-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, thTOu7vTdBKi0QapxgOg7g98IZ0Q3HxCIJ00C65dv/WaST68NPT9DpuB3p4BrTqY 0NY9NVhmxsDqANRg1WxGrQ== 0000950131-95-000357.txt : 19950517 0000950131-95-000357.hdr.sgml : 19950517 ACCESSION NUMBER: 0000950131-95-000357 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KV PHARMACEUTICAL CO /DE/ CENTRAL INDEX KEY: 0000057055 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95510798 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION ---------------------------------- Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------------------------------------------------------- SECURITIES EXCHANGE ACT OF 1934 ------------------------------- (X) Quarterly report for the quarterly period ended December 31, 1994 --------------------------- OR ( ) Transition Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 Commission file number 1-9601 --------------------------------------------------------- K-V PHARMACEUTICAL COMPANY - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 43-0618919 - - --------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (314) 645-6600 - - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Title of Class of Number of Shares Common Stock Outstanding as of this Report Date ---------------- ---------------------------------- Class A Common Stock, par value $.01 per share 6,631,427 Class B Common Stock, par value $.01 per share 4,724,840 PART I FINANCIAL INFORMATION 2 CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Nine Months Ended December 31, 1994 and 1993 (Unaudited)
For the Three For the Nine Months Ended Months Ended ------------------------ ------------------------ 12/31/94 12/31/93 12/31/94 12/31/93 ----------- ----------- ----------- ----------- Revenues: Net sales $11,545,515 $ 9,899,802 $27,757,028 $27,922,273 Investment income 0 3,399 0 30,196 ----------- ----------- ----------- ----------- Total Revenues 11,545,515 9,903,201 27,757,028 27,952,469 ----------- ----------- ----------- ----------- Costs and Expenses: Manufacturing costs 6,262,109 6,281,521 17,927,233 18,911,799 Research and development 1,042,553 1,355,284 3,408,214 4,074,306 Selling and administrative 3,131,357 2,743,824 8,867,396 8,209,139 Interest expense 344,063 229,887 906,272 626,372 Amortization of intangible assets 162,966 121,737 488,651 354,220 ----------- ----------- ----------- ----------- Total Costs & Expenses 10,943,048 10,732,253 31,597,766 32,175,836 ----------- ----------- ----------- ----------- Income (Loss) before income taxes 602,467 (829,052) (3,840,738) (4,223,367) Provision for income taxes: Current - - - - Deferred - - - - ----------- ----------- ----------- ----------- Total - - - - ----------- ----------- ----------- ----------- Net Income (Loss) $ 602,467 $ (829,052) $(3,840,738) $(4,223,367) =========== =========== =========== =========== Net Income (Loss) per Common Share (after deducting preferred dividends: $105,438 for the three months ended December 31, 1994 and 1993 and $316,314 for the nine months ended December 31, 1994 and 1993). $0.04 $(0.09) $(0.37) $(0.41) ===== ====== ====== ======
See accompanying notes to financial statements. 3 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1994 and March 31, 1994 (Unaudited)
12/31/94 03/31/94 ------------ ------------ ASSETS - - ------ Current Assets: Cash and equivalents $ 1,191,620 $ 506,982 Receivables 7,655,329 6,712,036 Inventories 8,703,710 9,772,562 Prepaid and other 251,208 298,903 ------------ ------------ Total Current Assets 17,801,867 17,290,483 ------------ ------------ Property and equipment 20,001,743 19,761,593 Less accumulated depreciation and amortization (11,545,085) (10,668,201) ------------ ------------ Net Property and Equipment 8,456,658 9,093,392 ------------ ------------ Deferred Improved Drug Entities(TM) 3,105,551 3,533,716 Goodwill and other 1,971,825 1,884,569 ------------ ------------ TOTAL ASSETS $ 31,335,901 $ 31,802,160 ============ ============ LIABILITIES - - ----------- Current Liabilities: Current maturities of long-term debt $ 6,965,119 $ 365,119 Accounts payable 4,659,117 3,387,867 Accrued liabilities 2,324,456 1,383,395 ------------ ------------ Total Current Liabilities 13,948,692 5,136,381 ------------ ------------ Long-term debt and other 6,537,205 13,322,760 ------------ ------------ Total Liabilities 20,485,897 18,459,141 ------------ ------------ Commitments and Contingencies SHAREHOLDERS' EQUITY - - -------------------- Preferred stock 2,410 2,410 Class A common stock 66,314 63,050 Class B common stock 47,248 48,011 Additional paid-in capital 23,049,736 21,704,514 Retained deficit (12,260,751) (8,420,013) Less cost of Class A and Class B common stock in treasury (54,953) (54,953) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 10,850,004 13,343,019 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,335,901 $ 31,802,160 ============ ============
See accompanying notes to financial statements. 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Quarters Ended December 31, 1994 and 1993 (Unaudited)
Class A Class B Additional Preferred Common Common Paid-In Retained Treasury Stock Stock Stock Capital Deficit Stock --------- -------- -------- ----------- ------------- --------- BALANCE AT SEPTEMBER 30, 1993 $2,410 $62,821 $48,232 $21,701,860 $ (3,633,034) $(54,953) Stock options exercised, 385 Shares of Class A & Class B Common Stock - 4 4 2,717 - - 16,400 Shares of Class B converted to Class A Common Stock - 164 (164) - - - Net income (loss) for Quarter Ended December 31, 1993 - - - - (829,052) - ------ ------- ------- ----------- ------------ -------- BALANCE AT DECEMBER 31, 1993 $2,410 $62,989 $48,072 $21,704,577 $ (4,462,086) $(54,953) ====== ======= ======= =========== ============ ======== BALANCE AT SEPTEMBER 30, 1994 $2,410 $63,050 $48,013 $21,702,805 $(12,863,218) $(54,953) Sale of 250,000 Shares of Class A Common Stock - 2,500 - 1,346,563 - - Stock options repurchased, 150 shares of Class A and 250 shares of Class B Common Stock - (1) (3) - - - Stock options exercised, 250 shares of Class A Common Stock - 3 - 368 - - 76,266 shares of Class B converted to Class A Common Stock - 762 (762) - - - Net income for Quarter Ended December 31, 1994 - - - - 602,467 - ------ ------- ------- ----------- ------------ -------- BALANCE AT DECEMBER 31, 1994 $2,410 $66,314 $47,248 $23,049,736 $(12,260,751) $(54,953) ====== ======= ======= =========== ============ ========
