereof) of adverse drug experiences, injuries or deaths relating to
clinical trials of such Pharmaceutical Products, and King or one of King
Subsidiaries has filed all required notices of any such occurrence, except where
the failure to be in compliance with the protocol or relevant reporting
requirements would not have a Material Adverse Effect on King.
(h) King or King Subsidiaries are authorized to sell Pharmaceutical
Products in each of the countries in which such Pharmaceutical Products are
currently being sold and all permits necessary for such sale are held by King or
one of King Subsidiaries. To the extent that any biological drugs or other drug
is intended for export from the United States, each of King and any King
Subsidiary is in full compliance with all of the requirements in 21 U.S.C. sec.
381(e) or sec. 382, and the Controlled Substances Import and Export Act, 21
U.S.C. sec. 951, et. seq., except where the failure to be in compliance would
not have a Material Adverse Effect on King.
(i) All manufacturing, warehousing, distributing, and testing operations
conducted by or for the benefit of King and each of King Subsidiaries are not in
violation of and have been and are being conducted in compliance with, the good
manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and 211,
except as set forth in Schedule 5.25 or where the failure to be in compliance
would not have a Material Adverse Effect on King.
(j) No person has filed a claim for loss or potential loss under any
indemnity covering participants in clinical trials of Pharmaceutical Products of
King or one of King Subsidiaries.
(k) No material modifications to the process by which Pharmaceutical
Products of King or any of the King Subsidiaries that have been or are being
used in clinical trials will be necessary in order to manufacture commercial
quantities of such Pharmaceutical Products.
(l) King does not manufacture, sell or distribute, and has not developed
and is not currently developing any veterinary biological products,
radiopharmaceuticals, or medical devices.
(m) King has provided or made available to King all documents in its
possession or the possession of King Subsidiaries concerning communication to or
from FDA or DEA, or prepared by FDA or DEA which bear in any material respect on
compliance with FDA or DEA regulatory requirements, including, but not limited
to, any deficiency letter,
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warning letter, non-approvable letter/order, withdrawal letter/order or similar
communications.
ARTICLE VI
COVENANTS
SECTION 6.1. AFFIRMATIVE COVENANTS OF JONES
Jones hereby covenants and agrees that, prior to the Effective Time, unless
otherwise expressly contemplated by this Agreement or consented to in writing by
King, Jones shall, and shall cause each Jones Subsidiary to: (a) operate its
business in the usual and ordinary course consistent with past practices; (b)
use its commercially reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the services
of its respective officers and employees (subject to termination as management
of Jones deems reasonably appropriate) and maintain its relationship with its
respective customers, suppliers, licensors, licensees, distributors and others
having business dealings with them with the intention that its goodwill and
ongoing business shall be unimpaired in any material manner at the Effective
Time; (c) use its commercially reasonable efforts to maintain and keep its
properties and assets in as good repair and condition as at present, ordinary
wear and tear excepted; (d) use its commercially reasonable efforts to keep in
full force and effect insurance comparable in amount and scope of coverage to
that currently maintained; (e) prepare and file all Jones Tax Returns required
to be filed in a timely manner, and in a manner consistent with past practices
and applicable laws and regulations; (f) timely file with the SEC all reports
required to be filed under the Exchange Act, which reports (including the
unaudited interim financial statements included in such reports) shall comply in
all material respects with the Exchange Act, the rules and regulations
promulgated thereunder and all applicable accounting requirements; and (g)
operate its business in accordance with the terms of its licenses and in all
material respects with all applicable laws, rules and regulations.
SECTION 6.2. AFFIRMATIVE COVENANTS OF KING
King hereby covenants and agrees that, prior to the Effective Time, unless
otherwise expressly contemplated by this Agreement or consented to in writing by
Jones, King shall, and shall cause each King Subsidiary to: (a) operate its
business in the usual and ordinary course consistent with past practices; (b)
use its commercially reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the services
of its respective officers and employees and maintain its relationship with its
respective customers, suppliers, licensors, licensees, distributors and others
having business dealings with them with the intention that its goodwill and
ongoing business shall be unimpaired in any material manner at the Effective
Time; (c) use its commercially reasonable efforts to maintain and keep its
properties and assets in as good repair and condition as at present, ordinary
wear and tear excepted; (d) use its commercially reasonable efforts to keep in
full force and effect insurance comparable in amount and scope of coverage to
that currently maintained; (e) prepare and file all King Tax Returns required to
be filed in a timely manner, and in a manner consistent with past practices and
applicable laws and regulations; (f) timely file with the SEC all reports
required to be filed under the Exchange Act, which reports (including the
unaudited interim financial statements included in such reports) shall comply in
all material respects with the
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Exchange Act, the rules and regulations promulgated thereunder and all
applicable accounting requirements; and (g) operate its business in accordance
with the terms of its licenses and in all material respects with all applicable
laws, rules and regulations.
SECTION 6.3. NEGATIVE COVENANTS OF JONES
Except as expressly contemplated by this Agreement or otherwise consented
to in writing by King or as set forth in Schedule 6.3, from the date hereof
until the Closing Date, Jones shall not, and shall cause each Jones Subsidiary
not to, do any of the following:
(a) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock; provided, however,
that Jones may continue to pay its regular quarterly dividend in a manner
and in amounts consistent with Jones' past practices;
(b) (i) redeem, repurchase or otherwise reacquire any shares of its
capital stock or other securities or any securities or obligations
convertible into or exchangeable for any share of its capital stock or
other securities, or any options, warrants or conversion or other rights to
acquire any shares of its capital stock or other securities or any such
securities or obligations (except in connection with the exercise of
outstanding Options in accordance with their respective terms or pursuant
to any redemption agreement which constitutes a Jones Material Contract);
(ii) effect any merger, consolidation, restructuring, reorganization or
recapitalization, or adopt a plan of complete or partial liquidation or
dissolution; or (iii) adjust, split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for, shares of its
capital stock or other securities;
(c) (i) issue, pledge, deliver, award, grant or sell, or register
under the Securities Act or the Exchange Act or otherwise file any
registration statement under any statute covering, or authorize or propose
the issuance, pledge, delivery, award, grant or sale of (including the
grant of any Encumbrances on) or registration of or filing of any
registration statement covering any shares of any class of its capital
stock or other securities (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any such
shares or other securities, or any rights, warrants or options to acquire
any such shares or other securities; or (ii) amend or otherwise modify the
terms of any such rights, warrants or options; provided, that the foregoing
shall not apply to (A) grants of stock options by Jones to its employees in
the ordinary course of business consistent with past practices in aggregate
amounts; provided further, that the options granted prior to December 31,
2000 shall not exceed One Hundred Twenty Five Thousand (125,000) (B)
issuances of stock upon the exercise of options;
(d) (i) acquire or agree to acquire, by merging or consolidating with,
by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division (other than a wholly-owned
Subsidiary of Jones) thereof; (ii) make or commit to make any capital
expenditures other than capital expenditures not exceeding Two Hundred
Thousand Dollars ($200,000) individually or One Million Dollars
($1,000,000) in the aggregate and which are solely for equipment, furniture
and fixtures incurred in the ordinary course of business consistent with
past practices;
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or (iii) make or commit to make any loans, advances or capital
contributions to, or investments in, any other Person.
(e) sell, lease, exchange, mortgage, pledge, transfer or otherwise
encumber or dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise encumber or dispose of, any of its assets,
except for sales of inventory or other assets in the ordinary course of
business and consistent with past practices;
(f) except as otherwise contemplated by this Agreement or as required
to comply with applicable law, (i) adopt, enter into, terminate or amend in
any material respect (A) any Jones Benefit Plan or (B) any other agreement,
plan or policy involving Jones or the Jones Subsidiaries, and one or more
of its current or former directors, officers or employees; (ii) increase in
any manner the compensation, bonus or fringe or other benefits of, or pay
any bonus to, any current or former officer, director or employee (except
for normal increases of cash compensation or cash bonuses in the ordinary
course of business consistent with past practice that, in the aggregate, do
not materially increase benefits or compensation expenses of Jones or the
Jones Subsidiaries); (iii) pay any benefit or amount not required under any
Jones Benefit Plan or any other benefit plan or arrangement of Jones or the
Jones Subsidiaries as in effect on the date of this Agreement; (iv)
increase in any manner the severance or termination pay of any current or
former director, officer or employee; (v) enter into or amend any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement, arrangement or understanding with any current or
former employee, officer or director; (vi) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Benefit Plan (including the grant of stock options, "phantom" stock, stock
appreciation rights, "phantom" stock rights stock based or stock related
awards, performance units or restricted stock or the removal of existing
restrictions in any Jones Benefit Plans or agreements or awards made
thereunder); (vii) amend or modify any Option, (viii) take any action to
fund or in any other way secure the payment of compensation or benefits
under any employee plan, agreement, contract or arrangement or Benefit
Plan; (ix) take any action to accelerate the vesting of payment of any
compensation or benefit under any Jones Benefit Plan or (x) materially
change any actuarial or other assumption used to calculate funding
obligations with respect to any pension plan or change the manner in which
contributions to any pension plan are made or the basis on which such
contributions are determined;
(g) propose or adopt any amendments to its certificate or articles of
incorporation or its bylaws;
(h) (i) make any change in any of its methods of accounting, or (ii)
make or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or change any of its
methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of the federal income tax returns
for the taxable year ended December 31, 1999, except, in the case of clause
(i) or clause (ii), as may be required by law or GAAP;
(i) incur any Indebtedness, or prepay, before the scheduled maturity
thereof, any long-term debt;
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(j) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of such
entity's Affiliates which involves the transfer of consideration or has a
financial impact on such entity, other than pursuant to such agreements,
arrangements, or understandings existing on the date of this Agreement;
(k) enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument
which, had it been entered into as of the date hereof, would have been
included as a Jones Material Contract;
(l) enter into any contracts, agreements, binding arrangements or
understandings relating to the distribution, sale, license, marketing or
manufacturing by third parties of the products of Jones or the Jones
Subsidiaries, or products licensed by Jones or the Jones Subsidiaries,
other than pursuant to any such contracts, agreements, arrangements or
understandings in place as of the date of this Agreement (that have been
disclosed in writing to King prior to the date hereof) in accordance with
their terms as of the date hereof;
(m) except for transactions in the ordinary course of business,
terminate, or amend or waive any provision of, any Jones Material Contract;
(n) (i) pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction in the ordinary course of business consistent with past
practice of claims for money damages which do not exceed Two Hundred
Thousand Dollars ($200,000) per claim or One Million Dollars ($1,000,000)
in the aggregate for all such claims, or in accordance with their terms or
liabilities disclosed, reflected or reserved against in the most recent
consolidated financial statements (or the notes thereto) of Jones included
in the Jones SEC Reports; (ii) cancel any Indebtedness; (iii) waive or
assign any claims or rights of material value or (iv) waive any benefits
of, or agree to modify in any respect (A) any standstill or similar
agreements to which Jones or any of the Jones Subsidiaries is a party or
(B) other than in the ordinary course of business, any confidentiality or
similar agreements to which Jones or any of the Jones Subsidiaries is a
party;
(o) transfer or license to any Person or otherwise extend, amend or
modify any rights to Intellectual Property of Jones;
(p) take any action that is intended or would reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set
forth in Article VIII not being satisfied or in a violation of any
provision of this Agreement;
(q) take any action that would be reasonably likely to prevent the
Merger from being accounted for as a "pooling of interests" in accordance
with GAAP; or
(r) agree in writing or otherwise to do any of the foregoing.
