<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
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, 1996 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
--------------------------
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 5,003,652 shares of Class A and
2,463,400 shares of Class B Common Stock held by nonaffiliates of the
Registrant as of June 21, 1996 was $63,171,107 and $31,408,350 respectively.
As of June 21, 1996, the Registrant had outstanding 7,187,343 and 4,649,436
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 1996
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.
<PAGE> 2
Item 1. Description of Business.
------------------------
(a) General Development of Business.
-------------------------------
K-V Pharmaceutical Company ("KV") was incorporated
under the laws of Delaware in 1971 as a successor to a business
originally founded in 1942. Victor M. Hermelin, KV's Chairman
and founder, obtained initial patents for early controlled
release and enteric coated technologies in the early 1950's.
KV is a pioneer in the area of advanced drug
delivery technologies which enhance the effectiveness of new
therapeutic agents, existing pharmaceutical products and
nutritional supplements. The Company has developed a
diverse portfolio of ten technologies, including three oral
controlled release technologies, four site-specific oral and
topical delivery technologies, and three tastemasking
technologies. These systems, which are used in the
Company's products and the products of its marketing
licensees, are designed to improve and control the
absorption and utilization by the human body of active
pharmaceutical compounds, allowing the compounds to be
administered less frequently with potentially reduced side
effects, improved drug efficacy and/or enhanced patient
compliance. Additionally, the Company continually applies
its scientific expertise and development experience to
refine and enhance its existing drug delivery systems and
formulation technologies and to create new technologies that
may be used in its drug development programs.
KV licenses the marketing rights for products
developed with these drug delivery technologies to major
domestic and international brand name pharmaceutical
marketers in return for license fees, milestone payments,
research reimbursement and manufacturing and royalty
revenues.
In February, 1990, KV established a generic
marketing capability through a wholly-owned subsidiary,
ETHEX Corporation ("ETHEX"), which makes KV one of the only
drug delivery research and development companies that also
markets "technology distinguished" generic products.
Through ETHEX, the Company directly markets and distributes
generic products to national drug store chains, wholesalers
and distributors, as well as independent pharmacies and mail
order firms.
KV's other 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. Through PDI, the Company develops
and markets specialty pharmaceutical raw materials,
including directly compressible and microencapsulated
ingredients used in pharmaceutical processing, tastemasked
vitamins and minerals for the nutritional and food
industries, and other products in combination with KV's
controlled release and tastemasking technologies.
(Hereinafter, KV, ETHEX and PDI are sometimes
referred to collectively as "KV" or the "Company.")
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(b) Industry Segments
-----------------
The Company operates principally in one
industry segment, consisting of pharmaceutical development,
manufacturing and marketing. The Company 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. 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, when marketing rights to
products using KV's advance drug delivery technologies are
licensed.
(c) Narrative Description of Business
---------------------------------
The Company is engaged in the formulation and
commercialization of brand name prescription, generic
prescription and over-the-counter ("OTC") products utilizing
the Company's proprietary drug delivery technologies. The
Company is a pioneer in the area of advanced drug delivery
technologies, and has developed and patented a wide variety
of drug delivery and formulation technologies, including
controlled release, site specific and tastemasking systems.
These systems, which are used in the Company's products and
the products of its marketing licensees, are designed to
improve and control the absorption and utilization by the
human body of active pharmaceutical compounds, allowing the
compounds to be administered less frequently with
potentially reduced side effects, improved drug efficacy and
/or enhanced patient compliance.
The Company develops generic drugs using its
proprietary technologies that it markets and distributes
through its wholly-owned subsidiary, ETHEX Corporation.
ETHEX currently offers 33 products, 20 of which were
launched over the past two fiscal years and 27 of which
utilize KV's drug delivery systems. Approximately 10
additional products are expected to be launched during
fiscal 1997. ETHEX Corporation distributes and markets
these technology distinguished generic products directly to
various markets and classes of trade customers, including
wholesalers, chains, distributors, mail order houses,
independent pharmacies, large HMOs and PPOs. ETHEX has
achieved a 100% penetration in the 25 largest wholesalers
and chains. Development of generic versions of existing
brand name products is typically less costly and time
consuming than the development of new drug products, because
generic drugs that require FDA approval typically contain
pharmaceutical compounds previously approved by the FDA and
generally qualify for the use of an abbreviated testing and
approval process.
The Company also enters into development and
licensing arrangements with companies that (i) hold patent or
marketing exclusivity rights to existing pharmaceutical products
that may benefit from the application of KV's proprietary drug
delivery technologies, (ii) are developing new therapeutic
agents that require delivery systems or formulation capabilities
such as those offered by the Company, and/or (iii) can
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market and sell the products developed by the Company. To
date, KV has entered into 15 such agreements with various
pharmaceutical marketers, including Glaxo Wellcome, Sandoz,
Janssen Pharmaceutica (Johnson & Johnson) and Taisho Ltd. of
Japan. Under these agreements, KV generally develops a
product which utilizes its drug delivery system in return
for license fees, milestone payments, research reimbursement
and manufacturing and royalty revenues. The Company's
licensee is generally responsible for clinical trials,
regulatory approvals and marketing activities. In certain
cases, the Company may develop a product, conduct clinical
trials and seek regulatory approval before entering into a
licensing arrangement. In 1996, the Company also entered
into an agreement with a major pharmaceutical company to
explore the development of products utilizing KV's drug
delivery technologies.
Particle Dynamics, Inc. has developed and
markets to the pharmaceutical, nutritional and food
industries four distinct lines of specialty raw material
products. DESCOTE(R) is a family of tastemasked vitamin and
mineral products particularly applicable to chewable OTC
pharmaceutical products and children's vitamins. DESTAB(TM)
is a family of direct compression products which enable
pharmaceutical manufacturers to produce tablets and caplets
in a more efficient manner. DESTRIT(TM) is a family of low dose
vitamin products for direct compression into vitamin tablets
and VITACOTE(TM) is a line of stabilized vitamins for use in
the pharmaceutical and food industries.
Since 1994, the Company has strategically de-
emphasized its historical business of providing lower margin
short term supply contract manufacturing services to
pharmaceutical companies and has implemented an integrated
business strategy that allows the Company to commercialize
its drug delivery technologies in a variety of ways,
principally through the development of both brand name and
generic pharmaceutical products. During fiscal 1996,
approximately 69% of the Company's net revenues were derived
from the sale of generic products by ETHEX, in contrast to
63% in fiscal 1995, and 35% in fiscal 1994.
The Company's marketing strategy is to maintain
its position as a leading developer of innovative drug
delivery systems and to apply its technologies to the
formulation and commercialization of technologically
distinguished brand name and generic drugs. This marketing
strategy is comprised of three main components:
The Development of Technologically
Distinguished Generic Drugs. The Company applied and
continues to apply its drug delivery systems and formulation
capabilities to develop technologically distinguished
generic drugs. The Company does so by (i) identifying and
replicating brand name drugs that are either off patent or
are approaching patent expiration and which require advanced
drug delivery systems, or (ii) applying the Company's
tastemasking formulations to an off patent drug in order to
meaningfully increase patient compliance and the drug's
commercial appeal.
The Development of Brand Name Pharmaceuticals.
The Company applies its proprietary drug delivery
technologies in the formulation and development of
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brand name prescription and OTC pharmaceutical products. The
Company plans to continue to enter into long term licensing
agreements with pharmaceutical marketing companies under
which the Company develops products which utilize its drug
delivery systems in return for license fees, milestone
payments, research reimbursement and manufacturing and
royalty revenues on sales of the products.
Selective Acquisitions and In-Licensing
Opportunities. The Company is actively seeking
opportunities to acquire additional products, product
rights, technologies, and distribution channels that
complement the Company's business and which can be
integrated into the Company's existing research,
manufacturing or distribution operations or provide
additional products, technologies or marketing and sales
capabilities.
DRUG DELIVERY TECHNOLOGIES
- --------------------------
KV's proprietary drug delivery and formulation
technologies enhance the effectiveness of new therapeutic
agents, existing pharmaceutical products and nutritional
supplements, such as vitamins and minerals. 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
or unsafe side effects. During the 1990's, KV has continued
to develop and introduce important new generations of
technologies which represent significant advancements in the
field of drug delivery systems. These drug delivery systems
are generally organized in the areas of "controlled
release", "tastemasking" and "site specific" technologies.
These technologies are based on the absorption, distribution
and excretion characteristics of individual drugs in the
body and the many physiological and environmental variances
which influence drug ingestion and utilization. Many of
these technologies have been used successfully for the
commercialization of products currently being marketed by
the Company and its pharmaceutical marketing licensees. The
following describes the Company's principal drug delivery
technologies.
Controlled Release Technologies
- -------------------------------
The Company has developed a number of
controlled release drug delivery systems and formulation
techniques that tailor the drug release profiles of certain
orally administered pharmaceuticals and nutritional
supplements. These systems, which provide for a single oral
dose that releases the active ingredient over periods
ranging from six to 24 hours, are designed to improve
patient compliance, improve drug effectiveness and reduce
potential side effects. These technologies have been used
to formulate tablets, capsules and caplets that deliver
single therapeutic compounds, as well as multiple active
compounds, each requiring different release patterns within
a single dosage form.
KV/24(R) is a precisely controlled drug delivery
system that can be taken orally once every 24 hours, affording the
patient a reduced dosing regimen and dramatically reducing commonly
reported side effects. KV/24(R) is also a multi-particulate
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technology that can combine several different drug compounds,
each requiring its own unique release profile, in a single dosage
form. KV/24(R) systems have been developed in capsule and tablet
form for a number of prescription and OTC products.
METER RELEASE(R) is a twice a day dosing, polymer-
based drug delivery system which offers different release
characteristics than KV/24(R) and is used for products that
require a drug release rate of between eight and 12 hours.
METER RELEASE(R) systems have been developed in tablet, capsule
and caplet form and have been commercialized in the
cardiovascular, gastrointestinal and upper respiratory
categories through products marketed by ETHEX Corporation
and under licensing agreements in various therapeutic
categories.
MICRO RELEASE(R) is a micro-particulate
formulation that employs smaller particles than KV/24(R) and
METER RELEASE(R). MICRO RELEASE(R) encapsulates therapeutic
agents which improve a drug's absorption in the body where
precise release profiles are less important. MICRO RELEASE(R)
has been commercialized in prescription and OTC nutritional
products, including various prenatal vitamins marketed
through ETHEX Corporation.
Tastemasking Technologies
- -------------------------
KV has been at the forefront in the development
of pharmaceutical formulations capable of improving the
flavor of unpleasant tasting drugs. The Company has
developed numerous platforms for its tastemasking
technologies, including liquid, chewable and dry powder
formulations.
FlavorTech(TM) is a liquid formulation technology
designed to reduce bad tasting therapeutic products.
FlavorTech(TM) has been commercialized in cough/cold syrup
products marketed through ETHEX Corporation and has special
application to other products, such as antibiotic, geriatric
and pediatric pharmaceuticals. FlavorTech(TM) is the subject
of a recent licensing agreement with Sandoz Pharmaceuticals
Corporation for one of its liquid cough/cold products.
TASTELESSE(R) is a tastemasking technology which
incorporates a dry powder, microparticulate approach to
reducing objectionable tastes by sequestering the unpleasant
drug agent in a specialized matrix. The TASTELESSE(R)
technology can be formulated into chewable tablets or into
packets that can be sprinkled on food, taken directly into
the mouth, or stirred into water or other liquid before
swallowing. This formulation technique has the effect of
"shielding" the drug from the taste receptors without
interfering with the dissolution and ultimate absorption of
the agent within the gastrointestinal tract. TASTELESSE(R) may
be used in connection with such products as macrolide
antibiotics, amino acids, vitamins and other unpleasant
tasting drug compounds.
LIQUETTE(R) is a tastemasking system which
incorporates unpleasant tasting drugs into a hydrophilic
and lipophilic polymer matrix to suppress the taste of a
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drug. This technology is used for mildly to moderately
distasteful drugs. The LIQUETTE(R) technology has been successfully
commercialized in Japan through a licensing agreement with
SS Pharmaceutical.
Site Specific Technologies
- --------------------------
KV's site specific technologies use advanced
polyphasic principles that result in a complex emulsion
which adheres to the desired tissue and controls the release
of the drug. The Company has developed a number of site
specific systems and formulations that it tailors to the
desired route of administration. To date, the Company has
applied its site specific technologies in cream, lotion,
lozenge and suppository form to deliver therapeutic agents
to vaginal, rectal, oral, skin, pharyngeal and esophageal
tissues.
SITE RELEASE(R) is a patented, controlled release
bioadhesive delivery system which incorporates advanced
polyphasic principles to create a bio-emulsion system
capable of delivering therapeutic agents in oral, topical
and vaginal forms. To the Company's knowledge, SITE
RELEASE(R) is the only bioadhesive delivery system that is
clinically proven.
SITE RELEASE(R) is the subject of licensing and
development agreements with such companies as Syntex
Corporation, Taisho Ltd. of Japan, J. Uriach & Cia of Spain
and others, to develop products for the treatment of topical
and vaginal fungal infections.
OraSite(R) is a controlled released mucoadhesive
delivery system administered orally in a solid or liquid
form. A drug formulated with the OraSite(R) technology may be
formulated as a liquid or as a lozenge in which the dosage
form liquefies upon insertion and adheres to the mucosal
surface of the mouth, throat and esophagus. OraSite(R)
possesses characteristics particularly advantageous to
therapeutic areas such as oral hygiene, sore throat and
periodontal and upper gastrointestinal tract disorders.
Trans-E(TM) (for transesophageal) is a new and
novel bio-adhesive, controlled release delivery system which
may permit oral delivery of compounds that normally would be
degraded if administered orally, such as growth hormone,
calcitonin and other protein/peptides and other complex
compounds. Trans-E(TM) was specifically designed to provide
an oral delivery alternative to biotechnology and other
compounds that currently are injected or infused.
BioSert(R) is a patented, bio-adhesive, controlled
release system which at room temperature is a solid rectal
or vaginal suppository and after insertion becomes a
bioadhesive long acting cream. BioSert(R) has particular
applications to therapeutic areas such as antifungals,
narcotic analgesics and anti-arthritics.
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COMPETITION
- -----------
Competition in the development and marketing of
pharmaceutical products is intense and characterized by
extensive research efforts and rapid technological progress.
Many companies, including those with financial and marketing
resources and development capabilities substantially greater
than those of the Company, are engaged in developing,
marketing and selling products that compete with those
offered by 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 technologies.
The Company also sells directly to various
markets and classes of customers with respect to its
technologically distinguished generic products marketed by
ETHEX Corporation. The Company believes ETHEX is subject to
active competition from numerous firms. The primary
competitive factors in this area are customer service,
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 and distribute similar products.
REGULATION
- ----------
The design, development and marketing of
pharmaceutical compounds are intensively regulated by the
Federal 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 statues 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 Practice ("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
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are operated in compliance with cGMP. The certifications
necessary for the release of seized products were substantially
completed by June 1994. In December 1995, the Company was
informed by the FDA that it had been found to be in substantial
compliance with cGMP requirements, resulting in the expiration of
certain requirements of the Agreement, including the requirement
that the Company submit cGMP data with respect to all solid
oral dosage drugs manufactured by the Company before
releasing such drugs for sale to the public.
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 KV or its client pharmaceutical
companies in fiscal 1992 through 1996 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 the Company 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's growth as well as in
its drug delivery research business.
Some raw materials essential to the Company's
business are furnished
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by its customers for conversion to finished products. During
fiscal 1996, 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
collective knowledge and experience of its management and
personnel and their ability to develop and enhance drug
delivery technologies and products developed from such
technologies are also of competitive significance.
The Company presently owns 38 domestic and
foreign patents expiring through 2013 and 24 trademarks
expiring through 2007 (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.
In order to protect its goodwill, the Company
has applied for trademark protection for its technology
names such as SITE RELEASE(R), KV/24(R), FlavorTech(TM),
OraSite(R), METER RELEASE(R), MICRO 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 1996 and 1995, 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
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contract manufacturing business segment with lead times ranging
from several months and purchase orders covering up to one year
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 relative to sales or income for a
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
$4,629,000 in fiscal 1996, $4,795,000 in fiscal 1995, and
$4,805,000 in fiscal 1994. The estimated dollar amount
contributed by customers to these amounts was approximately
$70,000 in fiscal 1996, $271,000 in fiscal 1995 and $200,000
in fiscal 1994.
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 9% 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 30, 1996, the Company had 304
employees. The Company is subject to a collective
bargaining agreement which expires in 1996 and covers 50
employees. A new collective bargaining agreement is expected
to be ratified in July, 1996. 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.
Item 2. Properties.
----------
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
in the process of being renewed.
