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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1995 OR
--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from ------- to -------
Commission file number 1-9601
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K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
(314) 645-6600
Incorporated in Delaware I.R.S. Employer Identification No. 43-0618919
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock par value $.01 per share American Stock Exchange
Class B Common Stock par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
7% Cumulative Convertible Preferred, par value $.01 per share
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
----- -----
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the 4,615,880 shares of
Class A and 2,535,881 shares of Class B Common Stock held by
nonaffiliates of the Registrant as of June 13, 1995, was
$32,022,668 and $17,909,660, respectively. As of June 13, 1995,
the Registrant had outstanding 6,739,151 and 4,694,964 shares of
Class A and Class B Common Stock, respectively, exclusive of
treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated into this
Report by reference:
Part III: Portions of the definitive proxy statement
of the Registrant (to be filed pursuant to Regulation 14(A) for
Registrant's 1995 Annual Meeting of Shareholders, which involves
the election of directors), is incorporated by reference into Items
10, 11, 12 and 13 to the extent stated in such items.
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Item 1. Description of Business.
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(a) General Development of Business.
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KV was incorporated under the laws of Delaware in 1971
as a successor to a business originally founded in 1942. KV's
Chairman and founder, Victor M. Hermelin, obtained initial patents
for early controlled release and enteric coated technologies in the
early 1950's.
The Company is a recognized leader in the development and
manufacture of major drug products utilizing its proprietary
advanced drug delivery technologies that optimize the benefits of
various drug compounds. KV licenses the marketing rights for
products developed with KV's patented drug delivery technologies to
major domestic and international brand name pharmaceutical
marketers in return for royalty revenues. In February, 1990, the
Company launched ETHEX Corporation ("ETHEX"), a wholly-owned
subsidiary created specifically to distribute and market KV's
technology distinguished generic products, some of which were
formerly sold through a joint venture. KV also plans to market or
co-market other selected technologically advanced brand name
products.
KV's proprietary drug delivery systems control the amount
and rate of release of a drug in order to optimize therapeutic
effect and patient convenience. KV's technologies apply to
products in solid (tablets, caplets and capsules), liquid (lotions,
creams and pourable liquids) and particle (granular and powder)
form. KV is one of the few pharmaceutical companies that has
developed controlled release technologies and products for oral,
topical and orificial use.
KV's wholly-owned subsidiary, Particle Dynamics, Inc.
("PDI"), formerly known as Desmo Chemical Corporation, was
incorporated in New York in 1948 and acquired by KV in 1972. PDI
develops and markets specialty pharmaceutical raw materials,
including directly compressible and microencapsulated ingredients
used in pharmaceutical processing, taste-masked vitamins and
minerals and other products, in part through the application and
use of two of KV's drug delivery systems. These PDI developed
technologies also have broad commercial usefulness in the food and
flavor industry. (Hereinafter, KV, ETHEX and PDI are sometimes
referred to collectively as "KV" or the "Company.")
(b) Industry Segments.
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The Company operates principally in one industry segment.
The Pharmaceutical Development, Manufacturing and Marketing segment
engages in the research and development, production and sale of
drug products in a variety of dosage forms utilizing KV's
proprietary drug delivery technologies. Revenues are received from
customers for the development, manufacture and sale of drug
products to pharmaceutical marketers and from directly marketing
its own technology distinguished generic products. When marketing
rights to products using KV's advanced drug delivery technologies
are licensed, revenues may be received in the form of licensing
revenues and/or royalty payments to KV based upon a percentage of
the licensee's sales of the product, in addition to manufacturing
revenues.
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(c) Narrative Description of Business.
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KV specializes in the development of proprietary drug
delivery systems for optimizing the benefits of various drugs
utilizing patented technology, know-how and trade secrets. While
most drug companies concentrate their research either on the
discovery of new drug entities or the duplication of "me-too"
generic drugs, KV develops existing known patented or off-patent
drugs into innovative drug products with differentiated and
improved benefits which can command a brand-name price (Improved
Drug Entities(TM)) by utilizing its proprietary drug delivery
technologies. The Company is a recognized leader in the area of
controlled release (long-acting) drug delivery technology because
of its breadth of extended-release technologies which can be
applied to tablets, capsules, liquids, creams, ointments,
suppositories and microparticle spheres. Evidence of this
recognized leadership is the fact that many of the company's
customers, such as Johnson and Johnson, SmithKline Beecham and
Pfizer have their own in-house drug delivery capabilities and yet
enter into agreements with the Company for advanced drug delivery
products because of the Company's proven technology in these areas.
KV's controlled release drug technologies can be used orally,
topically or orificially and have improved the performance of many
drugs through better patient compliance and drug efficacy.
Prior to the mid-1980's, all of KV's revenues were
derived from short-term supply contracts. Since that time, KV's
marketing strategy has been to emphasize retention of significant
proprietary interests in the products it develops and de-emphasize
KV's dependence on revenues from short-term manufacturing
contracts. Also, in 1990, the Company established ETHEX
Corporation to distribute and market KV's specialty technology
distinguished generic products. These marketing strategies are
comprised of three important components:
* KV engages in the development and manufacturing of technology
distinguished generic products which it markets through ETHEX
Corporation.
* KV enters into long-term agreements with drug companies under
which it assigns marketing rights for the products it develops
in return for a combination of initial cash and milestone
payments, royalties in the range of 5-10% and manufacturing
revenues.
* KV plans to enter into strategic alliance agreements for
specialty market niches in the U.S. or other international
territories.
In the past ten years, the Company expended significant
funds in the development of advanced technologies which have begun
to be applied to specific products under marketing agreements. In
recent years, KV has entered into domestic and international
marketing agreements with major drug companies, including such
companies as Burroughs Wellcome (U.S. and Canada), Fisons, Syntex
Corporation, Janssen Pharmaceutica (a Johnson & Johnson Company)
(U.S., Canada and worldwide), Hoechst-Roussel Pharmaceuticals Inc.,
J. Uriach & Cia and others, which will combine KV's advanced drug
delivery technologies with various drug compounds. The agreements
cover both patented drugs and off-patent drugs which, when combined
with the advanced drug delivery technology, improve the benefits of
the drug. The improved drug is then submitted to the FDA for
approval for marketing. Since the manufacture of the products
under such agreements is done by KV, the anticipated long-range
impact will be to generate royalties on the marketer's sales and to
add products with higher margins which will utilize and stabilize
the Company's manufacturing capabilities. These agreements involve
assigning marketing rights to select products in specified
geographic areas. These products have various benefits, such as
once-daily dosing, enhanced bioavailability, reduced side effects,
taste or flavor enhancements and improved patient convenience and
compliance. Six products from among these agreements have been
introduced to date, with the products with the largest
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potential sales yet to be approved and launched. KV is currently
negotiating a number of additional similar agreements. In recent
years, the Company has experienced delays in obtaining FDA approval
and, in certain instances, KV's customer is responsible for
obtaining the FDA approvals and have been similarly delayed. During
fiscal 1995, no FDA product approvals were received. The Company
expects additional products to be approved and marketed in fiscal
1996 and the remaining drugs covered by these existing agreements to
be approved and marketed over the next few years.
ETHEX Corporation distributes and markets technology
distinguished generic products directly to various markets and
classes of trade customers, including wholesalers, chains,
distributors, mail order houses, independent pharmacies, large HMO's
and PPO's. ETHEX has achieved a 100% penetration in the 25 largest
wholesalers and chains. Beginning in fiscal 1994, the Company
focused its attention on developing additional differentiated
generic products for its ETHEX subsidiary. In fiscal 1995, ETHEX
launched ten new products and plans to launch a similar number in
fiscal 1996. During the first quarter of fiscal 1996, four ETHEX
products were launched.
In the future, KV also plans to market or co-market
branded drugs which utilize the Company's proprietary drug delivery
technologies. Co-marketing is the marketing of the same drug with
another pharmaceutical company in order to expand sales coverage,
using the sales forces of both companies.
Particle Dynamics, Inc. has developed and markets to the
pharmaceutical and food industries two lines of specialty raw
material products which use KV's drug delivery technologies,
DESCOTE(R) and DESTAB(TM). The DESCOTE(R) line of taste-masked
vitamin and mineral products has experienced continued growth.
DESCOTE(R) products are supplied for virtually every children's
chewable vitamin. DESTAB(TM) is a line of direct compression
products, certain of which are the leading products sold in their
respective categories. PDI also has two newer product lines,
DESTRIT(TM), which is a line of low dose vitamin products for
direct compression into vitamin tablets and VITACOTE(TM), which is
a line of stabilized vitamins for pharmaceutical and food industry
use.
In addition to product development capabilities and
service, KV manufactures approximately 119 solid, liquid and semi-
liquid drug products, principally for marketing by major ethical
and proprietary drug companies in the United States and abroad.
KV's customers include leading domestic and international
prescription and over-the-counter consumer drug companies. Some of
the more familiar and successful over-the-counter and prescription
products developed and manufactured by KV and marketed by other
companies include Novafed(R) (Marion-Merrill Dow), Slow-Mag(R)
(Monsanto/Searle), Kaopectate (Upjohn) and others.
Drug products normally consist of the active drug
substance or compound and a drug delivery system, which can take
numerous forms, such as tablets, capsules, liquids, ointments and
creams. The majority of drug products available are in immediate
release drug delivery systems and require a dosing regimen which is
typically three to four times per day. Immediate release drugs can
have undesirable "peaks" and "valleys" as the active ingredient is
initially taken and absorbed, becomes subtherapeutic and is then
taken again. This can cause improper highs and lows in the
therapeutic levels of dosing and result in annoying and sometimes
unsafe side effects.
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Ideally, medicine should be safe, effective and
sufficiently convenient that the patient will remember to follow
the doctor's orders regarding how frequently to take the medicine.
KV's controlled release drug delivery systems are designed to
control the amount and rate of release of a drug to optimize its
therapeutic effect, thus reducing or eliminating undesirable side
effects.
KV has developed and introduced important new generations
of technologies in the 1990's which represent significant
advancements in the field of drug delivery systems. These drug
delivery systems are generally organized in the areas of
"controlled release," "site-specific" and "tastemasking
technologies." These technologies are based on the absorption,
distribution, half-life and excretion characteristics of individual
drugs in the body and the many physiological and environmental
variances which influence drug ingestion and utilization. The
features and benefits of some of the Company's new drug delivery
technologies are described below.
SITE-SPECIFIC TECHNOLOGIES
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SITE RELEASE(R)
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SITE RELEASE(R) incorporates advanced polyphasic principles,
resulting in a bio-emulsion system that can deliver therapeutic
agents in oral, topical, vaginal, and rectal dosage forms
incorporating its bioadhesive and controlled release properties
which result in reduced dosing regimens and improved patient
compliance. To the Company's knowledge, SITE RELEASE(R) is the
only bioadhesive delivery system that is clinically proven.
Products under development using SITE RELEASE(R) technology are the
subject of marketing agreements with such companies as Syntex
Corporation, Taisho Ltd. of Japan, J. Uriach & Cia of Spain and
others. Under these agreements, KV would receive royalties as well
as manufacturing revenues on a long-term basis.
BioSert(R)
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BioSert(R) is a suppository form of drug delivery that is a highly
utilized mode of therapy in European markets in particular. Upon
insertion, a BioSert(R) product becomes a bioadhesive cream which
releases over time. The time delay and bioadhesive features
significantly increase the efficacy of the drug delivered, thereby
reducing the frequency of administration.
OraSite(R)
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In one of the Company's newest bioadhesive technology developments,
KV has applied its scientific expertise to the development of
mucoadhesive delivery systems to develop OraSite(R). OraSite(R) is
an orally administered solid delivery system that looks much like
a conventional tablet. When put in the mouth, the delivery system
immediately liquifies and seeks out the mucosal surface of the
mouth, throat and esophagus. The mucoadhesion that occurs is long
lasting. KV believes that the esophageal administration of
systemically active drug agents via the OraSite(R) mucoadhesive
delivery system holds great promise in the successful delivery,
over long periods of time, of drug agents that are difficult or
impossible to administer orally by any other means such as the new
biotech protein/peptide therapeutic agents that are produced by
gene manipulation. This system also has application to a wide
variety of therapeutic categories such as oral hygiene, sore
throat, periodontal and upper gastrointestinal tract disorders.
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CONTROLLED RELEASE TECHNOLOGIES
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KV/24(R)
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KV/24(R) is a precisely regulated once-daily oral delivery system
which reduces commonly associated side effects while providing a
full 24 hours of steady and effective dosing while allowing added
benefits of patient improved compliance and reduced dosing
regimens.
The distinguishing features of once-daily KV/24(R) are:
* KV/24(R) is a multi-particulate technology which can
combine different drug compounds (each requiring
individualized and varying release profiles) within a
single tablet or capsule.
* KV/24(R) reduces potentially harmful gastrointestinal
irritation, thereby improving safety.
* KV/24(R) can deliver therapeutic levels of a drug over 24
hours while exposing the body to less drug (known as drug
sparing).
* KV/24(R) has demonstrated in stress tests, including
feeding studies, that there is little or no effect on the
release profile in the presence of food.
KV/24(R) products are designed to provide many benefits, including
increased patient convenience and compliance, improved
bioavailability of the drug and reduced side effects. KV has applied
KV/24(R) technology to a number of once-a-day drug products in both
prescription and over-the-counter product areas, including
cough/cold, cardiovascular, anti-arthritis, analgesic and others.
KV has concluded royalty generating licensing agreements for
KV/24(R) products with Johnson & Johnson, Pfizer, Burroughs
Wellcome and others. In January, 1989, the Company received
approval for the first KV/24(R) over-the-counter decongestant
product in the world that only has to be taken once per day. In
November, 1989, a second KV/24(R) approval was received - this time
for a product with two different active ingredients - the first
approval for a combination cough/cold product with 24 hours of
effectiveness. KV customers' products with the largest projected
sales are yet to be approved and launched.
METER RELEASE(R)
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METER RELEASE(R) is a twice-a-day dosing technology which can be
used with caplets, tablets or capsules. METER RELEASE(R) products
control the rate of release of active drug ingredients by
incorporating a variety of technical approaches which are selected
based on the special physical, chemical and pharmacological nature
of the drug substance and the end benefits needed in the final
product.
Benefits of METER RELEASE(R) products include improved dose-to-dose
dissolution profiles, reduced drug irritation of the stomach or
intestine, reduced toxicity, reduced side effects and other
advantages.
Products which have already been introduced in the pharmaceutical
marketplace using the Company's METER RELEASE(R) technology include
long-acting K-Norm(R), marketed by Fisons, and three cardiovascular
products marketed by ETHEX Corporation.
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TASTEMASKING TECHNOLOGIES
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FLAVORTECH(TM)
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FlavorTech(TM) is a tastemasking technology for liquids and dry
powders/granules for reconstitution with water. This technology
has already achieved market commercialization through its use in
several cough/cold syrup products launched by ETHEX Corporation in
fiscal 1995.
TASTELESSE(R)
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Tastlesse(R) is a robust tastemasking technology which utilizes a
unique microparticulate approach that has demonstrated a high
degree of effectiveness in overcoming bad tastes. In this patent
pending technology, KV scientists have been able to sequester the
offending drug agent in a compatible matrix that "shields" the drug
from taste receptors in the mouth. This "shielding" is
accomplished without interfering with the dissolution and ultimate
absorption of the drug agent from the gastrointestinal tract. In
this microparticulate system, the Tastelesse(R) particle exhibits
a very short lifetime after oral administration, only that amount
of time needed to carry the drug past the taste bud receptors in
the mouth. The microparticulate matrix then rapidly falls apart,
allowing the drug agent to be absorbed unimpeded. This technology
will be utilized in a cardiovascular product, Trental(R), that is
the subject of a marketing agreement with Hoescht-Roussel
Pharmaceuticals, Inc.
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COMPETITION
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The general pharmaceutical industry is highly competitive
and characterized by extensive ongoing research efforts. While the
majority of this research is directed toward new drug molecule
research, certain pharmaceutical concerns, including some of the
Company's customers, continue to invest in drug delivery research
for the development, manufacturing and marketing of products which
may be competitive with those being developed by the Company. Most
of these drug companies have substantially greater capital
resources, marketing experience and capabilities and research and
development staff than the Company. There are also a few
companies, including KV, which specialize in drug delivery
technology and the development of products derived from those
technologies for sale/licensing to pharmaceutical marketers. The
Company believes that its patents, proprietary trade secrets,
technological expertise, product development and manufacturing
capabilities position it to continue to develop products to compete
effectively in the marketplace and maintain a leadership position
in the field of advanced drug delivery technologies.
The Company also sells directly to various markets and
classes of customers with respect to its specialty generic products
marketed by ETHEX Corporation. The Company believes it is subject to
active competition from numerous firms. The primary competitive
factors are services, quality of products, approval for manufacture
and distribution by the FDA and price. The competition varies among
products, markets and classes of customers. The Company is subject to
potential additional competition from firms who are able to obtain the
necessary governmental approvals to manufacture similar products on
their own.
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REGULATION
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The design, development and marketing of pharmaceutical
compounds are intensively regulated by the Food and Drug
Administration ("FDA") and comparable agencies in foreign
countries. For example, the Federal Food, Drug and Cosmetic Act,
the Controlled Substances Act and other United States federal
statutes and regulations impose requirements on the testing,
manufacturing and approval of the Company's products before a drug
can be marketed in the United States. Obtaining FDA approvals is
a costly, time-consuming process and there is no guarantee that
such approval will be obtained with respect to an individual
product. All companies in the pharmaceutical industry are subject
to FDA inspections for compliance with current Good Manufacturing
Practices ("cGMP"), which encompasses all aspects of the production
process as interpreted by the FDA and involves changing and
evolving standards. FDA inspections are a part of a continuing
effort by the FDA to upgrade the level of industry-wide compliance
with cGMP, with an emphasis on increased validation of products and
increased stringency of Standard Operating Procedures. The Company
undergoes FDA inspections at all of its facilities.
On April 21, 1993, the FDA instituted a civil seizure action
involving essentially all of the Company's solid oral dosage form drug
products. On June 14, 1993, the Company entered into a Consent Decree
(the Agreement) with the FDA which settled the seizure action and
required the Company to engage cGMP experts to certify that these
products were manufactured in conformity with cGMP and that the
Company's facilities are operated in compliance with cGMP. The
certifications necessary for the release of seized products have been
substantially completed. The cGMP certification of the Company's
facilities required by the consent decree was completed by an
independent expert, which was preliminary to an inspection to be
performed by the FDA. Management believes that the Company can operate
satisfactorily under the agreement and does not anticipate any
material long-term adverse effects. (See Item 3, Legal Proceedings.)
On April 6, 1995, the Company settled an FDA investigatory
matter between the Company and the Department of Justice through a
misdemeanor plea agreement. Under the agreement, the Company has
agreed to accept responsibility for failing on two occasions in 1991
to make reports required by the FDA with respect to stability test
data on an erythromycin product previously manufactured by the Company
for contract customers until 1992 and which has not been available on
the market since that time. The Company has also agreed that two 1992
batches of the same product were inappropriately labeled as to their
shelf life. The agreement is consistent with the Company's belief
that the actions were inadvertent. The former Director of Quality
Assurance of KV has agreed to plead to one misdemeanor offense of
failing to make a required report of 1991 product data. (See Item 3,
Legal Proceedings.)
Since 1992, the Company has implemented new programs to
ensure full compliance with all of the FDA's regulatory requirements
and their increasingly vigorous interpretation by the government.
With respect to potential new products, there are two
principal ways for the Company to satisfy the FDA's safety and efficacy
requirements for a new drug product, a new drug application (an "NDA")
and an abbreviated new drug application (an "ANDA"). In recent years,
the Company has experienced delays in obtaining FDA approval and, in
certain instances, KV's customer is responsible for obtaining the
FDA approvals and have been similarly delayed. A number of products
KV anticipated would be introduced to the pharmaceutical market by
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KV or its client pharmaceutical companies in fiscal 1992, 1993, 1994
and 1995 were delayed. The Company follows a policy of not disclosing
information on the specific products covered by its FDA applications
in order to protect the confidentiality and competitive position of
the Company and its customers with respect to products which it has
developed and expects to be the subject of future market
introductions.
As a consequence of the uncertainties inherent in
the drug approval process, an applicant is not in the position
to predict in advance all of the substantive and procedural
requirements for FDA approval of a particular product. In
addition, the Company believes that under the agency's invocation
of its "Application Integrity Policy," the FDA will not process the
Company's applications until the Company has satisfied the FDA with
respect to data previously submitted and has implemented any
additional procedures necessary to assure the accuracy of
information furnished by the Company. However, the FDA has
specifically advised KV that the Application Integrity Policy does
not adversely delay any of its clients' NDA and ANDA submissions
for products KV has developed and will manufacture for such
clients. Currently, it is the applications of KV's clients which
have the greatest value to the Company. Therefore, the Company
believes that any delay in processing the Company's own
applications will not have a material adverse effect on the
Company.
The Company also cannot predict whether future
legislative or regulatory developments might have an adverse effect
on the Company. It is the Company's belief that generic drugs and
drug delivery products can provide cost savings opportunities which
the Company could benefit from in its ETHEX Corporation subsidiary
growth as well as in its drug delivery research business.
Some raw materials essential to the Company's business
are furnished by its customers for conversion to finished products.
During fiscal 1995, the Company encountered no serious shortages of
any particular raw materials and has no indications that
significant shortages will occur; however, a serious shortage of
certain raw materials could have a material adverse effect upon the
Company.
The Company regards its drug delivery technologies
as proprietary and maintains an extensive trade secret and patent
protection program. Because the patent laws often serve as an
educational tool to others and sometimes afford only limited
practical protection, the Company also relies on trade secret laws
and restrictions on disclosure and transferability contained in its
product license agreements. Internal safeguards incorporated in
its technologies also serve to protect the proprietary nature of
its programs. In addition, employees with access to proprietary
information and potential customers who evaluate KV's products are
required to execute non-disclosure agreements. The Company intends
to maintain and enforce the proprietary nature of its technologies.
In addition to its patent and trade secret protection, KV believes
that the knowledge and experience of its management and personnel
and their ability to develop and enhance drug delivery technologies
and products developed from such technologies is also of
competitive significance.
The Company presently owns twenty-seven domestic and
foreign patents expiring through 2011 and twenty-four trademarks
expiring through 2009 (which are renewable assuming continuous
use), none of which is considered material to the continuing
operations and success of the Company. The Company considers its
proprietary know-how and processing techniques to be of greater
importance to its continuing operations than such patents.
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In order to protect this goodwill, the Company has
applied for trademark protection for its technology names, such as
SITE RELEASE(R), KV/24(R), FLAVOR-TECH(TM), OraSite(R), METER
RELEASE(R), DESCOTE(R), IMPROVED DRUG ENTITIES(TM) and others. The
Company intends to continue to trademark new technology and product
names as they are developed.
The business of the Company is generally not seasonal,
although a number of new cough/cold products marketed through ETHEX
Corporation can be subject to seasonal demand.
The nature of the Company's business does not involve
unusual working capital requirements. Inventories are maintained
at sufficient levels to support current production and sales
levels.
Customers of the Company consist of large and small
pharmaceutical marketing companies, drug chains and wholesalers.
During fiscal 1995 and 1994, no unaffiliated customer individually
accounted for 10% or more of the Company's consolidated revenues.
Previously the Company's backlog of orders was driven
by the contract manufacturing business segment with lead times ranging
from several months and purchase orders covering up to one year of
commitments. The Company has transitioned itself so the majority
of its sales are related to directly marketed generic products through
ETHEX Corporation. Backlog measurements are not meaningful, due to the
short lead time required (days) in filling orders, at any point in time
to sales or income for any full 12-month period.
The estimated direct dollar amount, including overhead,
spent by KV on research activities relating to the development of
new products or services or the improvement of existing products or
services was approximately $4,795,000 in fiscal 1995, $5,805,000 in
fiscal 1994 and $5,375,000 in fiscal 1993. The estimated dollar
amount contributed by customers to these amounts was approximately
$272,000 in 1995, $200,000 in 1994 and $240,000 in 1993.
Research and development spending for KV products comes
from KV internal funding and from its major drug company customers
who have licensed marketing rights to KV-developed products. KV's
research and development spending, not including other sponsored
sources of funds, is approximately 11% of current revenues. This
does not include amounts KV's licensing partners are separately
spending for development and clinical research on KV products.
Extending KV's development dollars through the
significant external resources of its clients has enabled KV to
increase what can be accomplished through KV's internal research
budget.
The Company does not expect that compliance with federal,
state or local provisions regulating the discharge of materials
into the environment or otherwise relating to the protection of the
environment will have a material effect on the Company's capital
expenditures, earnings or competitive position.
As of June 12, 1995, the Company had 309 employees. The
Company is subject to a collective bargaining agreement which
expires in 1996 and covers 54 employees. The Company believes that
its relations with its employees are good.
The Company presently does not have material operations
or sales in foreign countries and its domestic sales are not subject
to unusual geographic concentration.
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Item 2. Properties.
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The Company's general offices are located in a two-story
brick building at 2503 South Hanley Road in St. Louis County,
Missouri, containing approximately 25,000 square feet of floor
space. The Company has a lease on the building for a period
expiring December 31, 1996, which is cancelable by the Company on
six-months notice.
<TABLE>
In addition, the Company has the leases shown in the
following table:
<CAPTION>
ADDRESS
- -------
SQ. FT. LEASE RENEWAL
FACILITIES USAGE LEASED EXPIRES OPTIONS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2629 S. Hanley Rd. Mfg. Oper. 18,000 11/30/97 5 Yrs
821 Hanley Indl. Ct. Mfg. Oper. 5,000 11/30/95 1 Yr
8046-50 Litzsinger Rd. Mfg. Oper. 17,000 12/31/96 5 Yrs
8056 Litzsinger Rd. Office/Maint. 3,000 12/31/96 5 Yrs
2635 S. Hanley Rd. Mfg. Oper. 12,150 11/30/97 5 Yrs
819 Hanley Ind'l. Ct. Mfg. Oper. 5,000 11/30/95 1 Yr
2525 S. Hanley Rd. Mfg. Oper. 16,800 06/30/97 None
8054 Litzsinger Rd. Office 3,000 12/31/96 5 Yrs
10888 Metro Court Office/Whse. 81,810 09/30/99 10 Yrs<F*>
2601 S. Hanley Rd. PDI Office 1,480 04/30/97 5 Yrs
2303 Schuetz Rd. Mfg. Oper. 90,000 Owned N/A
<FN>
<F*>Two five-year options
</TABLE>
Properties used in the Company's operations are considered
suitable for the purposes for which they are used and are believed to
be adequate to meet the Company's needs for the reasonably foreseeable
future. However, the Company has considered leasing additional
facilities from time to time when attractive facilities appeared to be
available to accommodate the consolidation of certain operations and
to meet future expansion plans.
11
<PAGE> 12
Item 3. Legal Proceedings.
-----------------
On April 21, 1993, the United States Food and Drug
Administration ("FDA") seized certain in-process and finished
solid-dosage form drugs which represented most of the products
manufactured by KV pending an audit of these products and the
Company's facilities to determine proper "current Good
Manufacturing Practices" (cGMP) compliance. The seizure did not
include non-drug type products, liquids, creams and ointments.
On June 14, 1993, a consent decree agreement was
executed between the Company and the FDA which requires the
Company to engage cGMP experts who will certify that the seized
products were manufactured in conformity with cGMP and that KV
facilities are operated in compliance with cGMP. Beginning in
May, 1993, the Company was allowed to continue manufacturing
seized products that were in-process in order that shipments could
take place upon submission and FDA acceptance of the independent
expert's certifications. The Consent Decree agreement was
subsequently amended and certain deadlines extended on December
13, 1993 and April 6, 1994. As of June 9, 1994, substantially all
solid dosage form drug product batches seized in April, 1993 have
been released to the Company for distribution. In addition, after
FDA review under the consent decree provisions, the Company has
been authorized to ship newly manufactured batches of a number of
products and is continuing to pursue such authorization for
additional products. The cGMP certification of the Company's
facilities required by the consent decree was completed by an
independent expert, which was preliminary to an inspection to be
performed by the FDA. Management believes that the Company can
operate satisfactorily under the agreement and does not anticipate
any material long-term adverse effects.
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 has 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 at the time of sentencing which is
scheduled for July 17, 1995. The Company and its counsel believe
the likelihood is remote that additional fines or punishments will
be levied against the Company beyond that provided in the plea
agreement.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
12
<PAGE> 13
<TABLE>
Item 4(a). Executive Officers of the Registrant.<F1>
------------------------------------
The following is a list of the current executive
officers of the Company, their ages, their positions with the
Company and their principal occupations for at least the past five
years.
<CAPTION>
NAME POSITION HELD AND PAST EXPERIENCE AGE
---- --------------------------------- ---
<C> <S> <C>
Victor M. Hermelin Director, Chairman of the Board and Treasurer 81
of the Company. <F2>
Marc S. Hermelin Director and Vice-Chairman of the Board 53
since February 1994. Director, Vice-Chairman
of the Board and Chief Executive Officer 1975
to February 1994 and interim CEO since
December 1994. <F2>
Alan G. Johnson Director, Secretary. Attorney at Law 60
and Member in the law firm of
Gallop, Johnson & Neuman, L.C. since 1976;
Director of MRL, Inc.; Siboney Corporation;
Triax Communications Corporation; and
NationsMart Corporation.
Raymond F. Chiostri Vice President of KV since 1986 and Group 61
President and Chief Executive Officer of
Particle Dynamics, Inc. since 1995. President-
Pharmaceutical Division of KV 1986 to 1995.
President and Chief Operating Officer
of Inolex Chemical Company and President -
Protein and Personal Care Division of Inolex
from l982 through 1986.
Gerald R. Mitchell Vice President - Finance since 1981. 56
Vice President - Finance and Chief Financial
Officer, Tubular Steel, Inc., a distributor of
tubular steel products from 1975 to 1981.
Mitchell I. Kirschner Vice President - New Business Development 49
of KV since August 1989 and Pharmaceutical
Division Vice President of New Business
Development since 1983. <F2>
<FN>
The term of office for each executive officer of the
Company expires at the next annual meeting of the directors or at such
time as his successor has been elected and qualified.
- ------------
<F1>This information is included in Part I as a separate item in
accordance with Instruction 3 to Item 401(b) of Regulation S-K
and General Instruction G to Form 10-K.
13
<PAGE> 14
<F2>Victor M. Hermelin is the father of Marc S. Hermelin and father-in-
law of Mitchell I. Kirschner.
</TABLE>
PART II
Item 5. Market for the Company's Common Stock and Related Security
----------------------------------------------------------
Holder Matters.
--------------
(a) Principal Market.
----------------
The Company's Class A Common Stock and Class B
Common Stock are traded on the American Stock
Exchange under the symbols KV.A and KV.B,
respectively.
<TABLE>
(b) Stock Price and Dividend Information.
------------------------------------
High and low closing sales prices on the American
Stock Exchange of the Company's Class A and Class B
Common Stock during each quarter of fiscal 1995 and
1994 were as follows:
<CAPTION>
CLASS A COMMON STOCK
- --------------------
FISCAL 1995 FISCAL 1994
----------- -----------
QUARTER High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 9 3/8 7 1/4 9 5/8 7 1/4
Second 9 1/4 6 1/2 12 1/4 8
Third 8 4 3/8 10 3/8 8 3/8
Fourth 7 1/2 5 1/8 11 1/4 8 3/4
<CAPTION>
CLASS B COMMON STOCK
- --------------------
FISCAL 1995 FISCAL 1994
----------- -----------
QUARTER High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 9 1/8 7 3/8 10 7 1/8
Second 9 1/4 6 1/2 12 8
Third 7 7/8 4 5/8 10 1/4 8 1/2
Fourth 7 1/2 5 1/4 11 1/2 8 7/8
</TABLE>
During the period following the seizure action
initiated by the FDA (see Item 3) from April 22, 1993 to June 16, 1993,
trading in the Company's Class A Common Stock and Class B Common Stock
was suspended by the American Stock Exchange.
No cash dividends were paid on the Company's Class
A Common Stock or Class B Common Stock in fiscal 1995 or 1994. See Note
3 to the Financial Statements regarding limitations on the payment of
dividends.
(c) Approximate Number of Holders of Common Stock.
---------------------------------------------
The number of holders of record of the Company's
Class A and Class B Common Stock as of June 13, 1995 was 809 and 749,
respectively (not separately counting shareholders whose shares are held
in "nominee" or "street" names, which are estimated to represent
approximately 4,000 additional shareholders for each class of common
stock).
14
<PAGE> 15
<TABLE>
Item 6. Selected Financial Data.
-----------------------
<CAPTION>
Years Ended March 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $39,742,554 $38,170,568 $43,495,896 $42,018,606 $35,120,343
Net (loss)
income <Fd> (5,374,801) (8,181,294) 1,055,252 89,859 (1,235,232)
Total assets <Fd> 29,027,782 31,802,160 39,330,944 33,653,360 32,497,053
Long-term debt
and other 12,152,509 13,322,760 11,885,879 9,039,867 13,778,396
Shareholders'
equity <Fd> 9,974,182 13,343,019 21,630,713 20,993,175 15,095,696
Net (loss)
income per
common share
<Fa> <Fb> <Fc> <Fd> (.52) (.78) .06 (.05) (.21)
<FN>
NOTES:
- -----
<Fa> After deducting preferred dividends of $421,750 or $.04 per common
share in 1995, 1994 and 1993, $593,696 or $.06 per common share in
1992 and $765,643 or $.08 per common share in 1991.
<Fb> Retroactively restated to reflect the stock distribution on
December 27, 1991 of one share of Class A Common Stock for each
share of Class A or Class B Common Stock issued as of December 2,
1991.
<Fc> There were no cash dividends paid on any shares of common stock
during the five years ended March 31, 1995.
<Fd> Fiscal years 1991 and 1992 have been restated to reflect the effect
of the accounting change made in 1993 of valuing inventories from
the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method.
</TABLE>
15
<PAGE> 16
Item 7. Management's Discussion and Analysis of Liquidity, Capital
----------------------------------------------------------
Resources and Results of Operations.
-----------------------------------
(a) Liquidity and Capital Resources.
-------------------------------
Fiscal years 1995, 1994 and 1993.
The working capital, quick ratio, profitability and
leverage ratios set forth below are measures of the Company's liquidity.
<TABLE>
1. Working capital ratio:
---------------------
<CAPTION>
As of March 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Working capital ratio (current 2.3 3.4 4.3
assets to current liabilities) to 1 to 1 to 1
Quick ratio (cash and cash
equivalents and receivables 1.3 1.4 2.4
to current liabilities) to 1 to 1 to 1
</TABLE>
At March 31, 1995, working capital decreased $3,227,357
(27%) from 1994, while cash and cash equivalents increased $568,731.
Net cash provided by operating activities of $410,506 includes an
increase in accounts receivable of $1,181,549 (18%) relating principally
to the increasing sales volume being experienced by ETHEX Corporation
and a decrease in inventories of $3,180,975 (33%), related to increased
sales volume of ETHEX Corporation in the last half of the year and
inventory writedowns on materials related to contract manufacturing
products the Company no longer intends to pursue. Fiscal 1995 non-cash
items totaling $1,961,975 and a net increase in operating assets and
liabilities, which reflects a $901,816 non-cash conversion of accounts
payable to vendor notes described in Note 1c to the Financial
Statements, more than offset the net loss. Investing activities
reflected capital expenditures of approximately $300,000 which were
provided for through increased borrowings. Financing activities
reflected a net decrease in borrowings of $1,198,000 which reduction was
made from the proceeds of a capital infusion of approximately
$2,006,000, received from the sale of 375,000 shares of Class A Common
Stock described in Note 3 to the Financial Statements. At the end of
fiscal 1995, the Company's "quick assets" (cash and cash equivalents and
accounts receivable) increased $1,750,280 (24%) from the prior year
while current liabilities increased $1,764,710 (34%), resulting in a
"quick ratio" of 1.3 to 1 as compared to 1.4 to 1 at the end of 1994.
Working capital at the end of fiscal 1994 reflected decreases in cash,
receivables and inventories related to the loss for the year which was
attributable to lower sales levels and higher costs associated with the
FDA seizure action.
The Company's cash and cash equivalents on hand at March
31, 1995 were $1,075,713. On May 8, 1995, the Company refinanced its
prior revolving loan agreement (that consisted of an $8,925,000 line of
credit and an approximate $4,800,000 letter of credit facility) with a
new three-year credit facility aggregating $17,500,000 described in Note
4 to the Financial Statements. The Company believes that the new
financing in place, combined with the $2 million capital infusion in
fiscal 1995 and the revenue growth from the
16
<PAGE> 17
introduction of new ETHEX products, will be sufficient to meet the
Company's short-term needs. The Company's capital equipment commitments
at year-end totaled approximately $70,000. As part of its new credit
facility, the Company has available $1,500,000 to finance new capital
expenditures.
<TABLE>
2. Profitability ratios:
--------------------
<CAPTION>
Year Ended March 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return [income (loss) before interest
and taxes] on revenues (10.3%) (19.2%) 4.2%
Return [income (loss) before interest
and taxes] on average equity (35.2%) (41.9%) 8.5%
Net return [after interest and
taxes] on average equity (46.1%) (46.8%) 5.0%
</TABLE>
During fiscal 1995, the Company recorded a net loss of
$5,374,801 compared to a loss of $8,181,294 for fiscal 1994, an
improvement of $2,806,493. The operating results for 1995 improved from
1994 due to increased revenues on higher margin products related to KV's
ETHEX subsidiary sales of new and existing products. Gross margins for
products marketed by ETHEX averaged 60% during fiscal 1995. Margin
increased $3,064,000, although provisions of approximately $980,000 were
made to writedown inventories primarily associated with the contract
manufacturing services business the Company does not intend to pursue.
Improved margins are the result of the impact of the more favorable
product mix of high margin ETHEX product revenues replacing the low
margin contract manufacturing revenues. The effect of the increased
sales and margins for new and existing ETHEX products and a decrease in
research and development costs of $1,080,408 were partially offset by
(1) increased selling and administrative expenses of $53,047, (2)
increased interest and amortization expenses of $685,148, and (3) the
$600,000 litigation settlement described in Note 6 to the Financial
Statements.
During fiscal 1994, the Company recorded a net loss of
$8,181,294 compared to a profit of $1,055,252 for fiscal 1993, a
reduction of $9,236,546. The net loss was due to: (1) a 12%
($5,325,000) decrease in fiscal 1994 sales volume primarily related to
the FDA seizure action and suspension of shipments during the first
quarter of fiscal 1994 (see Note 6 to the Financial Statements).
Manufacturing costs remained relatively the same for both years due to
production inefficiencies associated with the lower volumes, increased
material prices, continuing fixed costs and technical support services,
combined with additional testing in the manufacturing process related to
the release of seized products. The combined effect of the lower
revenues and relatively constant costs resulted in a decrease in margin
contribution between the years of approximately $5,014,000; (2) a 9%
($472,000) increase in research and development costs; and, (3) an 18%
increase ($1,850,000) in selling and administrative expenses due to
professional, legal and related expenses ($1,152,000) associated with
the seizure action and increased selling and marketing expenses
associated with Particle Dynamics.
The losses for fiscal 1995 and 1994 compared to fiscal
1993 resulted in a negative return before interest and taxes on both
revenues and average equity for fiscal 1995 and 1994 and a negative net
return on revenues compared to the prior fiscal year.
17
<PAGE> 18
<TABLE>
3. Leverage ratios:
---------------
<CAPTION>
Year Ended March 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Debt to debt-plus-equity .58 .50 .37
to 1 to 1 to 1
Total liabilities to equity 1.91 1.38 .82
to 1 to 1 to 1
</TABLE>
For fiscal 1995, the debt to debt-plus-equity ratio and
total liabilities to equity increased because of the impact of the net
loss for the year, which was partially offset by the $2 million capital
infusion from the sale of Class A Common Stock.