See accompanying notes to financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOW For the Nine Months Ended December 31, 1994 and 1993 (Unaudited)
1994 1993 ------------ ------------ OPERATING ACTIVITIES Net Loss $(3,840,738) $(4,223,367) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,423,591 1,156,576 Changes in operating assets and liabilities: (Increase) decrease in receivables (943,293) 3,369,387 Net (increase) decrease in inventories and other current assets 1,116,547 (2,150,845) Increase (decrease) in accounts payable and accrued liabilities 2,212,311 (60,197) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (31,582) (1,908,446) ----------- ----------- INVESTING ACTIVITIES Purchase of property and equipment, net (298,247) (1,033,661) Other, net (147,701) (169,985) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (445,948) (1,203,646) ----------- ----------- FINANCING ACTIVITIES Proceeds from credit facilities 6,075,000 10,550,000 Repayment of credit facilities (5,800,000) (9,700,000) Principal payments on long-term debt (460,555) (464,803) Dividends paid on preferred stock - (115,982) Exercise (repurchase) of common stock options (1,339) 9,645 Proceeds from sale of common stock 1,349,062 - ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,162,168 278,860 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 684,638 (2,833,232) Cash and cash equivalents at beginning of year 506,982 3,556,066 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,191,620 $ 722,834 =========== ===========
See accompanying notes to financial statements. 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, 1994 filed with the Commission, except that detailed footnotes and schedules are not included. Reference is hereby made to the footnotes and schedules contained in the Annual Report. All significant intercompany balances and transactions have been eliminated and, in the opinion of management, all adjustments, which are of a normal recurring nature only, necessary to present a fair statement of the results of the Company and its subsidiaries have been made. NOTE B -- EARNINGS PER SHARE Net income (loss) per common share is computed by dividing net income (loss), less/plus preferred dividends by the weighted average number of common shares and common share equivalents (if dilutive) outstanding during the period. Preferred dividends used in this calculation for the three-month periods ended December 31, 1994 and 1993 were $105,438. Undeclared and unaccrued cumulative preferred dividends for the nine-month periods ended December 31, 1994 and 1993 were $1,360,146 and $938,394, respectively. Common share equivalents consist of those common shares that would be issued upon the exercise of outstanding stock options. The weighted average number of shares used in the computations was 11,436,390 and 11,055,661 for the quarters ended December 31, 1994 and 1993, respectively, and 11,106,320 and 11,054,733 for the nine-month periods ended December 31, 1994 and 1993, respectively. Primary and fully-diluted income (loss) per share was the same for each of the periods presented since the exercise of options is anti-dilutive. 7 NOTE C -- REGULATORY ACTIVITIES Substantially all the products seized in the previously reported FDA action have been certified and released in accordance with a Consent Decree entered into between the Company and the FDA in June of 1993. No assurance can be given as to the time period required until the certification process is completed. NOTE D -- SUBSEQUENT EVENT - CREDIT AGREEMENT Subsequent to December 31, 1994, the Company and its principal lender modified certain covenants of its existing credit agreement to eliminate certain past violations relating to maintaining certain financial levels and ratios, established new covenants through April 29, 1995, with previously existing covenants essentially remaining in effect thereafter and postponed a scheduled $2,900,000 reduction in the bank's loan commitment from March 1 to April 1, 1995. (See Management's Discussion and Analysis.) NOTE E -- SUBSEQUENT EVENT - SALE OF STOCK Subsequent to December 31, 1994, the Company entered into agreements under which it sold 75,000 shares of Class A Common Stock (par value $.01 per share) for approximately $425,000. This amount, along with the approximately $1,350,000 in proceeds from the sale of 250,000 shares in the third fiscal quarter, was added to working capital and applied, in part, to the reduction of long-term debt. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS ------------------------------------------------------------ (a) Liquidity and Capital Resources 1. Working Capital During the quarter ended December 31, 1994, working capital increased $1,111,224 (40%), to $3,853,175. This increase is the result of increases in cash and receivables of $523,096 (78%), and $2,050,728 (37%), respectively, a decrease in payables and accruals of $27,075, which was partially offset by a decrease in inventories and other current assets of $824,675 (8%). The increase in cash resulted principally from the sale of 250,000 shares of Class A Common Stock for approximately $1,350,000. Working capital for the nine months ended December 31, 1994 decreased $8,300,927 (68%). This decrease was the result of increases in cash and receivables of $684,638 (135%), and $943,293 (14%), respectively, and an increase in payables and accruals of $2,212,311 (46%) and current maturities of long-term debt of $6,600,000, which were partially offset by a decrease in inventories and other current assets of $1,116,547 (11%). Cash used in operating activities is primarily related to the net loss of $3,840,738 for the nine-month period. Financing activities reflect a net decrease in borrowing of $735,555. The ratio of current assets to current liabilities was 1.3 to 1 as of December 31, 1994, compared to 4.0 to 1 as of December 31, 1993. The Company is obligated to make a reduction of approximately $2.9 million on its bank line of credit at the end of the fourth quarter of fiscal 1995. The Company currently believes that funds from operating profits and from financing it is negotiating to obtain from outside sources, will allow it to meet its obligations. The Company believes that, until a refinancing or restructuring of its long-term debt is completed, the capital infusion of approximately $1,775,000 to date from the sale of Class A Common Stock, together with additional capital infusions from 9 other sources which are under negotiation and increased revenues from the introduction of new ETHEX products and other sales, will be sufficient to meet the Company's operating needs for the short-term. The Company is currently working with investment bankers and others to obtain additional sources of working capital. 