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SECTION 6.4. NEGATIVE COVENANTS OF KING
Except as expressly contemplated by this Agreement or otherwise consented
to in writing by Jones or as set forth in Schedule 6.4, from the date hereof
until the Closing Date, King shall not, and shall cause each King Subsidiary not
to, do any of the following:
(a) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock;
(b) issue, pledge, deliver, award, grant or sell, or propose the
issuance, pledge, delivery, award, grant or sale of (including the grant of
any Encumbrances on) any shares of any class of its capital stock or other
securities (including shares held in treasury), any securities convertible
into or exercisable or exchangeable for any such shares or other
securities, or any rights, warrants or options to acquire any such shares
or other securities; provided, that the foregoing shall not apply to (i)
grants of stock options by King in the ordinary course of business
consistent with past practices; and (ii) issuances of stock upon the
exercise of stock options;
(c) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner any business or any corporation, partnership, association or
other business organization or division (other than a wholly-owned
Subsidiary of King);
(d) incur any new Indebtedness after the date of this Agreement except
for such Indebtedness which does not exceed One Hundred Million Dollars
($100,000,000) in the aggregate;
(e) propose or adopt any amendments to its certificate or articles of
incorporation or its bylaws;
(f) make any material change in any of its methods of accounting,
except as may be required by law or GAAP;
(g) take any action that is intended or would reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set
forth in Article VIII not being satisfied or in a violation of any
provision of this Agreement;
(h) take any action that would be reasonably likely to prevent the
Merger from being accounted for as a "pooling of interests" in accordance
with GAAP;
(i) intentionally take or fail to take any action which would
reasonably be expected to materially delay the consummation of the Merger;
or
(j) agree in writing or otherwise to do any of the foregoing.
SECTION 6.5. CONTROL OF OTHER PARTY'S BUSINESS
Nothing contained in this Agreement shall give King, directly or
indirectly, the right to control or direct Jones' operations prior to the
Effective Time. Nothing contained in this Agreement shall give Jones, directly
or indirectly, the right to control or direct King's operations prior to the
Effective Time. Prior to the Effective Time, each of Jones and King
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shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision over its respective operations.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS AND INFORMATION
During the period from the date hereof to the Effective Time (the "Interim
Period"), Jones and King shall, and shall cause the Jones Subsidiaries and the
King Subsidiaries, respectively, to, afford to each other and their respective
officers, employees, accountants, consultants, legal counsel and other
representatives reasonable access during normal business hours (and at such
other times as the parties may mutually agree) to the properties, executive
personnel and all information concerning the business, properties, contracts,
records and personnel of Jones and the Jones Subsidiaries or King and the King
Subsidiaries, as the case may be, as such other party may reasonably request.
SECTION 7.2. AFFILIATE AGREEMENTS
(a) Simultaneously with the execution and delivery of this Agreement, and
as a condition and inducement to the willingness of King to enter into this
Agreement, each Affiliate of Jones has entered into an agreement with Jones and
King (the "Jones Affiliate Agreement") pursuant to which, among other things,
such person has agreed (i) not to undertake any transaction in Jones Common
Stock or in King Common Stock which would jeopardize the application of pooling
of interests accounting treatment under the provisions of SEC Accounting Series
Release No. 135, and (ii) acknowledging the application of Rule 145 of the Rules
and Regulations of the SEC under the Securities Act to certain resales of the
shares of King Common Stock to be received and held as a result of the
transactions contemplated hereby.
(b) Simultaneously with the execution and delivery of this Agreement, and
as a condition and inducement to the willingness of Jones to enter into this
Agreement, each Affiliate of King has entered into an agreement with Jones and
King (the "King Affiliate Agreement") pursuant to which, among other things,
such person has agreed not to undertake any transaction in Jones Common Stock or
in King Common Stock which would jeopardize the application of pooling of
interests accounting treatment under the provisions of SEC Accounting Series
Release No. 135.
SECTION 7.3. CONFIDENTIALITY
King and Jones each acknowledge and agree that (a) all information received
by it (the "Receiving Party") from or on behalf of the other party in connection
with the transactions contemplated under this Agreement shall be deemed received
pursuant to the confidentiality agreements previously executed between Jones and
King (the "Confidentiality Agreements"), (b) such Receiving Party shall, and
shall cause its officers, directors, employees, Affiliates, financial advisors
and agents to comply with the provisions of the Confidentiality Agreements with
respect to such information, and (c) the provisions of the Confidentiality
Agreements are hereby incorporated herein by reference with the same effect as
if fully set forth herein.
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SECTION 7.4. JOINT PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT
(a) As soon as practicable following the date of this Agreement, Jones and
King shall prepare and file with the SEC the Joint Proxy Statement/Prospectus,
and King shall prepare and file with the SEC the Registration Statement in which
the Joint Proxy Statement/Prospectus will be included as King's prospectus. Each
of Jones and King shall use its best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing. Each of King and Jones shall use its best efforts to cause the
Joint Proxy Statement/Prospectus to be mailed to their respective stockholders
as promptly as practicable after the Registration Statement is declared
effective under the Securities Act. King also shall take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or filing a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of King Common Stock in the Merger, and Jones shall furnish all information
concerning Jones and the holders of Jones Common Stock as may be reasonably
requested in connection with any such action. No filing of, or amendment or
supplement to, the Registration Statement or the Joint Proxy Statement/
Prospectus (including, without limitation, any periodic report to be filed under
Section 13 of the Exchange Act which will be incorporated therein by reference)
will be made by either King or Jones without the other party's prior consent
(which shall not be unreasonably withheld, delayed or conditioned) and without
providing the other party the opportunity to review and comment thereon. King
shall advise Jones, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of King Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment of
the Joint Proxy Statement/Prospectus or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
Jones shall advise King, promptly after it receives notice thereof, of any
request by the SEC for amendment of the Joint Proxy Statement/Prospectus or
comments thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any information relating
to Jones or King, or any of their respective Affiliates, officers or directors,
should be discovered by Jones or King which should be set forth in an amendment
or supplement to any of the Registration Statement or the Joint Proxy
Statement/Prospectus, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and, to the extent required by law, an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and disseminated to the stockholders of Jones and
King.
(b) Jones shall, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act, duly call, give notice
of, convene and hold a meeting of its stockholders (the "Jones Stockholders
Meeting") in accordance with Delaware Law and its certificate of incorporation
and bylaws for the purpose of obtaining the Jones Stockholder Approval and
shall, through its Board of Directors, declare that this Agreement is advisable
and recommend to its stockholders the approval and adoption of this Agreement,
the Merger and the other transactions contemplated hereby; provided, however,
that the Board of Directors of Jones shall submit this Agreement to Jones'
stockholders, whether or not the Board of Directors of Jones at any time
subsequent to the
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date hereof determines that this Agreement is no longer advisable or recommends
that the stockholders of Jones reject it. Unless the Board of Directors of Jones
has withdrawn its recommendation of this Agreement in compliance herewith, Jones
shall use reasonable efforts to solicit from stockholders of Jones proxies in
favor of the approval and adoption of this Agreement and the Merger and to
secure the vote or consent of stockholders required by Delaware Law and its
certificate of incorporation and bylaws to approve and adopt this Agreement and
the Merger.
(c) King shall, as promptly as practicable after the Registration Statement
is declared effective under the Securities Act, duly call, give notice of,
convene and hold a meeting of its stockholders (the "King Stockholders Meeting")
in accordance with Tennessee Law and its certificate of incorporation and bylaws
for the purpose of obtaining the King Stockholder Approval and shall, through
its Board of Directors, recommend to its stockholders, and use reasonable
efforts to solicit from its stockholders proxies in favor of, the approval of
the issuance of the King Common Stock in the Merger pursuant to this Agreement
and the adoption and approval of this Agreement.
(d) Unless otherwise agreed, the respective record dates and meeting dates
for the Jones Stockholder Meeting and for the King Stockholder Meeting shall be
the same.
SECTION 7.5. HSR ACT MATTERS
(a) King, Merger Sub and Jones (as may be required pursuant to the HSR Act)
promptly will complete all documents required to be filed with the Federal Trade
Commission and the United States Department of Justice in order to comply with
the HSR Act and, not later than fifteen (15) days after the date hereof,
together with the Persons, if any, who are required to join in such filings,
shall file such documents with the appropriate Governmental Entities. King,
Merger Sub and Jones shall promptly furnish all materials thereafter required by
any of the Governmental Entities having jurisdiction over such filings, and
shall take all reasonable actions and shall file and use their best efforts to
have declared effective or approved all documents and notifications with any
such Governmental Entity, as may be required under the HSR Act or other federal
or state antitrust laws for the consummation of the Merger and the other
transactions contemplated hereby.
(b) Jones shall use its best efforts to cause any of its Affiliates who may
be required to make prenotification filings under the HSR Act to complete such
documents not later than fifteen (15) days following the date hereof.
SECTION 7.6. PUBLIC ANNOUNCEMENTS
King and Jones shall consult with each other before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated hereunder. Neither King nor Jones shall issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement. At or prior to the
issuance of any such release or statement or any other press release, a copy of
any such release shall be provided by facsimile or other electronic transmission
to the other party.
