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Filed Pursuant to Rule 424(B)(5)
Registration No. 333-95181
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PROSPECTUS SUPPLEMENT
JUNE 22, 2000
(TO PROSPECTUS DATED APRIL 19, 2000)
KING PHARMACEUTICALS, INC.
1,928,021 SHARES OF COMMON STOCK
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THE COMPANY:
- We are a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
- King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
(423) 989-8000
- New York Stock Exchange Symbol: KG
THE OFFERING:
- We are selling 1,928,021 shares of common stock to American Home Products
Corporation at a price of $38.90 per share for a total of $75,000,000. The per
share price reflects the three for two stock split effective June 21, 2000.
- After July 22, 2000, the purchaser may reoffer the shares from time to time
for sale in one or more transactions in the over-the-counter market through
negotiated transactions or otherwise, at prevailing market prices, at prices
related to prevailing market prices or at negotiated prices.
- There is an existing trading market for these shares. The reported last sale
price on June 21, 2000 was $43.16 (adjusted for the stock split) per share.
- We plan to use the proceeds to fund acquisitions of products.
- Closing: June 22, 2000.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE S-8.
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Neither the SEC nor any state securities commission has determined whether
this prospectus is truthful or complete. Nor have they made, nor will they make,
any determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT PAGE
WHERE YOU CAN FIND MORE
INFORMATION........................ S-2
A WARNING ABOUT FORWARD-LOOKING
STATEMENTS......................... S-3
SUMMARY.............................. S-5
RISK FACTORS......................... S-6
USE OF PROCEEDS...................... S-21
LEGAL MATTERS........................ S-22
EXPERTS.............................. S-22
INDEX TO FINANCIAL STATEMENTS........ F-1
PROSPECTUS
ABOUT THIS PROSPECTUS................ 1
WHERE YOU CAN FIND MORE
INFORMATION........................ 1
A WARNING ABOUT FORWARD-LOOKING
STATEMENTS......................... 2
KING PHARMACEUTICALS, INC............ 2
RATIOS OF EARNINGS TO FIXED
CHARGES............................ 3
USE OF PROCEEDS...................... 3
LEGAL OWNERSHIP...................... 4
DESCRIPTION OF DEBT SECURITIES WE MAY
OFFER.............................. 6
REGARDING THE TRUSTEE................ 15
DESCRIPTION OF DEBT WARRANTS WE MAY
OFFER.............................. 15
DESCRIPTION OF PREFERRED STOCK WE MAY
OFFER.............................. 18
PLAN OF DISTRIBUTION................. 19
VALIDITY............................. 20
INDEPENDENT ACCOUNTANTS.............. 20
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR TO WHICH WE HAVE REFERRED YOU. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS MAY ONLY BE USED
WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus supplement and the
accompanying prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities
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Exchange Act of 1934 prior to the sale of all the shares covered by this
prospectus supplement and the accompanying prospectus:
- Our Annual Report on Form 10-K for the year ended December 31, 1999.
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
- Our Current Report on Form 8-K dated June 22, 2000.
You may request a copy of these filings, at no cost, by writing or
telephoning:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Kyle P. Macione, Executive Vice President, Investor Relations
Telephone: 423.989.8023
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. We will
not make an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus
supplement and the accompanying prospectus is accurate as of any date other than
the date on the front of these documents.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information which are based on forecasts
of future results and estimates of amounts not yet determinable. These
statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
the section entitled "Risk Factors" and other sections of this prospectus
supplement.
Forward-looking statements include, but are not limited to:
- anticipated developments and expansions of our business;
- increases in sales of recently acquired products or royalty payments;
- development of product line extensions;
- future findings and determinations of the FDA;
- significant debt service and leverage requirements;
- the products which we expect to offer;
- the intent to market and distribute certain of our products
internationally;
- the intent to manufacture in our own facilities some of our products
currently manufactured for us by third parties;
- the intent, belief or current expectations, primarily with respect to our
future operating performance;
- expectations regarding sales growth, gross margins, manufacturing
productivity, capital expenditures and effective tax rates; and
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- expectations regarding our financial condition and liquidity as well as
future cash flows and earnings.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different from those contemplated by our forward-looking statements. These other
factors include, but are not limited to, the following:
- changes in general economic and business conditions;
- dependence on continued acquisition of products or companies;
- management of growth of business and integration of acquisitions;
- changes in current pricing levels;
- development of new competitive products;
- changes in economic conditions and federal and state regulations;
- competition for acquisition of products or companies;
- manufacturing capacity constraints; and
- the availability, terms and deployment of capital.
We do not undertake to update our forward-looking statements to reflect
future events or circumstances.
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SUMMARY
This summary highlights some information from this prospectus supplement
and the accompanying prospectus. Because this is a summary, it does not contain
all the information that may be important to you. To understand this offering
fully, you should read the entire prospectus supplement and accompanying
prospectus carefully, including the Risk Factors section beginning on page S-8,
the financial statements beginning on page F-1 and the documents incorporated by
reference herein. You should also keep in mind the following points as you read
this prospectus supplement:
- Unless the context otherwise indicates, references in this prospectus
supplement and accompanying prospectus to "we," "us," "our" and "King"
refer to King Pharmaceuticals, Inc. and its subsidiaries.
- Unless the context otherwise indicates, references in this prospectus
supplement and the accompanying prospectus to the "senior credit
facility" include the revolving credit facility and the term loans,
including tranche A and tranche B.
WHO WE ARE
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of almost 300 representatives and co-promotion
arrangements, we market our branded pharmaceutical products to general/family
practitioners, internal medicine physicians, cardiologists and hospitals across
the country.
Our primary business strategy is to acquire established branded
pharmaceutical products and to increase their sales through focused marketing
and promotion, life cycle management as well as by securing new indications,
developing product line extensions and devising new formulations or dosages. In
pursuing product acquisitions, we seek to capitalize on opportunities in the
pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. We also seek
attractive company acquisitions that add products or product pipelines,
technologies or sales and marketing capabilities to our key therapeutic areas.
These activities are attractive for us because they may expand the market for
our branded pharmaceutical products, provide market exclusivity or sales levels
that do not attract significant competition. In addition to branded
pharmaceuticals, we also provide contract manufacturing for a number of the
world's leading pharmaceutical and biotechnology companies, including Amgen,
Inc., Warner-Lambert Company, Centocor, Inc., Mallinckrodt Chemical Inc.,
Genetics Institute, Inc. and Hoffmann-La Roche Inc.
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RECENT DEVELOPMENTS
On June 22, 2000, we entered into a co-promotion agreement with American
Home Products Corporation, which we refer to in this prospectus supplement as
"AHPC," pertaining to AHPC's co-promotion in the United States and Puerto Rico
of Altace(R) (ramipril). Under the terms of the co-promotion agreement, AHPC has
purchased the 1,928,021 shares which are the subject of this prospectus
supplement and paid us an additional $25 million in cash. We will share the
costs of marketing Altace(R) with AHPC. We will pay AHPC a multi-tiered annual
fee based on a range of 20% to 50% of based annual net sales of Altace(R). AHPC
will pay us an additional $50 million upon the U.S. Food and Drug
Administration's final approval of potential new indications for Altace(R) based
on a supplemental new drug application previously filed by King with the FDA.
On June 22, 2000, we also entered into an agreement to purchase AHPC's
rights in the United States and Puerto Rico to Nordette(R) (an oral
contraceptive) and two other undisclosed products. We will pay AHPC $200 million
for the transfer of the purchased assets. We expect that this transaction will
close by July 31, 2000.
On June 2, 2000 our board of directors declared a three for two stock
split, which was effective June 21, 2000.
RISK FACTORS
Investing in our common stock involves risks. You should carefully consider
all of the information in this prospectus supplement and the accompanying
prospectus. In particular, you should evaluate the specific risk factors set
forth under "Risk Factors" beginning on page S-8 for a discussion of certain
risks involved with an investment in the offering.
OUR ADDRESS
King Pharmaceuticals, Inc. was incorporated in the State of Tennessee in
1993. Our principal executive offices are located at 501 Fifth Street, Bristol,
Tennessee 37620. Our telephone number is (423) 989-8000 and our facsimile number
is (423) 274-8677.
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THE OFFERING
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Common stock offered by us................. 1,928,021 shares
Common stock outstanding after the
offering................................. 91,967,732 shares(1)
Use of proceeds............................ We will use the net proceeds from
the sale of the shares for future
product acquisitions. For more
information, see "Use of Proceeds."
The NYSE symbol............................ KG
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(1) Excludes 2,269,648 shares of common stock issuable upon the exercise of
stock options outstanding at May 31, 2000 at a weighted average
exercise price of $17.83 per share and 6,552,666 shares reserved for
issuance under our stock plans.
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RISK FACTORS
Before you purchase our securities, you should carefully consider the risks
described below and the other information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus, including our
financial statements and related notes. The risks described below are not the
only ones facing our company. Additional risks not presently known to us or that
we currently deem immaterial may also impair our business operations. If any of
the adverse events described in this risk factors section actually occur, our
business, results of operations and financial condition could be materially
adversely affected, the trading price of our common stock could decline and you
might lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a high level of debt. As of March 31, 2000, our total debt was
approximately $496.2 million and our total debt, as a percentage of total
capitalization, was approximately 70.3%. Our high level of debt could have a
significant adverse future effect on our business. For example:
- we will have limited ability to borrow additional amounts for working
capital, capital expenditures, acquisitions, debt service requirements,
execution of our growth strategy, research and development costs or other
purposes;
- a substantial portion of our cash flow will be used to pay principal and
interest on our debt, which will reduce the funds available for working
capital, capital expenditures, acquisitions and other purposes;
- our senior credit facility covenants require us to meet certain financial
objectives and impose other significant restrictions on our business
operations. These covenants and the covenants contained in the indenture
governing our senior subordinated notes will limit our ability to borrow
additional funds or dispose of assets, pay dividends and limit our
flexibility in planning for and reacting to changes in our business;
- we may be more vulnerable to adverse changes in general economic,
industry and competitive conditions and adverse changes in government
regulation;
- our high debt level and the various covenants contained in the indenture
related to our senior subordinated notes and the documents governing our
other existing indebtedness may place us at a relative competitive
disadvantage as compared to certain of our competitors; and
- borrowings under our 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.