For fiscal 1994, the debt to debt-plus-equity ratio and
total liabilities to equity increased, primarily due to the impact of
the 1994 loss on shareholders' equity and an increase in borrowing of
$1,250,000 against the revolving line-of-credit facility available to
the Company.
(b) Results of Operations.
---------------------
1. Revenues:
--------
Consolidated revenues in fiscal 1995 were $39,742,554 an
increase of $1,571,986 or 4% from fiscal 1994, compared with a 12%
decrease in 1994 from the prior year. The 1995 increase in revenues is
related to the increase in existing ETHEX products and the additional
sales from the introduction of ten new ETHEX products during the year,
primarily related to the cardiovascular, cough/cold and prenatal vitamin
markets. ETHEX revenues accounted for 63% of consolidated revenues in
1995 as compared to 35% for fiscal 1994. ETHEX revenue increases more
than offset reduced contract manufacturing sales resulting from the
Company's decision to de-emphasize lower margin contract manufacturing
products to focus on development and introduction of the higher margin
ETHEX products. Particle Dynamics experienced an 11% decrease in
revenues in fiscal 1995 of $882,343 as a result of softness in vitamin
markets. Revenues in fiscal 1995 for ETHEX increased 84%, or
$11,406,949. The launching of ten new ETHEX products resulted in ETHEX
revenues for the second half of the year being 160% of its first six
months revenues and consolidated revenues being 145% of the first six
months revenues. Consolidated revenues in fiscal 1994 were $38,170,568
down $5,325,328 or 12% from fiscal 1993, compared with a 4% increase in
1993 over the prior year. The 1994 decrease was primarily the result of
sales volume decreases in KV contract services resulting from the FDA
seizure action and temporary suspension of shipments of most of the
products manufactured by KV (see Note 6 to the Financial Statements).
Substantially all the products affected by the FDA seizure action had
been released as of June 9, 1994, however, delays in the release of
certain products adversely affected the volume of sales to customers, as
compared to 1993 volume in both KV contract services and ETHEX. ETHEX
offset some of this volume loss in existing products through the
introduction of two additional products in October, 1993 - Prenatal MR
90 Fe(TM) in the vitamin category and Histinex DM(TM) in the liquid
cough/cold category. Particle Dynamics experienced 28% revenue growth in
1994 over fiscal 1993 through the expansion of its existing product line
and two additional raw material technology lines vitamin products.
2. Costs and Expenses:
------------------
Manufacturing costs were 66%, 72% and 64% of
revenues for fiscal years 1995, 1994 and 1993, respectively.
Fiscal 1995 manufacturing costs decreased as a percent of
18
<PAGE> 19
revenues and also compared to the prior year. A significant
improvement in product mix occurred as ETHEX sales increased from 35%
to 63% of total revenues. While normal manufacturing costs were
reduced related to certain production and laboratory areas, these
savings were more than offset by product testing and validation
related to new ETHEX products and existing products and the writedown
of inventories of materials associated with low margin contract
manufacturing products which the Company does not intend to pursue due
to the focus on additional new ETHEX product introductions. Fiscal
1994 manufacturing costs as a percent of net sales increased over the
prior year's costs due to decreased sales volume, related production
inefficiencies, increased material prices and continuing fixed costs,
combined with larger than expected physical inventory adjustments and
additional laboratory testing in the manufacturing process related to
the release of seized products.
The additional laboratory testing incurred in fiscal
1994 in connection with the FDA seizure action is considered by the
Company as a one-time expense and does not reflect any requirement of
increased manufacturing costs associated with ongoing process/product
validation. The Company does not anticipate material additional costs
to be incurred in this area or other areas resulting from the FDA
seizure action once compliance with the terms of the consent decree
has been completed. The Company made substantial capital expenditures
on improved laboratory and production equipment prior to the seizure
action. The consent decree did not require the adoption of any
material specific program or modification of any manufacturing
equipment or any other material specific corrective action or programs
other than the certification of products to be shipped and the
certification of the Company's facilities. The certifications
necessary for the release of seized products had been substantially
completed as of June 9, 1994. The cGMP certification of the Company's
facilities required by the consent decree was completed by an
independent expert in June 1993.
The Company's records do not distinguish between the
one-time costs incurred by the Company for the staffing of the Company's
laboratory facilities at above-normal levels in connection with the
product certification procedures embodied in the consent decree from the
ongoing costs of laboratory improvements and procedures initiated by the
Company prior or subsequent to the seizure action. However, the Company
estimates that such one-time laboratory costs approximated $65,000 and
$480,000, respectively for fiscal 1995 and 1994 and that other
professional, legal and related expenses in connection with the FDA
action included in selling and administrative expenses were
approximately $1,010,000 and $1,152,000 for the same periods,
respectively.
During fiscal 1995, research and development costs were
$4,524,956, a decrease of 19% from the prior year, primarily due to
reduced materials and supplies utilized. As a percent of net sales,
these costs increased from 12% in 1993 to 15% in 1994 and decreased to
11% in 1995. Research and development expenses were $5,605,364 in
fiscal 1994 and $5,133,288 in fiscal 1993. These costs are linked
directly to the expansion of the Company's drug delivery technologies,
product validations and new drug development. The Company expects these
expenditures to continue related to new proprietary ETHEX products.
In 1995, selling and administrative expenses increased
$53,047 to $11,978,564. The increase was related primarily to increased
selling and marketing costs due to increased marketing programs within
ETHEX, which were partially offset by reduced selling costs in contract
services and Particle Dynamics. In 1994, selling and administrative
expenses increased $1,850,000 (18%) to $11,925,517. The increase was
related primarily to the other professional, legal and related expenses
referred to above and increased selling and marketing costs primarily
due to increased marketing programs within Particle Dynamics.
19
<PAGE> 20
In fiscal 1995 and 1994, interest expense increased
approximately $424,000 (50%) to $1,276,000 and $157,000 (23%) to
$852,062, respectively, primarily due to increased average levels of
borrowings and significantly higher interest rates charged by the
Company's former lender.
3. Income Taxes:
------------
In fiscal 1995 and 1994, the Company had no provision
for income taxes because of the Company's net operating loss
carryforward position. In fiscal 1993, the Company had a current
provision for income taxes of $60,000 based on the alternative minimum
tax. (See Note 5 to Financial Statements).
4. Inflation and Changing Trends:
-----------------------------
Although the Company generally has been able to pass
along to its customers at least a portion of cost increases in labor,
manufacturing and raw material costs under its agreements, in certain
instances no increases have been 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. For the most part, these
products can be produced with existing manufacturing processes. The
Company expects to continue a relatively high level of expenditures and
investment for research, clinical and regulatory efforts relating to
development and commercialization of proprietary new products and
Improved Drug Entities(TM) and their approval for marketing.
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 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 it plans to launch a similar
number in fiscal 1996. Management believes funds generated from operating
activities, increasing availability from the new credit facility due to
sales growth being experienced by ETHEX and existing cash are expected
to be adequate to fund the Company's requirements for the coming years.
Management believes that the Company is operating
satisfactorily under the consent decree entered into with the FDA in
June, 1993 and that the Company will continue to do so.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------
To the Board of Directors and Shareholders
of KV Pharmaceutical Company:
We have audited the consolidated financial statements of KV
Pharmaceutical Company and Subsidiaries listed in Item 14(a) of this
Form 10-K. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
KV Pharmaceutical Company and Subsidiaries as of March 31, 1995 and
1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended March 31, 1995, in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
June 28, 1995
21
<PAGE> 22
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
<CAPTION>
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,075,713 $ 506,982
Receivables, net 7,893,585 6,712,036
Inventories, net 6,591,587 9,772,562
Prepaid and other assets 266,951 298,903
----------- -----------
Total Current Assets 15,827,836 17,290,483
----------- -----------
Property and equipment 19,995,369 19,761,593
Less accumulated depreciation and
amortization (11,827,495) (10,668,201)
----------- -----------
Net Property and Equipment 8,167,874 9,093,392
----------- -----------
Deferred Improved Drug Entities(TM) 2,962,827 3,533,716
Goodwill and other assets 2,069,245 1,884,569
----------- -----------
TOTAL ASSETS $29,027,782 $31,802,160
=========== ===========
<CAPTION>
LIABILITIES
- -----------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 1,814,682 $ 365,119
Accounts payable 2,565,247 3,387,867
Accrued liabilities 2,521,162 1,383,395
----------- -----------
Total Current Liabilities 6,901,091 5,136,381
Long-term debt 11,233,418 12,978,660
Other long-term liabilities 919,091 344,100
----------- -----------
TOTAL LIABILITIES 19,053,600 18,459,141
----------- -----------
Commitments and Contingencies
<CAPTION>
SHAREHOLDERS' EQUITY
- --------------------
<S> <C> <C>
Preferred stock, $.01 par value;
$25.00 stated and liquidation value;
840,000 shares authorized; issued
and outstanding-241,000 shares
in 1995 and 1994 2,410 2,410
Class A and Class B common stock, $.01 par
value; 60,000,000 shares of each authorized;
Class A-issued 6,762,897 and 6,305,031
shares in 1995 and 1994 67,629 63,050
Class B-issued 4,718,710 and 4,801,086
shares in 1995 and 1994 47,187 48,011
Additional paid-in capital 23,706,723 21,704,514
Retained deficit (13,794,814) (8,420,013)
Less: Treasury stock, 23,746 shares each of
Class A and Class B common stock, at cost (54,953) (54,953)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 9,974,182 13,343,019
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $29,027,782 $31,802,160
=========== ===========
See accompanying notes to financial statements.
</TABLE>
22
<PAGE> 23
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net Revenues $39,742,554 $38,170,568 $43,495,896
Costs and Expenses:
Manufacturing costs 26,065,642 27,557,936 27,884,724
Research and development 4,524,956 5,605,364 5,133,288
Selling and administrative 11,978,564 11,925,517 10,076,219
Interest expense 1,275,622 852,062 695,238
Amortization of intangible assets 672,571 410,983 342,131
Litigation settlement 600,000 - (1,750,956)
----------- ------------ ------------
Total Costs and Expenses 45,117,355 46,351,862 42,380,644
----------- ------------ ------------
(Loss) Income before income taxes (5,374,801) (8,181,294) 1,115,252
Provision for income taxes - - 60,000
----------- ------------ ------------
Net (Loss) Income $(5,374,801) $ (8,181,294) $ 1,055,252
=========== ============ ============
Net (Loss) Income Per Common Share
(after deducting preferred
dividends):
$421,750 in 1995, 1994 and 1993.
$(0.52) $(0.78) $ 0.06
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
23
<PAGE> 24
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended March 31, 1995, 1994 and 1993
<CAPTION>
Class A Class B Additional Retained Total
Preferred Common Common Paid-In Earnings Treasury Shareholders'
Stock Stock Stock Capital (Deficit) Stock Equity
--------- ------- ------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1992 $ 2,410 $ 61,734 $ 49,163 $22,228,792 $(1,293,971) $(54,953) $20,993,175
--------- -------- --------- ----------- ----------- -------- -----------
Stock options exercised,
7,827 shares of each class,
less 900 shares of each class
repurchased - 69 69 41,397 - - 41,535
Cash dividends - preferred stock - - - (421,750) - - (421,750)
Conversion of Class B shares
to Class A shares - 885 (884) - - - 1
Class A registration costs - - - (37,500) - - (37,500)
Net Income for 1993 - - - - 1,055,252 - 1,055,252
--------- -------- --------- ----------- ------------ -------- -----------
BALANCE AT MARCH 31, 1993 2,410 62,688 48,348 21,810,939 (238,719) (54,953) 21,630,713
--------- -------- --------- ----------- ------------ -------- -----------
Stock options exercised,
1,365 shares of Class A and
1,390 shares of Class B, less 100
shares of each class repurchased - 12 13 9,557 - - 9,582
Cash dividends - preferred stock - - - (115,982) - - (115,982)
Conversion of Class B shares
to Class A shares - 350 (350) - - - -
Net Loss for 1994 - - - - (8,181,294) - (8,181,294)
--------- -------- --------- ----------- ------------ -------- -----------
BALANCE AT MARCH 31, 1994 2,410 63,050 48,011 21,704,514 (8,420,013) (54,953) 13,343,019
--------- -------- --------- ----------- ------------ -------- -----------
Stock options exercised,
420 shares of Class A and
370 shares of Class B, less 150
shares of each class repurchased - 3 2 (239) - - (234)
Sale of 375,000 shares of Class A - 3,750 - 2,002,448 - - 2,006,198
Conversion of Class B shares
to Class A shares - 826 (826) - - - -
Net Loss for 1995 - - - - (5,374,801) - (5,374,801)
--------- -------- ---------- ----------- ------------ -------- -----------
BALANCE AT MARCH 31, 1995 $ 2,410 $ 67,629 $ 47,187 $23,706,723 $(13,794,814) $(54,953) $ 9,974,182
========= ======== ========== =========== ============ ======== ===========
See accompanying notes to financial statements.
</TABLE>
24
<PAGE> 25
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (Loss) Income $(5,374,801) $(8,181,294) $ 1,055,252
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation, amortization and other
non-cash charges 1,961,975 1,577,076 1,476,621
Changes in operating assets and
liabilities:
(Increase) decrease in receivables (1,181,549) 3,920,411 (4,700,755)
(Increase) decrease in inventories
and other current assets, net 3,212,927 490,892 (1,888,680)
Increase (decrease) in accounts payable
and accrued liabilities, net 1,216,963 (152,004) 1,680,403
Other 574,991 132,000 137,100
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 410,506 (2,212,919) (2,240,059)
----------- ----------- -----------
INVESTING ACTIVITIES
Decrease in restricted bond proceeds - - 1,862,942
Purchase of property and equipment (334,404) (1,349,959) (3,087,936)
(Increase) decrease in Deferred
Improved Drug Entities(TM), net - (7,000) 816,582
Other, net (315,840) (151,720) (120,702)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (650,244) (1,508,679) (529,114)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from credit facilities 6,086,046 15,700,000 9,612,000
Repayment of credit facilities (6,800,000) (14,450,000) (6,012,000)
Principal payments on long-term debt (483,541) (471,086) (377,460)
Proceeds from sale of common stock 2,006,198 - -
Exercise (repurchase) of common stock options (234) 9,582 41,535
Dividends paid on preferred stock - (115,982) (421,750)
Other - - (37,500)
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 808,469 672,514 2,804,825
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 568,731 (3,049,084) 35,652
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 506,982 3,556,066 3,520,414
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,075,713 $ 506,982 $ 3,556,066
=========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. Summary of Significant Accounting Policies.
------------------------------------------
a. Principles of Consolidation:
---------------------------
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
b. Revenue Recognition:
-------------------
The Company recognizes revenue from product sales upon
shipment to the customer. The Company also enters into long-term
agreements under which it assigns marketing rights for products it
develops for pharmaceutical marketers and recognizes royalties or other
payments as specified in the agreements as they are earned.
c. Statement of Cash Flows:
-----------------------
Cash equivalents consist of highly liquid instruments that
have an original maturity of three months or less.
During the year ended March 31, 1995, the Company converted
accounts payable of approximately $902,000 into notes payable to vendors
in a non-cash financing transaction. See Note 4.
d. Receivables:
-----------
Accounts receivable are stated less an allowance for
doubtful accounts of approximately $174,000 and $154,000 in 1995 and
1994, respectively. The Company's receivables are primarily derived
from companies in the pharmaceutical industry. As of March 31, 1995,
a single company's account receivable balance represented approximately
17% of consolidated accounts receivable. No concentration existed with
one company or any group of companies as of March 31, 1994.
e. Inventories:
-----------
Inventories are priced at cost, determined on the first-
in, first-out (FIFO) method or market, whichever is lower. Inventories
as of March 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Finished goods $ 2,679,277 $ 3,701,765
Work-in-process 3,491,829 3,194,283
Raw materials 2,330,190 3,859,458
----------- -----------
8,501,296 10,755,506
Reserves (1,909,709) (982,944)
----------- -----------
$ 6,591,587 $ 9,772,562
=========== ===========
</TABLE>
Physical inventory adjustments and provisions to writedown
certain inventories primarily associated with the contract manufacturing
services business the Company does not intend to pursue approximated
$1,260,000 in the fourth quarter of 1995.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (Continued)
f. Property and Equipment:
----------------------
Property and equipment, at cost, as of March 31
consists of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land and improvements $ 499,567 $ 499,567
Building and building
improvements 3,429,702 3,405,257
Machinery and equipment 10,866,048 10,474,928
Office furniture and equipment 2,919,001 2,433,026
Leasehold improvements 2,257,834 2,204,169
Construction-in-progress 23,217 744,646
----------- -----------
19,995,369 19,761,593
Less accumulated depreciation
and amortization (11,827,495) (10,668,201)
----------- -----------
Net property and equipment $ 8,167,874 $ 9,093,392
=========== ===========
</TABLE>
Depreciation of property and equipment is computed
based on estimated useful lives using the straight-line method and
amounted to $1,259,922, $1,141,128 and $948,349 in 1995, 1994 and 1993,
respectively.
<TABLE>
The rates used to compute depreciation and
amortization were as follows:
<S> <C>
Building 4%
Building improvements 10%
Machinery and equipment 10 - 33 1/3%
Leasehold improvements Lease life plus renewal
period - minimum 10%
Office furniture and equipment 10%
</TABLE>
Repairs and maintenance expense for the years ended
March 31, 1995, 1994 and 1993 amounted to approximately $360,000,
$503,000 and $630,000, respectively.
g. Other Assets:
-------------
Deferred Improved Drug Entities(TM) represent
incremental outside clinical expenditures related to the application of
KV technologies to off-patent and patented drugs. Customer
reimbursements of these expenditures are applied on a specific
identification basis, otherwise these expenditures are amortized over
a period not to exceed ten years. Products which the Company
determines not to be marketable are expensed at the time of such
determination. Amortization and other charges associated with these
expenditures amounted to $570,900, $354,854 and $1,335,666 (principally
related to a litigation reimbursement, see Note 6) in 1995, 1994 and
1993, respectively.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (Continued)
Other assets primarily include goodwill, deferred
financing charges, cash surrender value of life insurance, trademarks
and patents. As of March 31, 1995 and 1994, the unamortized excess of
purchase price over net assets acquired, which is net of accumulated
amortization of $1,194,290 and $1,138,882, respectively, was $944,278
and $999,678, respectively, and is being amortized over a 40-year
period at $55,400 per year. All other deferred charges are being
amortized over periods varying from five to seventeen years.
Amortization of such other deferrals amounted to $75,749, $25,694 and
$53,686 in 1995, 1994 and 1993, respectively.
h. Accrued Liabilities:
-------------------
Accrued liabilities as of March 31, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Salaries and wages $ 594,331 $ 234,350
Interest 128,397 273,356
Rebates 979,446 282,205
Other 818,988 593,484
---------- ----------
$2,521,162 $1,383,395
========== ==========
</TABLE>
i. Earnings Per Share:
------------------
Net (loss) income per common share is computed by
dividing net (loss) income plus/less preferred dividends by the
weighted average number of common shares and common share equivalents
(if dilutive) outstanding during the period. 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 were 11,178,495, 11,055,196 and 11,483,149 in
1995, 1994 and 1993, respectively. Primary and fully-diluted income
(loss) per share are the same for each of the years presented.
j. Income Tax:
----------
The Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109)
---------------------------
effective April 1, 1993. Under SFAS 109, deferred income taxes are
recognized for the tax consequences in future years of temporary
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the temporary
differences are expected to affect taxable income. These temporary
differences relate primarily to depreciation, inventory obsolescence
reserve, deferred compensation, net operating loss carryforward and the
research and development credit.
Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
k. Reclassifications:
-----------------
Certain amounts of the prior years' financial
statements have been reclassified to conform to the current year
presentation.
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Change in Accounting.
--------------------
During fiscal 1993, the Company changed its method
of valuing its inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method. The change was made because the
Company has begun to realize and expects to continue to experience cost
reductions as a result of technological improvements in its
manufacturing processes and from bringing certain production in-house.
This change in accounting method was applied retroactively and
financial information was restated to apply the FIFO method to all
periods. Net income for 1993 was increased by $341,997 or $.03 per
share, after preferred dividends, as a result of this change.
3. Equity Transactions.
-------------------
As of March 31, 1995, the Company has outstanding
241,000 shares of 7% Cumulative Convertible preferred stock (par value
$.01 per share) at a stated value of $25 per share. The preferred
stock is non-voting with dividends payable quarterly. The preferred
stock is redeemable at 102% and 101% of its stated value during the
fiscal years ending March 31, 1995 and 1996, respectively, and
thereafter at 100%. Each share of preferred stock is convertible into
Class A Common Stock at a conversion price of $20 per share. The
preferred stock has a liquidation preference of $25 per share plus all
accrued but unpaid dividends prior to any liquidation distributions to
holders of Class A or Class B Common Stock. The Company declared and
paid dividends on preferred stock for certain quarters in fiscal 1994.
Undeclared and unaccrued cumulative preferred dividends at March 31,
1995 and 1994 were $1,465,581 and $1,043,831, respectively.
Holders of Class A Common Stock are entitled to
receive dividends per share equal to 120% of the dividends per share
paid on the Class B Common Stock and have one-twentieth vote per share.
No dividends may be paid on Class A or Class B Common Stock unless all
dividends on the convertible preferred stock have been declared and
paid.
Under the terms of the Company's current Credit
Agreement (see Note 4), the Company is restricted from declaring and
paying any dividends, except in stock, on its Class A and B Common
Stock. Additionally, the Company may pay dividends from net income for
any fiscal quarter on its preferred stock in an amount not to exceed
fifty percent of such net income or $105,438, whichever is less, on a
non-cumulative basis. Payment of dividends may also be restricted
under Delaware Corporation law.
Between November, 1994 and March, 1995, the Company
entered into agreements under which it sold 375,000 shares of Class A
Common Stock (par value $.01 per share) with proceeds aggregating
approximately $2,006,000, net of issuance costs of approximately
$134,000.
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Long-Term Debt.
--------------
Long-term debt at March 31, 1995, classified to
reflect a refinancing completed subsequent to that date (discussed
below), and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revolving credit line $ 2,175,000 $ 9,650,000
Term loan agreement 6,750,000 -
Industrial revenue bond 3,130,000 3,565,000
Capital leases and other notes payable 993,100 128,779
----------- -----------
Total 13,048,100 13,343,779
Less current portion 1,814,682 365,119
----------- -----------
Long-term debt $11,233,418 $12,978,660
=========== ===========
</TABLE>
On May 8, 1995, the Company replaced its prior
revolving loan agreement, which consisted of a line of credit of
approximately $8,925,000 and letter of credit facility of approximately
$4,800,000, with a new credit facility aggregating $17,500,000. The
new loan agreement is for an initial three-year term, until May, 1998,
with automatic one-year renewals thereafter unless either party gives
notice of intent not to renew. The agreement provides for (1) a
revolving credit line up to a maximum of $17,500,000, subject to
collateral coverage requirements on accounts receivable and inventory;
(2) a three-year term loan in the initial amount of $6,750,000,
amortizing over six years in equal monthly principal installments of
$93,750 and secured by real estate and equipment; and, (3) a letter of
credit facility of up to $6,000,000. Under the agreement, the
aggregate amount of these facilities cannot exceed $17,500,000 and
interest on outstanding indebtedness is charged at 1 1/2 percent in
excess of the referenced prime rate (9% at March 31, 1995). The
agreement contains covenants including, among other things, maintaining
certain operating ratios, working capital, capital expenditure and
tangible net worth, as defined, (at least $8 million until March 31,
1996 and $9 million thereafter) levels and restrictions on payment of
dividends (see Note 3). The Company has pledged as collateral a
security interest in all accounts receivable, inventories, equipment,
real estate and intangibles.
The industrial revenue bonds, which bear interest at
7.35% per annum mature serially through 2004 and are collateralized by
certain property and equipment through a letter of credit.
Capital leases and other notes payable include notes
payable to vendors of $901,816 at March 31, 1995, which bear interest
(10% to 12%) and are payable monthly over the next two years.
The maturities of all long-term debt as of March 31,
1995, adjusted to reflect the May 8, 1995 refinancing, for the year
ending March 31, 1996 and the four succeeding years are $1,814,682,
$1,890,107, $1,450,811, $6,062,500 and $1,830,000, respectively.
The Company paid interest of $1,420,581, $818,764
and $678,333 during the years ended March 31, 1995, 1994 and 1993,
respectively.
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Income Taxes.
------------
Effective April 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). SFAS 109 requires the tax benefit of
net operating losses and income tax credits be reported as an asset to
the extent management assesses the utilization of such net operating
losses and credits to be more likely than not. Since the realization of
tax benefits related to the Company's operating loss carryforward and
tax credits is uncertain, a valuation allowance has been recorded to
offset the deferred tax asset. The cumulative effect of this change in
accounting had no effect on the statement of operations for the year
ended March 31, 1994.
The provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
Year Ended March 31
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current income tax
Federal $ - $ - $ 50,800
State - - 9,200
--------- ------- ---------
- - 60,000
Deferred income taxes - - -
--------- ------- ---------
Provision for income
taxes $ - $ - $ 60,000
========= ======= =========
</TABLE>
Provisions for federal income taxes differ from the
amount computed by applying the combined statutory federal income tax
rate and effective state tax rate of 38% for 1995, 1994 and 1993 to
(loss) income before tax. The reasons for these differences are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed income tax (benefit)
expense at statutory rate $(2,062,000) $(3,108,900) $379,100
Net operating loss carryforward
tax effect 1,791,700 3,065,900 (409,700)
Alternative minimum tax - - 60,000
Goodwill amortization, fines
and other items not
deductible for tax purposes 270,300 43,000 30,600
----------- ----------- --------
$ - $ - $ 60,000
=========== =========== ========
</TABLE>
Temporary differences between book and tax income
arise because the tax effects of transactions are recorded in the year
in which they enter into the determination of taxable income. As a
result, the book provisions for taxes differ from the actual taxes
reported on the income tax returns.
31
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (Continued)
As of March 31, 1995 and 1994, the tax effect of
temporary differences between the tax basis of assets and liabilities
and their financial reporting amount are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ----------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Fixed asset basis differences $ - $ (953,500) $ - $ (800,000)
Reserve for inventory obsolescence 716,500 - 269,800 -
Vacation pay reserve 142,400 - 57,000 -
Deferred compensation - 178,300 - 130,800
Reserve for medical self insurance 38,700 - 47,100 -
Net operating loss - 4,206,100 - 3,115,500
Research and development credit - 1,625,600 - 1,393,800
Minimum tax credit - 61,100 - 122,100
Deferred clinical costs - 440,300 - 223,400
Other 100,800 - 70,700 -
-------- ---------- -------- ----------
$998,400 $5,557,900 $444,600 $4,185,600
======== ========== ======== ==========
</TABLE>
The components of deferred taxes are as follows as of March 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax liability $ (957,300) $ (826,200)
Deferred tax asset 7,513,600 5,456,400
Valuation allowance (6,556,300) (4,630,200)
----------- ----------
$ - $ -
=========== ==========
</TABLE>
The valuation allowance increased by approximately $1,926,100 and
$3,289,300 during 1995 and 1994, respectively.
At March 31, 1995, the Company has the following income tax
carryforwards available:
<TABLE>
<CAPTION>
Expiration
Dates
-----
<S> <C> <C>
Regular Tax Operating
Loss Carryforwards $11,068,000 2006-2010
Regular Tax Credit
Carryforwards
(Primarily Research &
Development Credits) 1,635,200 1995-2010
AMT Credit Carryforwards 61,000 -
</TABLE>
32
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Commitments and Contingencies.
-----------------------------
Lease Commitments:
The Company has noncancelable commitments for rental
of office space, plant and warehouse facilities, transportation
equipment and other personal property under operating leases. Future
minimum lease commitments under all noncancelable operating leases are
as follows:
<TABLE>
<S> <C>
1996 $1,133,074
1997 1,055,296
1998 784,974
1999 418,017
2000 202,449
</TABLE>
Total rental expense for the years ended March 31,
1995, 1994 and 1993 was $1,260,026, $1,140,856 and $1,107,514,
respectively.
Employment Agreements:
The Company has employment agreements with certain
officers and key employees which extend for one to five years. These
agreements provide for base levels of compensation and in certain
instances also provide for incentive bonuses and separation benefits.
Also, the agreement with one officer contains provisions for partial
salary continuation under certain conditions contingent upon non
compete restrictions and providing consulting services to the Company
as specified in the agreement. The Company accrued $124,991 and
$132,000 for this liability in 1995 and 1994, respectively.
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 has 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 at the time of sentencing, scheduled
for July 17, 1995. The Company and its counsel believe the likelihood
is remote that additional fines or punishments will be levied against
the Company beyond that provided in the plea agreement. The Company
has recorded the amounts payable in accrued liabilities and other
long-term liabilities in the fourth quarter ended March 31, 1995.
Related legal costs incurred in the fourth quarter of fiscal 1995
were approximately $335,000.
On March 31, 1993, an out-of-court settlement
favorable to the Company was reached with Circa Pharmaceuticals, Inc.
(formerly Bolar Pharmaceutical Co., Inc. "Bolar"). In 1990, the
Company had filed suit against Bolar for breach of contract,
misrepresentation, dissolution of joint venture and other relief. The
settlement involved, among other things, a $3,000,000 payment to the
Company and mutual release of all claims by both parties. The
settlement is presented net of unreimbursed clinical expenditures,
legal expenses and other costs of $874,455, $227,129 and $147,460,
respectively. The $3,000,000 settlement was included in accounts
receivable at March 31, 1993 and was collected in full in April, 1993.
33
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (Continued)
From time to time the Company becomes involved in
various legal matters which it considers to be in the ordinary course
of business. While the Company is not presently able to determine the
potential liability, if any, related to such matters, the Company
believes none of the matters, individually or in the aggregate, will
have a material adverse effect on its financial position.
Regulatory Activities:
The Company has been operating under a Consent
Decree (the "Agreement") with the U.S. Food and Drug Administration
("FDA") since June 14, 1993. The Agreement resulted from a seizure
action on April 21, 1993, by the FDA, of certain in-process and
finished solid-dosage form drugs which represented most of the products
manufactured by KV Pharmaceutical Company pending an audit on these
products to determine proper current Good Manufacturing Practices
("cGMP") compliance. The seizure did not include raw materials, non-
drug type products, liquids, creams and ointments. The Company
estimated the value of inventory seized on April 21, 1993 that was
included in inventory on hand at March 31, 1993 as being approximately
$4,670,000. However, this amount also included unseized raw material
components which were to be used in seized or quarantined product lots,
since it was not practical to segregate the movement of each raw
material component into work-in-process from April 1 to April 21, 1993,
the date of the seizure. Beginning in May, 1993, the Company was
allowed to continue manufacturing seized products that were in-process.
The Consent Decree required the Company to engage
cGMP experts to certify that the seized products were manufactured in
conformity with cGMP and the Company's facilities are operated in
compliance with cGMP. The cGMP certification of the Company's
facilities required by the Agreement was completed by an independent
expert, which was preliminary to an inspection to be performed by the
FDA. The certifications necessary for the release of seized products
have been substantially completed. As of June 9, 1994 substantially
all inventories had been released. Management believes the Company can
operate satisfactorily under the Agreement and does not anticipate any
material long-term adverse effects.
7. Related Party Transactions.
--------------------------
A director of the Company is associated with a law
firm that rendered various legal services for the Company. The Company
paid the firm, in the aggregate, approximately $122,000, $184,000 and
$188,000 during fiscal 1995, 1994 and 1993, respectively.
In addition, the Company currently leases certain
real property from an affiliated partnership of another director of the
Company. Lease payments made for this property during the years ended
March 31, 1995, 1994 and 1993 totaled approximately $199,000, $214,000
and $210,000, respectively.
34
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Employee Benefits.
-----------------
The Company has stock option plans under which
options granted qualify as "incentive stock options" under the Internal
Revenue Code. Under the plans, options are granted at fair market
value and are exercisable in varying amounts over a period of up to ten
years from date of grant. In addition, there were non-qualified stock
options for 150,000 shares issued in February, 1986 at approximately
33% above the fair market value at the date of grant. These options
are exercisable at any time and expire ten years from date of grant.
Incentive stock options for 243,415 shares were authorized but not
granted as of March 31, 1995. The following summary shows the
transactions for the fiscal years 1995, 1994 and 1993 under option
arrangements:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
No. of Avg. Price No. of Avg. Price
Shares per Share Shares per Share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Balance, April 1, 1992 729,650 4.71 317,779 4.19
Options granted 49,900 8.98
Options becoming exercisable 90,922 4.27
Options exercised (15,654) 3.06 (15,654) 3.06
Options canceled (65,400) 8.79 (10,455) 7.30
-------- -------
Balance, March 31, 1993 698,496 4.67 382,592 4.17
Options granted 130,850 9.03
Options becoming exercisable 72,025 5.47
Options exercised (2,755) 3.71 (2,755) 3.71
Options canceled (59,099) 7.23 (13,864) 6.09
-------- -------
Balance, March 31, 1994 767,492 5.22 437,998 4.33
Options granted 52,500 6.94
Options becoming exercisable 64,573 5.13
Options exercised (790) 2.65 (790) 2.65
Options canceled (126,970) 7.98 (18,980) 6.65
-------- -------
Balance, March 31, 1995 692,232 4.93 482,801 4.35
======== =======
</TABLE>
The Company has a qualified trusteed profit sharing
plan (the "Plan") covering substantially all non-union employees,
under which the Company's annual contribution to the Plan, as deter-
mined by the Board of Directors, is discretionary. A contribution of
$75,000 was accrued in fiscal year 1993. No contribution was made in
1995 and 1994 to the Plan. Effective October 1, 1990, the Plan
incorporated features described under Section 401(k) of the Internal
Revenue Code. The Company is required to make contributions to the
401(k) investment funds annually in an amount equal to twenty-five
percent (25%) of the first 4% of the salary amount contributed by each
participant. Contributions to the 401(k) investment funds of
approximately $103,000, $77,000 and $71,000 were made in 1995, 1994 and
1993, respectively.
The Company contributes to health and medical
insurance programs for its non-union and union employees. The Company
self insures the first $50,000 of each non-union employee's covered
medical claims annually. Expenses related to these programs are
charged to operations and totaled approximately $1,375,000, $1,506,000
and $1,342,000 in fiscal 1995, 1994
35
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (Continued)
and 1993, respectively. The Company has recorded approximately $37,000
and $124,000 of accrued health insurance expense reserves as of March
31, 1995 and 1994, respectively, relating to incurred but not reported
claims.
9. Industry Segments.
-----------------
The Company operates in one industry segment,
"Pharmaceutical Development, Manufacturing and Marketing." During
fiscal 1995, 1994 and 1993, no unaffiliated customers accounted for 10%
or more of consolidated sales.
36
<PAGE> 37
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The information contained under the caption
"INFORMATION CONCERNING NOMINEE AND DIRECTORS CONTINUING IN OFFICE" in
the Company's definitive proxy statement to be filed pursuant to Regulation
14(A) for the Company's 1995 annual meeting of shareholders, which
involves the election of directors, is incorporated herein by this
reference. Also see Item 4(a) of Part I hereof.
Item 11. Executive Compensation.
----------------------
The information contained under the captions
"EXECUTIVE COMPENSATION" and "INFORMATION AS TO STOCK OPTIONS" in the
Company's definitive proxy statement to be filed pursuant to Regulation
14(A) for the Company's 1995 annual meeting of shareholders, which
involves the election of directors, is incorporated herein by this
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management.
----------
The information contained under the captions
"SECURITY OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT" in the
Company's definitive proxy statement to be filed pursuant to Regulation
14(A) for the Company's 1995 annual meeting of shareholders, which
involves the election of directors, is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information contained under the caption
"TRANSACTIONS WITH ISSUER" in the Company's definitive proxy statement
to be filed pursuant to Regulation 14(A) for the Company's 1995 annual
meeting of shareholders, which involves the election of directors, is
incorporated herein by this reference.
37
<PAGE> 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
<TABLE>
<CAPTION>
(a) 1. Financial Statements: Page
-------------------- ----
<S> <C>
The following consolidated financial statements
of the Company are included in Part II, Item 8:
Report of Independent Accountants 21
Consolidated Balance Sheets, March 31, 1995 and 1994 22
Consolidated Statements of Operations for the
Years Ended March 31, 1995, 1994 and 1993 23
Consolidated Statements of Shareholders' Equity for
the Years Ended March 31, 1995, 1994 and 1993 24
Consolidated Statements of Cash Flows for the
Years Ended March 31, 1995, 1994 and 1993 25
Notes to Financial Statements 26-36
</TABLE>
2. Financial Statement Schedules:
-----------------------------
None
All schedules have been omitted because they are not
required or not applicable or sufficient information is contained in
the Notes to Financial Statements.
Financial Statements of KV Pharmaceutical Company
(separately) are omitted because KV is primarily an operating company
and its subsidiaries included in the financial statements are wholly-
owned and are not materially indebted to any person other than through
the ordinary course of business.
(a) 3. Exhibits:
--------
See Exhibit Index on pages xx through xx of this
Report. Management contracts and compensatory plans are designated on
the Exhibit Index.
(b) Reports on Form 8-K:
-------------------
No reports on Form 8-K were filed during the fourth
quarter of fiscal 1995.
38
<PAGE> 39
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<C> <S>
K-V PHARMACEUTICAL COMPANY
Date: June 28, 1995 By /s/ Marc S. Hermelin
-----------------------------
Vice Chairman of the Board
(Principal Executive Officer)
Date: June 28, 1995 By /s/ Gerald R. Mitchell
-----------------------------
Vice President, Finance
(Principal Financial and
Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the dates indicated by the
following persons on behalf of the Company and in their capacities as
members of the Board of Directors of the Company:
<TABLE>
<C> <S>
Date: June 28, 1995 /s/ Marc S. Hermelin
----------------------------------
Marc S. Hermelin
Date: June 28, 1995 /s/ Victor M. Hermelin
----------------------------------
Victor M. Hermelin
Date:
----------------------------------
Garnet E. Peck, Ph.D.
Date: June 28, 1995 /s/ Alan G. Johnson
----------------------------------
Alan G. Johnson
</TABLE>
39
<PAGE> 40
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
3(a) Articles of Incorporation of the Company,
which were filed as Exhibit 3(a) to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1981, are incor-
porated herein by this reference.
3(b) Amendment to Certificate of Incorporation of
the Company, effective March 25, 1983, which
was filed as Exhibit 3(c) to the Company's
Annual Report on Form 10-K for the year ended
March 31, 1983, is incorporated herein by
this reference.
3(c) Certificate of Amendment of Certificate of
Incorporation of the Company, effective
June 9, 1987, which was filed as Exhibit
3(d) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1987,
is incorporated herein by this reference.
3(d) Amendment to Certificate of Incorporation
of the Company, effective September 24, 1987,
which was filed as Exhibit 3(f) to the Com-
pany's Annual Report on Form 10-K for the
year ended March 31, 1988, is incorporated
herein by this reference.
3(e) By-Laws of the Company, as amended through
November 18, 1992, which was filed as Exhibit
3(e) to the Company's Annual Report on Form
10-K for the year ended March 31, 1993, is
incorporated herein by this reference.
4(a) Certificate of Designation of Rights and
Preferences of 7% Cumulative Convertible
preferred stock of the Company, effective
June 9, 1987, and related Certificate of
Correction, dated June 17, 1987, which was
filed as Exhibit 4(f) to the Company's Annual
Report on Form 10-K for the year ended
March 31, 1987, is incorporated herein by
this reference.
