<PAGE> 1
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 JUNE 30, 1995
-------------
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
----- ------
<TABLE>
<CAPTION>
TITLE OF CLASS OF NUMBER OF SHARES
COMMON STOCK OUTSTANDING AS OF THIS REPORT DATE
----------------- ----------------------------------
<S> <C>
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE 6,739,151
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE 4,694,964
</TABLE>
EXHIBIT INDEX IS ON PAGE 14
PAGE 1 OF 16 PAGES
<PAGE> 2
PART I
FINANCIAL INFORMATION
2
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
---- ----
REVENUES:
<S> <C> <C>
NET SALES $ 12,220,103 $ 7,876,276
COSTS AND EXPENSES:
MANUFACTURING COSTS 6,657,625 6,061,666
RESEARCH AND DEVELOPMENT 1,045,504 1,299,541
SELLING AND ADMINISTRATIVE 3,156,103 3,055,110
INTEREST EXPENSE 316,543 255,994
AMORTIZATION OF INTANGIBLE ASSETS 243,208 162,719
------------ -----------
TOTAL COSTS AND EXPENSES 11,418,983 10,835,030
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES 801,120 (2,958,754)
PROVISION FOR INCOME TAXES 30,000 -
------------ -----------
NET INCOME (LOSS) $ 771,120 $(2,958,754)
============ ===========
NET INCOME (LOSS) PER COMMON
SHARE (AFTER PREFERRED
DIVIDENDS PAYABLE OF
$105,438 IN 1995 AND 1994).
$ 0.06 $(0.28)
====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE> 4
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND MARCH 31, 1995
(UNAUDITED)
<CAPTION>
06/30/95 03/31/95
-------- --------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
CASH AND EQUIVALENTS $ 367,098 $ 1,075,713
RECEIVABLES 8,424,519 7,893,585
INVENTORIES 6,745,545 6,591,587
PREPAID AND OTHER 337,744 266,951
----------- -----------
TOTAL CURRENT ASSETS 15,874,906 15,827,836
----------- -----------
PROPERTY AND EQUIPMENT 20,158,394 19,995,369
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (12,170,367) (11,827,495)
----------- -----------
NET PROPERTY AND EQUIPMENT 7,988,027 8,167,874
----------- -----------
DEFERRED IMPROVED DRUG ENTITIES(TM) 2,791,965 2,962,827
GOODWILL AND OTHER 2,293,756 2,069,245
----------- -----------
TOTAL ASSETS $28,948,654 $29,027,782
=========== ===========
LIABILITIES
-----------
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 2,021,920 $ 1,814,682
ACCOUNTS PAYABLE 1,981,233 2,565,247
ACCRUED LIABILITIES 3,363,428 2,521,162
----------- -----------
TOTAL CURRENT LIABILITIES 7,366,581 6,901,091
----------- -----------
LONG-TERM DEBT 9,882,146 11,233,418
OTHER 954,625 919,091
----------- -----------
TOTAL LIABILITIES 18,203,352 19,053,600
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
--------------------
PREFERRED STOCK 2,410 2,410
CLASS A COMMON STOCK 67,629 67,629
CLASS B COMMON STOCK 47,187 47,187
ADDITIONAL PAID-IN CAPITAL 23,706,723 23,706,723
RETAINED DEFICIT (13,023,694) (13,794,814)
LESS COST OF CLASS A AND CLASS B
COMMON STOCK IN TREASURY (54,953) (54,953)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 10,745,302 9,974,182
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $28,948,654 $29,027,782
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS) $ 771,120 $(2,958,754)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 586,080 466,366
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN RECEIVABLES (530,934) 1,659,603
NET (INCREASE) DECREASE IN INVENTORIES
AND OTHER CURRENT ASSETS (224,751) 702,103
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES 258,252 (230,888)
OTHER 35,534 -
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 895,301 (361,570)
----------- -----------
INVESTING ACTIVITIES
PURCHASE OF PROPERTY AND EQUIPMENT, NET (163,025) (150,742)
OTHER, NET (296,857) (75,358)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (459,882) (226,100)
----------- -----------
FINANCING ACTIVITIES
PROCEEDS FROM CREDIT FACILITIES 4,502,910 3,150,000
REPAYMENT OF CREDIT FACILITIES (12,293,776) (2,950,000)
PROCEEDS FROM TERM LOAN FACILITY 6,839,411 -
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (192,579) (12,903)
EXERCISE OF COMMON STOCK OPTIONS - 617
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,144,034) 187,714
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (708,615) (399,956)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,075,713 506,982
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF QUARTER $ 367,098 $ 107,026
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE> 6
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, 1995 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. NO PREFERRED DIVIDENDS WERE PAID FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1994. UNDECLARED AND UNACCRUED
CUMULATIVE PREFERRED DIVIDENDS AT JUNE 30, 1995 AND 1994 WERE $1,571,019
AND $1,149,269, 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 11,624,958 AND 11,059,025 FOR THE QUARTERS ENDED JUNE
30, 1995 AND 1994, RESPECTIVELY. PRIMARY AND FULLY-DILUTED INCOME
(LOSS) PER SHARE WAS THE SAME FOR EACH OF THE PERIODS PRESENTED.