Our ability to pay principal of and interest on our senior subordinated
notes, to service our other debt and to refinance indebtedness when necessary
depends on our financial and operating performance, each of which is subject to
prevailing economic conditions and to financial, business and other factors
beyond our control.
We cannot assure you that we will generate sufficient cash flow from
operations or that we will be able to obtain sufficient funding to satisfy all
of our obligations, including the senior subordinated notes. If we are unable to
meet our debt obligations, we will be required to pursue one or more alternative
strategies, such as selling assets, refinancing or restructuring our
indebtedness or selling additional equity capital. However, we cannot assure you
that any alternative strategies will be
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feasible at the time or prove adequate. Also, certain alternative strategies
will require the consent of our senior secured lenders before we engage in any
such strategy.
IF WE CANNOT IMPLEMENT OUR STRATEGY TO GROW OUR BUSINESS THROUGH ACQUISITIONS,
OUR COMPETITIVE POSITION IN THE INDUSTRY MAY SUFFER.
We have historically increased our sales and net income through strategic
acquisitions and related internal growth initiatives intended to develop
marketing opportunities with respect to acquired product lines. Our strategy is
focused on increasing sales and enhancing our competitive standing through
acquisitions that complement our business and enable us to promote and sell new
products through existing marketing and distribution channels. Moreover, since
we engage in limited proprietary research activity with respect to product
development, we rely heavily on purchasing product lines from other companies.
Other companies, many of whom have substantially greater financial,
marketing and sales resources than we do, compete with us for products or
companies.
We may not be able to acquire rights to additional products on acceptable
terms, if at all, or be able to obtain future financing for such acquisitions on
acceptable terms, if at all. The inability to effect acquisitions of additional
branded products will prevent us from introducing new products and limit the
overall growth of our business. Furthermore, even if we obtain rights to a
pharmaceutical product, we may not be able to generate sales sufficient to
create a profit or otherwise avoid a loss. For example, our marketing strategy,
distribution channels and levels of competition with respect to acquired
products may be different than those of our current products, limiting our
ability to compete favorably in those product categories.
IF WE CANNOT INTEGRATE THE BUSINESSES OF COMPANIES WE ACQUIRE, INCLUDING MEDCO,
OUR BUSINESS MAY SUFFER.
We anticipate that the integration of newly-acquired products, and other
assets into our business will require significant management attention and
expansion of our sales force. In order to effectively manage our acquisitions,
we must maintain adequate operational, financial and management information
systems and motivate and effectively manage an increasing number of employees.
Our recent acquisitions have significantly expanded our product offerings,
operations and number of employees. Our future success will also depend in part
on our ability to retain or hire qualified employees to operate our expanding
facilities efficiently in accordance with applicable regulatory standards. If we
cannot integrate our acquisitions successfully, these changes and acquisitions
could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
For example, on February 25, 2000, we merged with Medco Research, Inc. in
a tax-free pooling-of-interests transaction. We will realize the anticipated
benefits of this merger only if we can integrate our cultures, operations and
personnel in a timely and efficient manner.
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IF WE ARE NOT ABLE TO DEVELOP OR LICENSE NEW PRODUCTS, OUR BUSINESS MAY SUFFER.
We compete with other pharmaceutical companies, including large
pharmaceutical companies with financial resources and capabilities substantially
greater than ours, in the development and licensing of new products. We cannot
assure you that we will be able to
- develop, license or successfully commercialize new products on a timely
basis or at all, or
- develop or license new products in a cost effective manner.
Further, other companies may license or develop products or may acquire
technology for the development of products that are the same as or similar to
the products we have in development or that we license. Because there is rapid
technological change in the industry and because other companies have more
resources than we do, other companies may
- develop or license their products more rapidly than we can,
- complete any applicable regulatory approval process sooner than we can,
- market or license their products before we can market or license our
products,
- offer their newly developed or licensed products at prices lower than
ours
and thereby negatively impact the sales of our newly developed or licensed
products. Technological developments or the FDA's approval of new therapeutic
indications for existing products may make our existing products or those
products we are licensing or developing obsolete or may make them more difficult
to market successfully, which could have a material adverse effect on our
business, financial condition, results of operation and cash flows.
IF SALES OF OUR MAJOR PRODUCTS OR ROYALTY PAYMENTS TO US DECREASE, OUR RESULTS
OF OPERATIONS COULD BE ADVERSELY EFFECTED.
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. We believe that sales of these products will continue to constitute a
significant portion of our total revenues for the foreseeable future.
Accordingly, any factor adversely affecting sales of any of these products or
products for which we receive royalty payments could also have a material
adverse effect on our business, financial condition, results of operation and
cash flows.
WE CANNOT ASSURE YOU THAT SALES OF LORABID(R) WILL INCREASE IN THE FUTURE. IF
SALES DO NOT INCREASE, THERE MAY BE A MATERIAL, ADVERSE EFFECT UPON OUR RESULTS
OF OPERATIONS.
Prior to our acquisition of Lorabid(R), its sales were on the decline.
Increased sales of Lorabid(R) depend upon effective marketing to physicians
which leads them to write prescriptions for our product. We believe that our
marketing efforts have stabilized Lorabid(R) sales, but we cannot assure you
that sales of Lorabid(R) will increase in the future. If Lorabid(R) sales do not
increase or if they decrease, there may be a material adverse effect upon our
results of operations.
THE FDA MAY NOT APPROVE SOME OR ALL OF THE NEW INDICATIONS FOR ALTACE(R) FOR
WHICH WE HAVE APPLIED WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DROP SIGNIFICANTLY.
We have filed a Supplemental New Drug Application with the FDA to request
approval for new and unique indications for Altace(R). Our 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
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FDA, however, there are restrictions on our dissemination of information about
Altace(R) in connection with the HOPE study. We 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, we will not be able to market
Altace(R) for these new indications. We 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 we expect, delaying by several months any
revenue recognition we would otherwise derive from these new indications. If we
violate governmental regulations applicable to dissemination of the HOPE Study
results or fail to secure new indications for Altace(R) there may be a material
adverse effect on our 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 our common stock to decline.
IF THE FDA APPROVES OUR 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 OUR OTHER PRODUCTS MAY BE SUBJECT TO VARIOUS SOURCES
OF COMPETITION FROM ALTERNATE THERAPIES.
We can give you no assurance that the FDA will approve our application for
new indications for Altace(R). Even if the FDA approves some or all of the new
indications for Altace(R), we 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 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, generic forms of ACE inhibitors, the group of products known as
beta-blockers, may be prescribed to treat certain conditions that Altace(R) is
used to treat. New ACE inhibitors, increased sales of generic forms of other ACE
inhibitors or of other therapeutic agents that compete with Altace(R) may
adversely affect the sales of Altace(R).
WE HAVE ENTERED INTO A CO-PROMOTION AGREEMENT FOR THE PROMOTION OF ALTACE(R)
WITH AHPC WHICH COULD BE TERMINATED BEFORE WE CAN REALIZE ANY BENEFIT FROM THE
AGREEMENT.
Our exclusive co-promotion with AHPC could be terminated before we realize
any benefit from the agreement. We have 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 AHPC will have the right to terminate the co-promotion
agreement. AHPC has the right to terminate the co-promotion before July 22, 2000
in the event that AHPC determines that it is not satisfied with the profile of
Altace(R) as reported in the Product Summary Update Reports issued by Aventis
Pharmaceuticals, Inc. Also, AHPC and King each has the right to terminate the
agreement if annualized net sales of Altace(R) have not reached $300 million
after three years from the initiation of the co-promotion activities. There are
other reasons why either King or AHPC could terminate the co-promotion
agreement. If the co-promotion agreement is terminated for any reason, we may
not realize increased sales which we believe may result from the expanded
promotion of Altace(R). If the co-promotion is terminated, we must return some
of the money previously paid to us by AHPC on the signing of the co-promotion
and AHPC will have the right to reacquire its interests in Nordette(R) for a
fixed sum. If we must unwind our co-promotion efforts because of the reasons
mentioned above or we are unable to maintain a sufficient supply of raw
materials or finished product to meet the demands generated by the co-promotion
efforts, there may be a material adverse effect on the sales of Altace(R).
Similarly, if we are unable to consummate the acquisition of interests in
Nordette(R) and two other, undisclosed products acquired from AHPC, and there
may be a material adverse effect on the results of our operations.
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WE DO NOT HAVE PROPRIETARY PROTECTION FOR MOST OF OUR BRANDED PHARMACEUTICAL
PRODUCTS AND OUR SALES COULD SUFFER FROM COMPETITION BY GENERIC SUBSTITUTES.
Although most of our revenue is generated by products not subject to
competition from generic products, there is no proprietary protection for most
of our branded pharmaceutical products, and generic substitutes for most of
these products are sold by other pharmaceutical companies. In addition,
governmental and other pressure to reduce pharmaceutical costs may result in
physicians prescribing products for which there are generic substitutes.
Increased competition from the sale of generic pharmaceutical products may cause
a decrease in revenue from our branded products and could have a material
adverse effect on our business, financial condition and results of operations.
While we 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, we may not be successful in
these efforts. In addition, our branded products for which there is no generic
form available may face competition from different therapeutic agents used for
the same indications for which our branded products are used.
THIRD PARTIES MANUFACTURE OR SUPPLY MATERIALS FOR MANY OF OUR PRODUCTS, AND ANY
DELAYS OR DIFFICULTIES EXPERIENCED BY THEM MAY REDUCE OUR PROFIT MARGINS
REVENUES OR HARM OUR REPUTATION.
Fifteen of our product lines, including Altace(R), Lorabid(R) and
Cortisporin(R), are currently manufactured by third parties. Until these
products can be moved to our manufacturing facilities, our dependence upon third
parties for the manufacture of our products may adversely impact our profit
margins or may result in unforseen delays or other problems beyond our control.
