<PAGE>
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-------------------------------------------------------
SECURITIES EXCHANGE ACT OF 1934
-------------------------------
(X) Quarterly report for the quarterly period ended December 31, 1994
---------------------------
OR
( ) Transition Report Pursuant To Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission file number 1-9601
---------------------------------------------------------
K-V PHARMACEUTICAL COMPANY
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-0618919
- - --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 645-6600
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Title of Class of Number of Shares
Common Stock Outstanding as of this Report Date
---------------- ----------------------------------
Class A Common Stock, par value $.01 per share 6,631,427
Class B Common Stock, par value $.01 per share 4,724,840
<PAGE>
PART I
FINANCIAL INFORMATION
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended December 31, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
------------------------ ------------------------
<S> <C> <C> <C> <C>
12/31/94 12/31/93 12/31/94 12/31/93
----------- ----------- ----------- -----------
Revenues:
Net sales $11,545,515 $ 9,899,802 $27,757,028 $27,922,273
Investment income 0 3,399 0 30,196
----------- ----------- ----------- -----------
Total Revenues 11,545,515 9,903,201 27,757,028 27,952,469
----------- ----------- ----------- -----------
Costs and Expenses:
Manufacturing costs 6,262,109 6,281,521 17,927,233 18,911,799
Research and development 1,042,553 1,355,284 3,408,214 4,074,306
Selling and administrative 3,131,357 2,743,824 8,867,396 8,209,139
Interest expense 344,063 229,887 906,272 626,372
Amortization of intangible
assets 162,966 121,737 488,651 354,220
----------- ----------- ----------- -----------
Total Costs & Expenses 10,943,048 10,732,253 31,597,766 32,175,836
----------- ----------- ----------- -----------
Income (Loss) before
income taxes 602,467 (829,052) (3,840,738) (4,223,367)
Provision for income taxes:
Current - - - -
Deferred - - - -
----------- ----------- ----------- -----------
Total - - - -
----------- ----------- ----------- -----------
Net Income (Loss) $ 602,467 $ (829,052) $(3,840,738) $(4,223,367)
=========== =========== =========== ===========
Net Income (Loss) per Common
Share (after deducting
preferred dividends:
$105,438 for the three months
ended December 31, 1994 and
1993 and $316,314 for the
nine months ended December 31,
1994 and 1993). $0.04 $(0.09) $(0.37) $(0.41)
===== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and March 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
12/31/94 03/31/94
------------ ------------
<S> <C> <C>
ASSETS
- - ------
Current Assets:
Cash and equivalents $ 1,191,620 $ 506,982
Receivables 7,655,329 6,712,036
Inventories 8,703,710 9,772,562
Prepaid and other 251,208 298,903
------------ ------------
Total Current Assets 17,801,867 17,290,483
------------ ------------
Property and equipment 20,001,743 19,761,593
Less accumulated depreciation and amortization (11,545,085) (10,668,201)
------------ ------------
Net Property and Equipment 8,456,658 9,093,392
------------ ------------
Deferred Improved Drug Entities(TM) 3,105,551 3,533,716
Goodwill and other 1,971,825 1,884,569
------------ ------------
TOTAL ASSETS $ 31,335,901 $ 31,802,160
============ ============
LIABILITIES
- - -----------
Current Liabilities:
Current maturities of long-term debt $ 6,965,119 $ 365,119
Accounts payable 4,659,117 3,387,867
Accrued liabilities 2,324,456 1,383,395
------------ ------------
Total Current Liabilities 13,948,692 5,136,381
------------ ------------
Long-term debt and other 6,537,205 13,322,760
------------ ------------
Total Liabilities 20,485,897 18,459,141
------------ ------------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
- - --------------------
Preferred stock 2,410 2,410
Class A common stock 66,314 63,050
Class B common stock 47,248 48,011
Additional paid-in capital 23,049,736 21,704,514
Retained deficit (12,260,751) (8,420,013)
Less cost of Class A and Class B
common stock in treasury (54,953) (54,953)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 10,850,004 13,343,019
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 31,335,901 $ 31,802,160
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Quarters Ended December 31, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B Additional
Preferred Common Common Paid-In Retained Treasury
Stock Stock Stock Capital Deficit Stock
--------- -------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 $2,410 $62,821 $48,232 $21,701,860 $ (3,633,034) $(54,953)
Stock options exercised,
385 Shares of Class A & Class B
Common Stock - 4 4 2,717 - -
16,400 Shares of Class B converted
to Class A Common Stock - 164 (164) - - -
Net income (loss) for Quarter
Ended December 31, 1993 - - - - (829,052) -
------ ------- ------- ----------- ------------ --------
BALANCE AT DECEMBER 31, 1993 $2,410 $62,989 $48,072 $21,704,577 $ (4,462,086) $(54,953)
====== ======= ======= =========== ============ ========
BALANCE AT SEPTEMBER 30, 1994 $2,410 $63,050 $48,013 $21,702,805 $(12,863,218) $(54,953)
Sale of 250,000 Shares of
Class A Common Stock - 2,500 - 1,346,563 - -
Stock options repurchased,
150 shares of Class A and 250
shares of Class B Common Stock - (1) (3) - - -
Stock options exercised,
250 shares of Class A Common
Stock - 3 - 368 - -
76,266 shares of Class B converted
to Class A Common Stock - 762 (762) - - -
Net income for Quarter Ended
December 31, 1994 - - - - 602,467 -
------ ------- ------- ----------- ------------ --------
BALANCE AT DECEMBER 31, 1994 $2,410 $66,314 $47,248 $23,049,736 $(12,260,751) $(54,953)
====== ======= ======= =========== ============ ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended December 31, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(3,840,738) $(4,223,367)
Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,423,591 1,156,576
Changes in operating assets and liabilities:
(Increase) decrease in receivables (943,293) 3,369,387
Net (increase) decrease in inventories
and other current assets 1,116,547 (2,150,845)
Increase (decrease) in accounts payable
and accrued liabilities 2,212,311 (60,197)
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (31,582) (1,908,446)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (298,247) (1,033,661)
Other, net (147,701) (169,985)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (445,948) (1,203,646)
----------- -----------
FINANCING ACTIVITIES
Proceeds from credit facilities 6,075,000 10,550,000
Repayment of credit facilities (5,800,000) (9,700,000)
Principal payments on long-term debt (460,555) (464,803)
Dividends paid on preferred stock - (115,982)
Exercise (repurchase) of common stock options (1,339) 9,645
Proceeds from sale of common stock 1,349,062 -
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,162,168 278,860
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 684,638 (2,833,232)
Cash and cash equivalents at
beginning of year 506,982 3,556,066
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF QUARTER $ 1,191,620 $ 722,834
=========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
NOTES TO SUMMARIZED FINANCIAL INFORMATION
NOTE A -- BASIS OF PRESENTATION
The interim financial statements presented here have been prepared in
conformity with the accounting principles and practices and methods of applying
the same (including consolidating practices) reflected in the Annual Report of
the Company on Form 10-K for the year ended March 31, 1994 filed with the
Commission, except that detailed footnotes and schedules are not included.
Reference is hereby made to the footnotes and schedules contained in the Annual
Report. All significant intercompany balances and transactions have been
eliminated and, in the opinion of management, all adjustments, which are of a
normal recurring nature only, necessary to present a fair statement of the
results of the Company and its subsidiaries have been made.
NOTE B -- EARNINGS PER SHARE
Net income (loss) per common share is computed by dividing net income
(loss), less/plus preferred dividends by the weighted average number of common
shares and common share equivalents (if dilutive) outstanding during the period.
Preferred dividends used in this calculation for the three-month periods ended
December 31, 1994 and 1993 were $105,438. Undeclared and unaccrued cumulative
preferred dividends for the nine-month periods ended December 31, 1994 and 1993
were $1,360,146 and $938,394, respectively. Common share equivalents consist of
those common shares that would be issued upon the exercise of outstanding stock
options. The weighted average number of shares used in the computations was
11,436,390 and 11,055,661 for the quarters ended December 31, 1994 and 1993,
respectively, and 11,106,320 and 11,054,733 for the nine-month periods ended
December 31, 1994 and 1993, respectively. Primary and fully-diluted income
(loss) per share was the same for each of the periods presented since the
exercise of options is anti-dilutive.