6
<PAGE> 7
NOTE C -- LITIGATION
ON APRIL 6, 1995, THE COMPANY ENTERED INTO A PLEA AGREEMENT WITH
THE U. S. DEPARTMENT OF JUSTICE UNDER WHICH THE COMPANY AGREED TO PLEAD
GUILTY TO (1) TWO MISDEMEANOR VIOLATIONS OF THE FEDERAL FOOD, DRUG AND
COSMETIC ACT INVOLVING THE FAILURE TO FILE CERTAIN REQUIRED REPORTS WITH THE
FDA IN 1991 WITH RESPECT TO TWO LOTS OF AN ERYTHROMYCIN ORAL SUSPENSION
PRODUCT PREVIOUSLY MANUFACTURED BY THE COMPANY AND (2) TWO MISDEMEANOR
COUNTS INVOLVING THE SHIPMENT OF TWO LOTS OF THE SAME PRODUCT,
INAPPROPRIATELY LABELED AS TO THEIR SHELF LIFE. UNDER THE PLEA AGREEMENT,
THE COMPANY AGREED TO PAY A FINE OF $500,000 AND COSTS OF $100,000 IN
INSTALLMENTS OF $75,000 EVERY SIX MONTHS OVER 3 1/2 YEARS, BEGINNING JULY
17, 1995. THE COMPANY RECORDED THE AMOUNTS PAYABLE IN ACCRUED LIABILITIES
AND OTHER LONG-TERM LIABILITIES IN THE FOURTH QUARTER ENDED MARCH 31, 1995.
ON JULY 17, 1995, THE FEDERAL COURT AFFIRMED THE PLEA AGREEMENT AS OUTLINED
ABOVE.
7
<PAGE> 8
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 JUNE 30, 1995, WORKING CAPITAL DECREASED
$418,420, OR 5% TO $8,508,325 FROM MARCH 31, 1995, WHILE CASH AND
EQUIVALENTS DECREASED $708,615. NET CASH PROVIDED FROM OPERATIONS OF
$895,301 INCLUDES AN INCREASE IN RECEIVABLES OF $530,934, PRINCIPALLY FROM
INCREASED SALES VOLUME FROM ETHEX CORPORATION, WHICH WAS OFFSET BY NON-CASH
ITEMS TOTALING $621,614 AND A NET INCREASE IN OTHER OPERATING ASSETS AND
LIABILITIES. CAPITAL EXPENDITURES OF $163,025 WERE PROVIDED FROM OPERATING
ACTIVITIES. BORROWING REFLECTED A NET DECREASE OF $1,144,034, RESULTING
FROM THE APPLICATION OF EXISTING CASH AND FUNDS PROVIDED BY PROFITABLE
OPERATIONS. THE RATIO OF CURRENT ASSETS TO CURRENT LIABILITIES WAS 2.2 TO
1 AS OF JUNE 30, 1995 COMPARED TO 2.3 TO 1 AS OF MARCH 31, 1995.
2. PROFITABILITY:
--------------
NET INCOME FOR THE FIRST QUARTER OF FISCAL 1996 WAS $771,120 COMPARED
TO A NET LOSS OF $2,958,754, AN IMPROVEMENT OF $3,729,874 OVER THE SAME
PERIOD LAST YEAR. THIS IMPROVEMENT WAS DUE PRIMARILY TO INCREASED REVENUES
ON HIGHER MARGIN PRODUCTS RELATED TO SALES OF NEW AND EXISTING PRODUCTS BY
KV'S ETHEX SUBSIDIARY.