If for any reason we are unable to obtain or retain third-party manufacturers on
commercially acceptable terms, we may not be able to distribute our products as
planned. If we encounter delays or difficulties with contract manufacturers in
producing or packaging our products, the distribution, marketing and subsequent
sales of these products would be adversely affected, and we may have to seek
alternative sources of supply or abandon or sell a product line on
unsatisfactory terms. We might not be able to enter into alternative supply
arrangements at commercially acceptable rates, if at all. We also cannot assure
you that the manufacturers we utilize will be able to provide us with sufficient
quantities of our products or that the products supplied to us will meet our
specifications.
We require a supply of quality raw materials and components to manufacture
and package pharmaceutical products for us and for third parties with which we
have contracted. Generally, we have not had difficulty obtaining raw materials
and components from suppliers in the past. Currently, we rely on 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
our ability to acquire raw materials and components. We have no reason to
believe that we will be unable to procure adequate supplies of raw materials and
components on a timely basis. However, if we are unable to obtain sufficient
quantities of any of the raw materials or components required to produce and
package our products, we may not be able to distribute our products as planned.
In this case, our business, financial condition and results of operations could
be materially and adversely affected.
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FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT OUR ABILITY TO
OPERATE OUR BUSINESS.
Virtually all aspects of our activities are regulated by Federal and state
statutes and government agencies. The manufacturing, processing, formulation,
packaging, labeling, distribution and advertising of our products, and disposal
of waste products arising from such 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 us
to enforcement actions, such as suspension of manufacturing or distribution,
seizure of products, product recalls, fines, criminal penalties, injunctions,
failure to approve pending drug product applications or withdrawal of product
marketing approvals. Similar civil or criminal penalties could be imposed by
other government agencies, such as the Drug Enforcement Agency, the
Environmental Protection Agency or various agencies of the states and localities
in which our products are manufactured and sold, and could have ramifications
for our contracts with government agencies such as the Veteran's Administration.
These enforcement actions could have a material adverse effect on our business,
financial condition and results of operations.
All manufacturers of human pharmaceutical products are subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act or the Public Health Service Act or both. New drugs, as defined in
the Federal Food, Drug and Cosmetic Act, and new human biological drugs, as
defined in the Public Health Service Act, must be the subject of an FDA-
approved new drug or biologic license application before they may be marketed in
the United States. Some prescription and other drugs are not the subject of an
approved marketing application but, rather, are marketed subject to the FDA's
regulatory discretion and/or enforcement policies. Any change in the FDA's
enforcement discretion and/or policies, such as any decision by the FDA to
require an approved marketing application for one of our products not currently
subject to the approved marketing application, could have a material adverse
effect on our business, financial condition and results of operations.
We manufacture some pharmaceutical products containing controlled
substances and, therefore, are also subject to statutes and regulations enforced
by the Drug Enforcement Agency and similar state agencies which impose security,
recordkeeping, reporting and personnel requirements on us. Additionally, we
manufacture biological drug products for human use and are subject to regulatory
burdens as a result of these aspects of our business. There are additional FDA
and other regulatory policies and requirements covering issues such as
advertising, commercially distributing, selling, sampling and reporting adverse
events associated with our products with which we must continuously comply.
Noncompliance with any of these policies or requirements could result in
enforcement actions which could have a material adverse effect on our business,
financial condition and results of operations.
The FDA has the authority and discretion to withdraw existing marketing
approvals and to review the regulatory status of marketed products at any time.
For example, the FDA may require an approved marketing application for any drug
product marketed if new information reveals questions about the drug's safety or
effectiveness. All drugs must be manufactured in conformity with 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.
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While we believe that all of our currently marketed pharmaceutical products
comply with FDA enforcement policies or have received the requisite agency
approvals, such marketing is subject to challenge by the FDA at any time.
Through various enforcement mechanisms, the FDA can ensure that noncomplying
drugs are no longer marketed. In addition, modifications, enhancements, or
changes in manufacturing sites of approved products are in many circumstances
subject to additional FDA approvals which may or may not be received and which
may be subject to a lengthy FDA review process. Our manufacturing facilities and
those of our third-party manufacturers are continually subject to inspection by
governmental agencies. Manufacturing operations could be interrupted or halted
in any of those facilities if the government is unsatisfied with the results of
its inspections. This could have a material adverse effect on our business,
financial condition, results of operation and cash flows.
We cannot determine what effect changes in regulations, enforcement
positions, statutes or legal interpretation, when and if promulgated, adopted or
enacted, may have on our business in the future. Changes could, among other
things, require changes to manufacturing methods or facilities, expanded or
different labeling, new approvals, the recall, replacement or discontinuance of
certain products, additional record keeping and expanded documentation of the
properties of certain products and scientific substantiation. Such changes, or
new legislation, could have a material adverse effect on our business, financial
condition, results of operation and cash flows.
OUR PARKEDALE FACILITY HAS BEEN THE SUBJECT OF FDA CONCERNS. IF WE CANNOT
ADEQUATELY ADDRESS THE FDA'S CONCERNS, WE MAY BE UNABLE TO OPERATE THE PARKEDALE
FACILITY AND, ACCORDINGLY, OUR BUSINESS MAY SUFFER.
Our Parkedale facility, located in Rochester, Michigan, manufactures both
drug and biological pharmaceutical products. Parkedale was one of six
Warner-Lambert facilities subject to a consent decree issued by the U.S.
District Court of New Jersey in August 1993 as a result of FDA concerns about
compliance issues within Warner-Lambert facilities in the period before the
decree was entered.
The Parkedale facility was inspected by the FDA's Team Biologics in March
and April 1998. During that inspection, the FDA made observations about our
compliance with cGMPs in a written report provided to King. This written report
is known as an "FDA Form 483" or simply as a "483." We provided the FDA with a
written response to the 483 including an action plan to address the
observations.
As a continuation of the inspections in March and April 1998, the FDA
inspected the Parkedale facility in May 1999 to verify actions taken in response
to the 1998 inspection and to review our compliance with the FDA's cGMP
requirements. At the end of that inspection, the FDA issued another 483 listing
its observations. We submitted a written response to that 483 and met with FDA
representatives to present our plans for addressing the observations. In August
1999, the FDA asked us to clarify and supplement our responses to the 483 that
resulted from the May 1999 inspection. The FDA also stated it would require
additional product testing for the product Histoplasmin. Since revenues
attributable to Histoplasmin were minimal we discontinued the manufacture and
distribution of the product, and we subsequently informed the FDA of our
decision. Most, but not all, of our actions in response to the May 1999
inspection and the August 1999 FDA letter have been completed, and we have
continued to inform the FDA in writing of our 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 our production of
Fluogen(R)at the Parkedale facility and
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issued a 483 listing certain cGMP observations. In November 1999, we submitted a
written response containing our plan to address those observations.
On March 10, 2000, the FDA notified us 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 us, pursuant to the consent decree, that we 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 our initial response to its March 10 notification and
following discussions with the FDA, we have filed with the FDA our written
certification of conformance that we are now sufficiently in compliance with
cGMP manufacturing standards to resume the manufacture of Fluogen(R) and we have
now resumed the manufacture of Fluogen(R). The distribution of Fluogen(R)
remains suspended pursuant to the FDA's order. We cannot resume the distribution
of Fluogen(R) until the FDA conducts an on-site inspection of our Parkedale
facility and finds the facility in substantial compliance with cGMPs. We are
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. We
generally recognize revenue from Fluogen(R) during the third and fourth quarters
of each calendar year.
On Friday, June 9, 2000, we met with the FDA to discuss the status of our
compliance program for Fluogen. The FDA was encouraged by our efforts to that
date and agreed to continue to work closely with Parkedale in an attempt to
resolve remaining issues. While we are pursuing all actions reasonably necessary
to assure Fluogen(R)'s availability during the upcoming flu season commencing
September 2000, we cannot assure you that we will be able to satisfy the FDA's
concerns respecting the cGMP standards applicable to Fluogen(R). Consequently,
we cannot assure you that we 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.
OUR QUARTERLY RESULTS MAY FLUCTUATE, AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT
OUR PROFITABILITY.
Our results of operations may vary from quarter to quarter due to many
factors. These factors include expenditures related to the acquisition, sale and
promotion of pharmaceutical products, a changing customer base, the availability
and cost of raw materials, interruptions in supply by third-party manufacturers,
new products introduced by us or our competitors, the mix of products we sell,
seasonality of certain product sales, changes in sales due to anticipated price
increases, changes in sales and marketing expenditures, competitive pricing
pressures and general economic and industry conditions that may affect customer
demand. For example, in advance of a price increase, many of our customers may
order pharmaceutical products in larger than normal quantities. The ordering of
excess quantities in any quarter could cause sales of some of our branded
pharmaceutical products to be lower in the subsequent quarter than they would
have been otherwise. These factors could also affect our annual results of
operations. We cannot assure you that we will be successful in maintaining or
improving our profitability or avoiding losses in any future period. For more
information about our operations, please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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AN INCREASE IN PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS OR PRODUCT RETURNS
COULD HARM OUR BUSINESS.
We face an inherent business risk of exposure to product liability claims
in the event that the use of our technologies or products 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 we have taken, and will continue to take,
what we believe are appropriate precautions, we may not be able to avoid
significant product liability exposure. We currently have product liability
insurance in the amount of $50.0 million for aggregate annual claims with a
$50,000 deductible per incident and a $500,000 aggregate annual deductible;
however, we cannot assure you that the level or breadth of any insurance
coverage will be sufficient to cover fully all potential claims. Also, adequate
insurance coverage might not be available in the future at acceptable costs, if
at all.
