SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
KING PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[John Gregory's Letterhead]
May 22, 2002
To the Shareholders of
KING PHARMACEUTICALS, INC.
You are cordially invited to attend the annual meeting of shareholders
of King Pharmaceuticals, Inc., to be held on Friday, June 28, 2002 at 2:00 p.m.,
Eastern time, at the MeadowView Conference Resort & Convention Center in
Kingsport, Tennessee. At the meeting, you will be asked to:
- elect three Class I directors to serve until the 2005 annual
meeting of shareholders;
- ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2002; and
- consider and act upon any other matters which properly come
before the annual meeting or any adjournment of the meeting.
In connection with the meeting, we are sending you a notice of the
annual meeting of shareholders, a proxy statement, and a form of proxy. These
materials are enclosed.
Your vote is very important. You can vote by signing, dating and
returning the enclosed proxy card. Also, registered and most beneficial
shareholders may vote by telephone or through the Internet. Instructions for
using these convenient services are set forth on the enclosed proxy. I urge you
to vote your proxy as soon as possible.
Detailed information relating to King's activities and operating
performance during 2001 is contained in our Annual Report, which is being mailed
to you with this proxy statement, but is not a part of the proxy soliciting
material. If you do not receive or do not have access to the 2001 Annual Report,
please notify our Corporate Affairs department by mail at 501 Fifth Street,
Bristol, Tennessee 37620 or by telephone at (423) 989-8711.
Very truly yours,
/s/ JOHN M. GREGORY
JOHN M. GREGORY
Chairman of the Board
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 2002
The regular annual meeting of shareholders of King Pharmaceuticals, Inc.
will be held on June 28, 2002 at 2:00 p.m., Eastern time, at the MeadowView
Conference Resort & Convention Center, Kingsport, Tennessee, for the following
purposes:
1. ELECTION OF DIRECTORS. To elect three Class I directors to serve
until the 2005 annual meeting of shareholders;
2. RATIFICATION OF AUDITORS. To ratify the selection of
PricewaterhouseCoopers LLP as independent auditors for 2002; and
3. OTHER BUSINESS. To transact such other business as may properly
come before the meeting or any adjournment of the meeting.
Only those shareholders of record at the close of business on May 6,
2002 are entitled to notice of, and to vote at, the annual meeting and any
adjournment thereof. On that day, 247,990,894 shares of common stock were
outstanding. Each share entitles the holder to one vote.
We have enclosed with this notice a proxy statement and a form of proxy.
We have also enclosed a copy of our 2001 Annual Report, which is not part of the
proxy solicitation material.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JOSEPH R. GREGORY
JOSEPH R. GREGORY
Secretary
May 22, 2002
================================================================================
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
REGISTERED AND MOST BENEFICIAL SHAREHOLDERS MAY ALSO VOTE VIA
TELEPHONE OR THROUGH THE INTERNET.
TICKET REQUIRED FOR ADMISSION
IF YOU WISH TO ATTEND THE SHAREHOLDERS' MEETING, YOU WILL BE REQUIRED TO PRESENT
THE ADMISSION TICKET ENCLOSED WITH THESE PROXY MATERIALS, AS WELL AS A
VALID PHOTOGRAPHIC IDENTIFICATION.
================================================================================
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
PROXY STATEMENT
FOR 2002 ANNUAL MEETING OF SHAREHOLDERS
Your vote is very important. For this reason, the Board of Directors is
requesting that, if you are not able to attend the annual meeting of
shareholders, you allow your common stock to be represented at the meeting by
the proxies named in the enclosed proxy card. This proxy statement, the form of
proxy and the annual report are being sent to you in connection with this
request and are being mailed to all shareholders beginning on May 22, 2002.
INFORMATION ABOUT THE ANNUAL MEETING
WHEN IS THE ANNUAL MEETING?
Friday, June 28, 2002, 2:00 p.m. Eastern time.
WHERE WILL THE ANNUAL MEETING BE HELD?
MeadowView Conference Resort & Convention Center, 1901 MeadowView
Parkway, Kingsport, Tennessee, (423) 578-6600.
WHAT ITEMS WILL BE VOTED UPON AT THE MEETING?
You will be voting on the following matters:
1. ELECTION OF DIRECTORS. To elect three Class I directors to serve
until the 2005 annual meeting of shareholders;
2. RATIFICATION OF AUDITORS. To ratify the selection of
PricewaterhouseCoopers LLP as independent auditors for 2002; and
3. OTHER BUSINESS. To transact such other business as may properly
come before the meeting or any adjournment of the meeting.
WHO CAN VOTE?
You are entitled to vote your common stock if our records show that you
held your shares as of the close of business on the record date, May 6, 2002.
Each shareholder is entitled to one vote for each share of common stock held on
that date. On May 6, 2002, there were 247,990,894 shares of common stock
outstanding and entitled to vote.
2
HOW DO I VOTE BY PROXY?