In addition, the Company has the leases and the
owned facility shown
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in the following table:
<TABLE>
<CAPTION>
SQ FT LEASE RENEWAL
FACILITY USAGE LEASED EXPIRES OPTIONS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2629 S. Hanley Road Mfg. Oper. 18,000 11/30/97 5 years
821 Hanley Industrial Court Mfg. Oper. 5,000 11/30/97 3 years
8046-50 Litzsinger Road Mfg. Oper. 17,000 12/31/96 5 years
8056 Litzsinger Road Office/Maint. 3,000 12/31/96 5 years
2635 S. Hanley Road Mfg. Oper. 12,150 11/30/97 5 years
819 Hanley Ind'l Ct. Mfg. Oper. 5,000 11/30/97 3 years
2525 S. Hanley Road Mfg. Oper. 16,800 06/30/97 None
8054 Litzsinger Road Office 3,000 12/31/96 5 years
10888 Metro Court Office/Warehouse 81,810 09/30/99 10 years<F*>
2601 S. Hanley Road PDI Office 1,480 04/30/97 5 years
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.
Item 3. Legal Proceedings.
-----------------
On June 14, 1993, a consent decree agreement
was executed between the Company and the FDA which required
the Company to take various actions to assure that the
Company's products are manufactured in conformity with cGMP
and that KV facilities are operated in compliance with cGMP.
In December 1995, the Company was informed by the FDA that
it had been found to be in substantial compliance with cGMP
requirements, resulting in the expiration of certain
requirements of the Agreement, including the requirement
that the Company submit cGMP data with respect to all solid
oral dosage drugs manufactured by the Company before
releasing such drugs for sale to the public. 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
12
<PAGE> 13
erythromycin oral suspension product previously
manufactured by the Company and (2) two misdemeanor counts
involving the shipment of two lots of the same product,
inappropriately labeled as to their shelf life. Under the
plea agreement, the Company agreed to pay a fine of $500,000
and costs of $100,000 in installments of $75,000 every six
months over 3 1/2 years, beginning in July 1995.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
13
<PAGE> 14
<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 AGE POSITION HELD AND PAST EXPERIENCE
- ---------------------------------------------------------------
<C> <C> <S>
Victor M. Hermelin 82 Director, Chairman of the Board
and Treasurer of the Company.
Marc S. Hermelin 54 Director, Vice-Chairman of the
Board and Chief Executive
Officer<F2>.
Alan G. Johnson 61 Director and Secretary of the
Company. Attorney at Law and
Member in the law firm of Gallop,
Johnson & Neuman, L.C. since 1976;
Director of MRL, Inc.; Siboney
Corporation and Triax
Communications Corporation
Garnet E. Peck, Ph.D. 65 Director of the Company since
1994. Professor of Industrial
Pharmacy and Director of
Industrial Pharmacy for Purdue
University School of Pharmacy and
Pharmacal Sciences since 1967.
Raymond F. Chiostri 62 Vice President and Group President
of KV since 1986 and Chief
Executive Officer of Particle
Dynamics, Inc. since 1995.
President - Pharmaceutical
Division of KV 1986 to 1995.
Gerald R. Mitchell 57 Vice President of Finance since
1981.
Mitchell I. Kirschner 50 Corporate Vice President of
Business Development since 1989.<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.
<F2>Victor M. Hermelin is the father of Marc S. Hermelin and
father-in-law of Mitchell I. Kirschner.
</TABLE>
14
<PAGE> 15
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.
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 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
- --------------------
FISCAL 1996 FISCAL 1995
---------------- ---------------
QUARTER High Low High Low
- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C>
First 8 1/2 5 3/8 9 3/8 7 1/4
Second 10 1/8 6 3/4 9 1/4 6 1/2
Third 13 3/8 7 3/4 8 4 3/8
Fourth 17 7/8 11 1/4 7 1/2 5 1/8
<CAPTION>
CLASS B COMMON STOCK
- --------------------
FISCAL 1996 FISCAL 1995
---------------- ---------------
QUARTER High Low High Low
- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C>
First 8 1/2 5 5/8 9 1/8 7 3/8
Second 10 7 1/2 9 1/4 6 1/2
Third 13 3/8 7 3/4 7 7/8 4 5/8
Fourth 17 7/8 11 1/2 7 1/2 5 1/4
</TABLE>
No cash dividends were paid on the Company's
Class A Common Stock or Class B Common Stock in fiscal 1996
or 1995. See Note 2 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
15
<PAGE> 16
B Common Stock as of June 21, 1996 was 742 and 677, 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).
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
($ in 000's, except per share data)
Years Ended March 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $49,789 $39,743 $38,171 $43,496 $42,019
% Change 25.3 4.1 (12.2) 3.5 19.6
Net income
(loss)<Fc> 4,043 (5,375) (8,181) 1,055 90
Net income (loss)
per common
share<Fa><Fb><Fc> 0.31 (.52) (.78) .06 (.05)
Total assets<Fc> 29,170 29,028 31,802 39,331 33,653
Long-term debt
and other 3,452 12,153 13,323 11,886 9,040
Shareholders'
Equity<Fc> 20,550 9,974 13,343 21,631 20,993
<FN>
NOTES:
- -----
<Fa> After deducting preferred dividends of $421,750 or $.04
per common share in 1996, 1995, 1994 and 1993 and
$593,696 or $.06 per common share in 1992.
<Fb> There were no cash dividends paid on any shares of
common stock during the five years ended March 31,
1996.
<Fc> Fiscal year 1992 has 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>
16
<PAGE> 17
Item 7. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations, and Liquidity and Capital Resources
-----------------------------------------------
(a) Results of Operations
---------------------
The following table summarizes the Company's
historical results of operations as a percentage of revenues
for fiscal years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Fiscal Year Ended
1996 1995 1994
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ETHEX (generic products) $34,498 69% $24,939 63% $13,532 35%
KV (manufacturing &
licensing) 7,430 15 7,729 19 16,702 44
PDI (pharmaceutical
compounds) 7,861 16 7,075 18 7,937 21
------- --- ------- --- ------- ---
Net Revenues $49,789 100% $39,743 100% $38,171 100%
Costs and Expenses:
Manufacturing costs $26,260 53% $26,066 66% $27,558 72%
Research and
development 4,559 9 4,525 11 5,605 14
Selling and administrative 12,749 25 11,979 30 11,926 31
Other, Net 2,088 4 2,548 6 1,263 3
------- --- ------- --- ------- ---
Total costs & expenses $45,656 91% $45,117 113% $46,352 121%
Income (loss) before
income taxes 4,133 9 (5,375) (13) (8,181) (21)
Net income (loss) $4,043 8% $(5,375) (13)% $(8,181) (21)%
======= === ======= === ======= ===
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
- -----------------------------------
Revenues. Net revenues increased $10.1 million,
or 25%, to $49.8 million during fiscal 1996 from $39.7
million in fiscal 1995. This sales growth was primarily due
to an increase in the volume of new and existing generic
products sold by ETHEX and increased licensing revenue. Net
revenues from ETHEX increased $9.6 million, or 39%, to $34.5
million during fiscal 1996 from $24.9 million in fiscal
1995. This increase was primarily due to the launch of ten
new generic products during fiscal 1996, in addition to
increased sales in products introduced in the prior year.
Licensing revenues increased $1.5 million to $2.3 million
during fiscal 1996 due to an agreement concluded with a
major pharmaceutical manufacturer to explore the development
of products utilizing KV's drug delivery technologies. The
Company recognized $1.7 million of licensing revenue from
this transaction. Net revenues derived from the sale of
17
<PAGE> 18
pharmaceutical compounds by PDI increased $.8 million, or
11%, to $7.9 million during fiscal 1996. This increase is
attributable to the introduction of new products for the
over-the-counter DESCOTE(R) and DESTAB(TM) product lines. Those
increases were partially offset by an expected decrease in
revenues derived from contract services to $5.1 million in
fiscal 1996 from $7.0 million in fiscal 1995 primarily due
to the Company's continued de-emphasis of its lower margin
contract manufacturing business in order to develop and
market higher margin technologically distinguished generic
products through ETHEX.
Costs and Expenses. Manufacturing costs
increased $.2 million, or less than 1%, to $26.3 million
during fiscal 1996 from $26.1 million in fiscal 1995.
Manufacturing costs as a percentage of revenues decreased to
53% from 66%. This percentage decrease was primarily due to
the continued growth in sales of higher margin generic
products by ETHEX.
Research and development costs increased
$34,000, or less than 1%, to $4.6 million during fiscal 1996
from $4.5 million in fiscal 1995. This increase was due to
higher personnel costs. The Company expects to continue
spending for research and development in the future,
emphasizing the development of additional generic products
for sale by ETHEX, as well as new drug delivery
technologies.
Selling and administrative expenses increased
$.7 million, or 6%, to $12.7 million during fiscal 1996 from
$12.0 million in the same period in fiscal 1995. However,
as a percentage of revenue, selling and administrative
expenses decreased to 25% from 30%. The increase in selling
and administrative expenses was primarily related to the
Company's selling and promotional activities associated with
the significant growth experienced in the sales of new and
existing generic products marketed by ETHEX.
Interest expense increased $.1 million, or 8%,
to $1.4 million during fiscal 1996 from $1.3 million in
fiscal 1995. Such increase resulted from higher effective
interest rates and higher levels of average borrowing to
support growth in the fiscal 1996 period. The income tax
provision was $90,000 for fiscal 1996 compared to zero in
fiscal 1995. The tax provision of $90,000 was due to the
effect of the alternative minimum tax. Otherwise, no
provision was made for income taxes as a result of available
net operating loss carryforwards. As of March 31, 1996, the
Company's net operating loss carryforwards were $8.9 million.
Net Income (Loss). As a result of the factors
described above, net income improved $9.4 million to $4.0
million for fiscal 1996 from a net loss of $5.4 million in
fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
- -----------------------------------
Revenues. Net revenues increased $1.6 million,
or 4%, to $39.7 million during fiscal 1995 from $38.2
million in fiscal 1994. This increase was primarily due to
the increase in revenues derived from the sales of generic
products by ETHEX. Net revenues from ETHEX increased
$11.4 million, or 84%, to $24.9 million during fiscal
18
<PAGE> 19
1995 from $13.5 million in fiscal 1994. This increase was
primarily due to the introduction of ten new generic
products during fiscal 1995 and increased sales of existing
ETHEX products. Net revenues derived from the sale of
pharmaceutical compounds by PDI decreased $.9 million, or
11%, to $7.0 million during fiscal 1995 from $7.9 million in
fiscal 1994. This decrease was primarily a result of a
general decline in sales of vitamins. Increases from the
sale of generic products by ETHEX were partially offset by
an expected 54% decrease in revenues derived from
manufacturing and licensing arrangements to $7.7 million in
fiscal 1995 from $16.7 million in fiscal 1994, primarily due
to the Company's strategic de-emphasis of its lower margin
contract manufacturing business in order to focus on the
development and marketing of higher margin technologically
distinguished generic products through ETHEX.
Costs and Expenses. Manufacturing costs
decreased $1.5 million, or 5%, to $26.1 million during
fiscal 1995 from $27.6 million in fiscal 1994.
Manufacturing costs as a percentage of revenues decreased to
66% from 72%. This decrease was primarily due to a
significant improvement in the mix of ETHEX products. While
normal manufacturing costs associated with certain
production and laboratory expenses were reduced, these
reductions were more than offset by product testing and
validation expenses incurred related to new generic products
introduced by ETHEX and the write down of inventories of
materials associated with discontinued lower margin products
previously manufactured by the Company for third parties.
Fiscal 1994 manufacturing costs increased due to production
inefficiencies and additional laboratory testing in the
manufacturing process related to the release of seized
products. The additional laboratory testing in connection
with the FDA action is considered by the Company as a one-
time charge and does not reflect any required increase in
manufacturing costs associated with ongoing validation.
Research and developments costs decreased $1.1
million, or 20%, to $4.5 million during fiscal 1995 from
$5.6 million in fiscal 1994. This decrease was primarily due
to reduced materials and supplies consumed.
Selling and administrative expenses increased
to $12.0 million during fiscal 1995 from $11.9 million in
fiscal 1994. Selling and administrative expenses as a
percentage of revenues decreased to 30% from 31%. The
slight increase in selling and administrative expenses was
primarily related to the Company's selling and promotional
activities associated with the increase in sales of generic
products marketed by ETHEX and was partially offset by
reduced selling expenses related to PDI.
Interest expense increased $.4 million, or 44%,
to $1.3 million during fiscal 1995 from $.9 million in
fiscal 1994. Such increase resulted from significantly
higher effective interest rates charged by the Company's
former lender and higher levels of average borrowing in the
fiscal 1995 compared to fiscal 1994. The Company made no
provision for income taxes in 1995 or 1994 as a result of
available net operating loss carryforwards. As of March 31,
1995, the Company's net operating loss carryforwards were
$11.1 million.
19
<PAGE> 20
Net Income/(Loss). As a result of the factors
described above, the Company recorded a net loss of $5.4
million in fiscal 1995 compared to a net loss of $8.2
million in fiscal 1994.
(b) Liquidity and Capital Resources
-------------------------------
The following table sets forth selected balance
sheet data and ratios for fiscal years 1994, 1995 and 1996.
<TABLE>
<CAPTION>
At March 31,
($ in 000's)
------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Working Capital Ratio 3.7 to 1 2.3 to 1 3.4 to 1
Quick Ratio 2.0 to 1 1.3 to 1 1.4 to 1
Debt to Debt Plus Equity .14 to 1 .57 to 1 .50 to 1
Total Liabilities to Equity .42 to 1 1.91 to 1 1.38 to 1
Cash and Equivalents $ 2,038 $ 1,076 $ 507
Working Capital 14,053 8,927 12,154
Long Term Debt 3,452 12,153 13,323
Stockholders' Equity 20,550 9,974 13,343
</TABLE>
Working capital for fiscal 1996 increased $5.1
million, or 57%, to $14.1 million due to an increase in
current assets of $3.4 million and a decrease in current
liabilities of $1.7 million. Net cash used in operating
activities for fiscal 1996 included increases in receivable
of $.6 million and inventories of $1.8 million, which
resulted primarily from increased sales volume of ETHEX
products, and a decrease in accounts payable and accrued
liabilities of $.6 million. These changes in receivables,
inventories and payables were more than offset by net income
and noncash charges aggregating $6.1 million, resulting in
cash provided by operationing activities of $3.1 million for
fiscal 1996.
At the end of fiscal 1996, the Company's "quick
assets", cash, cash equivalents and accounts receivable
increased $1.6 million (18%) from the prior year, while
current liabilities decreased $1.7 million (25%) resulting
in a "quick ratio" of 2.0 to 1 compared to 1.3 to 1 at the
end of 1995.
The debt-to-debt-plus-equity and total-
liabilities-to-equity ratios for fiscal 1996 decreased
because of the impact of the net profit for the year, the
repayment of debt and $5.0 million proceeds from the sale of
stock options as part of an agreement with a major
pharmaceutical company. For fiscal 1995, the debt-to-debt-
plus-equity and total-liabilities-to-equity ratios increased
because of the impact of the net loss for the year, which
was partially offset by a $2 million capital infusion from
the sale of Class A Common Stock.
Investing activities in fiscal 1996 reflected
capital expenditures of $.8 million and net expenditures
for other assets of $.5 million, which were provided for
20
<PAGE> 21
through operations and the proceeds received for the
reimbursement of clinical costs related to Deferred Improved
Drug Entities(TM).
In January 1996, the Company concluded an
agreement with a major pharmaceutical company to explore the
development of products utilizing KV's drug delivery
technologies. Upon signing of the Agreement, KV received $5
million, as well as certain other considerations, plus $5.0
million for the sale of certain Class A common stock options
issued to the other party. The accounting treatment for the
funds received (other than from the sale of options) was to
reimburse the Company for, and eliminate from its balance
sheet, $2.5 million of Deferred Improved Drug Entities(TM),
receivables and inventory of $.4 million, and patents and
trademarks relating to the Company's technologies of $.2
million, with $1.7 million allocated to licensing revenues
and $.2 million as a reimbursement of expenses. A portion
of the funds received was used to reduce the Company's
outstanding long term debt, which is reflected in financing
activities as a net decrease in borrowings of $9.8 million.
The Company's cash and cash equivalents on hand
at March 31, 1996 were $2.0 million. In addition, the
Company currently has in place a credit facility with
Foothill Capital Corporation under which it has the ability
to borrow up to $17.5 million. This credit facility
consists of a revolving loan, a term loan, a capital
equipment loan facility and letter of credit support of the
Company's outstanding industrial revenue bond and other
requirements. As of March 31, 1996, the Company repaid its
term loan in full ($5.8 million) simultaneously with
entering into an amendment to its credit facility which, at
the Company's request, allows Foothill to redisburse the
term loan to the Company, subject to certain conditions,
with the same amortization schedule as if the loan were
amortized over a period ending April 27, 2001. The
Company's capital equipment commitments at year-end totaled
approximately $50,000. As part of its credit facility, the
Company has available $1,500,000 to finance new capital
expenditures.