Product recalls may be issued at our discretion or at the discretion of the
FDA, other government agencies or other companies having regulatory authority
for pharmaceutical product sales. In November 1998, the Parke-Davis division of
Warner-Lambert initiated a voluntary Class III recall for one lot of
Procanbid(R) manufactured prior to our acquisition of Procanbid(R). A Class III
recall is one in which use of, or exposure to, the product is not likely to
cause adverse consequences. These recalls were instituted because the lots at
issue failed a dissolution test as part of the routine stability program at the
18-month interval. In December 1999, Warner-Lambert initiated a voluntary Class
III recall for one lot of Procanbid(R) manufactured prior to our acquisition of
the product because it had failed the same dissolution test at the 24-month
interval. In February 2000, American Pharmaceutical Partners, Inc. which
manufactures Adenoscan(R), initiated a Class II recall for 30 mL single-dose
vials used 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. We cannot assure you that additional
product recalls will not occur in the future. Any product recalls could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.
Although product returns were approximately 2.7% of gross sales for the
year ended December 31, 1999, we cannot assure you that actual levels of returns
will not increase or significantly exceed the amounts we have anticipated.
THE LOSS OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.
We are highly dependent on the principal members of our management staff,
the loss of whose services might impede the achievement of our acquisition and
development objectives. Although we believe that we are adequately staffed in
key positions and that we will be successful in retaining skilled and
experienced management, operational, scientific and development personnel, we
cannot assure you that we will be able to attract and retain key personnel on
acceptable terms. The loss of the services of key personnel could have a
material adverse effect on us, especially in light of our recent growth. We do
not maintain key-person life insurance on any of our employees. In addition, we
do not have employment agreements with any of our key employees.
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OUR 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, we established our International Division in Charlotte,
North Carolina in order to seek new international markets for product lines for
which we have international rights. The marketing and distribution of these
products in foreign countries generally require the prior registration of the
products in those countries. We do 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. We cannot assure you that we will be successful in
securing the registrations outside the U.S. or that we will do so in a timely
manner. We cannot assure you that our International Division will be successful
in entering into distribution agreements or that we 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 WE ARE UNABLE TO SECURE OR ENFORCE PATENT RIGHTS, TRADEMARKS, TRADE SECRETS
OR OTHER INTELLECTUAL PROPERTY, OUR BUSINESS COULD BE HARMED.
We may not be successful in securing or maintaining proprietary patent
protection for products we develop or technologies we license. In addition, our
competitors may develop products similar to ours using methods and technologies
that are beyond the scope of our intellectual property protection, which could
reduce our sales. The validity of patents can be subject to expensive
litigation. We can give you no assurance that our patents will not be
challenged. Competitors may be able to develop similar and competitive products
outside the scope of our patents. For example, should third parties patent or
otherwise develop and receive governmental clearance to commercialize an
adenosine product for a use not covered by our patents, physicians could use
those third party products in place of our products even though the third party
products were not approved by the FDA for the same indications as our products.
Any off-label use of third party products could have a material adverse effect
on sales of our products and the amount of royalty revenues we receive.
We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation, where patent protection is not believed to
be appropriate or attainable, in order to maintain our competitive position. We
cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to our
trade secrets or disclose the technology, or that we can adequately protect our
trade secrets.
RISKS RELATED TO OUR INDUSTRY
ANY REDUCTION IN REIMBURSEMENT LEVELS BY MANAGED CARE ORGANIZATIONS OR OTHER
THIRD-PARTY PAYORS MAY HAVE AN ADVERSE EFFECT ON OUR REVENUES.
In our industry commercial success in producing, marketing and selling
products depends, in part, on the availability of adequate reimbursement from
third-party health care payers, such as government and private health insurers
and managed care organizations. Third-party payors are increasingly challenging
the pricing of medical products and services. For example, many managed health
care organizations are now controlling the pharmaceutical products that are on
their formulary lists. The resulting competition among pharmaceutical companies
to place their products on these formulary lists has reduced prices across the
industry. In addition, many managed care organizations are considering formulary
contracts primarily with those pharmaceutical companies that can offer a full
line of products for a given therapy sector or disease state. We cannot assure
you that our products will be included on the formulary lists of managed care
organizations or that downward pricing pressures in the industry generally will
not negatively impact our operations.
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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
we cannot predict whether any such proposals will be adopted or the effect such
proposals may have on our business, the pending nature of such proposals, as
well as the adoption of any proposal, may exacerbate industry-wide pricing
pressures and could have a material adverse effect on our financial condition,
results of operations or cash flows.
OUR INDUSTRY IS HIGHLY COMPETITIVE.
In our industry, smaller pharmaceutical companies like ours compete with
large, global pharmaceutical companies with substantially greater financial
resources for the acquisition of products, technologies and companies. We cannot
assure you that
- we will be able to continue to acquire commercially attractive
pharmaceutical products, companies or technologies,
- additional competitors will not enter the market, or
- competition for acquisition of products, companies, technologies and
product lines will not have a material adverse effect on our business,
financial condition and results of operations.
We also compete with pharmaceutical companies in developing, marketing and
selling pharmaceutical products. The selling prices of pharmaceutical products
typically decline as competition increases. Further, other products now in use
or acquired by other pharmaceutical companies may be more effective or offered
at lower prices than our current or future products. Competitors may also be
able to complete the regulatory process sooner and, therefore, may begin to
market their products in advance of ours. We believe that competition for sales
of our products will be based primarily on product efficacy, safety,
reliability, availability and price.
RISKS RELATED TO THIS OFFERING
OWNERSHIP OF OUR COMPANY IS CONCENTRATED IN A FEW INDIVIDUALS WHO CAN INFLUENCE
OUR MANAGEMENT AND POLICIES.
Following this offering of common stock, our present executive officers and
directors (16 persons) and their affiliates will beneficially own approximately
30.1% of the outstanding shares of our common stock. Accordingly, they will 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
directors. We do not intend to implement any formal procedures to address any
such potential conflicts of interest.
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND, AS A RESULT,
SHAREHOLDERS WILL NEED TO SELL SHARES TO REALIZE ANY RETURN ON THEIR INVESTMENT.
We have never declared or paid any cash dividends on our common stock.
Furthermore, the payment of any dividend or distribution on any shares of our
capital stock is limited by the senior credit facility. We intend to retain any
future earnings to finance the operation and expansion of our business and do
not anticipate paying any cash dividends in the foreseeable future.
Consequently, shareholders will need to sell shares of common stock in order to
realize a return on their investment, if any.
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OUR SHAREHOLDER RIGHTS PLAN AND BYLAWS DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS
AND COULD PREVENT YOU FROM REALIZING A PREMIUM FOR YOUR COMMON STOCK.
We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our charter and bylaws contain provisions that may discourage
unsolicited takeover proposals that shareholders may consider to be in their
best interests. These provisions include:
- a classified board of directors;
- the ability of the board of directors to designate the terms of and issue
new series of preferred stock;
- advance notice requirements for nominations for election to the board of
directors; and
- special voting requirements for the amendment of our charter and bylaws.
We are also subject to antitakeover provisions under Tennessee law, each of
which could delay or prevent a change of control. Together these provisions and
the rights plan may discourage transactions that otherwise could involve payment
of a premium over prevailing market prices for your common stock.
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OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING. INVESTORS MAY NOT BE ABLE TO
RESELL THEIR SHARES AT OR ABOVE THE PRICE TO THE PUBLIC.
The trading price of our common stock is likely to be volatile. The stock
market in general and the market for emerging growth companies, such as King in
particular, have experienced extreme volatility. Many factors contribute to this
volatility, including
- announcements of technological innovations,
- changes in marketing, product pricing and sales strategies or development
of new products by us or our competitors,
- changes in domestic or foreign governmental regulations or regulatory
approval processes,
- variations in our results of operations,
- perceptions about market conditions in the pharmaceutical industry, and
- general market conditions.
This volatility may have a significant impact on the market price of our common
stock. Moreover, the possibility exists that the stock market (and in particular
the securities of emerging growth companies such as King) could experience
extreme price and volume fluctuations unrelated to operating performance. The
volatility of our common stock imposes a greater risk of capital losses on our
shareholders than would a less volatile stock. In addition, such volatility
makes it difficult to ascribe a stable valuation to a shareholder's holdings of
our common stock.
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USE OF PROCEEDS
The net proceeds to us from the sale of common stock in this offering are
estimated to be $74.5 million, after deducting the estimated offering expenses
payable by us. The net proceeds of the offering will be used for future
acquisitions of products. Pending these acquisitions, the proceeds will be
invested in short-term marketable securities.
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LEGAL MATTERS
The validity of our common stock offered in this offering will be passed
upon for King by Baker, Donelson, Bearman & Caldwell, Johnson City, Tennessee.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999, incorporated
by reference 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.
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<PAGE> 23
Prospectus
$350,000,000
KING PHARMACEUTICALS, INC.
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
DEBT WARRANTS
-------------------------
King Pharmaceuticals, Inc. may offer and sell shares of common stock,
shares of preferred stock, debt securities and debt warrants. These securities
may be offered and sold from time to time for an aggregate offering price of up
to $350,000,000. We will provide the specific terms and the initial public
offering prices of these securities in an accompanying prospectus supplement.
We may sell the securities to or through underwriters and also to other
purchasers or through agents. The names of any underwriters or agents will be
stated in an accompanying prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is April 19, 2000.
<PAGE> 24
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
U.S. Securities and Exchange Commission using a shelf registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total of
$350,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add to or update other information
contained in this prospectus. You should read both this prospectus and the
accompanying prospectus supplement together with additional information
described below under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus our Annual Report on Form 10-K for the year ended December
31, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attention: Kyle P. Macione, Executive Vice President, Investor Relations
Telephone: 423.989.8077
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We will not make an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
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<PAGE> 25
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains (or
incorporates by reference) certain "forward-looking statements," such as
statements concerning our anticipated financial or product performance and other
non-historical facts. Since these statements are based on factors that involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such factors include,
among others:
- anticipated developments and expansions of our business;
- increases in sales of recently acquired products;
- development of product line extensions;
- the products which we expect to offer;
- the intent to market and distribute certain of our products
internationally;
- the intent to manufacture certain products in our own facilities which
are currently manufactured for us by third parties;
- the intent, belief or current expectations of King's directors or
officers with respect to its future operating performance;
- expectations regarding sales growth, gross margins, manufacturing
productivity, capital expenditures and effective tax rates;
- expectations or beliefs regarding regulatory matters or conditions; and
- expectations regarding King's financial condition and liquidity as well
as future cash flows and earnings.