You may choose one of the following ways to vote:
Vote by Internet: You can choose to vote your shares at any time using
the Internet site listed on your proxy card. This site will give you the
opportunity to make your selections and confirm that your instructions have been
followed. We have designed our Internet voting procedures to authenticate your
identity by use of a unique control number found on the enclosed proxy card. To
take advantage of the convenience of voting on the Internet, you must subscribe
to one of the various commercial services that offers access to the World Wide
Web. Costs normally associated with electronic access, such as usage and
telephone charges, will be borne by you. King does not charge any separate fees
for access to its web site. If you vote via the Internet, you do not need to
return your proxy card.
Vote by Telephone: You can also vote by telephone at any time by calling
the toll-free number (for residents of the U.S.) listed on your proxy card. To
vote, enter the control number listed on your proxy card and follow the simple
recorded instructions. If you vote by telephone, you do not need to return your
proxy card.
Vote by Mail: If you choose to vote by mail, simply mark your proxy
card, and then date, sign and return it in the postage-paid envelope provided.
Shareholders who hold their shares beneficially in street name through a
nominee (such as a broker) may be able to vote by telephone or the Internet as
well as by mail. You should follow the instructions you receive from your
nominee to vote these shares.
WHAT ARE MY VOTING OPTIONS?
Regarding the ratification of auditors, you may vote "FOR" or "AGAINST"
or you may "ABSTAIN" from voting. For the election of directors, you may vote
for (1) all of the nominees, (2) none of the nominees, or (3) all of the
nominees except those you designate.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
The Board recommends that you vote
- "FOR" the election of all of our nominees for director;
- "FOR" the ratification of PricewaterhouseCoopers LLP as our
independent auditors.
If you return your signed proxy card but do not specify how you want to
vote your shares, we will vote them according to the recommendations of the
Board, described above.
If any matters other than those set forth above are properly brought
before the annual meeting, the individuals named in your proxy card may vote
your shares in accordance with the recommendations of management.
3
HOW DO I CHANGE OR REVOKE MY PROXY?
You can change or revoke your proxy at any time before it is voted at
the annual meeting by:
(1) submitting another proxy in writing, by telephone or by the
Internet as of a more recent date than that of the proxy first
given;
(2) attending the annual meeting and voting in person; or
(3) sending written notice of revocation to our corporate secretary,
Joseph R. Gregory.
HOW MANY VOTES ARE REQUIRED?
If a quorum is present at the annual meeting,
- the director nominees will be elected by a plurality of the
votes cast in person or by proxy at the meeting; and
- the approval of the independent auditors and all other matters
submitted to the shareholders will require the affirmative vote
of a majority of the shares of common stock present or
represented by proxy at the meeting.
WHAT CONSTITUTES A "QUORUM" FOR THE MEETING?
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. A quorum is necessary to conduct business at the annual
meeting. You are part of the quorum if you have voted by proxy. Abstentions,
broker non-votes and votes withheld from director nominees count as "shares
present" at the meeting for purposes of determining a quorum. However,
abstentions and broker non-votes do not count in the voting results. A broker
non-vote occurs when a broker or other nominee who holds shares for another does
not vote on a particular item because the nominee does not have discretionary
authority for that item and has not received instructions from the owner of the
shares.
WHO PAYS FOR THE SOLICITATION OF PROXIES?
We will pay the cost of preparing, printing and mailing material in
connection with this solicitation of proxies. In addition to solicitation by
mail, regular employees of King and paid solicitors may make solicitations
personally and by telephone or otherwise. We will, upon request, reimburse
brokerage firms, banks and others for their reasonable out-of-pocket expenses in
forwarding proxy material to beneficial owners of stock or otherwise in
connection with this solicitation of proxies. We have retained Georgeson
Shareholder Communications, Inc. to assist in the solicitation for a fee of
$6,000 plus reasonable out-of-pocket expenses.
WHEN ARE THE 2003 SHAREHOLDER PROPOSALS DUE?
Proposals by shareholders to be considered for inclusion in the proxy
materials solicited by the directors for the annual meeting in 2003 must be
received by the Corporate Secretary, 501 Fifth Street, Bristol, Tennessee 37620,
no later than JANUARY 15, 2003. The use of certified mail, return receipt
requested, is advised. To be eligible for inclusion, a proposal must also comply
with Rule 14a-8 and all other applicable provisions of Regulation 14A under the
Securities Exchange Act of 1934, as amended. Shareholder proposals not submitted
for inclusion in the board of
4
directors' proxy statement but which are received on or prior to April 7, 2003
may be eligible to be presented at the meeting. Shareholder proposals which are
received after April 7, 2003 will be considered untimely. Accordingly, the
Chairman may exclude the proposal from consideration or the proxies may exercise
their discretion and vote on these matters in a manner they determine to be
appropriate.
5
THE PROPOSALS
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PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board has nominated James E. Gregory, R. Charles Moyer and D.
Gregory Rooker to serve as Class I directors. We do not anticipate that any of
these nominees will be unavailable for election but, if such a situation arises,
the proxy will be voted in accordance with the recommendations of management
unless you have directed otherwise. The remaining members of the Board, listed
below, will continue as members of the Board until their respective terms
expire, as indicated below, or until they resign or are removed.
