0000950114-95-000161.txt : 19950815 0000950114-95-000161.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950114-95-000161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KV PHARMACEUTICAL CO /DE/ CENTRAL INDEX KEY: 0000057055 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 430618919 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09601 FILM NUMBER: 95563646 BUSINESS ADDRESS: STREET 1: 2503 SOUTH HANLEY RD CITY: ST LOUIS STATE: MO ZIP: 63144 BUSINESS PHONE: 3146456600 MAIL ADDRESS: STREET 1: 2503 S HANLEY RD CITY: ST LOUIS STATE: MO ZIP: 63144 10-Q 1 K-V PHARMACEUTICAL FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION ---------------------------------- WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------------------------------------------------------- SECURITIES EXCHANGE ACT OF 1934 ------------------------------- (X) QUARTERLY REPORT FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 ------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-9601 --------------------------------------- K-V PHARMACEUTICAL COMPANY ------------------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-0618919 -------------------------------- ------------------------------------ (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144 ------------------------------------------------------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 645-6600 ------------------------------------------------------------------ (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------------------------------------------------ (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ------
TITLE OF CLASS OF NUMBER OF SHARES COMMON STOCK OUTSTANDING AS OF THIS REPORT DATE ----------------- ---------------------------------- CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE 6,739,151 CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE 4,694,964
EXHIBIT INDEX IS ON PAGE 14 PAGE 1 OF 16 PAGES 2 PART I FINANCIAL INFORMATION 2 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED)
1995 1994 ---- ---- REVENUES: NET SALES $ 12,220,103 $ 7,876,276 COSTS AND EXPENSES: MANUFACTURING COSTS 6,657,625 6,061,666 RESEARCH AND DEVELOPMENT 1,045,504 1,299,541 SELLING AND ADMINISTRATIVE 3,156,103 3,055,110 INTEREST EXPENSE 316,543 255,994 AMORTIZATION OF INTANGIBLE ASSETS 243,208 162,719 ------------ ----------- TOTAL COSTS AND EXPENSES 11,418,983 10,835,030 ------------ ----------- INCOME (LOSS) BEFORE INCOME TAXES 801,120 (2,958,754) PROVISION FOR INCOME TAXES 30,000 - ------------ ----------- NET INCOME (LOSS) $ 771,120 $(2,958,754) ============ =========== NET INCOME (LOSS) PER COMMON SHARE (AFTER PREFERRED DIVIDENDS PAYABLE OF $105,438 IN 1995 AND 1994). $ 0.06 $(0.28) ====== ====== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3 4 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND MARCH 31, 1995 (UNAUDITED)
06/30/95 03/31/95 -------- -------- ASSETS ------ CURRENT ASSETS: CASH AND EQUIVALENTS $ 367,098 $ 1,075,713 RECEIVABLES 8,424,519 7,893,585 INVENTORIES 6,745,545 6,591,587 PREPAID AND OTHER 337,744 266,951 ----------- ----------- TOTAL CURRENT ASSETS 15,874,906 15,827,836 ----------- ----------- PROPERTY AND EQUIPMENT 20,158,394 19,995,369 LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (12,170,367) (11,827,495) ----------- ----------- NET PROPERTY AND EQUIPMENT 7,988,027 8,167,874 ----------- ----------- DEFERRED IMPROVED DRUG ENTITIES(TM) 2,791,965 2,962,827 GOODWILL AND OTHER 2,293,756 2,069,245 ----------- ----------- TOTAL ASSETS $28,948,654 $29,027,782 =========== =========== LIABILITIES ----------- CURRENT LIABILITIES: CURRENT MATURITIES OF LONG-TERM DEBT $ 2,021,920 $ 1,814,682 ACCOUNTS PAYABLE 1,981,233 2,565,247 ACCRUED LIABILITIES 3,363,428 2,521,162 ----------- ----------- TOTAL CURRENT LIABILITIES 7,366,581 6,901,091 ----------- ----------- LONG-TERM DEBT 9,882,146 11,233,418 OTHER 954,625 919,091 ----------- ----------- TOTAL LIABILITIES 18,203,352 19,053,600 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY -------------------- PREFERRED STOCK 2,410 2,410 CLASS A COMMON STOCK 67,629 67,629 CLASS B COMMON STOCK 47,187 47,187 ADDITIONAL PAID-IN CAPITAL 23,706,723 23,706,723 RETAINED DEFICIT (13,023,694) (13,794,814) LESS COST OF CLASS A AND CLASS B COMMON STOCK IN TREASURY (54,953) (54,953) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 10,745,302 9,974,182 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,948,654 $29,027,782 =========== =========== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED)