KING PHARMACEUTICALS, INC.
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of over 290 representatives, we market our
branded pharmaceutical products to general/family practitioners and internal
medicine physicians and hospitals across the country. Our business strategy is
to acquire established branded pharmaceutical products and to increase their
sales by focused marketing and promotion and through product life cycle
management. In pursuing acquisitions, we seek to capitalize on opportunities in
the pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. We also create value
by developing product line extensions for our branded pharmaceutical products
such as new formulations, dosages or new indications. These product line
extensions are profitable for us because they may have market exclusivity or
sales levels that do not attract significant competition. In addition to branded
pharmaceuticals, we also provide contract manufacturing for a number of the
world's leading pharmaceutical and biotechnology companies, including Amgen,
Inc., Warner-Lambert Company, Mallinckrodt Chemical Inc., Genetics Institute and
Hoffman-LaRoche, Inc.
We are a Tennessee corporation. Our executive offices are located at 501
Fifth Street, Bristol, Tennessee 37620, and our telephone number is
(423) 989-8000.
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<PAGE> 26
RATIOS OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges for each of the years
ended December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Ratios of earnings to fixed charges(a)...................... 3.6x 4.8x 2.3x
</TABLE>
-------------------------
(a) For purposes of computing this consolidated ratio, earnings consist of
income before:
- income taxes and
- fixed charges excluding capitalized interest.
Fixed charges consist of:
- all interest expense;
- the portion of net rental expense which is deemed representative of the
interest factor;
- the amortization expense of debt issuance costs; and
- capitalized interest.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying prospectus supplement, we
will use the net proceeds from the sale of the securities for general corporate
purposes, including the reduction of debt and the financing of future
acquisitions. We may temporarily invest funds that we do not immediately need
for these purposes in short-term marketable securities.
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<PAGE> 27
LEGAL OWNERSHIP
"STREET NAME" AND OTHER INDIRECT HOLDERS
Investors who hold securities in accounts at banks or brokers will
generally not be recognized by us as legal holders of securities. When we refer
to the "holders" of securities, we mean only the actual legal holders of the
securities. Holding securities in accounts at banks or brokers is called holding
in "street name." If you hold securities in "street name," we will recognize
only the bank or broker, or the financial institution the bank or broker uses to
hold its securities. These intermediary banks, brokers and other financial
institutions pass along principal, interest and other payments on the
securities, either because they agree to do so in their customer agreements or
because they are legally required to. If you hold securities in "street name,"
you should check with your own institution to find out:
- How it handles securities payments and notices.
- Whether it imposes fees or charges.
- How it would handle voting if ever required.
- Whether and how you can instruct it to send you securities registered in
your own name so you can be a direct holder as described below.
- How it would pursue rights under the securities if there were a default
or other event triggering the need for holders to act to protect their
interests.
DIRECT HOLDERS
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to persons who are
registered as holders of securities. As noted above, we do not have obligations
to you if you hold in "street name" or other indirect means, either because you
choose to hold securities in that manner or because the securities are issued in
the form of global securities as described below. For example, once we make
payment to the registered holder, we have no further responsibility for the
payment even if that holder is legally required to pass the payment along to you
as a "street name" customer but does not do so.
GLOBAL SECURITIES
A global security is a special type of indirectly held security, as
described above under "'Street name' and other indirect holders." If we choose
to issue securities in the form of global securities, the ultimate beneficial
owners can only be indirect holders. We do this by requiring that the global
security be registered in the name of a financial institution we select and by
requiring that the securities included in the global security not be transferred
to the name of any other direct holder unless the special circumstances
described below occur. The financial institution that acts as the sole direct
holder of the global security is called the "depositary." Any person wishing to
own a security must do so indirectly by virtue of an account with a broker, bank
or other financial institution that in turn has an account with the depositary.
The prospectus supplement indicates whether your series of securities will be
issued only in the form of global securities.
SPECIAL INVESTOR CONSIDERATIONS FOR GLOBAL SECURITIES. As an indirect
holder, an investor's rights relating to a global security will be governed by
the account rules of the investor's financial institution and of the depositary,
as well as general laws relating to securities transfers. We do not recognize
this
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type of investor as a holder of securities and instead deal only with the
depositary that holds the global security.
You should be aware that if securities are issued only in the form of
global securities:
- You cannot get securities registered in your own name.
- You cannot receive physical certificates for your interest in the
securities.
- You will be a "street name" holder and must look to your own bank or
broker for payments on the securities and protection of your legal rights
relating to the securities. See "Street name' and other indirect holders"
on page 4.
- You may not be able to sell interests in the securities to some insurance
companies and other institutions that are required by law to own their
securities in the form of physical certificates.
- The depositary's policies will govern payments, transfers, exchange and
other matters relating to your interest in the global security. We and
the trustee have no responsibility for any aspect of the depositary's
actions or for its records of ownership interests in the global security.
We and the trustee also do not supervise the depositary in any way.
Payment for purchases and sales in the market for corporate bonds and notes
is generally made in next-day funds. In contrast, the depositary will usually
require that interests in a global security be purchased or sold within its
system using same-day funds. This difference could have some effect on how
global security interests trade, but we do not know what that effect will be.
SPECIAL SITUATIONS WHEN A GLOBAL SECURITY WILL BE TERMINATED. In a few
special situations described later, the global security will terminate and
interests in it will be exchanged for physical certificates representing
securities. After that exchange, the choice of whether to hold securities
directly or in "street name" will be up to the investor. Investors must consult
their own bank or brokers to find out how to have their interests in securities
transferred to their own name, so that they will be direct holders. The rights
of "street name" investors and direct holders in the securities have been
previously described in the subsections entitled "'Street name' and other
indirect holders" on page 4 and "Direct holders" on page 4.
The special situations for termination of a global security are:
- When the depositary notifies us that it is unwilling, unable or no longer
qualified to continue as depositary.
- When an Event of Default on the securities has occurred and has not been
cured. Defaults are discussed later under "Default and related matters"
on page 14.
The prospectus supplement may also list additional situations for
terminating a global security that would apply only to the particular series of
securities covered by the prospectus supplement. When a global security
terminates, the depositary (and not we or the trustee) is responsible for
deciding the names of the institutions that will be the initial direct holders.
IN THE REMAINDER OF THIS DESCRIPTION "YOU" MEANS DIRECT HOLDERS AND NOT
"STREET NAME" OR OTHER INDIRECT HOLDERS OF SECURITIES. INDIRECT HOLDERS SHOULD
READ THE PREVIOUS SUBSECTION ON PAGE 4 ENTITLED "'STREET NAME' AND OTHER
INDIRECT HOLDERS."
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DESCRIPTION OF DEBT SECURITIES WE MAY OFFER
As required by federal law for all bonds and notes of companies that are
publicly offered, the debt securities are governed by a document called the
"indenture." The indenture is a contract between us and , which
acts as trustee. The trustee has two main roles. First, the trustee can enforce
your rights against us if we default. There are some limitations on the extent
to which the trustee acts on your behalf, described later on page 14 under
"Remedies if an event of default occurs."
Second, the trustee performs administrative duties for us, such as sending
you interest payments, transferring your debt securities to a new buyer if you
sell and sending you notices.
The indenture and its associated documents contain the full legal text of
the matters described in this section. The indenture and the debt securities are
governed by New York law. A copy of the indenture has been filed with the SEC as
part of our Registration Statement. See "Where You Can Find More Information" on
page 1 on how to obtain a copy.
We may issue as many distinct series of debt securities under the indenture
as we wish. This section summarizes all the material terms of the debt
securities that are common to all series unless otherwise indicated in the
prospectus supplement relating to a particular series.
Because this section is a summary, it does not describe every aspect of the
debt securities. This summary is subject to and qualified in its entirety by
reference to all the provisions of the indenture, including definitions of
various terms used in the indenture. For example, in this section we describe
the meaning for only the more important terms that have been given special
meaning in the indenture. We also include references in parentheses to
applicable sections of the indenture. Whenever we refer to particular sections
or defined terms of the indenture in this prospectus or in the prospectus
supplement, those sections or defined terms are incorporated by reference here
or in the prospectus supplement.
We may issue the debt securities as original issue discount securities,
which will be offered and sold at a substantial discount below their stated
principal amount. A prospectus supplement relating to original issue discount
securities will describe federal income tax consequences and other special
considerations applicable to them. The debt securities may also be issued as
indexed securities or securities denominated in foreign currencies or currency
units, as described in more detail in a prospectus supplement relating to any of
these types of debt securities. A prospectus supplement relating to indexed debt
securities or foreign currency debt securities will also describe any additional
tax consequences or other special considerations applicable to these types of
debt securities.