7
<PAGE>
NOTE C -- REGULATORY ACTIVITIES
Substantially all the products seized in the previously reported FDA action
have been certified and released in accordance with a Consent Decree entered
into between the Company and the FDA in June of 1993. No assurance can be given
as to the time period required until the certification process is completed.
NOTE D -- SUBSEQUENT EVENT - CREDIT AGREEMENT
Subsequent to December 31, 1994, the Company and its principal lender
modified certain covenants of its existing credit agreement to eliminate certain
past violations relating to maintaining certain financial levels and ratios,
established new covenants through April 29, 1995, with previously existing
covenants essentially remaining in effect thereafter and postponed a scheduled
$2,900,000 reduction in the bank's loan commitment from March 1 to April 1,
1995. (See Management's Discussion and Analysis.)
NOTE E -- SUBSEQUENT EVENT - SALE OF STOCK
Subsequent to December 31, 1994, the Company entered into agreements under
which it sold 75,000 shares of Class A Common Stock (par value $.01 per share)
for approximately $425,000. This amount, along with the approximately
$1,350,000 in proceeds from the sale of 250,000 shares in the third fiscal
quarter, was added to working capital and applied, in part, to the reduction of
long-term debt.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS
------------------------------------------------------------
(a) Liquidity and Capital Resources
1. Working Capital
During the quarter ended December 31, 1994, working capital increased
$1,111,224 (40%), to $3,853,175. This increase is the result of increases in
cash and receivables of $523,096 (78%), and $2,050,728 (37%), respectively, a
decrease in payables and accruals of $27,075, which was partially offset by a
decrease in inventories and other current assets of $824,675 (8%). The increase
in cash resulted principally from the sale of 250,000 shares of Class A Common
Stock for approximately $1,350,000. Working capital for the nine months ended
December 31, 1994 decreased $8,300,927 (68%). This decrease was the result of
increases in cash and receivables of $684,638 (135%), and $943,293 (14%),
respectively, and an increase in payables and accruals of $2,212,311 (46%) and
current maturities of long-term debt of $6,600,000, which were partially offset
by a decrease in inventories and other current assets of $1,116,547 (11%).
Cash used in operating activities is primarily related to the net loss of
$3,840,738 for the nine-month period. Financing activities reflect a net
decrease in borrowing of $735,555. The ratio of current assets to current
liabilities was 1.3 to 1 as of December 31, 1994, compared to 4.0 to 1 as of
December 31, 1993.
The Company is obligated to make a reduction of approximately $2.9 million
on its bank line of credit at the end of the fourth quarter of fiscal 1995. The
Company currently believes that funds from operating profits and from financing
it is negotiating to obtain from outside sources, will allow it to meet its
obligations. The Company believes that, until a refinancing or restructuring of
its long-term debt is completed, the capital infusion of approximately
$1,775,000 to date from the sale of Class A Common Stock, together with
additional capital infusions from
9
<PAGE>
other sources which are under negotiation and increased revenues from the
introduction of new ETHEX products and other sales, will be sufficient to meet
the Company's operating needs for the short-term. The Company is currently
working with investment bankers and others to obtain additional sources of
working capital.
2. Profitability:
The net profit for the third quarter of fiscal 1995 was $602,467, an
improvement of $1,431,519 over the net loss for the third quarter of fiscal
1994. The increase in profit over the prior year's quarter was primarily
attributable to increased revenues generated by KV's ETHEX subsidiary in sales
of new and existing products, combined with decreased manufacturing and research
and development costs. Year-to-date, the net loss was $3,840,738 compared to a
net loss of $4,223,367 for the same period of the prior year. The improvement
was attributable to the return to profitability in the third quarter as a result
of the transitioning of the Company to focusing on directly marketing its own
products, particularly 10 new products introduced by the Company's ETHEX
Corporation subsidiary during the current fiscal year. During earlier quarters,
delays were experienced and resulted in incurring increased costs associated
with the initial development, production and process validation and marketing
associated with the reintroduction of seized products and the launching of new
products.
3. Leverage
The ratio of total liabilities to equity decreased to 1.89 to 1 from 2.37 to
1 during the quarter due to the sale of common stock and a return to
profitability and increased from 1.38 to 1 at the end of the prior fiscal year,
primarily due to the year-to-date net loss and increased liabilities.
(b) Results of Operations
1. Revenues:
Consolidated revenues for the third quarter of fiscal 1995 totaled
$11,545,515 compared to $9,903,201 for the third quarter of fiscal 1994, an
increase of $1,642,314 (17%). Year-to-date consolidated revenues were
$27,757,028 compared to $27,952,469 for the same period last year,
10
<PAGE>
a decrease of $195,441. Increased revenues in the third quarter were due to a
more than doubling of sales in KV's ETHEX subsidiary compared to the prior
year's quarter, due to the introduction of 10 new products during the first
three quarters and growth in sales of existing products, while decreases were
experienced in Contract Services due to the planned transitioning of the Company
to focusing on directly marketing its own products through ETHEX. Year-to-date
revenues remained relatively the same, however, the higher margin ETHEX product
segment of revenues constituted more than 60% of the Company's revenue base in
fiscal 1995, as compared to 35% in the prior year.
2. Costs and Expenses:
Manufacturing costs were 54% and 64% of net sales for the quarters ended
December 31, 1994 and 1993, respectively. Manufacturing costs as a percent of
net sales were 65% and 68% for the nine months ended December 31, 1994 and 1993,
respectively. Manufacturing costs as a percent of sales decreased compared to
the prior year's quarter and on a year-to-date basis due to the favorable mix of
higher margin ETHEX products in fiscal 1995.
Research and development costs decreased $312,731 (23%), for the quarter
ended December 31, 1994, compared to the same quarter of the prior year. Year-
to-date, these costs decreased $666,092 (16%), compared to the same period of
the prior year.
Selling and administrative expenses were 27% and 28% of total revenues for
the third quarter of fiscal 1995 and 1994, respectively. These costs were 32%
and 29% of total revenues for the nine months ended December 31, 1994 and 1993,
respectively. During the third quarter, increased costs were due to higher
marketing and support costs associated with ETHEX and an increase in
professional, administrative and support costs.
Interest expense increased $114,176 for the third quarter and $279,900 for
the nine-month period ended December 31, 1994 compared to the prior fiscal year.
These increases were primarily due to higher levels of borrowing against the
Company's credit facility, combined with higher interest rates.
11
<PAGE>
3. Inflation and Changing Trends:
Although the Company generally has been able to pass along to its customers
a portion of cost increases in labor, manufacturing and raw materials under its
agreements, in certain instances no increases were effected due to market
conditions. It is not meaningful to compare changing prices over the past three
years because the products, product formulas, product mix and sources of raw
materials have varied substantially.
The Company is continuing to transition its revenue base from one based on
lower margin, highly competitive, short-term contract manufacturing to one based
on higher margin, technology distinguished generic products, which it is
focusing on marketing through ETHEX Corporation, as well as advanced technology
drug delivery products to be marketed and co-marketed under long-term marketing
agreements and ventures. These advanced technology products (Improved Drug
Entities(TM)) are the subject of a number of long-term business arrangements and
have differentiated and improved benefits derived from KV's drug delivery system
technologies.
Management believes that the Company is operating satisfactorily under the
consent decree agreement entered into with the FDA. No assurances can be given
as to the time period required until the certification process is completed and
there can be no assurances that the sales of all products will be at their
former levels. The Company plan is to continue to implement strategies to focus
on the introduction of additional products through its ETHEX subsidiary and the
de-emphasis of Contract Services. While the costs associated with the
development, validation and introduction of ETHEX products and other products
adversely impacted operating income in the first half of the year, the Company,
through its ETHEX subsidiary, has introduced 10 new products, returned to
profitable operations and is readying additional products to be marketed.
The Company is continuing to work with investment bankers for the purpose of
identifying and consummating transactions to increase the Company's sources of
working capital through additional equity or long-term financing and other
strategic alternatives. The Company does not plan significant capital
expenditures for the current fiscal year and has instituted cost reduction
12
<PAGE>
programs to reduce overall operating expenses to enable it to meet working
capital needs.