1995 1994 ---- ---- OPERATING ACTIVITIES NET INCOME (LOSS) $ 771,120 $(2,958,754) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 586,080 466,366 CHANGES IN OPERATING ASSETS AND LIABILITIES: (INCREASE) DECREASE IN RECEIVABLES (530,934) 1,659,603 NET (INCREASE) DECREASE IN INVENTORIES AND OTHER CURRENT ASSETS (224,751) 702,103 INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 258,252 (230,888) OTHER 35,534 - ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 895,301 (361,570) ----------- ----------- INVESTING ACTIVITIES PURCHASE OF PROPERTY AND EQUIPMENT, NET (163,025) (150,742) OTHER, NET (296,857) (75,358) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (459,882) (226,100) ----------- ----------- FINANCING ACTIVITIES PROCEEDS FROM CREDIT FACILITIES 4,502,910 3,150,000 REPAYMENT OF CREDIT FACILITIES (12,293,776) (2,950,000) PROCEEDS FROM TERM LOAN FACILITY 6,839,411 - PRINCIPAL PAYMENTS ON LONG-TERM DEBT (192,579) (12,903) EXERCISE OF COMMON STOCK OPTIONS - 617 ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,144,034) 187,714 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (708,615) (399,956) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,075,713 506,982 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 367,098 $ 107,026 =========== =========== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5 6 NOTES TO SUMMARIZED FINANCIAL INFORMATION NOTE A -- BASIS OF PRESENTATION THE INTERIM FINANCIAL STATEMENTS PRESENTED HERE HAVE BEEN PREPARED IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES AND PRACTICES AND METHODS OF APPLYING THE SAME (INCLUDING CONSOLIDATING PRACTICES) REFLECTED IN THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1995 FILED WITH THE COMMISSION, EXCEPT THAT DETAILED FOOTNOTES AND SCHEDULES ARE NOT INCLUDED. REFERENCE IS HEREBY MADE TO THE FOOTNOTES AND SCHEDULES CONTAINED IN THE ANNUAL REPORT. ALL SIGNIFICANT INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED AND, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS, WHICH ARE OF A NORMAL RECURRING NATURE ONLY, NECESSARY TO PRESENT A FAIR STATEMENT OF THE RESULTS OF THE COMPANY AND ITS SUBSIDIARIES HAVE BEEN MADE. NOTE B -- EARNINGS PER SHARE NET INCOME (LOSS) PER COMMON SHARE IS COMPUTED BY DIVIDING NET INCOME (LOSS), LESS/PLUS PREFERRED DIVIDENDS BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS (IF DILUTIVE) OUTSTANDING DURING THE PERIOD. NO PREFERRED DIVIDENDS WERE PAID FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994. UNDECLARED AND UNACCRUED CUMULATIVE PREFERRED DIVIDENDS AT JUNE 30, 1995 AND 1994 WERE $1,571,019 AND $1,149,269, RESPECTIVELY. COMMON SHARE EQUIVALENTS CONSIST OF THOSE COMMON SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF OUTSTANDING STOCK OPTIONS. THE WEIGHTED AVERAGE NUMBER OF SHARES USED IN THE COMPUTATIONS WAS 11,624,958 AND 11,059,025 FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994, RESPECTIVELY. PRIMARY AND FULLY-DILUTED INCOME (LOSS) PER SHARE WAS THE SAME FOR EACH OF THE PERIODS PRESENTED. 6 7 NOTE C -- LITIGATION ON APRIL 6, 1995, THE COMPANY ENTERED INTO A PLEA AGREEMENT WITH THE U. S. DEPARTMENT OF JUSTICE UNDER WHICH THE COMPANY AGREED TO PLEAD GUILTY TO (1) TWO MISDEMEANOR VIOLATIONS OF THE FEDERAL FOOD, DRUG AND COSMETIC ACT INVOLVING THE FAILURE TO FILE CERTAIN REQUIRED REPORTS WITH THE FDA IN 1991 WITH RESPECT TO TWO LOTS OF AN ERYTHROMYCIN ORAL SUSPENSION PRODUCT PREVIOUSLY MANUFACTURED BY THE COMPANY AND (2) TWO MISDEMEANOR COUNTS INVOLVING THE SHIPMENT OF TWO LOTS OF THE SAME PRODUCT, INAPPROPRIATELY LABELED AS TO THEIR SHELF LIFE. UNDER THE PLEA AGREEMENT, THE COMPANY AGREED TO PAY A FINE OF $500,000 AND COSTS OF $100,000 IN INSTALLMENTS OF $75,000 EVERY SIX MONTHS OVER 3 1/2 YEARS, BEGINNING JULY 17, 1995. THE COMPANY RECORDED THE AMOUNTS PAYABLE IN ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES IN THE FOURTH QUARTER ENDED MARCH 31, 1995. ON JULY 17, 1995, THE FEDERAL COURT AFFIRMED THE PLEA AGREEMENT AS OUTLINED ABOVE. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES ----------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- (A) LIQUIDITY AND CAPITAL RESOURCES ------------------------------- 1. WORKING CAPITAL: ---------------- DURING THE QUARTER ENDED JUNE 30, 1995, WORKING CAPITAL DECREASED $418,420, OR 5% TO $8,508,325 FROM MARCH 31, 1995, WHILE CASH AND EQUIVALENTS DECREASED $708,615. NET CASH PROVIDED FROM OPERATIONS OF $895,301 INCLUDES AN INCREASE IN RECEIVABLES OF $530,934, PRINCIPALLY FROM INCREASED SALES VOLUME FROM ETHEX CORPORATION, WHICH WAS OFFSET BY NON-CASH ITEMS TOTALING $621,614 AND A NET INCREASE IN OTHER OPERATING ASSETS AND LIABILITIES. CAPITAL EXPENDITURES OF $163,025 WERE PROVIDED FROM OPERATING ACTIVITIES. BORROWING REFLECTED A NET DECREASE OF $1,144,034, RESULTING FROM THE APPLICATION OF EXISTING CASH AND FUNDS PROVIDED BY PROFITABLE OPERATIONS. THE RATIO OF CURRENT ASSETS TO CURRENT LIABILITIES WAS 2.2 TO 1 AS OF JUNE 30, 1995 COMPARED TO 2.3 TO 1 AS OF MARCH 31, 1995. 2. PROFITABILITY: -------------- NET INCOME FOR THE FIRST QUARTER OF FISCAL 1996 WAS $771,120 COMPARED TO A NET LOSS OF $2,958,754, AN IMPROVEMENT OF $3,729,874 OVER THE SAME PERIOD LAST YEAR. THIS IMPROVEMENT WAS DUE PRIMARILY TO INCREASED REVENUES ON HIGHER MARGIN PRODUCTS RELATED TO SALES OF NEW AND EXISTING PRODUCTS BY KV'S ETHEX SUBSIDIARY. 3. LEVERAGE: --------- THE RATIO OF TOTAL LIABILITIES TO EQUITY IMPROVED TO 1.69 TO 1 FROM 1.91 TO 1 DURING THE QUARTER, PRIMARILY DUE TO THE NET INCOME EXPERIENCED FOR THE QUARTER AND REDUCTION IN TOTAL INDEBTEDNESS. 8 9 (B) RESULTS OF OPERATIONS --------------------- 1. REVENUES: --------- CONSOLIDATED REVENUES FOR THE FIRST QUARTER OF FISCAL 1996 TOTALED $12,220,103 COMPARED TO $7,876,276 FOR THE FIRST QUARTER OF FISCAL 1995, AN INCREASE OF $4,343,827, OR 55% OVER THE SAME PERIOD LAST YEAR. THE INCREASE IN THE FIRST QUARTER OF FISCAL 1996 WAS ATTRIBUTABLE TO THE CONTINUED GROWTH BEING EXPERIENCED BY ETHEX FROM NEW AND EXISTING PRODUCTS. ETHEX REVENUES ACCOUNTED FOR 71% OF CONSOLIDATED REVENUES DURING THE QUARTER AS ETHEX REVENUES INCREASED BY $4,213,271, OR 95% OVER THE SAME PERIOD LAST YEAR AS A RESULT OF NEW PRODUCTS INTRODUCED IN FISCAL 1995 AND THE FIRST QUARTER OF FISCAL 1996. PARTICLE DYNAMICS AND CONTRACT SERVICES REVENUES HAD MODEST INCREASES AGGREGATING $130,556. 2. COSTS AND EXPENSES: ------------------- MANUFACTURING COSTS WERE 54% AND 77% OF NET SALES FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994, RESPECTIVELY. MANUFACTURING COSTS IMPROVED AS A PERCENT OF SALES DUE TO THE INCREASED SALES VOLUME AND MIX OF HIGHER MARGIN ETHEX PRODUCTS. EFFICIENCIES ASSOCIATED WITH HIGHER VOLUME PRODUCTION AND IMPROVEMENT IN CERTAIN LABORATORY AREAS MORE THAN OFFSET PRODUCT INEFFICIENCIES RELATED TO THE DEVELOPMENT AND MANUFACTURING OF THE NEW ETHEX PRODUCTS. RESEARCH AND DEVELOPMENT COSTS DECREASED $254,037 FOR THE QUARTER ENDED JUNE 30, 1995, COMPARED TO THE SAME QUARTER OF THE PRIOR YEAR. THIS DECREASE WAS PRIMARILY DUE TO A REDUCTION IN PRODUCT DEVELOPMENT AND VALIDATION COSTS COMPARED TO THE SAME PERIOD FOR THE PRIOR YEAR. SELLING AND ADMINISTRATIVE EXPENSES INCREASED $100,933, OR 7% OVER THE SAME PERIOD LAST YEAR DUE TO HIGHER MARKETING, SELLING AND ADMINISTRATIVE SUPPORT COSTS ASSOCIATED WITH THE NEW PRODUCT INTRODUCTIONS AND EXPANSION OF ETHEX. INTEREST EXPENSE INCREASED $60,549 FOR THE FIRST QUARTER ENDED JUNE 30, 1995 COMPARED TO THE SAME PERIOD OF THE PRIOR FISCAL YEAR. THIS INCREASE RESULTED FROM HIGHER AVERAGE INTEREST RATES DURING THE FIRST 9 10 QUARTER OF FISCAL 1996, WHICH MORE THAN OFFSET LOWER AVERAGE LEVELS OF BORROWING WHEN COMPARED TO THE SAME PERIOD IN THE PRIOR YEAR. 3. INCOME TAXES: ------------- FOR THE PERIOD ENDED JUNE 30, 1995, THE COMPANY HAD A CURRENT PROVISION FOR INCOME TAXES OF $30,000 BASED ON THE ALTERNATIVE MINIMUM TAX, BUT OTHERWISE MADE NO PROVISION FOR INCOME TAXES DUE TO A NET OPERATING LOSS CARRYFORWARD POSITION. FOR THE PERIOD ENDED JUNE 30, 1994, THE COMPANY HAD NO PROVISION FOR INCOME TAXES BECAUSE OF THE COMPANY'S NET OPERATING LOSS CARRYFORWARD POSITION. 