In addition, the material specific financial, legal and other terms
particular to debt securities of each series are described in the prospectus
supplement relating to the debt securities of that series. The prospectus
supplement relating to debt securities of the series will describe the following
terms of the debt securities:
- the title of the debt securities of the series;
- any limit on the total principal amount of the debt securities of the
series (including any provision for the future offering of additional
debt securities of the series beyond any such limit);
- the date or dates on which the debt securities of the series will mature;
- any annual rate or rates, which may be fixed or variable, at which the
debt securities of the series will bear interest, if any, and the date or
dates from which any interest will accrue;
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- the date or dates on which any interest on the debt securities of the
series will be payable and the regular record date or dates we will use
to determine who is entitled to receive each interest payment;
- the place or places where the principal and any premium and interest will
be payable;
- any period or periods within which and the price or prices at which we
will have the option to redeem the debt securities of the series, and the
other detailed terms and provisions of any optional redemption right;
- any obligation we will have to redeem the debt securities of the series
under a sinking fund or analogous provision or to redeem your debt
securities at your option and the period or periods during which, the
price or prices at which and the other specific terms under which we
would be obligated to redeem the debt securities of the series under any
obligation of this kind;
- if other than integral multiples of $1,000, the denominations in which we
will issue the debt securities of the series;
- if other than U.S. dollars, the currency of payment of the principal and
any premium and interest on the debt securities of the series;
- any index or other special method we will use to determine the amount of
principal or any premium or interest we will pay on the debt securities
of the series;
- if we or you have a right to choose the currency or currency units in
which payments on any of the debt securities of the series will be made,
the currencies or currency units that we or you may elect, when the
election may be made and the other specific terms of the right to make an
election of this kind;
- if other than the principal amount, the portion of the principal amount
of the debt securities of the series which will be payable upon the
declaration of acceleration of the maturity of the debt securities of the
series;
- the applicability of the provisions described on page 13 under
"Defeasance;"
- if we will issue the debt securities of the series only in the form of
global securities as described above under "Global securities" on page 4,
the name of the depository for the debt securities of the series and the
circumstances under which the global securities may be terminated and
separate debt securities may be registered in the names of persons other
than the depositary or its nominee if other than those circumstances
described on page 5 under "Special situations when a global security will
be terminated"; and
- any other special terms of the debt securities of the series that are not
inconsistent with the provisions of the indenture.
The prospectus supplement relating to the debt securities of the series
will be attached to the front of this prospectus.
We may issue debt securities other than the debt securities described in
this prospectus. There is no requirement that any other debt securities that we
issue be issued under the indenture. Thus, any other debt securities that we
issue may be issued under other indentures or documentation. This documentation
may contain provisions different from those included in the indenture or
applicable to one or more issues of the debt securities described in this
prospectus.
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OVERVIEW OF THE REMAINDER OF THIS DESCRIPTION
The remainder of this description summarizes:
- ADDITIONAL MECHANICS relevant to the debt securities under normal
circumstances, such as how you transfer ownership and where we make
payments;
- your rights under several SPECIAL SITUATIONS, such as if we merge with
another company or, if we want to change a term of the debt securities;
- promises we make to you about how we will run our business, or business
actions we promise not to take (known as "RESTRICTIVE COVENANTS"); and
- your rights if we DEFAULT or experience other financial difficulties.
ADDITIONAL MECHANICS
FORM, EXCHANGE AND TRANSFER. The debt securities will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations that are even multiples of $1,000 unless otherwise
specified in a prospectus supplement.
You may have your debt securities broken into more debt securities of
smaller denominations or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed. This is
called an "exchange."
You may exchange or transfer debt securities at the office of the trustee.
The trustee acts as our agent for registering debt securities in the names of
holders and transferring debt securities. We may change this appointment to
another entity or perform it ourselves. The entity performing the role of
maintaining the list of registered holders is called the "security registrar."
The security registrar will also perform transfers.
You will not be required to pay a service charge to transfer or exchange
debt securities, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange will only be made if the security registrar is satisfied with your
proof of ownership.
If we have designated additional transfer agents, they are named in the
prospectus supplement. We may cancel the designation of any particular transfer
agent. We may also approve a change in the office through which any transfer
agent acts.
If the debt securities are redeemable and we redeem less than all of the
debt securities of a particular series, we may block the transfer or exchange of
debt securities during the period beginning 15 days before the day we mail the
notice of redemption and ending on the day of that mailing, in order to freeze
the list of holders to prepare the mailing. We may also refuse to register
transfers or exchanges of debt securities selected for redemption, except that
we will continue to permit transfers and exchanges of the unredeemed portion of
any security being partially redeemed.
PAYMENT AND PAYING AGENTS. We will pay interest to you if you are a direct
holder listed in the trustee's records at the close of business on a particular
day in advance of each due date for interest, even if you no longer own the
security on the interest due date. That particular day, usually about
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two weeks in advance of the interest due date, is called the "regular record
date" and is stated in the prospectus supplement. Holders buying and selling
debt securities must work out between them how to compensate for the fact that
we will pay all the interest for an interest period to the one who is the
registered holder on the regular record date. The most common manner is to
adjust the sale price of the debt securities to allocate interest fairly between
buyer and seller. This allocated interest amount is called "accrued interest."
We will pay interest, principal and any other money due on the debt
securities at the corporate trust office of the trustee in New York City. That
office is currently located at , New York, New York. You must
make arrangements to have your payments picked up at or wired from that office.
We may also choose to pay interest by mailing checks.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW THEY WILL RECEIVE PAYMENTS.
We may also arrange for additional payment offices, and may cancel or
change these offices, including our use of the trustee's corporate trust office.
These offices are called "paying agents." We may also choose to act as our own
paying agent. We must notify you of changes in the paying agents for any
particular series of debt securities.
NOTICES. We and the trustee will send notices regarding the debt
securities only to direct holders, using their addresses as listed in the
trustee's records.
Regardless of who acts as paying agent, all money paid by us to a paying
agent that remains unclaimed at the end of two years after the amount is due to
direct holders will be repaid to us. After that two-year period, you may look
only to us for payment and not to the trustee, any other paying agent or anyone
else.
SPECIAL SITUATIONS
MERGERS AND SIMILAR EVENTS. We are generally permitted to consolidate or
merge with another company or firm. We are also permitted to sell substantially
all of our assets to another firm, or to buy substantially all of the assets of
another firm. However, we may not take any of these actions unless all the
following conditions are met:
- Where we merge out of existence or sell our assets, the other company or
firm must agree to be legally responsible for the debt securities.
- The merger, sale of assets or other transaction must not cause a default
on the debt securities, and we must not already be in default (unless the
merger or other transaction would cure the default). For purposes of this
no-default test, a default would include an event of default that has
occurred and not been cured, as described later on page 14 under "Events
of default" A default for this purpose would also include any event that
would be an event of default if the requirements for giving us default
notice or our default having to exist for a specific period of time were
disregarded.
- It is possible that the merger, sale of assets or other transaction would
cause some of our property to become subject to a mortgage or other legal
mechanism giving lenders preferential rights in that property over other
lenders or over our general creditors if we fail to pay them back. We
have promised to limit these preferential rights on our property, called
"liens", as discussed later on page 11 under "Restrictive
covenants -- Restrictions on liens." If a merger or other transaction
would create any liens on our property, we must comply with that
restrictive covenant. We would do this either by deciding that the liens
were permitted, or by
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following the requirements of the restrictive covenant to grant an
equivalent or higher-ranking lien on the same property to you and the
other direct holders of the debt securities.
- We must deliver certain certificates and other documents to the trustee.
- We must satisfy any other requirements specified in the prospectus
supplement.
MODIFICATION AND WAIVER. There are three types of changes we can make to
the indenture and the debt securities.
1. Changes Requiring Your Approval. First, there are changes that cannot be
made to your debt securities without your specific approval. Following is a list
of those types of changes:
- change the stated maturity of the principal or interest on a debt
security;
- reduce any amounts due on a debt security;
- reduce the amount of principal payable upon acceleration of the maturity
of a debt security following a default,
- change the place or currency of payment on a debt security;
- impair your right to sue for payment;
- reduce the percentage of holders of debt securities whose consent is
needed to modify or amend the indenture,
- reduce the percentage of holders of debt securities whose consent is
needed to waive compliance with certain provisions of the indenture or to
waive certain defaults, and
- modify any other aspect of the provisions dealing with modification and
waiver of the indenture.
2. Changes Requiring a Majority Vote. The second type of change to the
indenture and the debt securities is the kind that requires a vote in favor by
holders of debt securities owning a majority of the principal amount of the
particular series affected. Most changes fall into this category, except for
clarifying changes and certain other changes that would not adversely affect
holders of the debt securities. The same vote would be required for us to obtain
a waiver of all or part of the restrictive covenants described under
"Restrictive covenants" on page 11, or a waiver of a past default. However, we
cannot obtain a waiver of a payment default or any other aspect of the indenture
or the debt securities listed in the first category described previously on page
10 under "Changes Requiring Your Approval" unless we obtain your individual
consent to the waiver.
3. Changes Not Requiring Approval. The third type of change does not
require any vote by holders of debt securities. This type is limited to
clarifications and certain other changes that would not adversely affect holders
of the debt securities in any material way.
FURTHER DETAILS CONCERNING VOTING. When taking a vote, we will use the
following rules to decide how much principal amount to attribute to a security:
- For original issue discount securities, we will use the principal amount
that would be due and payable on the voting date if the maturity of the
debt securities were accelerated to that date because of a default.
- For debt securities whose principal amount is not known (for example,
because it is based on an index), we will use a special rule for that
security described in the prospectus supplement.
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- For debt securities denominated in one or more foreign currencies or
currency units, we will use the U.S. dollar equivalent.
Debt securities will not be considered outstanding, and therefore not
eligible to vote, if we have deposited or set aside in trust for you money for
their payment or redemption. Debt securities will also not be eligible to vote
if they have been fully defeased as described later on page 13 under "Full
defeasance."
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding debt securities that are
entitled to vote or take other action under the indenture. In certain limited
circumstances, the trustee will be entitled to set a record date for action by
holders. If we or the trustee set a record date for a vote or other action to be
taken by holders of a particular series, that vote or action may be taken only
by persons who are holders of outstanding debt securities of that series on the
record date and must be taken within 180 days following the record date or a
shorter period that we may specify (or as the trustee may specify, if it set the
record date). We may shorten or lengthen (but not beyond 180 days) this period
from time to time.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE SEEK TO
CHANGE THE INDENTURE OR THE DEBT SECURITIES OR REQUEST A WAIVER.
RESTRICTIVE COVENANTS
RESTRICTIONS ON LIENS. Some of our property may be subject to a mortgage
or other legal mechanism that gives our lenders preferential rights in that
property over other lenders (including you and the other direct holders of the
debt securities) or over our general creditors if we fail to pay them back.
These preferential rights are called "liens." We promise that we will not become
obligated on any new debt that is secured by a lien on any of our principal
manufacturing properties, or on any shares of stock or debt of any of our
principal subsidiaries, unless we grant an equivalent or higher-ranking lien on
the same property to you and the other direct holders of the debt securities.