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
21
<PAGE> 22
research, clinical and regulatory efforts relating to the
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 and the Company's licensing
activities. During fiscal 1995 and 1996, ETHEX introduced
10 new products in each year, and it plans to launch a
similar number in fiscal 1997. The Company believes funds
generated from operating activities, the increased level of
credit available from the new credit facility and existing
cash will be adequate to fund the Company's requirements for
short term needs due to sales growth being experienced by
the continued anticipated growth of ETHEX or otherwise.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
22
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-----------------
To the Board of Directors and Shareholders
of KV Pharmaceutical Company:
We have audited the consolidated balance sheets of KV
Pharmaceutical Company and Subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period
ended March 31, 1996. 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 consolidated financial statements
referred to above present fairly, in all material respects
the financial position of KV Pharmaceutical Company and
Subsidiaries as of March 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three
years in the period ended March 31, 1996, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
St. Louis, Missouri
July 12, 1996
23
<PAGE> 24
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
<CAPTION>
ASSETS 1996 1995
- ------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,038,069 $ 1,075,713
Receivables, net 8,502,714 7,893,585
Inventories, net 8,450,162 6,591,587
Prepaid and other assets 229,358 266,951
------------ ------------
Total Current Assets 19,220,303 15,827,836
------------ ------------
Net Property and Equipment 7,621,217 8,167,874
------------ ------------
Deferred Improved Drug Entities(TM) - 2,962,827
Goodwill and other assets 2,328,190 2,069,245
------------ ------------
TOTAL ASSETS $ 29,169,710 $ 29,027,782
============ ============
LIABILITIES
- -----------
Current Liabilities:
Current maturities of long-term debt $ 712,328 $ 1,814,682
Accounts payable 2,068,265 2,565,247
Accrued liabilities 2,386,761 2,521,162
------------ ------------
Total Current Liabilities 5,167,354 6,901,091
Long-term debt 2,541,216 11,233,418
Other long-term liabilities 911,230 919,091
------------ ------------
TOTAL LIABILITIES 8,619,800 19,053,600
------------ ------------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock, $.01 par value; $25.00 stated and
liquidation value; 840,000 shares authorized; issued
and outstanding - 241,000 shares in 1996 and 1995 2,410 2,410
Class A and Class B Common Stock, $.01 par value;
60,000,000 shares of each authorized;
Class A-issued 7,120,614 and 6,762,897
in 1996 and 1995 71,207 67,629
Class B-issued 4,747,357 and 4,718,710
in 1996 and 1995 47,474 47,187
Additional paid-in capital 30,235,926 23,706,723
Retained deficit (9,752,154) (13,794,814)
Less: Treasury stock, 23,746 shares each of
Class A and Class B common stock, at cost (54,953) (54,953)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 20,549,910 9,974,182
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 29,169,710 $ 29,027,782
============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
24
<PAGE> 25
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31, 1996, 1995 and 1994
<CAPTION>
Revenues 1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Net Revenues $ 49,788,635 $ 39,742,554 $ 38,170,568
Costs and Expenses:
Manufacturing costs 26,259,638 26,065,642 27,557,936
Research and development 4,559,360 4,524,956 5,605,364
Selling and administrative 12,748,726 11,978,564 11,925,517
Interest expense 1,377,604 1,275,622 852,062
Amortization of intangible assets 710,647 672,571 410,983
Litigation settlement - 600,000 -
------------ ------------- ------------
Total costs and expenses 45,655,975 45,117,355 46,351,862
------------ ------------- ------------
Income (Loss) before income taxes 4,132,660 (5,374,801) (8,181,294)
Provision for income taxes 90,000 - -
------------ ------------- ------------
Net Income (Loss) $ 4,042,660 $ (5,374,801) $ (8,181,294)
============ ============= ============
Net Income (Loss) per Common Share
(after deducting preferred dividends):
$421,750 in 1996, 1995 and 1994. $ 0.31 $ (0.52) $ (0.78)
============ ============= ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
25
<PAGE> 26
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended March 31, 1996, 1995 and 1994
<CAPTION>
Class A Class B Additional Retained Total
Preferred Common Common Paid Earnings Treasury Shareholders'
Stock Stock Stock In Capital (Deficit) Stock Equity
--------- -------- -------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 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
------- -------- -------- ------------ ----------- --------- ------------
Stock Options issued - - - 5,000,000 - - 5,000,000
Stock Options exercised,
194,242 shares of Class A - 1,943 - 772,107 - - 774,050
192,122 shares of Class B - - 1,922 757,096 - - 759,018
Conversion of 163,475 shares of
Class B shares to Class A shares - 1,635 (1,635) - - - -
Net Income for 1996 - - - - 4,042,660 - 4,042,660
------- -------- -------- ------------ ----------- --------- ------------
Balance at March 31, 1996 $ 2,410 $ 71,207 $ 47,474 $ 30,235,926 $(9,752,154) $ (54,953) $ 20,549,910
------- -------- -------- ------------ ----------- --------- ------------
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
26
<PAGE> 27
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 4,042,660 $ (5,374,801) $ (8,181,294)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation, amortization and other non-cash charges 2,098,622 1,961,975 1,577,076
Changes in operating assets and liabilities:
(Increase) decrease in receivables (609,129) (1,181,549) 3,920,411
(Increase) decrease in inventories and other current
assets, net (1,820,982) 3,212,927 490,892
(Decrease) increase in accounts payable and
accrued liabilities, net (631,383) 1,216,963 (152,004)
Other (7,861) 574,991 132,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,071,927 410,506 (2,212,919)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (841,318) (334,404) (1,349,959)
(Decrease) increase in Deferred Improved Drug Entitites, net 2,450,241 - (7,000)
Other, net (457,006) (315,840) (151,720)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,151,917 (650,244) (1,508,679)
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from credit facilities 28,311,372 6,086,046 15,700,000
Repayment of credit facilities (34,130,635) (6,800,000) (14,450,000)
Proceeds from term loan facility 6,820,189 - -
Principal payments on long-term debt (10,795,482) (483,541) (471,086)
Proceeds from sale of common stock - 2,006,198 -
Dividends paid on preferred stock - - (115,982)
Exercise (repurchase) of common stock options 1,533,068 (234) 9,582
Proceeds from sale of stock options 5,000,000 - -
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,261,488) 808,469 672,514
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 962,356 568,731 (3,049,084)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,075,713 506,982 3,556,066
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,038,069 $ 1,075,713 $ 506,982
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
27
<PAGE> 28
NOTES TO CONSOLIDATED 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) Nature of Operations:
--------------------
KV is engaged principally in the development,
manufacture and marketing of technology-distinguished
pharmaceuticals and pharmaceutical compounds. Prescription
pharmaceuticals are sold primarily to domestic wholesalers,
drugstore chains, distributors and independent pharmacies
nationwide, while contract manufacturing and the sale of
pharmaceutical compounds are to major domestic drug and food
manufacturers.
(c) 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.
(d) Statements 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 3. Long Term Debt.)
(e) Receivables:
-----------
Accounts receivable are stated less allowances
of approximately $570,500 and $169,000 in 1996 and 1995,
respectively. The Company's receivables are primarily
derived from companies in the pharmaceutical industry. A
single company's account receivable balance represented
approximately 15% and 17% of consolidated accounts
receivable on March 31, 1996 and 1995, respectively.
(f) 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>
1996 1995
---- ----
<S> <C> <C>
Finished goods $4,087,636 $2,677,389
Work-in-process 1,772,711 3,480,095
Raw materials 2,814,815 2,319,674
---------- ----------
8,675,162 8,477,158
Reserves for
obsolescence (225,000) (1,885,571)
---------- ----------
$8,450,162 $6,591,587
========== ==========
</TABLE>
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) Property and Equipment:
----------------------
Property and Equipment, at cost as of March 31
consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and improvements $ 499,567 $ 499,567
Building and building improvements 3,439,159 3,429,702
Machinery and equipment 11,386,962 10,866,048
Office furniture and equipment 3,053,811 2,919,001
Leasehold improvements 2,281,162 2,257,834
Construction-in-progress 176,026 23,217
-------------- --------------
20,836,687 19,995,369
Less accumulated depreciation
and amortization (13,215,470) (11,827,495)
-------------- --------------
Net property and equipment $ 7,621,217 $ 8,167,874
============== ==============
</TABLE>
Depreciation of property and equipment is
computed based on estimated useful lives using the straight-
line method and amounted to $1,390,790, $1,259,922,
$1,141,128 in 1996, 1995 and 1994, respectively.
The rates used to compute depreciation and
amortization were as follows:
<TABLE>
<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>
(h) 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. From time to time, payments under customer licensing
agreements are made and/or applied in reimbursement of these
costs. Since 1993, the capitalized costs of Deferred Improved
Drug Entities(TM) have been amortized over a period of five
years, beginning at the earlier of the date the products are
marketed or five years from the date the costs are incurred.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
$2,962,827 (principally related to a customer reimbursement.
See Note 8) $570,900 and $354,854 in 1996, 1995 and 1994,
respectively.
Other assets primarily include goodwill,
deferred financing charges, cash surrender value of life
insurance, deposits, trademarks and patents. As of March
31, 1996 and 1995, the unamortized excess of purchase price
over net assets acquired, which is net of accumulated
amortization of $1,249,688 and $1,194,290, respectively, was
$888,873 and $944,278, respectively, and is being amortized
over a 40-year period at $55,404 per year. All other
deferred charges are being amortized over periods varying
from five to seventeen years. Amortization of such other
deferrals amounted to $142,708, $75,749, and $25,694 in
1996, 1995 and 1994, respectively.
(i) Accrued Liabilities:
-------------------
Accrued liabilities as of March 31, consist of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Salaries and wages $ 278,617 $ 594,331
Interest 153,159 128,397
Rebates 1,092,485 979,446
Other 862,500 818,988
---------- ----------
$2,386,761 $2,521,162
========== ==========
</TABLE>
(j) Earnings Per Share:
------------------
Net income (loss) per common share is computed
by dividing net income (loss) less/plus preferred dividends
by the weighted average number of common shares and common
share equivalents (if dilutive) outstanding during the
period. 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 11,835,421, 11,178,495 and
11,055,196 in 1996, 1995, 1994 respectively. Primary and
fully-diluted income (loss) per share are the same for each
of the years presented.
(k) Use of Estimates
----------------
The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual
results could differ from those estimates.
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(l) Fair Value of Financial Instruments:
-----------------------------------
The carrying amounts of all asset and liability
financial instruments approximate their estimated fair
values at March 31, 1996. Fair value of a financial
instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing
parties.
(m) New Accounting Standards:
------------------------
In March and October, 1995, the Financial
Accounting Standards Board issued Statements No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and No. 123,
"Accounting for Stock-Based Compensation." Both Statements
are effective in 1997, and neither is currently expected to
have a significant effect on the financial statements of the
Company.
(n) Income Tax:
----------
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, accounts receivable reserve and
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.
The Company paid income taxes of $90,000, $0,
and $0 during the years ended March 31, 1996, 1995 and 1994
respectively.
(o) Reclassifications:
-----------------
Certain amounts of the prior years' financial
statements have been reclassified to conform to the current
year presentation.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Equity Transactions.
-------------------
As of March 31, 1996, 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 its stated value. 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. Undeclared
and unaccrued cumulative preferred dividends at March 31,
1996 and 1995 were $1,887,331 and $1,465,581, 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 loan
agreement (See Note 3), the Company is restricted from
declaring and paying any dividends, except in stock, on its
Class A and B Common Stock. 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.
In connection with an agreement entered into in
January, 1996 (See Note 8), the Company received $5,000,000
for the purchase of Class A Common Stock options exercisable
through September 29, 1998. Of the funds received for the
common stock purchase options, $1,150,000 was allocated to a
stock purchase option providing the right to purchase the
Company's Class A Common Stock at a minimum price of $35 per
share, exercisable for a 30 day period ending March 30,
1997, an additional $1,250,000 was allocated to an option to
purchase shares of Class A Common Stock at a minimum price
of $40 per share, exercisable for a 30 day period ending
September 29, 1997, an additional $1,300,000 was allocated
to an option to purchase Class A Common Stock at a minimum
purchase price of $45 per share, exercisable for a 30 day
period ending March 30, 1998, and an additional $1,300,000
was allocated to an option to purchase Class A Common Stock
at a minimum price of $50 per share, exercisable for a 30
day period ending September 29, 1998. The actual exercise
price and number of shares of Class A Common Stock to be
purchased are dependent on the fair market value of the
stock for a ten day period prior to exercise.
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long Term Debt.
--------------
Long-term debt at March 31, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revolving credit line $ 0 $ 2,175,000
Term loan agreement 0 6,750,000
Industrial revenue bond 2,805,000 3,130,000
Capital lease and other notes payable 448,544 993,100
---------- -----------
Total 3,253,544 13,048,100
Less current portion 712,328 1,814,682
---------- -----------
Long-term debt $2,541,216 $11,233,418
========== ===========
</TABLE>
In May, 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 reference prime
rate (8 1/4% at March 31, 1996). 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 2). The
Company has pledged as collateral a security interest in all
accounts receivable, inventories, equipment, real estate and
intangibles. In March, 1996, the Company prepaid the real
estate and equipment term loan portion of the facility and
amended the agreement to allow the Company to re-borrow
amounts against the unamortized initial balance of the loan.
As of March 31, 1996, $5,812,500 was available under this
arrangement.
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 $448,544 at March 31, 1996,
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, 1996 for the year ending March 31, 1997 and the
four succeeding years are $712,328, $362,486, $325,000,
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$325,000 and $325,000, respectively.
The Company paid interest of $1,352,823,
$1,420,581 and $818,764 during the years ended March 31,
1996, 1995 and 1994, respectively.
4. 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 is $90,000 for
1996 and is attributable to alternative minimum tax. No
provision was required for 1995 and 1994.
Provisions for federal income taxes differ from
the amount computed by applying the combined statuary
federal income tax rate and effective state tax rate of 38%
for 1996, 1995, and 1994 to income (loss) before tax. The
reasons for these differences are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed income tax expense
(benefit) at statutory rate $1,536,211 $(2,062,000) $(3,108,900)
Net operating loss carryforward
tax effect (1,572,011) 1,791,700 3,065,900
Alternative minimum tax 90,000 -- --
Goodwill amortization, fines and
other items not deductible
for tax purposes 35,800 270,300 43,000
---------- ----------- -----------
Provision for income taxes $ 90,000 $ -- $ --
========== =========== ===========
</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.
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1996, and 1995, the tax effect
of temporary differences between the tax basis of assets and
liabilities and their financial reporting amount are as
follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995
Current Non-Current Current Non-Current
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Fixed asset basis
differences $ - $(1,052,400) $ - $ (953,500)
Reserve for inventory and
receivables 302,300 - 716,500 -
Capitalized inventory costs 163,600 - 61,900 -
Vacation pay reserve - - 142,400 -
Deferred compensation - 232,300 - 178,300
Reserve for medical
self insurance 34,300 - 38,700 -
Net operating loss
carryforward - 3,369,300 - 4,206,100
Research and development
credit - 1,594,000 - 1,625,600
Minimum tax credit - 129,000 - 61,100
Deferred clinical costs - - - 440,300
Other - 188,200 39,100 -
--------- ----------- --------- -----------
500,200 4,459,900 998,400 5,557,900
Valuation allowance (500,200) (4,459,900) (998,400) (5,557,900)
--------- ----------- --------- -----------
Net deferred taxes $ - $ - $ - $ -
========= =========== ========= ===========
</TABLE>
The components of deferred taxes are as follows
as of March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liability $(1,053,000) $ (957,300)
Deferred tax asset 6,013,100 7,513,600
Valuation allowance (4,960,100) (6,556,300)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The valuation allowance (decreased) increased
by approximately $(1,596,200) and $1,926,100 during 1996 and
1995 respectively.
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 1996, the Company has the
following income tax carryforwards available:
<TABLE>
<CAPTION>
Expiration Dates
----------------
<S> <C> <C>
Regular tax operating loss
carryforwards $8,866,600 2006-2010
Regular tax credit carryforwards
(primarily research &
development credits) 1,594,000 1996-2010
AMT credit carryforwards 129,100 -
</TABLE>
5. 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:
1997 $1,071,972
1998 1,065,587
1999 833,959
2000 430,008
2001 209,879
Total rental expense for the years ended March
31, 1996, 1995, and 1994 was $1,229,881, $1,260,026 and
$1,140,856, 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 $142,139 and $124,991 for this liability in 1996
and 1995, respectively.