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SECTION 7.7. INDEMNIFICATION
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the certificate of incorporation and bylaws of Jones on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6) years after the Effective Time in any manner
that would adversely affect the rights thereunder of persons who at any time
prior to the Effective Time were identified as prospective indemnitees under the
certificate of incorporation or bylaws of Jones in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by applicable law; provided, however, that,
notwithstanding the foregoing and the provisions regarding indemnification set
forth in the certificate of incorporation and bylaws of Jones as of the date of
this Agreement, the certificate of incorporation and bylaws of the Surviving
Corporation may contain provisions prohibiting indemnification in respect of
actions or omissions if the person that would be entitled to such
indemnification shall have been finally adjudged to be grossly negligent or to
have committed or engaged in willful misconduct.
(b) From and after the Effective Time, King shall indemnify, defend and
hold harmless the present and former officers, directors and employees of Jones
and the Jones Subsidiaries (collectively, the "Indemnified Parties") against all
losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of, with the approval of King or otherwise in connection with, any
claim, action, suit, proceeding or investigation (a "Claim"), based in whole or
in part on the fact that such person is or was such a director, officer or
employee and arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement), in each case to the fullest extent permitted under Delaware Law
(and shall pay expenses in advance of the final disposition of any such action
or proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law), provided, however, that no Indemnified Party shall be
entitled to any indemnification or expenses pursuant to this Section 7.7 in
respect of any Claim, issue or matter as to which such Indemnified Party shall
have been finally adjudged to be grossly negligent or to have committed or
engaged in willful misconduct.
(c) Promptly after receipt by any Indemnified Party of notice of the
commencement of any action, suit, proceeding, inquiry or investigation, the
Indemnified Party will, if a Claim in respect thereof is to be made against King
under this Agreement, notify King of the commencement thereof; but the omission
to notify King will not relieve King from any liability which King may have to
the Indemnified Party (except to the extent such failure prejudices King and the
Surviving Corporation). With respect to any such Claim as to which the
Indemnified Party notifies the Company of the commencement thereof:
(i) King and/or Jones will be entitled to participate therein at its
(or their) own expense; and
(ii) Except as otherwise provided below, to the extent that it may
wish, King jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel selected by
King in its sole discretion. After notice from King to the Indemnified
Party of its election so to assume the defense thereof,
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King will not be liable to the Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. The Indemnified Party shall
have the right to employ its counsel in matters giving rise to such Claim,
but the fees and expenses of such counsel incurred after notice from King
of its assumption of the defense thereof shall be at the expense of the
Indemnified Party unless (A) the employment of counsel by the Indemnified
Party has been authorized by King, (B) the Indemnified Party shall have
reasonably concluded in good faith that there is reasonably likely to be a
conflict of interest between King and the Indemnified Party in the conduct
of the defense of matters giving rise to such Claim or (C) King shall not
have, within a reasonable time after notice from the Indemnified Party of
such Claim, in fact have employed counsel to assume the defense of such
Claim, in each of which cases the reasonable fees and expenses of counsel
for the Indemnified Party shall be at the expense of King. King shall not
be entitled to assume the defense of any action, suit, proceeding, inquiry
or investigation brought by or on behalf of King, or as to which the
Indemnified Party shall have made the conclusion provided in (B) above; and
(iii) King shall not be liable to indemnify any Indemnified Party
under this Agreement for any amounts paid in settlement of any Claim
effected without King's prior written consent. King shall not, without the
Indemnified Party's written consent, settle any Claim in any manner which
(A) does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Claim in form and substance reasonably
satisfactory to the Indemnified Party and (B) includes any admission of
liability with respect to such Indemnified Party or an admission of any
facts with respect to such Indemnified Party which could reasonably be
expected to result in any liability for such Indemnified Party.
(d) If the Indemnified Party is entitled under any provision of this
Agreement to indemnification by King for some or a portion of the expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, King shall nevertheless indemnify
the Indemnified Party for the portion thereof to which the Indemnified Party is
entitled. Moreover, notwithstanding any other provision of this Agreement, to
the extent that the Indemnified Party has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to a
matter with respect to which the Indemnified Party is entitled to
indemnification from King under this Agreement, or in defense of any issue or
matter therein, including dismissal without prejudice, the Indemnified Party
shall be indemnified, to the extent permitted by Delaware Law, against all
expenses incurred in connection with such matter.
(e) For purposes of this Agreement, the termination of any claim, action,
suit or proceeding, whether civil or criminal, by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the
Indemnified Party did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
(f) The rights of the Indemnified Party hereunder shall be in addition to
any other rights the Indemnified Party may have under Jones' Bylaws or Delaware
Law or otherwise. To the extent that a change in Delaware Law (whether by
statute or judicial decision) permits greater indemnification by agreement than
would be afforded currently under the
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Company's Bylaws and this Agreement, it is the intent of the parties hereto that
the Indemnified Party shall enjoy by this Agreement the greater benefits so
afforded by such change.
(g) In the event of payment under this Agreement, King shall be subrogated
to the extent of such payment to all of the rights of recovery of the
Indemnified Party and in furtherance thereof the Indemnified Party shall execute
all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable King
effectively to bring suit to enforce such rights.
(h) King shall not be liable under this Agreement to make any payment in
connection with any Claim made against the Indemnified Party to the extent the
Indemnified Party has otherwise actually received payment (under any insurance
policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. To
the extent that the Indemnified Party is entitled to indemnification in respect
of a Claim from Jones or another party, the Indemnified Party shall assign such
right to King.
(i) Notwithstanding any contrary provision of this Agreement, prior to the
Effective Time, Jones shall purchase insurance coverage extending for a period
of six (6) years Jones' directors' and officers' liability insurance coverage in
effect as of the date hereof (covering past or future claims with respect to
periods prior to and including the Effective Time); provided that the aggregate
premium payable for such insurance shall not exceed two hundred percent (200%)
of the last annual premium paid for such coverage prior to the date hereof.
SECTION 7.8. FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
(a) Each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable under applicable laws or
otherwise to consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable, including, without limitation, using all
its commercially reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and parties to contracts with Jones, King or any Jones Subsidiary or King
Subsidiary as are necessary for the transactions contemplated herein. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use all commercially reasonable efforts to
take all such action.
(b) During the Interim Period, each of the parties hereto shall promptly
notify the other in writing of any pending or, to the knowledge of such party,
threatened action, proceeding or investigation by any Governmental Entity or any
other Person (i) challenging or seeking damages in connection with the Merger or
the conversion of Jones Common Stock into the Merger Consideration pursuant to
the Merger, or (ii) seeking to restrain or prohibit the consummation of the
Merger or any of the transactions contemplated by this Agreement or otherwise
limit the right of King to own or operate all or any portion of the business or
assets of Jones.
(c) Each party hereto shall use its commercially reasonable efforts to
refrain from taking any action, or entering into any transaction, which would
cause any of its representations or warranties contained in this Agreement to be
untrue in any material
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effect or which would result in a material breach of any covenant made by it in
this Agreement.
SECTION 7.9. NO SOLICITATION
(a) From the date of this Agreement until the Effective Time or the
termination of this Agreement pursuant to the terms of this Agreement, Jones
shall not and shall not permit any of its Subsidiaries, Affiliates, directors,
officers, employees, agents or representatives, including, without limitation,
any investment banker, attorney or accountant of Jones or any of its
Subsidiaries (collectively, "Representatives") directly or indirectly, to (i)
initiate, solicit, encourage or otherwise facilitate (including by way of
furnishing information), any inquiries or the making of any proposal or offer
that constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal (as defined below), (ii) enter into or maintain or continue discussions
or negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal, or (iii) agree to, approve, recommend, or endorse any
Acquisition Proposal, or authorize or permit any of its or their Subsidiaries or
Representatives to take any such action and, Jones shall promptly notify King of
any such inquiries and proposals received by Jones or any of its Subsidiaries or
Representatives, relating to any of such matters; provided, however, that the
foregoing shall not prohibit the Board of Directors or Representatives of Jones
from (A) furnishing information to, or engaging in discussions or negotiations
with, any Person in response to an unsolicited bona fide written Acquisition
Proposal; or (B) recommending such an unsolicited bona fide written Acquisition
Proposal to the stockholders of Jones, if, and only to the extent that, (w) the
Board of Directors of Jones concludes in good faith (after consultation with its
financial advisors) that such Acquisition Proposal would reasonably be expected
to constitute a Superior Proposal (as hereinafter defined), (x) the Board of
Directors of Jones determines in good faith (after consultation with outside
legal counsel) that the failure to take such action would reasonably be expected
to result in a breach by the Board of Directors of Jones of its fiduciary duties
to Jones' stockholders under applicable law, (y) prior to furnishing such
information to, or entering into discussions or negotiations with, such Person
Jones provides prompt written notice to King to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such Person
(which notice shall identify the nature and material terms of the proposal), and
(z) prior to providing any information or data to any Person in connection with
an Acquisition Proposal by any such Person, the Board of Directors of Jones
receives from such Person an executed confidentiality agreement with provisions
no less favorable to Jones than the Confidentiality Agreement. Jones agrees that
it will immediately cease and cause to be terminated any existing activities,
discussions, or negotiations with any parties regarding any Acquisition
Proposal. Jones shall promptly provide King with a copy of any written
Acquisition Proposal received and a written statement with respect to any
nonwritten Acquisition Proposal received, which statement shall include the
identity of the Person making the Acquisition Proposal and the material terms
thereof. Jones shall inform King promptly of any change in the price, structure,
form of consideration or material terms and conditions regarding the Acquisition
Proposal and shall promptly provide to King all written materials received by
Jones with respect thereto. Jones agrees to keep King fully and timely informed
of the status of any discussions, negotiations, furnishing of non-public
information, or other activities relating to an Acquisition Proposal. Jones
shall promptly provide to King any non-public information concerning Jones
provided to any other person in connection with any Acquisition Proposal which
was not previously provided to King.