4. INFLATION AND CHANGING TRENDS: ------------------------------ ALTHOUGH THE COMPANY GENERALLY HAS BEEN ABLE TO PASS ALONG TO ITS CUSTOMERS A PORTION OF COST INCREASES IN LABOR, MANUFACTURING, AND RAW MATERIALS UNDER ITS AGREEMENTS, IN CERTAIN INSTANCES NO INCREASES WERE EFFECTED DUE TO MARKET CONDITIONS. IT IS NOT MEANINGFUL TO COMPARE CHANGING PRICES OVER THE PAST THREE YEARS BECAUSE THE PRODUCTS, PRODUCT FORMULAS, PRODUCT MIX AND SOURCES OF RAW MATERIALS HAVE VARIED SUBSTANTIALLY. THE COMPANY IS CONTINUING TO TRANSITION ITS REVENUE BASE FROM ONE BASED ON LOWER MARGIN, HIGHLY COMPETITIVE, SHORT-TERM CONTRACT MANUFACTURING TO ONE BASED ON HIGHER MARGIN TECHNOLOGY DISTINGUISHED GENERIC PRODUCTS WHICH IT IS FOCUSING ON MARKETING THROUGH ETHEX CORPORATION, AS WELL AS ADVANCED TECHNOLOGY DRUG DELIVERY PRODUCTS TO BE MARKETED OR CO-MARKETED UNDER LONG-TERM MARKETING AGREEMENTS AND VENTURES. THESE ADVANCED TECHNOLOGY PRODUCTS (IMPROVED DRUG ENTITIES(TM)) ARE THE SUBJECT OF A NUMBER OF LONG-TERM BUSINESS ARRANGEMENTS AND HAVE DIFFERENTIATED AND IMPROVED BENEFITS DERIVED FROM KV'S DRUG DELIVERY SYSTEM TECHNOLOGIES. THE COMPANY HAS AND IS CONTINUING TO IMPLEMENT STRATEGIES TO INTRODUCE ADDITIONAL PRODUCTS THROUGH ITS ETHEX SUBSIDIARY AND DE-EMPHASIZE CONTRACT SERVICES. THIS MOVE TO DIRECTLY MARKET ITS OWN TECHNOLOGY DISTINGUISHED GENERICS HAS ALLOWED THE COMPANY TO RELY LESS UPON THE DEPENDENCE OF ITS 10 11 PHARMACEUTICAL MARKETING CLIENTS FOR GROWTH AND TO SHIFT ITS REVENUE GROWTH INTERNALLY, PRINCIPALLY THROUGH ETHEX CORPORATION AND THE COMPANY'S LICENSING ACTIVITIES. DURING FISCAL 1995, ETHEX INTRODUCED TEN NEW PRODUCTS AND PLANS TO LAUNCH A SIMILAR NUMBER IN FISCAL 1996. MANAGEMENT BELIEVES FUNDS GENERATED FROM OPERATING ACTIVITIES AND INCREASED FUNDS AVAILABLE FROM THE COMPANY'S CREDIT FACILITY WILL BE ADEQUATE TO FUND THE COMPANY'S REQUIREMENTS. 11 12 PART II. OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K. ------ --------------------------------- A) EXHIBITS - SEE EXHIBIT INDEX ON PAGE 14 B) THE COMPANY DID NOT FILE ANY REPORTS ON FORM 8-K DURING THE QUARTER ENDED JUNE 30, 1995. 12 13 SIGNATURES ---------- PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. KV PHARMACEUTICAL COMPANY DATE: AUGUST 11, 1995 /S/ MARC S. HERMELIN ------------------ ------------------------------ MARC S. HERMELIN VICE CHAIRMAN OF THE BOARD (PRINCIPAL EXECUTIVE OFFICER) DATE: AUGUST 11, 1995 /S/ GERALD R. MITCHELL ------------------ ------------------------------ GERALD R. MITCHELL VICE PRESIDENT - FINANCE (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 13 14 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE -------------- ----------- ---- 10(W) STOCK OPTION AGREEMENT, DATED JUNE 1, 1995 GRANTING STOCK OPTION TO MARC S. HERMELIN. FILED HEREWITH. 10(X) SECOND AMENDMENT, DATED AS OF JUNE 1, 1995, TO EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND MARC S. HERMELIN. FILED HEREWITH. 11 COMPUTATION OF EARNINGS (LOSS) PER SHARE CALCULATION. FILED HEREWITH.
14 EX-10.(W) 2 STOCK OPTION AGREEMENT 1 STOCK OPTION AGREEMENT (Non-Assignable) Option Number: 91B-257/ A-1036 To Purchase Shares of Number of Shares Date: Class B Common Stock Purchasable June 1, 1995 (or Class A Common Stock) --100,000-- -of- K-V PHARMACEUTICAL COMPANY -------------------------- Issued Under the 1991 Incentive Stock Option Plan (the "Plan") --------------------------------------------- Marc S. Hermelin (the "Holder") is hereby granted the option to purchase all or any part of 100,000 fully paid and non-assessable shares of the Class B Common Stock, par value $0.01 per share ("Class B Common Stock")(or, if Class B Common Stock is not available for issuance under the Plan at the time of the exercise of any portion hereof by the Holder, fully paid and non-assessable shares of Class A common Stock, par value $0.01 per share (the "Class A Common Stock")(the Class B Common Stock and Class A Common Stock being sometimes referred to collectively herein as the "Common Stock")), of K-V Pharmaceutical Company, a Delaware corporation (hereinafter called the "Company"), at the option price of $6.25625 per share with respect to the initial 60,000 shares of Common Stock purchaseable hereunder and $6.325 with respect to the remaining 40,000 shares of Common Stock purchaseable hereunder, and otherwise upon and subject to the following terms and conditions: This Option and all rights to purchase shares of Common Stock hereunder shall expire at 5:00 p.m., St. Louis, Missouri, time, on May 31, 2000 (the "Expiration Date"). This Option shall be exercisable from time to time in cumulative installments as to any or all of the shares then purchasable hereunder as follows:
Period during Which Option Is First Shares Initially Exercisable Purchasable ------------------- ---------------- June 1, 1995 through December 31, 1995 14,490 January 1, 1996 through December 31, 1996 17,390 January 1, 1997 through 2 December 31, 1997 17,390 January 1, 1998 through December 31, 1998 17,390 January 1, 1999 through December 31, 1999 17,390 January 1, 2000 through May 31, 2000 15,950