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation:
- ----------
In April, 1995, a plea agreement was entered
into with the U.S. Department of Justice. Under the
agreement the Company agreed to plead guilty to (1) two
misdemeanor violations of the Federal Food, Drug and
Cosmetic Act involving the failure to file certain required
reports with the FDA in 1991 with respect to two lots of an
erythromycin oral suspension product previously manufactured
by the Company and (2) two misdemeanor counts involving the
shipment of two lots of the same product, inappropriately
labeled as to their shelf life. Under the plea agreement,
the Company agreed to pay a fine of $500,000 and costs of
$100,000 in installments of $75,000 every six months over 3
1/2 years without interest, beginning in July 1995 and was
placed on probation during the payment period. The full
amount of liability associated with the fine was recorded in
the Company's statement of operations for the fiscal year
ended March 31, 1995.
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 agreement with the U.S. Food and Drug Administration
("FDA") since June 14, 1993, which required the Company to
take various actions to assure that the Company's products
are manufactured in conformity with cGMP and the Company's
facilities are operated in compliance with cGMP. In
December, 1995, the Company was informed by the FDA that it
had been found to be in substantial compliance with cGMP
requirements, resulting in the expiration of certain
requirements of the agreement, including the requirement
that the Company submit cGMP data with respect to all solid
oral dosage drugs manufactured by the Company before
releasing such drugs for sale to the public.
6. 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 $243,512, $122,000 and $184,000 during fiscal
1996, 1995 and 1994, 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, 1996, 1995
and 1994 totaled approximately $222,910, $199,000, and
$214,000, respectively.
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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.
Incentive stock options for 393,840 shares were authorized
but not granted as of March 31, 1996. The following summary
shows the transactions for the fiscal years 1996, 1995, and
1994 under option arrangements:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------ -------------------------
Average Average
No. of Price Per No. of Price Per
Shares Share Shares Share
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, April 1, 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 (26,267) 5.71
-------- --------
Balance, March 31, 1995 692,232 4.93 475,514 4.37
Options granted 522,375 5.51
Options becoming exercisable 86,599 6.75
Options exercised (386,364) 3.97 (386,364) 3.97
Options canceled (22,932) 6.45 (10,773) 4.66
-------- --------
Balance, March 31, 1996 805,311 5.72 164,976 6.54
======== ========
</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 determined by the Board of
Directors, is discretionary. No contribution was made in
any of the years presented. 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 $71,000, $103,000
and $77,000 were made in 1996, 1995 and 1994, 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 $1,058,000, $1,375,000 and $1,506,000
in fiscal 1996, 1995 and 1994, respectively. The Company
has recorded approximately $90,000 and $37,000 of accrued
health insurance expense reserves as of March 31, 1996 and
1995, respectively, relating to incurred but not reported
claims.
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Agreement
---------
In January, 1996 the Company concluded an
agreement with a major pharmaceutical marketer whereby the
Company received $5,000,000 and certain other considerations,
plus $5,000,000 for the sale of certain Class A common
stock options exercisable in various periods through
September, 1998 (See Note 2). Under the transaction, which
was entered into between the parties partially in
consideration of and replacing certain other products, the
two companies entered into an agreement for future royalties
and product opportunities and the Company gave the marketer
the right to explore the Company's drug delivery
technologies with the possibility of entering into
agreements for individual products. The accounting treatment
for the funds received (other than from the sale of options)
was to reimburse the Company for, and eliminate from its
balance sheet, approximately $2,500,000 of Deferred Improved
Drug Entities(TM), receivables and inventory of approximately
$400,000, and patents and trademarks relating to the
Company's technologies of approximately $200,000, with
approximately $1,700,000 allocated to licensing revenues and
$200,000 as a reimbursement of expenses.
9. Industry Segments.
-----------------
The Company operates in one industry segment,
"Pharmaceutical Development, Manufacturing and Marketing."
During fiscal 1996, 1995 and 1994, no customers accounted
for 10% or more of consolidated sales.
39
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-----------------
To the Board of Directors and Shareholders
of KV Pharmaceutical Company:
The audits referred to in our report dated July 12,
1996 relating to the consolidated financial statements of
KV Pharmaceutical Company which is contained in Item 8 of
this Form 10-K included the audit of the financial statement
schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on
this financial statement schedule based upon our audits.
In our opinion such financial statement schedule
presents fairly, in all material respects, the information
set forth therein.
BDO SEIDMAN, LLP
St. Louis, Missouri
July 12, 1996
40
<PAGE> 41
2. Financial Statement Schedules:
-----------------------------
<TABLE>
Schedule II
Valuation and Qualifying Accounts
<CAPTION>
Balance at Additions charged Amounts
beginning to costs and charged Balance at
of year expenses reserves end of year
---------- ----------------- -------- -----------
<S> <C> <C> <C> <C>
Year Ended March 31, 1994:
Allowance for doubtful accounts $ 77,488 $ 19,876 $ 13,731 $ 83,633
Inventory obsolescence 554,528 159,015 3,454 710,089
---------- ---------- ---------- ----------
632,016 178,891 17,185 793,722
========== ========== ========== ==========
Year Ended March 31, 1995:
Allowance for doubtful accounts 83,633 135,000 49,446 169,187
Inventory obsolescence 710,089 2,735,154 1,559,672 1,885,571
---------- ---------- ---------- ----------
793,722 2,870,154 1,609,118 2,054,758
========== ========== ========== ==========
Year Ended March 31, 1996:
Allowance for doubtful accounts 169,187 736,757 335,446 570,498
Inventory obsolescence 1,885,571 1,399,966 3,060,537 225,000
---------- ---------- ---------- ----------
$2,054,758 $2,136,723 $3,395,983 $ 795,498
========== ========== ========== ==========
</TABLE>
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.
3. Exhibits:
--------
See Exhibit Index on pages 45 through 50 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 1996.
41
<PAGE> 42
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
The information contained in Registrant's
Report on [Form 8-K-A (Amendment No. 1) filed June 18, 1996]
under Item 4, entitled "Changes in Registrant's Certified
Accountant," is incorporated herein by this reference.
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 1996 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 1996 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 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 1996 annual meeting of
shareholders, which involves the election of directors, is incorporated
herein by this reference.
42
<PAGE> 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K.
--------
(a) 1. Financial Statements: Page
--------------------
The following consolidated financial
statements of the Company are included
in Part II, Item 8:
Report of Independent Certified Public
Accountants 23
Consolidated Balance Sheets as of
March 31, 1996 and 1995 24
Consolidated Statements of Operations
for the Years Ended March 31, 1996, 1995
and 1994 25
Consolidated Statements of Shareholders'
Equity for the Years Ended March 31,
1996, 1995 and 1994 26
Consolidated Statements of Cash Flows
for the Years Ended March 31, 1996, 1995
and 1994 27
Notes to Financial Statements 28-41
43
<PAGE> 44
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.
KV PHARMACEUTICAL COMPANY
Date: July 15, 1996 By /s/ Marc S. Hermelin
-------------------------------
Vice Chairman of the Board
(Principal Executive Officer)
Date: July 15, 1996 By /s/ Gerald R. Mitchell
-------------------------------
Vice President, Finance
(Principal Financial and
Accounting Officer)
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:
Date: July 15, 1996 By /s/ Marc S. Hermelin
-------------------------------
Marc S. Hermelin
Date: July 15, 1996 By /s/ Victor M. Hermelin
-------------------------------
Victor M. Hermelin
-------------------------------
Garnet E. Peck, Ph.D.
Date: July 15, 1996 By /s/ Alan G. Johnson
-------------------------------
Alan G. Johnson
44
<PAGE> 45
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
3(a) The Company's Certificate of Incorporation, which was filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year ended
March 31, 1981, is incorporated herein by this reference.
3(b) Certificate of Amendment to Certificate of Incorporation of the Company,
effective March 7, 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 Company's
Annual Report on Form 10-K for the year ended March 31, 1988, is
incorporated herein by this reference.
3(e) Certificate of Amendment to Certificate of Incorporation of the Company,
filed herewith.
3(f) Certificate of Amendment to Certificate of Incorporation of the Company,
filed herewith.
3(g) By-Laws of the Company, as amended through November 18, 1982, 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 hereby by this reference.
3(h) Amendment to the By-Laws of the Company, filed herewith.
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.
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 therewith,
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 incorporated
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.
45
<PAGE> 46
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
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.
4(h) Second Amendment, dated as of November 1, 1994, to First Deed of Trust
and Security Agreement in favor of 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,
which was filed as Exhibit 4(l) to the Company Annual Report on Form 10-
K for the year ended March 31, 1995, and incorporated herein by this
reference.
4(m) Sixth Amendment to 1993 Credit Agreement, dated as of May 4, 1995, which
was filed as Exhibit 4(m) to the Company Annual Report on Form 10-K for
the year ended March 31, 1995, and incorporated herein by this
reference.
46
<PAGE> 47
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
4(n) Loan and Security Agreement, dated as of April 27, 1995, between the
Company and its subsidiaries and Foothill Capital Corporation, which was
filed as Exhibit 4(n) to the Company Annual Report on Form 10-K for the
year ended March 31, 1995, and incorporated herein by this reference.
4(o) Revolving Loan Note, dated as of April 27, 1995, by the Company and its
subsidiaries and Foothill Capital Corporation, which was filed as
Exhibit 4(o) to the Company Annual Report on Form 10-K for the year
ended March 31, 1995, and incorporated herein by this reference.
4(p) Term Note, dated as of April 27, 1995, by the Company and its
subsidiaries in favor of Foothill Capital Corporation, which was filed
as Exhibit 4(p) to the Company Annual Report on Form 10-K for the year
ended March 31, 1995, and incorporated herein by this reference.
4(q) Form of Capital Equipment Note to be executed by the Company and its
subsidiaries in favor of Foothill Capital Corporation, which was filed
as Exhibit 4(q) to the Company Annual Report on Form 10-K for the year
ended March 31, 1995, and incorporated herein by this reference.
4(r) Deed of Trust and Security Agreement, dated as of April 27, 1995, in
favor of Foothill Capital Corporation, which was filed as Exhibit 4(r)
to the Company Annual Report on Form 10-K for the year ended March 31,
1995, and incorporated herein by this reference.
4(s) First Amendment to Loan and Security Agreement, dated as of
April 27, 1995, between the Company and its subsidiaries and
Foothill Capital Corporation, dated as of March 29, 1996, 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.
<FN>
- -------------------
<F*>Management contract or compensation plan.
47
<PAGE> 48
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
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.
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.
48
<PAGE> 49
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
10(l)<F*> Amendment to the Lease for the facility located at 2503 South
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 Pharmaceutical 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*> KV 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 KV Pharmaceutical Company Fourth Restated
Profit Sharing Plan and Trust dated September 18, 1990, is
incorporated herein by this reference.
10(p)<F*> KV 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 Nos. 4:93CV00918 and 4:93CV00919
filed June 14, 1993, in connection with Complaint of Forfeiture on
behalf of 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.
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.
<FN>
- ------------------------
<F*>Management contract or compensation plan.
49
<PAGE> 50
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<C> <S> <C>
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.
10(w)<F*> Stock Option Agreement dated June 1, 1995, granting stock option to
Marc S. Hermelin, which was filed as Exhibit 10(w) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
is incorporated herein by this reference.
10(x)<F*> Second Amendment dated as of June 1, 1995, to Employment Agreement
between the Company and Marc S. Hermelin, which was filed as
Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, is incorporated herein by this
reference.
10(y)<F*> Amendment to and Restatement of the KV Pharmaceutical Company's
1991 Incentive Stock Option Plan dated as of November 1, 1995,
filed herewith.
10(z) Stock Option Agreements dated as of January 22, 1996, granting
stock options to MAC & Co., filed herewith.
10(aa)<F*> Third Amendment dated as of November 22, 1995, to Employment
Agreement between the Company and Marc. S. Hermelin, filed
herewith.
10(bb)<F*> Stock Option Agreement dated as of November 22, 1995, granting a
stock option to Victor M. Hermelin, filed herewith.
11(a) Computation of per share earnings, filed herewith.
16(a) Letter regarding change in certifying accountants, which was filed
as Exhibit 16 to the Company's Report on Form 8-K/A, No. 2, filed
June 27, 1996, is incorporated herein by this reference.
22(a) List of Subsidiaries filed herewith.
23(a) Consent of BDO Seidman, L.L.P., filed herewith.
27(a) Financial Data Schedule, filed herewith.
<FN>
- -------------------------
<F*>Management contract or compensation plan.
50
</TABLE>
<PAGE> 1
Exhibit 3(e)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * * * * * * * *
K-V PHARMACEUTICAL COMPANY, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a
meeting duly held, adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said corporation.
RESOLVED, that Paragraph 4 of the Certificate of
Incorporation of the Company be amended in its
entirety to read as follows:
4. The total number of shares which the corporation shall
have the authority to issue is Twelve Million (12,000,000)
shares, of the par value of Seventeen Cents ($.17) each,
amounting in the aggregate to Two Million Forty Thousand
Dollars ($2,040,000).
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with
the provisions of section 228 of the General Corporation Law of the State of
Delaware and written notice of the adoption of the amendment has been given
as provided in section 228 of the General Corporation Law of the State of
Delaware to every stockholder entitled to such notice.
<PAGE> 2
THIRD: that the aforesaid amendment was duly adopted in
accordance with the applicable provisions of section 242 and 228 of the
General Corporation Law of the State of Delaware.
FOURTH: That this Certificate of Amendment of the Certificate of
Incorporation shall be effective on July 21, 1986.
IN WITNESS WHEREOF, said K-V PHARMACEUTICAL COMPANY has caused this
certificate to be signed by Marc S. Hermelin, its Vice Chairman of the Board
of Directors and attested by Alan G. Johnson, its Secretary, this 9th day of
July, 1986.
K-V PHARMACEUTICAL COMPANY
/s/ Marc S. Hermelin
------------------------------------
Marc S. Hermelin
Vice Chairman of the Board of
Directors and Chief Executive
Officer
/s/ Alan G. Johnson
- ------------------------
Alan G. Johnson,
Secretary
<PAGE> 1
Exhibit 3(f)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
----------------------------
K-V PHARMACEUTICAL COMPANY, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of K-V
Pharmaceutical Company resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the first two unnumbered paragraphs of Article 4 of the
Company's Certificate of Incorporation be amended to read as follows in their
entirety:
"4. The aggregate number, class and par value of shares which the
corporation shall have authority to issue shall be One Hundred and
Twenty-Five Million (125,000,000), which shall be divided among the
following classes:
<TABLE>
<CAPTION>
Par Value Number
Class of Stock Per Share of Shares
- -------------- --------- ---------
<S> <C> <C>
Preferred Stock $ .01 5,000,000
Class A Common Stock $ .01 60,000,000
Class B Common Stock $ .01 60,000,000
-----------
Total 125,000,000
</TABLE>
The number of authorized shares of Preferred Stock or any class of
Common Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative majority vote of the
stock of the corporation
<PAGE> 2
entitled to vote, without the separate vote of holders of any class of
Common Stock or any class or series of Preferred Stock, unless a vote of
any such holders of a class or series of Preferred Stock is required
pursuant to the certificate or certificates establishing such class or
series."
FURTHER RESOLVED, that Section 4.5 of Article 4 of the Company's
Certificate of Incorporation be amended to read as follows in its entirety:
"4.5. Dividends and Distributions.
---------------------------
Subject to applicable provisions of law, the preference of the
Preferred Stock and of any other stock ranking prior to the Common Stock
as to dividends, and the provisions of this Section 4.5, the holders of
the Common Stock of all classes shall be entitled to receive dividends at
such time and in such amounts as may be determined by the board of
directors. Holders of one class of Common Stock shall be entitled to
receive dividends, other than dividends payable in the capital stock of
the Corporation, only if dividends in the same type of property are
simultaneously declared with respect to the other class of Common Stock.
The amount of any dividend, other than a dividend payable in the capital
stock of the corporation, to be paid per share of Class A Common Stock
shall equal 120% of the non-stock dividend per share declared and paid on
each share of Class B Common Stock. No Common Stock dividend may be paid
or stock splits issued on the Common Stock other than stock dividends or
stock splits of Class A Common Stock to the holders of Class A Common
Stock which are equal to simultaneous stock dividends or stock splits of
Class B Common Stock to holders of Class B Common Stock. Dividends on the
Class A Common Stock shall be distributed not later than the date upon
which the dividend is distributed on the Class B Common Stock.
Notwithstanding the foregoing, stock dividends of either class of Common
Stock may be payable to the holders of both classes of Common Stock so
long as such distribution is made equally on a per share basis, regardless
of class, and simultaneously to both classes of Common Stock."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
<PAGE> 3
THIRD: That said amendment was duly adopted in accordance with
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, said K-V Pharmaceutical Company caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Marc S. Hermelin, its Vice Chairman of the Board of Directors and Chief
Executive Officer, and Alan G. Johnson, its Secretary, this 23rd day of
December, 1991.