We do not need to comply with this restriction if the amount of all debt
that would be secured by liens on principal manufacturing properties (including
the new debt, the debt securities which we would so secure as described in the
previous sentence, and all "attributable debt," as described under "Restriction
on sales and leasebacks" below, that results from a sale and leaseback
transaction involving principal manufacturing properties) is less than 10% of
our consolidated net tangible assets.
This restriction on liens does not apply to debt secured by certain types
of liens, and we can disregard this debt when we calculate the limits imposed by
this restriction. These types of liens include:
- liens on the property of any of our principal subsidiaries, or on their
shares of stock or debt, if those liens existed at the time the
corporation became our principal subsidiary;
- liens in favor of us or our principal subsidiaries;
- liens in favor of U.S. Governmental bodies that we granted in order to
assure our payments to such bodies that we owe by law or because of a
contract we entered into;
- liens on property that existed at the time we acquired the property
(including property we may acquire through a merger or similar
transaction) or that we granted in order to purchase the property
(sometimes called "purchase money mortgages"); and
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- liens on the buildings or property of our facilities in Bristol,
Tennessee and Rochester, Michigan.
We can also disregard debt secured by liens that extend, renew or replace
any of these types of liens.
We and our subsidiaries are permitted to have as much unsecured debt as we
may choose.
RESTRICTIONS ON SALES AND LEASEBACKS. We promise that neither we nor any
of our principal subsidiaries will enter into any sale and leaseback transaction
involving a principal manufacturing property, unless we comply with this
restrictive covenant. A "sale and leaseback transaction" generally is an
arrangement between us or a principal subsidiary and a bank, insurance company
or other lender or investor where we or the principal subsidiary lease a
property which was or will be sold by us or the principal subsidiary to that
lender or investor more than 120 days after the completion of construction of
the property and the beginning of its full operation.
We can comply with this restrictive covenant in either of two different
ways. First, we will be in compliance if we or our principal subsidiary could
grant a lien on the principal manufacturing property in an amount equal to the
attributable debt for the sale and leaseback transaction without being required
to grant an equivalent or higher-ranking lien to you and the other direct
holders of the debt securities under the restrictions on liens covenant
described above on page 11. Second, we can comply if we retire an amount of
funded debt, within 120 days of the transaction, equal to at least the net
proceeds of the sale of the principal manufacturing property that we lease in
the transaction or the fair value of that property (subject to credits for
certain voluntary retirements of debt securities and funded debt we may make),
whichever is greater.
This restriction on sale and leasebacks does not apply to any sale and
leaseback transaction that is between us and one of our principal subsidiaries
or between principal subsidiaries, or that involves a lease for a period of
three years or less.
CERTAIN DEFINITIONS RELATING TO OUR RESTRICTIVE COVENANTS. Following are
the meanings of the terms that are important in understanding the restrictive
covenants previously described.
- "attributable debt" means, in connection with any sale or leaseback
transaction, the lesser of (i) the fair value of the property subject to
the sale and leaseback transaction (as determined by our board of
directors) and (ii) the total net amount of rent (discounted at a rate
per annum equal to a composite rate of interest on all outstanding debt
securities) that is required to be paid during the remaining term of the
lease on this property.
- "consolidated net tangible assets" is the total amount of assets (less
reserves and certain other permitted deductible items), after subtracting
all current liabilities and all goodwill, trade names, trademarks,
patents, unamortized debt discounts and expenses and similar intangible
assets, as such amounts appear on our most recent consolidated balance
sheet and computed in accordance with generally accepted accounting
principles.
- "funded debt" means all debt for borrowed money that either has a
maturity of 12 months or more from the date on which the calculation of
funded debt is made or has a maturity of less than 12 months from that
date but is by its terms renewable or extendible beyond 12 months from
that date at the option of the borrower.
- A "principal manufacturing property" is any building or other structure
or facility, and the land on which it sits and its associated fixtures,
that we or our principal subsidiaries use primarily for manufacturing or
processing, other than a building, structure or other facility that
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our board of directors has determined is not of material importance to
the total business that we and our principal subsidiaries conduct.
- A "principal subsidiary" means any of Monarch Pharmaceuticals, Inc.,
Parkedale Pharmaceuticals, Inc., or King Pharmaceuticals of Nevada, Inc.
DEFEASANCE
The following discussion of full defeasance and covenant defeasance will be
applicable to your series of debt securities only if we choose to have them
apply to that series. If we do so choose, we will state that in the prospectus
supplement.
FULL DEFEASANCE. If there is a change in federal tax law, as described
below, we can legally release ourselves from any payment or other obligations on
the debt securities (called "full defeasance") if we put in place the following
other arrangements for you to be repaid:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates.
- There must be a change in current federal tax law or an IRS ruling that
lets us make the above deposit without causing you to be taxed on the
debt securities any differently than if we did not make the deposit and
just repaid the debt securities ourselves. (Under current federal tax
law, the deposit and our legal release from the debt securities would be
treated as though we took back your debt securities and gave you your
share of the cash and notes or bonds deposited in trust. In that event,
you could recognize gain or loss on the debt securities you give back to
us.)
- We must deliver to the trustee a legal opinion of our counsel confirming
the tax law change described above.
If we ever did accomplish full defeasance, as described above, you would
have to rely solely on the trust deposit for repayment on the debt securities.
You could not look to us for repayment in the unlikely event of any shortfall.
Conversely, the trust deposit would most likely be protected from claims of our
lenders and other creditors if we ever become bankrupt or insolvent.
COVENANT DEFEASANCE. Under current federal tax law, we can make the same
type of deposit described above and be released from some of the restrictive
covenants in the debt securities. This is called "covenant defeasance." In that
event, you would lose the protection of those restrictive covenants but would
gain the protection of having money and securities set aside in trust to repay
the debt securities. In order to achieve covenant defeasance, we must do the
following:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates.
- We must deliver to the trustee a legal opinion of our counsel confirming
that under current federal income tax law we may make the above deposit
without causing you to be taxed on the debt securities any differently
than if we did not make the deposit and just repaid the debt securities
ourselves.
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If we accomplish covenant defeasance, the following provisions of the
indenture and the debt securities would no longer apply:
- Our promises regarding conduct of our business previously described under
"Restrictive covenants" on page 11, and any other covenants applicable to
the series of debt securities and described in the prospectus supplement.
- The condition regarding the treatment of liens when we merge or engage in
similar transactions, as previously described on page 9 under "Mergers
and similar events."
- The events of default relating to breach of covenants and acceleration of
the maturity of other debt, described later under "Default and related
matters".
If we accomplish covenant defeasance, you can still look to us for
repayment of the debt securities if there were a shortfall in the trust deposit.
In fact, if one of the remaining events of default occurred (such as our
bankruptcy) and the debt securities become immediately due and payable, there
may be such a shortfall. Depending on the event causing the default, you may not
be able to obtain payment of the shortfall.
DEFAULT AND RELATED MATTERS
RANKING. The debt securities are not secured by any of our property or
assets. Accordingly, your ownership of debt securities means you are one of our
unsecured creditors. The debt securities are not subordinated to any of our
other debt obligations and therefore they rank equally with all our other
unsecured and unsubordinated indebtedness.
EVENTS OF DEFAULT. You will have special rights if an event of default
occurs and is not cured, as described later in this subsection.
The term "event of default" means any of the following:
- We do not pay the principal or any premium on a debt security on its due
date.
- We do not pay interest on a debt security within 30 days of its due date.
- We do not deposit any sinking fund payment on its due date.
- We remain in breach of a restrictive covenant described beginning on page
11 or any other term of the indenture for 60 days after we receive a
notice of default stating we are in breach. The notice must be sent by
either the trustee or holders of 10% of the principal amount of debt
securities of the affected series.
- We file for bankruptcy or certain other events in bankruptcy, insolvency
or reorganization occur.
- Any other event of default described in the prospectus supplement occurs.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under the indenture.
REMEDIES IF AN EVENT OF DEFAULT OCCURS. If an event of default has
occurred and has not been cured, the trustee or the holders of 25% in principal
amount of the debt securities of the affected series may declare the entire
principal amount of all the debt securities of that series to be due and
immediately payable. This is called a declaration of acceleration of maturity.
If an event of default occurs because of certain events in bankruptcy,
insolvency or reorganization, the principal amount of
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all the debt securities of that series will be automatically accelerated,
without any action by the trustee or any holder. A declaration of acceleration
of maturity may be canceled by the holders of at least a majority in principal
amount of the debt securities of the affected series.
Except in cases of default, where the trustee has some special duties, the
trustee is not required to take any action under the indenture at the request of
any holders unless the holders offer the trustee satisfactory protection from
expenses and liability. This protection is called an "indemnity."
If satisfactory indemnity is provided, the holders of a majority in
principal amount of the outstanding debt securities of the relevant series may
direct the time, method and place of conducting any lawsuit or other formal
legal action seeking any remedy available to the trustee. These majority holders
may also direct the trustee in performing any other action under the indenture.
Before you bypass the trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
- You must give the trustee written notice that an event of default has
occurred and remains uncured.
- The holders of 25% in principal amount of all outstanding debt securities
of the relevant series must make a written request that the trustee take
action because of the default, and must offer reasonable indemnity to the
trustee against the cost and other liabilities of taking that action.
- The trustee must have not taken action for 60 days after receipt of the
above notice and offer of indemnity.
- The holders of a majority in principal amount of all outstanding debt
securities of the relevant series must not have given the trustee a
direction that is inconsistent with the above notice.
However, you are entitled at any time to bring a lawsuit for the payment of
money due on your debt security on or after its due date.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO OR MAKE A REQUEST
OF THE TRUSTEE AND TO MAKE OR CANCEL A DECLARATION OF ACCELERATION.
We will furnish to the trustee every year a written statement of certain of
our officers certifying that to their knowledge we are in compliance with the
indenture and the debt securities, or else specifying any default.
REGARDING THE TRUSTEE
The Bank of New York currently acts as trustee under the indenture for our
$150 million 10 3/4% Senior Subordinated Notes due 2009.