40
<PAGE> 41
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
4(b) Loan Agreement dated as of November 1, 1989,
with The Industrial Development Authority of
the County of St. Louis, Missouri, regarding
private activity refunding and revenue bonds
issued by such Authority, including form of
Promissory Note executed in connection there-
with, which was filed as Exhibit 4(b) to the
Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1989, is incor-
porated herein by this reference.
4(c) Credit Agreement dated as of September 30,
1993, with Bank One, Indianapolis, National
Association, ("1993 Credit Agreement") with
Security Agreement (Equipment, Inventory,
Accounts Receivable and General Intangibles),
Security Agreement (Intellectual Property) and
First Amendment to First Deed of Trust and
Security Agreement executed in connection
therewith, which was filed as Exhibit 4(c) to
the Company's Annual Report on Form 10-K for
the year ended March 31, 1994, is incorporated
herein by this reference.
4(d) First Amendment to 1993 Credit Agreement dated
June 25, 1994, which was filed as Exhibit 4(d) to
the Company's Annual Report on Form 10-K for the
year ended March 31, 1994, is incorporated herein
by this reference.
4(e) Second Amendment to 1993 Credit Agreement dated
as of November 1, 1994, which was filed as
Exhibit 4(e) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1994, is incorporated herein by this reference.
4(f) Security Agreement dated November 1, 1994, by
Particle Dynamics, Inc. for the benefit of Bank One,
Indianapolis, National Association, which was filed
as Exhibit 4(f) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994,
is incorporated herein by this reference.
4(g) Security Agreement dated November 1, 1994, by
ETHEX Corporation for the benefit of Bank One,
Indianapolis, National Association which was filed
as Exhibit 4(g) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994,
is incorporated herein by this reference.
41
<PAGE> 42
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
4(h) Second Amendment, dated as of November 1, 1994,
to First Deed of Trust and Security Agreement in
favor Bank One, Indianapolis, National Association,
which was filed as Exhibit 10-Q for the quarter
ended September 30, 1994, is incorporated herein
by this reference.
4(i) Third Amendment to 1993 Credit Agreement, dated
as of November 14, 1994, which was filed as Exhibit
4(i) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, is
incorporated herein by this reference.
4(j) Fourth Amendment to 1993 Credit Agreement, dated
as of February 10, 1995, which was filed as Exhibit
4(j) to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994, is
incorporated herein by this reference.
4(k) Pledge Agreement dated as of February 10, 1995, in
favor of Bank One, Indianapolis, National
Association, which was filed as Exhibit 4(k) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, is incorporated
herein by this reference.
4(l) Fifth Amendment to 1993 Credit Agreement, dated
as of April 21, 1995. Filed herewith.
4(m) Sixth Amendment to 1993 Credit Agreement, dated
as of May 4, 1995. Filed herewith.
4(n) Loan and Security Agreement, dated as of April 27,
1995, between the Company and its subsidiaries and
Foothill Capital Corporation. Filed herewith.
4(o) Revolving Loan Note, dated as of April 27, 1995, by
the Company and its subsidiaries and Foothill Capital
Corporation. Filed herewith.
4(p) Term Note, dated as of April 27, 1995, by the
Company and its subsidiaries in favor of Foothill
Capital Corporation. Filed herewith.
4(q) Form of Capital Equipment Note to be executed by
the Company and its subsidiaries in favor of Foothill
Capital Corporation. Filed herewith.
42
<PAGE> 43
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
4(r) Deed of Trust and Security Agreement, dated as of
April 27, 1995, in favor of Foothill Capital
Corporation. Filed herewith.
10(a)<F*> KV Pharmaceutical Company 1976 Employee Stock
Option Plan, which was filed as Exhibit 1 to
the Company's Form S-8 Registration Statement
No. 2-56793, filed June 29, 1976, is incorporated
herein by this reference.
10(b)<F*> Current Form of Stock Option Agreement for KV
Pharmaceutical Company 1976 Employee Stock
Option Plan, which was filed as Exhibit 15(b)
to the Company's Post-Effective Amendment No. 5
to Form S-8 Registration Statement No. 2-56793,
filed February 16, 1982, is incorporated herein
by this reference.
10(c)<F*> First Amendment to KV Pharmaceutical Company
1976 Employee Stock Option Plan, adopted
November 17, 1981, which was filed as Exhibit
4(e) to the Company's Post-Effective Amendment
No. 5 to Form S-8 Registration Statement
No. 2-56793, filed February 16, 1982, is
incorporated herein by this reference.
10(d)<F*> Stock Option Agreement between the Company and
Marc S. Hermelin, Vice Chairman and Chief
Executive Officer, dated February 18, 1986, is
incorporated herein by this reference.
10(e)<F*> First Amendment to and Restatement of the KV
Pharmaceutical 1981 Employee Incentive Stock
Option Plan, dated March 9, 1987, (The "Restated
1981 Option Plan") which was filed as Exhibit 10(t)
to the Company's Annual Report on Form 10-K for
the year ended March 31, 1988, is incorporated
herein by this reference.
10(f)<F*> Second Amendment to the Restated 1981 Option Plan,
dated June 12, 1987, which was filed as Exhibit 10(u)
to the Company's Annual Report on Form 10-K for
the year ended March 31, 1988, is incorporated
herein by this reference.
10(g)<F*> Revised Form of Stock Option Agreement, effective
June 12, 1987, for the Restated 1981 Option Plan,
which was filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the year ended
March 31, 1988, is incorporated herein by this
reference.
<FN>
<F*>Management contract or compensation plan.
43
<PAGE> 44
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
10(h)<F*> Consulting Agreement between the Company and
Victor M. Hermelin, Chairman of the Board,
dated October 30, 1978, as amended October 30,
1982, and Employment Agreement dated February 20,
1974, referred to therein, (which was filed as
Exhibit 10(m) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1983)
and subsequent Amendments dated as of August 12,
1986, which was filed as Exhibit 10(r) to the
Company's Annual Report on Form 10-K for the
year ended March 31, 1987 and dated as of
September 15, 1987, (which was filed as
Exhibit 10(s) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1988)
and dated October 25, 1988, (which was filed
as Exhibit 10(n) to the Company's Annual Report
on Form 10-K for year ended March 31, 1989) and
dated October 30, 1989, (which was filed as
Exhibit 10(n) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1990)
and dated October 30, 1990 (which was filed as
Exhibit 10(n) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1991) and
dated as of October 30, 1991 (which was filed
as Exhibit 10(i) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1992)
are incorporated herein by this reference.
10(i)<F*> Restated and Amended Employment Agreement between
the Company and Gerald R. Mitchell, Vice President,
Finance, dated as of March 31, 1994, is incorporated
herein by this reference.
10(j)<F*> Employment Agreement between the Company and
Raymond F. Chiostri, Corporate Vice-President
and President-Pharmaceutical Division which
was filed as Exhibit 10 (l) to the Company's
Annual Report on Form 10-K for the year ended
March 31, 1992 is incorporated herein by this
reference.
10(k)<F*> Lease of the Company's facility at 2503 South
Hanley Road, St. Louis, Missouri, and amendment
thereto, between the Company as lessee and
Marc S. Hermelin as lessor, which was filed as
Exhibit 10(n) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1983, is
incorporated herein by this reference.
<FN>
<F*>Management contract or compensation plan.
44
<PAGE> 45
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
10(l)<F*> Amendment to the Lease for the facility located
at 2503 S. Hanley Road, St. Louis, Missouri,
between the Company as lessee and Marc S. Hermelin
as lessor which was filed as Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the year
ended March 31, 1992 is incorporated herein by this
reference.
10(m)<F*> Amendment to Lease Agreement, dated as of
September 30, 1985, between the Industrial
Development Authority of the County of
St. Louis, Missouri as lessor and KV Pharma-
ceutical Company as lessee regarding lease
of facility located at 2303 Schuetz Road,
St. Louis County, Missouri, which was filed
as Exhibit 10(q) to the Company's Report on
Form 10-Q for the quarter ended December 31,
1985, is incorporated herein by this reference.
10(n)<F*> K-V Pharmaceutical Company Fourth Restated
Profit Sharing Plan and Trust Agreement dated
September 18, 1990 which was filed as Exhibit
4.1 to the Company's Registration Statement on
Form S-8 No. 33-36400, is incorporated herein
by this reference.
10(o)<F*> First Amendment to the K-V Pharmaceutical Company
Fourth Restated Profit Sharing Plan and Trust
dated September 18, 1990, is incorporated herein
by this reference.
10(p)<F*> K-V Pharmaceutical Company 1991 Incentive Stock
Option Plan, adopted as of October 7, 1991, which
was filed as Exhibit 4 to the Company's Form S-8
Registration Statement No. 33-44927, filed January
6, 1992, is incorporated herein by this reference.
10(q) Consent Decree and Civil Actions No's. 4:93CV00918
and 4:93CV00919 filed June 14, 1993 in connection
with Complaint of Forfeiture on behalf of the FDA,
which was filed as Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the year ended
March 31, 1993, is incorporated herein by this
reference.
<FN>
<F*>Management contract or compensation plan.
45
<PAGE> 46
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
10(r) Modification of Consent Decree of Condemnation and
Permanent Injunction filed December 13, 1993, which
was filed as Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1994,
is incorporated herein by this reference.
10(s) Second Modification of Consent Decree of Condemnation
and Permanent Injunction filed April 6, 1994, which
was filed as Exhibit 10(s) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1994,
is incorporated herein by this reference.
10(t)<F*> Employment Agreement between the Company and
Ted G. Wood, President and Chief Executive Officer,
dated February 14, 1994, which was filed
as Exhibit 10(t) to the Company's Annual Report
on Form 10-K for the year ended March 31, 1994, is
incorporated herein by this reference.
10(u)<F*> Employment Agreement between the Company and
Marc S. Hermelin, Vice-Chairman, dated
November 15, 1993, which was filed as Exhibit 10(u)
to the Company's Annual Report on Form 10-K for the
year ended March 31, 1994, is incorporated herein
by this reference.
10(v)<F*> Amendment to Consulting Agreement between the Company
and Victor M. Hermelin, Chairman of the Board, dated
October 30, 1978, which was filed as Exhibit 10(v)
to the Company's Annual Report on Form 10-K for the
year ended March 31, 1994, is incorporated herein by
this reference.
11 Computation of per share earnings. Filed herewith.
21 List of subsidiaries. Filed herewith.
23 Consent of Coopers & Lybrand L.L.P., Independent
Accountants, to incorporation of its Report
dated June 28, 1995, into the S-8
Registration Statements of the Company
Nos. 2-56793, 2-76173, 33-36400 and 33-44927
as filed with the Securities and Exchange
Commission. Filed herewith.
<FN>
<F*>Management contract or compensation plan.
</TABLE>
46
<PAGE> 1
Exhibit 4(l)
FIFTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT ("FIFTH AMENDMENT") is
executed as of the 21st day of April, 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, as further amended by a Third
Amendment to Credit Agreement, dated as of November 14, 1994 (the "Third
Amendment"), and as further amended by a Fourth Amendment to Credit Agreement,
dated as of February 10, 1995 (the "Fourth Amendment"), all executed by the
Company and the Bank (collectively, as so amended, the "Original Agreement").
2. As of March 31, 1995, the Company did not satisfy the
requirements of Sections 7.g(ii), (iii) and (iv) of the Original Agreement
applicable as of that date (such violations in this Fifth 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 Fifth Amendment.)
3. The Company has requested the Bank, in accordance with and
subject to the terms of this Fifth Amendment, to: (a) agree to an amendment
of certain of the financial covenants of the Company, as set forth in
Section 7.g of the Original Agreement, for the period from and after March 31,
1995 through May 30, 1995; (b) agree to defer $3,200,000 of the scheduled
reduction of the Commitment to occur as of April 1, 1995, until May 15, 1995;
and (c) agree to other amendments to the Original Agreement, as set forth
herein.
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 Fifth Amendment, including
-----
its Recitals, which are defined in the Original Agreement, as amended by this
Fifth Amendment, and which are not otherwise defined herein, shall have the
respective meanings ascribed to them in the Original Agreement, as amended by
this Fifth Amendment.
<PAGE> 2
2. AMENDMENTS TO ORIGINAL AGREEMENT.
--------------------------------
(a) Section 1 of the Original Agreement is hereby amended by
adding thereto new Section 1.kkk, reading as follows:
"kkk. Fifth Amendment. 'Fifth Amendment' means that
---------------
agreement entitled 'Fifth Amendment to Credit Agreement'
between the Company and the Bank, dated as of April 21,
1995."
(b) Effective April 1, 1995, Section 7.g(ii), Section 7.g(iii)
and Section 7.g(iv) of the Original Agreement each hereby
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>
at Sept. 30, 1994,
and through
Oct. 30, 1994 $ 8,500,000
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
-2-
<PAGE> 3
at Feb. 28, 1995,
and through
Mar. 30, 1995 $ 3,400,000
at Mar. 31, 1995,
and through
May 30, 1995 $ 3,800,000
at May 31, 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
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
-3-
<PAGE> 4
at Mar.31, 1995,
and through
May 30, 1995 $ 9,900,000
at May 31, 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
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
-4-
<PAGE> 5
at Mar. 31, 1995,
and through
May 30, 1995 2.15 to 1.0
at May 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."
(c) Effective April 1, 1995, 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 April 30, 1995 $ 8,925,000
On May 1, 1995,
through May 14, 1995 $ 8,625,000
On May 15, 1995,
through May 31, 1995 $ 5,425,000
-5-
<PAGE> 6
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."
As consideration for the amendments to the
Commitment maximum amounts set forth in the Fifth Amendment,
the Company shall pay to the Bank a deferral and amendment
fee in the amount of $750 per calendar day (a) for each
calendar day
-6-
<PAGE> 7
of April, 1995, that the outstanding principal balance of
the Revolving Loan on such day exceeds $5,725,000, and
(b) for each calendar day during the period of May 1, 1995,
through May 15, 1995, that the outstanding principal balance
of the Revolving Loan on such day exceeds $5,425,000 (the
"Deferral Fee"). The Deferral Fee shall be payable daily,
as it accrues. The Deferral Fees accrued for each day in
April, 1995, prior to the date of the Fifth Amendment shall
be paid concurrently with the execution of the Fifth
Amendment.
(d) The last sentence in Section 3.a. of the Original Agreement
is hereby amended and restated in its entirety as follows:
"In the event that the Trustee does not timely reimburse the
Bank for any A Drawing, B Drawing or C Drawing under the
Direct-Pay Letter of Credit, together with the related
transaction fee, then the Company shall pay to the Bank
immediately and unconditionally upon demand an amount equal
to the unreimbursed portion of the related transaction fee,
together with interest on such amounts at the Prime Rate
plus five (5%) percent per annum (calculated on the basis
that an entire year's interest is earned in 360 days) from
the date of payment of such drawing until the amounts
thereof are reimbursed to the Bank."
(e) The third sentence in Section 4 of the Original Agreement is
hereby amended and replaced in its entirety as follows:
"The Company shall immediately reimburse the Bank for any
amount which the Bank pays on account of the Standby Letter
of Credit, together with interest on the amount or amounts
advanced at the Prime Rate plus five percent (5%) per annum
until paid in full."
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 Fifth Amendment, except that (i) they shall be deemed also to refer to
this Fifth 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 Fifth
Amendment, excepting only the Existing Noncompliance Events.
-7-
<PAGE> 8
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 Fifth 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 prior to
the execution of this Fifth 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 Fifth 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 Fifth 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 releases granted to the Bank and the other
Released Parties in the Third Amendment and in the Fourth Amendment. The
Company and the Guarantors, respectively, each acknowledge by their execution
of this Fifth Amendment that the execution of this Fifth 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 Fifth 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 Fifth Amendment, the
Bank shall retain the right to exercise all of its rights and remedies at any
time under the Original 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 Original 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
-8-
<PAGE> 9
their respective terms. Except as set forth in this Fift 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.
The Bank hereby waives its right to exercise any of its remedies
under Section 11 of the Original 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 Original Agreement after the date of this Fifth 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 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 Original
Agreement.
7. STANDBY LETTER OF CREDIT - AMENDMENT/EXTENSION OF EXPIRY DATE.
-------------------------------------------------------------
The Company hereby requests the Bank, on or prior to April 25, 1995, to extend
the expiry date of the Standby Letter of Credit from April 30, 1995, to May
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 May 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 an
extension fee of $6,375.37; and (c) no Event of Default shall have occurred
and remain outstanding on the date the Amendment is executed by the Bank. The
Company agrees and acknowledges that (i) the Bank has no further obligation to
extend the expiry date of the Standby Letter of Credit, and (ii) the
extensions to the expiry date of the Standby Letter of Credit effected by the
Fourth Amendment or by this Fifth Amendment shall not establish or be deemed
to establish any precedent or course of dealing with respect to the Standby
Letter of Credit.
-9-
<PAGE> 10
8. CLOSING DOCUMENTS. As conditions precedent to the
-----------------
effectiveness of this Fifth Amendment, the Bank shall first receive the
following contemporaneously with the execution and delivery of this Fifth
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
Fifth Amendment and any other document required under this
Fifth 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 Fifth Amendment and any other
document required under this Fifth Amendment to which such
corporation is a party, together with a sample of the true
signature of each such officer.
C. 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 Fifth Amendment, amendment of the Standby Letter of
Credit, and in connection with the Existing Noncompliance
Events.
D. The Consent of each of the Guarantors in the forms attached
to this Fifth Amendment as EXHIBIT "A-1" and EXHIBIT "A-2,"
------------- --------------
respectively.
E. An opinion of counsel to the Company and the Guarantors,
Messrs. Gallop, Johnson & Neuman, issued to the Bank as of
the date of this Fifth Amendment, in form and substance the
same as attached to this Fifth Amendment as EXHIBIT B.
---------
F. Such other documents as may be reasonably required by the
Bank.
G. Payment by the Company to the Bank of that portion of the
Deferral Fee which has accrued through the date of this
Fifth Amendment, being $15,750.00.
H. Payment by the Company to the Bank of a default waiver and
amendment fee in the amount of $13,719.29.
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
-10-
<PAGE> 11
connection with the negotiation, preparation and closing of this Fifth
Amendment, amendment of the Standby Letter of Credit, and in connection with
the Existing Noncompliance Events.
9. EFFECT OF FIFTH AMENDMENT. Except as amended in this
-------------------------
Fifth Amendment, all of the terms and conditions of the Original Agreement
shall continue unchanged and the Original Agreement, as amended by this Fifth
Amendment, remains in full force and effect.
IN WITNESS WHEREOF, the Company and the Bank, by their respective
duly authorized officer, have executed this Fifth Amendment to Credit
Agreement as of the date first written above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Gerald R. Mitchell
-------------------------------------
Vice President of Finance
-------------------------------------
BANK ONE, INDIANAPOLIS,
NATIONAL ASSOCIATION
By: /s/ Richard L. Mott, V.P.
-------------------------------------
Richard L. Mott, Vice-President
The undersigned hereby execute this Fifth Amendment to Credit
Agreement ("Fifth Amendment") as of the 21st day of April, 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 Fifth Amendment.
PARTICLE DYNAMICS, INC.
By: /s/ Gerald R. Mitchell
-------------------------------------
Vice President
----------------------------------------
ETHEX CORPORATION
By: /s/ Gerald R. Mitchell
-------------------------------------
Vice President
----------------------------------------
-11-
<PAGE> 12
CONSENT OF GUARANTOR
The undersigned, being a Guarantor of the Obligations of K-V
PHARMACEUTICAL COMPANY (the "Company") in favor of BANK ONE, INDIANAPOLIS,
National Association (the "Bank") under that certain Credit Agreement between
the Company and the Bank dated September 30, 1993, as amended by a First
Amendment to Credit Agreement between the Company and the Bank dated June 28,
1994, but with effect as of April 1, 1994, and as further amended by a Second
Amendment to Credit Agreement between the Company and the Bank, dated as of
November 1, 1994, and as further amended by a Third Amendment to Credit
Agreement between the Company and the Bank, dated as of November 14, 1994, and
as further amended by a Fourth Amendment to Credit Agreement between the
Company and the Bank, dated as of February 10, 1995 (collectively, the
"Original Agreement"), consents to the amendment of the Original Agreement by
the Fifth Amendment being executed concurrently with execution of this Consent
(the Original Agreement, as amended by the Fifth Amendment, is, collectively,
the "Agreement"). The undersigned Guarantor further agrees that the
execution, delivery and the performance of the Fifth Amendment and the
exhibits attached thereto shall not in any way affect, impair, discharge,
relieve or release the obligations of the undersigned under its Guaranty
Agreement dated September 30, 1993, which guaranty obligations are hereby
ratified, confirmed and reaffirmed in all respects and shall continue in full
force and effect, until all Obligations, as they may be further amended from
time to time, are fully, finally and irrevocably paid and performed.
The terms "Guarantor," "Obligations," "Fifth Amendment," and "Guaranty
Agreement" are used in this Consent as such terms are defined in the
Agreement.
Dated: As of April 21, 1995.
ETHEX CORPORATION, a Missouri
corporation
By:
-----------------------------------
-----------------------------------
(printed name and title)
EXHIBIT A-1
<PAGE> 13
CONSENT OF GUARANTOR
The undersigned, being a Guarantor of the Obligations of K-V
PHARMACEUTICAL COMPANY (the "Company") in favor of BANK ONE, INDIANAPOLIS,
National Association (the "Bank") under that certain Credit Agreement between
the Company and the Bank dated September 30, 1993, as amended by a First
Amendment to Credit Agreement between the Company and the Bank dated June 28,
1994, but with effect as of April 1, 1994, and as further amended by a Second
Amendment to Credit Agreement between the Company and the Bank, dated as of
November 1, 1994, and as further amended by a Third Amendment to Credit
Agreement between the Company and the Bank, dated as of November 14, 1994, and
as further amended by a Fourth Amendment to Credit Agreement between the
Company and the Bank, dated as of February 10, 1995 (collectively, the
"Original Agreement"), consent to the amendment of the Original Agreement by
the Fifth Amendment being executed concurrently with execution of this Consent
(the Original Agreement, as amended by the Fifth Amendment, is, collectively,
the "Agreement"). The undersigned Guarantor further agrees that the
execution, delivery and the performance of the Fifth Amendment and the
exhibits attached thereto shall not in any way affect, impair, discharge,
relieve or release the obligations of the undersigned under its Guaranty
Agreement dated September 30, 1993, which guaranty obligations are hereby
ratified, confirmed and reaffirmed in all respects and shall continue in full
force and effect, until the Obligations, as they may be further amended from
time to time, are fully, finally and irrevocably paid and performed.
The terms "Guarantor," "Obligations," "Fifth Amendment," and "Guaranty
Agreement" are used in this Consent as such terms are defined in the
Agreement.
Dated: As of April 21, 1995.
PARTICLE DYNAMICS, INC., a New York
corporation
By:
----------------------------------
----------------------------------
(printed name and title)
EXHIBIT A-2
<PAGE> 14
EXHIBIT B
April 21, 1995
Bank One, Indianapolis, N.A.
Bank One Center/Tower-Suite 1911
111 Monument Circle
Indianapolis, Indiana 46277
RE: Fifth Amendment to Credit Agreement with K-V Pharmaceutical
Company
Gentlemen and Ladies:
We have acted as counsel to K-V PHARMACEUTICAL COMPANY, a Delaware
corporation (the "Company"), PARTICLE DYNAMICS, INC., a New York corporation
("PDI") and ETHEX CORPORATION, a Missouri corporation ("ETHEX"), at their
request, in connection with transactions related to a certain Fifth Amendment
to Credit Agreement, dated as of April 21, 1995 (the "Fifth Amendment") by and
among the Company, PDI, ETHEX and Bank One, Indianapolis, National Association
(the "Bank"). This opinion is submitted at the request of the Company, PDI
and ETHEX pursuant to Section 8(E) of the Fifth Amendment.
Except as otherwise provided herein, capitalized terms used in this
opinion letter have the same meanings as defined in the Fifth Amendment.
Our representation of the Company, PDI and ETHEX has been limited to
certain items as to which we have been consulted and have devoted substantive
attention.
In rendering this opinion, we have reviewed and relied upon:
(A) The Fifth Amendment;
(B) The Consents of each of the Guarantors in the forms attached to
the Fifth Amendment as Exhibit A-1 and Exhibit A-2 (the "Guarantor
Consents");
(C) Certificate of Secretary of the Company regarding authorizing
resolutions of the Board of Directors of the Company and officers'
incumbency;
<PAGE> 15
Bank One, Indianapolis, N.A.
Page 2
(D) Certificate of Secretary of PDI regarding authorizing resolutions
of the Board of Directors of PDI and officers' incumbency; and
(E) Certificate of Secretary of ETHEX regarding authorizing
resolutions of the Board of Directors of ETHEX and officers'
incumbency.
The Fifth Amendment and the Guarantor Consents are sometimes referred to
herein collectively as the "Documents."
We have also reviewed such other matters of law and fact as we have
deemed appropriate in rendering the opinions expressed herein, including
without limitation, certificates of good standing, or telephonic confirmations
of good standing, of the Company, PDI and ETHEX in their respective states of
organization and in the State of Missouri.
In rendering the opinions set forth herein, we have assumed without
undertaking to verify the same by independent investigation: (a) as to
questions of fact (but not as to the legal sufficiency of such facts), the
accuracy of all representations of the Company, PDI and ETHEX set forth in any
document or certification delivered in connection with the execution of the
Documents; (b) the conformity to original documents of all documents submitted
to us as copies and the authenticity of such original documents and all
documents submitted to us as originals; and (c) that each entity, association
and/or person executing or delivering the Documents, other than the Company,
PDI and ETHEX, has the capacity to do so and to perform all of its, their or
his obligations thereunder.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or awareness, it is intended
to signify that no information has come to the attention of the present
partners or associates of our firm who have devoted substantive attention to
the transactions contemplated by the Fifth Amendment (including the member of
our firm principally responsible for supervising the representation of the
Company) which would give such persons actual current knowledge of the
existence or absence of such facts. Except to the extent expressly set forth
herein, however, we have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from our
representation of the Company, PDI or ETHEX.
We express no opinion with respect to title to any real property or
personal property or the perfection or priority of any lien or security
interest therein.
<PAGE> 16
Bank One, Indianapolis, N.A.
Page 3
Each of the opinions hereinafter expressed is subject to each of the
following further qualifications:
(i) We do not regard ourselves as experts in the laws of any
jurisdiction other than the State of Missouri, and the opinions expressed
by us herein are expressly limited thereto and to the General Corporation
Law (Title 8) of the State of Delaware, or, where applicable, to federal
law. We have also reviewed the text available to us of the business
corporation statute of the State of New York; we do not, however, regard
ourselves as experts in the laws of the State of New York. We express
no opinion as to whether any provisions of the laws of any other
jurisdiction might affect any opinion rendered by us. We note that the
Documents recite (as to which we give no opinion) that they are governed
by the laws of the State of Indiana. For purposes of this opinion, we
have assumed, without inquiry, that the laws of the State of Indiana are
the same as the laws of the State of Missouri in all pertinent respects.
We also assume, as regards our opinions set forth herein relating to
PDI, that the applicable laws of the State of New York are the same as
the laws of the State of Missouri in all pertinent respects. We also
express no opinion herein with respect to any law, rule or regulation
related to: (a) the environment; (b) occupational health or safety; (c)
the issuance, sale or transfer of securities; (d) federal or state
taxation; or (e) matters within the jurisdiction of the Federal Food and
Drug Administration.
(ii) Our opinions are subject to the effect of bankruptcy,
insolvency, fraudulent conveyance, reorganization, arrangement,
moratorium, and other laws relating to or affecting the rights of
creditors generally.
(iii) Our opinions are subject to the limitations imposed by
general principles of equity upon the specific enforceability of
any of the remedies, covenants or other provisions of the Documents and
upon the availability of injunctive relief and other equitable remedies,
and the application of principles of equity (regardless of whether
enforcement is considered in proceedings in law or in equity) in regard
to certain covenants and provisions of agreements where (a) the breach
of such covenants or provisions imposes restrictions or burdens upon an
obligor, including without limitation the acceleration of indebtedness
due under the Documents, and it cannot be demonstrated that the
enforcement of such restrictions or burdens is reasonably necessary for
the protection of the obligee, or, (b) the obligee's enforcement of such
covenants or provisions under the circumstances would violate the
obligee's implied covenant of good faith and fair dealing, or would be
commercially unreasonable.
<PAGE> 17
Bank One, Indianapolis, N.A.
Page 4
(iv) Any requirement in the Documents specifying that provisions
of the Documents may only be waived in writing may not be enforced
under Missouri law to the extent that an oral agreement is entered into
modifying provisions of the Documents.
(v) We express no opinion as to the enforceability of any
provisions which purport to indemnify any person for gross negligence,
reckless or intentional wrongs or which exculpate any person as to
liability for wrongs committed to persons other than a party to the
instrument purporting to create such exculpation or which exculpate a
person for reckless or intentional wrongs.
(vi) Enforceability of the Documents is subject to R.S.Mo.
Sections 443.400 through 443.420 relating to statutory redemption and
R.S.Mo. Section 443.350 relating to trustee qualifications.
(vii) In addition to the foregoing specific issues, certain rights
and remedies contained in the Documents may be rendered ineffective, or
limited, by generally applicable laws or judicial decisions governing
such provisions and the foregoing specific issues referred to in clauses
(i) through (v) hereof; however, such generally applicable laws and
judicial decisions do not in and of themselves, in our opinion, render
the Documents invalid as a whole or preclude (A) the judicial
enforcement of the obligations of the Company to repay the principal,
together with the interest thereon, as provided in the Original
Agreement, as amended; or (B) the judicial enforcement of the respective
payment obligations of PDI and ETHEX under the Guaranty Agreements
referred to in the Guarantor Consents, provided that the Bank shall have
acted in good faith and with a reasonable degree of care in connection
with the Bank's exercise of its rights under the Documents and its
rights relating to the collateral securing the obligations of the
Company, PDI and ETHEX under the Documents.
Based upon the foregoing and subject to the limitations, exclusions and
qualifications noted in this opinion letter, we are of the opinion that, as of
the date hereof:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware and is duly qualified as a
foreign corporation and in good standing under the laws of the State of
Missouri.
2. The execution and delivery of the Fifth Amendment are within the
corporate power of the Company and have been duly authorized by all necessary
corporate action of the Company.
<PAGE> 18
Bank One, Indianapolis, N.A.
Page 5
3. The Fifth Amendment has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its terms.
4. PDI is a corporation validly existing and in good standing under
the laws of the State of New York and is duly qualified as a foreign
corporation and in good standing under the laws of the State of Missouri.
5. The execution and delivery of the Guarantor Consent and the
Fifth Amendment by PDI are within the corporate power of PDI and have been
duly authorized by all necessary corporate action of PDI.
6. The Guarantor Consent to be executed by PDI and the Fifth
Amendment have been duly executed and delivered by PDI and constitute the
legal, valid and binding obligations of PDI, enforceable against PDI in
accordance with their respective terms.
7. ETHEX is a corporation validly existing and in good standing
under the laws of the State of Missouri.
8. The execution and delivery of the Guarantor Consent and the
Fifth Amendment by ETHEX are within the corporate power of ETHEX and have been
duly authorized by all necessary corporate action of ETHEX.
9. The Guarantor Consent to be executed by ETHEX and the Fifth
Amendment have been duly executed and delivered by ETHEX and constitute the
legal, valid and binding obligations of ETHEX, enforceable against ETHEX in
accordance with their respective terms.
This opinion letter is limited to the matters set forth herein. This
opinion speaks as of the date hereof and we assume no obligation to advise
Bank of any changes in the foregoing.
This opinion letter has been prepared solely in connection with the
execution and delivery of the Documents and may not otherwise be quoted or
published or be relied upon by anyone other than Bank or for any other purpose
unrelated to transactions under the Documents.
Very truly yours,
GALLOP, JOHNSON & NEUMAN, L.C.
<PAGE> 1
EXHIBIT 4(m)
SIXTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT ("SIXTH AMENDMENT") is
executed as of the 4th day of May, 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, as further amended by a Third
Amendment to Credit Agreement, dated as of November 14, 1994 (the "Third
Amendment"), as further amended by a Fourth Amendment to Credit Agreement,
dated as of February 10, 1995 (the "Fourth Amendment"), and as further amended
by a Fifth Amendment to Credit Agreement, dated as of April 21, 1995 (the
"Fifth Amendment"), all executed by the Company and the Bank (collectively, as
so amended, the "Original Agreement").
2. As of May 8, 1995, the outstanding balance of the Revolving
Loan will be $9,059,220.60, consisting of an outstanding principal balance of
$8,925,000.00 and $134,220.60 in accrued, unpaid interest, fees and expenses.
3. The Company intends to pay in full the Revolving Loan and to
cause the Standby Letter of Credit to be surrendered, terminated and returned
to the Bank without any draft thereon having been made. The Company has
requested the Bank, in accordance with and subject to the terms of this Sixth
Amendment, to agree to (a) amend certain of the terms of the Original
Agreement to provide for the termination of the Revolving Loan and the Standby
Letter of Credit, (b) amend certain terms and provisions of the Original
Agreement relating to the Revolving Loan, the Standby Letter of Credit and the
Direct-Pay Letter of Credit, and (c) provide for the collateralization of the
Direct-Pay Letter of Credit, all as set forth herein.
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 Sixth Amendment, including
-----
its Recitals, which are defined in the Original Agreement, as amended by this
Sixth Amendment, and which are not otherwise defined herein, shall have the
respective meanings ascribed to them in the Original Agreement, as amended by
this Sixth Amendment.
<PAGE> 2
2. AMENDMENTS TO ORIGINAL AGREEMENT.
--------------------------------
(a) Section 1 of the Original Agreement is hereby amended by
adding thereto new subsections 1.lll, 1.mmm and 1.nnn.,
reading as follows:
"lll. Sixth Amendment. 'Sixth Amendment' means that
---------------
agreement entitled 'Sixth Amendment to Credit
Agreement' between the Company and the Bank, dated as
of May 4, 1995.
mmm. Bank of America Letter of Credit. 'Bank of America
--------------------------------
Letter of Credit' has the meaning ascribed to such
term in the Sixth Amendment.
nnn. Direct-Pay Letter of Credit Obligations.
---------------------------------------
'Direct-Pay Letter of Credit Obligations' means all
of the obligations, liabilities and indebtedness of
the Company, now existing or hereafter arising, to
reimburse and pay the Bank in full for all amounts
advanced or otherwise paid by the Bank on account of,
under or pursuant to any draft or drafts or other
demand for payment presented or made against the
Direct-Pay Letter of Credit ("DIRECT-PAY LETTER OF
CREDIT ADVANCES") and to pay all other amounts,
interest, costs, fees and other expenses, including
reasonable attorneys' fees, now or hereafter owed by
the Company to the Bank under the terms of Section 3
or Section 15 of the Agreement by virtue of any such
Direct-Pay Letter of Credit Advances not being paid
to the Bank by the Company when due ("FEES")."
Subsections z. and aa. of Section 1 of the Original
Agreement are each hereby amended in their entireties, as
follows:
"z. Guaranty Agreement I. "Guaranty Agreement I" means
--------------------
the guaranty executed and delivered to the Bank by Particle
Dynamics, Inc. pursuant to subsection 6.d. of the Original
Agreement prior to its amendment by the Sixth Amendment.
aa. Guaranty Agreement II. "Guaranty Agreement II"
---------------------
means the guaranty executed and delivered to the Bank by
ETHEX Corporation pursuant to subsection 6.d. of the
Original Agreement prior to its amendment by the Sixth
Amendment."
<PAGE> 3
(b) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), subsection 2.e. of
the Original Agreement is hereby deleted in its entirety.
(c) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), subsection 3.a. of
the Original Agreement is hereby amended by adding at the
end of subsection a. of Section 3 the following text:
"Notwithstanding anything to the contrary in this Agreement,
upon honoring a draft on the Direct-Pay Letter of Credit,
the Bank shall, prior to seeking direct payment from the
Company for the amount of such honored draft and all other
fees payable to the Bank pursuant to and as provided in this
Section 3, first seek payment of all such amounts by drawing
on the Bank of America Letter of Credit."
(d) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), Section 4 of the
Original Agreement is hereby amended by adding the following
new paragraph at the end of Section 4:
"Notwithstanding anything to the contrary in this
Agreement, the Bank and the Company agree and acknowledge
that concurrently with the execution of the Sixth Amendment,
the Standby Letter of Credit was surrendered to the Bank for
cancellation without any draft thereon having been made, the
Standby Letter of Credit was thereupon cancelled, and the
Bank shall have no further liability or obligation
thereunder or to issue any replacement thereof."
(e) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), subsection f. of
Section 5 of the Original Agreement is hereby deleted in its
entirety.
(f) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), Section 6 of the
Original Agreement is hereby amended and restated in its
entirety as follows:
"Section 6. COLLATERAL FOR THE OBLIGATIONS. The
Obligations will be secured by: (a) the unsecured
unconditional guaranty of prompt payment of Particle
Dynamics, Inc.; (b) the unsecured unconditional guaranty of
prompt payment of ETHEX Corporation; and (c) the Bank of
America Letter of Credit."
-3-
<PAGE> 4
(g) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), each of subsections
d., g., h. and j. of Section 7 of the Original Agreement is
hereby deleted in its entirety.
(h) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), each of subsections
a., b., c., d., e., f., j. and k. of Section 8 of the
Original Agreement is hereby deleted in its entirety.
(i) Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), subsection a. of
Section 10 of the Original Agreement is hereby amended and
restated in its entirety, as follows:
"a. Nonpayment of Obligations. Failure to pay when due
-------------------------
any of the Direct-Pay Letter of Credit Obligations."
Effective as of the Effective Date (as such term is defined
in Paragraph 6 of this Sixth Amendment), subsections c., d.,
and g. of Section 10 of the Original Agreement shall be
deleted in their entirety.
3. WARRANTIES AND REPRESENTATIONS. The Company warrants
------------------------------
and represents to the Bank that (a) the Recitals to the Sixth Amendment are
true and accurate, including without limitation, the outstanding balance of
the Existing Revolving Loan as of the date of this Sixth Amendment, and
(b) all of the Obligations are enforceable in accordance with their respective
terms and the Company does not have any claim, counterclaim, defense or
set-off against the Bank or any of the Obligations.
4. BANK OF AMERICA LETTER OF CREDIT. Concurrently with
--------------------------------
or prior to the execution of this Sixth Amendment, the Company shall cause
Bank of America National Trust and Savings to issue to the Bank as beneficiary
an irrevocable letter of credit in form and substance the same as attached
hereto as EXHIBIT A (as the same may be amended, modified, extended and/or
---------
restated from time to time and at any time, the "BANK OF AMERICA LETTER OF
CREDIT") in an amount equal to Three Million Two Hundred Ninety Thousand
Dollars ($3,290,000.00) as collateral for, and to reimburse and pay
the Bank in full for, all Direct-Pay Letter of Credit Obligations. The expiry
date of the Direct-Pay Letter of Credit is November 5, 1995, and the Company
and the Bank each agree that such expiry date shall not be further
extended. The Bank of America Letter of Credit shall expire on a date certain
which is not prior to November 20, 1995. Provided that the Direct-Pay Letter
of Credit expires by its own terms or is earlier surrendered and terminated
without any draft having been presented
-4-
<PAGE> 5
thereon after the execution of this Sixth Amendment, the Bank shall take such
action as the issuer reasonably may request to terminate and cancel the Bank
of America Letter of Credit within three (3) Banking Days after the expiry
date or such earlier surrender and termination of the Direct-Pay Letter of
Credit. In the event of the occurrence of an Event of Default (as such term
is defined in the Original Agreement, as amended by this Sixth Amendment) or
in the event the Bank honors a draft on the Direct-Pay Letter of Credit
presented thereon prior to its expiration and at any time after execution of
this Sixth Amendment, the Bank shall draft on the Bank of America Letter of
Credit at any time prior to its stated expiry date for the full amount of the
Direct-Pay Letter of Credit Obligations then payable to the Bank and the Bank
shall not be obligated to terminate and cancel the Bank of America Letter of
Credit until no further Direct-Pay Letter of Credit Obligations may arise. If
at any time after execution of this Sixth Amendment, the Standard & Poors'
public debt rating of Bank of America National Trust and Savings is below an
"A" rating (the "Minimum Rating Requirement"), the Bank shall be entitled to
request the Company in writing ("Request") to replace the Bank of America
Letter of Credit with an irrevocable letter of credit in form and substance
the same as the Bank of America Letter of Credit issued and delivered to the
Bank as beneficiary by a financial institution reasonably acceptable to the
Bank and meeting the Minimum Rating Requirement ("Replacement Letter of
Credit") and such Replacement Letter of Credit shall be deemed to be the "Bank
of America Letter of Credit" for the purposes of the Original Agreement, as
amended by this Sixth Amendment, and for the purposes of this Sixth Amendment.