This Option and all rights hereunder shall be non-assignable and non-transferable, except to the extent that the Holder's legatees, personal representatives or distributees may be permitted to exercise this Option in the event of the Holder's death, as set forth herein. Any attempted transfer, assignment, pledge, hypothecation or other disposition of this Option, except as provided herein or in the Plan, shall be null and void and without effect. This Option may be exercised from time to time only by delivery to the Company at its main office (to the attention of the corporate Secretary) of a duly signed notice in writing stating the number of shares with respect to which this Option is being exercised and the time and date of delivery thereof, which time and date of delivery shall be during the normal business hours of the Company on a regular business day not less than fifteen (15) days after the giving of such notice, unless an earlier date has been mutually agreed upon; provided, however, that not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number then purchasable hereunder; and provided further that this Option may not be exercised at any time when this Option or the granting or exercise hereof violates any law, regulation or governmental order. At the time of delivery specified in such notice, the Company shall, without transfer or issue tax to the Holder (or other person entitled to exercise this Option), transfer and set aside for the benefit of the Holder (or such other person) a certificate or certificates out of the Company's authorized but unissued or reacquired shares of Class B Common Stock or Class A Common Stock, as applicable, as the Company may elect (with appropriate legend thereon, if deemed necessary by the Company under applicable securities laws, containing the representation by the person exercising the Option that the shares to be purchased shall be acquired and will be held for investment purposes and not with a view to resale or distribution), against payment of the option price in full for the number of shares purchased, by either: (i) cash (including a certified or bank cashier's check or the equivalent thereof), or (ii) delivering at fair market value, as determined by the Committee (as defined in the Plan), as provided under the Plan, Company Class A Common Stock or Class B Common Stock already owned by the Holder, or (iii) any combination of cash and Company Common Stock. If the Holder fails to pay for any part of the number of shares specified in such notice as required, the right to purchase such shares may be terminated by the Committee. 2 3 Except as provided herein, no Option may be exercised at any time unless the Holder is an employee of the Company or any of its subsidiaries. To the extent that this Option has not been exercised in full prior to its termination or on or before the Expiration Date, whichever occurs sooner, it shall terminate and become void and of no effect. The provisions of Section 14 of the Plan, entitled "Holding Period and Forfeiture of Stock," shall not apply to this Option or this Agreement. This Option shall not confer upon the Holder any right to remain in the employ of the Company or any subsidiary of the Company and shall not confer upon the Holder any rights in the stock of the Company prior to the issuance of a stock certificate pursuant to the exercise of this Option. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Except as provided in this paragraph, upon termination of the Holder's employment with the Company or any of its subsidiaries for any reason, this Option shall terminate. (a) If the employment of the Holder is terminated by reason of retirement (as provided by contract or otherwise under normal Company policies), any outstanding unexercised portion of this Option which is exercisable as of the date of retirement by the Holder may be fully exercised by the Holder, the Holder's personal representative, executor, administrator, heirs or devisees, as applicable, at any time within three months from the date of termination by reason of retirement, and thereafter this Option shall continue in effect and be exercisable by the Holder or by the Holder's personal representative, executor, administrator, heirs or