K-V PHARMACEUTICAL COMPANY
By:/s/ Marc S. Hermelin
-------------------------------
Marc S. Hermelin, Vice
Chairman of the Board of
Directors and Chief Executive
Officer
(Corporate Seal)
ATTEST:
/s/ Alan G. Johnson
- --------------------------
Alan G. Johnson, Secretary
<PAGE> 1
Exhibit 3(h)
AMENDMENT TO BYLAWS
AUTHORIZED BY THE BOARD OF DIRECTORS
DECEMBER 30, 1993
RESOLVED, that Article V of the By-Laws of the Corporation be, and hereby is,
amended, which amendment shall become automatically effective upon the hiring
and commencement of the employment of a new President and Chief Executive
Officer, as contemplated hereby, as follows:
Section 6A of Article V shall be changed to Section 7, and the following
language shall be deleted from said Section:
"The vice-chairman of the board of directors shall be the
chief executive officer of the corporation. He shall have
general and active management of the business of the corporation
and shall see that all orders and resolutions of the board of
directors are carried into effect, subject, however, to the right
of the board of directors by resolution to delegate any specific
powers to any other officer, director or agent of the
corporation."
and said delete language shall be replaced with the following:
THE VICE-CHAIRMAN OF THE BOARD
Section 7. The vice-chairman of the board of directors
shall have such duties as may be conferred upon him by the board of
directors. The vice chairman may, on behalf of the corporation,
execute or give final approval for all contracts, deeds, notes, bonds,
mortgages, certificates, instruments, commitments, budgets, plans and
expenditures. He may vote all securities which the corporation is
entitled to vote. In the absence or inability to act of the chairman
of the board or the president, he shall have and exercise all of the
powers and duties of the chairman of the board, and the president,
respectively.
The existing Section 7 and Section 8 shall be deleted in their entirety
and replaced with the following:
THE PRESIDENT
Section 8. the president shall be the chief executive
officer of the corporation. He shall have general and active
management of the business of the corporation and shall see that all
orders and resolutions of the board of directors are carried into
effect, subject, however, to the right of the board of directors to
delegate any specific powers to any other officer, director or agent of
the corporation. In the absence or inability to act of the
vice-chairman of the board, he shall have and exercise all of the
powers and duties of the chairman of the board and the vice-chairman of
the board.
<PAGE> 1
EXHIBIT 4(s)
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of March 29, 1996 by and among Foothill Capital Corporation,
a California corporation ("Foothill") and K-V Pharmaceutical Company, a
Delaware corporation ("K-V"), Particle Dynamics, Inc., a New York corporation
("PDI") and wholly owned subsidiary of K-V, and Ethex Corporation, a Missouri
corporation ("Ethex") and wholly owned subsidiary of K-V (K-V, PDI, and
Ethex are sometimes collectively referred to as "Borrower").
R E C I T A L S:
A. Foothill and Borrower previously entered into a Loan and Security
Agreement dated as of April 27, 1995 (the "Loan Agreement").
B. Pursuant to the terms of the Loan Agreement, Foothill agreed to
provide revolving advances as set forth in the Loan Agreement. In addition,
Foothill also agreed to provide a term loan to the Borrower in the amount
of $6,750,000.00 (the "Term Loan").
C. K-V proposes to prepay a portion of or prepay the Term Loan in
full upon execution of this Amendment and has requested that Foothill allow
said prepayment and K-V has further requested that Foothill allow K-V to
reborrow under the Term Loan facility as set forth in the Loan Agreement up
to the currently outstanding principal balance of the Term Loan which is
$5,812,500.00. Foothill has agreed to the foregoing subject to the terms and
conditions of this Amendment.
NOW THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Foothill and Borrower hereby agree as follows:
1. All capitalized terms not expressly defined in this Amendment shall
have the meanings as set forth in the Loan Agreement.
2. Foothill agrees that Borrower may prepay a portion of or all of
the outstanding principal balance of the Term Loan which is currently
$5,812,500.00 upon execution of this Amendment, provided that there is
not then existing any Event of Default or any event which, with the passage
of time, would become an Event of Default.
3.(a) Upon payment by Borrower of a portion of or all of the Term
Loan, including all accrued and unpaid interest, Foothill agrees, subject
to the terms of this Amendment, to advance to Borrower upon its request up
to the maximum amount of Five Million Eight Hundred Twelve Thousand Five
Hundred and no/100 Dollars ($5,812,500.00) as a term loan. Borrower
acknowledges that all advances must be made in increments of One Million
Dollars ($1,000,000.00). Foothill shall charge an additional fee (the
<PAGE> 2
"Term Loan Fee") in the amount of one-quarter of one percent (0.25%) of the
amount of each advance made by Foothill to Borrower. All advances requested
by Borrower will be made by Foothill in its sole reasonable discretion and
subject to there being at the time the request for said advance is made no
Event of Default in existence or event which, with the passage of time, would
become an Event of Default. The maximum amount to be advanced by Foothill in
one or more advances to Borrower shall not exceed the sum of Five Million
Eight Hundred Twelve Thousand Five Hundred and no/100 Dollars ($5,812,500.00).
The Borrower shall have no right after any future prepayments to reborrow
sums which have been prepaid. As an example, if Borrower prepays the
Term Loan in full and then requests a new term loan in the amount of
$4,000,000.00 and subsequently prepays the sum of $3,000,000.00 reducing
the outstanding principal balance of the Term Loan to $1,000,000.00, the
maximum amount which Borrower could still obtain through an additional
advance would be $1,812,500.00.
(b) Any advance requested by Borrower for a term loan may, subject
to Foothill's discretion, be subject to a new appraisal with respect to
the Equipment or the Real Property which appraisal shall, in Foothill's
reasonable discretion, reflect values for the Equipment and the Real Property
sufficient to support any additional advance requested by Borrower. Borrower
agrees that prior to the disbursement of any additional advance requested by
Borrower as a term loan, it will execute a new Term Note in the form as
attached hereto as Exhibit 1 with all appropriate blanks completed.
4. Section 2.3 of the Loan Agreement is hereby revised by deleting
therefrom reference to Six Million Seven Hundred Fifty Thousand Dollars
($6,750,000.00) and inserting in lieu thereof the sum of Five Million Eight
Hundred Twelve Thousand Five Hundred and no/100 Dollars ($5,812,500.00).
5. The effectiveness of this Amendment is subject to confirmation by
Foothill, in its sole satisfaction, that all representations, warranties and
covenants of Borrower as set forth in the Loan Agreement remain true and
correct and that there has been no violation or breach of same as of the
date hereof.
6. As an inducement for Foothill to enter into this Amendment, Borrower
hereby releases, discharges and acquits forever Foothill and any of its
officers, directors, servants, agents, employees, and attorneys, past and
present, from any and all claims, demands and causes of action, of whatever
nature, whether in contract or tort, accrued or to accrue, contingent or
vested, known or unknown, arising out of or relating to the loans evidenced
by the Loan Agreement, as hereby amended, or Foothill's administration of
same or any other actions taken pursuant to the Loan Agreement or under
any other documents or instruments evidencing loans made by Foothill to
Borrower or the administration of same through the date hereto. Borrower
hereby further indemnifies and holds Foothill, any officers, directors,
servants, agents, employees and attorneys of Foothill, past or present,
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<PAGE> 3
harmless from any and all such claims, demands and causes of action by
Borrower or anyone claiming by, through or under Borrower or any of them,
said indemnity to cover all losses and expenses incurred by Foothill, its
officers, directors, servants, agents, employees or attorneys, past or present,
in connection with any such claims, demands, or causes of action, including
all attorneys' fees and costs.
7. Borrower hereby ratifies and confirms that the Loan Agreement and
all security interests in the Collateral and all other rights in favor of
Foothill as provided in the Loan Agreement and all other agreements
delivered by or on behalf of Borrower to Foothill in connection therewith
remain in full force and effect and remain enforceable in accordance with
their respective terms. Borrower further acknowledges that there is no Event
of Default in existence. Borrower hereby specifically reaffirms its liability
for payment to Foothill of all of the Obligations. In the event of any conflict
between the terms of this Amendment and the Loan Agreement, the terms hereof
shall control.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Loan and Security Agreement to be executed as of the date first above
written.
K-V PHARMACEUTICAL COMPANY,
a Delaware Corporation
BY:_____________________________________
Gerald R. Mitchell,
Vice President, Finance
PARTICLE DYNAMICS, INC.,
a New York Corporation
BY:_____________________________________
Gerald R. Mitchell,
Vice President
ETHEX CORPORATION,
a Missouri Corporation
BY:_____________________________________
Gerald R. Mitchell,
Vice President
ACCEPTED AND AGREED this
_______ day of _______________, 1996
FOOTHILL CAPITAL CORPORATION
BY:____________________________________
Its:________________________________
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<PAGE> 1
Exhibit 10(y)
K-V PHARMACEUTICAL COMPANY
AMENDED AND RESTATED
1991 INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The K-V Pharmaceutical Company Amended and Restated 1991 Stock Option
Plan ("Plan") is intended to provide additional incentive to certain valued
and trusted employees of K-V Pharmaceutical Company, a Delaware corporation,
and its subsidiaries (the "Company"), by encouraging them to acquire shares
of the $.01 par value Class B common stock of the Company (the "Stock")
through options to purchase Stock granted pursuant to the Plan ("Options"),
thereby increasing such employees' proprietary interest in the business of
the Company and providing them with an increased personal interest in the
continued success and progress of the Company, the result of which will
promote both the interests of the Company and its shareholders.
Options granted under the Plan will be intended to qualify as
"incentive stock options" ("1505") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Each employee granted
an Option shall enter into an agreement with the Company (the "Option
Agreement") setting forth the terms and conditions of the Option, as
determined in accordance with this Plan.
2. ADMINISTRATION OF PLAN
This Plan shall be administered by the Compensation and Stock Option
Committee appointed by the Board of Directors of the Company (the
"Committee"), to be composed of at least two (2) members of the Board of
Directors of the Company. Members of the Committee shall not be eligible to
receive Options under this Plan. The Committee shall have the sole power:
(a) Subject to the provisions of the Plan, to determine the terms and
conditions of all Options; to construe and interpret the Plan and Options
granted under it; to determine the time or times an Option may be exercised,
the number of shares as to which an Option may be exercised at any one time,
and when an Option may terminate; to establish, amend and revoke rules and
regulations relating to the Plan and its administration; and to correct any
defect, supply any omission, or reconcile any inconsistency in the Plan, or
in any Option Agreement, in a manner and to the extent it shall deem
necessary, all of which determinations and interpretations made by the
Committee shall be conclusive and binding on all Optionees and on their legal
representatives and beneficiarieS; and
<PAGE> 2
(b) To determine all questions of policy and expediency that may
arise in the administration of the Plan and generally exercise such powers
and perform such acts as are deemed necessary or expedient to promote the
best interests of the Company.
3. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of paragraph 13 below, the Stock which
may be issued pursuant to Options granted under the Plan shall not exceed in
the aggregate five hundred fifty thousand (550,000) shares of Class A Common
Stock of the Company and three hundred seventy-five thousand (375,000) shares
of Class B Common Stock of the Company. If any Options granted under the
Plan terminate, expire or are surrendered without having been exercised in
full, the number of shares of Stock not purchased under such Options shall be
available again for the purpose of the Plan.
(b) At any time that the Committee determines that there exists a
public market for Class A Common Stock of the Company, it may designate that
an Option to purchase shares of Class B Common Stock of the Company shall be
exercisable to purchase shares of Class A Common stock of the Company instead
of Class B Common Stock. Such redesignation of an Option shall not affect
the purchase price under such Option or the number of shares with respect to
which such Option has been granted. Notwithstanding the foregoing, no
redesignation of an Option shall be effective if such redesignation
constitutes a modification of such Option within the meaning of Section
424(h) of the Code.
4. PERSONS ELIGIBLE FOR OPTIONS
All employees of the Company who are not members of the Committee shall
be eligible to receive the grant of Options under the Plan. The Committee
shall determine the employees to whom Options shall be granted, the time or
times such Options shall be granted, the number of shares to be subject to
each Option and the times when each Option may be exercised. The Committee
shall seek information, advice and recommendations from management to assist
the Committee in its independent determination as to the employees to whom
Options shall be granted. An employee who has been granted an Option (an
"Optionee"), if he or she is otherwise eligible, may be granted additional
Options.
5. PURCHASE PRICE
The purchase price of each share of Stock covered by each ISO ("Purchase
Price") shall not be less than one hundred percent (100%) of the Fair Market
Value Per Share (as defined below) of the Stock on the date the ISO is granted;
provided, however, if when an ISO is granted the Optionee receiving the ISO
owns or will be considered to own by reason of Section 424(d) of the Code more
than ten percent (10%) of the total combined voting power of all classes
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<PAGE> 3
of stock of the Company, the purchase price of the Stock covered by such ISO
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value Per Share of the Stock on the date the ISO is granted.
"Fair Market Value Per Share" of the Stock shall mean: (i) if the Stock
is not publicly traded, the amount determined by the Committee on the date of
the grant of the Option; (ii) if the Stock is traded only otherwise than on a
securities exchange and is not quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the closing quoted
selling price of the Stock on the date of grant of the Option as quoted in
"pink sheets" published by the National Daily Quotation Bureau; (iii) if the
Stock is traded only otherwise than on a securities exchange and is quoted on
NASDAQ, the closing quoted selling price of the Stock on the date of grant of
the Option, as reported by the Wall Street Journal; or (iv) if the Stock is
admitted to trading on a securities exchange, the closing quoted selling
price of the Stock on the date of grant of the Option, as reported in the
Wall Street Journal. For purposes of Items (i) through (iv) of this
paragraph, if there were no sales on the date of the grant of an Option, the
Fair Market Value Per Share shall be determined by the Committee in
accordance with Section 20.2031-2 of the Federal Estate Tax Regulations.
6. DURATION OF OPTIONS
Any outstanding Option and all unexercised rights thereunder shall
expire and terminate automatically upon the earliest of: (i) the cessation
of the employment or engagement of the Optionee by the Company for any reason
other than retirement (as provided by contract between the Company any such
person or otherwise under normal Company policies), death or disability; (ii)
the date which is three months following the effective date of the Optionee's
retirement from the Company's service; (iii) the date which is one year
following the date on which the Optionee's service with the Company ceases
due to disability (or due to the death with respect to Options issued prior
to the date of this amendment); (iv) the date of expiration of the Option
determined by the Committee at the time the Option is granted and specified
in such Option; and (v) in any event, the tenth annual anniversary date of
the granting of the Option, or, if when an ISO is granted the Optionee owns
(or would be considered to own by reason of Section 424(d) of the Code) more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, then on the fifth such anniversary; provided, however,
that the Committee shall have the right, but not the obligation, to extend
the expiry of the Options held by an Optionee whose service with the Company
has ceased for any reason to the end of their original terms (either upon
issuance of the Option or at such time as the Option would otherwise
terminate), notwithstanding that such Options may no longer qualify as ISOs
under the Code.
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<PAGE> 4
7. EXERCISE OF OPTIONS
(a) An Option may be exercisable in installments or otherwise upon
such terms as the Committee shall determine when the Option is granted. In
the event that an Option is exercisable only in installments and the Optionee
has been employed by the Company for five or more years as of the date such
Option was granted, such Option shall become fully exercisable upon the
termination of employment of the Optionee by reason of death or disability,
if and to the extent that such acceleration would not cause a violation of
the limitations contained in Section 422(b)(7) of the Code. If acceleration
by reason of termination because of disability would cause a violation of the
limitations contained in Section 422(b)(7) of the Code, acceleration shall
occur only in amount such that such acceleration does not cause a violation
of Section 422(b)(7) of the Code and the acceleration of the exercisability
of any portion of the Option which would be in violation of such limitation
shall be deferred until January 1 of the year following that in which
termination of employment occurs. In the event termination of employment
occurs by reason of death, acceleration of the exercisability of any portion
of the Option shall occur only as and to the extent that such acceleration
will not cause a violation of the limitations contained in Section 422(b)(7)
of the Code. Notwithstanding anything to the contrary contained in this
Plan, the Committee at any time may accelerate the time at which any Option
granted hereunder is exercisable.
(b) No Option will be exercisable (and any attempted exercise will be
deemed null and void) if such exercise would create a right of recovery for
"short-swing profits" under Section 16(b) of the Securities Exchange Act of
1934, unless the Optionee pays the Company the amount of such "short-swing
profits" at the time of the exercise of the Option.