Failure by the Company to cause the Replacement Letter of Credit to be issued
in accordance with the terms of this Paragraph 4 within thirty (30) days after
the date of the Bank's Request shall be deemed to be an Event of Default under
the Original Agreement and for the purposes of this Paragraph 4.
5. PAYMENT OF REVOLVING LOAN/RELEASE OF COLLATERAL.
-----------------------------------------------
The Bank and the Company acknowledge and agree that pursuant to this Sixth
Amendment the Company will pay in full the entire outstanding balance of the
Revolving Loan and the Company has requested the Bank to terminate the
Revolving Loan on the Effective Date. Accordingly, notwithstanding anything
to the contrary in the Original Agreement, the Revolving Loan is terminated as
of the Effective Date and, as of the Effective Date, the Bank shall have no
further obligation to make, and the Company shall no longer be entitled to
receive, Advances under the Revolving Loan. To the knowledge of the Bank, as
of the date of this Sixth Amendment, all Obligations arising under, pursuant
to or in connection with the Agreement have been paid in full other than: (a)
the Obligations of the Company which are to be paid pursuant to subparagraphs
C. and F. of Paragraph 6 of this Sixth Amendment and the Obligations which
will be terminated upon surrender of the Standby Letter of Credit, as provided
in subparagraph H. of Paragraph 6 of this Sixth Amendment; and (b) Direct-Pay
Letter of Credit Obligations which may become owing hereafter by the Company.
To the knowledge of the Bank, as of the date of this Sixth Amendment, all
outstanding, unpaid Obligations which have not arisen under, pursuant to or in
connection with the Agreement are fees, charges and debits arising in the
ordinary course in connection
-5-
<PAGE> 6
with lockbox and deposit accounts of the Company or the Guarantors maintained
with the Bank.
Subject to the complete and timely performance of all of the
closing conditions set forth in Paragraph 6 below, the Bank hereby agrees to
release all collateral securing all or any part of the Obligations or the
obligations of Guarantors under the Guaranty Agreements, other than the
Guaranty Agreements and the Bank of America Letter of Credit, each of which
shall continue to guaranty and secure, respectively, payment of the Direct-Pay
Letter of Credit Obligations. Effective as of the Effective Date (as such
term is defined in Paragraph 6 of this Sixth Amendment), the Bank as soon as
practicable (and in all events within four Banking Days of the Effective Date)
shall execute and deliver to Foothill Capital Corporation, a California
corporation, all documents, instruments and agreements and take such other
action necessary to release and terminate the security interests and liens of
the Bank in and to assets of the Company or the Guarantors, or any of them,
presently securing all or any part of the Obligations or the obligations of
the Guarantors, or either of them, under the Guaranty Agreements, including
without limitation, all stock of the Guarantors presently pledged to the Bank.
Upon the Closing Conditions being timely and fully satisfied and performed,
each of the Security Agreements, the Collateral Assignment and the Deed of
Trust shall terminate and be of no further force and effect.
6. CLOSING DOCUMENTS AND PAYMENTS. As conditions
------------------------------
precedent to the effectiveness of this Sixth Amendment and the Bank's
obligations hereunder, the Bank shall first receive on or before the close of
business on May 8, 1995, each of items A through H below, duly executed, dated
and in form and substance satisfactory to the Bank, as applicable
(collectively, the Closing Conditions"). Provided that all of the Closing
Conditions are timely and fully satisfied and performed the term "Effective
Date" as used in this Sixth Amendment shall mean the close of business on May
8, 1995.
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
Sixth Amendment and any other document required under this
Sixth 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 Sixth Amendment and any other
document required under this Sixth Amendment to which such
corporation is a party, together with a sample of the true
signature of each such officer.
C. Payment by the Company of the legal expenses and out of
pocket expenses incurred by the Bank for special counsel in
connection
-6-
<PAGE> 7
with the negotiation, preparation and closing of this Sixth
Amendment and any other outstanding expenses for which the
Bank is entitled to reimbursement by the Company pursuant to
the Agreement.
D. The Consent of each of the Guarantors in the forms attached
to this Sixth Amendment as EXHIBIT "B-1" and EXHIBIT "B-2,"
------------- --------------
respectively.
E. An opinion of counsel to the Company and the Guarantors,
Messrs. Gallop, Johnson & Neuman, L.C. issued to the Bank
as of the date of this Sixth Amendment, in form and
substance the same as attached to this Sixth Amendment as
EXHIBIT C.
---------
F. Payment by the Company to the Bank of the entire balance of
the Revolving Loan , including all accrued, unpaid interest,
fees and expenses. Upon receipt of such payment, the Bank
shall return to the Company the original of the Revolving
Note marked "Paid in full".
G. Surrender and return to the Bank, and termination, of the
Standby Letter of Credit, without any draft having been
made thereon.
H. The Bank of America Letter of Credit.
7. RELEASE. The Company and Guarantors for themselves and
-------
their respective legal representatives, successors, assigns (collectively, the
"RELEASING PARTIES"), each as of the Effective Date 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 Sixth
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 prior to the Effective Date, 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 Sixth 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
-7-
<PAGE> 8
default or noncompliance with any of the terms or requir Credit Documents.
The Bank's execution of this Sixth 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 Paragraph 7 is in addition to, and not in substitution or
replacement of, the releases granted to the Bank and the other Released
Parties in the Third Amendment, the Fourth Amendment and in the Fifth
Amendment. The Company and the Guarantors, respectively, each acknowledge by
their execution of this Sixth Amendment that the execution of this Sixth
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 Paragraph 7.
8. EFFECT OF SIXTH AMENDMENT. Except as amended in this
-------------------------
Sixth Amendment, all of the terms and conditions of the Original Agreement
shall continue unchanged and the Original Agreement, as amended by this Sixth
Amendment, remains in full force and effect.
9. AMENDMENTS, ETC.. The Bank acknowledges its
----------------
understanding that the Company has agreed with and covenanted to Foothill
Capital Corporation that it will not further amend, supplement or modify the
Agreement after the Effective Date without the prior written consent of
Foothill Capital Corporation.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company and the Bank, by their respective
duly authorized officer, have executed this Sixth Amendment to Credit
Agreement as of the date first written above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Gerald R. Mitchell
--------------------------------------------
Gerald R. Mitchell, Vice-President, Finance
--------------------------------------------
BANK ONE, INDIANAPOLIS,
NATIONAL ASSOCIATION
By: /s/ Richard L. Mott, V.P.
--------------------------------------------
Printed: Richard L. Mott
---------------------------------------
Title: Vice President
-----------------------------------------
The undersigned hereby execute this Sixth Amendment to Credit
Agreement ("Sixth Amendment") as of the 4th day of May, 1995, for the purpose
of severally making the releases set forth in, and being fully bound by all of
the terms of, Paragraph 7 of the Sixth Amendment.
PARTICLE DYNAMICS, INC.
By: /s/ Gerald R. Mitchell
--------------------------------------------
Gerald R. Mitchell, Vice-President
--------------------------------------------
ETHEX CORPORATION
By: /s/ Gerald R. Mitchell
--------------------------------------------
Gerald R. Mitchell, Vice-President
--------------------------------------------
-9-
<PAGE> 10
Exhibit A
---------
IRREVOCABLE LETTER OF CREDIT
----------------------------
Bank One, Indianapolis,
National Association
111 Monument Circle, Suite 1801
Indianapolis, Indiana 46277-0188
Gentlemen:
We hereby issue our irrevocable letter of credit number
-------
in favor of Bank One, Indianapolis, National Association, 111 Monument
Circle, Suite 1801 Indianapolis, Indiana 46277-0118 ("Beneficiary") for the
account of K-V Pharmaceutical Company, 2503 South Hanley Road, St. Louis,
Missouri 63144, up to an aggregate amount of Three Million Two Hundred Ninety
Thousand Dollars ($3,290,000.00) available by Beneficiary's draft(s) at sight
drawn on Bank of America National Savings and Trust and accompanied by a
certificate in the form of Exhibit "A" which accompanies this letter of
-----------
credit ("Certificate") executed by any purported officer of Beneficiary.
Each draft must (1) state that it is drawn under Bank of America
National Savings and Trust irrevocable letter of credit number ,
---------
(2) indicate the amount of the draw, (3) be signed by any purported officer
of Beneficiary, and (4) be presented at our office at
---------------------
not later than November 20, 1995.
We hereby agree with you that drafts drawn under and in compliance
with the terms of this irrevocable letter of credit will be duly honored upon
presentation to Bank of America National Savings and Trust at the address
stated above.
This irrevocable letter of credit is subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision) International
Chamber of Commerce Publication No. 500.
BANK OF AMERICA NATIONAL SAVINGS
AND TRUST
By:
-----------------------------
Printed:
------------------------
Title:
--------------------------
<PAGE> 11
Exhibit "A" Accompanying Irrevocable Letter of Credit
-----------------------------------------------------
TO: Bank of America
333 Beaudry Avenue
Los Angeles, CA 90017
CERTIFICATE
-----------
The undersigned, an authorized officer of Bank One, Indianapolis,
National Association, the beneficiary ("Beneficiary") under irrevocable letter
of credit number issued for the account of K-V
---------------------
Pharmaceutical Company, Inc. ("KV") by Bank of American National Savings and
Trust ("Letter of Credit"), hereby certifies to Bank of America National
Savings and Trust for and on behalf of Beneficiary that the amount presented
in the draft accompanying this Certificate is owed to Beneficiary by KV to
reimburse and pay Beneficiary for amounts advanced or otherwise paid by the
Bank under, pursuant to or in connection with a draft or drafts or other
demand for payment presented or made against the Irrevocable Direct-Pay Letter
of Credit No. S-3608-G, originally dated November 10, 1989, and issued by
Beneficiary to Mark Twain Bank, as Trustee, and any successor Trustee, for the
account of KV ("Direct-Pay Letter of Credit Advance"), and to pay costs, fees
and other expenses owed by KV to Beneficiary by virtue of such Direct Pay
Letter of Credit Advance.
Date: -------------------- BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION
By:
-----------------------------
Printed:
------------------------
Title:
--------------------------
<PAGE> 12
CONSENT OF GUARANTOR
The undersigned, being a Guarantor of the Obligations of K-V
PHARMACEUTICAL COMPANY (the "Company") in favor of BANK ONE, INDIANAPOLIS,
National Association (the "Bank") under that certain Credit Agreement between
the Company and the Bank dated September 30, 1993, as amended by a First
Amendment to Credit Agreement between the Company and the Bank dated June 28,
1994, but with effect as of April 1, 1994, and as further amended by a Second
Amendment to Credit Agreement between the Company and the Bank, dated as of
November 1, 1994, and as further amended by a Third Amendment to Credit
Agreement between the Company and the Bank, dated as of November 14, 1994, and
as further amended by a Fourth Amendment to Credit Agreement between the
Company and the Bank, dated as of February 10, 1995, and as further amended by
a Fifth Amendment to Credit Agreement between the Company and the Bank, dated
as of April 21, 1995 (collectively, the "Original Agreement"), consents to the
amendment of the Original Agreement by the Sixth Amendment being executed
currently with execution of this Consent (the Original Agreement, as amended
by the Sixth Amendment, is, collectively, the "Agreement") and to all of the
transactions contemplated thereby. The undersigned Guarantor further agrees
that the execution, delivery and the performance of the Sixth Amendment and
the exhibits attached thereto shall not in any way affect, impair, discharge,
relieve or release the obligations of the undersigned under its Guaranty
Agreement dated September 30, 1993, which guaranty obligations are hereby
ratified, confirmed and reaffirmed in all respects and shall continue in full
force and effect, until all Obligations, as they may be further amended from
time to time, are fully, finally and irrevocably paid and performed.
The terms "Guarantor," "Obligations," "Sixth Amendment," and "Guaranty
Agreement" are used in this Consent as such terms are defined in the
Agreement.
Dated: As of May , 1995.
----
ETHEX CORPORATION, a Missouri corporation
By:
-------------------------------------
-----------------------------------
(printed name and title)
EXHIBIT B-1
<PAGE> 13
CONSENT OF GUARANTOR
The undersigned, being a Guarantor of the Obligations of K-V
PHARMACEUTICAL COMPANY (the "Company") in favor of BANK ONE, INDIANAPOLIS,
National Association (the "Bank") under that certain Credit Agreement between
the Company and the Bank dated September 30, 1993, as amended by a First
Amendment to Credit Agreement between the Company and the Bank dated June 28,
1994, but with effect as of April 1, 1994, and as further amended by a Second
Amendment to Credit Agreement between the Company and the Bank, dated as of
November 1, 1994, and as further amended by a Third Amendment to Credit
Agreement between the Company and the Bank, dated as of November 14, 1994, and
as further amended by a Fourth Amendment to Credit Agreement between the
Company and the Bank, dated as of February 10, 1995, and as further amended by
a Fifth Amendment to Credit Agreement between the Company and the Bank, dated
as of April 21, 1995 (collectively, the "Original Agreement"), consents to the
amendment of the Original Agreement by the Sixth Amendment being executed
currently with execution of this Consent (the Original Agreement, as amended
by the Sixth Amendment, is, collectively, the "Agreement") and to all of the
transactions contemplated thereby. The undersigned Guarantor further agrees
that the execution, delivery and the performance of the Sixth Amendment and
the exhibits attached thereto shall not in any way affect, impair, discharge,
relieve or release the obligations of the undersigned under its Guaranty
Agreement dated September 30, 1993, which guaranty obligations are hereby
ratified, confirmed and reaffirmed in all respects and shall continue in full
force and effect, until all Obligations, as they may be further amended from
time to time, are fully, finally and irrevocably paid and performed.
The terms "Guarantor," "Obligations," "Sixth Amendment," and "Guaranty
Agreement" are used in this Consent as such terms are defined in the
Agreement.
Dated: As of May , 1995.
----
PARTICLE DYNAMICS, INC., a New York
corporation
By:
-------------------------------------
-----------------------------------
(printed name and title)
EXHIBIT B-2
<PAGE> 14
Exhibit C
May 4, 1995
Bank One, Indianapolis, N.A.
Bank One Center/Tower-Suite 1911
111 Monument Circle
Indianapolis, Indiana 46277
RE: Sixth Amendment to Credit Agreement with K-V Pharmaceutical
Company
Gentlemen and Ladies:
We have acted as counsel to K-V PHARMACEUTICAL COMPANY, a Delaware
corporation (the "Company"), PARTICLE DYNAMICS, INC., a New York corporation
("PDI") and ETHEX CORPORATION, a Missouri corporation ("ETHEX"), at their
request, in connection with transactions related to a certain Sixth Amendment
to Credit Agreement, dated as of May 4, 1995 (the "Sixth Amendment") by and
among the Company, PDI, ETHEX and Bank One, Indianapolis, National Association
(the "Bank"). This opinion is submitted at the request of the Company, PDI
and ETHEX pursuant to Paragraph 6 of the Sixth Amendment.
Except as otherwise provided herein, capitalized terms used in this
opinion letter have the same meanings as defined in the Sixth Amendment.
Our representation of the Company, PDI and ETHEX has been limited to
certain items as to which we have been consulted and have devoted substantive
attention.
In rendering this opinion, we have reviewed and relied upon:
(A) The Sixth Amendment;
(B) The Consents of each of the Guarantors in the forms attached to
the Sixth Amendment as Exhibit B-1 and Exhibit B-2 (the "Guarantor
Consents");
(C) Certificate of Secretary of the Company regarding authorizing
resolutions of the Board of Directors of the Company and officers'
incumbency;
<PAGE> 15
Bank One, Indianapolis, N.A.
Page 2
(D) Certificate of Secretary of PDI regarding authorizing resolutions
of the Board of Directors of PDI and officers' incumbency; and
(E) Certificate of Secretary of ETHEX regarding authorizing
resolutions of the Board of Directors of ETHEX and officers'
incumbency.
The Sixth Amendment and the Guarantor Consents are sometimes referred to
herein collectively as the "Documents."
We have also reviewed such other matters of law and fact as we have
deemed appropriate in rendering the opinions expressed herein, including
without limitation, certificates of good standing, or telephonic confirmations
of good standing, of the Company, PDI and ETHEX in their respective states of
organization and in the State of Missouri.
In rendering the opinions set forth herein, we have assumed without
undertaking to verify the same by independent investigation: (a) as to
questions of fact (but not as to the legal sufficiency of such facts), the
accuracy of all representations of the Company, PDI and ETHEX set forth in any
document or certification delivered in connection with the execution of the
Documents; (b) the conformity to original documents of all documents submitted
to us as copies and the authenticity of such original documents and all
documents submitted to us as originals; and (c) that each entity, association
and/or person executing or delivering the Documents, other than the Company,
PDI and ETHEX, has the capacity to do so and to perform all of its, their or
his obligations thereunder.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or awareness, it is intended
to signify that no information has come to the attention of the present
partners or associates of our firm who have devoted substantive attention to
the transactions contemplated by the Sixth Amendment (including the member of
our firm principally responsible for supervising the representation of the
Company) which would give such persons actual current knowledge of the
existence or absence of such facts. Except to the extent expressly set forth
herein, however, we have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from our
representation of the Company, PDI or ETHEX.
We express no opinion with respect to title to any real property or
personal property or the perfection or priority of any lien or security
interest therein.
<PAGE> 16
Bank One, Indianapolis, N.A.
Page 3
Each of the opinions hereinafter expressed is subject to each of the
following further qualifications:
(i) We do not regard ourselves as experts in the laws of any
jurisdiction other than the State of Missouri, and the opinions
expressed by us herein are expressly limited thereto and to the General
Corporation Law (Title 8) of the State of Delaware, or, where
applicable, to federal law. We have also reviewed the text available to
us of the business corporation statute of the State of New York; we do
not, however, regard ourselves as experts in the laws of the State of
New York. We express no opinion as to whether any provisions of the
laws of any other jurisdiction might affect any opinion rendered by us.
We note that the Documents recite (as to which we give no opinion) that
they are governed by the laws of the State of Indiana. For purposes of
this opinion, we have assumed, without inquiry, that the laws of the
State of Indiana are the same as the laws of the State of Missouri in
all pertinent respects. We also assume, as regards our opinions set forth
herein relating to PDI, that the applicable laws of the State of New York
are the same as the laws of the State of Missouri in all pertinent
respects. We also express no opinion herein with respect to any law,
rule or regulation related to: (a) the environment; (b) occupational
health or safety; (c) the issuance, sale or transfer of securities; (d)
federal or state taxation; or (e) matters within the jurisdiction of the
Federal Food and Drug Administration.
(ii) Our opinions are subject to the effect of bankruptcy,
insolvency, fraudulent conveyance, reorganization, arrangement,
moratorium, and other laws relating to or affecting the rights of
creditors generally.
(iii) Our opinions are subject to the limitations imposed by general
principles of equity upon the specific enforceability of any of the
remedies, covenants or other provisions of the Documents and upon the
availability of injunctive relief and other equitable remedies, and the
application of principles of equity (regardless of whether enforcement
is considered in proceedings in law or in equity) in regard to certain
covenants and provisions of agreements where (a) the breach of such
covenants or provisions imposes restrictions or burdens upon an obligor,
including without limitation the acceleration of indebtedness due under
the Documents, and it cannot be demonstrated that the enforcement of
such restrictions or burdens is reasonably necessary for the protection
of the obligee, or, (b) the obligee's enforcement of such covenants or
provisions under the circumstances would violate the obligee's implied
covenant of good faith and fair dealing, or would be commercially
unreasonable.
<PAGE> 17
Bank One, Indianapolis, N.A.
Page 4
(iv) Any requirement in the Documents specifying that provisions of
the Documents may only be waived in writing may not be enforced under
Missouri law to the extent that an oral agreement is entered into
modifying provisions of the Documents.
(v) We express no opinion as to the enforceability of any
provisions which purport to indemnify any person for gross negligence,
reckless or intentional wrongs or which exculpate any person as to
liability for wrongs committed to persons other than a party to the
instrument purporting to create such exculpation or which exculpate a
person for reckless or intentional wrongs.
(vi) In addition to the foregoing specific issues, certain rights
and remedies contained in the Documents may be rendered ineffective, or
limited, by generally applicable laws or judicial decisions governing such
provisions and the foregoing specific issues referred to in clauses (i)
through (v) hereof; however, such generally applicable laws and judicial
decisions do not in and of themselves, in our opinion, render the
Documents invalid as a whole or preclude (A) the judicial enforcement of
the obligations of the Company to repay the principal, together with the
interest thereon, as provided in the Original Agreement, as amended; or
(B) the judicial enforcement of the respective payment obligations of
PDI and ETHEX under the Guaranty Agreements referred to in the Guarantor
Consents, provided that the Bank shall have acted in good faith and with
a reasonable degree of care in connection with the Bank's exercise of
its rights under the Documents and its rights relating to the collateral
securing the obligations of the Company, PDI and ETHEX under the
Documents.
Based upon the foregoing and subject to the limitations, exclusions and
qualifications noted in this opinion letter, we are of the opinion that, as of
the date hereof:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware and is duly qualified as a
foreign corporation and in good standing under the laws of the State of
Missouri.
2. The execution and delivery of the Sixth Amendment are within the
corporate power of the Company and have been duly authorized by all necessary
corporate action of the Company.
3. The Sixth Amendment has been duly executed and delivered by the
Company and constitutes the legal, valid and binding
<PAGE> 18
Bank One, Indianapolis, N.A.
Page 5
obligations of the Company, enforceable against the Company in accordance with
its terms.
4. PDI is a corporation validly existing and in good standing under
the laws of the State of New York and is duly qualified as a foreign
corporation and in good standing under the laws of the State of Missouri.
5. The execution and delivery of the Guarantor Consent and the
Sixth Amendment by PDI are within the corporate power of PDI and have been
duly authorized by all necessary corporate action of PDI.
6. The Guarantor Consent to be executed by PDI and the Sixth
Amendment have been duly executed and delivered by PDI and constitute the
legal, valid and binding obligations of PDI, enforceable against PDI in
accordance with their respective terms.
7. ETHEX is a corporation validly existing and in good standing
under the laws of the State of Missouri.
8. The execution and delivery of the Guarantor Consent and the
Sixth Amendment by ETHEX are within the corporate power of ETHEX and have been
duly authorized by all necessary corporate action of ETHEX.
9. The Guarantor Consent to be executed by ETHEX and the Sixth
Amendment have been duly executed and delivered by ETHEX and constitute the
legal, valid and binding obligations of ETHEX, enforceable against ETHEX in
accordance with their respective terms.
This opinion letter is limited to the matters set forth herein. This
opinion speaks as of the date hereof and we assume no obligation to advise
Bank of any changes in the foregoing.
This opinion letter has been prepared solely in connection with the
execution and delivery of the Documents and may not otherwise be quoted or
published or be relied upon by anyone other than Bank or for any other purpose
unrelated to transactions under the Documents.
Very truly yours,
GALLOP, JOHNSON & NEUMAN, L.C.
<PAGE> 1
EXHIBIT 4(n)
=============================================================================
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
K-V PHARMACEUTICAL COMPANY
PARTICLE DYNAMICS, INC.
ETHEX CORPORATION
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 27, 1995
=============================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 13
1.3 Code 13
1.4 Construction 13
1.5 Schedules and Exhibits 14
2. LOAN AND TERMS OF PAYMENT 14
2.1 Revolving Advances 14
2.2 Letters of Credit and Letter of Credit Guarantees 15
2.3 Term Loan 17
2.4 Capital Equipment Line 17
2.5 Overadvances 17
2.6 Interest: Rates, Payments, and Calculations 18
2.7 Crediting Payments; Application of Collections 19
2.8 Statements of Obligations 20
2.9 Fees 20
3. CONDITIONS; TERM OF AGREEMENT 21
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty 21
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees 23
3.3 Term; Automatic Renewal 23
3.4 Effect of Termination 24
3.5 Early Termination by Borrower 24
3.6 Termination Upon Event of Default 24
4. CREATION OF SECURITY INTEREST 25
4.1 Grant of Security Interest 25
4.2 Negotiable Collateral 25
4.3 Collection of Accounts, General Intangibles, Negotiable Collateral 25
4.4 Delivery of Additional Documentation Required 26
4.5 Power of Attorney 26
4.6 Right to Inspect 27
-i-
<PAGE> 3
5. REPRESENTATIONS AND WARRANTIES. 27
5.1 No Prior Encumbrances 27
5.2 Eligible Accounts 27
5.3 Eligible Inventory 27
5.4 Location of Inventory and Equipment 27
5.5 Inventory Records 28
5.6 Location of Chief Executive Office; FEIN 28
5.7 Due Organization and Qualification 28
5.8 Due Authorization; No Conflict 28
5.9 Litigation 28
5.10 No Material Adverse Change in Financial Condition 28
5.11 Solvency 29
5.12 Employee Benefits 29
5.13 Environmental Condition 29
5.14 No Retirement Plans 30
5.15 Reliance by Foothill; Cumulative 30
6. AFFIRMATIVE COVENANTS. 30
6.1 Accounting System 30
6.2 Collateral Reports 30
6.3 Schedules of Accounts 31
6.4 Financial Statements, Reports, Certificates 31
6.5 Tax Returns 32
6.6 Intentionally Omitted 32
6.7 Designation of Inventory 32
6.8 Returns. 32
6.9 Title to Equipment 33
6.10 Maintenance of Equipment 33
6.11 Taxes 33
6.12 Insurance 33
6.13 Financial Covenants 34
6.14 No Setoffs or Counterclaims 34
6.15 Location of Inventory and Equipment 34
6.16 Compliance with Laws 35
6.17 Employee Benefits 35
6.18 Leases 36
7. NEGATIVE COVENANTS 36
7.1 Indebtedness 36
7.2 Liens 36
7.3 Restrictions on Fundamental Changes 37
-ii-
<PAGE> 4
7.4 Extraordinary Transactions and Disposal of Assets 37
7.5 Change Name 37
7.6 Guarantee 37
7.7 Restructure 37
7.8 Prepayments 37
7.9 Change of Control 37
7.10 Capital Expenditures 37
7.11 Consignments 38
7.12 Distributions 38
7.13 Accounting Methods 38
7.14 Investments 38
7.15 Transactions with Affiliates 38
7.16 Suspension 38
7.17 Compensation 38
7.18 Use of Proceeds 39
8. EVENTS OF DEFAULT 39
9. FOOTHILL'S RIGHTS AND REMEDIES 42
9.1 Rights and Remedies 42
9.2 Remedies Cumulative 44
10. TAXES AND EXPENSES 44
11. WAIVERS; INDEMNIFICATION 45
11.1 Demand; Protest; etc. 45
11.2 Foothill's Liability for Collateral 45
11.3 Indemnification 45
12. NOTICES 45
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 46
14. DESTRUCTION OF BORROWER'S DOCUMENTS 47
15. GENERAL PROVISIONS 47
15.1 Effectiveness 47
15.2 Successors and Assigns 47
15.3 Section Headings 48
15.4 Interpretation 48
15.5 Severability of Provisions 48
-iii-
<PAGE> 5
15.6 Amendments in Writing 48
15.7 Counterparts; Telefacsimile Execution 48
15.8 Revival and Reinstatement of Obligations 48
15.9 Integration 49
15.10 Oral Agreements Not Enforceable 49
<CAPTION>
SCHEDULES
<S> <C>
Schedule E-1 Eligible Inventory
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 5.9 Litigation
Schedule 6.15 Location of Inventory and Equipment
</TABLE>
-iv-
<PAGE> 6
LOAN AND SECURITY AGREEMENT
---------------------------
This LOAN AND SECURITY AGREEMENT, is entered into as of April 27, 1995,
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, and K-V PHARMACEUTICAL COMPANY, a Delaware
corporation ("KV"), PARTICLE DYNAMICS, INC., ("PDI") a New York corporation
and wholly owned subsidiary of KV and ETHEX CORPORATION, a Missouri
corporation ("Ethex") and wholly owned subsidiary of KV (KV, PDI AND ETHEX are
sometimes collectively referred to as "Borrower"), with their chief executive
office located at 2503 South Hanley Road, St. Louis, Missouri 63144.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
--------------
obligated under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising
--------
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, irrespective of whether earned by performance, and any
and all credit insurance, guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other Person
---------
directly or indirectly controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" as applied to
any Person means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Loan and Security Agreement and any
---------
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
-1-
<PAGE> 7
"Authorized Officer" means any officer of Borrower.
------------------
"Bankruptcy Code" means the United States Bankruptcy Code (11
---------------
U.S.C. Section 101 et seq.), as amended, and any successor statute.
------
"Borrower" has the meaning set forth in the preamble to this
--------
Agreement.
"Borrower's Books" means all of Borrower's books and records
----------------
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral or the Real Property) or
liabilities; all information relating to Borrower's business operations or
financial condition; and all computer programs, disc or tape files, printouts,
runs, or other computer prepared information, provided, however, that the
foregoing does not include any information or material in Borrower's
possession that Borrower is obligated by agreement not to disclose to any
Person.
"Borrowing Base" has the meaning set forth in Section 2.1.
-------------- -----------
"Business Day" means any day which is not a Saturday, Sunday, or
------------
other day on which national banks are authorized or required to close.
"Capital Equipment" means equipment purchased by any of the
-----------------
Borrowers for use in the operation of its business which equipment is
acceptable to Foothill.
"Capital Equipment Notes" has the meaning set forth in Section
-----------------------
2.4.
"Capital Equipment Line" has the meaning set forth in Section
----------------------
2.4.
"Change of Control" shall be deemed to have occurred at such
-----------------
time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 20% of the total voting power of all
classes of stock then outstanding of Borrower normally entitled to vote in the
election of directors.
"Closing Date" means the date of the initial advance hereunder
------------
or the date of the initial issuance of an L/C or an L/C Guaranty hereunder,
whichever occurs first.
"Code" means the California Uniform Commercial Code.
----
"Collateral" means each of the following: the Accounts;
----------
Borrower's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; the Real
-2-
<PAGE> 8
Property, any money, or other assets of any Borrower which now or hereafter
come into the possession, custody, or control of Foothill; and the proceeds
and products, whether tangible or intangible, of any of the foregoing
including proceeds of insurance covering any or all of the Collateral, and any
and all Accounts, Borrower's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof. Collateral does not include any licensing
agreements to the extent that the assignment of any such licensing agreements
would violate or be prohibited by such licensing agreement, but Collateral
does include any Accounts arising pursuant to any licensing agreements and any
other proceeds arising from any licensing agreements.
"Commitment Letter" means that certain Commitment Letter dated
-----------------
April 13, 1995 from Foothill to Gerald R. Mitchell, Vice President Finance of
KV and accepted by KV on April 13, 1995.
"Consolidated Current Assets" means, as of any date of
---------------------------
determination, the aggregate amount of all current assets of KV and its
subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
--------------------------------
determination, the aggregate amount of all current liabilities of KV and its
subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For
purposes of this definition, all advances outstanding under this Agreement
shall be deemed to be current liabilities without regard to whether they would
be deemed to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the
-------------
end of a given day.
"Dilution Reserve" means a reserve established for any dilution
----------------
of Eligible Accounts because of rebates, credit memos, discounts, write offs
and other items which in Foothill's discretion dilute collectability and the
reserve will equal one percent (1%) for each one percent (1%) that dilutions
exceed five percent (5%) of Eligible Accounts. The Dilution Reserve will be
calculated based upon the prior three (3) month dilutions experienced.
"Early Termination Premium" has the meaning set forth in
-------------------------
Section 3.5.
- -----------
-3-
<PAGE> 9
"Eligible Accounts" means those Accounts created by Borrowers in
-----------------
the ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill, and that are and at all times
shall continue to be acceptable to Foothill in all respects; provided,
--------
however, that standards of eligibility may be fixed and revised from time to
- -------
time by Foothill in Foothill's reasonable credit judgment. Eligible Accounts
shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within sixty (60) days of due date or Accounts with selling terms of more than
sixty (60) days and in the case of certain accounts specifically approved by
Foothill Accounts with selling terms of ninety (90) days and all Accounts owed
by an Account Debtor that has failed to pay fifty percent (50%) or more of its
Accounts owed to Borrower within sixty (60) days of due date;
(b) Accounts with respect to which the Account Debtor is
an officer, employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(d) Accounts with respect to which the Account Debtor is
not a resident of the United States or Canada, and which are not either (i)
covered by credit insurance in form and amount, and by an insurer,
satisfactory to Foothill, or (ii) supported by one or more letters of credit
that are assignable by their terms and have been delivered to Foothill in an
amount, of a tenor, and issued by a financial institution, acceptable to
Foothill;
(e) Except as to any Accounts which are assigned pursuant
to the Assignment of Claims Act or any appropriate regulation of any
department, agency or instrumentality of the United States, Accounts with
respect to which the Account Debtor is the United States or any department,
agency, or instrumentality of the United States;
(f) Accounts with respect to which Borrower is or may
become liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower;
(g) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty percent (20%) of all Eligible
Accounts, or Accounts with respect to McKesson whose total obligations owing
to Borrower exceed
-4-
<PAGE> 10
thirty percent (30%) of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(h) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(j) Accounts that are payable in other than United States
Dollars; and
(k) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by
Borrower of the subject contract for goods or services.
"Eligible Inventory" means Inventory consisting of finished
------------------
goods held for sale in the ordinary course of Borrower's business that are
merchantable, reasonably fit for their intended purpose and manufactured in
compliance with governmental requirements ("Eligible Finished Goods"), and raw
materials for such finished goods and bulk finished goods currently classified
as work in process, that are located at Borrower's premises identified on
Schedule E-1, are acceptable to Foothill in all respects, and strictly
- ------------
comply with all of Borrower's representations and warranties to Foothill net
of any internal transfer pricing. Eligible Inventory shall not include
Inventory awaiting certification, whether governmental or Certificates of
Authority, sample Inventory, slow moving or obsolete items, restrictive or
custom items, work in process other than bulk finished goods classified as
work in process, components that are not part of finished goods, spare parts,
packaging (except for standard industry-size bottles for tablets, capsules and
liquids, which are unmarked and contain no distinctive labels, markings or any
other designations, as accurately and reasonably identified in writing on any
list or schedule delivered to and approved in advance by Lender), and shipping
materials, supplies used or consumed in Borrower's business, Inventory at any
location other than those set forth on Schedule E-1, Inventory subject to a
------------
security interest or lien in favor of any third Person, bill and hold goods,
Inventory that is not subject to Foothill's perfected security interests,
returned or defective goods, "seconds," PDI Inventory maintained at outside
processors, except to the extent as specifically approved by Foothill and
after Foothill has obtained appropriate waivers in form and content acceptable
to Foothill releasing any interest in any Inventory from outside processors,
and Inventory acquired on consignment. Eligible Inventory shall be valued at
the lower of Borrower's cost or market value.
-5-
<PAGE> 11
"Environmental Laws" means the Resource Conservation and
------------------
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree or other requirement
regulating, relating to, or imposing liability or standards of conduct
(including but not limited to permit requirements, and emission or effluent or
restrictions) concerning any Hazardous Materials or any hazardous, toxic or
dangerous waste, substance or constituent, or any pollutant or contaminant or
other substance, whether solid, liquid or gas, as now or any time hereafter in
effect.
"Environmental Lien" means a Lien in favor of any governmental
------------------
entity for (a) any liability under any Environmental Law or (b) damages
arising from or costs incurred by such governmental entity in response to a
spillage, disposal or release into the environment of any Hazardous Material
or other hazardous, toxic or dangerous waste, substance or constituent, or
other substance.
"Equipment" means all of Borrower's present and hereafter
---------
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
dies, jigs, goods (other than consumer goods, farm products, or Inventory),
wherever located, and any interest of Borrower in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, or any predecessor, successor, or
superseding laws of the United States of America, together with all
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) which, within the meaning of Section 414 of the IRC, is:
(i) under common control with Borrower; (ii) treated, together with Borrower,
as a single employer; (iii) treated as a member of an affiliated service group
of which Borrower is also treated as a member; or (iv) is otherwise aggregated
with the Borrower for purposes of the employee benefits requirements listed in
IRC Section 414(m)(4).
"ERISA Event" means any one or more of the following: (i) a
-----------
Reportable Event with respect to a Qualified Plan or a Multiemployer Plan;
(ii) a Prohibited Transaction with respect to any Plan; (iii) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer
Plan; (iv) the complete or partial withdrawal of Borrower or an ERISA
Affiliate from a Qualified Plan during a plan year in which it was, or was
treated as, a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; (v) a failure to make full payment when due of all amounts which, under
the
-6-
<PAGE> 12
provisions of any Plan or applicable law, Borrower or any ERISA Affiliate
is required to make; (vi) the filing of a notice of intent to terminate, or
the treatment of a plan amendment as a termination, under Sections 4041 or
4041A of ERISA; (vii) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Qualified Plan or
Multiemployer Plan; (viii) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon Borrower or any ERISA Affiliate; and (ix) a violation of the
applicable requirements of Sections 404 or 405 of ERISA, or the exclusive
benefit rule under Section 403(c) of ERISA, by any fiduciary or disqualified
person with respect to any Plan for which Borrower or any ERISA Affiliate may
be directly or indirectly liable.
"Event of Default" has the meaning set forth in Section 8.
---------------- ---------
"FEIN" means Federal Employer Identification Number.
----
"Foothill" has the meaning set forth in the preamble to this
--------
Agreement.
"Foothill Expenses" means all: items set forth in Section
-----------------
2.9(d) and (e) and all out-of-pocket costs or expenses of Foothill (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by any Borrower under any of the Loan Documents that are
paid or advanced by Foothill; documentation, filing, recording, publication,
appraisal (including periodic Collateral or Real Property appraisals), real
estate survey, environmental audit, and search fees assessed, paid, or
incurred by Foothill in connection with Foothill's transactions with Borrower;
costs and expenses incurred by Foothill in the disbursement of funds to
Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill
resulting from the dishonor of checks; costs and expenses paid or incurred by
Foothill to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral or the Real Property, or any portion thereof, irrespective of
whether a sale is consummated; costs and expenses paid or incurred by Foothill
in examining Borrower's Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
-7-
<PAGE> 13
"GAAP" means generally accepted accounting principles as in
----
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
-------------------
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
General Intangibles does not include any licensing agreements to the extent
that the assignment of any such licensing agreements would violate or be
prohibited by such licensing agreement, but General Intangibles does include
the right to receive any proceeds due under any such licensing agreements.
"Hazardous Materials" means all or any of the following:
-------------------
(a) substances that are defined or listed in, or otherwise classified pursuant
to, any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal resources;
(c) any flammable substances or explosives or any radioactive materials; and
(d) asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of Borrower for
------------
borrowed money; (b) all obligations of Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of Borrower in respect of letters of credit, letter of credit
guaranties, bankers acceptances, interest rate swaps, controlled disbursement
accounts, or other financial products; (c) all obligations under capital
leases; (d) all obligations or liabilities of others secured by a lien or
security interest on any property or asset of Borrower, irrespective of
whether such obligation or liability is assumed; and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person.