2. Profitability: The net profit for the third quarter of fiscal 1995 was $602,467, an improvement of $1,431,519 over the net loss for the third quarter of fiscal 1994. The increase in profit over the prior year's quarter was primarily attributable to increased revenues generated by KV's ETHEX subsidiary in sales of new and existing products, combined with decreased manufacturing and research and development costs. Year-to-date, the net loss was $3,840,738 compared to a net loss of $4,223,367 for the same period of the prior year. The improvement was attributable to the return to profitability in the third quarter as a result of the transitioning of the Company to focusing on directly marketing its own products, particularly 10 new products introduced by the Company's ETHEX Corporation subsidiary during the current fiscal year. During earlier quarters, delays were experienced and resulted in incurring increased costs associated with the initial development, production and process validation and marketing associated with the reintroduction of seized products and the launching of new products. 3. Leverage The ratio of total liabilities to equity decreased to 1.89 to 1 from 2.37 to 1 during the quarter due to the sale of common stock and a return to profitability and increased from 1.38 to 1 at the end of the prior fiscal year, primarily due to the year-to-date net loss and increased liabilities. (b) Results of Operations 1. Revenues: Consolidated revenues for the third quarter of fiscal 1995 totaled $11,545,515 compared to $9,903,201 for the third quarter of fiscal 1994, an increase of $1,642,314 (17%). Year-to-date consolidated revenues were $27,757,028 compared to $27,952,469 for the same period last year, 10 a decrease of $195,441. Increased revenues in the third quarter were due to a more than doubling of sales in KV's ETHEX subsidiary compared to the prior year's quarter, due to the introduction of 10 new products during the first three quarters and growth in sales of existing products, while decreases were experienced in Contract Services due to the planned transitioning of the Company to focusing on directly marketing its own products through ETHEX. Year-to-date revenues remained relatively the same, however, the higher margin ETHEX product segment of revenues constituted more than 60% of the Company's revenue base in fiscal 1995, as compared to 35% in the prior year. 2. Costs and Expenses: Manufacturing costs were 54% and 64% of net sales for the quarters ended December 31, 1994 and 1993, respectively. Manufacturing costs as a percent of net sales were 65% and 68% for the nine months ended December 31, 1994 and 1993, respectively. Manufacturing costs as a percent of sales decreased compared to the prior year's quarter and on a year-to-date basis due to the favorable mix of higher margin ETHEX products in fiscal 1995. Research and development costs decreased $312,731 (23%), for the quarter ended December 31, 1994, compared to the same quarter of the prior year. Year- to-date, these costs decreased $666,092 (16%), compared to the same period of the prior year. Selling and administrative expenses were 27% and 28% of total revenues for the third quarter of fiscal 1995 and 1994, respectively. These costs were 32% and 29% of total revenues for the nine months ended December 31, 1994 and 1993, respectively. During the third quarter, increased costs were due to higher marketing and support costs associated with ETHEX and an increase in professional, administrative and support costs. Interest expense increased $114,176 for the third quarter and $279,900 for the nine-month period ended December 31, 1994 compared to the prior fiscal year. These increases were primarily due to higher levels of borrowing against the Company's credit facility, combined with higher interest rates. 11 3. Inflation and Changing Trends: Although the Company generally has been able to pass along to its customers a portion of cost increases in labor, manufacturing and raw materials under its agreements, in certain instances no increases were effected due to market conditions. It is not meaningful to compare changing prices over the past three years because the products, product formulas, product mix and sources of raw materials have varied substantially. The Company is continuing to transition its revenue base from one based on lower margin, highly competitive, short-term contract manufacturing to one based on higher margin, technology distinguished generic products, which it is focusing on marketing through ETHEX Corporation, as well as advanced technology drug delivery products to be marketed and co-marketed under long-term marketing agreements and ventures. These advanced technology products (Improved Drug Entities(TM)) are the subject of a number of long-term business arrangements and have differentiated and improved benefits derived from KV's drug delivery system technologies. Management believes that the Company is operating satisfactorily under the consent decree agreement entered into with the FDA. No assurances can be given as to the time period required until the certification process is completed and there can be no assurances that the sales of all products will be at their former levels. The Company plan is to continue to implement strategies to focus on the introduction of additional products through its ETHEX subsidiary and the de-emphasis of Contract Services. While the costs associated with the development, validation and introduction of ETHEX products and other products adversely