PART II. OTHER INFORMATION
Item 5: Other Information.
On December 7, 1994, Dr. Garnet Peck, Ph.D., was appointed by the
Board of Directors to fill the vacancy created by the death of Director
Fred P. Sheridan.
Ted G. Wood, KV's President and Chief Executive Officer retired
as of December 31, 1994.
Item 6: Exhibits and Reports on Form 8-K.
a) Exhibits - See Exhibit Index on page 15.
b) The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1994.
13
<PAGE>
SIGNATURES
- - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KV PHARMACEUTICAL COMPANY
Date: February 14, 1994 /s/ Marc S. Hermelin
------------------- -----------------------
Marc S. Hermelin
Vice Chairman of the Board
Date: February 14, 1994 /s/ Gerald R. Mitchell
------------------ -----------------------
Gerald R. Mitchell
Vice President - Finance
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- - -------------- -----------
4(j) Fourth Amendment to Credit Agreement
dated as of February 10, 1995.
Filed herewith.
4(k) Pledge Agreement between the Registrant
and Bank One, Indianapolis, N.A.
dated as of February 10, 1995.
11 Computation of Earnings (Loss)
Per Share Calculation. Filed
Herewith.
15
<PAGE>
EXHIBIT 4(j)
FOURTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment") is
executed as of the 10th day of February, 1995, by K-V PHARMACEUTICAL COMPANY, a
Delaware corporation (the "Company") and BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION (the "Bank").
Recitals
--------
1. The Company and the Bank are parties to a Credit Agreement, dated
September 30, 1993, as amended by a First Amendment to Credit Agreement, dated
June 28, 1994, as further amended by a Second Amendment to Credit Agreement,
dated as of November 1, 1994, and as further amended by a Third Amendment to
Credit Agreement, dated as of November 14, 1994, all executed by the Company and
the Bank (collectively, as so amended, the "Original Agreement").
2. As of January 31, 1995, the Company did not satisfy the
requirements of Sections 7.g(ii), (iii) and (vi) of the Original Agreement
applicable as of that date (such violations in this Fourth Amendment being
collectively called the "Existing Noncompliance Events"). The term "Existing
Noncompliance Events" does not include any violations of or non-compliance with
any of the provisions of Section 7.g, as amended from time to time, which occur,
continue or exist after the amendments to Section 7.g made pursuant to this
Fourth Amendment.)
3. The Company has requested the Bank, in accordance with and subject
to the terms of this Fourth Amendment, to: (a) agree to an amendment of the
financial covenants of the Company, as set forth in Section 7.g of the Original
Agreement, for the period from January 31, 1995, through March 31, 1995; (b)
agree to amend and reduce the scheduled reduction in the Commitment to occur as
of March 1, 1995, with $2,900,000 of that scheduled reduction being deferred to
April 1, 1995; and (c) agree to other amendments to the Original Agreement,
including a clarification of the application of Sections 7.g (ii) as at
September 30, 1994, and for the period from September 30, 1994, through October
30, 1994, given certain changes in the Company's accounting for the Revolving
Loan.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and their mutual
covenants herein, the Company and the Bank agree as follows:
1. Terms. All terms used in this Fourth Amendment, including its
Recitals, which are defined in the Original Agreement, as amended by this Fourth
Amendment, and which are not otherwise defined herein, shall have the respective
meanings ascribed to them in the Original Agreement, as amended by this Fourth
Amendment.
<PAGE>
2. Amendments to Original Agreement. A. Section 1 of the Original
Agreement is hereby amended by adding thereto new Sections 1.iii and 1.jjj,
reading as follows:
"iii. Fourth Amendment. `Fourth Amendment' means that agreement
entitled `Fourth Amendment to Credit Agreement' between the
Company and the Bank, dated as of February 10, 1995."
"jjj. Pledge Agreement. `Pledge Agreement' means the Pledge
Agreement executed and delivered to the Bank by K-V
pursuant to the requirements of the Fourth Amendment.
Section I.tt of the Original Agreement is hereby amended to read in its entirety
as follows:
"tt. Security Agreements. `Security Agreements' mean Security
Agreement l, the Security Agreement (Intellectual Property), the
Pledge Agreement and the Guarantor Security Agreements and, when
used in the singular form refers to any of them as the context
requires."
B. Section 7.g(i) of the Original Agreement is hereby deleted in its
entirety. Effective as of October 31, 1994, Section 7.g(ii),
Section 7.g(iii), Section 7.g(iv), Section 7.g(v) and Section
7.g(vi) of the Original Agreement each are amended and restated in
their entireties to read as follows:
"g. (ii) Minimum Working Capital. The Company shall maintain an
excess of current assets over current liabilities of
not less than the amounts shown in the following table
on the dates and at all times during the periods
indicated:
<TABLE>
<CAPTION>
Minimum
Working
Period Capital
------ -------
<S> <C> <C>
at Sept. 30, 1994,
and through
Oct. 30, 1994 $ 8,500,000
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
at Oct. 31, 1994,
and through
Nov. 29, 1994 $ 2,400,000
at Nov. 30, 1994,
and through
Dec. 30, 1994 $ 2,800,000
at Dec. 31, 1994,
and through
Jan. 30, 1995 $ 2,600,000
at Jan. 31, 1995,
and through
Feb. 27, 1995 $ 3,100,000
at Feb. 28, 1995,
and through
Mar. 30, 1995 $ 3,400,000
at Mar. 31, 1995,
and through
Apr. 29, 1995 $ 6,800,000
at Apr. 30, 1995,
and at all times
thereafter $18,050,000
</TABLE>
"g. (iii) Tangible Net Worth. The Company shall maintain its
Tangible Net Worth at levels not less than those
shown in the following table on the dates and at
all times during the periods indicated:
<TABLE>
<CAPTION>
Minimum
Tangible Net
Period Worth
------ -----
<S> <C>
at Sept. 30, 1994,
and through
Oct. 30, 1994 $ 6,900,000
at Oct. 31, 1994,
and through
Nov. 29, 1994 $ 6,900,000
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
at Nov. 30, 1994,
and through
Dec. 30, 1994 $ 8,250,000
at Dec. 31, 1994,
and through
Jan. 30, 1995 $ 8,550,000
at Jan. 31, 1995,
and through
Feb. 27, 1995 $ 8,900,000
at Feb. 28, 1995,
and through
Mar. 30, 1995 $ 9,400,000
at Mar. 31, 1995,
and through
Apr. 29, 1995 $ 9,900,000
at Apr. 30, 1995,
and at all times
thereafter $14,700,000
</TABLE>
For purposes of determining compliance with this Section
7.g(iii), the minimum amount of Tangible Net Worth required
hereunder for each indicated date and period which follows
the date any Additional Capital obtained by the Company
automatically shall be increased by an amount equal to the
net proceeds of the Additional Capital is obtained by the
Company, effective as of the date received by the Company."
"g. (iv) Ratio of Liabilities to Tangible Net Worth. The
Company shall maintain the ratio of its total
liabilities to its Tangible Net Worth at levels
not greater than those shown in the following
table on the dates and at all times during the
periods indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
at Sept. 30, 1994,
and through
Oct. 30, 1994 3.1 to 1.0
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
at Oct. 31, 1994,
and through
Nov. 29, 1994 3.3 to 1.0
at Nov. 30, 1994,
and through
Dec. 30, 1994 2.5 to 1.0
at Dec. 31, 1994,
and through
Feb. 27, 1995 2.35 to 1.0
at Feb. 28, 1995,
and through
Mar. 30, 1995 2.25 to 1.0
at Mar. 31, 1995,
and at all times
thereafter 2.0 to 1.0
</TABLE>
For purposes of determining compliance with this covenant,
the term `liabilities' shall include all capital lease
obligations of the Company and its Subsidiaries, determined
as of any date the ratio is to be tested."