(c) In the event that a portion of an ISO which first becomes
exercisable exceeds the limitations contained in Section 422(b)(7) of the
Code, the shares purchased pursuant to Options in excess of such limitation
shall be deemed to be non-qualified stock options and shall be identified
accordingly on the certificates representing such shares and in the stock
transfer records of the Company.
8. METHOD OF EXERCISE
(a) When the right to purchase shares accrues, Options may be
exercised by giving written notice to the Company stating the number of
shares for which the Option is being exercised, accompanied by payment in
full by cash, or its equivalent, acceptable to the Company, of the purchase
price for the shares being purchased. The Company shall issue a separate
certificate or certificates of Stock for each Option exercised by an
Optionee.
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<PAGE> 5
(b) In the Committee's discretion, determined at the time the Option
is granted, payment of the purchase price for the shares may be made in whole
or in part with other shares of Stock of the Company which are free and clear
of all liens and encumbrances. The value of the shares of Stock tendered in
payment for the shares being purchased shall be the Fair Market Value Per
Share on the date of the Optionee's notice of exercise.
(c) Notwithstanding the foregoing, the Company shall have the right
to postpone the time of delivery of the shares for such period as may be
required for the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national securities exchange or the
National Association of Securities Dealers, Inc. or any Federal, state or
local law. If the Optionee, or other person entitled to exercise the Option,
fails to timely accept delivery of and pay for the shares specified in such
notice, the Committee shall have the right to terminate the Option with
respect to such shares.
9. NONTRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, other than by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, shall be exercisable only by the Optionee.
10. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
employment by the Company or interfere in any way with the right of the
Company (subject to the terms of any separate employment agreement to the
contrary) at any time to terminate such employment or to increase or decrease
the compensation of the Optionee from the rate in existence at the time of
the granting of any Option.
11. RESTRICTIONS ON SHARES
If the Company shall be advised by counsel that certain requirements
under the Federal or state securities laws must be met before Stock may be
issued under this Plan, the Company shall notify all persons who have been
issued Options, and the Company shall have no liability for failure to issue
Stock under any exercise of Options because of delay while such requirements
are being met or the inability of the Company to comply with such
requirements.
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<PAGE> 6
12. PRIVILEGE OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have the rights or privileges of a stockholder of the Company for any shares
of Stock issuable upon exercise of such Option until such person has become
the holder of record of such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date on
which such person becomes the holder of record, except as provided in
paragraph 13 below.
13. ADJUSTMENT
(a) If the number of outstanding shares of Stock are Increased or
decreased, or such shares are exchanged for a different number or kind of
shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, combination
of shares, or other similar transaction, the aggregate number of shares of
Stock subject to the Plan as provided in paragraph 3 above, and the shares of
Stock subject to issued and outstanding Options under the Plan shall be
appropriately and proportionately adjusted by the Committee. Any such
adjustment in an outstanding Option shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option
but with an appropriate adjustment in the price for each share or other unit
of any security covered by the Option.
(b) Notwithstanding paragraph (a), upon: (i) the dissolution or
liquidation of the Company, (ii) a reorganization, merger or consolidation of
the Company with one or more corporations in which the Company is not the
surviving corporation, (iii) a sale of substantially all of the assets of the
Company, or (iv) the transfer of more than 80% of the then outstanding Stock
of the Company to another entity or person in a single transaction or series
of transactions, the Plan shall terminate, and any outstanding Options
granted under the Plan shall terminate on the day before the consummation of
the transaction; provided that the Board shall have the right, but shall not
be obligated, to accelerate the time in which any Options may be exercised
prior to such a termination. However, the termination of such Options shall
not occur if provision is made in writing in connection with the transaction,
in a manner acceptable to the Board, for: (A) the continuance of the Plan
and assumption of outstanding Options, or (B) the substitution for such
Options of new options to purchase the stock of a successor corporation (or
parent or subsidiary thereof), with appropriate adjustments as to number and
kind of shares and option price. The Board of Directors shall have the
authority to amend this paragraph to provide for a requirement that a
successor corporation assume any outstanding Options.
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<PAGE> 7
(c) Adjustments under this paragraph 13 shall be made by the
Committee whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares
of Stock shall be issued under the Plan or in connection with any such
adjustment.
14. HOLDING PERIOD AND FORFEITURE OF STOCK
(a) All Stock purchased pursuant to the exercise of an Option shall
be held by the Company for a period of two (2) years from the date of
exercise (the "Holding Period"). Notwithstanding anything contained herein
to the contrary, if an Optionee leaves the employ of the Company during the
Holding Period for any reason other than the retirement (under normal Company
policies), death or disability of such Optionee, the Optionee's purchase of
such Stock shall be voidable at the Committee's sole option and discretion.
If any purchase of Stock is voided by reason of the provisions of this
paragraph 14, an amount determined as provided in paragraph 14(d) shall
thereupon be returned in full to the Optionee. Notwithstanding the
foregoing, the Committee at any time may waive the Holding Period requirement
set forth herein with respect to any outstanding options.
(b) At any time within the Holding Period that the Committee
determines that there exists a public market for Class A Common Stock of the
Company, it may cancel an Optionee's Class B Common Stock of the Company then
being held, and issue in lieu thereof an equivalent number of Class A Common
Stock of the Company.
(c) In the event that an Optionee incurs a financial hardship within
the Holding Period, which is determined by the Committee in its sole
discretion upon written application by the Optionee and after review of the
facts and circumstances to be of an immediate and heavy nature, the Committee
may authorize the repurchase of the Optionee's Stock by the Company at a
price as determined under paragraph 14(d) and payment of the proceeds of such
repurchase to the Optionee.
(d) In the event that a purchase of Stock is voided by reason of the
provisions of this paragraph 14(a) or repurchased by the Company by reason of
the financial hardship of an Optionee, the amount paid to such Optionee by
reason of the voided transaction or the repurchase of such Stock shall be the
least of: (i) the funds paid by the Optionee in connection with the voided
transaction; (ii) the value in cash of Stock used to purchase such Stock,
determined as of the date of such purchase, less any amount which would
have been forfeited by reason of this paragraph 14 relative to Stock
used to purchase the forfeited Stock if such Stock had not been so
used and the Holding Period relative to such Stock had not expired;
or (iii) the Fair Market Value Per Share, as determined in
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<PAGE> 8
accordance with the provisions of paragraph 5 hereof, on the termination date of
the Optionee's employment with the Company or the date of the repurchase made
pursuant to paragraph 14(b), as the case may be.
(e) In order to facilitate the repurchase of Stock by the Company in
accordance with the terms of paragraph 14(a) hereof, if an Optionee leaves
the employ of the Company during the Holding Period and the Company rescinds
the purchase of Stock by such Optionee, each Optionee who exercises any
Option or portion thereof shall, at the time of payment thereof, as provided
in paragraph 7(a) hereof, deliver to the Company a form of stock power and
assignment signed by such Optionee in form and substance satisfactory to the
Company, rendering the certificate representing the shares purchased
negotiable to the Company. An Optionee may at any time request delivery of
Stock in payment of the Purchase Price for additional Stock pursuant to
paragraph 8(b) hereof notwithstanding the fact that such Stock has not been
held for two (2) years from the date of exercise of the Option pursuant to
which it was purchased.
15. OPTIONEE'S RIGHT TO PLEDGE
(a) Notwithstanding the provisions of paragraph 14(a) hereof, if any
Optionee who exercises an Option demonstrates to the Committee a need to
obtain financing for the purchase of Stock pursuant to such exercise and
indicates his good faith intention to remain in the employ of the Company
during the Holding Period, the Committee, in its sole discretion, may permit
delivery of any Stock purchased pursuant to the exercise of any Option to a
financial institution for use by such Optionee as collateral security for the
purchase of the Stock, subject to any necessary or appropriate restrictions
with respect thereto as may be required to comply with applicable Federal and
state securities laws and/or the listing requirements of any national
securities exchange.
(b) If Stock is delivered to an Optionee in order to facilitate a
pledge described in paragraph 15(a), the Company shall have the right to
cancel said Stock upon the exercise of the Company's election to void the
purchase of such Stock pursuant to the provisions of paragraph 14(a). Upon
the cancellation of such Stock and application by the holder thereof, the
Company shall pay to the holder the amount payable for such Stock as
calculated under the provisions of paragraph 14(c) hereof.
(c) Any Stock delivered to an Optionee pursuant to the provisions of
this paragraph 15 shall contain a legend stating that the Stock is subject to
cancellation pursuant to the terms of this Plan and that upon cancellation
the amount payable to the holder thereof shall be limited as provided in the
Plan.
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16. DELIVERY OF CERTIFICATES
If the Optionee remains in the employ of the Company throughout the
Holding Period, or leaves the employ of the Company by reason of retirement
(under normal Company policies), death or disability, the Company shall deliver
to the Optionee or his personal representative (as the case may be), as soon as
practicable thereafter, certificates representing the Stock purchased by the
Optionee under the Option free and clear of restriction except for the
restrictions which are necessary to assure compliance by the Company and the
Optionee with applicable Federal and state securities laws and/or the listing
requirements of any national securities exchange (the "Certificates"). If the
Company fails or declines to exercise its right to void any purchase pursuant to
the terms of paragraph 14 hereof, the Company shall deliver the Certificates to
those Optionees as soon as practicable after the expiration of two (2) years
from the date of exercise of the applicable Option. In the event an Option is
exercised using Stock as consideration for the Purchase Price, the Company shall
issue separate certificates for each block of shares delivered in payment of the
Option Price and for the balance of shares purchased at such exercise.
17. INVESTMENT PURPOSE
Each Option granted hereunder may be issued on the condition that any
purchase of Stock pursuant to the exercise of an Option which shall not be
the subject of a registration statement permitting the sale or other
distribution thereof shall be for investment purposes and not with a view to
resale or distribution (the "Restricted Stock"). If requested by the
Company, each Optionee must agree, at the time of the purchase of any
Restricted Stock, to execute an "investment letter" setting forth such
investment intent in the form acceptable to the Company and must consent to
any stock certificate issued to him thereunder bearing a restrictive legend
setting forth the restrictions applicable to the further resale, transfer or
other conveyance thereof without registration under the Securities Act of
1933, as amended, and under the applicable securities or blue sky laws of any
other jurisdiction (together, the "Securities Laws"), or the availability of
exemptions from registration thereunder and to the placing of transfer
restrictions on the records of the transfer agent for such Stock. No
Restricted Stock may thereafter be resold, transferred or otherwise conveyed
unless:
(1) an opinion of the Optionee's counsel is received, in form and
substance satisfactory to counsel for the Company, that
registration under the applicable Securities Laws is not required;
or
(2) such Stock is registered under the applicable Securities Laws; or
-9-
<PAGE> 10
(3) "no action" letters are received from the staff of the Securities
and Exchange Commission and from the administrative agencies
administering all other applicable securities or blue sky laws,
based on the option of counsel for Optionee in form and substance
reasonably satisfactory to counsel for the Company, advising that
registrations under the Securities Laws are not required.
18. AMENDMENT AND TERMINATION OF PLAN
(a) The Board of Directors of the Company may, from time to time,
with respect to any shares at the time not subject to Options, suspend or
terminate the Plan or amend or revise the terms of the Plan; provided that
any amendment to the Plan shall be approved by a majority of the shareholders
of the Company if the amendment would (i) materially increase the benefits
accruing to participants under the Plan; (ii) increase the number of shares
of Stock which may be issued under the Plan, except as permitted under the
provisions of paragraph 13 above; or (iii) materially modify the requirements
as to eligibility for participation in the Plan.
(b) Subject to the provisions in paragraph 13 above, the Plan shall
terminate ten (10) years from the earlier of the adoption of the Plan by the
Board of Directors or its approval by the shareholders.
(c) Subject to the provisions in paragraph 13 above, no amendment,
suspension or termination of this Plan shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option granted
to such Optionee under the Plan.
19. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board of Directors
of the Company and approval by the Company's shareholders; provided, however,
that prior to approval of the Plan by the Company's shareholders but after
adoption by the Board of Directors, Options may be granted under the Plan
subject to obtaining such approval.
20. TERM OF PLAN
No Option shall be granted pursuant to the Plan after ten (10) years
from the earlier of the date of adoption of the Plan by the Board of
Directors of the Company or the date of approval by the Company's
shareholders.
-10-
<PAGE> 1
Exhibit 10(z)
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
STATE LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND SUCH STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
CLASS A COMMON STOCK PURCHASE OPTION Dated: January 22, 1996
K-V PHARMACEUTICAL COMPANY
Option
for the Purchase of Class A Common Stock
(Subject to Adjustment as Hereinafter Provided)
K-V PHARMACEUTICAL COMPANY, a Delaware corporation (the "Company"),
hereby certifies that, in consideration of the payment to the Company of the
sum of $1,150,000, MAC & Co. is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Option at any time
before 5 o'clock p.m., St. Louis, Missouri local time during the period (the
"Exercise Period") commencing on March 1, 1997 and ending March 30, 1997
(said latter time being referred to herein as the "Expiration Time"), that
number of shares of fully paid and non-assessable shares (the "Shares") of
the Class A Common Stock of the Company, $.01 par value per share (the "Class
A Common Stock"), as shall be determined by dividing $17,500,000 (the
"Aggregate Payment") by the Purchase Price. For the purposes hereof, the
Purchase Price shall mean the greater of: (i) $35.00 per Share or (ii) 80%
of the Current Market Price of the Class A Common Stock at the Exercise Date;
Current Market Price shall mean the average closing market price of the Class
A Common Stock reported by the American Stock Exchange (or other exchange or
market which is the principal trading market for the Class A Common Stock)
for the ten trading day period ending on, and including, the third business
day preceding the Exercise Date; and Exercise Date shall mean the date this
Option is received by the Company for exercise with the Subscription Form
attached hereto fully completed and executed and accompanied by the Aggregate
Payment.
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
<PAGE> 2
1. Exercise of Option.
------------------
1.1. Full Exercise. This Option may be exercised in full, but
-------------
not in part, at any time during the Exercise Period by the holder hereof by
surrendering this Option, together with a Subscription Form in the form of
Exhibit A, duly executed by such holder to the Company, at any time prior
- ---------
to the Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the order
of the Company in the amount of the aggregate Purchase Price, subject to any
adjustments provided for in Section 2.
1.2. Delivery of Certificates. As soon as practicable after
------------------------
any exercise of this Option and payment of the aggregate Purchase Price
payable upon such exercise, and in any event within ten (10) days thereafter,
the Company, at its expense, will cause to be issued in the name of and
delivered to the holder of this Option, or as such holder may direct (upon
payment by such holder of any applicable transfer taxes), subject to the
requirements of Section 3, certificates for the number of fully paid and
non-assessable shares of Class A Common Stock (or other securities or
property) to which such holder shall be entitled upon such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full share.
2. Adjustments to Purchase Price and Number of Securities.
------------------------------------------------------
2.1. Subdivision and Combination. In case the Company shall
---------------------------
at any time subdivide or combine the outstanding shares of Class A Common
Stock, the Purchase Price and number of Shares issuable hereunder shall be
adjusted accordingly.
2.2. Merger or Consolidation. In case of any consolidation or
-----------------------
merger of the Company with or into another corporation (other than a
consolidation or merger which does not result in any reclassification or
change of the outstanding Class A Common Stock), the corporation formed by
such consolidation or merger shall, upon written request, execute and deliver
to the holder of this Option then outstanding an equivalent substitute or
supplemental option providing the right to receive, upon exercise, the shares
of stock and/or other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Class A Common
Stock for which this Option could have been exercised immediately prior to
the consolidation or merger.
3. Compliance with the Act; Restrictions on Transfer; Investment
------------------------------------------------------------
Representation. This Option and the shares of Class A Common Stock issuable
- --------------
upon the exercise hereof have not been registered under the Act. The holder
hereof by acceptance hereof agrees that this Option and all securities
acquired upon the exercise hereof will be disposed of only in accordance with
the Act and the rules and regulations of the Securities and Exchange
Commission thereunder. The exercise of this Option by the holder shall be a
confirmation by the holder, at the time of exercise, that such holder is
acquiring the Shares or other securities upon the exercise of this Option,
for the holder's own account, for investment, and not with a present view to
distribution of the Shares or other securities, or of this Option.
<PAGE> 3
4. Reservation of Stock. The Company will at all times reserve
--------------------
and keep available, solely for issuance and delivery upon the exercise of
this Option, all such shares of Class A Common Stock and other securities as
shall be deliverable against the due exercise of this Option.
5. Notices of Record Date, Etc. In case the Company shall take a
----------------------------
record of the holders of its Class A Common Stock (or other securities at the
time receivable upon the exercise of this Option) for the purpose of:
(a) entitling them to receive any dividend or other
distribution of any shares of the capital stock of the Company, or
securities convertible into shares of the capital stock of the Company;
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail or cause to be mailed to the holder of this Option a
notice thereof at least ten days prior to the record date.