-8-
<PAGE> 14
"Insolvency Proceeding" means any proceeding commenced by or
---------------------
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally
with its creditors, or proceedings seeking reorganization, arrangement, or
other similar relief.
"Inventory" means all present and future inventory in which
---------
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of
the above.
"IRC" means the Internal Revenue Code of 1986, as amended, and
---
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
--- --------------
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
------------ --------------
"Loan Documents" means this Agreement, the Lockbox Agreements,
--------------
the Mortgage, the Term Note, the Capital Equipment Notes, any other note or
notes executed by Borrower and payable to Foothill, and any other agreement
entered into in connection with this Agreement.
"Lockbox Account" shall mean the depositary account established
---------------
pursuant to the respective Lockbox Agreement.
"Lockbox Agreements" means those certain Lockbox Operating
------------------
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Magna Bank, St. Louis, Missouri.
-------------
"Maximum Revolving Amount" means Seventeen Million Five Hundred
------------------------
Thousand Dollars ($17,500,000).
"Maximum Capital Equipment Amount" means One Million Five
--------------------------------
Hundred Thousand Dollars ($1,500,000).
"Maximum L/C Amount" has the meaning set forth in Section 2.2.
------------------ -----------
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<PAGE> 15
"Mortgages" means one or more mortgages, deeds of trust, or
---------
deeds to secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be satisfactory to Foothill, that encumber the Real
Property and the related improvements thereto.
"Multiemployer Plan" means a multiemployer plan as defined in
------------------
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which
employees of Borrower or an ERISA Affiliate participate or to which Borrower
or any ERISA Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and
---------------------
future letters of credit, notes, drafts, instruments, certificated and
uncertificated securities (including the shares of stock of subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all loans, advances, debts, principal,
-----------
interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement obligations
owing to Foothill under any outstanding L/Cs or L/C Guarantees, premiums
(including Early Termination Premiums), liabilities (including all amounts
charged to Borrower's loan account pursuant to any agreement authorizing
Foothill to charge Borrower's loan account), obligations, fees, lease
payments, guaranties, covenants, and duties owing by Borrower to Foothill of
any kind and description (whether pursuant to or evidenced by the Loan
Documents, by any note or other instrument (including the Term Note), or
pursuant to any other agreement between Foothill and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, and including any debt, liability, or obligation owing from Borrower
to others that Foothill may have obtained by assignment or otherwise, and
further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law,
or otherwise.
"Old Lender" means Bank One Indianapolis, N.A.
----------
"Overadvance" has the meaning set forth in Section 2.4.
----------- -----------
"Participant" means any Person, other than Foothill, that has
-----------
committed to provide a portion of the financing contemplated herein.
"Pay-Off Letter" means a letter, in form and substance
--------------
reasonably satisfactory to Foothill, from Old Lender respecting the amount
necessary to repay in full all of the
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<PAGE> 16
obligations of Borrower owing to Old Lender and obtain a termination or
release of all of the security interests or liens existing in favor of Old
Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
----
in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and security interests held
---------------
by Foothill; (b) liens for unpaid taxes that are not yet due and payable and
liens for real estate taxes which are due and payable, but which are not
delinquent; (c) liens and security interests set forth on Schedule P-1
------------
attached hereto; (d) purchase money security interests and liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset was permitted under Section 7.10, and so long as the
------------
security interest or lien only secures the purchase price of the asset; (e)
easements, rights of way, reservations, covenants, conditions, restrictions,
zoning variances, and other similar encumbrances that do not materially
interfere with the use or value of the property subject thereto; (f)
obligations and duties as lessee under any lease existing on the date of this
Agreement; (g) mechanics', materialmen's, warehousemen's, or similar liens
that arise by operation of law; and (h) exceptions listed in the title
insurance or commitment therefor to be delivered by Borrower hereunder in
respect of the Real Property.
"Permitted Protest" means the right of Borrower to protest any
-----------------
lien, tax, rental payment, or other charge, other than any such lien or charge
that secures the Obligations, provided (i) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (ii) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (iii) Foothill is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the liens or security
interests of Foothill in and to the property or assets of Borrower.
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are
legal entities, and governments and agencies and political subdivisions
thereof.
"Plan" means an employee benefit plan (as defined in Section
----
3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or
to which Borrower or any ERISA Affiliate makes, is making, or is obligated to
make contributions, including any Multiemployer Plan or Qualified Plan.
-11-
<PAGE> 17
"Prohibited Transaction" means any transaction described in
----------------------
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA,
and any transaction described in Section 4975(c) of the IRC which is not
exempt by reason of Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section
--------------
3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the IRC
which Borrower or any ERISA Affiliate sponsors, maintains, or to which any
such person makes, is making, or is obligated to make, contributions, or, in
the case of a multiple-employer plan (as described in Section 4064(a) of
ERISA), has made contributions at any time during the immediately preceding
period covering at least five (5) plan years, but excluding any Multiemployer
Plan.
"Real Property" means the parcel or parcels of real property and
-------------
the related improvements thereto identified on Schedule R-1, and any parcels
------------
of real property hereafter acquired by Borrower.
"Reference Rate" means the highest of the variable rates of
--------------
interest, per annum, most recently announced by (a) Bank of America, N.T. &
S.A., (b) Mellon Bank, N.A., and (c) Citibank, N.A., or any successor to any
of the foregoing institutions, as its "prime rate" or "reference rate," as the
case may be, irrespective of whether such announced rate is the best rate
available from such financial institution.
"Release" means a termination or release of all of the security
-------
interests or liens existing in favor of Old Lender in and to the property and
assets of Borrower.
"Renewal Date" has the meaning set forth in Section 3.3.
------------ -----------
"Reportable Event" means any event described in Section 4043
----------------
(other than Subsections (b)(7) and (b)(9)) of ERISA.
"Revolving Loan Note" means the Revolving Loan Note from
-------------------
Borrower to Foothill in the original amount of Seventeen Million Five Hundred
Thousand Dollars ($17,500,000) in the form of Exhibit A with appropriate
insertions, as the same may be amended or modified from time to time.
"Solvent" means, with respect to any Person on a particular
-------
date, that on such date (a) at fair valuations, all of the properties and
assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they
become
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<PAGE> 18
absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature,
and (e) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after giving
due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"Tangible Net Worth" means, as of the date any determination
------------------
thereof is to be made, the difference of: (a) Borrower's total stockholder's
equity; minus (b) the sum of: (i) all intangible assets of Borrower,
excluding improved drug entities; (ii) all of Borrower's prepaid expenses; and
(iii) all amounts due to Borrower from Affiliates, calculated on a
consolidated basis.
"Term Note" has the meaning set forth in Section 2.3 hereof.
--------- -----------
"Unfunded Benefit Liability" means the excess of a Plan's
--------------------------
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over the
current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan pursuant to
Section 412 of the IRC for the applicable plan year.
"Voidable Transfer" has the meaning set forth in Section 15.8.
----------------- ------------
"Working Capital" means the result of subtracting Consolidated
---------------
Current Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
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<PAGE> 19
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make revolving advances to
Borrower in an amount at any one time outstanding not to exceed the Borrowing
Base less the undrawn or unreimbursed amount of L/Cs and L/C Guarantees
outstanding hereunder. For purposes of this Agreement, "Borrowing Base", as
of any date of determination, shall mean the sum of: (i) an amount equal to
the lesser of: (y) eighty-five percent (85%) of the amount of Eligible
Accounts net of the Dilution Reserve, and (z) an amount equal to Borrower's
collections with respect to Accounts for the immediately preceding
seventy-five (75) day period; plus (ii) an amount equal to the lowest of:
----
(x) fifty-five percent (55%) of the lower of cost or market value of eligible
finished goods plus up to fifty percent (50%) of the lower of cost or market
value of eligible raw materials and bulk finished goods currently classified
as work in process, (y) the amount of credit availability created by Section
-------
2.1(a)(i) above, and (z) Five Million Five Hundred Thousand Dollars
- ---------
($5,500,000).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based upon Eligible
Accounts or Eligible Inventory without declaring an Event of Default if it
determines, in its reasonable credit judgment, that there is a material
impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Foothill's
security interests in the Collateral. Foothill agrees that prior to
exercising its rights pursuant to this Section 2.1(b), it shall advise
Borrower in writing of the reason for its reduction in any advance rates. It
is further agreed that if Foothill intends to reduce the advance rates on
Eligible Accounts by more than five percent (5%) or on Eligible Inventory by
more than ten percent (10%), but in the aggregate not more than ten percent
(10%) for
-14-
<PAGE> 20
both, then Borrower may terminate this Agreement without the payment
of any Early Termination Premium as set forth in Section 3.5.
(c) Foothill shall have no obligation to make any advances
under this Section 2.1: (i) to the extent any advance would cause the
outstanding Obligations to exceed the Maximum Revolving Amount and/or (ii) to
the extent that any advances under Sections 2.2 (including the issuance of any
L/C or L/C Guaranty), 2.3 and 2.4 when added to any advances made under this
Section 2.1 would cause the outstanding Obligations to exceed the Maximum
Revolving Amount.
(d) Foothill is authorized to make advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower, or without instructions if
pursuant to Section 2.5(d). Borrower agrees to establish and maintain a
--------------
single designated deposit account for the purpose of receiving the proceeds of
the advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrower, any advance requested by Borrower
and made by Foothill hereunder shall be made to such designated deposit
account. Amounts borrowed pursuant to this Section 2.1 may be repaid and,
-----------
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue commercial or standby letters of credit for the
account of Borrower (each, an "L/C") or to issue standby letters of credit or
guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the lesser of: (i) the Borrowing Base less the amount of advances
outstanding pursuant to Section 2.1, and (ii) Six Million Dollars
-----------
($6,000,000). Borrower expressly understands and agrees that Foothill shall
have no obligation to arrange for the issuance by other financial institutions
of letters of credit that are to be the subject of L/C Guarantees provided,
however, so long as there is no Event of Default hereunder or event which with
the passage of time would become an Event of Default, Foothill shall use
reasonable efforts to arrange for the issuance by other financial institutions
of letters of credit subject to L/C Guarantees. Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing Date. Each L/C
and each letter of credit that is the subject of an L/C Guaranty shall have an
expiry date no later than thirty (30) days prior to the date on which this
Agreement is scheduled to terminate under Section 3.3 (without regard to any
-----------
potential renewal term) and all such L/Cs and letters of credit (and the
applicable L/C Guarantees) shall be in form and
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<PAGE> 21
substance acceptable to Foothill in its sole discretion. Foothill shall not
have any obligation to issue L/Cs or L/C Guarantees to the extent that the
face amount of all outstanding L/Cs and L/C Guarantees, plus the amount of
advances outstanding pursuant to Section 2.1, would exceed the Maximum
-----------
Revolving Amount. The L/Cs and the L/C Guarantees issued under this Section
-------
2.2 shall be used by Borrower, consistent with this Agreement, for its general
- ---
working capital purposes or to provide support for those certain Private
Activity Refunding and Revenue Bonds, Series 1989(F) issued by the Industrial
Development Authority of the County of St. Louis, Missouri, for the benefit of
KV or to meet requirements set forth in that certain Employment Agreement
between KV and Marc Hermelin, dated June 28, 1991, or to support its
obligations with respect to workers' compensation premiums or other similar
obligations. If Foothill is obligated to advance funds under an L/C or L/C
Guaranty, the amount so advanced immediately shall be deemed to be an advance
made by Foothill to Borrower pursuant to Section 2.1 and, thereafter, shall
-----------
bear interest at the rates then applicable under Section 2.6.
-----------
(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any L/Cs or L/C Guarantees.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill and opened to
or for Borrower's account or by Foothill's interpretations of any L/C issued
by Foothill to or for Borrower's account, even though this interpretation may
be different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistakes, whether
of omission or commission, in following Borrower's instructions or those
contained in the L/Cs or any modifications, amendments, or supplements
thereto. Borrower understands that the L/C Guarantees may require Foothill to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including attorneys fees), or liability incurred by Foothill
under any L/C Guaranty as a result of Foothill's indemnification of any such
issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the
issuing bank pursuant to such letter of credit, and to accept and rely upon
Foothill's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrower
may or may not be the "applicant" or "account party" with respect to such
letter of credit.
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<PAGE> 22
(d) Any and all service charges, commissions, fees, and
costs incurred by Foothill relating to the letters of credit guaranteed by
Foothill shall be considered Foothill Expenses for purposes of this Agreement
and immediately shall be reimbursable by Borrower to Foothill. On the first
day of each month, Borrower will pay Foothill a fee equal to two percent (2%)
per annum times the average Daily Balance of the WP L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month. Service
charges, commissions, fees, and costs may be charged to Borrower's loan
account at the time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to be held by Foothill
in an amount equal to the maximum amount of Foothill's obligations under L/Cs
plus the maximum amount of Foothill's obligations to any Person under
outstanding L/C Guarantees, or (ii) cause to be delivered to Foothill releases
of all of Foothill's obligations under its outstanding L/Cs and L/C
Guarantees. At Foothill's discretion, any proceeds of Collateral received by
Foothill after the occurrence and during the continuation of an Event of
Default may be held as the cash collateral required by this Section 2.2(e).
--------------
2.3 TERM LOAN. Foothill has agreed to make a term loan to
Borrower in the original principal amount of Six Million Seven Hundred Fifty
Thousand Dollars ($6,750,000), to be evidenced by and repayable in accordance
with the terms and conditions of a promissory note (the "Term Note"), of even
date herewith, executed by Borrower in favor of Foothill. All amounts
evidenced by the Term Note shall constitute Obligations.
2.4 CAPITAL EQUIPMENT LINE. Subject to the terms and
conditions of this Agreement, Foothill agrees to make advances to Borrower
from time to time for the acquisition of Capital Equipment by Borrower
acceptable to Foothill in an amount at any one time not to exceed in the
aggregate an amount outstanding equal of the lesser of (i) eighty percent
(80%) of the cost of all Capital Equipment acceptable to Foothill and
purchased in accord with the Capital Equipment Line exclusive of freight,
taxes, installation costs and other soft costs or (ii) One Million Five
Hundred Thousand Dollars ($1,500,000) (each advance shall be a Capital
Equipment Loan). All advances for the acquisition of Capital Equipment shall
be evidenced by a Capital Equipment Note (the "Capital Equipment Notes")
executed by Borrower in favor of Foothill in the form attached hereto as
Exhibit C. All amounts advanced pursuant to this Section 2.4 shall be
-----------
repayable on the Renewal Date but monthly principal payments shall be made on
each Capital Equipment Loan. Principal payments shall be in an amount
sufficient to repay any Capital Equipment Loan over a 60 month period. As an
example, if a Capital Equipment Loan in the amount of $250,000 is made on July
1, 1995, and the Renewal Date is April 30, 1998, then the Capital Equipment
Note would be payable in 33 monthly principal installments of
-17-
<PAGE> 23
$3,472.22 ($250,000 over 72 months) plus interest with a final payment of all
principal and interest due on the Renewal Date. All amounts evidenced by
Capital Equipment Notes shall constitute Obligations. Interest shall be
payable monthly in accord with Section 2.6.
-----------
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to Sections 2.1
------------
and 2.2 is greater than either the dollar or percentage limitations set forth
- -------
in Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
-------------------
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay non-contingent Obligations and, thereafter, to be held by Foothill as
cash collateral to secure Borrower's obligation to repay Foothill for all
amounts paid pursuant to L/Cs or L/C Guarantees.
2.6 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. (i) All Obligations, except for
undrawn L/Cs and L/C Guarantees shall bear interest, on the average Daily
Balance, at a per annum rate of one and one-half (1.5) percentage points above
the Reference Rate.
(b) Default Rate. (i) All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, from and after the occurrence
and during the continuance of an Event of Default, at a per annum rate equal
to four and one-half (4.5) percentage points above the Reference Rate. (ii)
From and after the occurrence and during the continuance of an Event of
Default, the fee provided in Section 2.2(d) shall be increased to a fee
--------------
equal to five percent (5%) per annum times the average Daily Balance of the
undrawn L/Cs and L/C Guarantees that were outstanding during the immediately
preceding month.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than nine percent (9%) per annum.
(d) Payments. Interest hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when
incurred), and all installments or other payments due under the Term Note or
any other note or other Loan Document to Borrower's loan account, which
amounts thereafter shall accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming a
part of the Obligations, and such interest shall thereafter accrue interest at
the rate then applicable hereunder.
(e) Computation. The Reference Rate as of the date of
this Agreement is nine percent (9%) per annum. In the event the Reference
Rate is changed
-18-
<PAGE> 24
from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year and charged for the actual number of days
elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement or the
Term Note, or the Capital Equipment Notes plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing this Agreement and the Term
Note, intend legally to agree upon the rate or rates of interest and manner of
payment stated within it; provided, however, that, anything contained
-------- -------
herein or in the Term Note to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Agreement and the
---- -----
Term Note and any capital Equipment Note outstanding, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received,
shall be applied to reduce the principal balance of the Obligations to the
extent of such excess.
2.7 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any wire transfer of funds, check, or other item of payment by Foothill
(whether from transfers to Foothill by the Lockbox Banks pursuant to the
Lockbox Agreements or otherwise) immediately shall be applied to provisionally
reduce the Obligations, but shall not be considered a payment on account
unless such wire transfer is of immediately available federal funds and is
made to the appropriate deposit account of Foothill or unless and until such
check or other item of payment is honored when presented for payment. From
and after the Closing Date, Foothill shall be entitled to charge Borrower for
two (2) Business Days of `clearance' at the rate set forth in Section
-------
2.6(a)(i) or Section 2.6(b)(i), as applicable, on all collections, checks,
- --------- -----------------
wire transfers, or other items of payment that are received by Foothill
(regardless of whether forwarded by the Lockbox Banks to Foothill, whether
provisionally applied to reduce the Obligations, or otherwise). This
across-the-board two (2) Business Day clearance charge on all receipts is
acknowledged by the parties to constitute an integral aspect of the pricing of
Foothill's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Foothill only if it is received into Foothill's Operating
Account (as such account is identified in the Lockbox Agreements) on
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<PAGE> 25
or before 11:00 a.m. Los Angeles time. If any wire transfer, check, or other
item of payment is received into Foothill's Operating Account (as such account
is identified in the Lockbox Agreements) after 11:00 a.m. Los Angeles time it
shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.8 STATEMENTS OF OBLIGATIONS. Foothill shall render statements
to Borrower of the Obligations, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and
Foothill unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to Foothill by registered or certified mail at its
address specified in Section 12, written objection thereto describing the
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error or errors contained in any such statements.
2.9 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment Fee. A Commitment Fee due pursuant to the
Commitment Letter of Forty-Three Thousand Seven Hundred Fifty Dollars
($43,750), which was earned in full and became nonrefundable upon acceptance
of the Commitment Letter and has been paid.
(b) Closing Fee. A one time closing fee of Forty-Three
Thousand Seven Hundred Fifty Dollars ($43,750) which was earned, in full and
non-refundable upon acceptance of the Commitment Letter, and is due and
payable by Borrower to Foothill in connection with this Agreement on the
Closing Date;
(c) Annual Facility Fee. On each anniversary of the
Closing Date, a fee in an amount equal to one quarter percent (0.25%) of the
Maximum Revolving Amount, such fee to be fully earned on each such
anniversary;
(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day
per examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Five Hundred Dollars ($1,500) per day
per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by Foothill or its agents; and, on each anniversary of
the Closing Date, Foothill's customary fee of One Thousand Dollars ($1,000)
per year for its loan documentation review; and
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(e) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to Two Thousand Five Hundred
Dollars ($2,500) per month.
(f) All Foothill Expenses.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY.
The obligation of Foothill to make the initial advance or to provide the
initial L/C or L/C Guaranty is subject to the fulfillment, to the satisfaction
of Foothill and its counsel, of each of the following conditions on or before
the Closing Date:
(a) the Closing Date shall occur on or before May 15,
1995;
(b) Old Lender shall have executed and delivered the
Pay-Off Letter, together with UCC termination statements and other
documentation evidencing the termination of its liens and security interests
in and to the properties and assets of Borrower or a subordination agreement
in form and substance satisfactory to Foothill in its sole discretion;
(c) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(d) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Lockbox Agreements;
ii) the Revolving Loan Note
iii) the Term Note;
iv) the Mortgages;
v) Environmental Indemnification Agreement and;
vi) such other documents as Foothill and its counsel
deem reasonably necessary
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(e) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute same;
(f) Foothill shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(g) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing
in such state;
(h) Foothill shall have received certificates of corporate
status with respect to Borrower, each dated within fifteen (15) days of the
Closing Date, such certificates to be issued by the Secretary of State of the
states in which its failure to be duly qualified or licensed would have a
material adverse effect on the financial condition or properties and assets of
Borrower, which certificates shall indicate that Borrower is in good standing;
(i) Foothill shall have received the certified copies of
the policies of insurance, together with the endorsements thereto, as are
required by Section 6.12 hereof, the form and substance of which shall be
------------
satisfactory to Foothill and its counsel;
(j) Foothill shall have received duly executed
certificates of title with respect to that portion of the Collateral that is
subject to certificates of title;
(k) Foothill shall have received landlord waivers and, if
requested by Foothill, mortgagee waivers from the lessors and mortgagees of
the locations where the Inventory or Equipment is located;
(l) Foothill shall have received an opinion of Borrower's
counsel and Borrower's patent and trademark counsel in form and substance
satisfactory to Foothill in its sole discretion;
(m) Foothill shall have received satisfactory evidence
that all returns required to be filed by Borrower have been timely filed and
all taxes upon Borrower or its properties, assets, income and franchises
(including Real Property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
and
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(n) Foothill shall have received evidence satisfactory to
it that KV has developed an inventory tracking and reporting system for PDI
that is acceptable to Foothill.
(o) Foothill shall have completed the filing of all
appropriate collateral assignment documents in the office of Patents and
Trademarks with respect to all patents and tradenames of Borrower.
(p) Foothill shall have received a title insurance policy
issued by a nationally recognized title insurance company acceptable to
Foothill which title policy shall be in the amount of $3,400,000 and shall
insure the Mortgage as a first lien on the Real Property subject only to such
exceptions as shall be reasonably acceptable to Foothill and containing such
endorsements as Foothill shall request.
(q) Foothill shall have received a Closing Certificate
from the Secretary of Borrower reaffirming all representations and warranties
contained herein.
(r) Foothill shall have received all accrued and unpaid
Foothill Expenses.
(s) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C GUARANTEES.
The following shall be conditions precedent to all advances, L/Cs, or L/C
Guarantees hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such advance, L/C, or L/C Guaranty, as
though made on and as of such date (except to the extent that such representa-
tions and warranties relate solely to an earlier date);
(b) no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such advance, L/C, or L/C Guaranty,
nor shall either result from the making thereof; and
(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the making of such advance
or the issuance of
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such L/C or L/C Guaranty shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their Affiliates.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and
automatically shall be renewed for successive one (1) year periods thereafter,
unless sooner terminated pursuant to the terms hereof. Either party may
terminate this Agreement effective on the Renewal Date or on any one (1) year
anniversary of the Renewal Date by giving the other party at least ninety (90)
days prior written notice by registered or certified mail, return receipt
requested. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.4 EFFECT OF TERMINATION. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Collateral and
the Real Property shall remain in effect until all Obligations have been fully
and finally discharged and Foothill's obligation to provide advances hereunder
is terminated. If Borrower has sent a notice of termination pursuant to the
provisions of Section 3.3, but fails to pay all Obligations on the date set
-----------
forth in said notice, then Foothill may, but shall not be required to, renew
this Agreement for an additional term of one (1) year.
3.5 EARLY TERMINATION BY BORROWER. The provisions of Section
-------
3.3 that allow termination of this Agreement by Borrower only on the Renewal
- ---
Date and certain anniversaries thereof notwithstanding, Borrower has the
option, at any time upon ninety (90) days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to the full amount of the L/Cs or L/C Guarantees),
together with a premium (the "Early Termination Premium") equal to three
percent (3%) of the Maximum Revolving Amount if this Agreement is terminated
by the Borrower on or before the first anniversary of the Closing Date; two
percent (2%) of the Maximum Revolving Amount if this Agreement is terminated
by the Borrower after the first anniversary date of the Closing Date but on or
before the second anniversary date of the Closing Date and one-quarter of one
percent (0.25%) of the Maximum Revolving Amount if this Agreement is
terminated by the Borrower after the second anniversary date of the Closing
Date but before the Renewal Date.
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3.6 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this
Section 3.6 shall be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment
of any and all Obligations and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Collateral shall attach to all Collateral
without further act on the part of Foothill or Borrower. Anything contained
in this Agreement or any other Loan Document to the contrary notwithstanding,
except for the sale of Inventory to buyers in the ordinary course of business,
Borrower has no authority, express or implied, to dispose of any item or
portion of the Collateral or the Real Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. On or before the Closing Date, Foothill, Borrower, and the
Lockbox Banks shall enter into the Lockbox Agreements, in form and substance
satisfactory to Foothill in its sole discretion, pursuant to which all of
Borrower's cash receipts, checks, and other items of payment (including,
insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds)
will be forwarded to Foothill on a daily basis. At any time after an Event of
Default, or if Foothill, in good faith, deems itself insecure, pursuant to the
terms of this Agreement, Foothill or Foothill's designee may: (a) notify
customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein; and (b) collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account. Borrower agrees
that it will hold in trust for Foothill, as Foothill's trustee, any cash
receipts, checks, and other items of payment
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(including, insurance proceeds, proceeds of cash sales, rental proceeds, and
tax refunds) that it receives and immediately will deliver said cash receipts,
checks, and other items of payment to Foothill in their original form as
received by Borrower. The term "good faith" as used in this Section 4.3 shall
have the meaning as set forth in Section 3103(a)(4) of the Code.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral and the
Real Property, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) if Borrower refuses to, or fails timely to execute and deliver
any of the documents described in Section 4.4, sign the name of Borrower on
-----------
any of the documents described in Section 4.4; (b) at any time that an Event
-----------
of Default has occurred and is continuing or Foothill, in good faith, deems
itself insecure, sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse
Borrower's name on any checks, notices, acceptances, money orders, drafts, or
other item of payment or security that may come into Foothill's possession;
(e) at any time that an Event of Default has occurred and is continuing or
Foothill deems itself insecure, notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by
Foothill, to receive and open all mail addressed to Borrower, and to retain
all mail relating to the Collateral and forward all other mail to Borrower;
(f) at any time that an Event of Default has occurred and is continuing or
Foothill, in good faith, deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance; and (g) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms which Foothill
determines to be reasonable, and Foothill may cause to be executed and
delivered any documents and releases which Foothill determines to be
necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have
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been fully and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated. The term "good faith" as used in this
Section 4.5 shall have the meaning as set forth in Section 3103(a)(4) of the
Code.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral or
the Real Property in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral or the Real Property, provided, however, that absent an Event of
Default, or the continuation of an Event of Default, or the occurrence of an
event which upon the passage of time would be an Event of Default, any
inspection by Foothill will not unreasonably interfere with Borrower's
business operations or violate any confidentiality agreements or arrangements.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral and the Real Property, free and clear of liens,
claims, security interests, or encumbrances, except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time
of the creation thereof and as of each date on which Borrower includes them in
a Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory or the rendition of services to
Account Debtors in the ordinary course of Borrower's business, unconditionally
owed to Borrower without defenses, disputes, offsets, counterclaims, or rights
of return or cancellation. The property giving rise to such Eligible Accounts
has been delivered to the Account Debtor, or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account Debtor. At
the time of the creation of an Eligible Account and as of each date on which
Borrower includes an Eligible Account in a Borrowing Base calculation or
certification, Borrower has not received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of
any applicable Account Debtor regarding such Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at
all times hereafter shall be of good and merchantable quality, free from
defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Eligible
Inventory and Equipment are not stored with a bailee, warehouseman, or similar
party (without Foothill's
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prior written consent) and are located only at the locations identified on
Schedule 6.15 or otherwise permitted by Section 6.15.
- ------------- ------------
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at
all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower is located at the address indicated in the
preamble to this Agreement and Borrower's FEIN is 43-0618919.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES.
Borrower is duly organized and existing and in good standing under the laws of
the state of its incorporation and qualified and licensed to do business in,
and in good standing in, any state where the failure to be so licensed or
qualified could reasonably be expected to have a material adverse effect on
the business, operations, condition (financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral or the Real Property
to Foothill. Borrower has no subsidiaries.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
and performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a
breach of any provision contained in Borrower's Articles or Certificate of
Incorporation, or By-laws, nor will they constitute an event of default under
any material agreement to which Borrower is a party or by which its properties
or assets may be bound.
5.9 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff; (b)
matters disclosed on Schedule 5.9; and (c) and matters arising after the
------------
date hereof that, if decided adversely to Borrower, would not materially
impair the prospect of repayment of the Obligations or materially impair the
value or priority of Foothill's security interests in the Collateral or the
Real Property.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
and fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended in all material
respects and subject to normal year end adjustments consistent
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with prior adjustments. There has not been a material adverse change in the
financial condition of Borrower (or such guarantor, as applicable) since the
date of the latest financial statements submitted to Foothill on or before the
Closing Date.
5.11 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.12 EMPLOYEE BENEFITS. Each Plan is in compliance in all
material respects with the applicable provisions of ERISA and the IRC. Each
Qualified Plan and Multiemployer Plan has been determined by the Internal
Revenue Service to qualify under Section 401 of the IRC, and the trusts
created thereunder have been determined to be exempt from tax under Section
501 of the IRC, and, to the best knowledge of Borrower, nothing has occurred
that would cause the loss of such qualification or tax-exempt status. There
are no outstanding liabilities under Title IV of ERISA with respect to any
Plan maintained or sponsored by Borrower or any ERISA Affiliate, nor with
respect to any Plan to which Borrower or any ERISA Affiliate contributes or is
obligated to contribute which could reasonably be expected to have a material
adverse effect on the financial condition of Borrower. No Plan subject to
Title IV of ERISA has any Unfunded Benefit Liability which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has transferred any
Unfunded Benefit Liability to a person other than Borrower or an ERISA
Affiliate or has otherwise engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA which could reasonably be expected to have a
material adverse effect on the financial condition of Borrower. Neither
Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur
(x) any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Sections
4201 or 4243 of ERISA with respect to a Multiemployer Plan, or (y) any
liability under Title IV of ERISA (other than premiums due but not delinquent
under Section 4007 of ERISA) with respect to a Plan, which could, in either
event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably
be expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the notice and continuation coverage requirements of Section
4980B of the IRC.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous
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owners or operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials. None of Borrower's properties
or assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, or a
candidate for closure pursuant to any environmental protection statute. No
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned or operated by Borrower.
Borrower has not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in the
releasing or disposing of Hazardous Materials into the environment.
Notwithstanding the foregoing, certain materials handled by Borrower may be
Hazardous Materials, but all Hazardous Materials are handled or used by
Borrower in accord with all applicable Environmental Laws.
5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any
and all other warranties and representations that Borrower now or hereafter
shall give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Borrower shall maintain a standard and
modern system of accounting in accordance with GAAP with ledger and account
cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be reasonably
requested by Foothill. Borrower also shall keep proper books of account
showing all sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no
later than the tenth (10th) day of each month during the term of this
Agreement, a detailed aging, by total, of the Accounts, a reconciliation
statement, and a summary aging, by vendor, of all accounts payable and any
book overdraft. Original sales invoices evidencing daily sales shall be
mailed by Borrower to each Account Debtor with, at Foothill's request, a copy
to Foothill, and, at Foothill's direction prior to an Event of Default, the
invoices shall indicate
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on their face that all payments on the Account are to be made directly to the
Lockbox Account, and, at Foothill's direction after an Event of Default, the
invoices shall indicate on their face that the Account has been assigned to
Foothill and that all payments are to be made directly to Foothill. Borrower
shall deliver to Foothill, as Foothill may from time to time require,
collection reports, sales journals, invoices, original delivery receipts,
customer's purchase orders, shipping instructions, bills of lading, and other
documentation respecting shipment arrangements. Absent such a request by
Foothill, copies of all such documentation shall be held by Borrower as
custodian for Foothill. In addition, from time to time, Borrower shall
deliver to Foothill such other and additional information or documentation as
Foothill may request. In addition Borrower shall deliver to Foothill on a
weekly and bi-weekly basis all documentation sufficient to allow Foothill to
track Inventory of PDI and such other documentation delivered to Foothill, as
Foothill deems necessary, to allow it to track inventory of KV.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill
shall require, Borrower shall provide Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or Borrower's failure
to execute and deliver such schedules shall not affect or limit Foothill's
security interests or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
agrees to deliver to Foothill: (a) as soon as available, but in any event
within forty-five (45) days after the end of each month during each of
Borrower's fiscal years, a company prepared balance sheet, income statement,
and cash flow statement covering Borrower's operations during such period; and
(b) as soon as available, but in any event within ninety (90) days after the
end of each of Borrower's fiscal years, financial statements of Borrower for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications,
by such accountants to have been prepared in accordance with GAAP. Such
audited financial statements shall include a balance sheet, profit and loss
statement, and cash flow statement, and, if prepared, such accountants' letter
to management. If Borrower is a parent company of one or more subsidiaries,
or Affiliates, or is a subsidiary or Affiliate of another company, then, in
addition to the financial statements referred to above, Borrower agrees to
deliver balance sheets and statement of income on a consolidating basis so as
to present Borrower and each such related entity separately, and on a
consolidated basis.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities
and Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral, the Real
Property, or the financial condition of Borrower.
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Each month, together with the financial statements provided
pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate
--------------
signed by its chief financial officer to the effect that: (i) all reports,
statements, or computer prepared information of any kind or nature delivered
or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP and fairly present the financial condition of Borrower;
(ii) Borrower is in timely compliance with all of its covenants and agreements
hereunder; (iii) the representations and warranties of Borrower contained in
this Agreement and the other Loan Documents are true and correct in all
material respects on and as of the date of such certificate, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date); and (iv) on the date of delivery
of such certificate to Foothill there does not exist any condition or event
that constitutes an Event of Default (or, in each case, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may request. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and
to disclose to Foothill any information they may have regarding Borrower's
business affairs and financial conditions, provided, however, that Foothill
shall first request that Borrower deliver such records and information to
Foothill, and only upon the failure of Borrower to comply with such request
shall Foothill request that such auditors and/or accountants supply such
records to Foothill.
6.5 TAX RETURNS. Borrower agrees to allow Foothill to examine
copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service.
6.6 INTENTIONALLY OMITTED.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time
to time hereafter, but not less frequently than monthly, execute and deliver
to Foothill a designation of Inventory specifying Borrower's cost, work in
process, and finished goods, and further specifying such other information as
Foothill may reasonably request.
6.8 RETURNS. Returns and allowances, if any, as between
Borrower and its Account Debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of
the execution and delivery of this
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Agreement. If, at a time when no Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to Borrower, Borrower
promptly shall determine the reason for such return and, if Borrower accepts
such return, issue a credit memorandum (with a copy to be sent to Foothill) in
the appropriate amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Foothill consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Foothill) in
the appropriate amount to such Account Debtor. On a daily basis, Borrower
shall notify Foothill of all returns and recoveries and of all disputes and
claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title to
any items of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain
the Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall
at all times remain personal property.
6.11 TAXES. Subject to Borrower's right for a Permitted
Protest, all assessments and taxes, whether real, personal, or otherwise, due
or payable by, or imposed, levied, or assessed against Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency or before the expiration of any extension period. Borrower shall
make due and timely payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon
request, furnish Foothill with proof satisfactory to Foothill indicating that
Borrower has made such payments or deposits.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
and the Real Property insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts,
as are ordinarily insured against by other owners in similar businesses.
Borrower also shall maintain business interruption, public liability,
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product liability, and property damage insurance relating to Borrower's
ownership and use of the Collateral and the Real Property, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All such policies of insurance (except those of public liability
and property damage) shall contain a 438BFU lender's loss payable endorsement,
or an equivalent endorsement in a form satisfactory to Foothill, showing
Foothill as sole loss payee thereof, and shall contain a waiver of warranties,
and shall specify that the insurer must give at least ten (10) days prior
written notice to Foothill before canceling its policy for any reason.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy shall be payable to Foothill to be applied on
account of the Obligations.
6.13 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least one to one (1.0: 1.0),
measured on a fiscal quarter-end basis; provided, however, that for all
-------- -------
periods from and after March 31, 1996, such ratio shall be at least one and
one-tenth to one (1.1: 1.0);
(b) Total Liabilities to Tangible Net Worth Ratio. A
ratio of Borrower's total liabilities divided by Tangible Net Worth of not
more than two and four-tenths to one (2.4: 1.0), measured on a fiscal
quarter-end basis; provided, however, that from and after March 31, 1996,
-------- -------
such ratio shall be at least two and one-tenth to one (2.1: 1.0);
(c) Tangible Net Worth. Tangible Net Worth of at least
Eight Million and No/100 Dollars ($8,000,000.00), measured on a fiscal
quarter-end basis; provided, however, that from and after March 31, 1996,
-------- -------
such amount shall be at least Nine Million and No/100 Dollars ($9,000,000.00);
(d) Working Capital. Working Capital of not less than One
Million and No/100 Dollars ($1,000,000.00), measured on a fiscal quarter-end
basis; provided, however, that from and after March 31, 1996, such amount
-------- -------
shall be at least Two Million and No/100 Dollars ($2,000,000.00).
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or
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counterclaim and free and clear of, and without deduction or withholding for
or on account of, any federal, state, or local taxes.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep
the Inventory and Equipment only at the locations identified on Schedule
--------
6.15; provided, however, that Borrower may amend Schedule 6.15 so long
- ---- -------- ------- -------------
as such amendment occurs by written notice to Foothill not less than thirty
(30) days prior to the date on which the Inventory or Equipment is moved to
such new location, so long as such new location is within the continental
United States, and so long as, at the time of such written notification,
Borrower provides any financing statements or fixture filings necessary to
perfect and continue perfected Foothill's security interests in such assets
and also provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act, other than laws, rules, regulations, and
orders the non-compliance with which, individually or in the aggregate, would
not have and could not reasonably be expected to have a material adverse
effect on the business, operations, condition (financial or otherwise),
finances, or prospects of Borrower or on the value of the Collateral and the
Real Property to Foothill.
6.17 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written statement by
the chief financial officer of Borrower specifying the nature of any of the
following events and the actions which Borrower proposes to take with respect
thereto promptly, and in any event within ten (10) days of becoming aware of
any of them, and when known, any action taken or threatened by the Internal
Revenue Service, PBGC, Department of Labor, or other party with respect
thereto: (i) an ERISA Event with respect to any Plan; (ii) the incurrence of
an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies
prepared or received by Borrower or an ERISA Affiliate of: (i) at the request
of Foothill, each annual report (Internal Revenue Service Form 5500 series)
and all accompanying schedules, actuarial reports, financial information
concerning the financial status of each Plan, and schedules showing the
amounts contributed to each Plan by or on behalf of Borrower or its ERISA
Affiliates for the most recent three (3) plan years; (ii) all notices of
intent to terminate or to have a trustee appointed to administer any Plan;
(iii) all written demands by the PBGC under Subtitle D of Title IV of ERISA;
(iv) all notices required to be sent
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to employees or to the PBGC under Section 302 of ERISA or Section 412 of the
IRC; (v) all written notices received with respect to a Multiemployer Plan
concerning (x) the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA,
or (z) a reorganization or insolvency described in Subtitle E of Title IV of
ERISA; (vi) the adoption of any new Plan that is subject to Title IV of ERISA
or Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the
adoption of any amendment to any Plan that is subject to Title IV of ERISA or
Section 412 of the IRC, if such amendment results in a material increase in
benefits or Unfunded Benefit Liability; or (viii) the commencement of
contributions by Borrower or any ERISA Affiliate to any Plan that is subject
to Title IV of ERISA or Section 412 of the IRC.