"g. (v) Total Adjusted Current Assets. The Company shall
maintain Total Adjusted Current Assets, determined on a
consolidated basis with its Subsidiaries, at or above the
amount shown on the following table on each date indicated:
<TABLE>
<CAPTION>
Total Adjusted
Period Current Assets
------ --------------
<S> <C>
at Sept. 30, 1994 $15,800,000
at Oct. 31, 1994 $16,300,000
at Nov. 30, 1994 $15,500,000
at Dec. 31,1994 $15,600,000
at Jan. 31, 1995 $16,700,000
at Feb. 28, 1995 $16,300,000
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
at Mar. 31, 1995 $16,500,000
and on the last
day of each
calendar month
thereafter
</TABLE>
As used herein, the term Total Adjusted Current Assets means the
sum of the book values, determined in accordance with generally
accepted accounting principles consistently applied, of the
Company's consolidated current assets, less current assets
classified as "Prepaid and other" on the consolidated balance
sheet of the Company, less the amount of all reserves and
allowances outstanding with respect to any of such current
assets, and less the amount, if any, by which the consolidated
book value of inventory exceeds $10,000,000," and plus the
amount, if any, by which the unpaid principal balance of the
Revolving Loan, as of the date of determination, is less than the
Commitment, as then in effect."
"g. (vi) Total Cash and Accounts Receivable. The Company shall maintain Total
Cash and Accounts Receivable, determined on a consolidated basis with
its Subsidiaries, at or above the amount shown on the following table
on the dates and at all times during each of the periods indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
at Nov. 1, 1994,
and through
Nov. 29, 1994 $5,000,000
at Dec. 1, 1994,
and through
Dec. 30, 1994 $5,500,000
at Jan. 1, 1995,
and through
Jan. 30, 1995 $5,500,000
at Feb. 1, 1995,
and through
Feb. 27, 1995 $6,500,000
at Mar. 1, 1995
and through
Mar. 30, 1995 $6,200,000
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
at Apr. 1, 1995,
and at all times
thereafter $6,700,000
</TABLE>
As used herein, the term Total Cash and Accounts Receivable means the
sum of the book values, determined in accordance with generally
accepted accounting principles consistently applied, of the Company's
consolidated current assets which are classified as "Cash" or as
"Accounts Receivable" on the consolidated balance sheet of the
Company, less the amount of all reserves and allowances outstanding
with respect to such current assets, and plus the amount, if any, by
which the unpaid principal balance of the Revolving Loan, as of the
date of determination, is less than the Commitment, as then in
effect."
C. Section 7. b(vii) of the Original Agreement is hereby
amended and restated in its entirety to read as follows:
"(vii) Other Information. (1) At the times stated, each of
the following written reports with respect to the Company
and the Guarantors:
<TABLE>
<CAPTION>
Time: Report
----- ------
<S> <C>
Each day Consolidated reports of: cash, accounts receivable
Weekly - each Consolidated cash flow report for week, with
Wednesday as of comparison of actual cash Friday flow receipts
the preceding and expenditures for each line item to the most
recent cash flow forecast for each such line item
for that week; one line aging of accounts
receivable
Monthly - the fifth Detailed accounts receivable aging reports (and
(5th) day of each accounts payable aging reports, if and as
calendar month prepared by the Company for internal use) for
each of the Company and the Guarantors. The
accounts receivable aging report shall separately
identify,
</TABLE>
7
<PAGE>
by amount and account debtor and as at the date of
the report: (a) rebates and accounts payable due from
the Company or its Subsidiaries to account debtors;
(b) non-trade accounts receivable of the Company and
its Subsidiaries; and (c) accounts receivable due the
Company or its Subsidiaries under royalty-bearing
contracts or license agreements.
(2) From time to time and at any time such other information and reports
concerning the financial condition, activities (including any efforts to
obtain Additional Capital or sell any substantial part of its assets),
relationships and strategic undertakings of the Company or any Subsidiary
as the Bank reasonably may request."
D. The additional text added to the end of Section 2.a of the Original
Agreement by the terms of Section 3 of the Third Amendment is hereby
amended in its entirety to read as follows:
"Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, the amount of the Commitment
automatically shall reduce to the amounts shown in the following
table on the dates and for the periods indicated:
<TABLE>
<CAPTION>
Commitment - Maximum
Date/Period Amount
----------- --------------------
<S> <C>
On December 15, 1994
through December 31, 1994 $ 9,925,000
On January 1, 1995,
through January 31, 1995 $ 9,625,000
On February 1, 1995,
through February 28, 1995 $ 9,325,000
On March 1, 1995,
through March 31, 1995 $ 8,925,000
On April 1, 1995,
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
through April 30, 1995 $5,725,000
On May 1, 1995,
through May 31, 1995 $5,425,000
On June 1, 1995,
through June 30, 1995 $5,125,000
On July 1,1995,
through July 31, 1995 $4,825,000
On August 1, 1995
through August 31, 1995 $4,525,000
On September 1, 1995,
through September 30, 1995 $4,225,000
On October 1, 1995,
through October 31, 1995 $3,925,000
On November 1, 1995,
through November 30, 1995 $3,625,000
On December 1, 1995,
through December, 1995 $3,325,000
On January 1, 1996,
through January 31, 1996 $3,025,000
On February 1, 1996,
through February 28, 1996 $2,725,000
On March 1, 1996,
through March 31, 1996 $2,425,000
On April 1, 1996
and thereafter -0-
</TABLE>
If at any time the unpaid principal balance of the Revolving Loan
exceeds the amount of the Commitment, by reason of a reduction of that
amount or otherwise, the Company shall pay within three (3) Banking
Days to the Bank, without demand or notice of any sort, a principal
amount equal to such excess to be applied against the principal
balance of the Revolving Loan."
9
<PAGE>
D. Section 10.a of the Original Agreement is hereby amended in its
entirety to read as follows:
"a. Nonpayment of the Obligations. Default in the payment when
due of any amount payable under the terms of the Revolving
Note, or any amount payable that relates in any manner to
either of the Letters of Credit, or any amount otherwise
payable to the Bank under the terms of this Agreement."
F. Section 10 of the Original Agreement is hereby amended by adding
thereto a new Section 10.j which reads in its entirety as
follows:
"j. Failure to complete Stock Issuance. The Company shall have
failed to have received by February 28, 1995, at least
$2,000,000 in an aggregate amount of capital proceeds from
the Stock Issuance (it being acknowledged by the Company
and the Bank that as at February 9, 1995, the Company had
received an aggregate amount of capital proceeds from the
Stock Issuance of $1,726,000.)
3. REPRESENTATIONS AND WARRANTIES. The Company hereby affirms and
warrants to the Bank that the representations and warranties contained in the
Original Agreement are complete and correct as of the date of this Fourth
Amendment, except that (i) they shall be deemed also to refer to this Fourth
Amendment, as well as all documents named herein, and (ii) Section 5.d of the
Original Agreement shall be deemed also to refer to the most recent audited and
unaudited consolidated financial statements of the Company furnished to the
Bank.
4. EVENTS OF DEFAULT. The Company certifies and warrants to the
Bank that no Event of Default or Unmatured Event of Default under the Original
Agreement has occurred and is continuing as of the date of this Fourth
Amendment, excepting only the Existing Noncompliance Events.
5. RELEASE. The Company and Guarantors for themselves and their
respective legal representatives, successors, assigns (collectively, the
"Releasing Parties"), each hereby RELEASES AND DISCHARGES the Bank and its
respective officers, directors, agents, employees, attorneys, legal
representatives, successors and assigns (collectively, the "Released Parties")
from any and all claims, demands, damages, and causes of action which any of the
Releasing Parties has asserted or claimed or might now or hereafter assert or
claim against any of the Released Parties, whether known or unknown, arising out
of, related to, or in any way connected with any Prior Related Event (as such
term is hereinafter defined). As used in this Fourth Amendment, the term "Prior
Related Event" shall mean any act, omission, circumstance, agreement, loan,
extension of credit, transaction, event, action or occurrence between or
involving all or any of the Releasing Parties and all or any of the Released
Parties, made, extended or occurring at any time or times
10
<PAGE>
prior to the execution of this Fourth Amendment, and which was related to, based
upon or in any manner connected with, directly or indirectly, any of the
Obligations, the Credit Documents, or the transactions contemplated thereby or
undertaken pursuant thereto or in connection therewith, including without
limitation, without in any respect limiting the generality of the foregoing: (i)
any action taken on or prior to the execution of this Fourth Amendment to obtain
payment or performance of any of the Obligations, or to otherwise enforce or
exercise any right or purported right of the Bank as a creditor of the Company
or either of the Guarantors; and (ii) any refusal by the Bank to waive any
default or noncompliance with any of the terms or requirements of any of the
Credit Documents. The Bank's execution of this Fourth Amendment shall not
constitute an acknowledgement or admission by any of the Released Parties of
liability for any matter or precedent upon which liability may be asserted. The
release granted by this Section 5 is in addition to, and not in substitution or
replacement of, the release granted to the Bank and the other Released Parties
in the Third Amendment. The Company and the Guarantors, respectively, each
acknowledge by their execution of this Fourth Amendment that the execution of
this Fourth Amendment by the Bank is of substantial and continuing value and
benefit to each of them, which value and benefit is of more than adequate
consideration for the release granted by this Section 5.