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(b) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement) involving Jones or its
Subsidiaries: (i) any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution, or other
similar transaction involving, or, any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of, all or any significant portion of the assets
or twenty-five percent (25%) or more of the equity securities of, Jones or any
of its Subsidiaries, in a single transaction or series of related transactions;
(ii) the acquisition by any Person (other than any beneficial owner of more than
five percent (5%) of Jones Common Stock as long as such beneficial owner is
eligible to make filings in respect thereof on Schedule 13G under applicable SEC
rules and regulations) of beneficial ownership of ten percent (10%) or more of
the outstanding shares of Jones Common Stock (including Jones Common Stock
currently beneficially owned by such Person); (iii) any tender offer or exchange
offer for twenty percent (20%) or more of the outstanding shares of capital
stock of Jones or any Jones Subsidiary or the filing of a registration statement
under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
(c) For purposes of this Agreement, "Superior Proposal" means a bona fide
Acquisition Proposal made by any Person that the Board of Directors of Jones
determines in its good faith judgment to be more favorable to Jones'
stockholders than the Merger (after consideration of, among other things, the
written opinion of Jones' independent financial advisor that the consideration
provided for in such proposal is fair from a financial point of view to the
holders of shares of Jones Common Stock) and for which financing, to the extent
required, is then committed or which, in the good faith judgment of the Board of
Directors of Jones (in consultation with Jones' independent financial advisor),
is reasonably capable of being obtained by such Person.
(d) Nothing contained in this Section 7.9 shall prohibit Jones from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act or from making any disclosure to Jones'
stockholders which, in the good faith judgment of the Board of Directors of
Jones based on the advice of outside counsel, is required under applicable law;
provided that in any such cases Jones does not withdraw or modify, or propose to
withdraw or modify, its position with respect to the Merger or approve or
recommend, or propose to approve or recommend, an Acquisition Proposal unless
Jones and its Board of Directors have complied with all the provisions of this
Section 7.9.
SECTION 7.10. NYSE LISTING
King shall use reasonable efforts to cause the King Common Stock to be
issued pursuant to Section 2.1(a) of this Agreement and the King Common Stock
issuable upon exercise of options under Jones Option Plans to be approved for
listing on NYSE, subject to official notice of issuance, prior to the Effective
Time.
SECTION 7.11. BLUE SKY
King shall use reasonable efforts to obtain prior to the Effective Time any
necessary permits and approvals under all applicable Blue Sky Laws required to
permit the distribution of the shares of King Common Stock to be issued in
accordance with the provisions of Section 2.1(a) of this Agreement.
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SECTION 7.12. EVENT NOTICES
During the Interim Period, each party hereto will promptly notify the other
parties hereto of (a) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any condition to
the obligations of such party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied and (b) the failure of such
party to comply with any covenant or agreement to be complied with by it
pursuant to this Agreement which would be likely to result in any condition to
the obligations of such party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. No delivery of any notice
pursuant to this Section 7.12 will cure any breach of any representation or
warranty, covenant, condition or agreement of such party contained in this
Agreement or otherwise limit or affect the remedies available hereunder to the
party receiving such notice.
SECTION 7.13. TAX TREATMENT
Each of King and Jones shall use reasonable efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368 of the Code. The
parties will characterize the Merger as such a reorganization for purposes of
all Tax Returns and other filings.
SECTION 7.14. POOLING OF INTERESTS
Each of Jones and King shall use reasonable efforts to cause the
transactions contemplated by this Agreement, including the Merger, to be
accounted for as a "pooling of interests" in accordance with GAAP, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC, and each of Jones and King agrees that it shall take no
action that would cause such accounting treatment not to be obtained.
SECTION 7.15. EXEMPTION FROM LIABILITY UNDER SECTION 16(B)
(a) Provided that Jones delivers to King the Section 16 Information with
respect to Jones prior to the Effective Time, the Board of Directors of King, or
a committee of Non-Employee Directors thereof (as such term is defined for
purposes of Rule 16b-3(d) under the Exchange Act), shall adopt a resolution in
advance of the Effective Time providing that the receipt by Jones Insiders of
King Common Stock in exchange for shares of Jones Common Stock, and of options
to purchase King Common Stock upon assumption and conversion by King of options
to purchase Jones Common Stock, in each case pursuant to the transactions
contemplated hereby and to the extent such securities are listed in the Section
16 Information, are intended to be exempt from liability pursuant to Rule 16b-3
under the Exchange Act.
(b) "Section 16 Information" shall mean information accurate in all
respects regarding Jones Insiders, the number of shares of Jones Common Stock or
other Jones equity securities deemed to be beneficially owned by each such Jones
Insider and expected to be exchanged for King Common Stock in connection with
the Merger.
(c) "Jones Insiders" shall mean those officers and directors of Jones who
are subject to the reporting requirements of Section 16(a) of the Exchange Act
who are listed in the Section 16 Information.
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SECTION 7.16. BOARD OF DIRECTORS OF KING
Promptly following the Effective Time, the Board of Directors of King will
take all actions necessary such that G. Andrew Franz shall be appointed to
King's Board of Directors as a Director of Jones with a term expiring at the
annual meeting of King's stockholders in 2001.
SECTION 7.17. EMPLOYEE BENEFIT MATTERS
(a) As of the Effective Time, King shall provide or cause to be provided to
current employees of Jones and its Subsidiaries (i) the same base salary as the
base salary being paid to such employees as of the Effective Time, (ii) bonuses
accrued in the ordinary course of business consistent with past practices as of
the Effective Time, and (iii) employee benefits that are comparable, in the
aggregate, to the compensation and employee benefits provided to similarly
situated employees of King. Nothing herein shall require King to continue any
particular Jones Benefit Plan or King Benefit Plan or prevent the amendment or
termination thereof (subject to the maintenance, in the aggregate, of employee
benefits as provided in the preceding sentence). Prior to January 1, 2004, King
shall not discontinue in any material respect the operations of the St. Louis
facility of Jones. Notwithstanding or limiting the foregoing, as of the
Effective Time, in the event that at any time during the period from the
Effective Time to January 1, 2004, any employees of Jones are severed or
terminated other than for cause, King shall provide severance benefits to those
severed employees at least as favorable as the Jones' severance program
described on Schedule 3.15 hereto.
(b) Following the Effective Time, King shall, and shall cause its
Subsidiaries to, recognize service with Jones and its Subsidiaries and any
predecessor entities prior to the Effective Time for all purposes (including,
without limitation, eligibility to participate, vesting, benefit accrual,
eligibility to commence benefits and severance) under any benefit plans of King
or its Subsidiaries in which the particular or former employee of Jones or its
respective Subsidiaries participates; provided, however, that the foregoing
shall not result in any duplication of benefits.
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.1. CONDITIONS TO OBLIGATIONS OF KING, MERGER SUB AND JONES TO EFFECT
THE MERGER
The respective obligations of King, Merger Sub and Jones to effect the
Merger and the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) STOCKHOLDER APPROVAL. Each of the Jones Stockholder Approval and
the King Stockholder Approval shall have been obtained.
(b) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act prior to the mailing of the Joint Proxy Statement/Prospectus
by each of Jones and King to their
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respective stockholders and no stop order suspending the effectiveness of
such Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or, to the knowledge
of King or Jones, threatened by the SEC.
(c) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, statute, rule, ordinance, regulation, executive order,
decree, judgment, stipulation, injunction or other order (whether
temporary, preliminary or permanent) in any case which is in effect and
which prevents or prohibits consummation of the Merger or any other
transactions contemplated in this Agreement; provided, however, that the
parties shall use their reasonable efforts to cause any such decree,
judgment, injunction or order to be vacated or lifted.
(d) NYSE LISTING. King Common Stock issuable to the holders of Jones
Common Stock pursuant to this Agreement or upon exercise of options under
the Jones Options Plans shall have been included for listing on NYSE upon
official notice of issuance.
(e) HSR ACT. Any waiting periods with any extensions thereof under
the HSR Act shall have expired or been terminated.
(f) JONES POOLING LETTER. There shall have been delivered to King and
Jones two (2) letters from Jones' independent accountants, one dated as of
the Closing Date and one dated as of approximately the effective date of
the Registration Statement, each addressed to King, Jones and King's
independent accountants, each reasonably satisfactory in form and substance
to King and King's independent accountants, and each to the effect that
Jones' independent accountants (i) concur with Jones' conclusion that as of
the date of their report, no conditions exist that would preclude Jones
from being a party to a merger accounted for as a "pooling of interests" in
accordance with GAAP, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC, and (ii) as of the
date of their report, no conditions exist that would preclude King's
accounting for the Merger as a "pooling of interests" in accordance with
GAAP, Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the SEC.
(g) KING POOLING LETTER. There shall have been delivered to King and
Jones two (2) letters from King's independent accountants, one dated as of
the Closing Date and one dated as of approximately the effective date of
the Registration Statement, each addressed to King, each reasonably
satisfactory in form and substance to King, and each to the effect that
King's independent accountants (i) concur with King's conclusion that, as
of the date of their report, no conditions exist that would preclude King
from being a party to a merger accounted for as a "pooling of interests" in
accordance with GAAP, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC, and (ii) concur in
King's management conclusion as of the date of their report, no conditions
exist that would preclude King's accounting for the Merger as a "pooling of
interests" in accordance with GAAP, Accounting Principles Board Opinion No.
16 and all published rules, regulations and policies of the SEC.
(h) TAX OPINION OF JONES' COUNSEL. Jones shall have received a legal
opinion of Jones' counsel, on or before the date the Registration Statement
shall become
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effective and subsequently on the Closing Date, to the effect that the
Merger will constitute a reorganization within the meaning of Section 368
of the Code (it being understood that, (A) in rendering such opinion,
Jones' legal counsel may rely upon tax representation letters from each of
King, Merger Sub and Jones, in each case, in form and substance reasonably
satisfactory to such legal counsel, and (B) if Jones' legal counsel does
not render such opinion, the condition set forth in this Section shall
nonetheless be deemed to be satisfied if King's legal counsel renders such
an opinion to King).
(i) TAX OPINION OF KING'S COUNSEL. King shall have received a legal
opinion of King's counsel, on or before the date the Registration Statement
shall become effective and subsequently on the Closing Date, to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code (it being understood that in rendering such
opinion, King's legal counsel may rely upon tax representation letters from
each of King, Merger Sub and Jones, in each case, in form and substance
reasonably satisfactory to such legal counsel).
SECTION 8.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF KING AND MERGER SUB
The obligations of King and Merger Sub to effect the Merger and the other
transactions contemplated in this Agreement are also subject to the following
conditions, any or all of which may be waived by King, in whole or in part, to
the extent permitted by applicable law:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Jones made in this Agreement shall be true and correct in all
material respects when made and on and as of the Closing Date (except for
representations and warranties that speak as of a specific date or time,
which need only be true and correct in all material respects as of such
date or time); provided, however, that, notwithstanding the foregoing, the
representations and warranties of the Company set forth in Section 3.3(d)
shall be true and correct in all respects when made and on and as of the
Closing Date. King shall have received a certificate of the Chief Executive
Officer or Chief Operating Officer of Jones to that effect.