3. LEVERAGE:
---------
THE RATIO OF TOTAL LIABILITIES TO EQUITY IMPROVED TO 1.69 TO 1 FROM
1.91 TO 1 DURING THE QUARTER, PRIMARILY DUE TO THE NET INCOME EXPERIENCED
FOR THE QUARTER AND REDUCTION IN TOTAL INDEBTEDNESS.
8
<PAGE> 9
(B) RESULTS OF OPERATIONS
---------------------
1. REVENUES:
---------
CONSOLIDATED REVENUES FOR THE FIRST QUARTER OF FISCAL 1996 TOTALED
$12,220,103 COMPARED TO $7,876,276 FOR THE FIRST QUARTER OF FISCAL 1995, AN
INCREASE OF $4,343,827, OR 55% OVER THE SAME PERIOD LAST YEAR. THE INCREASE
IN THE FIRST QUARTER OF FISCAL 1996 WAS ATTRIBUTABLE TO THE CONTINUED GROWTH
BEING EXPERIENCED BY ETHEX FROM NEW AND EXISTING PRODUCTS. ETHEX REVENUES
ACCOUNTED FOR 71% OF CONSOLIDATED REVENUES DURING THE QUARTER AS ETHEX
REVENUES INCREASED BY $4,213,271, OR 95% OVER THE SAME PERIOD LAST YEAR AS
A RESULT OF NEW PRODUCTS INTRODUCED IN FISCAL 1995 AND THE FIRST QUARTER OF
FISCAL 1996. PARTICLE DYNAMICS AND CONTRACT SERVICES REVENUES HAD MODEST
INCREASES AGGREGATING $130,556.
2. COSTS AND EXPENSES:
-------------------
MANUFACTURING COSTS WERE 54% AND 77% OF NET SALES FOR THE QUARTERS
ENDED JUNE 30, 1995 AND 1994, RESPECTIVELY. MANUFACTURING COSTS IMPROVED AS
A PERCENT OF SALES DUE TO THE INCREASED SALES VOLUME AND MIX OF HIGHER
MARGIN ETHEX PRODUCTS. EFFICIENCIES ASSOCIATED WITH HIGHER VOLUME
PRODUCTION AND IMPROVEMENT IN CERTAIN LABORATORY AREAS MORE THAN OFFSET
PRODUCT INEFFICIENCIES RELATED TO THE DEVELOPMENT AND MANUFACTURING OF THE
NEW ETHEX PRODUCTS.
RESEARCH AND DEVELOPMENT COSTS DECREASED $254,037 FOR THE QUARTER
ENDED JUNE 30, 1995, COMPARED TO THE SAME QUARTER OF THE PRIOR YEAR. THIS
DECREASE WAS PRIMARILY DUE TO A REDUCTION IN PRODUCT DEVELOPMENT AND
VALIDATION COSTS COMPARED TO THE SAME PERIOD FOR THE PRIOR YEAR.
SELLING AND ADMINISTRATIVE EXPENSES INCREASED $100,933, OR 7% OVER
THE SAME PERIOD LAST YEAR DUE TO HIGHER MARKETING, SELLING AND
ADMINISTRATIVE SUPPORT COSTS ASSOCIATED WITH THE NEW PRODUCT INTRODUCTIONS
AND EXPANSION OF ETHEX.
INTEREST EXPENSE INCREASED $60,549 FOR THE FIRST QUARTER ENDED JUNE
30, 1995 COMPARED TO THE SAME PERIOD OF THE PRIOR FISCAL YEAR. THIS
INCREASE RESULTED FROM HIGHER AVERAGE INTEREST RATES DURING THE FIRST
9
<PAGE> 10
QUARTER OF FISCAL 1996, WHICH MORE THAN OFFSET LOWER AVERAGE LEVELS OF
BORROWING WHEN COMPARED TO THE SAME PERIOD IN THE PRIOR YEAR.