INFORMATION ABOUT THE THREE PERSONS NOMINATED TO BE DIRECTORS AND THE
REMAINING MEMBERS OF THE BOARD IS PROVIDED BELOW. SHARES OF COMMON STOCK
REPRESENTED BY PROXY CARDS RETURNED TO US WILL BE VOTED FOR THE NOMINEES LISTED
BELOW UNLESS YOU SPECIFY OTHERWISE.
NOMINEES FOR ELECTION AS CLASS I DIRECTOR
(TERM EXPIRING 2005)
JAMES E. GREGORY, age 51, served as Executive Vice President of King
from 1995 until 2000 and served as Executive Vice President/General Manager from
1998 to 2000. Prior to joining King, he served in several administrative
positions with the District of Columbia Court System, including Deputy Executive
Officer of Operations, as the Deputy County Recorder for Maricopa County,
Arizona (Phoenix), as a judicial administrator for the Superior Court of Arizona
in Maricopa County and as a management consultant to various state court
systems. He earned a Master's degree in Public Administration from American
University in Washington, D.C. in 1979 and a Bachelor of Arts degree with a
major in History from the University of Maryland in 1973.
R. CHARLES MOYER, PH.D., age 56, has served as a director of King since
December 2000. Dr. Moyer also currently serves as the Dean of the Babcock
Graduate School of Management at Wake Forest University, a position he has held
since 1996, and presently holds the GMAC Insurance Chair of Finance. Prior to
joining the faculty at Wake Forest in 1988, Dr. Moyer was Finance Department
Chairman at Texas Tech University. Dr. Moyer earned his Doctorate in Finance and
Managerial Economics from the University of Pittsburgh in 1971, his Masters of
Business Administration from the University of Pittsburgh in 1968, and his
Bachelor of Arts degree in Economics from Howard University in 1967.
D. GREG ROOKER, age 54, has served as a director of King since October
1997. Mr. Rooker is the former owner and President of Family Community
Newspapers of Southwest Virginia, Inc., Wytheville, Virginia, which consists of
six community newspapers and a national monthly motor sports magazine. He is a
co-founder of the Jason Foundation and Brain Injury Services of SWVA, Inc., each
a non-profit organization providing services to brain injury survivors. Mr.
Rooker serves without compensation as Secretary/Treasurer of the Jason
Foundation and as President of Brain Injury Services of SWVA, Inc. Mr. Rooker is
a graduate of Northwestern University with a degree in Journalism.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED ABOVE.
ELECTION OF DIRECTORS REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
PLURALITY OF THE SHARES OF COMMON STOCK REPRESENTED AT THE ANNUAL MEETING.
6
INCUMBENT DIRECTORS -- CLASS II
(TERMS EXPIRING 2003)
JOSEPH R. GREGORY, age 47, has served as President of Monarch
Pharmaceuticals, Inc., a wholly owned subsidiary of King, since 1994, has served
as a director of King since 1993 and as Vice Chairman of the Board of Directors
since December 1997. Prior to joining King, he was the Chief Operating Officer
of General Injectables and Vaccines, Inc. from 1987 to 1994 and also served as
the President of its subsidiary Insource/Williams, Inc. from 1989 to 1994. He
previously served as President of The Buying Group Network/A Service of
Pharmacist Shared Services. He graduated from the University of Maryland School
of Business with a Bachelor of Science degree in Business Administration in
1977.
FRANK W. DEFRIECE, JR., age 81, has served as a director since October
1997. He has served as President, Vice President, fund administrator and board
member of the Massengill DeFriece Foundation, Inc. since 1950. Since 1946 he
served in various capacities with the S.E. Massengill Company. He served as
President of the S.E. Massengill Company from 1960 to 1971 when the company was
purchased by Beecham, Inc. From 1971 to 1973, he served as Board Member Vice
Chairman of Beecham, Inc. He graduated from Roanoke College with a Bachelor of
Science in Chemistry in 1946.
EARNEST W. DEAVENPORT, JR., age 63, has served as a director since May
2000. He was formerly Chairman of the Board and Chief Executive Officer of
Eastman Chemical Company, Kingsport, Tennessee, where he had served in various
capacities since 1960. He was Chairman of the National Association of
Manufacturers in 1998 and is currently a member of the National Academy of
Engineering. Mr. Deavenport is also a member of the boards of directors of
AmSouth Bancorporation and Theragenics Corporation, each a publicly-held
corporation. Mr. Deavenport graduated from Mississippi State University with a
Bachelor of Science in Chemical Engineering in 1960 and from Massachusetts
Institute of Technology with a Masters of Science in Management in 1985.
INCUMBENT DIRECTORS -- CLASS III DIRECTORS
(TERMS EXPIRING 2004)
JEFFERSON J. GREGORY, age 46, has served as Chief Executive Officer of
King since January 1, 2002 and has been elected by the Board to serve as its
Chairman beginning on June 28, 2002. He previously served as President of King
Pharmaceuticals, Inc. from 1993 to 2002. He has served as President of Parkedale
Pharmaceuticals, Inc., a wholly owned subsidiary of King, since February 1998,
as President of King Pharmaceuticals Research and Development, Inc. since
November 2001, as President of Jones Pharma Incorporated since November 2000 and
as a director since 1995. He was formerly the Director of Regulatory Affairs and
Product Information for General Injectables and Vaccines, Inc. from 1991 to 1993
and was a consultant to the pharmaceutical industry from 1989 to 1991. He
formerly served as a registered pharmacist in retail pharmacies in the
Washington D.C. and Baltimore, Maryland metropolitan areas. He graduated from
the University of Maryland School of Law with a Juris Doctor in 1985, University
of Maryland School of Pharmacy with a Bachelor of Science degree in Pharmacy in
1979, and Montgomery College with an Associate of Arts degree in 1976.