impacted operating income in the first half of the year, the Company, through its ETHEX subsidiary, has introduced 10 new products, returned to profitable operations and is readying additional products to be marketed. The Company is continuing to work with investment bankers for the purpose of identifying and consummating transactions to increase the Company's sources of working capital through additional equity or long-term financing and other strategic alternatives. The Company does not plan significant capital expenditures for the current fiscal year and has instituted cost reduction 12 programs to reduce overall operating expenses to enable it to meet working capital needs. PART II. OTHER INFORMATION Item 5: Other Information. On December 7, 1994, Dr. Garnet Peck, Ph.D., was appointed by the Board of Directors to fill the vacancy created by the death of Director Fred P. Sheridan. Ted G. Wood, KV's President and Chief Executive Officer retired as of December 31, 1994. Item 6: Exhibits and Reports on Form 8-K. a) Exhibits - See Exhibit Index on page 15. b) The Company did not file any reports on Form 8-K during the quarter ended December 31, 1994. 13 SIGNATURES - - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KV PHARMACEUTICAL COMPANY Date: February 14, 1994 /s/ Marc S. Hermelin ------------------- ----------------------- Marc S. Hermelin Vice Chairman of the Board Date: February 14, 1994 /s/ Gerald R. Mitchell ------------------ ----------------------- Gerald R. Mitchell Vice President - Finance Chief Financial Officer 14 EXHIBIT INDEX Exhibit Number Description - - -------------- ----------- 4(j) Fourth Amendment to Credit Agreement dated as of February 10, 1995. Filed herewith. 4(k) Pledge Agreement between the Registrant and Bank One, Indianapolis, N.A. dated as of February 10, 1995. 11 Computation of Earnings (Loss) Per Share Calculation. Filed Herewith. 15 EX-4.J 2 4TH AMD. TO CREDIT AGREEMENT EXHIBIT 4(j) FOURTH AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment") is executed as of the 10th day of February, 1995, by K-V PHARMACEUTICAL COMPANY, a Delaware corporation (the "Company") and BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank"). Recitals -------- 1. The Company and the Bank are parties to a Credit Agreement, dated September 30, 1993, as amended by a First Amendment to Credit Agreement, dated June 28, 1994, as further amended by a Second Amendment to Credit Agreement, dated as of November 1, 1994, and as further amended by a Third Amendment to Credit Agreement, dated as of November 14, 1994, all executed by the Company and the Bank (collectively, as so amended, the "Original Agreement"). 2. As of January 31, 1995, the Company did not satisfy the requirements of Sections 7.g(ii), (iii) and (vi) of the Original Agreement applicable as of that date (such violations in this Fourth Amendment being collectively called the "Existing Noncompliance Events"). The term "Existing Noncompliance Events" does not include any violations of or non-compliance with any of the provisions of Section 7.g, as amended from time to time, which occur, continue or exist after the amendments to Section 7.g made pursuant to this Fourth Amendment.) 3. The Company has requested the Bank, in accordance with and subject to the terms of this Fourth Amendment, to: (a) agree to an amendment of the financial covenants of the Company, as set forth in Section 7.g of the Original Agreement, for the period from January 31, 1995, through March 31, 1995; (b) agree to amend and reduce the scheduled reduction in the Commitment to occur as of March 1, 1995, with $2,900,000 of that scheduled reduction being deferred to April 1, 1995; and (c) agree to other amendments to the Original Agreement, including a clarification of the application of Sections 7.g (ii) as at September 30, 1994, and for the period from September 30, 1994, through October 30, 1994, given certain changes in the Company's accounting for the Revolving Loan. Agreement --------- NOW, THEREFORE, in consideration of the premises and their mutual covenants herein, the Company and the Bank agree as follows: 1. Terms. All terms used in this Fourth Amendment, including its Recitals, which are defined in the Original Agreement, as amended by this Fourth Amendment, and which are not otherwise defined herein, shall have the respective meanings ascribed to them in the Original Agreement, as amended by this Fourth Amendment. 2. Amendments to Original Agreement. A. Section 1 of the Original Agreement is hereby amended by adding thereto new Sections 1.iii and 1.jjj, reading as follows: "iii. Fourth Amendment. `Fourth Amendment' means that agreement entitled `Fourth Amendment to Credit Agreement' between the Company and the Bank, dated as of February 10, 1995." "jjj. Pledge Agreement. `Pledge Agreement' means the Pledge Agreement executed and delivered to the Bank by K-V pursuant to the requirements of the Fourth Amendment. Section I.tt of the Original Agreement is hereby amended to read in its entirety as follows: "tt. Security Agreements. `Security Agreements' mean Security Agreement l, the Security Agreement (Intellectual Property), the Pledge Agreement and the Guarantor Security Agreements and, when used in the singular form refers to any of them as the context requires." B. Section 7.g(i) of the Original Agreement is hereby deleted in its entirety. Effective as of October 31, 1994, Section 7.g(ii), Section 7.g(iii), Section 7.g(iv), Section 7.g(v) and Section 7.g(vi) of the Original Agreement each are amended and restated in their entireties to read as follows: "g. (ii) Minimum Working Capital. The Company shall maintain an excess of current assets over current liabilities of not less than the amounts shown in the following table on the dates and at all times during the periods indicated:
Minimum Working Period Capital ------ ------- at Sept. 30, 1994, and through Oct. 30, 1994 $ 8,500,000
2 at Oct. 31, 1994, and through Nov. 29, 1994 $ 2,400,000 at Nov. 30, 1994, and through Dec. 30, 1994 $ 2,800,000 at Dec. 31, 1994, and through Jan. 30, 1995 $ 2,600,000 at Jan. 31, 1995, and through Feb. 27, 1995 $ 3,100,000 at Feb. 28, 1995, and through Mar. 30, 1995 $ 3,400,000 at Mar. 31, 1995, and through Apr. 29, 1995 $ 6,800,000 at Apr. 30, 1995, and at all times thereafter $18,050,000