6.18 LEASES. Borrower shall pay when due all rents and other
amounts payable under any leases to which Borrower is a party or by which
Borrower's properties and assets are bound, unless such payments are the
subject of a Permitted Protest. To the extent that Borrower fails timely to
make payment of such rents and other amounts payable when due under its
leases, Foothill shall be entitled, in its discretion, and without the
necessity of declaring an Event of Default, to reserve an amount equal to such
unpaid amounts from the loan availability created under Section 2.1 hereof.
-----------
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's
prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement or the Term
Note or the Capital Equipment Notes;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
-----------
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the
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<PAGE> 42
Obligations by Borrower, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate
principal amount of the Indebtedness so refinanced, renewed, or extended,
(iii) such refinancings, renewals, refundings, or extensions do not result in
a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as those applicable to the
refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any lien on or with respect to any of its property or assets,
of any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements
of Permitted Liens to the extent that the original Indebtedness is refinanced
under Section 7.1(d) and so long as the replacement liens secure only those
--------------
assets or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of the properties, assets, stock, or other
evidence of beneficial ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
properties or assets (other than sales of Inventory to buyers in the ordinary
course of Borrower's business as currently conducted).
7.5 CHANGE NAME. Change Borrower's name, FEIN, business
structure, or identity, or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or
which are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
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<PAGE> 43
7.8 PREPAYMENTS. Except in connection with a refinancing
permitted by Section 7.1(d), prepay any Indebtedness owing to any third
--------------
Person.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or any
commitment therefor, in excess of --------------------- Dollars ($----------)
for any individual transaction or where the aggregate amount of such capital
expenditures, made or committed for in any fiscal year, is in excess of
- ------------------- Dollars ($----------).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Eligible
Inventory on bill and hold, or sell any Inventory on bill and hold, except as
is consistent with past practices, sale or return, sale on approval, or other
conditional terms of sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends in cash on, or purchase, acquire, redeem, or retire any of
Borrower's capital stock, of any class, whether now or hereafter outstanding,
except for stock redemptions in connection with any employee stock option
plans previously disclosed to Foothill, provided that said redemptions do not
exceed one hundred thousand dollars ($100,000) in the aggregate in any fiscal
year of Borrower.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently
existing, or at any time hereafter entered into with any third party
accounting firm or service bureau for the preparation or storage of Borrower's
accounting records without said accounting firm or service bureau agreeing to
provide Foothill information regarding the Collateral and the Real Property or
Borrower's financial condition. Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Foothill
pursuant to or in accordance with this Agreement, and agrees that Foothill may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.14 INVESTMENTS. Directly or indirectly make or acquire any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
Person.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and
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reasonable terms, that are fully disclosed to Foothill, and that are no less
favorable to Borrower than would be obtained in arm's length transaction with
a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 COMPENSATION. Increase the annual fee or per-meeting fees
paid to directors during any year by more than fifteen percent (15%) over the
prior year; pay or accrue total cash compensation, during any year, to
officers and senior management employees in an aggregate amount in excess of
one hundred fifteen percent (115%) of that paid or accrued in the prior year,
except for existing contractual obligations previously disclosed to Foothill
and subsequent contractual obligations approved by Foothill which approval
shall not be unreasonably withheld.
7.18 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (a) on the Closing Date, to repay in
full the outstanding principal, accrued interest, and accrued fees and
expenses owing to Old Lender; (b) to pay transactional costs and expenses
incurred in connection with this Agreement; and (c) thereafter, consistent
with the terms and conditions hereof, for its lawful and permitted corporate
purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Borrower covenants and agrees that it will not,
without thirty (30) days prior written notification to Foothill, relocate its
chief executive office to a new location and so long as, at the time of such
written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a landlord's waiver in form and
substance satisfactory to Foothill. The Inventory and Equipment shall not at
any time now or hereafter be stored with a bailee, warehouseman, or similar
party without Foothill's prior written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of
the Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts constituting
Obligations) provided, however, that if an overadvance would occur
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<PAGE> 45
by Foothill charging any principal or interest to Borrower's account, then
Borrower shall have an additional two (2) day period to make said payment;
8.2 If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Foothill, except that Borrower shall have five
(5) days to cure any breach or violation of the terms or conditions set forth
in Sections 6.2, 6.3, 6.4, 6.5, 6.7, 6.9, 6.11, 6.15, 6.17, or 6.18;
8.3 If there is a material impairment in Foothill's reasonable
judgment of the prospect of repayment of any portion of the Obligations owing
to Foothill or a material impairment of the value or priority of Foothill's
security interests in the Collateral or the Real Property;
8.4 If any material portion of Borrower's properties or assets
on a consolidated basis is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the
institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within sixty
(60) calendar days of the date of the filing thereof; provided, however,
-------- -------
that, during the pendency of such period, Foothill shall be relieved of its
obligation to make additional advances or issue additional L/Cs or L/C
Guarantees hereunder; (d) an interim trustee is appointed to take possession
of all or a substantial portion of the properties or assets of, or to operate
all or any substantial portion of the business of, Borrower; or (e) an order
for relief shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order or by action of the Food and Drug Administration or
any other regulatory agency from continuing to conduct all or any material
part of its business affairs;
8.8 (a) If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or
if any taxes or debts owing at any time hereafter to any one or more of such
entities becomes a lien, whether choate or otherwise, upon any of Borrower's
properties or assets and the same is not paid on the payment date
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<PAGE> 46
thereof, or (b) if a notice of lien, levy or assessment is filed of record by
any state, county, municipal, or governmental agency, which would in the
aggregate exceed three hundred fifty thousand dollars ($350,000) in any fiscal
year of the Borrower; provided, however, if a notice of lien, levy or
-------- -------
assessment is filed of record by any state, county, municipal, or governmental
agency, which would in the aggregate be equal to or less than three hundred
fifty thousand dollars ($350,000) in any fiscal year of the Borrower, Borrower
hereby acknowledges and agrees that Foothill shall have the unrestricted right
to reserve the amount of said lien, levy or assessment against the eligibility
of Borrower for advances hereunder;
8.9 If a judgment or other claim, which in the aggregate
exceeds three hundred fifty thousand dollars ($350,000) in any fiscal year of
the Borrower, becomes a lien or encumbrance upon any material portion of
Borrower's properties or assets; provided, however, if a judgment or other
-------- -------
claim, which in the aggregate is equal to or less than three hundred fifty
thousand dollars ($350,000) in any fiscal year of the Borrower, becomes a lien
or encumbrance upon any portion of Borrower's properties or assets, Borrower
hereby acknowledges and agrees that Foothill shall have the unrestricted right
to reserve the amount of said lien or encumbrance against the eligibility of
Borrower for advances hereunder;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons resulting in a right by
such third Persons, irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms
of the subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn;
8.13 If the obligation of any guarantor or other third Person
under any Loan Document is limited or terminated by operation of law or by the
guarantor or other third Person thereunder, or any such guarantor or other
third Person becomes the subject of an Insolvency Proceeding; or
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<PAGE> 47
8.14 If, with respect to any Plan, there shall occur any of the
following which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan
of its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) a failure to make full payment when
due of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the filing of a
notice of intent to terminate a Plan under Sections 4041 or 4041A of ERISA;
(vi) a complete or partial withdrawal of Borrower or an ERISA Affiliate from
any Plan; (vii) the receipt of a notice by the plan administrator of a Plan
that the PBGC has instituted proceedings to terminate such Plan or appoint a
trustee to administer such Plan; (viii) a commencement or increase of
contributions to, or the adoption of or the amendment of, a Plan; and (ix) the
assessment against Borrower or any ERISA Affiliate of a tax under Section
4980B of the IRC.
8.15 If, pursuant to REV.STAT.MO., Section 443.055(7) (1986)
Borrower shall notify Foothill of Borrower's election to terminate the
operation of the Mortgage as security for future advances or future
obligations hereunder.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral or the
Real Property and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases,
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<PAGE> 48
Foothill will credit Borrower's loan account with only the net amounts
received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien that in
Foothill's determination appears to conflict with its security interests and
to pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for
up to one hundred twenty (120) days in order to exercise any of Foothill's
rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill (including any amounts received in the
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the credit
or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
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<PAGE> 49
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least ten
----------
(10) days before the date fixed for the sale, or at least ten (10) days before
the date on or after which the private sale or other disposition is to be
made; no notice needs to be given prior to the disposition of any portion of
the Collateral that is perishable or threatens to decline speedily in value or
that is of a type customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Collateral shall be sent to
such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Foothill of one right or remedy shall be deemed an election, and
no waiver by Foothill of any Event of Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
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<PAGE> 50
10. TAXES AND EXPENSES.
Except for Permitted Protests as allowed pursuant to Section 6.11, if
Borrower fails to pay any monies (whether taxes, rents, assessments, insurance
premiums, or otherwise) due to third Persons, or fails to make any deposits or
furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that
such failure by Borrower could have a material adverse effect on Foothill's
interests in the Collateral or the Real Property, in its discretion and
without prior notice to Borrower, Foothill may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves in
Borrower's loan account as Foothill deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in Section 6.12, and take any action with
------------
respect to such policies as Foothill deems prudent. Any such amounts paid by
Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance, or lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Foothill on
which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction
of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify,
save, and hold Foothill and its officers, employees, and agents harmless
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other Person arising out of or relating to the transactions
contemplated by this Agreement or any other Loan Document, and (b) all losses
(including attorneys fees and disbursements) in any way suffered,
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<PAGE> 51
incurred, or paid by Foothill as a result of or in any way arising out of,
following, or consequential to the transactions contemplated by this Agreement
or any other Loan Document, except for any demands, claims, liabilities and
losses suffered or incurred by Foothill because of its wilful misconduct or
gross negligence. This provision shall survive the termination of this
Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Borrower or
to Foothill, as the case may be, at its address set forth below:
If to Borrower: K-V PHARMACEUTICAL COMPANY
10888 Metro Court
Maryland Heights, Missouri 63043
Attn.: Gerald R. Mitchell, Chief Financial Officer
Telefacsimile No. (314) 567-0704
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
Telefacsimile No. (310) 479-2690
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section
-------
12, other than notices by Foothill in connection with Sections 9504 or 9505
- --
of the Code, shall be deemed received on the earlier of the date of actual
receipt or three (3) days after the deposit thereof in the mail. Borrower
acknowledges and agrees that notices sent by Foothill in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
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<PAGE> 52
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL
MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 13. TO THE FULLEST EXTENT PERMITTED
----------
BY LAW, AND AS SEPARATELY BARGAINED FOR CONSIDERATION TO FOOTHILL, THE
BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY (WHICH FOOTHILL ALSO WAIVES)
IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
OTHERWISE RELATING TO THIS AGREEMENT, THE OBLIGATIONS, ANY OF THE LOAN
DOCUMENTS OR FOOTHILL'S CONDUCT IN RESPECT OF ANY OF THE FOREGOING. TO
EFFECTUATE THE FOREGOING, FOOTHILL IS HEREBY GRANTED AN IRREVOCABLE POWER OF
ATTORNEY TO FILE, AS ATTORNEY-IN-FACT FOR THE BORROWER, A COPY OF THIS
AGREEMENT IN ANY MISSOURI COURT PURSUANT TO MO.REV.STAT. 510.190 AND RULE
69.01, V.A.M.R. AND/OR ANY OTHER APPLICABLE LAW, AND THE COPY OF THIS
AGREEMENT SO FILED SHALL CONCLUSIVELY BE DEEMED TO CONSTITUTE THE BORROWERS
WAIVER OF TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR OTHERWISE RELATING
TO THIS AGREEMENT, THE OBLIGATIONS, ANY OF THE LOAN DOCUMENTS OR CONDUCT IN
RESPECT OF ANY OF THE FOREGOING. THE BORROWER HEREBY EXPRESSLY ACKNOWLEDGES
THE INCLUSION OF THIS JURY TRIAL WAIVER THROUGH THE INITIALS OF THE AUTHORIZED
OFFICER OF THE BORROWER EXECUTING THIS AGREEMENT. INITIAL GRM TM
-------
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<PAGE> 53
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill
four (4) months after they are delivered to or received by Foothill, unless
Borrower requests, in writing, the return of said documents, schedules, or
other papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or
-------- -------
any rights or duties hereunder without Foothill's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release Borrower from its Obligations. Foothill
may assign this Agreement and its rights and duties hereunder and no consent
or approval by Borrower is required in connection with any such assignment.
Foothill reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Foothill's rights and
benefits hereunder. In connection with any such assignment or participation,
Foothill may disclose all documents and information which Foothill now or
hereafter may have relating to Borrower or Borrower's business. To the extent
that Foothill assigns its rights and obligations hereunder to a third Person,
Foothill thereafter shall be released from such assigned obligations to
Borrower and such assignment shall effect a novation between Borrower and such
third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or
Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
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<PAGE> 54
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to
be an original, and all of which, when taken together, shall constitute but
one and the same Agreement. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of a
manually executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver a
manually executed counterpart of this Agreement but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of
any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in
whole or in part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable Transfer, or
the amount thereof that Foothill is required or elects to repay or restore,
and as to all reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of Borrower or such guarantor automatically
shall be revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
15.10 INCORPORATION. Each of the Term Note, the Capital
Equipment Notes and the other Loan Documents is incorporated herein in full by
this reference, provided, however, that if there is any inconsistency
-------- -------
between this Agreement and such other Loan
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<PAGE> 55
Documents (as amended by this Agreement), such other Loan Documents shall
govern, unless specifically stated to the contrary therein.
15.11 ORAL AGREEMENTS NOT ENFORCEABLE. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT
ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (FOOTHILL) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
[Signature Pages Follow]
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<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement to be executed in Los Angeles, California on April 27,
1995.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Tricia McLoughlin
-------------------------------
Title: Vice President
------------------------------
K-V PHARMACEUTICAL COMPANY,
a Delaware corporation
By /s/ Gerald R. Mitchell
-------------------------------
Title: Vice President
------------------------------
PARTICLE DYNAMICS, INC.
a New York corporation
By /s/ Gerald R. Mitchell
-------------------------------
Title: Vice President
------------------------------
ETHEX CORPORATION
a Missouri corporation
By /s/ Gerald R. Mitchell
-------------------------------
Title: Vice President
------------------------------
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<PAGE> 1
Exhibit 4(o)
REVOLVING LOAN NOTE
$17,500,000.00 Los Angeles, California
April 27, 1995
FOR VALUE RECEIVED, K-V PHARMACEUTICAL COMPANY, a Delaware corporation,
PARTICLE DYNAMICS, INC., a New York corporation, and ETHEX CORPORATION, a
Missouri corporation (collectively, "Borrower"), promise to jointly and
severally pay to the order of FOOTHILL CAPITAL CORPORATION, a California
corporation ("Lender") at its office at 11111 Santa Monica Boulevard, Suite
1500, Los Angeles, California 90025-3333 or such other place as the holder
hereof may designate in writing on or before April 27, 1998 subject to
extension in accord with Section 3.3 of the Loan and Security Agreement
referred to below (the "Maturity Date"), the lesser of Seventeen Million Five
Hundred Thousand and No/100 Dollars ($17,500,000.00) or the principal balance
outstanding hereunder pursuant to the terms of that certain Loan and Security
Agreement referred to below with interest from the date of first disbursement
hereunder on the balance of principal remaining from time to time outstanding
at the rate ("Interest Rate") of one and one-half percent (1-1/2%) per annum
above the Reference Rate (as defined in the Loan Agreement). The Interest
Rate shall automatically adjust with each change in the Reference Rate without
notice to Borrower. Notwithstanding the foregoing, the Interest Rate charged
hereunder shall never be less than nine (9%) per annum.
This Revolving Loan Note (this "Note") is the Revolving Loan Note
referred to in that certain Loan and Security Agreement of even date between
Borrower and Lender (the "Loan Agreement") to which reference is hereby made
for the terms and provisions thereof and for additional rights and limitations
of such rights of Borrower and Lender thereunder, including, but not limited
to, provisions for Borrower's right to borrow and reborrow part or all of the
principal hereof under certain conditions and for the acceleration of
Borrower's liabilities to Lender upon the occurrence of certain events as
therein specified. The payment of this Note is also secured in part by a
certain Deed of Trust and Security Agreement creating a first priority lien on
certain real estate located in St. Louis, Missouri and more particularly
described therein (the "Deed of Trust"), as well as other security documents
(the Loan Agreement, this Note, the Deed of Trust and all other documents
executed in conjunction with the foregoing whether now or hereafter executed
and delivered to Lender are herein referred to as the "Loan Documents"). All
of the agreements, conditions, covenants, provisions and stipulations
contained in the Loan Documents which are to be kept and performed by Borrower
are hereby made a part of this Note to the same extent and with the same force
and effect as if they were fully set forth herein, and Borrower covenants and
agrees to keep and perform them or cause
<PAGE> 2
them to be kept and performed, strictly in accordance with their terms.
Borrower shall pay monthly on the first day of each month all interest
due pursuant to the terms of the Loan Agreement. The final payment of
interest and all principal, if not sooner paid, shall be due on the Maturity
Date.
From and after (i) the occurrence of any failure of Borrower to pay
principal, interest, or both when due hereunder, or under the Loan Agreement,
or (ii) the occurrence and during the continuance of an Event of Default (as
defined in the Loan Agreement), or (iii) the Maturity Date, whether by
acceleration or otherwise, interest shall accrue on the amount of principal
due and outstanding hereunder at the "Default Rate" (as defined in the Loan
Agreement).
All payments on account of the indebtedness evidenced by this Note shall
be applied first to the payment of Foothill Expenses (as defined in the Loan
Agreement) that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise and then to the payment of fees and sums due
to Lender hereunder or under any of the other Loan Documents, including any
Early Termination Premium (as defined in the Loan Agreement), next toward
payment of interest due on the unpaid principal balance hereof and the
remainder, if any, to principal due hereunder. Interest shall be payable in
arrears on the basis of average daily borrowings as determined in accord with
the Loan Agreement according to a year consisting of 360 days and charged for
the number of days actually elapsed. The date of first disbursement hereunder
shall be the date of the first disbursement of any proceeds pursuant to the
Loan Agreement.
Borrower shall have the right to prepay this Note only in accord with
the terms and conditions of the Loan Agreement.
IT IS HEREBY EXPRESSLY AGREED by Borrower that time is of the essence
hereof, and should any default be made by Borrower in the payment of any
amounts due and payable under the terms of this Note or any of the other Loan
Documents or in the performance or observance of non-monetary obligations
under the terms of any of the Loan Documents after the expiration of any
applicable notice and grace period, then at the option of the Lender or the
holder hereof, and without notice, the entire unpaid balance of said sums due
by Borrower hereunder or under the provisions of any of the other Loan
Documents shall, without further notice to Borrower, become due and payable
immediately.
The remedies of the Lender or the holder hereof as provided in this
Note, the Loan Agreement, and any of the other Loan Documents shall be
cumulative and concurrent, and may be pursued singly, successively, or
together against any or all of the Borrower, or
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<PAGE> 3
any other security at the sole discretion of the Lender or the holder hereof.
Borrower hereby waives presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest,
and protest of this Note and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, and agrees that its liability shall be unconditional without regard
to the liability of any other party and shall not in any manner be affected by
any indulgence, extension of time, renewal, waiver or modification, granted or
consented to by the Lender or holder hereof.
Lender or any holder hereof shall not by any act or omission or
commission be deemed to waive any of its rights or remedies hereunder unless
such waiver is in writing and signed by the holder hereof, and then only to
the extent specifically set forth therein; a waiver of one event shall not be
construed as continuing or as a bar to or waiver of such right or remedy on a
subsequent event.
Any sale, conveyance or transfer of any right, title or interest in the
real estate subject to the Deed of Trust or any portion thereof, or any sale,
transfer or assignment (either outright or collateral) of all or any part of
the beneficial interest in any trust holding title to said real estate, or the
execution of any contract or agreement to do any of the aforementioned items
or any other violation of any provisions of the Loan Agreement or of the Deed
of Trust with respect to any transfers of said real estate, other than
Permitted Liens, shall, at the option of the Lender, constitute a default
hereunder, and upon any such default Lender or the holder hereof may declare
the entire indebtedness evidenced by this Note to be immediately due and
payable and foreclose the Deed of Trust securing this Note immediately or at
any time after such default occurs. The acceptance of any payment due
hereunder after any sale, transfer or assignment shall not be deemed as the
consent of Lender to a sale, transfer or assignment.
If at any time or times hereafter Lender or the holder of this Note
employs counsel for advice with respect to a default under this Note, or to
intervene, file a petition, answer, motion or other pleading in any suit or
proceeding relating to this Note, or to attempt to collect this Note from or
to enforce this Note against Borrower, then, in any of such events, all of the
reasonable attorneys' fees arising from such services, and any expenses, costs
and charges relating thereto, shall be an additional liability owing hereunder
by Borrower to Lender or the holder of this Note and shall be payable on
demand and shall bear interest at the Default Rate from the date of such
demand.
Any term or provision of this Note or any other Loan Document to the
contrary notwithstanding, the maximum aggregate amount of
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<PAGE> 4
the Obligations for which any of the Borrowers (which Obligations are not
direct borrowings or direct obligations of such Borrower (the "Non-Direct
----------
Obligations")) shall be liable shall not exceed the maximum amount for which
- -----------
such Borrower can be liable without rendering such Non-Direct Obligations, as
they relate to such Borrower, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer. To the extent that any Borrower
shall be required hereunder to pay a portion of its Non-Direct Obligations
which shall exceed the greater of (i) the amount of the economic benefit
actually received by such Borrower from the loans made pursuant to the Loan
Agreement in respect of such Non-Direct Obligations, and (ii) the amount which
such Borrower would otherwise have paid if such Borrower had paid the
aggregate amount of the Non-Direct Obligations of such Borrower (excluding the
amount thereof repaid by the other Borrowers) in the same proportion as such
Borrower's net worth at the date of any applicable borrowing hereunder is
sought bears to the aggregate net worth of all of the Borrowers at the date of
such applicable borrowing hereunder is sought, then such Borrower shall be
reimbursed by the other Borrowers for the amount of such excess, pro rata
based on the respective net worths of the Borrowers at the date of such
applicable borrowing hereunder is sought.
THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF
LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS, AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
--------------------
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS PROVISION.
TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS SEPARATELY BARGAINED FOR
CONSIDERATION TO LENDER, THE BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
(WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR OTHERWISE RELATING TO THIS NOTE, THE OBLIGATIONS,
ANY OF THE LOAN DOCUMENTS OR LENDER'S CONDUCT IN RESPECT OF ANY OF THE
FOREGOING. TO EFFECTUATE THE FOREGOING, LENDER IS HEREBY GRANTED AN
IRREVOCABLE POWER OF ATTORNEY TO FILE, AS ATTORNEY-IN-FACT FOR THE BORROWER, A
COPY OF THIS NOTE IN ANY MISSOURI COURT PURSUANT TO MO.REV.STAT. Section
510.190 AND RULE 69.01, V.A.M.R. AND/OR ANY OTHER APPLICABLE LAW, AND THE COPY
OF THIS NOTE SO FILED SHALL CONCLUSIVELY BE DEEMED TO CONSTITUTE THE BORROWERS
WAIVER OF TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR OTHERWISE RELATING
TO THIS NOTE, THE OBLIGATIONS, ANY OF THE LOAN DOCUMENTS OR CONDUCT IN
-4-
<PAGE> 5
RESPECT OF ANY OF THE FOREGOING. THE BORROWER HEREBY EXPRESSLY ACKNOWLEDGES
THE INCLUSION OF THIS JURY TRIAL WAIVER THROUGH THE INITIALS OF THE AUTHORIZED
OFFICER OF THE BORROWER EXECUTING THIS NOTE. INITIAL GRM TM
------
(Signatures on following page.)>>
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first above written.
K-V PHARMACEUTICAL COMPANY
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
PARTICLE DYNAMICS, INC.
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
ETHEX CORPORATION
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
-6-
<PAGE> 1
Exhibit 4(p)
TERM NOTE
$6,750,000.00 Los Angeles, California
April 27, 1995
FOR VALUE RECEIVED, K-V PHARMACEUTICAL COMPANY, a Delaware corporation,
PARTICLE DYNAMICS, INC., a New York corporation, and ETHEX CORPORATION, a
Missouri corporation (collectively, "Borrower"), promise to jointly and
severally pay to the order of FOOTHILL CAPITAL CORPORATION, a California
corporation ("Lender") at its office at 11111 Santa Monica Boulevard, Suite
1500, Los Angeles, California 90025-3333 or such other place as the holder
hereof may designate in writing on or before April 27, 1998 (the "Maturity
Date"), the lesser of Six Million Seven Hundred Fifty Thousand and No/100
Dollars ($6,750,000.00) or the principal balance outstanding hereunder
pursuant to the terms of that certain Loan and Security Agreement referred to
below with interest from the date of first disbursement hereunder on the
balance of principal remaining from time to time outstanding at the rate
("Interest Rate") of one and one-half percent (1-1/2%) per annum above the
Reference Rate (as defined in the Loan Agreement). The Interest Rate shall
automatically adjust with each change in the Reference Rate without notice to
Borrower. Notwithstanding the foregoing, the Interest Rate charged hereunder
shall never be less than nine percent (9%) per annum.
This Term Note (this "Note") is the Term Note referred to in that
certain Loan and Security Agreement of even date between Borrower and Lender
(the "Loan Agreement") to which reference is hereby made for the terms and
provisions thereof and for additional rights and limitations of such rights of
Borrower and Lender thereunder, including, but not limited to, provisions for
the acceleration of Borrower's liabilities to Lender upon the occurrence of
certain events as therein specified. The payment of this Note is also secured
in part by a certain Deed of Trust and Security Agreement creating a first
priority lien on certain real estate located in St. Louis, Missouri and more
particularly described therein (the "Deed of Trust") as well as other security
documents (the Loan Agreement, this Note, the Deed of Trust, and all other
documents executed in conjunction with the foregoing whether now or hereafter
executed and delivered to Lender are herein referred to as the "Loan
Documents"). All of the agreements, conditions, covenants, provisions and
stipulations contained in the Loan Documents which are to be kept and
performed by Borrower are hereby made a part of this Note to the same extent
and with the same force and effect as if they were fully set forth herein, and
Borrower covenants and agrees to keep and perform them or cause them to be
kept and performed, strictly in accordance with their terms.
<PAGE> 2
Commencing on June --, 1995 and continuing on the first day of each
month thereafter until the Maturity Date, Borrower shall pay monthly to Lender
the principal sum of Ninety-Three Thousand Seven Hundred Fifty and No/100
Dollars ($93,750.00) plus interest at the Interest Rate on the outstanding
principal balance with a final payment of all principal and interest, if not
sooner paid, due and payable on the Maturity Date.
From and after (i) the occurrence of any failure of Borrower to pay
principal, interest, or both when due hereunder, or under the Loan Agreement,
or (ii) the occurrence and during the continuance of an Event of Default (as
defined in the Loan Agreement), or (iii) the Maturity Date, whether by
acceleration or otherwise, interest shall accrue on the amount of principal
due and outstanding hereunder at the "Default Rate" (as defined in the Loan
Agreement).
All payments on account of the indebtedness evidenced by this Note shall
be applied first to the payment of Foothill Expenses (as defined in the Loan
Agreement) that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise and then to the payment of fees and sums due
to Lender hereunder or under any of the other Loan Documents, including any
Early Termination Premium (as defined in the Loan Agreement), next toward
payment of interest due on the unpaid principal balance hereof and the
remainder, if any, to principal due hereunder. Interest shall be payable in
arrears on the basis of average daily borrowings as determined in accord with
the Loan Agreement according to a year consisting of 360 days and charged for
the number of days actually elapsed. The date of first disbursement hereunder
shall be the date of the first disbursement of any proceeds pursuant to the
Loan Agreement.
Borrower shall have the right to prepay this Note only in accord with
the terms and conditions of the Loan Agreement.
IT IS HEREBY EXPRESSLY AGREED by Borrower that time is of the essence
hereof, and should any default be made by Borrower in the payment of any
amounts due and payable under the terms of this Note or any of the other Loan
Documents or in the performance or observance of non-monetary obligations
under the terms of any of the Loan Documents after the expiration of any
applicable notice and grace period, then at the option of the Lender or the
holder hereof, and without notice, the entire unpaid balance of said sums due
by Borrower hereunder or under the provisions of any of the other Loan
Documents shall, without further notice to Borrower, become due and payable
immediately.
The remedies of the Lender or the holder hereof as provided in this
Note, the Loan Agreement, and any of the other Loan Documents shall be
cumulative and concurrent, and may be pursued singly, successively, or
together against any or all of the Borrower, or
-2-
<PAGE> 3
any other security at the sole discretion of the Lender or the holder hereof.
Borrower hereby waives presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest,
and protest of this Note and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, and agrees that its liability shall be unconditional without regard
to the liability of any other party and shall not in any manner be affected by
any indulgence, extension of time, renewal, waiver or modification, granted or
consented to by the Lender or holder hereof.
Lender or any holder hereof shall not by any act or omission or
commission be deemed to waive any of its rights or remedies hereunder unless
such waiver is in writing and signed by the holder hereof, and then only to
the extent specifically set forth therein; a waiver of one event shall not be
construed as continuing or as a bar to or waiver of such right or remedy on a
subsequent event.
Any sale, conveyance or transfer of any right, title or interest in the
real estate subject to the Deed of Trust or any portion thereof, or any sale,
transfer or assignment (either outright or collateral) of all or any part of
the beneficial interest in any trust holding title to said real estate, or the
execution of any contract or agreement to do any of the aforementioned items
or any other violation of any provisions of the Loan Agreement or the Deed of
Trust with respect to any transfers of said real estate, other than Permitted
Liens, shall, at the option of the Lender, constitute a default hereunder, and
upon any such default Lender or the holder hereof may declare the entire
indebtedness evidenced by this Note to be immediately due and payable and
foreclose the Deed of Trust securing this Note immediately or at any time
after such default occurs. The acceptance of any payment due hereunder after
any sale, transfer or assignment shall not be deemed as the consent of Lender
to a sale, transfer or assignment.
If at any time or times hereafter Lender or the holder of this Note
employs counsel for advice with respect to a default under this Note, or to
intervene, file a petition, answer, motion or other pleading in any suit or
proceeding relating to this Note, or to attempt to collect this Note from or
to enforce this Note against Borrower, then, in any of such events, all of the
reasonable attorneys' fees arising from such services, and any expenses, costs
and charges relating thereto, shall be an additional liability owing hereunder
by Borrower to Lender or the holder of this Note and shall be payable on
demand and shall bear interest at the Default Rate from the date of such
demand.
Any term or provision of this Note or any other Loan Document to the
contrary notwithstanding, the maximum aggregate amount of
-3-
<PAGE> 4
the Obligations for which any of the Borrowers (which Obligations are not
direct borrowings or direct obligations of such Borrower (the "Non-Direct
----------
Obligations")) shall be liable shall not exceed the maximum amount for which
- -----------
such Borrower can be liable without rendering such Non-Direct Obligations, as
they relate to such Borrower, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer. To the extent that any Borrower
shall be required hereunder to pay a portion of its Non-Direct Obligations
which shall exceed the greater of (i) the amount of the economic benefit
actually received by such Borrower from the loans made pursuant to the Loan
Agreement in respect of such Non-Direct Obligations, and (ii) the amount which
such Borrower would otherwise have paid if such Borrower had paid the
aggregate amount of the Non-Direct Obligations of such Borrower (excluding the
amount thereof repaid by the other Borrowers) in the same proportion as such
Borrower's net worth at the date of any applicable borrowing hereunder is
sought bears to the aggregate net worth of all of the Borrowers at the date of
such applicable borrowing hereunder is sought, then such Borrower shall be
reimbursed by the other Borrowers for the amount of such excess, pro rata
based on the respective net worths of the Borrowers at the date of such
applicable borrowing hereunder is sought.
THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF
LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS, AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
--------------------
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS PROVISION.
TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS SEPARATELY BARGAINED FOR
CONSIDERATION TO LENDER, THE BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
(WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR OTHERWISE RELATING TO THIS NOTE, THE OBLIGATIONS,
ANY OF THE LOAN DOCUMENTS OR LENDER'S CONDUCT IN RESPECT OF ANY OF THE
FOREGOING. TO EFFECTUATE THE FOREGOING, LENDER IS HEREBY GRANTED AN
IRREVOCABLE POWER OF ATTORNEY TO FILE, AS ATTORNEY-IN-FACT FOR THE BORROWER, A
COPY OF THIS NOTE IN ANY MISSOURI COURT PURSUANT TO MO.REV.STAT. Section
510.190 AND RULE 69.01, V.A.M.R. AND/OR ANY OTHER APPLICABLE LAW, AND THE COPY
OF THIS NOTE SO FILED SHALL CONCLUSIVELY BE DEEMED TO CONSTITUTE THE BORROWERS
WAIVER OF TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR OTHERWISE RELATING
TO THIS NOTE, THE OBLIGATIONS, ANY OF THE LOAN DOCUMENTS OR CONDUCT IN
-4-
<PAGE> 5
RESPECT OF ANY OF THE FOREGOING. THE BORROWER HEREBY EXPRESSLY ACKNOWLEDGES
THE INCLUSION OF THIS JURY TRIAL WAIVER THROUGH THE INITIALS OF THE AUTHORIZED
OFFICER OF THE BORROWER EXECUTING THIS NOTE. INITIAL GRM TM
------
(Signatures on following page.)>>
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first above written.
K-V PHARMACEUTICAL COMPANY
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
PARTICLE DYNAMICS, INC.
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
ETHEX CORPORATION
By: /s/ Gerald R. Mitchell
---------------------------------
Its: Vice President
----------------------------
5059644.01
-6-
<PAGE> 1
Exhibit 4(q)
CAPITAL EQUIPMENT NOTE NO. ________
______________ Los Angeles, California
_____________, 19__
FOR VALUE RECEIVED, K-V PHARMACEUTICAL COMPANY, a Delaware corporation,
PARTICLE DYNAMICS, INC., a New York corporation, and ETHEX CORPORATION, a
Missouri corporation (collectively, "Borrower"), promise to jointly and
severally pay to the order of FOOTHILL CAPITAL CORPORATION, a California
corporation ("Lender") at its office at 11111 Santa Monica Boulevard, Suite
1500, Los Angeles, California 90025-3333 or such other place as the holder
hereof may designate in writing on or before April 27, 1998 (the "Maturity
Date"), the lesser of -------------- Dollars ($----------) or the principal
balance outstanding hereunder pursuant to the terms of a certain Loan and
Security Agreement referred to below with interest from the date of first
disbursement hereunder on the balance of principal remaining from time to time
outstanding at the rate ("Interest Rate") of one and one-half percent (1-1/2%)
per annum above the Reference Rate (as defined in the Loan Agreement). The
Interest Rate shall automatically adjust with each change in the Reference
Rate without notice to Borrower. Notwithstanding the foregoing, the Interest
Rate charged hereunder shall never be less than nine percent (9%) per annum.
This Capital Equipment Note (this "Note") is one of the Capital
Equipment Notes referred to in that certain Loan and Security Agreement of
even date between Borrower and Lender (the "Loan Agreement") to which
reference is hereby made for the terms and provisions thereof and for
additional rights and limitations of such rights of Borrower and Lender
thereunder, including, but not limited to, provisions for Borrower's right to
borrow and reborrow part or all of the principal of the Capital Equipment Line
under certain conditions and for the acceleration of Borrower's liabilities to
Lender upon the occurrence of certain events as therein specified. The
payment of this Note is also secured in part by other documents including a
Deed of Trust and Security Agreement (the "Deed of Trust") creating a first
priority lien on certain real estate located in St. Louis, Missouri and all of
said documents including this Note and the Deed of Trust, and the Loan
Agreement whether now or hereafter executed and delivered to Lender are herein
referred to as the "Loan Documents." All of the agreements, conditions,
covenants, provisions and stipulations contained in the Loan Documents which
are to be kept and performed by Borrower are hereby made a part of this Note
to the same extent and with the same force and effect as if they were fully
set forth herein, and Borrower covenants and agrees to keep and perform them
or cause them to be kept and performed, strictly in accordance with their
terms.
<PAGE> 2
Commencing on -------------, 19--, and continuing on the first day of
each month thereafter until the Maturity Date Borrower shall pay principal
monthly to Lender in the sum of --------------------- Dollars ($-------------)
plus interest at the Interest Rate on the outstanding principal balance with a
final payment of all principal and interest, if not sooner paid, due and
payable on the Maturity Date.
From and after (i) the occurrence of any failure of Borrower to pay
principal, interest, or both when due hereunder, or under the Loan Agreement,
or (ii) the occurrence and during the continuance of an Event of Default (as
defined in the Loan Agreement), or (iii) the Maturity Date, whether by
acceleration or otherwise, interest shall accrue on the amount of principal
due and outstanding hereunder at the "Default Rate" (as defined in the Loan
Agreement).
All payments on account of the indebtedness evidenced by this Note shall
be applied first to the payment of Foothill Expenses (as defined in the Loan
Agreement) that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise and then to the payment of fees and sums due
to Lender hereunder or under any of the other Loan Documents, including any
Early Termination Premium (as defined in the Loan Agreement), next toward
payment of interest due on the unpaid principal balance hereof and the
remainder, if any, to principal due hereunder. Interest shall be payable in
arrears on the basis of average daily borrowings as determined in accord with
the Loan Agreement according to a year consisting of 360 days and charged for
the number of days actually elapsed. The date of first disbursement hereunder
shall be the date of the first disbursement of any proceeds pursuant to the
Loan Agreement.
Borrower shall have the right to prepay this Note only in accord with
the terms and conditions of the Loan Agreement.
IT IS HEREBY EXPRESSLY AGREED by Borrower that time is of the essence
hereof, and should any default be made by Borrower in the payment of any
amounts due and payable under the terms of this Note or any of the other Loan
Documents or in the performance or observance of non-monetary obligations
under the terms of any of the Loan Documents after the expiration of any
applicable notice and grace period, then at the option of the Lender or the
holder hereof, and without notice, the entire unpaid balance of said sums due
by Borrower hereunder or under the provisions of any of the other Loan
Documents shall, without further notice to Borrower, become due and payable
immediately.
The remedies of the Lender or the holder hereof as provided in this
Note, the Loan Agreement, and any of the other Loan Documents shall be
cumulative and concurrent, and may be pursued singly, successively, or
together against any or all of the Borrower, or
-2-
<PAGE> 3
any other security at the sole discretion of the Lender or the holder hereof.
Borrower hereby waives presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest,
and protest of this Note and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, and agrees that its liability shall be unconditional without regard
to the liability of any other party and shall not in any manner be affected by
any indulgence, extension of time, renewal, waiver or modification, granted or
consented to by the Lender or holder hereof.
Lender or any holder hereof shall not by any act or omission or
commission be deemed to waive any of its rights or remedies hereunder unless
such waiver is in writing and signed by the holder hereof, and then only to
the extent specifically set forth therein; a waiver of one event shall not be
construed as continuing or as a bar to or waiver of such right or remedy on a
subsequent event.
Any sale, conveyance or transfer of any right, title or interest in the
real estate subject to the Deed of Trust or any portion thereof, or any sale,
transfer or assignment (either outright or collateral) of all or any part of
the beneficial interest in any trust holding title to said real estate, or the
execution of any contract or agreement to do any of the aforementioned items
or any other violation of any provisions of the Loan Agreement or the Deed of
Trust with respect to any transfers of said real estate, other than Permitted
Liens, shall, at the option of the Lender, constitute a default hereunder, and
upon any such default Lender or the holder hereof may declare the entire
indebtedness evidenced by this Note to be immediately due and payable and
foreclose the Deed of Trust securing this Note immediately or at any time
after such default occurs. The acceptance of any payment due hereunder after
any sale, transfer or assignment shall not be deemed as the consent of Lender
to a sale, transfer or assignment.