ERNEST C. BOURNE, age 60, has served as President of the International
Division of King since January 1999 and as a director since October 1997. From
1968 until January 1999, he had been employed with Bourne & Co., Inc., an
investment banking firm, where he served as President.
GREGORY D. JORDAN, PH.D., age 50, has served as a director since June
2001. He has served as President of King College in Bristol, Tennessee since
1997, having joined the King College faculty in 1980. He received a Bachelor of
Arts degree from Belhaven College and Masters of Arts and Divinity degrees from
Trinity Evangelical Divinity School. He earned his Doctorate in Hebraic and
Cognate Studies from Hebrew Union College -- Jewish Institute of Religion.
7
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INFORMATION ABOUT THE BOARD OF DIRECTORS
ROLE OF THE BOARD
Pursuant to Tennessee law, our business, property and affairs are
managed under the direction of our Board of Directors. The Board has
responsibility for establishing broad corporate policies and for the overall
performance and direction of King Pharmaceuticals, Inc., but is not involved in
day-to-day operations. Members of the Board keep informed of our business by
participating in Board and committee meetings, by reviewing analyses and reports
sent to them regularly, and through discussions with our executive officers.
BOARD STRUCTURE
We currently have nine directors. Our Board is divided into three
groups, Class I directors, Class II directors, and Class III directors. Each
class of directors is elected to serve a three year term. This means that the
Class I directors who are elected at the 2002 meeting will serve until the 2005
annual meeting of shareholders unless they resign or are removed.
2001 BOARD MEETINGS
In 2001, the Board met 15 times. All directors attended at least 75% of
the aggregate of all of the Board meetings and meetings held by committees of
which they were members.
BOARD COMMITTEES
The Board has established an Audit Committee, a Compensation Committee
and a Stock Option Committee.
THE AUDIT COMMITTEE, which currently consists of D. Greg Rooker, Earnest
W. Deavenport, Jr., Frank W. DeFriece, Jr., Gregory D. Jordan and R. Charles
Moyer has the authority and responsibility to hire one or more independent
public accountants to audit our books, records and financial statements and to
review our systems of accounting (including our systems of internal control); to
discuss with the independent accountants the results of the annual audit and
quarterly reviews; to conduct periodic independent reviews of the systems of
accounting (including systems of internal control); to monitor compliance with
King's investment policy; and to make reports periodically to the Board of
Directors with respect to its findings. The audit committee met 5 times in 2001.
THE COMPENSATION COMMITTEE, which during 2001 consisted of the entire
Board, met 2 times during 2001. The Compensation Committee evaluates the
performance of King's executive officers and determines their compensation.
However, no director who also serves as an executive officer participated in
deliberations about his own compensation. For 2002, Earnest W. Deavenport, Jr.,
Gregory D. Jordan and R. Charles Moyer, all of whom are independent directors,
will serve as the Compensation Committee.
THE STOCK OPTION COMMITTEE, which currently consists of Joseph R.
Gregory, Frank W. DeFriece, Jr. and D. Greg Rooker, is responsible for
administering and determining awards under King's stock option plans. The Stock
Option Committee met once during 2001.
8
DIRECTOR COMPENSATION
Each non-employee director of King receives an annual fee of $24,000,
payable quarterly, plus a fee of $1,000 for participation in each Board meeting.
Non-employee directors also receive $1,000 for each committee meeting attended
on a day when a meeting of the Board is not convened and $500 for each meeting
attended on a day when a meeting of the Board is convened. The chairman of the
Audit Committee is paid an annual fee of $6,000 and the chairman of the Stock
Option Committee is paid an annual fee of $3,000. A non-employee director who
performs special assignments at the direction of the chairman of the Board
receives a fee of $2,000 per day when at least one-half of the business day has
been completely devoted to the assignment requested by the chairman. Travel
expenses related to Board or committee meetings are reimbursed. The Non-Employee
Director Stock Option Plan was adopted in 1998. Options exercisable for 153,332
shares of common stock have been issued to our current non-employee directors.
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PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected PricewaterhouseCoopers LLP, independent
accountants, to audit our financial statements for the 2002 fiscal year.
PricewaterhouseCoopers LLP served as our independent accountants during 2001.
We are presenting this proposal to the shareholders for ratification at
the annual meeting. A representative of PricewaterhouseCoopers LLP is expected
to be present at the meeting, will have the opportunity to make a statement, and
is expected to be available to respond to appropriate questions.
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS KING'S
INDEPENDENT AUDITORS REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE SHARES OF COMMON STOCK REPRESENTED AT THE ANNUAL MEETING.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS KING'S INDEPENDENT AUDITORS FOR THE 2002 FISCAL
YEAR.