(b) AGREEMENTS AND COVENANTS. The agreements and covenants of Jones
required to be performed on or before the Effective Time shall have been
performed in all material respects. King shall have received a certificate
of the Chief Executive Officer or Chief Operating Officer of Jones to that
effect.
(c) NO MATERIAL ADVERSE EFFECT. There shall have been no Material
Adverse Effect on Jones since the date of this Agreement.
(d) NO LITIGATION. There shall not be pending or imminently
threatened any suit, action, proceeding or investigation by any
Governmental Entity: (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement; (ii) relating to the Merger and seeking to obtain from King
or any King Subsidiary any damages that may be material to King, (iii)
seeking to prohibit or limit in any material respect King's ability to
vote, receive dividends with respect to or otherwise exercise ownership
rights with respect to the stock of the Surviving Corporation; or (iv)
which would materially and adversely affect the right of the Surviving
Corporation to own the assets or operate the business of Jones.
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(e) CONSENTS UNDER JONES AGREEMENTS. Jones shall have obtained the
consent or approval of any Person whose consent or approval shall be
required under any agreement or instrument in order to permit the
consummation of the transactions contemplated hereby, except those which
the failure to obtain would not have a Material Adverse Effect on Jones.
(f) REGISTRATION RIGHTS AGREEMENT. The stockholders of Jones set
forth in the Registration Rights Agreement in the form of Exhibit A hereto
(the "Registration Rights Agreement") shall have executed and delivered to
King the Registration Rights Agreement. [Subsequently waived by the
parties]
(g) CONSULTING AGREEMENT. Dennis M. Jones shall have executed and
delivered to King the Consulting Agreement by and between King and Dennis
M. Jones in the form of Exhibit B hereto (the "Consulting Agreement").
(h) NONCOMPETITION AGREEMENTS. (i) Dennis M. Jones shall have
executed and delivered to King the Noncompetition Agreement by and between
King and Dennis M. Jones in the form of Exhibit C hereto (the "CEO
Noncompetition Agreement"), and (ii) Judith A. Jones shall have executed
and delivered to King the Noncompetition Agreement by and between King and
Judith A. Jones in the form of Exhibit D hereto (the "EVP Noncompetition
Agreement").
(i) SEVERANCE AGREEMENTS. (i) Dennis M. Jones shall have executed and
delivered to King the Severance Agreement by and between King and Dennis M.
Jones in the form of Exhibit E hereto (the "CEO Severance Agreement"), and
(ii) Judith A. Jones shall have executed and delivered to King the
Severance Agreement by and between King and Judith A. Jones in the form of
Exhibit F hereto (the "EVP Severance Agreement").
SECTION 8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF JONES
The obligations of Jones to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the following conditions any
or all of which may be waived by Jones, in whole or in part, to the extent
permitted by applicable law:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of King and Merger Sub made in this Agreement shall be true and
correct in all material respects when made and on and as of the Closing
Date (except for representations and warranties that speak as of a specific
date or time, which need only be true and correct in all material respects
as of such date and time). Jones shall have received a certificate of the
Chief Executive Officer or Chief Financial Officer of King to such effect.
(b) AGREEMENTS AND COVENANTS. The agreements and covenants of King
and Merger Sub required to be performed on or before the Effective Time
shall have been performed in all material respects. Jones shall have
received a certificate of the Chief Executive Officer or Chief Financial
Officer of King to such effect.
(c) NO MATERIAL ADVERSE EFFECT. There shall have been no Material
Adverse Effect on King since the date of this Agreement.
(d) REGISTRATION RIGHTS AGREEMENT. King shall have executed and
delivered the Registration Rights Agreement to the stockholders of Jones
set forth therein. [Subsequently waived by the parties]
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(e) CONSULTING AGREEMENT. King shall have executed and delivered the
Consulting Agreement.
(f) NONCOMPETITION AGREEMENT. King shall have executed and delivered
the Noncompetition Agreement.
(g) SEVERANCE AGREEMENTS. King shall have executed and delivered (i)
the CEO Severance Agreement and (ii) the EVP Severance Agreement.
(h) NO LITIGATION. There shall not be pending or imminently
threatened any suit, action, proceeding or investigation by any
Governmental Entity: (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement; (ii) relating to the Merger and seeking to obtain from King
or any King Subsidiary any damages that may be material to King, (iii)
seeking to prohibit or limit in any material respect King's ability to
vote, receive dividends with respect to or otherwise exercise ownership
rights with respect to the stock of the Surviving Corporation; or (iv)
which would materially and adversely affect the right of the Surviving
Corporation to own the assets or operate the business of Jones.
(i) CONSENTS UNDER KING AGREEMENTS. King shall have obtained the
consent or approval of any Person whose consent or approval shall be
required under any agreement or instrument in order to permit the
consummation of the transactions contemplated hereby, except those which
the failure to obtain would not have a Material Adverse Effect on King.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. TERMINATION
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Affiliate of
such party or any of their respective officers, directors, representatives or
agents, whether prior to or after the execution of this Agreement. This
Agreement may be terminated at any time prior to the Effective Time, whether
before or after approval of this Agreement and the Merger by the stockholders of
Jones:
(a) by mutual consent of King and Jones;
(b) by King, upon a breach of any covenant or agreement on the part of
Jones set forth in this Agreement, or if any representation or warranty of
Jones shall have become untrue, in either case such that the conditions set
forth in Section 8.2(a) or Section 8.2(b) would not be satisfied (a
"Terminating Jones Breach"); provided, that, if such Terminating Jones
Breach is curable by Jones through the exercise of reasonable efforts and
for so long as Jones continues to exercise such reasonable efforts, King
may not terminate this Agreement under this Section 9.1(b);
(c) by Jones, upon breach of any covenant or agreement on the part of
King set forth in this Agreement, or if any representation or warranty of
King shall have
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become untrue, in either case such that the conditions set forth in Section
8.3(a) or Section 8.3(b) would not be satisfied (a "Terminating King
Breach"); provided, that, if such Terminating King Breach is curable by
King through the exercise of their reasonable efforts and for so long as
King continues to exercise such reasonable efforts, Jones may not terminate
this Agreement under this Section 9.1(c);
(d) by either King or Jones, if there shall be any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity which is final and nonappealable
preventing the consummation of the Merger; provided, that the party seeking
to terminate this Agreement pursuant to this Section 9.1(d) shall have used
reasonable efforts to cause any such decree, permanent injunction, judgment
or other order to be vacated or lifted;
(e) by either King or Jones, if the Merger shall not have been
consummated on or before that date which is one hundred eighty (180)
calendar days after the date hereof; provided, however, that if a request
for additional information is received from the United States Federal Trade
Commission or the Antitrust Division of the United States Department of
Justice pursuant to the HSR Act, then such date shall be extended to the
30th day following certification by King and/or Jones, as applicable, that
King and/or Jones, as applicable, have substantially complied with such
request, but in any event not later than that date which is two hundred
seventy (270) calendar days after the date hereof; provided, further, that
the right to terminate this Agreement under this Section 9.1(e) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of the failure of the Merger to occur on
or before such date;
(f) by either King or Jones, if the Jones Stockholder Approval shall
not have been obtained at the Jones Stockholders Meeting (including any
adjournment or postponement thereof); provided, that the right to terminate
this Agreement under this Section 9.1(f) shall not be available to Jones if
Jones has not complied with its obligations under Section 7.4(b);
(g) by either Jones or King, if the King Stockholder Approval shall
not have been obtained at the King Stockholders Meeting (including any
adjournment or postponement thereof); provided, that the right to terminate
this Agreement under this Section 9.1(g) shall not be available to King if
King has not complied with its obligations under Section 7.4(c);
(h) by King, if (i) the Board of Directors of Jones withdraws or
modifies its recommendation of this Agreement or the Merger or shall have
resolved or publicly announced or disclosed to any third party its
intention to do any of the foregoing or the Board of Directors of Jones
shall have recommended to the stockholders of Jones any Acquisition
Proposal or resolved to do so; or (ii) a tender offer or exchange offer for
twenty percent (20%) or more of the outstanding shares of Jones Common
Stock is commenced or a registration statement with respect thereto shall
have been filed and the Board of Directors of Jones, within ten (10)
Business Days after such tender offer or exchange offer is so commenced or
such registration statement is so filed, either fails to recommend against
acceptance of such tender or exchange offer by its stockholders or takes no
position with respect to the acceptance of such tender or exchange offer by
its stockholders;
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(i) by Jones, if the Board of Directors of King withdraws or modifies
its recommendation of this Agreement or the Merger or shall have resolved
or publicly announced or disclosed to any third party its intention to do
any of the foregoing;
(j) by Jones, if the Board of Directors of Jones shall have determined
to recommend an Acquisition Proposal to its stockholders after determining,
pursuant to Section 7.9, that such Acquisition Proposal constitutes a
Superior Proposal, and Jones gives King at least three (3) Business Days
prior notice of its intention to effect such termination pursuant to this
Section 9.1(j), and Jones makes the payment required pursuant to Section
9.5(b) of this Agreement and pays the expenses for which Jones is
responsible under Section 9.5(a) of this Agreement;
(k) by King, if any Person (other than King, any Affiliate of King or
any beneficial owner of more than five percent (5%) of Jones Common Stock
who is eligible to make filings in respect thereof on Schedule 13G under
applicable SEC rules and regulations) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under Section 13(d) of the Exchange Act and the
regulations promulgated thereunder), other than a "group" comprised of some
or all of the Persons listed on the signature pages to Jones Voting
Agreement, shall have been formed which beneficially owns, or has the right
to acquire beneficial ownership of, twenty percent (20%) or more of the
then outstanding shares of capital stock of Jones;
(l) by King, if there shall have occurred one or more events which
shall have caused a Material Adverse Effect on Jones which Material Adverse
Effect shall have remained uncured (to the extent curable) for a period of
thirty (30) days after written notice from King of King's intention to
terminate pursuant to this Section 9.1(l);
(m) by Jones, if there shall have occurred one or more events which
shall have caused a Material Adverse Effect on King which Material Adverse
Effect shall have remained uncured (to the extent curable) for a period of
thirty (30) days after written notice from Jones of Jones' intention to
terminate pursuant to this Section 9.1(m);
(n) by Jones, by delivering an irrevocable notice of termination (the
"Termination Notice") (and in such event, this Agreement shall terminate at
5:00 p.m., New York City time, on the second (2nd) Business Day after
King's receipt of such Termination Notice unless prior to such time King
shall have exercised its Top-up Right (as hereinafter defined)) in the
event that the Average Trading Price (as defined hereafter) is less than
$29.33. Any Termination Notice must be delivered by Jones to King after the
Valuation Period (as hereinafter defined) but no later than 5:00 p.m., New
York City time, on the first (1st) Business Day following the last day of
the Valuation Period. Upon receipt of the Termination Notice, King shall
have the right to irrevocably agree, by giving written notice (the "Top-up
Notice") to Jones, to increase the Exchange Ratio to a number equal to the
quotient obtained by dividing Thirty-Three Dollars ($33) by the Average
Trading Price (the "Top-up Right") and, upon exercise of such Top-up Right,
the Termination Notice shall be deemed to be withdrawn and of no further
force and effect and the Exchange Ratio shall be increased as provided
pursuant to the foregoing. Any Top-up Notice shall be delivered by King to
Jones prior to 5:00 p.m., New York City time, on the second (2nd) Business
Day after King's receipt of the Termination Notice. As used herein,
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"Average Trading Price" shall mean the volume-weighted average sales price
per share, rounded up to four (4) decimals points, of King Common Stock,
subject to Section 2.5, as reported on the NYSE during the twenty 20)
consecutive trading days ending with and including the sixth (6th) trading
day immediately preceding the date of Jones Stockholders Meeting (the
"Valuation Period");
(o) by Jones, if Jones shall have delivered to King a notice of
termination of this Agreement within five (5) Business Days after Jones'
receipt of a notice from King (the "Notice of AHP Termination") that
American Home Products Corporation ("AHP") exercised its right to terminate
under Section 11.3 of the Co-Promotion Agreement dated as of June 22, 2000
between AHP and King (the "Co-Promotion Agreement"), which Notice of AHP
Termination shall be delivered to Jones within five (5) Business Days of
the termination of the Co-Promotion Agreement by AHP; or
(p) by Jones, if Jones shall have delivered to King a notice of
termination of this Agreement within five (5) Business Days after Jones'
receipt of a notice from King (the "Notice of SNDA Denial") that prior to
the Effective Time the FDA denied in whole the supplemental new drug
application for the pharmaceutical product known as ALTACE(R), with the
primary endpoints from the HOPE Study, which Notice of SNDA Denial shall be
delivered to Jones within five (5) Business Days of the FDA's denial in
whole of such supplemental new drug application.