If at any time or times hereafter Lender or the holder of this Note
employs counsel for advice with respect to a default under this Note, or to
intervene, file a petition, answer, motion or other pleading in any suit or
proceeding relating to this Note, or to attempt to collect this Note from or
to enforce this Note against Borrower, then, in any of such events, all of the
reasonable attorneys' fees arising from such services, and any expenses, costs
and charges relating thereto, shall be an additional liability owing hereunder
by Borrower to Lender or the holder of this Note and shall be payable on
demand and shall bear interest at the Default Rate from the date of such
demand.
Any term or provision of this Note or any other Loan Document to the
contrary notwithstanding, the maximum aggregate amount of
-3-
<PAGE> 4
the Obligations for which any of the Borrowers (which Obligations are not
direct borrowings or direct obligations of such Borrower (the "Non-Direct
----------
Obligations")) shall be liable shall not exceed the maximum amount for which
- -----------
such Borrower can be liable without rendering such Non-Direct Obligations, as
they relate to such Borrower, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer. To the extent that any Borrower
shall be required hereunder to pay a portion of its Non-Direct Obligations
which shall exceed the greater of (i) the amount of the economic benefit
actually received by such Borrower from the loans made pursuant to the Loan
Agreement in respect of such Non-Direct Obligations, and (ii) the amount which
such Borrower would otherwise have paid if such Borrower had paid the
aggregate amount of the Non-Direct Obligations of such Borrower (excluding the
amount thereof repaid by the other Borrowers) in the same proportion as such
Borrower's net worth at the date of any applicable borrowing hereunder is
sought bears to the aggregate net worth of all of the Borrowers at the date of
such applicable borrowing hereunder is sought, then such Borrower shall be
reimbursed by the other Borrowers for the amount of such excess, pro rata
based on the respective net worths of the Borrowers at the date of such
applicable borrowing hereunder is sought.
THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF
LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS, AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
--------------------
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS PROVISION.
TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS SEPARATELY BARGAINED FOR
CONSIDERATION TO LENDER, THE BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
(WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR OTHERWISE RELATING TO THIS NOTE, THE OBLIGATIONS,
ANY OF THE LOAN DOCUMENTS OR LENDER'S CONDUCT IN RESPECT OF ANY OF THE
FOREGOING. TO EFFECTUATE THE FOREGOING, LENDER IS HEREBY GRANTED AN
IRREVOCABLE POWER OF ATTORNEY TO FILE, AS ATTORNEY-IN-FACT FOR THE BORROWER, A
COPY OF THIS NOTE IN ANY MISSOURI COURT PURSUANT TO MO.REV.STAT. Section
510.190 AND RULE 69.01, V.A.M.R. AND/OR ANY OTHER APPLICABLE LAW, AND THE COPY
OF THIS NOTE SO FILED SHALL CONCLUSIVELY BE DEEMED TO CONSTITUTE THE BORROWERS
WAIVER OF TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR OTHERWISE RELATING
TO THIS NOTE, THE OBLIGATIONS, ANY OF THE LOAN DOCUMENTS OR CONDUCT IN
-4-
<PAGE> 5
RESPECT OF ANY OF THE FOREGOING. THE BORROWER HEREBY EXPRESSLY ACKNOWLEDGES
THE INCLUSION OF THIS JURY TRIAL WAIVER THROUGH THE INITIALS OF THE AUTHORIZED
OFFICER OF THE BORROWER EXECUTING THIS NOTE. INITIAL -----------
(Signatures on following page.)
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first above written.
K-V PHARMACEUTICAL COMPANY
By:--------------------------------
Its: ---------------------------
PARTICLE DYNAMICS, INC.
By:--------------------------------
Its: ---------------------------
ETHEX CORPORATION
By:--------------------------------
Its: ---------------------------
-6-
<PAGE> 1
Exhibit 4(r)
DEED OF TRUST AND SECURITY AGREEMENT
- ------------------------------------------------------------------------
K-V PHARMACEUTICAL COMPANY, Grantor
to
MICHAEL J. STARRETT, Trustee
for the benefit of
FOOTHILL CAPITAL CORPORATION, Beneficiary
- ------------------------------------------------------------------------
DATED: April 27, 1995
- ------------------------------------------------------------------------
Premises located at: 2303 Schuetz Road, St. Louis County, Missouri
THIS DEED OF TRUST AND SECURITY AGREEMENT
SECURES FUTURE ADVANCES AND IS TO BE GOVERNED
BY SECTION 443.055, MISSOURI REVISED STATUTES.
$52,500,000.00 IS THE TOTAL PRINCIPAL AMOUNT OF ALL
OBLIGATIONS WHICH ARE SECURED HEREBY.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
-----
Page
----
<S> <C>
1. Indebtedness Secured 3
2. Title to Property and Other Representations and Covenants 4
3. Obligations Not Secured by Stock 5
4. Maintenance and Alterations 5
5. Restoration 6
6. Compliance with Laws; Use of Property 6
7. Impositions 7
8. Insurance 8
9. Deposits for Impositions and Insurance 11
10. Condemnation 12
11. Assignment of Insurance Proceeds and Condemnation Awards 14
12. Leasing 14
13. Assignment of Rents and Leases 15
14. Beneficiary's Right to Perform Grantor's Covenants 16
15. No Claims Against Trustee or Beneficiary 17
16. Transfer of the Property 17
17. Liens 17
18. Certificate of Grantor 17
19. Security Agreement 18
20. After Acquired Property 18
21. Creation of Tenancy Relationship 18
22. Default 19
23. Notice Upon Acceleration 20
24. Appointment of Receiver 20
25. Foreclosure 21
26. Possession of Property 21
27. Sale by Trustee 21
28. Waiver of Redemption 23
29. Expenses of Trustee and Beneficiary 23
30. Interest After Maturity 23
31. Attorneys' Fees 23
32. Discontinuance of Action 24
33. Taxes 24
34. Recording, Filing and Other Fees 24
35. No Waiver 24
36. No Release 24
37. Release of Collateral 25
38. Rights Cumulative 25
39. Severability 25
40. Notices 25
41. Indemnification Against Liabilities 26
42. Environmental Concerns 27
43. No Representations 29
44. Substitute Trustee 29
45. Certain Definitions 29
46. Successors and Assigns 30
47. Miscellaneous 30
</TABLE>
<PAGE> 3
EXHIBITS
---------
A. Legal Description of Premises
B. Title and Warranty Exceptions
C. Schedule of Leases
(ii)
<PAGE> 4
DEED OF TRUST AND SECURITY AGREEMENT
------------------------------------
THIS DEED OF TRUST AND SECURITY AGREEMENT made this 27th day of April,
1995, made by K-V PHARMACEUTICAL COMPANY, a Delaware corporation, with its
chief executive office located at 2503 South Hanley Road, St. Louis, Missouri
63144 ("Grantor") to MICHAEL J. STARRETT, an individual residing in St. Louis
County, Missouri, having an office c/o Commonwealth Land Title Insurance
Company at 7980 Clayton Road, St. Louis, Missouri 63117 ("Trustee") in trust
for the benefit of FOOTHILL CAPITAL CORPORATION, a California corporation with
a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333 ("Beneficiary").
WITNESSETH:
WHEREAS, Grantor, PARTICLE DYNAMICS, INC., a New York corporation
("PDI") and ETHEX CORPORATION, a Missouri corporation ("ETHEX"; Grantor, PDI
and ETHEX are sometimes collectively referred to as "Borrower"), in accordance
with that certain Loan and Security Agreement of even date herewith (the "Loan
Agreement") have executed and delivered to Beneficiary certain promissory
notes (the "Notes") of even date herewith made by Grantor to Beneficiary
having a maximum aggregate principal amount of Seventeen Million Five Hundred
Thousand and No/100 Dollars ($17,500,000.00); and
WHEREAS, the Notes evidence that Borrower (including Grantor) has become
justly indebted to Beneficiary in the principal sum of Seventeen Million Five
Hundred Thousand and No/100 Dollars ($17,500,000.00), lawful money of the
United States, together with interest thereon and attorney's fees and other
charges and sums which may accrue thereon;
WHEREAS, Beneficiary may make future advances and future extensions of
credit (the "Future Advances") to Grantor in an aggregate principal amount not
to exceed Fifty-Two Million Five Hundred Thousand and No/100 Dollars
($52,500,000.00), lawful money of the United States, together with interest
thereon and attorneys' fees and other charges and sums which may accrue
thereon, which Future Advances are secured by this Deed of Trust;
NOW, THEREFORE, in order to secure the full and prompt payment and
performance of all of the indebtedness, obligations and liabilities of
Borrower (including Grantor) to Beneficiary, together with all interest and
other charges thereon, whether direct or indirect, existing, future,
contingent or otherwise, due or to become due, under or arising out of or in
connection with the Loan Agreement, the Environmental Indemnity Agreement of
even date herewith from Borrower in favor of Beneficiary, the Notes, any
Future Advances, and this Deed of Trust, and all other amounts expended by
Beneficiary for the reasonable protection of the security interest granted
herein (collectively, the "Obligations"); and in consideration of the Premises
hereby
<PAGE> 5
conveyed and the sum of One Dollar ($1.00) in hand well and truly paid
by Trustee, the receipt of which is hereby acknowledged, Grantor by these
presents does GRANT, BARGAIN and SELL, CONVEY, ALIEN, RELEASE, TRANSFER and
CONFIRM unto Trustee, and to Trustee's successors and assigns forever, the
following described property and rights, whether now owned or hereafter
acquired (hereinafter sometimes collectively called the "Property") and
possession of the Property now delivered unto Trustee:
A. All that certain tract or parcel of land located at 2303 Schuetz
Road, in the County of St. Louis, State of Missouri, and more particularly
described in Exhibit A attached hereto and made a part hereof (the
"Premises"); and
B. All of the buildings, structures and improvements, now or at any
time hereafter erected, constructed or situated on the Premises or any part
thereof, or any part thereof, together with all alterations, additions and
improvements thereto and all restorations and replacements thereof hereafter
made from time to time (hereinafter collectively called the "Building"); and
C. All machinery, apparatus, equipment and fixtures of every kind and
nature whatsoever now or at any time hereafter located in, on or about the
Building or upon the Premises, or attached to or used or useable in connection
with the operation or maintenance of the Premises or the Building, or any part
thereof, or in connection with any construction being conducted on the
Premises, including, but not limited to, all heating, lighting and power
equipment, engines, plumbing, electrical, mechanical, refrigeration,
ventilating and air-conditioning equipment and apparatus, elevators, cranes,
fittings, tools, ducts and compressors (hereinafter collectively called the
"Building Equipment"), which Building Equipment shall, to the fullest extent
permitted by law, be deemed to constitute fixtures and part of the real
property encumbered by this Deed of Trust; and
D. Any opened or proposed avenues, streets, roads, public places,
sidewalks, alleys, strips or gores of land, in front of or adjoining or used
in connection with the Premises or the Building, and all easements, tenements,
hereditaments, appurtenances, rights and rights of way, public or private,
pertaining or belonging to the Premises or the Building; and
E. All insurance proceeds and any judgments, settlements, awards and
payments, including interest thereon, which may be made in respect of all or
any part of the Property, or any estate or easement therein, as a result of
damage to or destruction of all or any part of the Building and Building
Equipment, the exercise of the right of condemnation or eminent domain over
any interest in the Property, the closing of, or the alteration of the grade
of, any street on or adjoining the Premises, or any
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<PAGE> 6
other injury to or decrease in the value of all or any part of such property,
to the extent of the Obligations; and
F. The franchises, permits, licenses and rights therein respecting the
use, occupation or operation of the Property or the activities conducted
thereon or therein; and
G. All rents, income and other benefits arising out of or relating to
the Property and all leases on or affecting the Property, and all security
deposits, contract rights, general intangibles, actions and rights of actions,
and unearned insurance premiums relating to such leases or the Property; and
H. All accessions to, substitutes for, and all modifications,
replacements, renewals, products and proceeds of any of the foregoing.
TO HAVE AND TO HOLD the Property unto Trustee, and to Trustee's
successors and assigns forever, IN TRUST, to secure to Beneficiary Grantor's
obligation to pay and perform the Obligations at the time and times, and in
the manner prescribed herein.
AND GRANTOR COVENANTS, REPRESENTS AND WARRANTS AS FOLLOWS:
1. Indebtedness Secured: This Deed of Trust has been given and is
--------------------
intended to secure the full and prompt payment and performance of the
Obligations and any renewal, extension, modification or replacement of any of
the Obligations. With respect to Future Advances, this Deed of Trust shall be
governed by section 443.055, Missouri Revised Statutes, and shall not secure
Future Advances made more than ten (10) years from the date hereof. The total
principal amount of the obligations which are secured hereby is Fifty-Two
Million Five Hundred Thousand and No/100 Dollars ($52,500,000.00). Grantor
acknowledges and agrees that all of the duties and obligations imposed on it
hereunder, whether absolute or contingent, due or to become due, are for the
reasonable protection of the lien of this Deed of Trust. This Deed of Trust
shall remain in full force and effect with respect to all of the Property
until all the Obligations shall have been paid and performed in full. If the
Obligations are paid and performed when due and all the agreements contained
in this Deed of Trust are kept, this Deed of Trust shall become void and shall
be released at the expense of Grantor; but if default be made in the payment
or performance of the Obligations or in the keeping of any of the agreements
contained in this Deed of Trust, the Loan Agreement or in the Notes or in any
instrument evidencing a Future Advance, the whole of the indebtedness secured
by this Deed of Trust shall at the option of Beneficiary become due and
Beneficiary shall be entitled to pursue any or all of its remedies hereunder,
including without limitation, the power to sell the Property according to law
as hereinafter provided.
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<PAGE> 7
2. Title to Property and Other Representations and Covenants:
---------------------------------------------------------
(a) Except as expressly set forth in Exhibit B hereto, Grantor
represents and warrants that (i) it has an indefeasible estate in fee simple
absolute in the Premises; (ii) it has the good and unrestricted right, full
power and lawful authority to subject the Property to this Deed of Trust; and
(iii) the Property is free of all liens, encumbrances, adverse claims and
other defects of title whatsoever except for such encroachment and similar
defects (none of which materially adversely affect the use or value of the
Property) shown on any survey of the Premises delivered by Grantor to
Beneficiary on or prior to the date hereof. Grantor does hereby and shall
forever warrant and defend its title to and interest in the Property (subject
to title and warranty exceptions shown on Exhibit B) and the validity and
priority of the lien of this Deed of Trust, to Beneficiary and Trustee, and
their respective successors and assigns, against all claims and demands
whatsoever of any Person (as hereinafter defined). There are no defenses or
offsets to this Deed of Trust or to any of the Obligations.
(b) Except as expressly set forth in Exhibit B hereto, Grantor
represents and warrants to Beneficiary that (i) the Building presently on the
Premises is in full compliance with all applicable zoning codes, ordinances
and regulations, and such compliance is based solely upon Grantor's owning the
Property and not upon Grantor's title to or interest in any other property and
(ii) any Building hereafter constructed on the Premises shall be in compliance
with all applicable zoning and building codes, ordinances and regulations and
shall lie wholly within the boundaries of the Premises.
(c) Grantor shall execute, acknowledge and deliver to Beneficiary
any documents and instruments which Beneficiary may reasonably request from
time to time for the better assuring, conveying, assigning, transferring,
confirming, continuing or perfecting Trustee's security and rights under this
Deed of Trust. Grantor will maintain and preserve the lien of this Deed of
Trust until the Obligations have been paid or performed in full.
(d) Grantor is now able to meet its debts as they mature and no
bankruptcy or other insolvency proceedings by or against Grantor are pending
or threatened.
(e) All statements, reports and other data and information
provided to the Beneficiary in connection with the Notes or this Deed of
Trust by Grantor or by any agent, representative, or affiliate of Grantor are
true, correct and complete in all material respects and do not omit to state
any
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<PAGE> 8
fact or statement necessary to make the statements contained therein not
misleading.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of Grantor, threatened against or materially adversely affecting
Grantor or against or affecting the Property or Grantor's right to acquire and
hold the same.
(g) The Grantor is not in default under the terms of any
instrument evidencing or securing any indebtedness, and no event has occurred
that constitutes an event of default under any such instrument or would
constitute an event of default but for the requirement that notice be given or
time elapse or both.
(h) Grantor is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and is qualified to
do business as a foreign corporation in the state of Missouri.
(i) The Notes, this Deed of Trust, the Loan Agreement, and all
other documents executed by the Grantor (or any of them) in connection
herewith are valid, binding and legal obligations of the Grantor (as
applicable) enforceable against the Grantor (as applicable) in accordance with
their respective terms; do not contravene any law, order, decree, rule or
regulation to which the Grantor is subject; and are authorized by and have
been duly executed and delivered in compliance with the Grantor's Articles of
Incorporation and by-laws.
3. Obligations Not Secured by Stock. Grantor represents to
--------------------------------
Beneficiary that none of the Obligations is also secured, directly or
indirectly, by "margin securities" or "stock" as defined, respectively, in
Regulation G and Regulation U issued by the Board of Governors of the Federal
Reserve System.
4. Maintenance and Alterations:
---------------------------
(a) Grantor shall put, keep and maintain the Property and the
sidewalks, curbs and alleys adjoining or abutting the same in good and lawful
order, condition and repair, and Grantor shall make or cause to be made, as
and when the same shall become necessary, all structural and non-structural
repairs, whether exterior or interior, ordinary or extraordinary, foreseen or
unforeseen. Grantor shall not commit or suffer any waste of the Property, or
any part thereof, without the prior written consent of Beneficiary in each
instance. Without the prior written consent of Beneficiary, Grantor shall not
undertake or permit any material alterations, additions, improvements,
renovations, demolitions, removals or replacements of or to the Building or
the Building Equipment, except for the retirement and replacement of obsolete
Building Equipment in the ordinary course of business. Notwithstanding the
foregoing, in the event that
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<PAGE> 9
Grantor is required by applicable law to undertake or construct any
alterations, additions, improvements, renovations or replacements to the
Building or the Building Equipment, Grantor may do so without obtaining
Beneficiary's consent thereto; provided, that in any such event Grantor shall
--------
promptly give Beneficiary written notice of any such legal requirement and,
prior to undertaking any such action, shall notify beneficiary in writing of
the action that Grantor proposes to undertake.
(b) Grantor shall not construct any new or additional buildings
on the Property, without the prior written consent of the Beneficiary in each
instance, and then only upon terms and conditions satisfactory to Beneficiary.
(c) Beneficiary or Trustee, or their duly authorized agents,
contractors and representatives may enter upon and inspect the Property at all
reasonable times until this Deed of Trust is released; provided, however, that
absent an Event of Default, or the continuation of an Event of Default, or the
occurrence of an event which upon the passage of time would be an Event of
Default, any inspection by Beneficiary or Trustee, or their duly authorized
agents, contractors and representatives, will not unreasonably interfere with
Grantor's business operations or violate any confidentiality agreements or
arrangements. In particular, and without limiting the generality of the
foregoing, Beneficiary or Trustee may enter upon and conduct upon the property
inspections or tests to determine whether or not any hazardous substances or
wastes have been placed or discharged upon the Property.
5. Restoration: If the Building or the Building Equipment shall be
-----------
damaged or destroyed, in whole or in part, by fire or other casualty (whether
or not covered by insurance), or by any taking in condemnation proceedings or
the exercise of any right of eminent domain, Grantor shall promptly restore,
replace or rebuild the same to as nearly as possible the value, quality and
condition they were in immediately prior to such fire or other casualty or
taking, with such alterations or changes as may be approved in writing by
Beneficiary. Grantor shall give prompt notice to Beneficiary of any damages
or destruction to the Property by fire or other casualty, irrespective of the
amount of such damage or destruction, as well as notice of possible or pending
condemnation or eminent domain proceedings affecting the Property as provided
in paragraph 10.
6. Compliance with Laws; Use of Property:
-------------------------------------
(a) Grantor shall promptly comply with, or cause to be complied
with, all present and future laws, statutes, ordinances, rules, regulations
and other requirements of all governmental authorities whatsoever having
jurisdiction of or relating to all or any part of the Property and the
sidewalks, curbs and alleys
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<PAGE> 10
adjoining or abutting the Premises, and the condition, repair, maintenance,
use and occupation thereof. Grantor shall promptly make, or cause to be made,
all changes, alterations and improvements necessary to comply with all such
present and future laws, statutes, ordinances, rules, regulations and other
requirements.
(b) Grantor shall promptly perform and observe, or cause to be
performed and observed, all of the terms, covenants and conditions of all
instruments of record affecting the Property, non-compliance with which may
affect the security of this Deed of Trust, or which shall impose any duty or
obligation upon Grantor or any tenant or other occupant of the Premises or any
part thereof, and Grantor shall do or cause to be done all things necessary to
preserve intact and unimpaired any and all easements, appurtenances and other
interests and rights in favor of or constituting any portion of the Property.
(c) Grantor shall use the Building solely for its approved
corporate purposes and shall not use or permit the use of the Property in any
manner which would tend to impair the value of the Property or materially
increase the risk of fire or other casualty. Grantor agrees that no
conditional bill of sale or chattel mortgage shall be made or filed against
the Building Equipment without the prior written consent of Beneficiary.
(d) Grantor shall maintain complete books and records relating to
the operation and financial affairs of the Property and shall permit
inspection of the same by Trustee, Beneficiary, or their duly authorized
agents and representatives from time to time during normal business hours;
provided, however, that absent an Event of Default, or the continuation of an
Event of Default, or the occurrence of an event which upon the passage of time
would be an Event of Default, any inspection by Beneficiary or Trustee, or
their duly authorized agents, contractors and representatives, will not
unreasonably interfere with Grantor's business operations or violate any
confidentiality agreements or arrangements. If an Event of Default shall
occur hereunder Grantor shall immediately deliver to Beneficiary the originals
of all such books and records.
7. Impositions: Grantor shall pay in full, before delinquency or
-----------
before the expiration of any extension period, all real estate taxes,
assessments, water and sewer rates and charges, license fees, all charges
which may be imposed for the use of vaults, chutes, areas and other space
beyond the lot line and abutting the public sidewalks in front of or adjoining
the Premises and all other governmental levies and charges of every kind and
nature whatsoever, general and special, ordinary and extraordinary, foreseen
and unforeseen, which shall be assessed, levied, confirmed, imposed or become
a lien upon or against the Property or any part thereof, or which shall become
payable with
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<PAGE> 11
respect thereto (hereinafter collectively called "Impositions"). Upon demand
by Beneficiary, Grantor will pay the whole of any assessment for local
improvement which may be payable in installments, notwithstanding that
such installments may not be due and payable at the time of such demand.
Grantor shall deliver to Beneficiary, within ten (10) days after the due date
of each such payment, the original or a photostatic copy of the official
receipt evidencing such payment or other proof of payment satisfactory to
Beneficiary. Notwithstanding the foregoing, Grantor may contest any
Imposition by appropriate and timely proceedings, provided that on or before
the due date for payment of such Imposition Grantor shall establish an escrow
or other provision for payment of such Imposition satisfactory to Beneficiary
in an amount estimated by Beneficiary to be adequate to pay such Imposition
and any interest or penalties that may result from its nonpayment on the due
date. In all such cases of contest, Grantor shall pay the contested
Imposition within ten (10) days after the dismissal of said proceedings or the
final and unappealable determination of Grantor's or the Property's liability
therefor, as the case may be.
8. Insurance:
---------
(a) Grantor at its sole cost and expense shall provide and keep
in force at all times for the benefit of Beneficiary, with respect to the
Property the following insurance coverages:
(i) insurance against loss of or damage to the Building by
fire and other hazards covered by so-called "extended coverage" and such other
casualties and hazards as Beneficiary shall require from time to time;
(ii) insurance against loss or damage by earthquake;
(iii) flood insurance in the maximum available amount if
the Property is now or later becomes designated as located in a flood hazard
area as described in the Flood Disaster Protection Act of 1973;
(iv) rent or business interruption insurance, as the case
may be;
(v) boiler and machinery insurance;
(vi) comprehensive general public liability insurance
against claims for bodily injury, death or property damage with limits of not
less than $3,000,000.00 with respect to bodily injury for any one person, with
respect to bodily injury for any two or more persons in one occurrence, and
$3,000,000.00 with respect to property damage resulting from any one
occurrence;
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<PAGE> 12
(vii) water damage legal liability insurance;
(viii) lender's title insurance in the amount of not less
than Three Million Four Hundred Thousand and No/100 Dollars ($3,400,000.00);
and
(ix) such other insurance on the Property or any
replacements or substitutions thereof, as Beneficiary may reasonably require.
The policies of insurance required by this paragraph shall be in companies,
forms and amounts, and for such periods and subject to such deductibles, as
Beneficiary shall require from time to time, and shall insure the respective
interests of Grantor and Beneficiary. The insurance proceeds thereof (other
than the proceeds from the policy required under clause (vi) above) shall be
payable to Beneficiary pursuant to a 438 BFU lender's loss payable
endorsement, or an equivalent endorsement satisfactory in form and substance
to Beneficiary. Duplicate original policies and renewals thereof covering the
risks provided by this Deed of Trust to be insured against, bearing
satisfactory evidence of payment of all premiums thereon, shall be delivered
to and held by Beneficiary. At least thirty (30) days prior to the expiration
of each policy required to be provided by Grantor, Grantor shall deliver
renewal policies to Beneficiary with appropriate evidence of payment of
premiums therefor. All insurance policies required by this Deed of Trust
shall
(1) include effective waivers by the insurer of all
rights of subrogation against any named insured, the indebtedness
secured by this Deed of Trust and the Property and all claims for
insurance premiums against Beneficiary and Trustee;
(2) provide that any losses shall be payable to
Beneficiary notwithstanding (A) any act, failure to act or
negligence of or violation of warranties, declarations or conditions
contained in such policy by any named insured, (B) the occupation or
use of the Building or the Premises for purposes more hazardous than
permitted by the terms thereof, (C) any foreclosure or other action
or proceeding taken by Trustee or Beneficiary pursuant to any
provision of this Deed of Trust, or (D) any change in title to or
ownership of the Property;
(3) provide that no cancellation, reduction in amount
or material change in coverage thereof shall be effective until at
least thirty (30) days after receipt by Beneficiary of written
notice thereof; and
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<PAGE> 13
(4) be satisfactory in all other respects to
Beneficiary.
Grantor shall not permit any activity to occur or condition to exist on or
with respect to the Property that would wholly or partially invalidate any of
the insurance thereon.
(b) At any time that an Event of Default has occurred and is
continuing or Beneficiary, in good faith, deems itself insecure, Grantor
irrevocably makes, constitutes and appoints Beneficiary (and all officers,
employees or agents designated by Beneficiary) as Grantor's true and lawful
attorney-in-fact and agent, with full power of substitution, for the purpose
of making and adjusting claims under such policies of insurance, endorsing the
name of Grantor on any check, draft, instrument or other item of payment of
the proceeds of such policies of insurance and for making all determinations
and decisions with respect to such policies of insurance required above or to
pay any premium in whole or in part relating thereto. Beneficiary, without
waiving or releasing any obligation or default by Grantor hereunder, may (but
shall be under no obligation to do so) at any time or times hereafter maintain
such action with respect thereto as beneficiary deems advisable. All sums
disbursed by Beneficiary in connection therewith, including reasonable
attorneys fees, court costs, expenses and other charges relating thereto,
shall be payable, on demand, by Grantor to Beneficiary and shall be additional
Obligations hereunder secured by this Deed of Trust. The term "GOOD FAITH" as
used in this subparagraph (b) shall have the meaning as set forth in Section
3103(a)(4) of the California Uniform Commercial Code (the "CODE").
(c) All proceeds of the insurance required to be obtained by
Grantor hereunder, other than those relating to the insurance required under
clause (vi) of subparagraph (a) hereof, shall be paid to Beneficiary.
Beneficiary may deduct from such proceeds any expenses, including, without
limitation, legal fees, incurred by it in connection with adjusting and
obtaining such proceeds (the balance remaining after such deduction being
hereinafter referred to as the "Net Insurance Proceeds"), and thereafter
Beneficiary may, at its option, either apply such proceeds in reduction or
satisfaction of all or part of the Obligations, whether then matured or not
(in such order of priority as Beneficiary shall elect) or release such
proceeds to Grantor in whole or in part upon conditions satisfactory to
Beneficiary. So long as Grantor shall not be in default hereunder, Grantor
shall have the right to participate with Beneficiary in the adjustment and
compromise of any such claims, but the decision of Beneficiary in any such
case shall be binding and conclusive upon Grantor.
(d) The application of any insurance proceeds toward the payment
or performance of the Obligations shall not be deemed
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<PAGE> 14
a waiver by Beneficiary of its right to receive payment or performance of the
rest of the Obligations and the interest thereon in accordance with the
provisions of this Deed of Trust.
(e) In the event of a foreclosure under this Deed of Trust, the
purchaser of the Property shall succeed to all of the rights of Grantor,
including any right to unearned premiums, in and to all policies of insurance
which Grantor is required to maintain under this paragraph and to all proceeds
of such insurance.
9. Deposits for Impositions and Insurance: Upon notice from
--------------------------------------
Beneficiary, after the occurrence of an Event of Default, or the continuation
of an Event of Default, or the occurrence of an event which upon the passage
of time would be an Event of Default, Grantor shall deposit with Beneficiary
on the first day of each month an amount equal to one-twelfth (1/12th) of (i)
the aggregate annual payments for the Impositions, and (ii) the annual
insurance premiums on the policies of insurance required to be obtained and
kept in force by Grantor under this Deed of Trust. In addition, upon notice
from Beneficiary, Grantor shall deposit with Beneficiary such sum of money
which, together with such monthly installments, shall be sufficient to pay all
the Impositions and insurance premiums at least thirty (30) days prior to the
due date thereof. If the amounts of any Impositions are not ascertainable at
the time any deposit is required to be made, the deposit shall be made on the
basis of the amounts of the Impositions for the prior tax year and, upon the
amounts of the Impositions being fixed for the then current year, Grantor
shall, upon notice from Beneficiary, deposit any deficiency with Beneficiary.
If the amount of the insurance premiums is not ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
amount of the insurance premiums for the prior year of the policy or policies,
and, upon the amount of the insurance premiums being fixed for the then
current year of the policy or policies, Grantor shall, upon notice from
Beneficiary, deposit any deficiency with Beneficiary. If on a date thirty
(30) days prior to the due date for the payment of any of the Impositions or
the insurance premiums there shall be insufficient funds on deposit with
Beneficiary to pay the same, Grantor shall, upon notice from Beneficiary,
forthwith make a deposit with Beneficiary in the amount of such deficiency.
The funds so deposited with Beneficiary shall be held by it without interest,
and may be commingled with other funds of Beneficiary, and provided that no
Event of Default exists hereunder, such funds shall be applied in payment of
the Impositions and insurance premiums when due to the extent that Grantor
shall have deposited funds with Beneficiary for such purpose. Upon the
occurrence of an Event of Default, the funds deposited with Beneficiary may,
at the option of Beneficiary, be retained and applied toward the payment of
any or all of the Obligations, in such order of priority as Beneficiary shall
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<PAGE> 15
determine, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Beneficiary. The whole
of the Obligations shall become due and payable at the option of Beneficiary
after default in the payment of any of such deposits for ten (10) days or
after the failure of Grantor to deliver to Beneficiary, within ten (10) days
after requested by Beneficiary, a statement certified by an authorized officer
of the Grantor specifying the current amounts of Impositions and insurance
premiums. Grantor shall furnish Beneficiary with a bill for each of the
Impositions and insurance premiums and such other documents necessary for
their payment at least thirty (30) days prior to the date they first become
due. Upon an assignment of this Deed of Trust prior to any default hereunder
by Grantor, Beneficiary shall have the right and obligation to pay over the
balance of such deposits in its possession to the assignee, and thereupon
Beneficiary shall be completely released from all liability with respect to
such deposits and Grantor shall look solely to the assignee in reference
thereto. The provisions of the preceding sentence shall apply to each and
every assignment or transfer of such deposits to a new assignee.
10. Condemnation:
------------
(a) Grantor shall give immediate notice to Beneficiary upon
Grantor's learning of (i) any expressed intention on the part of any Person
possessing the power of eminent domain to purchase or otherwise to acquire all
or any part of the Property or (ii) the commencement of any action or
proceeding to take all or any part of the Property by exercise of the right of
condemnation or eminent domain or of any action or proceeding to close or to
alter the grade of any street on or adjoining the Premises. Beneficiary may
participate in any such actions or proceedings in the name of Beneficiary or,
whenever necessary, in the name of Grantor, and Grantor shall deliver to
Beneficiary such instruments as Beneficiary shall request to permit such
participation. Grantor shall not settle any such action or proceeding,
whether by voluntary sale, stipulation or otherwise, or agree to accept any
award or payment without the prior written consent of Beneficiary which
consent shall not be unreasonably withheld, delayed or conditioned. The total
of all amounts awarded or allowed with respect to all right, title and
interest in and to the Property or the portion or portions thereof taken or
affected by such condemnation or eminent domain proceeding and any interest
thereon (herein collectively called the "Award") is hereby assigned to and
shall be paid upon receipt thereof to Beneficiary and the amount received
shall be retained and applied as provided in subparagraph (b) of this
paragraph.
(b) The Obligations may be accelerated in the reasonable
discretion of Beneficiary at any time after the filing of an action to condemn
or acquire by eminent domain all or any
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<PAGE> 16
part of the Property, in which event Beneficiary shall retain and apply the
Award toward payment and performance of the Obligations (in such order of
priority as Beneficiary shall elect); provided, however, that to the extent
that the Award received by Beneficiary shall exceed the amount required to
satisfy in full the then total amount of the Obligations, Beneficiary shall
pay over to Grantor the amount of such excess, and provided further that until
the actual vesting of title in such proceeding the Obligations shall continue
unimpaired. If there is a taking of a portion of the Property in any such
proceeding and Beneficiary does not accelerate the Obligations, then at the
option of Beneficiary, the Award may be (i) retained and applied by
Beneficiary toward the payment or performance of the Obligations (in such
order of priority as Beneficiary may elect) or (ii) subject to such escrow
provisions as Beneficiary may require, paid over in whole or part to pay or
reimburse Grantor for the cost of restoring or reconstructing the Building and
the Building Equipment in a manner and on conditions satisfactory to
Beneficiary in which event Grantor shall forthwith proceed with the
restoration or reconstruction of the Building and the Building Equipment on
the remaining portion of the Premises in accordance with the provisions of
this Deed of Trust and shall continue to perform and observe all of the
Obligations, throughout any period of restoration or reconstruction
and until the Obligations are fully paid or performed. Upon such completion
of the restoration or reconstruction of the Building and Building Equipment,
any portion of the Award not used for the restoration or reconstruction of the
Building and Building Equipment shall, at the option of Beneficiary, be
applied in reduction of the Obligations, in such order of priority as
Beneficiary shall elect; provided, however, that to the extent that such
portion of the Award shall exceed the amount required to satisfy in full the
then total amount of the Obligations, Beneficiary shall pay over to Grantor
the amount of such excess. In no event shall Beneficiary be required to
release this Deed of Trust until the Obligations are fully paid nor shall
Beneficiary be required to release from the lien of this Deed of Trust any
portion of the Property so taken until Beneficiary receives the Award for the
portion so taken.
(c) The application of the Award toward payment or performance of
any of the Obligations shall not be deemed a waiver by Beneficiary of its
right to receive payment or performance of the balance of the Obligations.
Beneficiary shall have the right, but shall be under no obligation, to
question the amount of the Award, and Beneficiary may accept same without
prejudice to the rights that Beneficiary may have to question such amount. In
any such condemnation or eminent domain action or proceeding Beneficiary may
be represented by attorneys selected by Beneficiary (provided prior to an
Event of Default, or the continuation of an Event of Default, or the
occurrence of an event which upon the passage of time would be an Event of
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<PAGE> 17
Default, Grantor shall have the right to consent to such attorneys, such
consent not to be unreasonably withheld, delayed or conditioned), and all sums
paid by Beneficiary in connection with such action or proceeding (including,
without limitation, attorneys' fees) shall, on demand, be immediately due from
Grantor to Beneficiary and the same shall be added to the Obligations and
shall be secured by this Deed of Trust.
(d) Notwithstanding any taking by condemnation or eminent domain,
closing of, or alteration of the grade of, any street or other injury to or
decrease in value of the Property by any public or quasi-public authority or
corporation, the Obligations shall continue to bear interest until the Award
shall have been actually received by Beneficiary, and any reduction in the
Obligations resulting from the application by Beneficiary of the Award shall
be deemed to take effect only on the date of such receipt.
11. Assignment of Insurance Proceeds and Condemnation Awards:
--------------------------------------------------------
Grantor hereby assigns to Beneficiary as further security for the payment and
performance of the Obligations all of Grantor's right, title and interest in
and to any proceeds of insurance required to be maintained hereunder and any
Award in condemnation. Beneficiary is hereby authorized to collect and
receive the same and to give receipts and acquittances therefor and to apply
the same or any part thereof toward the payment or performance of the
Obligations, notwithstanding the fact that the same may not be due and
payable. Grantor hereby agrees, upon request, to make, execute and deliver
any and all assignments and other instruments sufficient for the purpose of
assigning said proceeds and awards and payments to Beneficiary free, clear and
discharged by any encumbrances of any kind or nature whatsoever.
12. Leasing:
-------
(a) Attached hereto as Exhibit C and incorporated herein is a
schedule of all of the Leases (as hereinafter defined) for space in the
Building in effect on the date hereof. All such Leases are valid, subsisting
and enforceable in accordance with their terms and, except as otherwise noted,
no tenant has defaulted under any Lease. Grantor shall not hereafter,
directly or indirectly, make or enter into or extend or renew any Lease of all
or any part of the Property, until the same shall have been submitted to and
approved in writing by Beneficiary.
(b) Grantor shall not, without the prior written consent of
Beneficiary in each instance: (i) change, amend or modify, in any manner
whatsoever, any Lease so as to reduce or diminish the obligations of the
tenant thereunder or so as to adversely affect the validity or enforceability
of any Lease; (ii) terminate or cancel, or accept a surrender or suffer or
-14-
<PAGE> 18
permit any cancellation, termination or surrender of, any Lease, in any manner
whatsoever; (iii) commence any summary proceeding or other action to recover
space leased pursuant to any Lease; or (iv) receive, collect or accept, or
permit the receipt, collection or acceptance of, any prepayment of rent or
other charges under any Lease for more than one month, except that Grantor
may, at the time of the execution of any Lease, accept rent security deposits,
which shall be held by Grantor in accordance with subparagraph (c) of this
paragraph.
(c) Grantor shall deliver to Beneficiary a duplicate original of
each Lease within ten (10) days after the execution thereof, and shall keep
Beneficiary fully advised as to the status of all Leases for space in the
Building. Grantor shall at all times fully and promptly comply with, keep and
perform all of the terms, covenants, provisions and conditions of any and all
Leases on the part of the landlord thereunder to be complied with, kept and
performed, and will not do or permit anything to be done which will constitute
a breach of any of the terms, covenants, provisions and conditions of any
thereof. Grantor shall enforce the performance and observance of each and
every term, covenant, provision and condition of each and every Lease to be
performed or observed on the part of the tenant thereunder. Grantor shall
give prompt notice to Beneficiary of (i) any notice received by Grantor of any
default by the landlord under any Lease, (ii) the commencement of any action
or proceeding by any tenant the purpose of which shall be the cancellation of
any Lease or a diminution or abatement of the rent or any other amounts
payable thereunder, or (iii) the interposition by any tenant of any defense or
counterclaim in any action or proceeding brought by Grantor against such
tenant; and Grantor will cause a copy of any process, pleading or notice
received by Grantor in reference to any such action, defense or claim to be
promptly delivered to Beneficiary. Grantor shall hold in trust all security
deposits and advance rent given on account of any Lease, and place such
security deposits in an account with a bank or trust company and shall not
commingle such funds with other funds. Grantor shall repay or apply such
funds only in accordance with the provisions of the applicable Leases.