devisees, as applicable, in accordance with the terms hereof for the full remaining term of this Option through the Expiration Date or earlier termination herein provided, even though no longer an Incentive Stock Option (as defined under the Internal Revenue Code of 1986, as amended, or any successor law [the "Code"]). (b) If the employment of the Holder is terminated by reason of disability or death, any unexercised portion of this Option shall become fully exercisable by the Holder, or by the Holder's personal representative, executor, administrator, heirs or devisees, as applicable, in accordance with the terms hereof, upon such disability or death of the Holder if and to the extent that such acceleration would not cause a violation of the limitations contained in Section 422(b)(7) of the Code. If acceleration by reason of disability would cause a violation of the limitations contained in Section 422(b)(7) of the Code, such acceleration shall occur only in an amount such that such acceleration of exercisability does not result in a violation of Section 422(b)(7) of the Code, and the acceleration of the exercisability of that portion hereof which would be in violation of the limitation contained in Section 422(b)(7) of the Code shall be deferred until January 1 of the year following that in which such termination of employment by reason of disability occurs. In the event termination of employment occurs by reason of the Holder's death, the acceleration of the exercisability of any portion of this Option shall occur only as and to the extent that such acceleration will not cause a violation of the limitations contained in Section 422(b)(7) of the Code. Notwithstanding any of the foregoing, no Option shall be 3 4 exercisable at any time after the expiration of the Option in accordance with its terms. Any transfer of employment from the Company to any parent or subsidiary thereof, or vice versa, shall not be deemed a termination of employment. In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, or in the event that there is a "corporate transaction" as that term is defined in the Regulations under Section 424 of the Internal Revenue Code of 1986, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, spin-off, combination of shares or dividend payable in capital stock, this Option shall, to the extent that it has not been exercised, entitle the Holder upon the subsequent exercise of this Option to such number and kind of securities or other property, subject to the terms of this Option, to which the Holder would be entitled had the Holder actually owned the shares subject to the unexercised portion of this Option at the time of the occurrence of such event, and the aggregate purchase price upon the subsequent exercise of this Option shall be the same as if the Common Stock of the Company originally optioned were being purchased as provided herein; provided, however, that each such adjustment in the number and kind of shares subject to this Option, including any adjustment in the Option price, shall be made in such manner as not to constitute a "modification" as defined in Section 425 of the Code. Any such adjustment made by the Committee shall be conclusive. Upon the occurrence of: (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger or consolidation of the Company with one or more corporations in which the Company is not the surviving corporation, (iii) a sale of substantially all of the assets of the Company or (iv) the transfer of more than 80 percent of the then outstanding Stock of the Company (as defined in the Plan) to another entity or person in a single transaction or series of transactions, this Option shall become fully exercisable as of the business day before the consummation of the transaction, but if not then exercised, the Plan shall terminate, and any outstanding Options granted under the Plan shall terminate at 5:00 p.m., St. Louis, Missouri, time on the day before the consummation of the transaction; provided that the Board of Directors shall have the right, but shall not be obligated, to amend the Plan to require that a successor corporation assume any outstanding Options. The Company may postpone the issuance and delivery of shares upon any exercise of this Option, if necessary, until admission of such shares to listing on any stock exchange and completion of registration and qualification of such