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9
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee consists of five directors, Earnest W. Deavenport,
Jr., Frank W. DeFriece, Jr., Gregory D. Jordan, R. Charles Moyer, and D. Greg
Rooker. The members meet the independence and qualification standards required
by the New York Stock Exchange. The Audit Committee operates in accordance with
its written charter, which was adopted by the Board in 2001. During 2001 the
Audit Committee met 5 times.
King's management is responsible for King's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an audit of King's financial statements in accordance with generally
accepted auditing standards and for expressing an opinion about those statements
based upon its audit. The Audit Committee, on behalf of the Board, monitors and
reviews the performance of the independent auditors and the quality and
integrity of King's internal accounting, auditing and financial reporting
practices. The Audit Committee's chief duties are to:
- hire one or more independent public accountants to audit King's
books, records and financial statements and to review its system
of accounting, including its systems of internal control;
- monitor and evaluate, independently and objectively, King's
internal financial controls and financial reporting procedure;
- discuss with the independent accountants the results of their
audits and reviews;
- monitor compliance with King's investment policy;
- periodically communicate the Audit Committee's findings to the
Board; and
- facilitate communication among the Board, the independent
auditors, and King's management.
The Audit Committee has obtained from the independent auditors,
PricewaterhouseCoopers LLP, a formal written statement describing all
relationships between the auditors and King that might bear on the auditors'
independence. This statement conforms to Independence Standards Board Standard
No. 1, as amended, "Independence Discussions with Audit Committees." The Audit
Committee has also discussed with the auditors any relationships that may impact
their objectivity and independence. The Audit Committee has also considered
whether provision of the services described under the section "Audit Fees" is
compatible with maintaining the independence of the independent auditors. The
Audit Committee is satisfied that the auditors are independent of King.
The Audit Committee has discussed with management King's audited
financial statements for the year ended December 31, 2001. The Audit Committee
has also discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended ("Communication
with Audit Committees") and, with and without management present, discussed and
reviewed the results of the independent auditors' examination of King's
financial statements. The Audit Committee has also discussed with the
independent auditors their evaluation of King's internal controls, and the
overall quality of King's financial reporting.
Based upon the results of the inquiries and actions discussed above, in
reliance upon management and PricewaterhouseCoopers LLP, and subject to the
limitations of our role, the Audit Committee recommended to the Board that
King's audited financial statements be included in its Annual Report on Form
10-K for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission. The Audit Committee has also recommended the reappointment,
subject to shareholder approval, of the independent auditors,
PricewaterhouseCoopers LLP.
MEMBERS OF THE AUDIT COMMITTEE
Earnest W. Deavenport, Jr. Frank W. DeFriece, Jr.
Gregory D. Jordan R. Charles Moyer
D. Greg Rooker
10
AUDIT FEES
During 2001, PricewaterhouseCoopers LLP not only acted as independent
auditors for King and our subsidiaries (work related to auditing the annual
financial statements for fiscal year 2001 and reviewing the financial statements
included in our Forms 10-Q) but also rendered on our behalf other services,
including tax-related services, management consulting services and other
accounting and auditing services. The following table sets forth the aggregate
fees billed or expected to be billed by PricewaterhouseCoopers LLP for audit
services rendered in connection with the financial statements and reports for
fiscal year 2001 and for other services rendered during fiscal year 2001 on our
behalf, as well as all "out-of-pocket" costs incurred in connection with these
services, which have been or will be billed to us.
- Audit Fees (for the audit of the 2001 financial statements): $ 493,479
- Financial Information Systems Design and Implementation Fees: -0-
----------
- All Other Fees:
Audit-related services 387,984
Income tax compliance and related tax services 766,224
Transaction support services 219,665
Registration statement filing services 372,534
Internal audit 82,000
ERP systems need assessment 298,795
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Total Other Fees 1,754,668
----------
Total Fees $2,248,147
==========
11
KING STOCK OWNERSHIP
The following table sets forth certain information regarding the
ownership of the common stock as of May 1, 2002, for (i) each person who owns
more than 5% of the common stock, (ii) each director, nominee for director and
executive officer of King, and (iii) all executive officers and directors of
King as a group.
BENEFICIAL
OWNERSHIP OF
COMMON STOCK
-------------------------
PERCENTAGE
EXECUTIVE OFFICER, DIRECTORS NUMBER OUTSTANDING
AND 5% SHAREHOLDERS OF SHARES SHARES(1)
-------------------------------------------- ----------- -----------
John M. Gregory(2).......................... 12,254,486 4.9
Joseph R. Gregory(3)........................ 3,883,518 1.6
Jefferson J. Gregory(4)..................... 1,979,900 *
Kyle P. Macione(5).......................... 50,920 *
Ernest C. Bourne(6)......................... 331,403 *
James R. Lattanzi(7)........................ 40,300 *
John A. A. Bellamy(8)....................... 143,777 *
Earnest W. Deavenport, Jr.(9)............... 24,833 *
Frank W. DeFriece, Jr.(10).................. 73,333 *
James E. Gregory............................ 96,600 *
Gregory D. Jordan (11)...................... 10,000 *
R. Charles Moyer(9)......................... 23,466 *
D. Greg Rooker(12).......................... 195,562 *
All executive officers and directors as a
group (12 persons)(13).................... 19,011,498 7.7
Putnam Investments LLC(14).................. 16,464,778 6.6
The Summit Fund, LLC(15).................... 11,924,413 4.8
----------
* Less than 1%
(1) Unless otherwise indicated, beneficial ownership consists of sole voting
and investing power based on 247,990,894 shares issued and outstanding
as of May 6, 2002. Options to purchase shares which are exercisable or
become exercisable within 60 days of May 6, 2002 are deemed to be
outstanding for the purpose of computing the percentage of outstanding
shares owned by each person to whom a portion of such options relate but
are not deemed to be outstanding for the purpose of computing the
percentage owned by any other person.