3. INCOME TAXES:
-------------
FOR THE PERIOD ENDED JUNE 30, 1995, THE COMPANY HAD A CURRENT
PROVISION FOR INCOME TAXES OF $30,000 BASED ON THE ALTERNATIVE MINIMUM TAX,
BUT OTHERWISE MADE NO PROVISION FOR INCOME TAXES DUE TO A NET OPERATING LOSS
CARRYFORWARD POSITION. FOR THE PERIOD ENDED JUNE 30, 1994, THE COMPANY HAD
NO PROVISION FOR INCOME TAXES BECAUSE OF THE COMPANY'S NET OPERATING LOSS
CARRYFORWARD POSITION.
4. 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 OR 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.
THE COMPANY HAS AND IS CONTINUING TO IMPLEMENT STRATEGIES TO
INTRODUCE ADDITIONAL PRODUCTS THROUGH ITS ETHEX SUBSIDIARY AND DE-EMPHASIZE
CONTRACT SERVICES. THIS MOVE TO DIRECTLY MARKET ITS OWN TECHNOLOGY
DISTINGUISHED GENERICS HAS ALLOWED THE COMPANY TO RELY LESS UPON THE
DEPENDENCE OF ITS
10
<PAGE> 11
PHARMACEUTICAL MARKETING CLIENTS FOR GROWTH AND TO SHIFT ITS REVENUE GROWTH
INTERNALLY, PRINCIPALLY THROUGH ETHEX CORPORATION AND THE COMPANY'S LICENSING
ACTIVITIES. DURING FISCAL 1995, ETHEX INTRODUCED TEN NEW PRODUCTS AND PLANS TO
LAUNCH A SIMILAR NUMBER IN FISCAL 1996. MANAGEMENT BELIEVES FUNDS GENERATED FROM
OPERATING ACTIVITIES AND INCREASED FUNDS AVAILABLE FROM THE COMPANY'S CREDIT
FACILITY WILL BE ADEQUATE TO FUND THE COMPANY'S REQUIREMENTS.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
------ ---------------------------------
A) EXHIBITS - SEE EXHIBIT INDEX ON PAGE 14
B) THE COMPANY DID NOT FILE ANY REPORTS ON FORM 8-K DURING THE
QUARTER ENDED JUNE 30, 1995.
12
<PAGE> 13
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: AUGUST 11, 1995 /S/ MARC S. HERMELIN
------------------ ------------------------------
MARC S. HERMELIN
VICE CHAIRMAN OF THE BOARD
(PRINCIPAL EXECUTIVE OFFICER)
DATE: AUGUST 11, 1995 /S/ GERALD R. MITCHELL
------------------ ------------------------------
GERALD R. MITCHELL
VICE PRESIDENT - FINANCE
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
13
<PAGE> 14
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
-------------- ----------- ----
<C> <S> <C>
10(W) STOCK OPTION AGREEMENT, DATED
JUNE 1, 1995 GRANTING STOCK OPTION
TO MARC S. HERMELIN. FILED HEREWITH.
10(X) SECOND AMENDMENT, DATED AS OF JUNE 1,
1995, TO EMPLOYMENT AGREEMENT BETWEEN
THE COMPANY AND MARC S. HERMELIN.
FILED HEREWITH.
11 COMPUTATION OF EARNINGS (LOSS)
PER SHARE CALCULATION. FILED
HEREWITH.
</TABLE>
14
<PAGE> 1
STOCK OPTION AGREEMENT
(Non-Assignable)
Option Number: 91B-257/
A-1036
To Purchase Shares of Number of Shares
Date: Class B Common Stock Purchasable
June 1, 1995 (or Class A Common Stock) --100,000--
-of-
K-V PHARMACEUTICAL COMPANY
--------------------------
Issued Under the
1991 Incentive Stock Option Plan (the "Plan")
---------------------------------------------
Marc S. Hermelin (the "Holder") is hereby granted the option to
purchase all or any part of 100,000 fully paid and non-assessable shares
of the Class B Common Stock, par value $0.01 per share ("Class B Common
Stock")(or, if Class B Common Stock is not available for issuance under
the Plan at the time of the exercise of any portion hereof by the
Holder, fully paid and non-assessable shares of Class A common Stock,
par value $0.01 per share (the "Class A Common Stock")(the Class B
Common Stock and Class A Common Stock being sometimes referred to
collectively herein as the "Common Stock")), of K-V Pharmaceutical
Company, a Delaware corporation (hereinafter called the "Company"), at
the option price of $6.25625 per share with respect to the initial
60,000 shares of Common Stock purchaseable hereunder and $6.325 with
respect to the remaining 40,000 shares of Common Stock purchaseable
hereunder, and otherwise upon and subject to the following terms and
conditions:
This Option and all rights to purchase shares of Common Stock
hereunder shall expire at 5:00 p.m., St. Louis, Missouri, time, on May
31, 2000 (the "Expiration Date").