DESCRIPTION OF DEBT WARRANTS WE MAY OFFER
We may issue warrants for the purchase of debt securities. Debt warrants
may be issued separately or together with debt securities.
The debt warrants are to be issued under debt warrant agreements to be
entered into between King Pharmaceuticals, Inc. and one or more banks or trust
companies, as debt warrant agent, all as
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will be set forth in the prospectus supplement relating to the debt warrants
being offered by the prospectus supplement. A form of debt warrant agreement,
including a form of debt warrant certificate representing the debt warrants,
reflecting the alternative provisions that may be included in the debt warrant
agreements to be entered into with respect to particular offerings of debt
warrants, is included as an exhibit to the registration statement. See "Where
You Can Find More Information" on page 1 for information on how to obtain a copy
of the form of debt warrant agreement.
The following description of the debt warrant agreements and the debt
warrant certificates and summaries of some provisions of the debt warrant
agreements and the debt warrant certificates do not describe every aspect of the
debt warrants and are subject to, and are qualified in their entirety by
reference to, all the provisions of the applicable debt warrant agreements and
the debt warrant certificates, including definitions of terms used in the debt
warrant agreements and not otherwise defined in this prospectus. For example, in
this section we use some terms that have been given special meaning in the debt
warrant agreements. We also include references in parentheses to some sections
of the debt warrant agreements. Whenever we refer to particular sections or
defined terms of the debt warrant agreement in this prospectus, those sections
or defined terms are incorporated by reference here or in the relevant
prospectus supplement.
TERMS OF THE DEBT WARRANTS ARE TO BE DESCRIBED IN THE PROSPECTUS SUPPLEMENT
The particular terms of each issue of debt warrants, the debt warrant
agreement relating to the debt warrants and the debt warrant certificates
representing debt warrants will be described in the applicable prospectus
supplement. This description will include:
- the initial offering price;
- the currency or currency unit in which the price for the debt warrants is
payable;
- the title, aggregate principal amount and terms of the debt securities
purchasable upon exercise of the debt warrants;
- the title and terms of any related debt securities with which the debt
warrants are issued and the number of the debt warrants issued with each
debt security;
- the date, if any, on and after which the debt warrants and the related
debt securities will be separately transferable;
- the principal amount of debt securities purchasable upon exercise of each
debt warrant and the price at which that principal amount of debt
securities may be purchased upon exercise of each debt warrant;
- the date on which the right to exercise the debt warrants will commence
and the date on which this right will expire;
- the identity of the debt warrant agent;
- if applicable, a discussion of United States federal income tax,
accounting or other considerations applicable to debt warrants; and
- any other terms of the debt warrants.
Debt warrant certificates will be exchangeable for new debt warrant
certificates of different denominations and, if in registered form, may be
presented for registration of transfer, and debt warrants may be exercised, at
the corporate trust office of the debt warrant agent or any other office
indicated in the related prospectus supplement. Before the exercise of debt
warrants, holders of debt
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warrants will not be entitled to payments of principal, premium, if any, or
interest, if any, on the debt securities purchasable upon exercise of the debt
warrants, or to enforce any of the covenants in the indenture.
EXERCISE OF DEBT WARRANTS
Unless otherwise provided in the related prospectus supplement, each debt
warrant will entitle the holder of debt warrants to purchase for cash the
principal amount of debt securities at the exercise price that will in each case
be set forth in, or be determinable as set forth in, the related prospectus
supplement. Debt warrants may be exercised at any time up to the close of
business on the expiration date specified in the prospectus supplement relating
to the debt warrants. After the close of business on the expiration date or any
later date to which the expiration date may be extended by King, unexercised
debt warrants will become void.
Debt warrants may be exercised as set forth in the prospectus supplement
relating to the debt warrants. Upon receipt of payment and the debt warrant
certificate properly completed and duly executed at the corporate trust office
of the debt warrant agent or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the debt securities
purchasable upon exercise of the debt warrants to the person entitled to them.
If fewer than all of the debt warrants represented by the debt warrant
certificate are exercised, a new debt warrant certificate will be issued for the
remaining amount of debt warrants.
If you hold your interest in a debt warrant indirectly, you should check
with the institution through which you hold your interest in the debt warrant to
determine how these provisions will apply to you. See "Legal Ownership" on page
4 for a general description of the procedures and rights applicable to indirect
owners of debt warrants.
MODIFICATIONS
The debt warrant agreement may be amended by King and the debt warrant
agent, without the consent of the holder of any debt warrant certificate, for
the purpose of curing any ambiguity, or of curing, correcting or supplementing
any defective provision contained in the debt warrant agreement, or making any
provisions in regard to matters or questions arising under the debt warrant
agreement that we may deem necessary or desirable; provided that the amendment
may not adversely affect the interest of the holders of debt warrant
certificates in any material respect. We and the debt warrant agent also may
modify or amend the debt warrant agreement and the terms of the debt warrants,
with the consent of the owners of not less than a majority in number of the then
outstanding unexercised debt warrants affected. However, any modification or
amendment that increases the exercise price, shortens the period of time during
which the debt warrants may be exercised or otherwise materially and adversely
affects the exercise rights of the owners of debt warrants or reduces the number
of debt warrants the consent of whose owners is required for modification or
amendment of the debt warrant agreement or the terms of the debt warrants may be
made only with the consent of the owners affected by the modification or
amendment.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
Under the debt warrant agreement, we may, to the extent permitted in the
indenture, consolidate with, or sell or convey all or substantially all of our
assets to, or merge with or into, any other corporation. If at any time there is
a merger, consolidation, sale, transfer, conveyance or other disposition of
substantially all of the assets of King, the successor or assuming corporation
will succeed to and be substituted for King, with the same effect as if it had
been named in the debt
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warrant agreement and in the debt warrants as King. We will then be relieved of
any further obligation under the debt warrant agreement or under the debt
warrants.
ENFORCEABILITY OF RIGHTS; GOVERNING LAW
The debt warrant agent will act solely as an agent of King in connection
with the issuance and exercise of debt warrants and will not assume any
obligation or relationship of agency or trust for or with any holder of a debt
warrant certificate or any owner of a beneficial interest in debt warrants. The
holders of debt warrant certificates, without the consent of the debt warrant
agent, the trustee, the holder of any debt securities issued upon exercise of
debt warrants or the holder of any other debt warrant certificates, may, on
their own behalf and for their own benefit, enforce, and may institute and
maintain any suit, action or proceeding against King suitable to enforce, or
otherwise in respect of, their rights to exercise debt warrants evidenced by
their debt warrant certificates. Except as may otherwise be provided in the
related prospectus supplement, each issue of debt warrants and the applicable
debt warrant agreement will be governed by and construed in accordance with the
law of the State of New York.
DESCRIPTION OF PREFERRED STOCK WE MAY OFFER
Each series of preferred stock will have specific financial and other terms
which will be described in a prospectus supplement. The description of the
preferred stock that is set forth in any prospectus supplement is not complete
without reference to the Second Amended and Restated Charter of King of King
Pharmaceuticals, Inc.
Our Charter authorizes the Board of Directors to issue up to 15,000,000
shares of preferred stock, no par value per share, in one or more series. As of
December 31, 1999, we had neither designated nor issued shares of preferred
stock. The number of authorized shares of preferred stock may be increased or
decreased by the affirmative vote of the holders of a majority of the
outstanding stock of King without the separate vote of holders of preferred
stock as a class.
Our Board of Directors is authorized to designate, for each series of
preferred stock, the following items, among others:
- the maximum number of shares in the series;
- the designation of the series;
- the dividend rate, or basis for determining such rate, if any, on the
shares of the series;
- whether dividends will be cumulative and, if so, from which date or
dates;
- whether the shares of the series will be redeemable and, if so, the
dates, prices and other terms and conditions of redemption;
- whether we will be obligated to purchase or redeem shares of the series
pursuant to a sinking fund or otherwise, and the prices, periods and
other terms and conditions upon which the shares of the series will be
redeemed or purchased;
- whether the shares of the series will be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the rate or rates of conversion or exchange, the terms of adjustment,
if any, and whether the shares of the series will be convertible or
exchangeable at our option or the option of holders of preferred shares,
or both;
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- whether the shares of the series will have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of those voting
rights;
- the rights of the shares of the series in the event of the voluntary or
involuntary liquidation, dissolution or winding up of King; and
- any other relative rights, powers, preferences, qualifications,
limitations or restrictions relating to the shares of the series.
The shares of preferred stock of any one series will be identical with each
other except for the dates from which dividends will cumulate, if at all. The
shares of preferred stock will be fully paid and nonassessable.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus through agents,
underwriters or dealers, directly or indirectly to one or more purchasers.
The accompanying prospectus supplement will identify or describe:
- any underwriters, dealers or agents;
- their compensation;
- the net proceeds to King;
- the purchase price of the securities;
- the initial public offering price of the securities; and
- any exchange on which the securities are listed.
AGENTS. We may designate agents who agree to use their reasonable efforts
to solicit purchases for the period of their appointment to sell securities on a
continuing basis.
UNDERWRITERS. If we use underwriters for a sale of securities, the
underwriters will acquire the securities for their own account. The underwriters
may resell the securities in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be changed from time to
time.
DIRECT SALES. We may also sell securities directly to one or more
purchasers without using underwriters or agents.
Underwriters, dealers, and agents that participate in the distribution of
the securities may be underwriters as defined in the Securities Act of 1933, and
any discounts or commissions they receive from us and any profit on their resale
of the debt securities may be treated as underwriting discounts and commissions
under the Securities Act. We may have agreements with the underwriters, dealers
and agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us in the ordinary course of
their businesses.
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VALIDITY
The validity of the securities offered by this prospectus will be passed
upon for King by Baker, Donelson, Bearman & Caldwell, Johnson City, Tennessee,
and for any underwriters or agents by counsel named in the prospectus
supplement.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of King as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
incorporated in this registration statement by reference to the financial
statements in the Annual Report on Form 10-K, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in auditing and accounting.
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