shares under any applicable state or federal law, rule or regulation. The Holder hereof shall make such representations and furnish such information to the Company as may be appropriate to permit the Company to issue such shares in compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), or any other applicable law, including state securities laws. Without limiting the generality of the foregoing, if requested by the Company in accordance with any such 4 5 applicable law (and provided such shares are not then the subject of an effective registration statement under the Securities Act and any other applicable securities law), the Holder will represent, in form acceptable to the Company, that the Holder is purchasing any shares issued pursuant hereto for investment purposes and not with a view to resale or distribution. The Holder, by acceptance of this Option, hereby consents to the placing of a restrictive legend on any stock certificate for shares purchased hereunder, setting forth the restrictions applicable to the further resale, transfer or other conveyance thereof without registration under the Securities Act or other applicable law or the availability of an exemption from registration thereunder and to the placing of transfer restrictions on the records of the transfer agent for such shares. In addition, the Holder will not thereafter resell, transfer or otherwise convey any shares purchased hereunder without compliance with one of the following three conditions: (l) an opinion of the Holder's counsel is received by the Company, in form and substance satisfactory to counsel for the Company, that registration under the Securities Act and applicable state securities laws is not required; or (2) such shares have been registered for sale under the Securities Act and any applicable state securities laws; or (3) a "no-action" letter is received from the staff of the Securities and Exchange Commission and from applicable state securities agencies, based on an opinion of the Holder's counsel, in form and substance reasonably satisfactory to counsel for the Company, advising that registration under the Securities Act is not required. This Option is issued pursuant to the provisions of the Company's 1991 Incentive Stock Option Plan, the receipt of a copy of which the Holder acknowledges by virtue of the acceptance hereof, and is subject to all the terms and conditions of the Plan, except the provisions of paragraph 14 thereof, which are not applicable in any respect to this Option. A determination by the Committee of any question which may arise with respect to the interpretation and construction of the provisions of this Option or of the Plan shall be final. The Committee may authorize and establish such rules, regulations and revisions thereof, not inconsistent with the provisions of the Plan, as it may deem advisable. 5 6 WITNESS the seal of the Company and the signatures of its duly authorized officer. Dated: June 1, 1995 K-V PHARMACEUTICAL COMPANY By /s/ Gerald R. Mitchell -------------------------------- Gerald R. Mitchell Vice President-Finance ACCEPTED: /s/ Marc S. Hermelin ---------------------------- Option Holder, Marc S. Hermelin 6 EX-10.(X) 3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT 1 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN KV PHARMACEUTICAL COMPANY AND MARC S. HERMELIN ---------------- This Second Amendment ("Second Amendment") to the Employment Agreement between KV Pharmaceutical Company ("KV") and Marc S. Hermelin ("Hermelin") dated November 15, 1993, as amended by Amendment dated November 16, 1994 (as so amended, the "Employment Agreement") is entered into this 1st day of June 1995. Whereas, in order to assist KV to increase its profitability and cash flow for the fiscal year ended March 31, 1995 and current fiscal year ending March 31, 1996, Hermelin has voluntarily agreed with KV to a deferral of certain salary payable to Hermelin and to forego certain payments to which Hermelin would otherwise be entitled under his contractual arrangement with KV; Therefore, in consideration of the mutual agreements herein contained, KV and Hermelin agree as follows: 1. Effective April 1, 1995, Hermelin agrees to defer the increase in Base Salary payable to Hermelin by KV under paragraph 4 of the Employment Agreement during fiscal 1996 until such time as KV achieves profitable results of operation for two quarters. 