13. Assignment of Rents and Leases:
------------------------------
(a) Grantor hereby assigns to Beneficiary as further security for
the payment and performance of the Obligations all of Grantor's right, title
and interest in and to any Leases now or hereafter in effect with respect to
the Property, and any renewals or extensions thereof, and all the rents,
issues and profits of the Property of any nature whatsoever, and Grantor
grants to Beneficiary, whether or not Beneficiary takes possession of the
Property, the right to give notice to the tenants of this assignment and to
enter onto the Property for the purpose of collecting the same and to let the
Property, or any
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<PAGE> 19
part thereof, and to apply said rents, issues and profits, after payment of
all necessary charges and expenses, on account of the Obligations in such
order or manner as Beneficiary may elect. This assignment and grant shall
continue in effect until the Obligations are fully paid and performed. So
long as no Event of Default has occurred hereunder, Beneficiary hereby waives
the right to enter the Property for the purpose of collecting said rents,
issues and profits, and Grantor shall be entitled to collect, receive and use
said rents, issues and profits.
(b) Grantor shall, from time to time upon request by Beneficiary,
execute, acknowledge and deliver to Beneficiary, in form satisfactory to
Beneficiary, separate assignments of any existing or future Leases
effectuating the foregoing assignment. Beneficiary shall not be obligated to
perform or discharge any obligation or duty to be performed or discharged by
Grantor under any Lease or other agreement affecting all or any part of the
Property, and Grantor hereby agrees to indemnify Beneficiary for and save it
harmless from, any and all liability arising from any such Lease or other
agreement or any assignments thereof, and no assignment of any such Lease or
other agreement shall place the responsibility for the control, care,
management or repair of all or any part of the Property upon Beneficiary, nor
make Beneficiary liable for any negligence in the management, operation,
upkeep, repair or control of all or any part of the Property resulting in
injury, death or property damage.
14. Beneficiary's Right to Perform Grantor's Covenants: If Grantor
--------------------------------------------------
shall fail promptly and fully to pay, perform or observe any of the
Obligations, then and in any such event, Beneficiary may, at its option, but
without any obligation so to do, and without waiving or releasing Grantor from
any of the Obligations, pay any Obligation or cost or perform any Obligation
or act or take such action as Beneficiary deems necessary or desirable in
order to cause such Obligation to be paid, performed or observed, as the case
may be. Grantor hereby expressly grants to Beneficiary, and agrees that
Beneficiary shall have, the absolute and immediate right to enter in and upon
the Property or any part thereof to such extent and as often as Beneficiary,
in its sole discretion, deems necessary or desirable for such purpose.
Beneficiary may pay and expend such sums of money as Beneficiary, in its sole
discretion, deems necessary for any such purpose, and Grantor hereby agrees to
pay to Beneficiary, on demand, all such sums so paid or expended by
Beneficiary, together with interest thereon from the date of each such payment
or expenditure at the rate of interest payable under the Notes for all
comparable amounts. Any interest paid under this paragraph in excess of the
maximum interest rate permitted by law shall be deemed payment in reduction of
the principal amount of the Obligations and the excess, if any, shall be
refunded to Grantor without interest. All sums so paid or expended by
Beneficiary, and the interest
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<PAGE> 20
thereon, shall be added to the Obligations and shall be secured by the lien of
this Deed of Trust.
15. No Claims Against Trustee or Beneficiary: Nothing contained in
----------------------------------------
this Deed of Trust shall constitute any consent or request by Trustee or
Beneficiary, express or implied, for the performance of any labor or services
or the furnishing of any materials or other property in respect of the
Property or any part thereof, or be construed to permit the making of any
claim against Trustee or Beneficiary in respect of labor or services or the
furnishing of any materials or other property or any claim that any lien based
on the performance of such labor or services or the furnishing of any such
materials or other property is prior to the lien of this Deed of Trust.
16. Transfer of the Property: If Grantor enters into a contract to
------------------------
sell all or any part of the Property that is not expressly conditioned on
Beneficiary's consent to the sale, or if Grantor sells, conveys, alienates,
assigns, or transfers the Property, or any part thereof or interest (legal or
equitable) therein in any manner, whether voluntary or involuntary (including
by reason of the foreclosure of any other lien or encumbrance thereon), or by
operation of law or otherwise (except as permitted by Paragraph 4(z) hereof,
then Beneficiary shall have the right, at its sole option, at any time
thereafter to declare the Obligations immediately due and payable. No waiver
of this right or delay in the exercise thereof shall operate as a waiver
thereof unless Beneficiary shall have executed and delivered to Grantor a
written waiver of such right.
17. Liens: This Deed of Trust is and shall be maintained as a valid
-----
lien on the Property, subject only to those matters disclosed on Exhibit B
hereto. Grantor shall not, directly or indirectly, create or suffer or permit
to be created, or to stand, against the Property or any portion thereof, or
against the rents, issues and profits therefrom, any lien, charge, mortgage,
deed of trust, adverse claim or other encumbrance other than the lien of this
Deed of Trust and those matters disclosed on Exhibit B hereto; provided,
--------
however, that nothing contained in this paragraph shall require Grantor to
- -------
pay any real estate taxes or other Impositions, prior to the time when same
are required to be paid under this Deed of Trust. Grantor will keep and
maintain the Property free from all liens of Persons supplying labor or
materials relating to the construction, alteration, modification or repair of
the Building or the Building Equipment. In no event shall Grantor do or
permit to be done, or omit to do or permit the omission of, any act or thing,
where such act or omission would impair the security of this Deed of Trust.
18. Certificate of Grantor: Grantor upon request of Beneficiary,
----------------------
shall certify to Beneficiary or to any proposed assignee of this Deed of
Trust, by an instrument in form
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<PAGE> 21
satisfactory to Beneficiary, duly acknowledged, the amount then owing on the
Obligations and the date to which any interest thereon has been paid and
whether any offsets or defenses exist against payment thereof or performance
of any Obligation, within five (5) days if the request is made personally, or
within seven (7) days if the request is made by mail. Beneficiary and any
proposed assignee of this Deed of Trust shall have the right to rely on such
certification.
19. Security Agreement: It is the intention of the parties hereto
------------------
that this instrument shall constitute a Security Agreement within the meaning
of the Code with respect to the personalty and fixtures comprising a part of
the Property, and that a security interest shall attach thereto for the
benefit of Beneficiary further to secure the Obligations. Upon request,
Grantor shall promptly execute financing and continuation statements in form
satisfactory to Beneficiary to further evidence and secure Beneficiary's
interest in such collateral, and shall pay all filing fees in connection
therewith. Grantor further authorizes the Beneficiary to file financing and
continuation statements with respect to such collateral in which Grantor has a
mortgageable interest, without the signature of Grantor whenever lawful. Upon
the occurrence of an Event of Default hereunder Beneficiary, pursuant to the
applicable provisions of the Code, shall have the option of proceeding as to
both real and fixtures in accordance with their rights and remedies in respect
of the real property, in which event the default provisions of the Code shall
not apply. The parties agree that in the event Beneficiary elects to proceed
with respect to collateral constituting personalty or fixtures separately from
the real property, ten (10) days' notice of the sale of such collateral shall
be reasonable notice. Notwithstanding anything to the contrary contained in
this Section, in the event of any inconsistency between the terms of this
Section 19 and the terms of the Loan Agreement, the terms of the Loan
Agreement shall prevail.
20. After Acquired Property: All property of every kind acquired by
-----------------------
Grantor after the date hereof which, by the terms hereof, is required or
intended to be subjected to the lien of this Deed of Trust shall, immediately
upon the acquisition thereof by Grantor, and without any further mortgage,
conveyance, assignment or transfer, become subject to the lien of this Deed of
Trust. Grantor shall execute, acknowledge and deliver to Trustee any
documents and instruments which Beneficiary or Trustee may reasonably request
from time to time for the better assuring, conveying, assigning, transferring,
confirming or perfecting Trustee's and Beneficiary's security and rights under
this Deed of Trust.
21. Creation of Tenancy Relationship: Grantor reserves possession of
--------------------------------
said property as tenant at will of Trustee, at a rental of One Dollar ($1.00)
per month payable on demand, until
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<PAGE> 22
an Event of Default shall have occurred, whereupon Grantor (i) shall pay
monthly in advance to Beneficiary the fair and reasonable rental value for the
use and occupation of the Property or such part thereof as may be in the
possession of Grantor, and (ii) upon demand of Trustee, shall deliver
possession of the Premises to Trustee or the purchaser at Trustee's sale
hereunder. Trustee or any such purchaser may institute summary or other
proceedings in such event to recover possession of the Property.
22. Default: The Obligations shall become immediately due and
-------
payable in full at the option of Beneficiary upon the occurrence of one or
more of the following ("Events of Default"):
(a) failure by Grantor to pay when due any amounts owing under
the Notes or under any instrument evidencing a Future Advance provided,
however, that if an over advance would occur by Beneficiary charging any
principal or interest to Grantor's account, then Grantor shall have an
additional two (2) day period to make said payment; or
(b) Grantor's default in the observance or performance of any
covenants or agreements of Grantor hereunder or under the Notes or under any
instrument evidencing a Future Advance and Grantor's failure to cure any cure
or breach within five (5) days of any such breach or violation; or
(c) the actual or threatened waste of any part of the Property;
or
(d) the assignment by Grantor of any Lease or of the whole or any
part of the rents, income or profits arising from the Property without the
prior written consent of Beneficiary; or
(e) Grantor's admission of its inability to pay its debts
generally as they become due or its failure to pay its debts generally as they
become due; or
(f) Grantor's making an assignment for the benefit of its
creditors; or
(g) Commencement by or against Grantor of any proceeding for
relief under the Federal Bankruptcy Code (Title 11 of the United States Code)
or any similar order or decree under any federal or state law, now in
existence or hereafter enacted, having the same general purpose, and (in the
case of proceeding filed against the Grantor) such proceeding not having been
dismissed within sixty (60) calendar days after commencement; or
(h) Grantor's causing, suffering, permitting or consenting to the
appointment of a receiver, trustee, administrator, conservator, sequestrator,
liquidator or similar
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<PAGE> 23
official in any federal, state or foreign judicial or nonjudicial proceeding,
to hold, administer and/or liquidate all or substantially all of its assets,
and such appointment not having been revoked, terminated, stayed or vacated
and such official discharged of his duties within twenty (20) days of his
appointment; or
(i) the liquidation or dissolution of Grantor; or
(j) any representation or warranty of Grantor set forth herein
having been incorrect or incomplete in any material respect as of the time
when made; or
(k) Grantor shall deliver to Beneficiary any notice pursuant to
REV. STAT. MO. 443.055(7) (1986) terminating the operation of this Deed of
Trust as security for Future Advances or any other future obligations if at
such time Beneficiary has any obligation or commitment to make any Future
Advance or extend any other financial accommodation to Grantor, in which event
Beneficiary shall have no further obligation to make any Future Advances; or
(l) Grantor shall be in default and after any applicable grace
or cure period under any other contract, agreement, note or instrument between
Grantor and Beneficiary and all applicable cure periods, if any, shall have
expired; or
(m) If there is a default under any material contract,
agreement, note or instrument to which Grantor is a party with one or more
third persons resulting in a right by such third persons, irrespective of when
exercised, to accelerate the maturity of Grantor's obligations hereunder.
23. Notice Upon Acceleration: Whenever Beneficiary in this Deed of
------------------------
Trust is given the option to accelerate the maturity of all or part of the
Obligations, Beneficiary may, to the extent permitted by law, do so without
presentment, protest, notice to or demand upon Grantor except as otherwise
specifically provided herein.
24. Appointment of Receiver: After the occurrence of one or more
-----------------------
Events of Default, or if any action shall be commenced to foreclose this Deed
of Trust, without obligation to do so, Trustee or Beneficiary may apply for
the appointment of a receiver of the rents, issues, or profits of all or any
part of the Property without notice or demand, and shall be entitled to the
appointment of such receiver as a matter of right, without consideration of
the value of the Property as security for the amounts due to Beneficiary or
the solvency of any Person liable for the payment of such amounts.
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<PAGE> 24
25. Foreclosure: After the occurrence of one or more Events of
-----------
Default Beneficiary may, to the extent permitted by law, institute an action
of judicial foreclosure, or take such other action as the law may allow, at
law or in equity, for the enforcement thereof and realization on the Property
or any other security which is herein or elsewhere provided for, and proceed
thereon to final judgment and execution thereon for the entire unpaid balance
of the Obligations at the rate stipulated herein or in the Notes, as the case
may be, to the date of default and thereafter at the Default Rate (as such
term is defined in the Notes) together with all other sums secured by this
Deed of Trust, all costs of suit, and interest at the Default Rate on any
judgment obtained by Trustee from and after the date of any judicial sale of
the Property (which may be sold in one parcel or in such parcels, manner or
order as Trustee shall elect) until actual payment is made to Beneficiary on
the full amount due Beneficiary, without further stay, any law, usage or
custom to the contrary notwithstanding. Failure to join or to provide notice
to tenants as defendants in any foreclosure action or suit shall not
constitute a defense to such foreclosure.
26. Possession of Property: To the fullest extent permitted by law,
----------------------
after the occurrence of an Event of Default, Beneficiary and its agents and
assigns are authorized to (i) take possession of the Property, with or without
legal action; (ii) lease the same; (iii) collect all rents and profits
therefrom; and (iv) after deducting all costs of collection and administration
expense, apply the net rents and profits to the payment of Impositions,
insurance premiums and all other carrying charges (including, but not limited
to agents' compensation and fees and costs of counsel and receivers) and to
the maintenance, repair or restoration of the Property, or on account and in
reduction of the Obligations, in such order and amounts as Beneficiary, in
Beneficiary's sole discretion, may elect. Beneficiary shall be liable to
account only for rents and profits actually received by it.
27. Sale by Trustee:
---------------
(a) After the occurrence of an Event of Default and at the
request of Beneficiary, Trustee shall proceed to sell the Property or any part
thereof, either in mass or in parcels, at public vendue, to the highest bidder
for cash at a front door (to be designated by Trustee) of the Circuit Court
House of St. Louis County at Clayton, Missouri, or at such other place
designated by Trustee as may be permitted by law; first giving twenty (20)
days' public notice of the time, terms and place of sale, and description of
the Property to be sold, by advertisement published as is provided by the law
of the State of Missouri then in effect. Beneficiary or any assignee hereof
shall have the right to bid at and become purchaser at any foreclosure sale,
applying against the purchase price the full amounts of any
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<PAGE> 25
Obligations then due and owing hereunder or under the Notes or under any
instrument evidencing a Future Advance.
(b) It is agreed that Trustee shall not be disqualified from
acting as trustee hereunder or from performing any of the duties of said
trustee, or from exercising the rights, powers and remedies herein granted, by
reason of the fact that said Trustee is an attorney, agent, officer, employee
or stockholder of the Beneficiary, and that any interest which said Trustee or
any successor shall have or may acquire in the debt hereby secured, or the
Property hereby conveyed, shall neither interfere with nor prevent his acting
as trustee or from purchasing said Property at said sale or sales, or the
Beneficiary from bidding or purchasing the Property at said sale directly or
indirectly, and all parties waive any objection to Trustee having or acquiring
any such interest in the debt or Property aforesaid and continuing to act as
Trustee.
(c) Upon any Trustee's sale, Trustee shall execute and deliver a
deed or deeds of conveyance of the Property sold to the purchasers thereof,
and any statement or recital of fact in such deed shall be prima facie
evidence of the trust of such statement or recital, and Trustee, or his
successor, shall receive the proceeds of said sale, out of which he shall pay,
first, the necessary costs and expenses of executing this trust, including
compensation to Trustee and to any attorneys employed by him or Beneficiary
for their services; second, to Beneficiary, or its endorsees or assigns, upon
the usual vouchers therefor, all moneys paid for insurance, taxes and lien
claims, and interest thereon as herein provided for; third, to Beneficiary,
the amount of the outstanding obligations together with the interest thereon;
fourth, the amount due on junior encumbrances, if any, with interest; fifth,
the remainder of such proceeds, if any, shall be paid to Grantor or its
successors, vendees or assigns. In the event of a sale hereunder, the
abstract of title to the Property, if any, and all policies of insurance
delivered as hereinabove provided, shall be assigned and delivered to the
purchaser at such sale; and Trustee is hereby directed to make such assignment
of insurance and in the name of the insured in such policy.
Upon any foreclosure of this Deed of Trust, whether by power of sale,
judicial foreclosure or otherwise, Beneficiary may bid for and acquire the
Property or any part thereof and in lieu of paying cash therefor may offset
the bid or bids to the extent of the Obligations then due hereunder, including
the Trustees fees and expenses. The Beneficiary upon so acquiring the
Property or any part thereof, shall be entitled to hold, lease, rent, operate,
manage and sell the same in any manner provided by applicable law.
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<PAGE> 26
28. Waiver of Redemption: Grantor hereby irrevocably waives and
--------------------
releases, to the fullest extent permitted by law, (a) any right of redemption
after the date of any sale of the Property upon foreclosure, whether statutory
or otherwise, in respect of the Property now or hereafter in force; (b) the
benefit of any and all valuation and appraisement laws now or hereafter in
force; (c) all exemption laws whatsoever and all moratoriums, extensions or
stay laws or rules, or orders of Court in the nature of either of them, now or
hereafter in force; and (d) any right to have the Property marshalled upon any
foreclosure of this Deed of Trust.
29. Expenses of Trustee and Beneficiary: All out-of-pocket costs and
-----------------------------------
expenses paid or incurred by Trustee and/or Beneficiary (including, without
limitation, attorneys' fees) (such expenses being defined as "FOOTHILL
EXPENSES" in the Loan Agreement), in any action, proceeding or dispute of any
kind in which Trustee and/or Beneficiary is made a party or appears as party
plaintiff or defendant, affecting Trustee or Beneficiary, this Deed of Trust,
the Notes, any Future Advance or the Property, including, but not limited to,
the enforcement of this Deed of Trust, any condemnation action involving the
Property, any action to protect the security hereof, or any case or proceeding
in probate or under Title 11 of the United States Code, with interest from the
time of payment by Trustee or Beneficiary, as the case may be, at the Default
Rate shall, on demand, be immediately due from Grantor and shall be added to
and included in the Obligations and shall be secured by this Deed of Trust.
30. Interest After Maturity: The principal amount of the Obligations
-----------------------
and any other amounts secured by this Deed of Trust and, if permitted by law,
any accrued interest thereon, shall bear interest from and after maturity,
whether or not resulting from acceleration, at the Default Rate, payable on
demand, but this shall not constitute an extension of time for payment of the
Obligations or such other amounts or accrued interest.
31. Attorneys' Fees: If this Deed of Trust shall be foreclosed, or
---------------
if any or all of the Notes or any instrument evidencing a Future Advance is
placed in the hands of an attorney for collection or is collected through any
court, including any bankruptcy court, Grantor promises to pay to the order of
Beneficiary the attorneys' fees, court costs, disbursements and other costs
incurred in collecting or attempting to collect the Obligations or enforcing
the Beneficiary's rights hereunder and under any other collateral securing the
Obligations, and all allowances provided by law, to the extent allowed by the
laws of the state in which the Property is located or any state in which any
of such other collateral for the Obligations is situated and to the extent
such fees and costs are actually paid or agreed to be paid, except such fees
as are paid to a salaried employee of Beneficiary, of the holder of the
Obligations, or of a receiver.
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<PAGE> 27
32. Discontinuance of Action: Beneficiary may from time to time, if
------------------------
permitted by law, take action to recover any sums, whether interest, principal
or any other obligation or sums, required to be paid under this Deed of Trust
or the Notes as the same become due, without prejudice to the right of Trustee
or Beneficiary thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Grantor existing when such earlier action
was commenced. If Beneficiary or Trustee shall have proceeded to enforce any
right under this Deed of Trust or the Notes and such proceedings shall have
been discontinued or abandoned for any reason, then in every such case
Grantor, Trustee and Beneficiary shall be restored to their former positions
and the rights, remedies and powers of all parties hereto shall continue as if
no such proceedings had been taken.
33. Taxes: Grantor shall pay any taxes except income taxes imposed
-----
on Trustee or Beneficiary relating to this Deed of Trust. Grantor shall not
claim or demand or be entitled to any credit or credits on account of the
Obligations by reason of the Impositions assessed against all or any part of
the Property or for any payments made pursuant to paragraph 5 hereof. No
deductions shall otherwise be made or claimed from the taxable value of all or
any part of the Property by reason of this Deed of Trust or the Obligations.
34. Recording, Filing and Other Fees: Grantor shall pay all
--------------------------------
recording and filing fees, all recording taxes and all other costs and
expenses in connection with the preparation, execution and recordation and
other manner of perfection of this Deed of Trust and any related documents,
and shall reimburse Beneficiary on demand for all costs and expenses of any
kind incurred by Beneficiary in connection therewith. Grantor will, at any
time on request of Beneficiary, execute or cause to be executed financial
statements, continuation statements, security agreements, or the like, in
respect of any Property. Grantor shall pay all filing fees, including,
without limitation, fees for filing continuation statements, in connection
with such financing statements.
35. No Waiver: Any failure by Beneficiary to insist upon the strict
---------
performance by Grantor of any of the Obligations shall not be deemed to be a
waiver of any of such Obligations, and Beneficiary, notwithstanding any such
failure, may thereafter insist upon the strict performance by Grantor of any
and all of the Obligations.
36. No Release: Grantor and any other Person now or hereafter
----------
obligated for the payment or performance of all or any part of the Obligations
shall not be released from paying and performing such Obligations and the lien
of this Deed of Trust shall not be affected by reason of (i) the failure of
Beneficiary
-24-
<PAGE> 28
to comply with any request of Grantor, or of any other Person so obligated, to
take action to foreclose this Deed of Trust or otherwise enforce any of the
provisions of this Deed of Trust or of any of the Obligations secured by this
Deed of Trust; (ii) the release, regardless of consideration, of the
obligations of any Person or Persons liable for payment or performance
of the Obligations or any part thereof; or (iii) any agreement or stipulation
extending the time of payment or modifying the terms of the Notes or any
instrument evidencing a Future Advance, and in the event of such agreement or
stipulation, Grantor and all such other Persons shall continue liable under
the Notes or such instrument, as amended by such agreement or stipulation
unless expressly released and discharged in writing by Beneficiary.
37. Release of Collateral: Beneficiary may release, regardless of
---------------------
consideration, the obligation of anyone liable for payment of any of the
Obligations secured hereby, or may release any part of the Property or any
other collateral now or hereafter given to secure the payment of the
Obligations or any part thereof, without impairing, reducing or affecting the
obligations of Grantor under the Notes or any instrument evidencing a Future
Advance, the remainder of the security of this Deed of Trust or the priority
of the rights created by this Deed of Trust.
38. Rights Cumulative: The rights and remedies provided for in this
-----------------
Deed of Trust, or which Beneficiary may have otherwise, at law or in equity,
shall be distinct, separate and cumulative and shall not be deemed to be
inconsistent with each other, and none of them, whether or not exercised by
Beneficiary, shall be deemed to be in exclusion of any other, and, to the
extent permitted by law, any two or more of all such rights and remedies may
be exercised at the same time.
39. Severability: If any term or provision of this Deed of Trust or
------------
the application thereof to any Person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Deed of Trust, or the
application of such term or provision to Persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Deed of Trust shall be valid and
enforceable to the fullest extent permitted by law. If any payments
(including, without limitation, any interest payments) required to be made
hereunder or under the Notes shall be in excess of the amounts allowed by law,
the amounts of such payments shall be reduced to the maximum amounts allowed
by law.
40. Notices:
-------
(a) All notices, demands, consents, approvals and requests given
or required to be given by any party hereto to any other party hereto shall be
in writing.
-25-
<PAGE> 29
(b) All notices, demands, consents, approvals and requests by
Beneficiary or Trustee to Grantor shall be deemed to have been properly given
if personally delivered or sent by U.S. registered or certified mail, postage
prepaid, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger
delivery specified), addressed to Grantor at 2503 South Hanley Road, St.
Louis, Missouri 63144 to the attention of Gerald Mitchell, Chief Financial
Officer, Telefacsimile No. (314) 576-0704, or to such other address as Grantor
may from time to time designate by written notice to Beneficiary and Trustee
given as herein required.
(c) All notices, demands, consents, approvals and requests by
Beneficiary or Grantor to Trustee shall be deemed to have been properly given
if personally delivered or sent by U.S. registered or certified mail, postage
prepaid, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger
delivery specified), addressed to Trustee c/o Commonwealth Land Title
Insurance Company at 7980 Clayton Road, St. Louis, Missouri 63117,
Telefacsimile No. (314) 781-5451, or to such other address as Trustee may from
time to time designate by written notice to Beneficiary and Grantor given as
herein required.
(d) All notices, demands, consents, approvals and requests by
Grantor or Trustee to Beneficiary shall be deemed to have been properly given
if personally delivered or sent by U.S. registered or certified mail, postage
prepaid, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger
delivery specified), addressed to Beneficiary at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333 to the attention of Business
Finance Division Manager, Telefacsimile No. (310) 479-2690 or to such other
address as Beneficiary may from time to time designate by written notice to
Trustee and Grantor given as herein required.
(e) Except as otherwise specifically provided herein, notices,
demands, consents, approvals and requests sent by mail in the manner aforesaid
shall, unless otherwise specifically provided herein, be deemed received on
the earlier of the date of actual receipt or three (3) days after the deposit
thereof in the mail.
41. Indemnification Against Liabilities: Grantor will protect,
-----------------------------------
indemnify, save harmless and defend Trustee and Beneficiary from and against
any and all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
Beneficiary and/or Trustee by reason of (a) ownership of an interest in the
Property, (b) any accident or injury to or death of Persons or loss of or
damage to or loss of the use of property occurring on or about the Property or
any
-26-
<PAGE> 30
part thereof or the adjoining sidewalks, curbs, vaults and vault spaces,
if any, streets, alleys or ways, (c) any use, non-use or condition of the
Property or any part thereof or the adjoining sidewalks, curbs, vaults and
vault spaces, if any, streets, alleys or ways, (d) any failure on the part of
Grantor to perform or comply with any of the terms of this Deed of Trust, (e)
performance of any labor or services or the furnishing of any materials or
other property in respect of the Property or any part thereof made or suffered
to be made by or on behalf of Grantor, (f) any negligence or tortious act on
the part of Grantor or any of its respective agents, contractors, lessees,
licensees or invitees, or (g) any work in connection with any alterations,
changes, new construction or demolition of the Property. Grantor will pay and
save Trustee or Beneficiary harmless against any and all liability with
respect to any intangible personal property tax or similar imposition of the
State in which the Property is located or any subdivision or authority thereof
now or hereafter in effect, to the extent that the same may be payable by
Beneficiary in respect of this Deed of Trust or the indebtedness secured
hereby. All amounts payable to Beneficiary or Trustee under this paragraph
shall be payable on demand and shall be deemed Obligations secured by this
Deed of Trust and any such amounts which are not paid within ten (10) days
after demand therefor shall bear interest at the Default Rate from the date of
such demand. In case any action, suit or proceeding is brought against
Trustee or Beneficiary by reason of any such occurrence, Grantor, upon request
of Trustee and/or Beneficiary, as the case may be, will, at Grantor's expense,
resist and defend such action, suit or proceeding or cause the same to be
resisted or defended by counsel designated by Grantor and approved by Trustee
and Beneficiary. Notwithstanding anything to the contrary contained herein,
the foregoing indemnification shall not include demands, claims, liabilities
and losses suffered or incurred by Trustee and/or Beneficiary because of their
wilful misconduct or gross negligence.
42. Environmental Concerns.
----------------------
(a) To the best of Grantor's knowledge, none of the real property
owned and/or occupied by Grantor and located in the State of Missouri,
including, but not limited to, the Premises, has ever been used by previous
owners and/or operators to refine, produce, store, handle, transfer, process
or transport "Hazardous Substances" or "Hazardous Wastes", as such terms are
defined by applicable federal, state or local act, law, ordinance, rule or
regulation, whether now existing or hereafter in effect (hereinafter
collectively referred to as "Hazardous Substances" excluding, however, general
maintenance and cleaning substances which may be defined as "Hazardous
Substances" under applicable law), and the Grantor has not in the past, nor
does Grantor intend in the future, to use said real property, including, but
not limited to, the Premises, for the purpose of refining,
-27-
<PAGE> 31
producing, storing, handling, transferring, processing or transporting said
"Hazardous Substances."
(b) Grantor has not received a summons, citation, directive,
letter or other communication, written or oral, from any applicable
governmental agency concerning any intentional or unintentional action or
omission on either of Grantor's part resulting in the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping of Hazardous
Substances on or from the Premises.
(c) Grantor shall operate the Premises or cause it to be operated
in compliance with all applicable rules and regulations promulgated by all
applicable governmental environmental authorities and agencies.
Notwithstanding the foregoing, certain materials handled by Grantor may be
Hazardous Substances, but all Hazardous Substances are handled or used by
Grantor in accordance with all applicable State and Federal laws. Grantor
shall have the right in good faith to contest or appeal from such laws,
ordinance and regulations and any decision adverse to the Grantor based
thereon, but all costs, fees and expenses incurred in connection with such
proceedings shall be borne by the Grantor.
(d) Grantor shall not cause or permit to exist, as a result of an
intentional or unintentional action or omission on either of their part, a
releasing, spilling, leaking, pumping, emitting, pouring, emptying or dumping
of a Hazardous Substance on or from the Premises unless said release, spill,
leak, pumping, emitting, pouring, emptying or dumping is pursuant to and in
compliance with the conditions of a permit issued by the appropriate federal
or state governmental authorities.
(e) Should Grantor cause or permit any intentional or
unintentional action or omission resulting in the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping of Hazardous
Substances on or from the Premises without having obtained a permit issued by
the appropriate governmental authorities, Grantor shall promptly clean up the
same in accordance with the provisions of applicable State or Federal law.
(f) Grantor hereby agrees to defend, indemnify, and hold
Beneficiary harmless from and against any and all claims, losses, liabilities,
damages and expenses (including without limitation, cleanup costs and
attorneys' fees and expenses, including those arising by reason of any of the
aforesaid or an action against Grantor under this indemnity) arising directly
or indirectly from, out of, or by reason of any discharge of Hazardous
Substances, environmental compliant or any environmental, health or safety law
governing Grantor, its operations or the Premises, or any portion thereof. This
-28-
<PAGE> 32
Section 42 shall survive the foreclosure, expiration or other termination
of this Deed of Trust.
In the event of any inconsistency between the provisions of this Section
42 and the provisions of the Loan Agreement, the provisions of the Loan
Agreement shall prevail.
43. No Representations: By accepting or approving anything required
------------------
to be observed, performed or fulfilled, or to be given to Trustee or
Beneficiary pursuant to this Deed of Trust, including (but not limited to) any
officer's certificate, balance sheet, statement of profit and loss or other
financial statement, survey, appraisal or insurance policy Trustee and
Beneficiary shall not be deemed to have warranted or represented the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not be or constitute any warranty or representation with respect thereto
by Trustee or Beneficiary.
44. Substitute Trustee: Trustee, or any substitute Trustee, may be
------------------
removed at any time with or without cause, at the option of Beneficiary, by
written declaration of such removal signed by Beneficiary, without any notice
to or demand upon Trustee or substitute Trustee so removed, or Grantor or any
other person. If at any time Trustee or any substitute Trustee should be so
removed, or should absent himself from Missouri, die, or refuse, fail or be
unable to act as such Trustee or substitute Trustee, Beneficiary may appoint
any person, including itself, as substitute Trustee hereunder, without any
formality other than a written declaration of such appointment executed by
Beneficiary; and immediately upon such appointment, the substitute Trustee so
appointed shall automatically become vested with all the estate and title in
the Property, and with all of the rights, powers, privileges, authority,
options and discretions, and charged with all of the duties and liabilities,
vested in or imposed upon Trustee by this Deed of Trust, and any conveyance
executed by such substitute Trustee, including the recitals therein contained,
shall have the same effect and validity as if executed by Trustee.
45. Certain Definitions: The following terms shall, for all purposes
-------------------
of this Deed of Trust, have the respective meanings herein specified unless
the context otherwise requires:
(a) "Grantor" shall mean the Grantor herein named and any
subsequent owner or owners of the Property and its or their respective
successors and assigns;
(b) "Trustee" shall mean the Trustee herein named and any
substitute Trustee and their successor and assigns;
-29-
<PAGE> 33
(c) "Beneficiary" shall mean the Beneficiary herein named and any
subsequent beneficiary of this Deed of Trust, and its or their respective
successors and assigns;
(d) "Person" shall mean an individual, corporation, partnership,
trust, unincorporated organization or government, or any agency or political
subdivision thereof, or any business or legal entity; and
(e) "Lease" shall mean every lease or occupancy agreement for the
use or hire of all or any portion of the Property which shall be in effect at
the date hereof, or which shall hereafter be entered into by or on behalf of
Grantor.
46. Successors and Assigns: The terms, covenants and provisions of
----------------------
this Deed of Trust shall apply to and be binding upon Grantor and all
subsequent owners, encumbrances, tenants and subtenants of all or part of the
Property, and shall inure to benefit of Beneficiary, the successors and
assigns of Beneficiary, and all subsequent holders of this Deed of Trust, but
the provisions of this paragraph shall not be construed to modify the
provisions of paragraph 16.
47. Miscellaneous:
-------------
(a) This Deed of Trust and its provisions cannot be changed,
waived, discharged or terminated orally but only by an agreement in writing,
signed by the party against whom enforcement of the change, waiver, discharge
or termination is sought.
(b) This Deed of Trust and the rights of the parties hereunder
shall for all purposes be governed by the laws of the State of Missouri.
(c) This Deed of Trust shall be construed without regard to any
presumption or rule requiring construction against the party causing such
instrument or any portion thereof to be drafted.
(d) All terms and words used in this Deed of Trust, regardless of
the number or gender in which they are used, shall be deemed to include any
other number and any other gender as the context may require.
(e) The paragraph headings in this Deed of Trust and the index at
the beginning of this Deed of Trust are for convenience of reference only and
shall not limit or otherwise affect any of the terms hereof.
-30-
<PAGE> 34
(f) All covenants contained herein shall run with the Property
until the Obligations have been fully paid and performed.
(g) Time is of the essence in the payment or performance by
Grantor of all of its Obligations hereunder.
IN WITNESS WHEREOF, this Deed of Trust has been duly executed by Grantor
as of the day and year first above written.
GRANTOR:
K-V PHARMACEUTICAL COMPANY
By: /s/ Gerald R. Mitchell
---------------------------------
Name: Gerald R. Mitchell
Title: Vice President
5060340.03
-31-
<PAGE> 35
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On this 27th day of April, 1995, before me appeared Gerald R. Mitchell
to me personally known, who, being by me duly sworn did say that he is the
Vice President of K-V Pharmaceutical Company, a Delaware corporation, and that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation, and that instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said Gerald R.
Mitchell acknowledged said instrument to be the free act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in the County and State aforesaid the day and year first above written.
/s/ Suzanne Witkowsky
------------------------------------
Notary Public
My Commission Expires: 2-9-98
-32-
<PAGE> 36
EXHIBIT A
LEGAL DESCRIPTION OF PREMISES
Lot 2 of Westport Industrial Subdivision First Addition, according to
the plat thereof recorded in Book 106, page 12 in the St. Louis County
Recorder's Office.
<PAGE> 37
EXHIBIT B
TITLE AND WARRANTY EXCEPTIONS
<PAGE> 38
EXHIBIT C
SCHEDULE OF LEASES
None
<PAGE> 47
<TABLE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
EARNINGS (LOSS) PER SHARE CALCULATION
<CAPTION>
Year Ended March 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Calculation of Primary
Earnings (Loss) per Share:
Net Income (Loss) $(5,374,801) $(8,181,294) $ 1,055,252
Less dividends on preferred stock (421,750) (421,750) (421,750)
----------- ----------- -----------
Earnings (Loss) Attributed to
Common Stock $(5,796,551) $(8,603,044) $ 633,502
=========== =========== ===========
Average Number of Common
Shares and Common Share
Equivalents Outstanding:
Average common shares
outstanding 11,178,495 11,055,196 11,044,266
Common share equivalents
(after application of
treasury stock method) N/A N/A 438,883
----------- ----------- -----------
Average Common Shares and
Common Share Equivalents
Outstanding 11,178,495 11,055,196 11,483,149
=========== =========== ===========
Primary Earnings (Loss) per
Share <F1> $(0.52) $(0.78) $ 0.06
====== ====== ======
Calculations of Fully-Diluted
Earnings (loss) per Share:
Net income (loss) $(5,374,801) $(8,181,294) $ 1,055,252
Less dividends on preferred
stock (421,750) (421,750) (421,750)
Plus dividends not payable due
to preferred stock conversion 421,750 421,750 421,750
----------- ----------- -----------
Earnings (Loss) Attributed to
Common Stock $(5,374,801) $(8,181,294) $ 1,055,252
=========== =========== ===========
Average Number of Shares
Outstanding on a Fully-
Diluted Basis:
Average common shares
outstanding 11,178,495 11,055,196 11,044,266
Shares issuable upon
conversion of stock options 248,709 361,709 412,374
Common equivalent shares
for preferred stock 602,500 602,500 602,500
----------- ----------- -----------
Average Number of Shares
Outstanding on a Fully-
Diluted Basis 12,029,704 12,019,405 12,059,140
=========== =========== ===========
Fully-Diluted Earnings (Loss)
per Share <F2> $(0.45) $(0.68) $ 0.09
====== ====== ======
<FN>
<F1> The two-class method for Class A and Class B Common Stock is
not presented because the earnings (loss) per share is
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>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
--------------------
Particle Dynamics, Inc. (formerly known as Desmo Chemical Corpora-
tion), a New York Corporation, a wholly-owned subsidiary of KV
Pharmaceutical Company.
ETHEX Corporation, (formerly known as KV Pharmaceuticals
International, Inc.) a Missouri corporation, a wholly-owned
subsidiary of KV Pharmaceutical Company.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
------
We consent to the incorporation by reference in the registration
statements of KV Pharmaceutical Company on Form S-8 (File Numbers 2-
56793, 2-76173, 33-36400 and 33-44927) of our report dated June 28,
1995, on our audits of the consolidated financial statements of KV
Pharmaceutical Company as of March 31, 1995 and 1994, and for each of
the three years in the period ended March 31, 1995, which report is
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
June 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the twelve-month period ended March 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,075,713
<SECURITIES> 0
<RECEIVABLES> 8,067,772
<ALLOWANCES> 174,187
<INVENTORY> 6,591,587
<CURRENT-ASSETS> 15,827,836
<PP&E> 19,995,369
<DEPRECIATION> (11,827,495)
<TOTAL-ASSETS> 29,027,782
<CURRENT-LIABILITIES> 6,901,091
<BONDS> 0
<COMMON> 59,863
0
2,410
<OTHER-SE> 9,911,909
<TOTAL-LIABILITY-AND-EQUITY> 29,027,782
<SALES> 39,742,554
<TOTAL-REVENUES> 39,742,554
<CGS> 26,065,642
<TOTAL-COSTS> 45,117,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,275,622
<INCOME-PRETAX> (5,374,801)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,374,801)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,374,801)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.45)
</TABLE>