6. Miscellaneous. This Option shall be governed by and construed
-------------
under the laws of the State of Delaware. Nothing contained herein shall
prohibit or limit in any manner the right of the Company to issue and sell
shares of Class A Common Stock or other securities of the Company for such
consideration and upon such terms as the Board of Directors of the Company
deems appropriate, regardless of whether or not such transaction would be
dilutive to the shares of Class A Common Stock issuable upon the exercise of
this Option.
IN WITNESS WHEREOF, the Company has caused this Option to be duly
signed in its behalf as of the date first set forth above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Marc S. Hermelin
-----------------------------------
Marc S. Hermelin, Vice Chairman
and Chief Executive Officer
<PAGE> 4
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
STATE LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND SUCH STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
CLASS A COMMON STOCK PURCHASE OPTION Dated: January 22, 1996
K-V PHARMACEUTICAL COMPANY
Option
for the Purchase of Class A Common Stock
(Subject to Adjustment as Hereinafter Provided)
K-V PHARMACEUTICAL COMPANY, a Delaware corporation (the "Company"),
hereby certifies that, in consideration of the payment to the Company of the
sum of $1,250,000, MAC & Co. is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Option at any time
before 5 o'clock p.m., St. Louis, Missouri local time during the period (the
"Exercise Period") commencing on September 1, 1997 and ending September 29,
1997 (said latter time being referred to herein as the "Expiration Time"),
that number of shares of fully paid and non-assessable shares (the "Shares")
of the Class A Common Stock of the Company, $.01 par value per share (the
"Class A Common Stock"), as shall be determined by dividing $20,000,000 (the
"Aggregate Payment") by the Purchase Price. For the purposes hereof, the
Purchase Price shall mean the greater of: (i) $40.00 per Share or (ii) 80%
of the Current Market Price of the Class A Common Stock at the Exercise Date;
Current Market Price shall mean the average closing market price of the Class
A Common Stock reported by the American Stock Exchange (or other exchange or
market which is the principal trading market for the Class A Common Stock)
for the ten trading day period ending on, and including, the third business
day preceding the Exercise Date; and Exercise Date shall mean the date this
Option is received by the Company for exercise with the Subscription Form
attached hereto fully completed and executed and accompanied by the Aggregate
Payment.
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
<PAGE> 5
1. Exercise of Option.
------------------
1.1. Full Exercise. This Option may be exercised in full, but
-------------
not in part, at any time during the Exercise Period by the holder hereof by
surrendering this Option, together with a Subscription Form in the form of
Exhibit A, duly executed by such holder to the Company, at any time prior
- ---------
to the Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the order
of the Company in the amount of the aggregate Purchase Price, subject to any
adjustments provided for in Section 2.
1.2. Delivery of Certificates. As soon as practicable after
------------------------
any exercise of this Option and payment of the aggregate Purchase Price
payable upon such exercise, and in any event within ten (10) days thereafter,
the Company, at its expense, will cause to be issued in the name of and
delivered to the holder of this Option, or as such holder may direct (upon
payment by such holder of any applicable transfer taxes), subject to the
requirements of Section 3, certificates for the number of fully paid and
non-assessable shares of Class A Common Stock (or other securities or
property) to which such holder shall be entitled upon such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full share.
2. Adjustments to Purchase Price and Number of Securities.
------------------------------------------------------
2.1. Subdivision and Combination. In case the Company shall
---------------------------
at any time subdivide or combine the outstanding shares of Class A Common
Stock, the Purchase Price and number of Shares issuable hereunder shall be
adjusted accordingly.
2.2. Merger or Consolidation. In case of any consolidation or
-----------------------
merger of the Company with or into another corporation (other than a
consolidation or merger which does not result in any reclassification or
change of the outstanding Class A Common Stock), the corporation formed by
such consolidation or merger shall, upon written request, execute and deliver
to the holder of this Option then outstanding an equivalent substitute or
supplemental option providing the right to receive, upon exercise, the shares
of stock and/or other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Class A Common
Stock for which this Option could have been exercised immediately prior to
the consolidation or merger.
3. Compliance with the Act; Restrictions on Transfer; Investment
------------------------------------------------------------
Representation. This Option and the shares of Class A Common Stock issuable
upon the exercise hereof have not been registered under the Act. The holder
hereof by acceptance hereof agrees that this Option and all securities
acquired upon the exercise hereof will be disposed of only in accordance with
the Act and the rules and regulations of the Securities and Exchange
Commission thereunder. The exercise of this Option by the holder shall be a
confirmation by the holder, at the time of exercise, that such holder is
acquiring the Shares or other securities upon the exercise of this Option,
for the holder's own account, for investment, and not with a present view to
distribution of the Shares or other securities, or of this Option.
<PAGE> 6
4. Reservation of Stock. The Company will at all times reserve
--------------------
and keep available, solely for issuance and delivery upon the exercise of
this Option, all such shares of Class A Common Stock and other securities as
shall be deliverable against the due exercise of this Option.
5. Notices of Record Date, Etc. In case the Company shall take a
----------------------------
record of the holders of its Class A Common Stock (or other securities at the
time receivable upon the exercise of this Option) for the purpose of:
(a) entitling them to receive any dividend or other
distribution of any shares of the capital stock of the Company, or
securities convertible into shares of the capital stock of the Company;
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail or cause to be mailed to the holder of this Option a
notice thereof at least ten days prior to the record date.
6. Miscellaneous. This Option shall be governed by and construed
-------------
under the laws of the State of Delaware. Nothing contained herein shall
prohibit or limit in any manner the right of the Company to issue and sell
shares of Class A Common Stock or other securities of the Company for such
consideration and upon such terms as the Board of Directors of the Company
deems appropriate, regardless of whether or not such transaction would be
dilutive to the shares of Class A Common Stock issuable upon the exercise of
this Option.
IN WITNESS WHEREOF, the Company has caused this Option to be duly
signed in its behalf as of the date first set forth above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Marc S. Hermelin
-----------------------------------
Marc S. Hermelin, Vice Chairman
and Chief Executive Officer
<PAGE> 7
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
STATE LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND SUCH STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
CLASS A COMMON STOCK PURCHASE OPTION Dated: January 22, 1996
K-V PHARMACEUTICAL COMPANY
Option
for the Purchase of Class A Common Stock
(Subject to Adjustment as Hereinafter Provided)
K-V PHARMACEUTICAL COMPANY, a Delaware corporation (the "Company"),
hereby certifies that, in consideration of the payment to the Company of the
sum of $1,300,000, MAC & Co. is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Option at any time
before 5 o'clock p.m., St. Louis, Missouri local time during the period (the
"Exercise Period") commencing on March 1, 1998 and ending March 30, 1998
(said latter time being referred to herein as the "Expiration Time"), that
number of shares of fully paid and non-assessable shares (the "Shares") of
the Class A Common Stock of the Company, $.01 par value per share (the "Class
A Common Stock"), as shall be determined by dividing $22,500,000 (the
"Aggregate Payment") by the Purchase Price. For the purposes hereof, the
Purchase Price shall mean the greater of: (i) $45.00 per Share or (ii) 80%
of the Current Market Price of the Class A Common Stock at the Exercise Date;
Current Market Price shall mean the average closing market price of the Class
A Common Stock reported by the American Stock Exchange (or other exchange or
market which is the principal trading market for the Class A Common Stock)
for the ten trading day period ending on, and including, the third business
day preceding the Exercise Date; and Exercise Date shall mean the date this
Option is received by the Company for exercise with the Subscription Form
attached hereto fully completed and executed and accompanied by the Aggregate
Payment.
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
<PAGE> 8
1. Exercise of Option.
------------------
1.1. Full Exercise. This Option may be exercised in full, but
-------------
not in part, at any time during the Exercise Period by the holder hereof by
surrendering this Option, together with a Subscription Form in the form of
Exhibit A, duly executed by such holder to the Company, at any time prior
- ---------
to the Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the order
of the Company in the amount of the aggregate Purchase Price, subject to any
adjustments provided for in Section 2.
1.2. Delivery of Certificates. As soon as practicable after
------------------------
any exercise of this Option and payment of the aggregate Purchase Price
payable upon such exercise, and in any event within ten (10) days thereafter,
the Company, at its expense, will cause to be issued in the name of and
delivered to the holder of this Option, or as such holder may direct (upon
payment by such holder of any applicable transfer taxes), subject to the
requirements of Section 3, certificates for the number of fully paid and
non-assessable shares of Class A Common Stock (or other securities or
property) to which such holder shall be entitled upon such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full share.
2. Adjustments to Purchase Price and Number of Securities.
------------------------------------------------------
2.1. Subdivision and Combination. In case the Company shall
----------------------------
at any time subdivide or combine the outstanding shares of Class A Common
Stock, the Purchase Price and number of Shares issuable hereunder shall be
adjusted accordingly.
2.2. Merger or Consolidation. In case of any consolidation or
------------------------
merger of the Company with or into another corporation (other than a
consolidation or merger which does not result in any reclassification or
change of the outstanding Class A Common Stock), the corporation formed by
such consolidation or merger shall, upon written request, execute and deliver
to the holder of this Option then outstanding an equivalent substitute or
supplemental option providing the right to receive, upon exercise, the shares
of stock and/or other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Class A Common
Stock for which this Option could have been exercised immediately prior to
the consolidation or merger.
3. Compliance with the Act; Restrictions on Transfer; Investment
------------------------------------------------------------
Representation. This Option and the shares of Class A Common Stock issuable
- --------------
upon the exercise hereof have not been registered under the Act. The holder
hereof by acceptance hereof agrees that this Option and all securities
acquired upon the exercise hereof will be disposed of only in accordance with
the Act and the rules and regulations of the Securities and Exchange
Commission thereunder. The exercise of this Option by the holder shall be a
confirmation by the holder, at the time of exercise, that such holder is
acquiring the Shares or other securities upon the exercise of this Option,
for the holder's own account, for investment, and not with a present view to
distribution of the Shares or other securities, or of this Option.
<PAGE> 9
4. Reservation of Stock. The Company will at all times reserve
--------------------
and keep available, solely for issuance and delivery upon the exercise of
this Option, all such shares of Class A Common Stock and other securities as
shall be deliverable against the due exercise of this Option.
5. Notices of Record Date, Etc. In case the Company shall take a
----------------------------
record of the holders of its Class A Common Stock (or other securities at the
time receivable upon the exercise of this Option) for the purpose of:
(a) entitling them to receive any dividend or other
distribution of any shares of the capital stock of the Company, or
securities convertible into shares of the capital stock of the Company;
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail or cause to be mailed to the holder of this Option a
notice thereof at least ten days prior to the record date.
6. Miscellaneous. This Option shall be governed by and construed
-------------
under the laws of the State of Delaware. Nothing contained herein shall
prohibit or limit in any manner the right of the Company to issue and sell
shares of Class A Common Stock or other securities of the Company for such
consideration and upon such terms as the Board of Directors of the Company
deems appropriate, regardless of whether or not such transaction would be
dilutive to the shares of Class A Common Stock issuable upon the exercise of
this Option.
IN WITNESS WHEREOF, the Company has caused this Option to be duly
signed in its behalf as of the date first set forth above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Marc S. Hermelin
----------------------------------
Marc S. Hermelin, Vice Chairman
and Chief Executive Officer
<PAGE> 10
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
STATE LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND SUCH STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
CLASS A COMMON STOCK PURCHASE OPTION Dated: January 22, 1996
K-V PHARMACEUTICAL COMPANY
Option
for the Purchase of Class A Common Stock
(Subject to Adjustment as Hereinafter Provided)
K-V PHARMACEUTICAL COMPANY, a Delaware corporation (the "Company"),
hereby certifies that, in consideration of the payment to the Company of the
sum of $1,300,000, MAC & Co. is entitled, subject to the terms set forth
below, to purchase from the Company upon surrender of this Option at any time
before 5 o'clock p.m., St. Louis, Missouri local time during the period (the
"Exercise Period") commencing on September 1, 1998 and ending September 29,
1998 (said latter time being referred to herein as the "Expiration Time"),
that number of shares of fully paid and non-assessable shares (the "Shares")
of the Class A Common Stock of the Company, $.01 par value per share (the
"Class A Common Stock"), as shall be determined by dividing $25,000,000 (the
"Aggregate Payment") by the Purchase Price. For the purposes hereof, the
Purchase Price shall mean the greater of: (i) $50.00 per Share or (ii) 80%
of the Current Market Price of the Class A Common Stock at the Exercise Date;
Current Market Price shall mean the average closing market price of the Class
A Common Stock reported by the American Stock Exchange (or other exchange or
market which is the principal trading market for the Class A Common Stock)
for the ten trading day period ending on, and including, the third business
day preceding the Exercise Date; and Exercise Date shall mean the date this
Option is received by the Company for exercise with the Subscription Form
attached hereto fully completed and executed and accompanied by the Aggregate
Payment.
As used herein, the term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
<PAGE> 11
1. Exercise of Option.
------------------
1.1. Full Exercise. This Option may be exercised in full, but
-------------
not in part, at any time during the Exercise Period by the holder hereof by
surrendering this Option, together with a Subscription Form in the form of
Exhibit A, duly executed by such holder to the Company, at any time prior
- ---------
to the Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the order
of the Company in the amount of the aggregate Purchase Price, subject to any
adjustments provided for in Section 2.
1.2. Delivery of Certificates. As soon as practicable after
------------------------
any exercise of this Option and payment of the aggregate Purchase Price
payable upon such exercise, and in any event within ten (10) days thereafter,
the Company, at its expense, will cause to be issued in the name of and
delivered to the holder of this Option, or as such holder may direct (upon
payment by such holder of any applicable transfer taxes), subject to the
requirements of Section 3, certificates for the number of fully paid and
non-assessable shares of Class A Common Stock (or other securities or
property) to which such holder shall be entitled upon such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full share.
2. Adjustments to Purchase Price and Number of Securities.
------------------------------------------------------
2.1. Subdivision and Combination. In case the Company shall
---------------------------
at any time subdivide or combine the outstanding shares of Class A Common
Stock, the Purchase Price and number of Shares issuable hereunder shall be
adjusted accordingly.
2.2. Merger or Consolidation. In case of any consolidation or
-----------------------
merger of the Company with or into another corporation (other than a
consolidation or merger which does not result in any reclassification or
change of the outstanding Class A Common Stock), the corporation formed by
such consolidation or merger shall, upon written request, execute and deliver
to the holder of this Option then outstanding an equivalent substitute or
supplemental option providing the right to receive, upon exercise, the shares
of stock and/or other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Class A Common
Stock for which this Option could have been exercised immediately prior to
the consolidation or merger.
3. Compliance with the Act; Restrictions on Transfer; Investment
------------------------------------------------------------
Representation. This Option and the shares of Class A Common Stock issuable
- --------------
upon the exercise hereof have not been registered under the Act. The holder
hereof by acceptance hereof agrees that this Option and all securities
acquired upon the exercise hereof will be disposed of only in accordance with
the Act and the rules and regulations of the Securities and Exchange
Commission thereunder. The exercise of this Option by the holder shall be a
confirmation by the holder, at the time of exercise, that such holder is
acquiring the Shares or other securities upon the exercise of this Option,
for the holder's own account, for investment, and not with a present view to
distribution of the Shares or other securities, or of this Option.
<PAGE> 12
4. Reservation of Stock. The Company will at all times reserve
--------------------
and keep available, solely for issuance and delivery upon the exercise of
this Option, all such shares of Class A Common Stock and other securities as
shall be deliverable against the due exercise of this Option.
5. Notices of Record Date, Etc. In case the Company shall take a
----------------------------
record of the holders of its Class A Common Stock (or other securities at the
time receivable upon the exercise of this Option) for the purpose of:
(a) entitling them to receive any dividend or other
distribution of any shares of the capital stock of the Company, or
securities convertible into shares of the capital stock of the Company;
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail or cause to be mailed to the holder of this Option a
notice thereof at least ten days prior to the record date.
6. Miscellaneous. This Option shall be governed by and construed
-------------
under the laws of the State of Delaware. Nothing contained herein shall
prohibit or limit in any manner the right of the Company to issue and sell
shares of Class A Common Stock or other securities of the Company for such
consideration and upon such terms as the Board of Directors of the Company
deems appropriate, regardless of whether or not such transaction would be
dilutive to the shares of Class A Common Stock issuable upon the exercise of
this Option.
IN WITNESS WHEREOF, the Company has caused this Option to be duly
signed in its behalf as of the date first set forth above.
K-V PHARMACEUTICAL COMPANY
By: /s/ Marc S. Hermelin
----------------------------------
Marc S. Hermelin, Vice Chairman
and Chief Executive Officer
<PAGE> 1
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT BETWEEN
KV PHARMACEUTICAL COMPANY AND
MARC S. HERMELIN
----------------
This Third Amendment ("Third Amendment") to the Employment
Agreement between KV Pharmaceutical Company ("KV") and Marc S.