2. The bonus payable to Hermelin under the Employment Agreement with respect to the fiscal year ending March 31, 1996 shall be capped and limited to an amount not to exceed 20% of the Base Salary payable to Hermelin in accordance with the terms of the Employment Agreement, without application of the provisions of paragraph 1 above. 3. KV hereby grants to Hermelin, under the KV 1991 Incentive Stock Option Plan (the "Plan"), an option for a five year period from the date hereof to purchase 100,000 shares of Class B Common Stock of KV, as and to the extent the full number of such shares of Class B Common Stock is available for issuance under the Plan at the time of the exercise of such option by Hermelin at any time and from time to time or, in the alternative, so much of such option which becomes exercisable and with respect to which shares of Class B Common Stock are not available under the Plan at the time of the exercise thereof, shall be exercised for the purchase of shares of Class A Common Stock of KV, such option for the purchase of the Common Stock of KV to be exercisable at not less than 110% of the closing price of the Common Stock as of the date of this Agreement, which option shall be subject to and structured in a manner which complies with the provisions of the Internal Revenue Code of 1986, as amended, and Regulations thereunder. 2 In witness whereof, KV and Hermelin have entered into this Second Amendment to the Employment Agreement as of the date set forth above. KV Pharmaceutical Company By: /s/ Gerald R. Mitchell /s/ Marc S. Hermelin ------------------------------ ----------------------------- Gerald R. Mitchell Marc S. Hermelin Vice President-Finance 2 EX-11.1 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES EARNINGS (LOSS) PER SHARE CALCULATION PRIMARY EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED 06/30/95 06/30/94 ----------- ----------- NET INCOME (LOSS) $ 771,120 $(2,958,754) LESS DIVIDENDS ON PREFERRED STOCK (105,438) (105,438) ----------- ----------- INCOME (LOSS) ATTRIBUTED TO COMMON STOCK $ 665,682 $(3,064,192) =========== =========== AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING: AVERAGE COMMON SHARES OUTSTANDING 11,434,115 11,056,762 COMMON SHARE EQUIVALENTS (AFTER APPLICATION OF TREASURY STOCK METHOD) 190,843 N/A ----------- ----------- AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 11,624,958 11,056,762 =========== =========== PRIMARY INCOME (LOSS) PER SHARE : $0.06 $(0.28) ===== ====== THE TWO-CLASS METHOD FOR CLASS A AND CLASS B COMMON STOCK IS NOT PRESENTED BECAUSE THE EARNINGS (LOSS) PER SHARE ARE EQUIVALENT TO THE IF CONVERTED METHOD SINCE DIVIDENDS WERE NOT DECLARED OR PAID AND EACH CLASS OF COMMON STOCK HAS EQUAL OWNERSHIP OF THE COMPANY.
15 EX-11.2 5 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES EARNINGS (LOSS) PER SHARE CALCULATION FULLY-DILUTED EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED 06/30/95 06/30/94 ----------- ----------- NET INCOME (LOSS) $ 771,120 $(2,958,754) LESS DIVIDENDS ON PREFERRED STOCK (105,438) (105,438) PLUS DIVIDENDS NOT PAYABLE DUE TO PREFERRED STOCK CONVERSION 105,438 105,438 ----------- ----------- INCOME (LOSS) ATTRIBUTED TO COMMON STOCK $ 771,120 $(2,958,754) ----------- ----------- AVERAGE NUMBER OF SHARES OUTSTANDING ON A FULLY- DILUTED BASIS: AVERAGE COMMON SHARES OUTSTANDING 11,434,115 11,056,762 COMMON SHARE EQUIVALENTS (AFTER APPLICATION OF TREASURY STOCK METHOD): SHARES ISSUABLE UPON CONVERSION OF STOCK OPTIONS 292,340 324,821 COMMON EQUIVALENT SHARES FOR PREFERRED STOCK 301,250 301,250 ----------- ----------- AVERAGE NUMBER OF SHARES OUTSTANDING ON A FULLY-DILUTED BASIS 12,027,705 11,682,833 =========== =========== FULLY-DILUTED INCOME (LOSS) PER SHARE : $ 0.06 $(0.25) ====== ====== THE TWO-CLASS METHOD FOR CLASS A AND CLASS B COMMON STOCK IS NOT PRESENTED BECAUSE THE EARNINGS (LOSS) PER SHARE ARE EQUIVALENT TO THE IF CONVERTED METHOD SINCE DIVIDENDS WERE NOT DECLARED OR PAID AND EACH CLASS OF COMMON STOCK HAS EQUAL OWNERSHIP OF THE COMPANY. 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.
16 EX-27 6 FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-1995 APR-01-1995 JUN-30-1995 367,098 0 8,424,519 0 6,745,545 15,874,906 20,158,394 12,170,367 28,948,654 7,366,581 0 114,816 0 2,410 10,683,029 28,948,654 12,220,103 0 0 11,418,983 0 0 0 801,120 30,000 0 0 0 0 771,120 .06 .06