(2) Includes 7,753,054 shares jointly owned with Mr. Gregory's spouse;
925,633 shares owned by S.J., LLC, a limited liability company, the
primary members of which are Mr. Gregory's children, 3,499,999 shares
held in blind trusts and 75,800 shares registered in the name of The
Lazarus Foundation, Inc., a private foundation controlled by John M.
Gregory. Mr. Gregory's address is 501 Fifth Street, Bristol, Tennessee
37620.
(3) Includes 1,094,106 shares owned through Kingsway L.L.C., a limited
liability company, the primary members of which are Mr. Gregory, his
spouse and his son, 1,399,999 shares held in blind trusts and 183,331
shares issuable upon the exercise of options. Mr. Gregory's address is
501 Fifth Street, Bristol, Tennessee 37620.
(4) Includes 1,169,881 shares jointly owned with Mr. Gregory's spouse,
466,666 held in a blind trust and 87,333 shares beneficially owned by
Gregory Investments, L.P., the general partners of which are Mr. Gregory
and his spouse and 183,331 shares issuable upon the exercise of options
granted to Mr. Gregory.
12
(5) Includes 37,000 shares issuable upon the exercise of options.
(6) Includes 138,331 shares issuable upon the exercise of options.
(7) Includes 300 shares jointly owned with Mr. Lattanzi's spouse and 40,000
shares issuable upon the exercise of options.
(8) Includes 54,999 shares issuable upon the exercise of options. Mr.
Bellamy has been named in a criminal proceeding in the State of
Tennessee related to the offenses of driving under the influence and
while license was suspended or revoked. Trial is scheduled for July
2002. Mr. Bellamy has pleaded not guilty and intends to assert his
defenses in court. We believe Mr. Bellamy's ability to serve the company
in his present capacity remains materially unimpaired during the
pendency of this proceeding.
(9) Includes 23,333 shares issuable upon the exercise of options.
(10) Includes 73,333 shares issuable upon the exercise of options.
(11) Includes 10,000 shares issuable upon the exercise of options.
(12) Includes 33,332 shares held in trust for the benefit of Mr. Rooker's
children; 8,549 shares owned by Mr. Rooker's spouse, 13,420 shares owned
by The Jason Foundation, a private foundation controlled by Mr. Rooker
and 73,333 shares issuable upon the exercise of options.
(13) Includes 830,324 shares subject to options exercisable within 60 days.
(14) Based on a Schedule 13G filed with the SEC on behalf of Putnam
Investments, LLC; Marsh & McLennon Companies, Inc.; Putnam Investment
Management, LLC; and The Putnam Advisory Company, LLC, One Post Office
Square, Boston, Massachusetts 02109.
(15) Based on a Schedule 13G filed with the SEC on behalf The Summit Fund,
LLC, The United Company, United Management Company, LLC, Nicholas D.
Street, James W. McGlothlin, Lois A. Clarke, Wayne L. Bell and Ted G.
Wood. The address of The Summit Fund, LLC is 1005 Glenway Avenue,
Bristol, Virginia 24201. Nicholas D. Street, James W. McGlothlin, Lois
A. Clarke, Wayne L. Bell and Ted G. Wood, affiliates of The Summit Fund,
LLC, own 1,664,799 shares; 1,103,332 shares; 168,807 shares; 83,200
shares; and 42,666 shares, respectively.
Messrs. John M. Gregory, Joseph R. Gregory, Jefferson J. Gregory and
James E. Gregory are brothers. Jefferson J. Gregory and Joseph R. Gregory serve
as executive officers and directors of King. John M. Gregory serves as the
Chairman of the Board. James E. Gregory has been nominated to serve as a
director.
13
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by our chief
executive officer and by each of the four other most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000 for
services rendered in all capacities for the year ended December 31, 2001.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------ LONG-TERM ALL OTHER
NAME AND CURRENT PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION COMPENSATION(1)
----------------------------------- ---- --------- -------- ------------ ---------------
SECURITIES
UNDERLYING
OPTIONS(#)
John M. Gregory (2)...................... 2001 455,810 100,000 --0-- 46,401
Chairman of the Board and Chief 2000 365,376 --0-- --0-- 5,100
Executive Officer 1999 361,188 --0-- --0-- 4,800
Joseph R. Gregory........................ 2001 450,810 75,000 25,000 45,749
Vice Chairman of the 2000 303,548 --0-- 33,333 5,100
Board and President, 1999 301,188 --0-- 49,999 4,800
Monarch Pharmaceuticals, Inc.