Hermelin ("Hermelin") dated November 15, 1993, as amended (as so
amended, the "Employment Agreement") is entered into this 22nd day
of November 1995.
Whereas, KV has requested Hermelin's assistance in order to
achieve increased profitability for the fiscal year ending March
31, 1997; and
Whereas, as a shareholder and holder of incentive stock
options, Hermelin considers it to be in his personal best interest
to accomplish the increased profitability of KV as much as
possible; and
Whereas, in order to achieve such increased profitability, in
part, Hermelin has voluntarily agreed to forego certain payments to
which Hermelin would otherwise be entitled under his contractual
arrangement with KV;
Therefore, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Hermelin and KV, KV and Hermelin agree
that the bonus payable to Hermelin under the Employment Agreement
with respect to the fiscal year ending March 31, 1997 shall be
capped and limited to an amount not to exceed 50% of the Base
Salary payable to Hermelin in accordance with the terms of the
Employment Agreement.
In witness whereof, KV and Hermelin have entered into this
Third Amendment to the Employment Agreement as of the date set
forth above.
KV Pharmaceutical Company
By: /s/ Gerald R. Mitchell /s/ Marc S. Hermelin
------------------------------- ------------------------
Gerald R. Mitchell Marc S. Hermelin
Vice President-Finance
<PAGE> 1
STOCK OPTION AGREEMENT
(Non-Assignable)
Date: Option Number: 1056
November 22, 1995 Number of Shares Purchasable
75,000
To Purchase Shares of
Class B Common Stock
-of-
K-V PHARMACEUTICAL COMPANY
Issued Pursuant to the
1991 Incentive Stock Option Plan (the "Plan")
---------------------------------------------
THIS CERTIFIES THAT Victor M. Hermelin is hereby granted the
option to purchase, at the option price of $8.525 per share, all or
any part of that number of fully paid and non-assessable shares of
the Class B Common Stock, par value $0.01 per share ("Class B
Common Stock"), of K-V Pharmaceutical Company, a Delaware
corporation (hereinafter called the "Company") above set forth,
upon and subject to the following terms and conditions:
This Option and all rights to purchase shares hereunder shall
expire five (5) years from the date hereof (hereinafter called the
"expiration date").
This Option and all rights hereunder shall be non-assignable
and non-transferable, except to the extent that the holder's
legatees, personal representatives or distributees in the event of
the holder's death may be permitted to exercise this Option as
hereinafter set forth.
Any attempted transfer, assignment, pledge, hypothecation or
other disposition of this Option except as provided herein or in
accordance with the Company's 1991 Incentive Stock Option Plan (the
"Plan") shall be null and void and without effect.
As of November 22, 1995, and prior to its expiration or
earlier termination, this Option shall be exercisable from time to
time in cumulative installments as to all or any of the shares then
purchasable hereunder as follows: During the twelve-month period
commencing November 22, 1995 and ending November 21, 1996, it may
be exercised as to 20% of the shares originally subject hereto; and
during each additional consecutive twelve-month period, it may be
exercised as to an additional 20%; until the fifth twelve-
<PAGE> 2
month period, during which this Option shall be exercisable as to all
the shares subject hereto.
This Option may be exercised from time to time only by
delivery to the Company at its main office (attention of the
Secretary) of a duly signed notice in writing stating the number of
shares with respect to which this Option is being exercised and the
time and date of delivery thereof, which time and date of delivery
shall be during the normal business hours of the Company on a
regular business day not less than fifteen (15) days after the
giving of such notice unless an earlier date has been mutually
agreed upon; provided, however, that not less than ten (10) shares
may be purchased at any one time unless the number purchased is the
total number then purchasable hereunder; and provided further that
this Option may not be exercised at any time when this Option or
the granting or exercise hereof violates any law or governmental
order or regulation. At the time of delivery specified in such
notice, the Company shall, without transfer or issue tax to the
holder (or other person entitled to exercise this Option) transfer
and set aside for the benefit of the holder (or other person
entitled to exercise this Option) a certificate or certificates out
of the Company's theretofore authorized but unissued or reacquired
shares of Class B Common Stock as the Company may elect (with
appropriate legend thereon, if deemed necessary by the Company,
containing the representation by the person exercising the Option
that the shares purchased shall be for investment purposes and not
with a view to resale or distribution) against payment of the
option price in full for the number of shares purchased by either
(i) cash (including a certified or bank cashier's check or the
equivalent thereof), or (ii) at the discretion of the Committee, as
defined in the Plan, by delivering at fair market value, as
determined by the Committee (as provided under the Plan), Company
Common Stock already owned by the Participant, or (iii) any
combination of cash and Company Common Stock, to be held by the
Company and subsequently delivered to the holder (or such other
person) as hereinafter provided. If the holder fails to pay for
any part of the number of shares specified in such notice as
required, the right to purchase such shares may be terminated by
the Committee.
Except as hereinafter provided, no Option may be exercised at
any time unless the holder hereof is an employee of the Company or
any of its subsidiaries.
To the extent that this Option has not been exercised in full
prior to its termination or expiration date, whichever occurs
sooner, it shall terminate and become void and of no effect.
All Class B Common Stock purchased pursuant to the exercise of
an Option shall be held by the Company for a period of two years
from the date of exercise (the "Holding Period"). If the holder
leaves the employ of the Company during the Holding Period for any
reason, except retirement (under normal Company policies), death or
disability, the holder's purchase thereof shall be voidable at the
Company's sole option and discretion at any time within the Holding
Period. If any purchase of Class B Common Stock is so
2
<PAGE> 3
voided, the least of (i) the funds paid by the holder in connection
with the voided transaction; (ii) the value in cash of Common Stock
used to purchase such Class B Common Stock, determined as of the date
of such purchase, less any amount which would have been forfeited
pursuant to the Plan relative to Stock used to purchase the
forfeited stock if such Stock has not been so used and the Holding
Period relative to such stock had not expired; or (iii) the fair
market value per shares, as determined on the date of termination
of the holder's employment with the Company in accordance with the
provisions of the Plan, shall be returned in full to the holder
within thirty (30) days after such purchase is voided provided,
however, no payment shall be due prior to the time that the Company
is in possession of the Class B Common Stock and an executed stock
power with respect to such Stock. In order to facilitate the
repurchase of Class B Common Stock by the Company in accordance
with the terms of this paragraph, each holder who exercises any
Option or portion thereof shall, at the time of payment for such
Class B Common Stock, as provided hereinabove, deliver to the
Company a form of stock power and assignment signed by such holder
in form and substance satisfactory to the Company, rendering the
certificate representing the shares purchased negotiable to the
Company. Notwithstanding the foregoing, if any holder who
exercises an Option demonstrates to the Committee of the Company a
need to obtain financing for the purchase of Class B Common Stock
and indicates his good faith intention to remain in the employ of
the Company during the Holding Period, the Committee, in its sole
discretion, may permit delivery of any Class B Common Stock
purchased hereunder to a financial institution for use as
collateral security for the purchase of the Class B Common Stock,
subject to any necessary or appropriate restrictions with respect
thereto as may be required to comply with applicable federal and
state securities laws and/or the listing requirements of any
national securities exchange, and the holder may use any Class B
Common Stock so held in payment of the Option Price for additional
Class B Common Stock as provided for herein.
If the holder remains in the employ of the Company throughout
the Holding Period, or is terminated by reason of death, disability
or retirement (under normal Company policies) the Company shall
deliver to the holder or the holder's personal representative, as
soon as practicable thereafter, certificates representing the Class
B Common Stock purchased hereunder (the "Certificates"), free and
clear of restrictions except for the restrictions which are
necessary to assure compliance by the Company and the holder with
applicable federal and state securities laws and/or the listing
requirements of any national securities exchange. If the Company
fails or declines to exercise its right to void any purchase
pursuant to the terms of the preceding paragraph hereof, the
Company shall deliver the Certificates to the holder as soon as
practicable after the expiration of two years from the date of
exercise.
This Option shall not confer upon the holder any right to
remain in the employ of the Company or any subsidiary thereof and
shall not confer upon the holder any rights in the stock of the
Company prior to the issuance of a stock certificate pursuant to the
3
<PAGE> 4
exercise of this Option. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
Except as provided in this paragraph, upon termination of the
holder's employment with the Company or any of its subsidiaries for
any reason, this Option shall terminate. If the employment of the
Participant is terminated by reason of retirement (under normal
Company policies) any outstanding Option or unexercised portion
thereof granted to him may be fully exercised by the Participant,
his personal representative, executor, administrator, heirs or
devisees, as applicable, at any time, within three months from the
date of termination by reason of retirement. If the employment of
a Participant is terminated by reason of death or disability, any
outstanding Option or unexercised portion thereof which was granted
to him may be fully exercised by the Participant, his personal
representative, executor, administrator, heirs or devisees, as
applicable, at any time within one year from the date of
termination by reason of death or disability, provided that the
Participant has completed five (5) full years of employment with
the Company from the date the Option was granted. If the
Participant has not completed five (5) full years of employment
with the Company from the date the Option was granted, the Option
may be exercised only to the extent exercisable as of the date of
termination of employment. Notwithstanding any of the foregoing,
no Option shall be exercisable at any time after the expiration of
employment from the Company to any Parent or Subsidiary thereof, or
vice verse, shall not be deemed a termination of employment.
In the event that the outstanding shares of Class B Common
Stock of the Company are hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation, or in
the event that there is a "corporate transaction" as that term is
defined in the Regulations under Section 425 of the Internal
Revenue Code of 1986, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
spin-off, combination of shares or dividend payable in capital
stock, this Option shall, to the extent that it has not been
exercised, entitle the holder upon the subsequent exercise of this
Option to such number and kind of securities or other property,
subject to the terms of the Option, to which the holder would be
entitled had the holder actually owned the shares subject to the
unexercised portion of this Option at the time of the occurrence of
such event, and the aggregate purchase price upon the subsequent
exercise of this Option shall be the same as if the Class B Common
Stock of the Company originally optioned were being purchased as
provided herein; provided, however, that each such adjustment in
the number and kind of shares subject to this Option, including any
adjustment in the Option price, shall be made in such manner as not
to constitute a "modification" as defined in Section 425 of the
Internal Revenue Code of 1986. Any such adjustment made by the
Committee shall be conclusive.
Upon the occurrence of: (i) the dissolution or liquidation of
the Company, (ii) a reorganization, merger or consolidation of the
Company with one or more corporations in which the Company is not
the surviving corporation, (iii) a sale of substantially all of the
4
<PAGE> 5
assets of the Company or (iv) the transfer of more than 80% of the
then outstanding Stock of the Company to another entity or person
in a single transaction or series of transactions, the Plan shall
terminate, and any outstanding Options granted under the Plan shall
terminate on the day before the consummation of the transaction;
provided that the Board of Directors shall have the right, but
shall not be obligated, to accelerate the time in which any Options
may be exercised prior to such a termination. However, the
termination of such Options shall not occur if the Board of
Directors takes certain actions as provided in the Plan. In
addition, the Board of Directors has the authority to amend the
Plan to require that a successor corporation assume any outstanding
Options.
The Company may postpone the issuance and delivery of shares
upon any exercise of this Option, if necessary, until admission of
such shares to listing on any stock exchange and completion of
registration and qualification of such shares under any applicable
state or federal law, rule or regulation.
The holder hereof shall make such representations and furnish
such information to the Company as may be appropriate to permit the
Company to issue such shares in compliance with the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), or
any other applicable law, including state securities laws. Without
limiting the generality of the foregoing, if requested by the
Company, the holder will represent, in form acceptable to the
Company, that the holder is purchasing any shares issued pursuant
hereto for investment purposes and not with a view to resale or
distribution. The holder, by acceptance of this Option, hereby
consents to the placing of restrictive legend on any stock
certificate for shares purchased hereunder, setting forth the
restrictions applicable to the further resale, transfer or other
conveyance thereof without registration under the Securities Act or
other applicable law or the availability of an exemption from
registration thereunder and to the placing of transfer restrictions
on the records of the transfer agent for such shares. In addition,
the holder hereof will not thereafter resell, transfer or otherwise
convey any shares purchased hereunder without compliance with one
of the following three conditions: (1) an opinion of the holder's
counsel is received, in form and substance satisfactory to counsel
for the Company, that registration under the Securities Act and
applicable state securities laws is not required; or (2) such
shares have been registered for sale under the Securities Act and
any applicable state securities laws; or (3) a "no-action" letter
is received from the staff of the Securities and Exchange
Commission and from applicable state securities agencies, based on
an opinion of the holder's counsel in form and substance reasonably
satisfactory to counsel for the Company, advising that registration
under the Security Act is not required.
This Option is issued pursuant to the provisions of the
Company's 1991 Incentive Stock Option Plan, the receipt of a copy
of which the holder acknowledges by virtue of the acceptance
hereof, and is subject to all the terms and conditions of said
Plan.
5
<PAGE> 6
A determination by the Committee of any questions which may
arise with respect to the interpretation and construction of the
provisions of this Option or of said Plan shall be final. The
Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of said Plan
as it may deem advisable.
WITNESS the seal of the Company and the signatures of its duly
authorized officers or agents.
Dated: November 22, 1995
K-V PHARMACEUTICAL COMPANY
By /s/Gerald R. Mitchell
---------------------------------
Vice President, Finance
ACCEPTED:
/s/Victor M. Hermelin
- -----------------------------
Victor M. Hermelin
6
<PAGE> 1
<TABLE>
Exhibit 11(a)
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
EARNINGS (LOSS) PER SHARE CALCULATIONS
<CAPTION>
Year Ended March 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Calculation of Primary Earnings (Loss) per Share:
Net Income (Loss) $ 4,042,660 $ (5,374,801) $ (8,181,294)
Less dividends on preferred stock (421,750) (421,750) (421,750)
------------ ------------ ------------
Earnings (Loss) Attributed to Common Stock 3,620,910 (5,796,551) (8,603,044)
============ ============ ============
Average Number of Common Shares and
Common Share Equivalents Outstanding:
Average common shares outstanding 11,521,884 11,178,495 11,055,196
Common share equivalents (after application
of treasury stock method) 313,537 N/A N/A
------------ ------------ ------------
Average Common Shares and Common
Share Equivalents Outstanding 11,835,421 11,178,495 11,055,196
============ ============ ============
Primary Earnings (Loss) per Share<F1> $ 0.31 $ (0.52) $ (0.78)
============ ============ ============
Calculations of Fully-Diluted Earnings (Loss) per Share:
Earnings (Loss) per Share:
Net income (loss) $ 4,042,660 $ (5,374,801) $ (8,181,294)
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 4,042,660 (5,374,801) (8,181,294)
============ ============ ============
Average Number of Shares Outstanding on a
Fully-Diluted Basis:
Average common shares outstanding 11,521,884 11,178,495 11,055,196
Shares issuable upon conversion of stock options 372,370 248,709 361,709
Common equivalent shares for preferred stock 301,250 301,250 301,250
------------ ------------ ------------
Average Number of Shares Outstanding on
a Fully-Diluted Basis 12,195,504 11,728,454 11,718,155
============ ============ ============
Fully-Diluted Earnings (Loss) per Share<F2> $ 0.33 $ (0.46) $ (0.70)
============ ============ ============
<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 22(a)
LIST OF SUBSIDIARIES
--------------------
Particle Dynamics, Inc. (formerly known as Desmo Chemical Corporation), 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(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-----------------
KV Pharmaceutical Company
St. Louis, Missouri
We hereby consent to the incorporation by reference
in the Registration Statements on Form S-8 (File Numbers 2-56793,
2-76173, 33-36400, 33-44927 and 333-199) of our report dated July 12,
1996, relating to the consolidated financial statements of
KV Pharmaceutical Company appearing in the Company's Annual
Report on Form 10-K for the year ended March 31, 1996.
BDO SEIDMAN, LLP
St. Louis, Missouri
July 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,038,069
<SECURITIES> 0
<RECEIVABLES> 8,502,714
<ALLOWANCES> 0
<INVENTORY> 8,450,162
<CURRENT-ASSETS> 19,220,303
<PP&E> 7,621,217
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,169,710
<CURRENT-LIABILITIES> 5,167,354
<BONDS> 0
<COMMON> 118,681
0
2,410
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,169,710
<SALES> 49,788,635
<TOTAL-REVENUES> 49,788,635
<CGS> 0
<TOTAL-COSTS> 26,259,638
<OTHER-EXPENSES> 17,308,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,088,251
<INCOME-PRETAX> 4,132,660
<INCOME-TAX> 90,000
<INCOME-CONTINUING> 4,042,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,042,660
<EPS-PRIMARY> .31
<EPS-DILUTED> .33
</TABLE>