6. NONCOMPLIANCE WITH ORIGINAL AGREEMENT. The Bank does not waive any of
its rights and remedies available under the Original Agreement, as amended by
this Fourth Amendment, except with respect to the Existing Noncompliance Events.
The Bank and the Company agree that notwithstanding the Bank's execution and
delivery of this Fourth Amendment, the Bank shall retain the right to exercise
all of its rights and remedies at any time under the Agreement and under each of
the other Credit Documents with respect to any Event of Default other than the
Existing Noncompliance Events, including the right to take the actions
authorized in Section 11 of the Agreement. The Company acknowledges and agrees
that all of the Credit Documents are now and, until otherwise agreed in writing
by the Bank and the Company, shall remain in full force and effect in accordance
with their respective terms. Except as set forth in this Fourth Amendment, the
Bank is not waiving any of the terms or provisions of the Credit Documents or
any of their respective rights and remedies thereunder. Any prior, current or
future forbearance by the Bank in the declaration of defaults or the exercise of
rights and remedies (whether such forbearance is done informally or pursuant to
written agreement) shall not: (i) impair, waive, diminish, release, terminate,
prejudice or in any manner affect the rights of the Bank in and to any of the
collateral for the Obligations or any of the Guaranty Agreements or any of the
other rights and remedies of the Bank (whether arising under any of the Credit
Documents or otherwise); or (ii) establish or be deemed to establish any
precedent or course of dealing with respect to any of the Obligations, such
collateral or the Guaranty Agreements.
11
<PAGE>
The Bank hereby waives its right to exercise any of its remedies under
Section 11 of the Agreement or under any of the other Credit Documents by reason
of the Existing Noncompliance Events. Any failure by the Company to comply in
all respects with the Financial Covenants set out in Section 7(g) of the
Agreement after the date of this Fourth Amendment shall constitute an Event of
Default which is not an Existing Noncompliance Event and has not been waived,
directly or by implication, pursuant to the provisions of this Section 6.
The Company acknowledges that it has not provided to the Bank updated,
current financial projections for periods subsequent to March 31, 1995, which
the Company believes are sufficiently complete and reliable to be used by it to
request modifications of the Financial Covenants set out in Section 7.g of the
Original Agreement, as amended by this Fourth Amendment, for any time or period
after March 31, 1995, and that the Bank has not agreed and will not be obligated
to agree to or to accept any such modifications, if and when requested by the
Company.
The Company acknowledges that all of the Obligations are enforceable in
accordance with their respective terms and that the Company does not have any
claim, counterclaim, defense or set-off against the Bank or any of the
Obligations. The limited waiver set forth in this Section 6 shall not be
construed to be, and is not, a commitment or undertaking, express or implied, by
the Bank to grant any further or additional waiver of any Event of Default, now
or hereafter existing, or to further amend in any respect the Agreement.
By reason of the amendment pursuant to the Third Amendment of Section 2.a
of the Original Agreement to provide for a monthly reduction of the Commitment,
beginning December 15, 1994, the Company determined that it was required by
generally accepted accounting principles to restate and to compute the current
liabilities of the Company as of September 30, 1994, and as of October 31, 1994,
to include portions of the outstanding principal balance of the Revolving Loan
(the "Required Restatement"). The Bank and the Company acknowledge that the
minimum working capital amount required by Section 7.g(ii) of the Agreement to
be maintained by the Company as of September 30, 1994, and through October 30,
1994, was established without recognition of the Required Restatement.
Accordingly, it is acknowledged and confirmed that, notwithstanding the Required
Restatement, calculation of the minimum working capital of the Company as at
September 30, 1994, and for the period from September 30, 1994, through October
30, 1994, solely for purposes of determining the Company's compliance with
Section 7.g(ii) of the Agreement, was to be made and shall be made with the
entire outstanding principal of the Revolving Loan treated as a long term
liability of the Company.
7. STANDBY LETTER OF CREDIT - AMENDMENT/EXTENSION OF EXPIRY DATE. The
Company hereby requests the Bank, on or prior to March 10, 1995, to extend the
expiry date of the Standby Letter of Credit from March 31,
12
<PAGE>
1995, to April 30, 1995. The Bank hereby agrees to make this extension of the
expiry date, provided that the following conditions precedent are satisfied: (a)
an Amendment to the Standby Letter of Credit, in form and substance satisfactory
to the Bank, effecting the amendment in the expiry date to April 30, 1995, shall
have been executed by the Company and an Acceptance of that Amendment shall have
been executed and delivered to the Bank by the beneficiary of the Standby Letter
of Credit; (b) the Bank shall have been paid by the Company amendment and an
extension fee of $5,120.30; and (c) no Event of Default shall have occurred and
remain outstanding on the date the Amendment is executed by the Bank.
8. CLOSING DOCUMENTS. As conditions precedent to the effectiveness of
this Fourth Amendment, the Bank shall first receive the following
contemporaneously with the execution and delivery of this Fourth Amendment
(where applicable), duly executed, dated and in form and substance satisfactory
to the Bank:
A. Certified copies of the resolutions of the respective Boards of
Directors of the Company and of each of the Guarantors, authorizing
the execution, delivery and performance of this Fourth Amendment and
any other document required under this Fourth Amendment to which such
corporation is a party.
B. Certificates signed by the respective Secretaries or an Assistant
Secretary of the Company and of each of the Guarantors, certifying the
name of the officer or officers authorized to sign this Fourth
Amendment and any other document required under this Fourth Amendment
to which such corporation is a party, together with a sample of the
true signature of each such officer.
C. The due execution by the Company and delivery to the Bank of a Pledge
Agreement in favor of the Bank, in form and substance the same as
attached to this Fourth Amendment as Exhibit B (the "Pledge
Agreement"), with all exhibits thereto duly completed, and delivery to
the Bank of the original certificates for the stock pledged to the
Bank pursuant to the Pledge Agreement, together with duly executed
blank stock powers for each certificate of stock pledged.
D. Payment by the Company of the legal expenses and out of pocket
expenses incurred by the Bank for special counsel in connection with
the negotiation, preparation and closing of this Fourth Amendment,
amendment of the Standby Letter of Credit, and in connection with the
Existing Noncompliance Events.
E. The Consent of each of the Guarantors in the forms attached to this
Fourth Amendment as Exhibit "A-1" and Exhibit "A-2", respectively.
13
<PAGE>
F. An opinion of counsel to the Company and the Guarantors, Messrs.
Gallop, Johnson & Neuman, issued to the Bank as of the date of this
Fourth Amendment, in form and substance the same as attached to this
Fourth Amendment as Exhibit C.
G. Such other documents as may be reasonably required by the Bank.
H. Payment by the Company to the Bank of a Default Waiver and Amendment
Fee in the amount of $10,490.00.
In addition, the Company agrees to pay, promptly upon receipt of the Bank's
invoice, all out of pocket expenses incurred by the Bank and its employees and
officers, in connection with the negotiation, preparation and closing of this
Fourth Amendment, amendment of the Standby Letter of Credit, and in connection
with the Existing Events of Default.