"g. (iii) Tangible Net Worth. The Company shall maintain its Tangible Net Worth at levels not less than those shown in the following table on the dates and at all times during the periods indicated:
Minimum Tangible Net Period Worth ------ ----- at Sept. 30, 1994, and through Oct. 30, 1994 $ 6,900,000 at Oct. 31, 1994, and through Nov. 29, 1994 $ 6,900,000
3 at Nov. 30, 1994, and through Dec. 30, 1994 $ 8,250,000 at Dec. 31, 1994, and through Jan. 30, 1995 $ 8,550,000 at Jan. 31, 1995, and through Feb. 27, 1995 $ 8,900,000 at Feb. 28, 1995, and through Mar. 30, 1995 $ 9,400,000 at Mar. 31, 1995, and through Apr. 29, 1995 $ 9,900,000 at Apr. 30, 1995, and at all times thereafter $14,700,000
For purposes of determining compliance with this Section 7.g(iii), the minimum amount of Tangible Net Worth required hereunder for each indicated date and period which follows the date any Additional Capital obtained by the Company automatically shall be increased by an amount equal to the net proceeds of the Additional Capital is obtained by the Company, effective as of the date received by the Company." "g. (iv) Ratio of Liabilities to Tangible Net Worth. The Company shall maintain the ratio of its total liabilities to its Tangible Net Worth at levels not greater than those shown in the following table on the dates and at all times during the periods indicated:
Period Ratio ------ ----- at Sept. 30, 1994, and through Oct. 30, 1994 3.1 to 1.0
4 at Oct. 31, 1994, and through Nov. 29, 1994 3.3 to 1.0 at Nov. 30, 1994, and through Dec. 30, 1994 2.5 to 1.0 at Dec. 31, 1994, and through Feb. 27, 1995 2.35 to 1.0 at Feb. 28, 1995, and through Mar. 30, 1995 2.25 to 1.0 at Mar. 31, 1995, and at all times thereafter 2.0 to 1.0
For purposes of determining compliance with this covenant, the term `liabilities' shall include all capital lease obligations of the Company and its Subsidiaries, determined as of any date the ratio is to be tested." "g. (v) Total Adjusted Current Assets. The Company shall maintain Total Adjusted Current Assets, determined on a consolidated basis with its Subsidiaries, at or above the amount shown on the following table on each date indicated:
Total Adjusted Period Current Assets ------ -------------- at Sept. 30, 1994 $15,800,000 at Oct. 31, 1994 $16,300,000 at Nov. 30, 1994 $15,500,000 at Dec. 31,1994 $15,600,000 at Jan. 31, 1995 $16,700,000 at Feb. 28, 1995 $16,300,000
5 at Mar. 31, 1995 $16,500,000 and on the last day of each calendar month thereafter
As used herein, the term Total Adjusted Current Assets means the sum of the book values, determined in accordance with generally accepted accounting principles consistently applied, of the Company's consolidated current assets, less current assets classified as "Prepaid and other" on the consolidated balance sheet of the Company, less the amount of all reserves and allowances outstanding with respect to any of such current assets, and less the amount, if any, by which the consolidated book value of inventory exceeds $10,000,000," and plus the amount, if any, by which the unpaid principal balance of the Revolving Loan, as of the date of determination, is less than the Commitment, as then in effect." "g. (vi) Total Cash and Accounts Receivable. The Company shall maintain Total Cash and Accounts Receivable, determined on a consolidated basis with its Subsidiaries, at or above the amount shown on the following table on the dates and at all times during each of the periods indicated:
Period Amount ------ ------ at Nov. 1, 1994, and through Nov. 29, 1994 $5,000,000 at Dec. 1, 1994, and through Dec. 30, 1994 $5,500,000 at Jan. 1, 1995, and through Jan. 30, 1995 $5,500,000 at Feb. 1, 1995, and through Feb. 27, 1995 $6,500,000 at Mar. 1, 1995 and through Mar. 30, 1995 $6,200,000
6 at Apr. 1, 1995, and at all times thereafter $6,700,000
As used herein, the term Total Cash and Accounts Receivable means the sum of the book values, determined in accordance with generally accepted accounting principles consistently applied, of the Company's consolidated current assets which are classified as "Cash" or as "Accounts Receivable" on the consolidated balance sheet of the Company, less the amount of all reserves and allowances outstanding with respect to such current assets, and plus the amount, if any, by which the unpaid principal balance of the Revolving Loan, as of the date of determination, is less than the Commitment, as then in effect." C. Section 7. b(vii) of the Original Agreement is hereby amended and restated in its entirety to read as follows: "(vii) Other Information. (1) At the times stated, each of the following written reports with respect to the Company and the Guarantors:
Time: Report ----- ------ Each day Consolidated reports of: cash, accounts receivable Weekly - each Consolidated cash flow report for week, with Wednesday as of comparison of actual cash Friday flow receipts the preceding and expenditures for each line item to the most recent cash flow forecast for each such line item for that week; one line aging of accounts receivable Monthly - the fifth Detailed accounts receivable aging reports (and (5th) day of each accounts payable aging reports, if and as calendar month prepared by the Company for internal use) for each of the Company and the Guarantors. The accounts receivable aging report shall separately identify,
7 by amount and account debtor and as at the date of the report: (a) rebates and accounts payable due from the Company or its Subsidiaries to account debtors; (b) non-trade accounts receivable of the Company and its Subsidiaries; and (c) accounts receivable due the Company or its Subsidiaries under royalty-bearing contracts or license agreements. (2) From time to time and at any time such other information and reports concerning the financial condition, activities (including any efforts to obtain Additional Capital or sell any substantial part of its assets), relationships and strategic undertakings of the Company or any Subsidiary as the Bank reasonably may request." D. The additional text added to the end of Section 2.a of the Original Agreement by the terms of Section 3 of the Third Amendment is hereby amended in its entirety to read as follows: "Notwithstanding the foregoing or any other provision of this Agreement to the contrary, the amount of the Commitment automatically shall reduce to the amounts shown in the following table on the dates and for the periods indicated:
Commitment - Maximum Date/Period Amount ----------- -------------------- On December 15, 1994 through December 31, 1994 $ 9,925,000 On January 1, 1995, through January 31, 1995 $ 9,625,000 On February 1, 1995, through February 28, 1995 $ 9,325,000 On March 1, 1995, through March 31, 1995 $ 8,925,000 On April 1, 1995,
8 through April 30, 1995 $5,725,000 On May 1, 1995, through May 31, 1995 $5,425,000 On June 1, 1995, through June 30, 1995 $5,125,000 On July 1,1995, through July 31, 1995 $4,825,000 On August 1, 1995 through August 31, 1995 $4,525,000 On September 1, 1995, through September 30, 1995 $4,225,000 On October 1, 1995, through October 31, 1995 $3,925,000 On November 1, 1995, through November 30, 1995 $3,625,000 On December 1, 1995, through December, 1995 $3,325,000 On January 1, 1996, through January 31, 1996 $3,025,000 On February 1, 1996, through February 28, 1996 $2,725,000 On March 1, 1996, through March 31, 1996 $2,425,000 On April 1, 1996 and thereafter -0-
If at any time the unpaid principal balance of the Revolving Loan exceeds the amount of the Commitment, by reason of a reduction of that amount or otherwise, the Company shall pay within three (3) Banking Days to the Bank, without demand or notice of any sort, a principal amount equal to such excess to be applied against the principal balance of the Revolving Loan." 9 D. Section 10.a of the Original Agreement is hereby amended in its entirety to read as follows: "a. Nonpayment of the Obligations. Default in the payment when due of any amount payable under the terms of the Revolving Note, or any amount payable that relates in any manner to either of the Letters of Credit, or any amount otherwise payable to the Bank under the terms of this Agreement." F. Section 10 of the Original Agreement is hereby amended by adding thereto a new Section 10.j which reads in its entirety as follows: "j. Failure to complete Stock Issuance. The Company shall have failed to have received by February 28, 1995, at least $2,000,000 in an aggregate amount of capital proceeds from the Stock Issuance (it being acknowledged by the Company and the Bank that as at February 9, 1995, the Company had received an aggregate amount of capital proceeds from the Stock Issuance of $1,726,000.) 3. REPRESENTATIONS AND WARRANTIES. The Company hereby affirms and warrants to the Bank that the representations and warranties contained in the Original Agreement are complete and correct as of the date of this Fourth Amendment, except that (i) they shall be deemed also to refer to this Fourth Amendment, as well as all documents named herein, and (ii) Section 5.d of the Original Agreement shall be deemed also to refer to the most recent audited and unaudited consolidated financial statements of the Company furnished to the Bank. 4. EVENTS OF DEFAULT. The Company certifies and warrants to the Bank that no Event of Default or Unmatured Event of Default under the Original Agreement has occurred and is continuing as of the date of this Fourth Amendment, excepting only the Existing Noncompliance Events. 5. RELEASE. The Company and Guarantors for themselves and their respective legal representatives, successors, assigns (collectively, the "Releasing Parties"), each hereby RELEASES AND DISCHARGES the Bank and its respective officers, directors, agents, employees, attorneys, legal representatives, successors and assigns (collectively, the "Released Parties") from any and all claims, demands, damages, and causes of action which any of the Releasing Parties has asserted or claimed or might now or hereafter assert or claim against any of the Released Parties, whether known or unknown, arising out of, related to, or in any way connected with any Prior Related Event (as such term is hereinafter defined). As used in this Fourth Amendment, the term "Prior Related Event" shall mean any act, omission, circumstance, agreement, loan, extension of credit, transaction, event, action or occurrence between or involving all or any of the Releasing Parties and all or any of the Released Parties, made, extended or occurring at any time or times 10 prior to the execution of this Fourth Amendment, and which was related to, based upon or in any manner connected with, directly or indirectly, any of the Obligations, the Credit Documents, or the transactions contemplated thereby or undertaken pursuant thereto or in connection therewith, including without limitation, without in any respect limiting the generality of the foregoing: (i) any action taken on or prior to the execution of this Fourth Amendment to obtain payment or performance of any of the Obligations, or to otherwise enforce or exercise any right or purported right of the Bank as a creditor of the Company or either of the Guarantors; and (ii) any refusal by the Bank to waive any default or noncompliance with any of the terms or requirements of any of the Credit Documents. The Bank's execution of this Fourth Amendment shall not constitute an acknowledgement or admission by any of the Released Parties of liability for any matter or precedent upon which liability may be asserted. The release granted by this Section 5 is in addition to, and not in substitution or replacement of, the release granted to the Bank and the other Released Parties in the Third Amendment. The Company and the Guarantors, respectively, each acknowledge by their execution of this Fourth Amendment that the execution of this Fourth Amendment by the Bank is of substantial and continuing value and benefit to each of them, which value and benefit is of more than adequate consideration for the release granted by this Section 5. 