SECTION 9.2. EFFECT OF TERMINATION
Except as provided in Section 9.5 of this Agreement, in the event of the
termination of this Agreement pursuant to Section 9.1, this Agreement and the
Affiliate Agreements shall forthwith become void, there shall be no liability on
the part of King or Jones or any of their respective officers, directors,
stockholders or Affiliates to the other, and all rights and obligations of any
party hereto shall cease, except that nothing herein shall relieve any party
from liability for any willful breach by a party of any of its representations,
warranties, covenants or agreements in this Agreement; and provided that the
provisions of Section 7.3 and Section 9.5 of this Agreement will remain in full
force and effect and survive any termination of this Agreement.
SECTION 9.3. AMENDMENT
This Agreement may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of Jones or the stockholders of King no amendment may be made which
by law or rule of Nasdaq or NYSE, as the case may be, requires further approval
by such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed by each of the parties hereto.
SECTION 9.4. EXTENSION; WAIVER
At any time prior to the Effective Time, any party hereto may (a) extend
the time for the performance of any of the obligations or other acts of any
other party hereto, (b) waive any inaccuracies in the representations and
warranties of any other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance
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by any other party with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by the party or parties to be bound thereby.
SECTION 9.5. FEES, EXPENSES AND OTHER PAYMENTS
(a) Except as otherwise set forth in this Agreement, all costs and expenses
incurred by the parties hereto shall be borne solely and entirely by the party
which has incurred such costs and expenses, whether or not the Merger is
consummated; provided, however, that King and Jones shall share equally all
costs and expenses (other than attorneys' and accountants' fees and expenses)
incurred in relation to printing and filing and, as applicable, mailing the
Registration Statement and the Joint Proxy Statement/Prospectus and any
amendments or supplements thereto and all SEC and other regulatory filing fees
incurred in connection with the Registration Statement and the Joint Proxy
Statement/Prospectus.
(b) If this Agreement is terminated (i) by King pursuant to Section 9.1(h),
or (ii) by Jones pursuant to Section 9.1(j), then Jones shall pay to King a
termination fee of One Hundred Million Dollars ($100,000,000) in cash (the
"Termination Fee"), immediately upon such termination.
(c) If this Agreement is terminated pursuant to Section 9.1(e) and at any
time prior to such termination an Acquisition Proposal shall have been made to
Jones or shall have been made directly to the stockholders of Jones or any
Person shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal involving Jones, and if an Acquisition Proposal
involving Jones is thereafter consummated or Jones enters into a definitive
agreement with respect to an Acquisition Proposal within twelve (12) months
after such termination of this Agreement, Jones shall pay to King the
Termination Fee immediately upon the consummation of such Acquisition Proposal,
or immediately upon the effective date of such definitive agreement, whichever
is earlier.
(d) If this Agreement is terminated by either King or Jones pursuant to
Section 9.1(f) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the stockholders of Jones at Jones
Stockholders Meeting and an Acquisition Proposal involving Jones is thereafter
consummated or Jones enters into a definitive agreement with respect to an
Acquisition Proposal within twelve (12) months after such termination of this
Agreement pursuant to Section 9.1(f), then Jones shall pay to King the
Termination Fee immediately upon the consummation of such Acquisition Proposal,
or immediately upon the effective date of such definitive agreement, whichever
is earlier.
(e) If (i) this Agreement is terminated by either King or Jones pursuant to
Section 9.1(g) as a result of the failure to receive the requisite vote for
approval from King's stockholders at the King Stockholders Meeting, (ii) at or
prior to the King Stockholders Meeting an offer for a King Business Combination
(as hereinafter defined) shall have been publicly announced, (iii) the terms of
the King Business Combination shall have required termination of this Agreement
as a condition to effect such King Business Combination, and (iv) such King
Business Combination is thereafter consummated or King enters into a definitive
agreement with respect to such King Business Combination within twelve (12)
months after such termination of this Agreement, then King shall pay to Jones
the Termination Fee immediately upon the consummation of such King Business
Combination, or immediately upon the effective date of such definitive
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agreement, whichever is earlier. For purposes of this Section 9.5(e), "King
Business Combination" means any of the following transactions involving the King
and a party other than Jones or any Affiliate of Jones which has been approved
and recommended by the Board of Directors of King: (A) any merger,
reorganization, consolidation, share exchange, recapitalization, business
combination, liquidation, dissolution, or other similar transaction involving,
or any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of, all or substantially all of the assets or the equity securities of the King,
in a single transaction or series of related transactions, or (B) any tender
offer or exchange offer for all or substantially all of the outstanding shares
of capital stock of the King.
(f) If this Agreement is terminated by Jones pursuant to Section 9.1(i),
then King shall pay to Jones the Termination Fee, immediately upon such
termination.
(g) Any payment required to be made pursuant to this Section 9.5 of this
Agreement shall be made by wire transfer of immediately available funds to an
account designated by King (in the case of payments due King) or by Jones (in
the case of payments due Jones).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
(a) Except as set forth in Section 10.1(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any Affiliate of such party or
any of their officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations and warranties in this Agreement will terminate at
the Effective Time; provided, however, that this Section 10.1(b) shall in no way
limit or terminate any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time or after the termination of
this Agreement pursuant to Article IX.
SECTION 10.2. NOTICES
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon receipt, if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address) or
sent by electronic transmission to the telecopier number specified below. A
party electing to provide notice by electronic transmission as provided herein
shall also provide mailed copies of any such notice.
(a) If to King or Merger Sub:
KING PHARMACEUTICALS, INC.
501 Fifth Street
Bristol, Tennessee 37620
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Telecopier No.: (423) 989-8006
Attention: Chief Executive Officer
and
Telecopier No.: (423) 989-6282
Attention: Executive Vice President and General Counsel
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Telecopier No.: (703) 610-6200
Attention: Richard T. Horan, Jr., Esq.
Thomas E. Repke, Esq.
(b) If to Jones:
JONES PHARMA INCORPORATED
1945 Craig Road
P.O. Box 46903
St. Louis, Missouri
Telecopier No.: (314) 205-9497
Attention: Chief Operating Officer
With a copy (which shall not constitute notice) to:
Greensfelder, Hemker & Gale, P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102-1774
Telecopier No.: (314) 241-8624
Attention: Edward A. Chod, Esq.
Charles H. Luedde, Esq.
SECTION 10.3. CERTAIN DEFINITIONS
For purposes of this Agreement, the term:
"Affiliate" of any Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person and for purposes of this
Agreement shall be deemed to include, without limitation, with respect to
King and Jones (i) each executive officer of either King or Jones,
respectively; (ii) each director of either King or Jones, respectively; and
(iii) each beneficial owner of more than five percent (5%) of King Common
Stock or Jones Common Stock, respectively, other than any such beneficial
owner who is eligible to make filings in respect thereof on Schedule 13G
under applicable SEC rules and regulations.