9. EFFECT OF FOURTH AMENDMENT. Except as amended in this Fourth
Amendment, all of the terms and conditions of the Original Agreement shall
continue unchanged and the Original Agreement, as amended by this Fourth
Amendment, remains in full force and effect.
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officer, have executed this Fourth Amendment to Credit Agreement as
of the 10th day of February, 1995.
K-V PHARMACEUTICAL COMPANY
By:/s/ Gerald R. Mitchell
----------------------
Vice-President, Finance
-----------------------
BANK ONE, INDIANAPOLIS,
NATIONAL ASSOCIATION
By:/s/ Richard L. Mott, V.P.
-------------------------
Richard L. Mott,
Vice-President
14
<PAGE>
The undersigned hereby execute this Fourth Amendment to Credit Agreement
("Fourth Amendment") as of the 10th day of February, 1995, for the purpose of
severally making the releases set forth in, and being fully bound by all of the
terms of, Section 5 of the Fourth Amendment.
PARTICLE DYNAMICS, INC.
By:/s/ Gerald R. Mitchell
---------------------------
Vice-President
---------------------------
ETHEX CORPORATION
By:/s/ Gerald R. Mitchell
----------------------------
Vice-President
----------------------------
15
<PAGE>
EXHIBIT 4(k)
PLEDGE AGREEMENT
----------------
FOR VALUE RECEIVED, K-V PHARMACEUTICAL COMPANY, a Delaware corporation
("PLEDGOR"), hereby transfers, assigns, delivers, sets over, hypothecates and
pledges to BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION ("PLEDGEE"), and grants
to Pledgee, a security interest in all of Pledgor's right, title and interest in
and to the following (referred to herein collectively as the "COLLATERAL"):
(a) all of Pledgor's right, title and interest in and to any
and all capital stock of Particle Dynamics, Inc., a New York
corporation, and of Ethex Corporation, a Missouri corporation (such
corporations are hereinafter referred to collectively as "ISSUERS" and
individually as an "ISSUER"), including, without limitation, the
capital stock of each of Issuers identified on Exhibit A attached
hereto and made a part hereof for all purposes, and all other capital
stock of each of Issuers now or hereafter delivered to Pledgee, now or
hereafter owned by Pledgor (collectively, the "PLEDGED STOCK"),
together with all certificates representing all or any of the Pledged
Stock and all cash, securities, dividends, interest and other property
at any time and from time to time declared, received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the Pledged Stock, and all securities hereafter delivered to Pledgor
in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
securities, together with all cash, securities, interest, dividends
and other property at any time and from time to time declared,
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing (all of the foregoing being
referred to herein collectively as the "STOCK COLLATERAL");
(b) all income, payments and other distributions on or with respect to
property described in (a) above; and
(c) all "proceeds" (as such term is defined in Section 9-306 of the
Indiana Uniform Commercial Code, as amended) of property described in
(a) or (b) above.
As used in this Pledge Agreement, the term: (a) "CREDIT AGREEMENT"
means the Credit Agreement, dated September 30, 1993, between Pledgor and
Pledgee, as amended by the First Amendment to Credit Agreement, dated June 28,
1994, but with effect as of April 1, 1994, and by the Second Amendment to Credit
Agreement, dated as of October 14, 1994, and by the Third Amendment to Credit
Agreement, dated as of November 14, 1994, and by the Fourth Amendment to Credit
Agreement, dated as of February 10, 1995, all executed by the Pledgor and
Pledgee, and as the same hereafter may be further amended, modified,
supplemented, and/or restated from
<PAGE>
time to time and at any time; (b) "DEFAULT RATE" means a rate of interest per
annum equal to the rate of interest charged on the "Revolving Loan" (as such
term is defined in the Credit Agreement) after maturity in accordance with
Section 2.c of the Credit Agreement; and (c) "OBLIGATIONS" shall have the
meaning ascribed to that term in the Credit Agreement.
The pledge and security interest hereby made and granted to Pledgee is
given to secure the performance and payment when due of the Obligations.
Pledgor represents and warrants to and agrees with Pledgee as
follows:
1. Delivery of Possession/Representations and Warranties. Concurrently
with the execution of the Pledge Agreement, and subject to the terms and
conditions hereof, Pledgor shall deliver to Pledgee, the original share
certificates or other instruments or documents evidencing the Pledged Stock and
all other Stock Collateral in existence on the date hereof, together with
appropriate stock powers or other instruments of assignment endorsed in blank.
Pledgor warrants and represents to Pledgee that:
(a) There are no restrictions on the transfer of any of the Pledged Stock,
other than may appear on the face of the certificates;
(b) The Pledged Stock is issued and registered in the name of Pledgor as
the legal and beneficial owner thereof and is duly authorized, validly
issued and fully paid and nonassessable;
(c) Pledgor has the right to transfer the Pledged Stock free of any
encumbrances without obtaining the consent of the Issuer thereof or
any other shareholder of the Issuer thereof, and Pledgor will defend
its title to and the pledge and security interest of the Pledgee in
the Pledged Stock against the claims of all persons and entities;
(d) Pledgor owns no securities issued directly or indirectly by any Issuer
excepting only the Pledged Stock;
(e) The pledge of, the grant of the security interest in, and the delivery
of the certificates evidencing the Stock Collateral are effective to
vest in the Pledgee a valid and perfected first and prior security
interest, superior to the rights of any other person in and to the
Stock Collateral;
2
<PAGE>
(f) Pledgor has and will maintain at all times full and absolute equitable
and legal title to and ownership of the Collateral, free of all
security interests, liens, encumbrances, charges, claims of third
parties and rights of set off or recoupment, excepting only the pledge
and security interest granted pursuant to this Pledge Agreement, and
has good right to pledge the Collateral and to subject the Collateral
to the pledge and security interests herein granted; and
(g) This Pledge Agreement has been duly executed and delivered by Pledgor
and constitutes a legal, valid, and binding obligation of Pledgor,
enforceable in accordance with its terms.
Notice of acceptance of this Pledge Agreement by the Pledgee is hereby
waived.
2. Voting. So long as no Event of Default has occurred and remains
unremedied, Pledgor will have the right to exercise all voting rights with
respect to the Stock Collateral.
3. Dividends/Distributions. For so long as no Event of Default has
occurred and is continuing unremedied, and except as provided in Section 4,
Pledgor has the right to receive any sums paid and any cash dividends and other
distributions made upon or in respect of any of the Stock Collateral, including
without limitation distributions made upon the liquidation or dissolution of any
of the Issuers and all interest, cash dividends and other distributions made
upon or in respect of any of the other Collateral (collectively,
"DISTRIBUTIONS") as are permitted by the terms of the Credit Agreement and
applicable law. Except as provided in the preceding sentence, all Distributions
shall be paid over directly to Pledgee, and shall be held in trust as additional
Collateral for the Obligations, or, at the option of Pledgee, applied against
the Obligations in accordance with Section 7 of this Pledge Agreement. Pledgor
agrees to take such action as Pledgee may reasonably require to collect or
enforce any claim for payment or other right or privilege assigned to Pledgee
pursuant to this Pledge Agreement.
4. Stock Dividends/Additional Collateral. In the event any
additional shares are issued to Pledgor as a stock dividend on any of the Stock
Collateral, as a result of any split of the Stock Collateral by reclassification
or otherwise, such additional shares will be immediately delivered to Pledgee
and will be subject to this Pledge Agreement as a part of the Stock Collateral
to the same extent as the original Stock Collateral. Pledgor will cause any
additional securities or property issued to or received by it in respect of any
of the Collateral, whether for value paid by it or otherwise, to be delivered to
Pledgee and pledged hereunder, in
3
<PAGE>
each case accompanied by proper instruments of assignment duly executed in blank
by Pledgor.