Jefferson J. Gregory (2) (3)............. 2001 450,540 75,000 25,000 30,408
President of King; 2000 300,359 --0-- 33,333 5,100
President of Parkedale Pharmaceuticals, 1999 300,729 --0-- 49,999 4,800
King Pharmaceuticals
Research and Development and Jones
Pharma Incorporated
Ernest C. Bourne......................... 2001 452,322 75,000 25,000 26,564
President, International Division 2000 306,515 --0-- 33,333 5,100
1999 303,186 --0-- 49,999 4,800
James R. Lattanzi(4)..................... 2001 300,810 35,000 10,000 17,238
Chief Financial Officer 2000 69,818 --0-- 46,665 2,088
----------
(1) Reflects matching contributions to the 401(k) plan, relocation expense
reimbursement and income related to the personal use of corporate
aircraft.
(2) Jefferson J. Gregory became Chief Executive Officer of King on January
1, 2002.
(3) Kyle P. Macione became of President of King on April 29, 2002.
(4) Mr. Lattanzi became Chief Financial Officer during 2000.
14
The following table sets forth the number of options to purchase shares of
common stock that had been granted to executive officers named in the Summary
Compensation Table above as of December 31, 2001.
OPTIONS/SARS GRANTED IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
------------------- ---------- ------------- ----------- ---------- ------- ---------
Joseph R. Gregory..... 25,000 2.9 38.91 2011 611,757 1,550,313
Jefferson J. Gregory.. 25,000 2.9 38.91 2011 611,757 1,550,313
Ernest C. Bourne...... 25,000 2.9 38.91 2011 611,757 1,550,313
James R. Lattanzi..... 10,000 1.2 38.91 2011 244,703 620,125
The following table discloses information regarding stock options held
at the end of or exercised in fiscal year 2001 for executive officers named in
the summary Compensation Table above as of December 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 2001 AT DECEMBER 31, 2001(1)
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- -------- ----------- ------------- ----------- -------------
Joseph R. Gregory..... -0- -0- 183,331 -0- 4,172,975 -0-
Jefferson J. Gregory.. -0- -0- 183,331 -0- 4,172,975 -0-
Ernest C. Bourne...... -0- -0- 138,331 -0- 2,487,128 -0-
James R. Lattanzi..... -0- -0- 40,000 16,666 624,987 331,460
----------
(1) Based on $42.13 per share, the closing price of the common stock as
quoted on the New York Stock Exchange Stock at December 31, 2001.
The following table provides information about our equity compensation
plans.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
TO BE ISSUED UPON WEIGHTED-AVERAGE NUMBER OF SECURITIES
EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE FOR
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
------------- ------------------- ------------------- -------------------------
Equity compensation plans
approved by shareholders 4,648,646 $20.83 9,088,319
Equity compensation plans
not approved by shareholders -0- n/a -0-
--------- ---------
Total 4,648,646 9,088,319
========= =========
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors served as the Compensation Committee in 2001. No
director who also serves as an executive officer participated in deliberations
regarding his own compensation. For 2002, Earnest W. Deavenport, Jr., Gregory D.
Jordan and R. Charles Moyer, all of whom are independent directors, will serve
as the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
During 2001 the entire Board assumed the responsibility for reviewing
and approving compensation for the executive officers. However, no director who
also serves as an executive officer participated in deliberations about his own
compensation. For 2002, Earnest W. Deavenport, Jr., Gregory D. Jordan and R.
Charles Moyer, all of whom are independent directors, will serve as the
Compensation Committee.
In determining executive compensation for 2001, the Board attempted to
make executive compensation sufficient to attract and retain persons of
exceptional quality, and to provide effective incentives to motivate and reward
such executives for achieving the scientific, financial and strategic goals
essential to King's long-term success and growth in shareholder value. The
typical executive compensation package consisted of three main components: (1)
base salary, (2) the potential for cash bonuses and (3) options to purchase
King's common stock.
BASE COMPENSATION
During 2001, the Board's approach was to offer executive salaries
competitive with those of other executives in King's industry. To that end, the
Board evaluated the competitiveness of its base salaries based upon information
drawn from various sources, including published and proprietary survey data and
King's own experience in recruiting and training executives and professionals.
Base salary levels are intended to be consistent with competitive practice and
level of responsibility, with salary increases reflecting competitive trends,
our overall financial performance and the performance of the individual
executive.
BONUSES
In addition to base salary, executives and managers are eligible to
receive discretionary bonuses from time to time. The amount of the bonus and any
performance criteria vary with the position and role of the individual. A cash
bonus was awarded to each of the executive officers during 2001.
STOCK OPTION GRANTS
During 2001, the Stock Option Committee granted stock options to each of
the executive officers, other than John M. Gregory, in order to provide them
with a competitive total compensation package and to reward them for their
contribution to the long-term price performance of our common stock. Grants of
stock options are designed to align executive officers' interests with those of
our shareholders. The Stock Option Committee determines option awards for
executive officers.
BOARD OF DIRECTORS ACTING AS COMPENSATION COMMITTEE FOR 2001
John M. Gregory, Chairman of the Board
Jefferson J. Gregory Joseph R. Gregory
Ernest C. Bourne Earnest W. Deavenport, Jr.