"beneficial owner" (including the terms "beneficial ownership" and
"beneficially own") means with respect to any shares of capital stock, a
Person who shall be deemed to be the beneficial owner or have beneficial
ownership of such shares (i) which such Person or any of its Affiliates or
associates beneficially owns, directly
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or indirectly, (ii) which such Person or any of its Affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or
(B) the right to vote pursuant to any agreement, arrangement or
understanding, (iii) which are beneficially owned, directly or indirectly,
by any other Persons with whom such Person or any of its Affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding voting or disposing of any such shares or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder;
"Business Day" shall mean any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock
or as trustee or executor, by contract or credit arrangement or otherwise;
"Encumbrance" shall mean any lien, pledge, charge, security interest
or other encumbrance of any nature;
"Indebtedness" of a Person shall mean (i) indebtedness of such Person
for borrowed money whether short-term or long-term and whether secured or
unsecured, (ii) indebtedness of such Person for the deferred purchase price
of services or property, which purchase price (A) is due twelve months or
more from the date of incurrence of the obligation in respect thereof or
(B) customarily or actually is evidenced by a note or other written
instrument (including, without limitation, any such indebtedness which is
non-recourse to the credit of such Person but is secured by assets of such
Person); (iii) obligations of such Person under capital leases, (iv)
obligations of such Person arising under acceptance facilities, (v) the
undrawn face amount of, and unpaid reimbursement obligations in respect of,
all letters of credit issued for the account of such Person, (vi) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (vii) all obligations of such Person upon which
interest charges are customarily paid, (viii) all obligations of such
Person under conditional sale or other title retention agreements relating
to property purchased by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), (ix) obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value
any capital stock of such Person or any warrants, rights or options to
acquire such capital stock (with redeemable preferred stock being valued at
the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends), (x) all executory obligations of such Person
in respect of financial hedge contracts (including, without limitation,
equity hedge contracts), (xi) all indebtedness of the types referred to in
clauses (i) through (x) above for which such Person is obligated under a
contingent obligation and (xii) renewals, extensions, refundings,
deferrals, restructurings, amendments and modifications of any such
indebtedness, obligation or guarantee;
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"Intellectual Property" means all (i) patents and patent applications,
(ii) trademarks, service marks, trade dress, logos, trade names, and
corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for
registration thereof, (iv) computer software, data, and documentation, (v)
trade secrets and confidential business information (including formulas,
compositions, inventions (whether patentable or unpatentable and whether or
not reduced to practice), know-how, manufacturing and production processes
and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists
and information, (vi) Internet domain names and applications for domain
names, (vii) other proprietary rights, and (viii) copies and tangible
embodiments thereof (in whatever form or medium);
"Material Adverse Effect" shall mean, with respect to a specified
Person any change, event or effect that individually or in the aggregate
(taking into account all other such changes, events or effects) has had, or
would be reasonably likely to have, a material adverse effect on the
business, operations, earnings or condition (financial or otherwise) of
such Person and its Subsidiaries, if any, taken as a whole; provided,
however, that any such change, event or effect which is caused by a decline
in the price of a share of a Person's equity securities or a change in the
trading volume of a Person's equity securities shall not be deemed to
result in a Material Adverse Effect;
"Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group, including,
without limitation, any entity or group as defined in Section 13(d) of the
Exchange Act;
"reasonable efforts" shall mean, as to a party hereto, an undertaking
by such party to perform or satisfy an obligation or duty or otherwise act
in a manner reasonably calculated to obtain the intended result by action
or expenditure not disproportionate or unduly burdensome in the
circumstances, which means, among other things, that such party shall not
be required to (i) expend funds other than for payment of the reasonable
and customary costs and expenses of employees, counsel, consultants,
representatives or agents of such party in connection with the performance
or satisfaction of such obligation or duty or other action or (ii)
institute litigation or arbitration as a part of its reasonable efforts;
"Subsidiary" of any Person means any corporation, partnership, joint
venture or other legal entity of which such Person (either alone or through
or together with any other Subsidiary of such Person) (i) owns, directly or
indirectly, fifty percent (50%) or more of the capital stock, partnership
interests or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation, partnership, joint venture or other
legal entity; or (ii) possesses, directly or indirectly, control over the
direction of management or policies of such corporation, partnership, joint
venture or other legal entity (whether through ownership of voting
securities, by agreement or otherwise); and
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall include, except where the context otherwise requires, all
federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, withholding, excise,
occupancy and other taxes, duties or assessments or
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claims of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.
SECTION 10.4. HEADINGS
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 10.5. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy or other
judgment, decree, injunction or order, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 10.6. ENTIRE AGREEMENT
This Agreement (together with the Exhibits, the Disclosure Schedules and
the other documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other Person any
rights or remedies hereunder.
SECTION 10.7. ENFORCEMENT
The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties shall be entitled to
specific performance of the terms hereof, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 10.8. ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
SECTION 10.9. THIRD PARTY BENEFICIARIES
Subject to Section 10.8, this Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature
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<PAGE> 193
whatsoever under or by reason of this Agreement, except for the rights of the
Indemnified Persons under Section 7.7.
SECTION 10.10. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
SECTION 10.11. COUNTERPARTS
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 194
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed and delivered as of the date first written above.
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
-----------------------------------
John M. Gregory
Chairman of the Board &
Chief Executive Officer
SPIRIT ACQUISITION CORP.
By: /s/ JOHN M. GREGORY
-----------------------------------
John M. Gregory
President
JONES PHARMA INCORPORATED
By: /s/ DENNIS M. JONES
-----------------------------------
Dennis M. Jones
Chairman of the Board,
President and
Chief Executive Officer
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<PAGE> 195
ANNEX B
July 13, 2000
Board of Directors
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
Members of the Board:
You have asked us to advise you with respect to the fairness to King
Pharmaceuticals, Inc. ("King Pharmaceuticals") from a financial point of view of
the Exchange Ratio (as defined below) set forth in the Agreement and Plan of
Merger, dated as of July 13, 2000 (the "Acquisition Agreement"), among Jones
Pharma Incorporated (the "Company"), King Pharmaceuticals and Jones Pharma
Acquisition Corp. (the "Sub"), a wholly-owned subsidiary of King
Pharmaceuticals. The Acquisition Agreement provides for the merger (the
"Merger") of the Company with the Sub pursuant to which the Company will become
a wholly owned subsidiary of King Pharmaceuticals and each outstanding share of
common stock, par value $0.04 per share, of the Company will be converted into
the right to receive 1.125 shares (the "Exchange Ratio") of common stock, no par
value of King Pharmaceuticals ("King Pharmaceuticals Common Stock").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and King
Pharmaceuticals, as well as the Acquisition Agreement. We have also reviewed
certain other information, including financial forecasts, provided to us by the
Company and King Pharmaceuticals, and have met with the Company's and King
Pharmaceuticals' management to discuss the business and prospects of the Company
and King Pharmaceuticals. We have also relied upon the views of the Company's
and King Pharmaceuticals' management concerning the operational and strategic
benefits and implications of the Merger, including financial forecasts provided
to us by the Company and King Pharmaceuticals, relating to the synergistic
values and operating cost savings expected to be achieved through the
combination of the operations of the Company and King Pharmaceuticals.
We have also considered certain financial and stock market data of the
Company and King Pharmaceuticals, and we have compared those data with similar
data for other publicly held companies in businesses similar to those of the
Company and King Pharmaceuticals and we have considered the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
it being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and King Pharmaceuticals' management as to the future financial
performance of the Company and King Pharmaceuticals and as to the cost savings
and other potential synergies (including the amount, timing and achievability
thereof) anticipated to result from the Merger. You also have informed us, and
we have assumed, that the Merger will be treated as a tax-free
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<PAGE> 196
reorganization for federal income tax purposes and accounted for as a pooling of
interests in accordance with generally accepted accounting principles. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company or King Pharmaceuticals, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We are not expressing any opinion as to the actual value of King
Pharmaceuticals Common Stock when issued to the Company's stockholders pursuant
to the Merger or the prices at which shares of King Pharmaceuticals Common Stock
will trade subsequent to the Merger.
We have acted as financial advisor to King Pharmaceuticals in connection
with the Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger. We will also receive
a fee for rendering this opinion.
In the past, we have performed certain investment banking services for King
Pharmaceuticals and have received customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and King
Pharmaceuticals for our and such affiliates' own accounts and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of King Pharmaceuticals in connection with its consideration of the
Merger and does not constitute a recommendation to any holder of King
Pharmaceuticals Common Stock as to how such holder should vote with respect to
any matter relating to the proposed Merger. Based upon and subject to the
foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is
fair to King Pharmaceuticals from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ PAUL HENDERSON
-----------------------------------
Paul Henderson
Director
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<PAGE> 197
ANNEX C
July 11, 2000
Board of Directors
Jones Pharma Incorporated
1945 Craig Road
St. Louis, MO 63146
Members of the Board:
You have informed us that Jones Pharma Incorporated (the "Company"), King
Pharmaceuticals, Inc. (the "Merger Partner"), and Spirit Acquisition Corp., a
wholly-owned subsidiary of the Merger Partner ("Merger Sub") propose to enter
into an Agreement and Plan of Merger (the "Agreement") which provides, among
other things, that Merger Sub will be merged with and into the Company (the
"Merger") in a transaction in which each outstanding share of common stock, par
value $0.04 per share, of the Company (the "Company Common Stock"), other than
shares of the Company Common Stock held in treasury, all of which shall be
canceled, will be converted into the right to receive 1.125 shares (the
"Exchange Ratio") of common stock, no par value, of the Merger Partner (the
"Merger Partner Common Stock").
You have asked us whether, in our opinion, the Exchange Ratio is fair, from
a financial point of view, to the holders of the Company Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft dated July 7, 2000 of the Agreement;
(b) reviewed certain publicly available business and financial
information we deemed relevant relating to the Company and the
Merger Partner and the industry in which they operate;
(c) reviewed certain internal non-public financial and operating data
and forecasts provided to us by the managements of the Company and
the Merger Partner relating to their respective businesses, as well
as the amount and timing of the revenue enhancements expected to
result from the Merger (the "Synergies") furnished to us by the
Merger Partner;
(d) discussed, with members of the senior managements of the Company and
the Merger Partner, the Company's and the Merger Partner's
operations, historical financial statements and future prospects,
before and after giving effect to the Merger;
(e) compared the financial and operating performance of the Company and
the Merger Partner with publicly available information concerning
certain other companies we deemed comparable and reviewed the
relevant historical stock prices of the Company Common Stock and the
Merger Partner Common Stock and certain publicly traded securities
of such other companies;
(f) compared the proposed financial terms of the Merger with the
financial terms of certain recent transactions we deemed reasonably
comparable to the Merger and otherwise relevant to our inquiry; and
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(g) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurance of the managements of the Company and the Merger Partner that they are
not aware of any facts that would make such information inaccurate or
misleading. We have neither made nor obtained any independent evaluations or
appraisals of the assets or liabilities of the Company or the Merger Partner,
nor have we conducted a physical inspection of the properties or facilities of
the Company or the Merger Partner. We have assumed that the financial forecasts
and the Synergies provided to or discussed with us by the Company and the Merger
Partner have been reasonably determined on bases reflecting the best currently
available estimates and judgments of the management of the Company and the
Merger Partner as to the future financial performance of their respective
companies and the Synergies. We express no view as to such forecast or
projection information or the assumptions on which they were based.