5. Covenants. Pledgor covenants and agrees that from and after the
date hereof and until the Obligations are fully satisfied or the Collateral is
otherwise released and delivered to Pledgor:
(a) Without the prior written consent of Pledgee, Pledgor will not: (i)
sell, assign, transfer, exchange, convert or otherwise dispose of, or
grant any option with respect to, the Collateral or any part thereof;
or (ii) take any other action with respect to any of the Collateral
that would impair the interest or rights of Pledgee or Pledgor in, to
or with respect to any of the Collateral;
(b) Without the prior written consent of Pledgee, Pledgor will not vote to
enable any Issuer to, and will not otherwise permit any Issuer to, nor
shall any Issuer, issue any stock or other securities of any nature in
addition to or in exchange or substitution for any of the Pledged
Stock;
(c) Without the prior written consent of Pledgee, Pledgor will not create,
incur or permit to exist any lien, security interest, or other
encumbrance in or against any of the Collateral, or any interest
therein, except for the pledge and security interest provided under
this Pledge Agreement, will take any and all action necessary to
remove any lien, security interest or encumbrance, and Pledgor will
pay prior to the delinquency all taxes and assessments against any of
the Collateral;
(d) Pledgor will, at Pledgor's expense, duly and promptly execute and
deliver any and all further instruments and documents and take such
further action as Pledgee may deem reasonably necessary to perfect and
continue perfected the pledge and security interest granted in this
Pledge Agreement, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code
as in effect in each relevant jurisdiction and the giving of
appropriate notices to bailees or other parties in actual or
constructive possession of any of the Collateral, and Pledgor also
hereby authorizes Pledgee to file any such financing statement or
continuation statement without the signature of Pledgor to the extent
permitted by applicable law;
(e) Immediately following the execution of this Pledge Agreement, Pledgor
shall give written notice to each of the Issuers, together with a copy
of this Pledge
4
<PAGE>
Agreement, instructing each of the Issuers in writing (which
instructions by their terms shall not be revocable by Pledgor) that
upon receipt by such Issuer of written notice from Pledgee, the Issuer
is to pay all Distributions, as and when payable, directly to Pledgee.
6. Rights of Pledgee.
(a) In the event Pledgor fails or refuses to perform any of its
covenants and obligations under this Pledge Agreement, Pledgee may, but shall
have no obligation to, do all things deemed necessary or appropriate by it to
fulfill discharge of such covenants and obligations, and sums paid and expenses
incurred by Pledgee in connection therewith (including, without limitation,
attorneys' fees and expenses) shall be reimbursed by Pledgor on demand by
Pledgee, shall constitute a part of the Obligations and shall bear interest at
the Default Rate from the date paid or incurred. Pledgor acknowledges and
agrees that nothing contained herein shall obligate or impose any duty upon
Pledgee to assume any duties or obligations of Pledgor with respect to the
Collateral.
(b) Pledgee may hold any of the Collateral, endorsed or assigned in
blank, and may deliver any of the Collateral to the Issuer or other issuer
thereof for the purpose of making denominational exchanges or registrations or
transfers or for such other purpose in furtherance of this Pledge Agreement as
Pledgee may deem desirable.
7. Events of Default/Remedies. The occurrence of each of the
following events shall constitute an Event of Default by Pledgor under this
Pledge Agreement ("EVENT OF DEFAULT"):
(a) The occurrence of any "Event of Default," as such term is defined
in the Credit Agreement.
(b) Any breach by Pledgor of any term, covenant or provision of this
Pledge Agreement or any failure by Pledgee to fully and timely perform any of
its obligations under this Pledge Agreement.
Upon the occurrence of an Event of Default, Pledgee may, itself or
through one or more nominees, at its option:
(i) exercise all rights and remedies of a pledgee and secured party
allowed by applicable law and this Pledge Agreement;
(ii) cause the Stock Collateral and other securities included in the
Collateral to be registered in the name of Pledgee or its nominee
or cause new
5
<PAGE>
certificates evidencing the Stock Collateral and such other
securities to be issued;
(iii) exercise all voting and corporate rights at any meeting of any
Issuer, or otherwise, and exercise any and all rights of
conversion, exchange, subscription or any other rights,
privileges or options pertaining to any Stock Collateral as if it
were the absolute owner thereof; and
(iv) demand, collect, receive, settle, compromise, adjust, sue for,
foreclose or realize upon any of the Collateral, as Pledgee may
determine, and may receive, open and dispose of mail addressed to
Pledgor and endorse notes, checks, drafts, money orders,
documents of title or other evidences of payment, shipment or
storage or any form of Collateral on behalf of and in the name of
Pledgor, as its attorney-in-fact.
Further, Pledgee may, without demand and without advertisement, notice
or legal process of any kind (except as may be required by law), all of which
Pledgor waives, at any time or times (i) apply any cash dividends received by
Pledgee pursuant to Section 3 hereof to the Obligations in accordance with
Section 7, and (ii) if following such application there remains outstanding any
Obligations, sell the remaining Collateral, or any part thereof, at public or
private sale or at any broker's board or on any securities exchange, for cash,
upon credit or for future delivery as Pledgee shall deem appropriate. Pledgee
shall be authorized at any such sale (if, on the advice of counsel, it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Collateral for their
own account for investment and not with a view to the distribution or resale
thereof, and upon consummation of any such sale Pledgee shall have the right to
assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely and free from any claim or right of Pledgor, and
Pledgor hereby waives (to the extent permitted by law) all rights of redemption,
stay and/or appraisal which Pledgor now has or may have at any time in the
future under any rule of law or statute now existing or hereafter enacted. The
proceeds realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses and attorneys' fees and expenses incurred by Pledgee
for collection and for acquisition, completion, protection, removal, sale and
delivery of the Collateral; and second to the remainder of the Obligations,
applied in accordance with the terms of the Credit Agreement. If any deficiency
shall remain, Pledgor shall remain liable therefor.
6
<PAGE>
In addition thereto, Pledgor further agrees that (i) in the event that
notice is necessary under applicable law, written notice given to Pledgor in the
manner specified herein for notice, ten (10) business days prior to the date of
the disposition of the Collateral at any such public sale or sale at any
broker's board or on any such securities exchange, or prior to the date after
which private sale or any other disposition of said Collateral will be made,
shall constitute reasonable and fair notice.
Pledgor irrevocably designates, makes, constitutes and appoints
Pledgee (and all persons designated by Pledgee) as Pledgor's true and lawful
attorney, and Pledgee, or Pledgee's designee, may, without notice to Pledgor,
and at such time or times thereafter as Pledgee, in its discretion, may
determine, in Pledgor's or Pledgee's name: (i) do all acts and things
necessary, in Pledgee's discretion, to fulfill Pledgor's obligations under this
Pledge Agreement; (ii) execute and deliver stock powers and bond powers with
respect to any of the Collateral; and (iii) endorse the name of Pledgor upon any
checks, notes, acceptances, money orders, certificates, drafts or other forms of
payment of security relating to the Collateral that come into Pledgee's
possession.
All remedies of Pledgee shall be cumulative to the full extent
provided by law. Pursuit by Pledgee of certain judicial or other remedies shall
not abate nor bar resort to other remedies with respect to all or some of the
Collateral shall not bar other remedies with respect to the Obligations or to
other portions of the Collateral. Pledgee may exercise its rights to the
Collateral without resorting or regard to other collateral or sources of
security or reimbursement for the Obligations.
8. Limitations on Pledgee's Duty. Pledgee shall exercise reasonable
care in the custody and preservation of the Collateral, and shall be deemed to
have exercised such reasonable care if it takes such action for that purpose as
Pledgor shall request in writing, but failure of Pledgee to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care, and
no failure on the part of Pledgee to preserve or protect any rights with respect
to the Collateral against prior parties shall be deemed a failure to exercise
reasonable care in the custody or preservation of the Collateral. Except as
otherwise provided in the preceding sentence, Pledgee shall be accountable only
for amounts that it actually receives as a result of the exercise of powers
herein conferred, and neither it nor any of its officers, directors, employees
or agents shall be responsible to Pledgor for any act or failure to act or any
delay in acting, except for Pledgee's gross negligence or willful misconduct.