6. NONCOMPLIANCE WITH ORIGINAL AGREEMENT. The Bank does not waive any of its rights and remedies available under the Original Agreement, as amended by this Fourth Amendment, except with respect to the Existing Noncompliance Events. The Bank and the Company agree that notwithstanding the Bank's execution and delivery of this Fourth Amendment, the Bank shall retain the right to exercise all of its rights and remedies at any time under the Agreement and under each of the other Credit Documents with respect to any Event of Default other than the Existing Noncompliance Events, including the right to take the actions authorized in Section 11 of the Agreement. The Company acknowledges and agrees that all of the Credit Documents are now and, until otherwise agreed in writing by the Bank and the Company, shall remain in full force and effect in accordance with their respective terms. Except as set forth in this Fourth Amendment, the Bank is not waiving any of the terms or provisions of the Credit Documents or any of their respective rights and remedies thereunder. Any prior, current or future forbearance by the Bank in the declaration of defaults or the exercise of rights and remedies (whether such forbearance is done informally or pursuant to written agreement) shall not: (i) impair, waive, diminish, release, terminate, prejudice or in any manner affect the rights of the Bank in and to any of the collateral for the Obligations or any of the Guaranty Agreements or any of the other rights and remedies of the Bank (whether arising under any of the Credit Documents or otherwise); or (ii) establish or be deemed to establish any precedent or course of dealing with respect to any of the Obligations, such collateral or the Guaranty Agreements. 11 The Bank hereby waives its right to exercise any of its remedies under Section 11 of the Agreement or under any of the other Credit Documents by reason of the Existing Noncompliance Events. Any failure by the Company to comply in all respects with the Financial Covenants set out in Section 7(g) of the Agreement after the date of this Fourth Amendment shall constitute an Event of Default which is not an Existing Noncompliance Event and has not been waived, directly or by implication, pursuant to the provisions of this Section 6. The Company acknowledges that it has not provided to the Bank updated, current financial projections for periods subsequent to March 31, 1995, which the Company believes are sufficiently complete and reliable to be used by it to request modifications of the Financial Covenants set out in Section 7.g of the Original Agreement, as amended by this Fourth Amendment, for any time or period after March 31, 1995, and that the Bank has not agreed and will not be obligated to agree to or to accept any such modifications, if and when requested by the Company. The Company acknowledges that all of the Obligations are enforceable in accordance with their respective terms and that the Company does not have any claim, counterclaim, defense or set-off against the Bank or any of the Obligations. The limited waiver set forth in this Section 6 shall not be construed to be, and is not, a commitment or undertaking, express or implied, by the Bank to grant any further or additional waiver of any Event of Default, now or hereafter existing, or to further amend in any respect the Agreement. By reason of the amendment pursuant to the Third Amendment of Section 2.a of the Original Agreement to provide for a monthly reduction of the Commitment, beginning December 15, 1994, the Company determined that it was required by generally accepted accounting principles to restate and to compute the current liabilities of the Company as of September 30, 1994, and as of October 31, 1994, to include portions of the outstanding principal balance of the Revolving Loan (the "Required Restatement"). The Bank and the Company acknowledge that the minimum working capital amount required by Section 7.g(ii) of the Agreement to be maintained by the Company as of September 30, 1994, and through October 30, 1994, was established without recognition of the Required Restatement. Accordingly, it is acknowledged and confirmed that, notwithstanding the Required Restatement, calculation of the minimum working capital of the Company as at September 30, 1994, and for the period from September 30, 1994, through October 30, 1994, solely for purposes of determining the Company's compliance with Section 7.g(ii) of the Agreement, was to be made and shall be made with the entire outstanding principal of the Revolving Loan treated as a long term liability of the Company. 7. STANDBY LETTER OF CREDIT - AMENDMENT/EXTENSION OF EXPIRY DATE. The Company hereby requests the Bank, on or prior to March 10, 1995, to extend the expiry date of the Standby Letter of Credit from March 31, 12 1995, to April 30, 1995. The Bank hereby agrees to make this extension of the expiry date, provided that the following conditions precedent are satisfied: (a) an Amendment to the Standby Letter of Credit, in form and substance satisfactory to the Bank, effecting the amendment in the expiry date to April 30, 1995, shall have been executed by the Company and an Acceptance of that Amendment shall have been executed and delivered to the Bank by the beneficiary of the Standby Letter of Credit; (b) the Bank shall have been paid by the Company amendment and an extension fee of $5,120.30; and (c) no Event of Default shall have occurred and remain outstanding on the date the Amendment is executed by the Bank. 8. CLOSING DOCUMENTS. As conditions precedent to the effectiveness of this Fourth Amendment, the Bank shall first receive the following contemporaneously with the execution and delivery of this Fourth Amendment (where applicable), duly executed, dated and in form and substance satisfactory to the Bank: A. Certified copies of the resolutions of the respective Boards of Directors of the Company and of each of the Guarantors, authorizing the execution, delivery and performance of this Fourth Amendment and any other document required under this Fourth Amendment to which such corporation is a party. B. Certificates signed by the respective Secretaries or an Assistant Secretary of the Company and of each of the Guarantors, certifying the name of the officer or officers authorized to sign this Fourth Amendment and any other document required under this Fourth Amendment to which such corporation is a party, together with a sample of the true signature of each such officer. C. The due execution by the Company and delivery to the Bank of a Pledge Agreement in favor of the Bank, in form and substance the same as attached to this Fourth Amendment as Exhibit B (the "Pledge Agreement"), with all exhibits thereto duly completed, and delivery to the Bank of the original certificates for the stock pledged to the Bank pursuant to the Pledge Agreement, together with duly executed blank stock powers for each certificate of stock pledged. D. Payment by the Company of the legal expenses and out of pocket expenses incurred by the Bank for special counsel in connection with the negotiation, preparation and closing of this Fourth Amendment, amendment of the Standby Letter of Credit, and in connection with the Existing Noncompliance Events. E. The Consent of each of the Guarantors in the forms attached to this Fourth Amendment as Exhibit "A-1" and Exhibit "A-2", respectively. 