For purposes of rendering our opinion, we have assumed that, in all
respects material to our analysis, the representations and warranties of each
party contained in the Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it under
the Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have further assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either of the Company or the Merger Partner are a party, as
contemplated by the Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
contemplated benefits of the Merger. We have further assumed that the Merger
will be accounted for as a pooling of interests under United States generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
the definitive Agreement will not differ in any material respects from the draft
thereof furnished to us.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of the Company Common Stock of the Exchange Ratio and we express no
opinion as to the merits of the underlying decision by the Company to engage in
the Merger. This opinion does not constitute a recommendation to any stockholder
of the Company as to how such stockholder should vote with respect to the Merger
or any other matters relating thereto. In addition, we express no opinion as to
the prices at which the Company Common Stock or the Merger Partner Common Stock
will trade following the announcement or the consummation of the Merger, as the
case may be.
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Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, payment of a
significant portion of which is contingent upon the consummation of the Merger.
In addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. The Chase Manhattan Corporation and its
affiliates, including Chase Securities Inc., in the ordinary course of business,
have from time to time, provided investment banking services to the Merger
Partner, including serving as co-manager in connection with the Merger Partner's
initial public offering in 1998, for which we received usual and customary
compensation, and in the future may continue to provide commercial and
investment banking services. In the ordinary course of business, we or our
affiliates may trade in the debt and equity securities of the Company and the
Merger Partner for our own accounts and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of the Company Common Stock.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Merger and shall not be used for any other
purpose without the prior written consent of Chase Securities Inc. This opinion
shall not be reproduced, disseminated, quoted, summarized or referred to at any
time, in any manner or for any purpose, nor shall any public references to Chase
Securities Inc. be made by the Company, without the prior written consent of
Chase Securities Inc.
Very truly yours,
CHASE SECURITIES INC.
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<PAGE> 200
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Tennessee Code Annotated Sections 48-18-501 through 48-18-509 authorize a
corporation to provide for the indemnification of officers, director, employees
and agents in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended. King has adopted the
provisions of the Tennessee statute pursuant to Paragraph 9 of its Second
Amended and Restated Charter. King also has a "Directors and Officers Liability
Insurance Policy" which provides coverage sufficiently broad to permit
indemnification under certain circumstances for liabilities including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
2.1(1) Agreement and Plan of Merger by and among King
Pharmaceuticals, Inc., Jones Pharma Incorporated and Spirit
Acquisition Corp., dated as of July 13, 2000 (included as
Annex A to prospectus).
3.1(2) Second Amended and Restated Charter of King Pharmaceuticals,
Inc.
3.2(2) Amended and Restated Bylaws of King Pharmaceuticals, Inc.
5(1) Opinion of Baker, Donelson, Bearman & Caldwell as to the
validity of the securities registered hereunder, including
the consent of Baker, Donelson, Bearman & Caldwell.
8.1(1) Opinion of Hogan & Hartson, LLP as to certain tax matters,
including the consent of that firm.
8.2(1) Opinion of Greensfelder, Hemker & Gale, P.C. as to certain
tax matters, including the consent of that firm.
10.1(2) Promissory Note between RSR Acquisition Corporation
(predecessor to King Pharmaceuticals, Inc.) and RSR
Laboratories, Inc., dated December 28, 1993, in the amount
of $3,500,000.
10.2(2) Toll Manufacturing Agreement for APAP/Hydrocodone Bitartrate
Tablets by and between Mallinckrodt Chemical, Inc. and King
Pharmaceuticals, Inc.
10.3(3) Credit Agreement, dated as of February 27, 1998, as amended
and restated as of December 22, 1998 among King
Pharmaceuticals, Inc., and the Lenders therein, Credit
Suisse First Boston, as Administrative Agent, as Collateral
Agent and as Swingline Lender, First Union National Bank, as
Issuing Bank, and First Union National Bank and NationsBank,
N.A., as Syndication Agents.
10.4(2) Manufacture and Supply Agreement with Novartis (Ciba-Geigy
Corporation) dated July 17, 1995.
10.5(2) Supply Agreement with SmithKline Beecham Corporation dated
July 16, 1996.
</TABLE>
II-1
<PAGE> 201
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
10.6(2) Trademark, Patent, Copyright and Know-How License Agreement
between Warner-Lambert Company and Glaxo Wellcome Inc. dated
as of June 30, 1996.
10.7(2) Asset Purchase Agreement by and among Parkedale
Pharmaceuticals, Inc., Warner-Lambert Company and Parke,
Davis & Company, dated February 27, 1998, for the
acquisition of assets related to the Parkedale Facility,
Rochester, Michigan.
10.8(2) Product Asset Purchase Agreement between Parkedale
Pharmaceuticals, Inc. and Warner-Lambert Company, dated
February 27, 1998, for the acquisition of Anusol-HC(R) and
other products.
10.9(2) Product Manufacturing Agreement between Santen Incorporated
and Warner-Lambert Company, dated June 26, 1997, for the
manufacture of Ofloxacin Otic Solution 0.3%.
10.10(2) License Agreement by and among Warner-Lambert Company, Parke
Davis & Company, and Parkedale Pharmaceuticals, Inc., dated
February 27, 1998, for the use of the Anusol Trademark, the
Anusol Mold, and Other Trademarks.
10.11(2) Processing Services Agreement between Amgen, Inc., and
Parke-Davis Division of Warner-Lambert Company, dated
December 16, 1997, for the processing of Leptin, Epogen(R),
Neupogen(R), Stemgen(R), and other products.
10.12(4) General Products Agreement dated as of December 17, 1998, by
and among Hoechst Marion Roussel, Inc., Hoechst Marion
Roussel, Deutschland GmbH, and King Pharmaceuticals, Inc.
10.13(2) 1998 King Pharmaceuticals, Inc. Non-Employee Director Stock
Option Plan.
10.14(2) 1997 Incentive and Nonqualified Stock Option Plan for
Employees of King Pharmaceuticals, Inc.
10.15(5) Co-Promotion Agreement, dated as of June 22, 2000, between
American Home Products Corporation and King Pharmaceuticals,
Inc. for Altace(R).
10.16(5) Asset Purchase Agreement, dated as of June 22, 2000, between
American Home Products Corporation and King Pharmaceuticals,
Inc. for Nordette(R), Bicillin and Wycillin.
10.17(5) Stock and Note Purchase Agreement, dated as of June 22,
2000, between American Home Products Corporation and King
Pharmaceuticals, Inc.
10.18(1) Bridge loan arrangement entered into with Credit Suisse
First Boston on July 7, 2000 for $50,000,000 for the purpose
of paying certain amounts to American Home Products
Corporation in connection with the Co-Promotion Agreement,
Asset Purchase Agreement and Stock and Note Purchase
Agreement.
21.1(6) Subsidiaries of the Registrant
23.1(1) Consent of Baker, Donelson, Bearman & Caldwell (included as
part of Exhibit 5).
23.2(1) Consent of Hogan & Hartson, LLP (included as part of Exhibit
8.1).
23.3(1) Consent of Greensfelder, Hemker & Gale, P.C. (included as
part of Exhibit 8.2).
23.4(1) Consent of PricewaterhouseCoopers LLP.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
23.5(1) Consent of Ernst & Young LLP.
24(1) Power of Attorney (included in signature page hereof).
99.1(1) Form of Jones Pharma Incorporated proxy card.
99.2(1) Form of King Pharmaceuticals, Inc. proxy card.
99.3(1) Consent of G. Andrew Franz.
99.4(1) Consent of Credit Suisse First Boston.
99.5(1) Consent of Chase Securities Inc.
</TABLE>
-------------------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-38753) filed October 24, 1997.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
(4) Incorporated by reference to the Company's Current Report on Form 8-K filed
January 6, 1999.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
June 30, 2000.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
(b) Not required.
(c) See Annexes B and C to the joint proxy statement/prospectus.
ITEM 22. UNDERTAKINGS.
(a) King hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum
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aggregate offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) King hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of King's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) King hereby undertakes as follows: that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), King undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(d) King undertakes that every prospectus (i) that is filed pursuant to
paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
King pursuant to the foregoing provisions, or otherwise, King has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by King of
expenses incurred or paid by a director, officer or controlling person of King
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, King will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against
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<PAGE> 204
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
(f) King hereby undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(g) King hereby undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
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<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Bristol,
State of Tennessee on July 28, 2000.
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
-----------------------------------
John M. Gregory
Chairman of the Board and
Chief Executive Officer
By: /s/ BRIAN G. SHRADER
-----------------------------------
Brian G. Shrader
Chief Financial Officer
Date: July 28, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John M. Gregory, Jefferson J. Gregory and
Joseph R. Gregory and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in his capacity as a director of King Pharmaceuticals,
Inc., to sign any or all amendments (including post-effective amendments) to
this Registration Statement on Form S-4 of King relating to distribution of
shares related to the merger of Jones Pharma Incorporated into King
Pharmaceuticals, Inc., and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. GREGORY Chairman of the July 28, 2000
--------------------------------------------------- Board and Chief
John M. Gregory Executive Officer
/s/ JOSEPH R. GREGORY Vice Chairman of July 28, 2000
--------------------------------------------------- the Board and
Joseph R. Gregory Director
</TABLE>
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<PAGE> 206
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFERSON J. GREGORY President and July 28, 2000
--------------------------------------------------- Director
Jefferson J. Gregory
/s/ ERNEST C. BOURNE President, July 28, 2000
--------------------------------------------------- International
Ernest C. Bourne Division, and
Director
/s/ RICHARD C. WILLIAMS Vice Chairman of July 28, 2000
--------------------------------------------------- the Board and
Richard C. Williams Director
/s/ EARNEST W. DEAVENPORT, JR. Director July 28, 2000
---------------------------------------------------
Earnest W. Deavenport, Jr.
/s/ FRANK W. DEFRIECE, JR. Director July 28, 2000
---------------------------------------------------
Frank W. DeFriece, Jr.
/s/ D. GREGORY ROOKER Director July 28, 2000
---------------------------------------------------
D. Gregory Rooker
</TABLE>
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