Except as otherwise provided in this Pledge Agreement, Pledgee shall not be
under any duty or obligation whatsoever to make or give any presentment, demand
for performance, notice of
7
<PAGE>
nonperformance, protest, notice of protest, or notice of dishonor in connection
with any of the Obligations. Pledgor recognizes that Pledgee may be unable to
effect a public sale of any or all of the Collateral by reason of certain
prohibitions contained in applicable laws, but it may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire such securities for their
own account for investment and not with a view to the distribution or resale
thereof. Pledgor acknowledges and agrees that any such private sale may result
in prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale (if otherwise conducted in a commercially reasonable manner) shall
be deemed to have been made in a commercially reasonable manner. Pledgee shall
not be under any obligation to delay a sale of any of the Collateral for the
period of time necessary to permit any Issuer to register such securities for
public sale under applicable laws.
Pledgor represents and warrants that it has made its own arrangements
for keeping informed of changes or potential changes affecting the Collateral
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting
rights), and Pledgor agrees that Pledgee shall have no obligation to inform
Pledgor of any such changes or potential changes or to take any action or omit
to take any action with respect thereto.
9. Waiver; Amendment. All rights and remedies of Pledgee expressed
herein are in addition to all other rights and remedies possessed by it. No
delay on the part of Pledgee in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy. No action of Pledgee permitted hereunder shall impair or
affect the rights of Pledgee in and to the Collateral.
None of the terms or provisions of this Pledge Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by Pledgee.
10. Termination. Upon full satisfaction of the Obligations and the
other obligations of Pledgor hereunder, or such earlier date that Pledgee
voluntarily releases the Collateral to Pledgor, Pledgee shall promptly cause to
be redelivered to Pledgor the Collateral, and this Pledge Agreement shall
thereupon terminate.
11. Successors and Assigns. This Pledge Agreement and all
obligations of Pledgor hereunder shall be binding upon Pledgor
8
<PAGE>
and his successors and assigns and shall inure to the benefit of Pledgee and its
successors and assigns.
12. General. This Pledge Agreement shall be governed by the laws of
the State of Indiana. Wherever possible each provision of this Pledge Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Pledge Agreement shall be
prohibited by or invalid under any such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
13. Notices. Any and all notices or other communications required or
permitted under this Pledge Agreement shall be in writing and shall be
sufficiently given if delivered in the manner and at such addresses as provided
in the Credit Agreement.
Executed and delivered as of the 10th day of February, 1995.
K-V PHARMACEUTICAL COMPANY, a
Delaware corporation
By: /s/ Gerald R. Mitchell
---------------------------------
Printed: Gerald R. Mitchell
----------------------------
Title: Vice-President, Finance
------------------------------
ACKNOWLEDGMENT
--------------
STATE OF Missouri )
-----------
)SS:
COUNTY OF St. Louis )
-----------
Before me, a Notary Public in and for the State of Missouri,
personally appeared Gerald R. Mitchell, who, being first duly sworn,
acknowledged that he is the Vice-President, Finance of K-V Pharmaceutical
Company, a Delaware corporation, and who executed the foregoing Pledge Agreement
for and on behalf of said corporation as its duly authorized officer.
Witness my hand and Notarial Seal this 10th day of
February, 1995.
/s/ Carol J. Hund
----------------------------------
(SEAL) _____________________, Notary Public
Printed Name
I am a resident of
St. Louis City , MO
- - -------------------- --------
My commission expires:
- - -----------------------
9
<PAGE>
CONSENT AND ACKNOWLEDGMENT
--------------------------
Each of the undersigned hereby acknowledges and consents to the pledge
of the Pledged Stock of which it is the Issuer and by executing this consent and
acknowledgment it acknowledges receipt of a copy of this Pledge Agreement
which it agrees shall be deemed to constitute written notice of such pledge and
of irrevocable instructions from Pledgor that upon receipt of written notice
from Pledgee, it is to make all payments of Distributions directly to Pledgee.
Date: February 10, 1995 PARTICLE DYNAMICS, INC., a
New York corporation
By: /s/ Gerald R. Mitchell
----------------------------
Printed: Gerald R. Mitchell
-----------------------
Title: Vice-President
-------------------------
Date: February 10, 1995 ETHEX CORPORATION, a
Missouri corporation
By: /s/ Gerald R. Mitchell
----------------------------
Printed: Gerald R. Mitchell
-----------------------
Title: Vice-President
-------------------------
10
<PAGE>
Exhibit A to Pledge Agreement
PLEDGED STOCK
-------------
Certificate Number of
Corporation No. Shares
- - ----------- ----------- ---------
Particle Dynamics, Inc. 4 100
Ethex Corporation 2 1
11
<PAGE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings (Loss) Per Share Calculation
Primary Earnings (Loss) Per Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
12/31/94 12/31/93 12/31/94 12/31/93
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 602,467 $(829,052) $(3,840,738) $(4,223,367)
Less dividends on preferred stock (105,438) (105,438) (316,314) (316,314)
--------- --------- ----------- -----------
Income (Loss) Attributed to
Common Stock $ 497,029 $(934,490) $(4,157,052) $(4,539,681)
========= ========= =========== ===========
Average Number of Common Shares
and Common Share Equivalents
Outstanding:
Average common shares
outstanding 11,205,525 11,055,661 11,106,320 11,054,733
Common share equivalents
(after application of
treasury stock method):
Shares issuable upon conversion
of stock options 230,865 N/A N/A N/A
---------- ---------- ---------- ----------
Average Common Shares and
Common Share Equivalents
Outstanding 11,436,390 11,055,661 11,106,320 11,054,733
========== ========== ========== ==========
Primary Income (Loss) per Share (1): $0.04 $(0.09) $(0.37) $(0.41)
===== ====== ====== ======
</TABLE>
(1) The two-class method for Class A and Class B common stock is not presented
because the earnings (loss) per share are equivalent to the if converted
method since dividends were not declared or paid and each class of common
stock has equal ownership of the Company.
<PAGE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings (Loss) Per Share Calculation
Fully-Diluted Earnings (Loss) Per Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
12/31/94 12/31/93 12/31/94 12/31/93
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 602,467 $ (829,052) $(3,840,738) $(4,223,367)
Less dividends on preferred stock (105,438) (105,438) (316,314) (316,314)
Plus dividends not payable due to
preferred stock conversion 105,438 105,438 316,314 316,314
----------- ----------- ----------- -----------
Income (Loss) Attributed
to Common Stock $ 602,467 $ (829,052) $(3,840,738) $(4,223,367)
=========== =========== =========== ===========
Average Number of Shares
Outstanding on a Fully-
Diluted Basis:
Average common shares
outstanding 11,205,525 11,055,661 11,106,320 11,054,733
Common share equivalents
(after application of treasury
stock method):
Shares issuable upon conversion
of stock options 170,740 370,256 254,500 364,940
Common equivalent shares for
preferred stock 301,250 602,500 301,250 602,500
----------- ----------- ----------- -----------
Average Number of Shares
Outstanding on a
Fully-Diluted Basis 11,677,515 12,028,417 11,662,070 12,022,173
=========== =========== =========== ===========
Fully-Diluted Income (Loss)
per Share (1) (2): $0.05 $(0.07) $(0.33) $(0.35)
===== ====== ====== ======
</TABLE>
(1) The two-class method for Class A and Class B common stock is not presented
because the earnings (loss) per share are equivalent to the if converted
method since dividends were not declared or paid and each class of common
stock has equal ownership of the Company.
(2) This calculation is submitted although it is contrary to Paragraph 40 of APB
Opinion No. 15 as it produces an anti-dilutive result. Also, the preferred
stock would not qualify as a common share equivalent because the cash yield
at issuance was not less than 66 2/3% of the then current average Aa
corporate bond yield.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,191,620
<SECURITIES> 0
<RECEIVABLES> 7,655,329
<ALLOWANCES> 0
<INVENTORY> 8,703,710
<CURRENT-ASSETS> 17,801,867
<PP&E> 20,001,743
<DEPRECIATION> 11,545,085
<TOTAL-ASSETS> 31,335,901
<CURRENT-LIABILITIES> 13,948,692
<BONDS> 6,537,205
<COMMON> 113,562
0
2,410
<OTHER-SE> 10,734,032
<TOTAL-LIABILITY-AND-EQUITY> 31,335,901
<SALES> 27,757,028
<TOTAL-REVENUES> 27,757,028
<CGS> 17,927,233
<TOTAL-COSTS> 31,597,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 906,272
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,840,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,840,738)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.33)
</TABLE>