<TABLE>
This Option shall be exercisable from time to time in cumulative
installments as to any or all of the shares then purchasable hereunder
as follows:
<CAPTION>
Period during Which
Option Is First Shares Initially
Exercisable Purchasable
------------------- ----------------
<S> <C>
June 1, 1995 through
December 31, 1995 14,490
January 1, 1996 through
December 31, 1996 17,390
January 1, 1997 through
<PAGE> 2
December 31, 1997 17,390
January 1, 1998 through
December 31, 1998 17,390
January 1, 1999 through
December 31, 1999 17,390
January 1, 2000 through
May 31, 2000 15,950
</TABLE>
This Option and all rights hereunder shall be non-assignable and
non-transferable, except to the extent that the Holder's legatees,
personal representatives or distributees may be permitted to exercise
this Option in the event of the Holder's death, as set forth herein.
Any attempted transfer, assignment, pledge, hypothecation or other
disposition of this Option, except as provided herein or in the Plan,
shall be null and void and without effect.
This Option may be exercised from time to time only by delivery to
the Company at its main office (to the attention of the corporate
Secretary) of a duly signed notice in writing stating the number of
shares with respect to which this Option is being exercised and the time
and date of delivery thereof, which time and date of delivery shall be
during the normal business hours of the Company on a regular business
day not less than fifteen (15) days after the giving of such notice,
unless an earlier date has been mutually agreed upon; provided, however,
that not less than ten (10) shares may be purchased at any one time
unless the number purchased is the total number then purchasable
hereunder; and provided further that this Option may not be exercised at
any time when this Option or the granting or exercise hereof violates
any law, regulation or governmental order. At the time of delivery
specified in such notice, the Company shall, without transfer or issue
tax to the Holder (or other person entitled to exercise this Option),
transfer and set aside for the benefit of the Holder (or such other
person) a certificate or certificates out of the Company's authorized
but unissued or reacquired shares of Class B Common Stock or Class A
Common Stock, as applicable, as the Company may elect (with appropriate
legend thereon, if deemed necessary by the Company under applicable
securities laws, containing the representation by the person exercising
the Option that the shares to be purchased shall be acquired and will be
held for investment purposes and not with a view to resale or
distribution), against payment of the option price in full for the
number of shares purchased, by either: (i) cash (including a certified
or bank cashier's check or the equivalent thereof), or (ii) delivering
at fair market value, as determined by the Committee (as defined in the
Plan), as provided under the Plan, Company Class A Common Stock or Class
B Common Stock already owned by the Holder, or (iii) any combination of
cash and Company Common Stock. If the Holder fails to pay for any part
of the number of shares specified in such notice as required, the right
to purchase such shares may be terminated by the Committee.
2
<PAGE> 3
Except as provided herein, no Option may be exercised at any time
unless the Holder is an employee of the Company or any of its
subsidiaries.
To the extent that this Option has not been exercised in full prior
to its termination or on or before the Expiration Date, whichever occurs
sooner, it shall terminate and become void and of no effect.
The provisions of Section 14 of the Plan, entitled "Holding Period
and Forfeiture of Stock," shall not apply to this Option or this
Agreement.
This Option shall not confer upon the Holder any right to remain in
the employ of the Company or any subsidiary of the Company and shall not
confer upon the Holder any rights in the stock of the Company prior to
the issuance of a stock certificate pursuant to the exercise of this
Option. No adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is
issued.