Frank W. DeFriece, Jr. Gregory D. Jordan
R. Charles Moyer D. Greg Rooker
16
PERFORMANCE GRAPH
The graph below compares the performance of King since its initial
public offering in June 1998 with the S&P 500 Index and a peer group index. It
shows an investment of $100 on June 25, 1998. The peer group index includes
United States pharmaceutical companies which trade on the New York Stock
Exchange.
Comparison of Five -- Year Cumulative Total Returns
Performance Graph for
King Pharmaceuticals, Inc.
Produced on 04/24/2002 including data to 12/31/2001
CRSP Total Returns Index for: 06/1998 12/1998 12/1999 12/2000 12/2001
----------------------------- ------- ------- ------- ------- -------
King Pharmaceuticals, Inc. 100.0 188.4 600.7 830.7 902.8
S&P 500 Stocks 100.0 109.9 133.1 121.2 106.9
NYSE Stocks (SIC 2830-2839 100.0 116.2 103.6 146.5 129.3
US Companies) Drugs
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our officers and directors are subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) requires
these persons to file with the SEC reports of their holdings and transactions in
King Pharmaceuticals, Inc. common stock and options. Based on our records and
representations from these persons, we believe that SEC beneficial ownership
reporting requirements for 2001 were met.
17
CERTAIN TRANSACTIONS
King Pharmaceuticals Benevolent Fund, Inc. is a nonprofit corporation
organized under the laws of the Commonwealth of Virginia and is exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code. The Board of
Directors of the Benevolent Fund includes John M. Gregory, Joseph R. Gregory and
Jefferson J. Gregory who are also executive officers and directors of King. At
December 31, 2001, the Benevolent Fund was not indebted to King. The Benevolent
Fund is independent of King, maintains its own accounting records and its
activities are not directly related to the business of King. We donated to the
Benevolent Fund inventory with a cost of approximately $4.1 million in 2001 and
$3.3 million in 2000.
King made charitable contributions during 2001 to King College, Bristol,
Tennessee, of approximately $100,000. Mr. Jordan, one of our directors, serves
as the President of King College.
During 2001 we paid James E. Gregory, a nominee for director,
approximately $65,000 for consulting services related to operating budget and
expenditure control monitoring.
OTHER MATTERS
The Board knows of no matters which will be presented at the 2002 annual
meeting other than those discussed in this proxy statement. However, if any
other matters are properly brought before the meeting, any proxy given pursuant
to this solicitation will be voted in accordance with the recommendations of
management.
Upon the written request of any record holder or beneficial owner of
common stock entitled to vote at the annual meeting, we will provide, without
charge, a copy of our annual report on Form 10-K for the year ended December 31,
2001. Requests should be directed to our Corporate Affairs Department, King
Pharmaceuticals, Inc., 501 Fifth Street, Bristol Tennessee 37620 (which is the
address of King's principal executive offices), (423) 989-8711.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JOSEPH R. GREGORY
JOSEPH R. GREGORY
Secretary
Bristol, Tennessee
May 22, 2002
18
PROXY
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2002 ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints each of Kyle P. Macione and John A. A.
Bellamy or either of them, with full power of substitution and revocation as
Proxy, to vote all shares of stock standing in my name on the books of King
Pharmaceuticals, Inc. (the "Company") at the close of business on May 6, 2002,
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company to be held at MeadowView
Conference Resort & Convention Center, 1901 MeadowView Parkway, Kingsport,
Tennessee, on Friday, June 28, 2002, at 2:00 p.m., Eastern time, and at any and
all adjournments, upon the matters set forth in the Notice of the meeting. The
Proxy is further authorized to vote according to the recommendation of
management as to any other matters which may come before the meeting. At the
time of preparation of the Proxy Statement, the Board of Directors knows of no
business to come before the meeting other than that referred to in the Proxy
Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BELOW AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR
THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
--------------------------------------------------------------------------------
(1) Election of three Class I directors to serve until the 2005 Annual
Meeting of Shareholders, or until their successors have been duly elected and
qualified.
[ ] FOR all nominees listed below (except as indicated to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
James E. Gregory R. Charles Moyer D. Greg Rooker
Instruction: To withhold authority to vote for any individual
nominee, write such nominee's name in the space provided below.
---------------------------------------------------------------
(2) Ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent accountants and auditors for 2002.
[ ] For [ ] Against [ ] Abstain
--------------------------------------------------------------------------------
The undersigned hereby acknowledges receipt of the Notice of the 2002
Annual Meeting of Shareholders of King Pharmaceuticals, Inc. and the related
Proxy Statement.
Dated: _________, 2002 Signed: _________________________________________________
[Label to be placed here] Signed: _________________________________________________
Shareholder should sign here exactly as shown on
the label affixed hereto. Administrator, Trustee,
or Guardian, please give full title. If more than
one Trustee, all should sign. All Joint Owners
should sign.
Please indicate if you plan to attend the Annual Meeting of Shareholders. [ ] Yes [ ] No
PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO:
American Stock Transfer
59 Maiden Lane, Plaza Level
New York, NY 10038