Except as provided in this paragraph, upon termination of the
Holder's employment with the Company or any of its subsidiaries for any
reason, this Option shall terminate. (a) If the employment of the
Holder is terminated by reason of retirement (as provided by contract or
otherwise under normal Company policies), any outstanding unexercised
portion of this Option which is exercisable as of the date of retirement
by the Holder may be fully exercised by the Holder, the Holder's
personal representative, executor, administrator, heirs or devisees, as
applicable, at any time within three months from the date of termination
by reason of retirement, and thereafter this Option shall continue in
effect and be exercisable by the Holder or by the Holder's personal
representative, executor, administrator, heirs or devisees, as
applicable, in accordance with the terms hereof for the full remaining
term of this Option through the Expiration Date or earlier termination
herein provided, even though no longer an Incentive Stock Option (as
defined under the Internal Revenue Code of 1986, as amended, or any
successor law [the "Code"]). (b) If the employment of the Holder is
terminated by reason of disability or death, any unexercised portion of
this Option shall become fully exercisable by the Holder, or by the
Holder's personal representative, executor, administrator, heirs or
devisees, as applicable, in accordance with the terms hereof, upon such
disability or death of the Holder if and to the extent that such
acceleration would not cause a violation of the limitations contained in
Section 422(b)(7) of the Code. If acceleration by reason of disability
would cause a violation of the limitations contained in Section
422(b)(7) of the Code, such acceleration shall occur only in an amount
such that such acceleration of exercisability does not result in a
violation of Section 422(b)(7) of the Code, and the acceleration of the
exercisability of that portion hereof which would be in violation of the
limitation contained in Section 422(b)(7) of the Code shall be deferred
until January 1 of the year following that in which such termination of
employment by reason of disability occurs. In the event termination of
employment occurs by reason of the Holder's death, the acceleration of
the exercisability of any portion of this Option shall occur only as and
to the extent that such acceleration will not cause a violation of the
limitations contained in Section 422(b)(7) of the Code. Notwithstanding
any of the foregoing, no Option shall be
3
<PAGE> 4
exercisable at any time after the expiration of the Option in accordance
with its terms. Any transfer of employment from the Company to any parent
or subsidiary thereof, or vice versa, shall not be deemed a termination of
employment.
In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of another corporation, or in the event that there is
a "corporate transaction" as that term is defined in the Regulations
under Section 424 of the Internal Revenue Code of 1986, by reason of
reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, spin-off, combination of shares or
dividend payable in capital stock, this Option shall, to the extent that
it has not been exercised, entitle the Holder upon the subsequent
exercise of this Option to such number and kind of securities or other
property, subject to the terms of this Option, to which the Holder would
be entitled had the Holder actually owned the shares subject to the
unexercised portion of this Option at the time of the occurrence of such
event, and the aggregate purchase price upon the subsequent exercise of
this Option shall be the same as if the Common Stock of the Company
originally optioned were being purchased as provided herein; provided,
however, that each such adjustment in the number and kind of shares
subject to this Option, including any adjustment in the Option price,
shall be made in such manner as not to constitute a "modification" as
defined in Section 425 of the Code. Any such adjustment made by the
Committee shall be conclusive.
Upon the occurrence of: (i) the dissolution or liquidation of
the Company, (ii) a reorganization, merger or consolidation of the
Company with one or more corporations in which the Company is not the
surviving corporation, (iii) a sale of substantially all of the assets
of the Company or (iv) the transfer of more than 80 percent of the then
outstanding Stock of the Company (as defined in the Plan) to another
entity or person in a single transaction or series of transactions, this
Option shall become fully exercisable as of the business day before the
consummation of the transaction, but if not then exercised, the Plan
shall terminate, and any outstanding Options granted under the Plan
shall terminate at 5:00 p.m., St. Louis, Missouri, time on the day
before the consummation of the transaction; provided that the Board of
Directors shall have the right, but shall not be obligated, to amend the
Plan to require that a successor corporation assume any outstanding
Options.
The Company may postpone the issuance and delivery of shares upon
any exercise of this Option, if necessary, until admission of such
shares to listing on any stock exchange and completion of registration
and qualification of such shares under any applicable state or federal
law, rule or regulation.
The Holder hereof shall make such representations and furnish such
information to the Company as may be appropriate to permit the Company
to issue such shares in compliance with the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), or any other applicable
law, including state securities laws. Without limiting the generality
of the foregoing, if requested by the Company in accordance with any
such
4
<PAGE> 5
applicable law (and provided such shares are not then the subject of an
effective registration statement under the Securities Act and any other
applicable securities law), the Holder will represent, in form acceptable
to the Company, that the Holder is purchasing any shares issued pursuant
hereto for investment purposes and not with a view to resale or
distribution. The Holder, by acceptance of this Option, hereby consents
to the placing of a restrictive legend on any stock certificate for shares
purchased hereunder, setting forth the restrictions applicable to the
further resale, transfer or other conveyance thereof without registration
under the Securities Act or other applicable law or the availability of an
exemption from registration thereunder and to the placing of transfer
restrictions on the records of the transfer agent for such shares. In
addition, the Holder will not thereafter resell, transfer or otherwise
convey any shares purchased hereunder without compliance with one of the
following three conditions: (l) an opinion of the Holder's counsel is
received by the Company, in form and substance satisfactory to counsel for
the Company, that registration under the Securities Act and applicable
state securities laws is not required; or (2) such shares have been
registered for sale under the Securities Act and any applicable state
securities laws; or (3) a "no-action" letter is received from the staff of
the Securities and Exchange Commission and from applicable state
securities agencies, based on an opinion of the Holder's counsel, in form
and substance reasonably satisfactory to counsel for the Company, advising
that registration under the Securities Act is not required.
This Option is issued pursuant to the provisions of the Company's
1991 Incentive Stock Option Plan, the receipt of a copy of which the
Holder acknowledges by virtue of the acceptance hereof, and is subject
to all the terms and conditions of the Plan, except the provisions of
paragraph 14 thereof, which are not applicable in any respect to this
Option.
A determination by the Committee of any question which may arise
with respect to the interpretation and construction of the provisions of
this Option or of the Plan shall be final. The Committee may authorize
and establish such rules, regulations and revisions thereof, not
inconsistent with the provisions of the Plan, as it may deem advisable.
5
<PAGE> 6
WITNESS the seal of the Company and the signatures of its duly
authorized officer.
Dated: June 1, 1995
K-V PHARMACEUTICAL COMPANY
By /s/ Gerald R. Mitchell
--------------------------------
Gerald R. Mitchell
Vice President-Finance
ACCEPTED:
/s/ Marc S. Hermelin
----------------------------
Option Holder, Marc S. Hermelin
6
<PAGE> 1
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT BETWEEN
KV PHARMACEUTICAL COMPANY AND
MARC S. HERMELIN
----------------
This Second Amendment ("Second Amendment") to the Employment
Agreement between KV Pharmaceutical Company ("KV") and Marc S. Hermelin
("Hermelin") dated November 15, 1993, as amended by Amendment dated
November 16, 1994 (as so amended, the "Employment Agreement") is entered
into this 1st day of June 1995.
Whereas, in order to assist KV to increase its profitability and
cash flow for the fiscal year ended March 31, 1995 and current fiscal
year ending March 31, 1996, Hermelin has voluntarily agreed with KV to
a deferral of certain salary payable to Hermelin and to forego certain
payments to which Hermelin would otherwise be entitled under his
contractual arrangement with KV;
Therefore, in consideration of the mutual agreements herein
contained, KV and Hermelin agree as follows:
1. Effective April 1, 1995, Hermelin agrees to defer the increase
in Base Salary payable to Hermelin by KV under paragraph 4 of the
Employment Agreement during fiscal 1996 until such time as KV achieves
profitable results of operation for two quarters.
2. The bonus payable to Hermelin under the Employment Agreement
with respect to the fiscal year ending March 31, 1996 shall be capped
and limited to an amount not to exceed 20% of the Base Salary payable to
Hermelin in accordance with the terms of the Employment Agreement,
without application of the provisions of paragraph 1 above.
3. KV hereby grants to Hermelin, under the KV 1991 Incentive Stock
Option Plan (the "Plan"), an option for a five year period from the date
hereof to purchase 100,000 shares of Class B Common Stock of KV, as and
to the extent the full number of such shares of Class B Common Stock is
available for issuance under the Plan at the time of the exercise of
such option by Hermelin at any time and from time to time or, in the
alternative, so much of such option which becomes exercisable and with
respect to which shares of Class B Common Stock are not available under
the Plan at the time of the exercise thereof, shall be exercised for the
purchase of shares of Class A Common Stock of KV, such option for the
purchase of the Common Stock of KV to be exercisable at not less than
110% of the closing price of the Common Stock as of the date of this
Agreement, which option shall be subject to and structured in a manner
which complies with the provisions of the Internal Revenue Code of 1986,
as amended, and Regulations thereunder.
<PAGE> 2
In witness whereof, KV and Hermelin have entered into this Second
Amendment to the Employment Agreement as of the date set forth above.
KV Pharmaceutical Company
By: /s/ Gerald R. Mitchell /s/ Marc S. Hermelin
------------------------------ -----------------------------
Gerald R. Mitchell Marc S. Hermelin
Vice President-Finance
2
<PAGE> 1
<TABLE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
EARNINGS (LOSS) PER SHARE CALCULATION
PRIMARY EARNINGS PER SHARE
<CAPTION>
FOR THE THREE MONTHS ENDED
06/30/95 06/30/94
----------- -----------
<S> <C> <C>
NET INCOME (LOSS) $ 771,120 $(2,958,754)
LESS DIVIDENDS ON PREFERRED STOCK (105,438) (105,438)
----------- -----------
INCOME (LOSS) ATTRIBUTED TO COMMON
STOCK $ 665,682 $(3,064,192)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS
OUTSTANDING:
AVERAGE COMMON SHARES
OUTSTANDING 11,434,115 11,056,762
COMMON SHARE EQUIVALENTS
(AFTER APPLICATION OF
TREASURY STOCK METHOD) 190,843 N/A
----------- -----------
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING 11,624,958 11,056,762
=========== ===========
PRIMARY INCOME (LOSS) PER SHARE <F1>: $0.06 $(0.28)
===== ======
<FN>
<F1> 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.
</TABLE>
15
<PAGE> 1
<TABLE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
EARNINGS (LOSS) PER SHARE CALCULATION
FULLY-DILUTED EARNINGS PER SHARE
<CAPTION>
FOR THE THREE MONTHS ENDED
06/30/95 06/30/94
----------- -----------
<S> <C> <C>
NET INCOME (LOSS) $ 771,120 $(2,958,754)
LESS DIVIDENDS ON PREFERRED STOCK (105,438) (105,438)
PLUS DIVIDENDS NOT PAYABLE DUE TO
PREFERRED STOCK CONVERSION 105,438 105,438
----------- -----------
INCOME (LOSS) ATTRIBUTED
TO COMMON STOCK $ 771,120 $(2,958,754)
----------- -----------
AVERAGE NUMBER OF SHARES
OUTSTANDING ON A FULLY-
DILUTED BASIS:
AVERAGE COMMON SHARES
OUTSTANDING 11,434,115 11,056,762
COMMON SHARE EQUIVALENTS
(AFTER APPLICATION OF TREASURY
STOCK METHOD):
SHARES ISSUABLE UPON CONVERSION
OF STOCK OPTIONS 292,340 324,821
COMMON EQUIVALENT SHARES FOR
PREFERRED STOCK 301,250 301,250
----------- -----------
AVERAGE NUMBER OF SHARES
OUTSTANDING ON A
FULLY-DILUTED BASIS 12,027,705 11,682,833
=========== ===========
FULLY-DILUTED INCOME (LOSS) PER SHARE <F1> <F2>: $ 0.06 $(0.25)
====== ======
<FN>
<F1> 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.
<F2> 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>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 367,098
<SECURITIES> 0
<RECEIVABLES> 8,424,519
<ALLOWANCES> 0
<INVENTORY> 6,745,545
<CURRENT-ASSETS> 15,874,906
<PP&E> 20,158,394
<DEPRECIATION> 12,170,367
<TOTAL-ASSETS> 28,948,654
<CURRENT-LIABILITIES> 7,366,581
<BONDS> 0
<COMMON> 114,816
0
2,410
<OTHER-SE> 10,683,029
<TOTAL-LIABILITY-AND-EQUITY> 28,948,654
<SALES> 12,220,103
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 11,418,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 801,120
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 771,120
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