13 F. An opinion of counsel to the Company and the Guarantors, Messrs. Gallop, Johnson & Neuman, issued to the Bank as of the date of this Fourth Amendment, in form and substance the same as attached to this Fourth Amendment as Exhibit C. G. Such other documents as may be reasonably required by the Bank. H. Payment by the Company to the Bank of a Default Waiver and Amendment Fee in the amount of $10,490.00. In addition, the Company agrees to pay, promptly upon receipt of the Bank's invoice, all out of pocket expenses incurred by the Bank and its employees and officers, in connection with the negotiation, preparation and closing of this Fourth Amendment, amendment of the Standby Letter of Credit, and in connection with the Existing Events of Default. 9. EFFECT OF FOURTH AMENDMENT. Except as amended in this Fourth Amendment, all of the terms and conditions of the Original Agreement shall continue unchanged and the Original Agreement, as amended by this Fourth Amendment, remains in full force and effect. IN WITNESS WHEREOF, the Company and the Bank, by their respective duly authorized officer, have executed this Fourth Amendment to Credit Agreement as of the 10th day of February, 1995. K-V PHARMACEUTICAL COMPANY By:/s/ Gerald R. Mitchell ---------------------- Vice-President, Finance ----------------------- BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION By:/s/ Richard L. Mott, V.P. ------------------------- Richard L. Mott, Vice-President 14 The undersigned hereby execute this Fourth Amendment to Credit Agreement ("Fourth Amendment") as of the 10th day of February, 1995, for the purpose of severally making the releases set forth in, and being fully bound by all of the terms of, Section 5 of the Fourth Amendment. PARTICLE DYNAMICS, INC. By:/s/ Gerald R. Mitchell --------------------------- Vice-President --------------------------- ETHEX CORPORATION By:/s/ Gerald R. Mitchell ---------------------------- Vice-President ---------------------------- 15 EX-4.K 3 PLEDGE AGREEMENT EXHIBIT 4(k) PLEDGE AGREEMENT ---------------- FOR VALUE RECEIVED, K-V PHARMACEUTICAL COMPANY, a Delaware corporation ("PLEDGOR"), hereby transfers, assigns, delivers, sets over, hypothecates and pledges to BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION ("PLEDGEE"), and grants to Pledgee, a security interest in all of Pledgor's right, title and interest in and to the following (referred to herein collectively as the "COLLATERAL"): (a) all of Pledgor's right, title and interest in and to any and all capital stock of Particle Dynamics, Inc., a New York corporation, and of Ethex Corporation, a Missouri corporation (such corporations are hereinafter referred to collectively as "ISSUERS" and individually as an "ISSUER"), including, without limitation, the capital stock of each of Issuers identified on Exhibit A attached hereto and made a part hereof for all purposes, and all other capital stock of each of Issuers now or hereafter delivered to Pledgee, now or hereafter owned by Pledgor (collectively, the "PLEDGED STOCK"), together with all certificates representing all or any of the Pledged Stock and all cash, securities, dividends, interest and other property at any time and from time to time declared, received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Stock, and all securities hereafter delivered to Pledgor in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such securities, together with all cash, securities, interest, dividends and other property at any time and from time to time declared, received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing (all of the foregoing being referred to herein collectively as the "STOCK COLLATERAL"); (b) all income, payments and other distributions on or with respect to property described in (a) above; and (c) all "proceeds" (as such term is defined in Section 9-306 of the Indiana Uniform Commercial Code, as amended) of property described in (a) or (b) above. As used in this Pledge Agreement, the term: (a) "CREDIT AGREEMENT" means the Credit Agreement, dated September 30, 1993, between Pledgor and Pledgee, as amended by the First Amendment to Credit Agreement, dated June 28, 1994, but with effect as of April 1, 1994, and by the Second Amendment to Credit Agreement, dated as of October 14, 1994, and by the Third Amendment to Credit Agreement, dated as of November 14, 1994, and by the Fourth Amendment to Credit Agreement, dated as of February 10, 1995, all executed by the Pledgor and Pledgee, and as the same hereafter may be further amended, modified, supplemented, and/or restated from time to time and at any time; (b) "DEFAULT RATE" means a rate of interest per annum equal to the rate of interest charged on the "Revolving Loan" (as such term is defined in the Credit Agreement) after maturity in accordance with Section 2.c of the Credit Agreement; and (c) "OBLIGATIONS" shall have the meaning ascribed to that term in the Credit Agreement. The pledge and security interest hereby made and granted to Pledgee is given to secure the performance and payment when due of the Obligations. Pledgor represents and warrants to and agrees with Pledgee as follows: 1. Delivery of Possession/Representations and Warranties. Concurrently with the execution of the Pledge Agreement, and subject to the terms and conditions hereof, Pledgor shall deliver to Pledgee, the original share certificates or other instruments or documents evidencing the Pledged Stock and all other Stock Collateral in existence on the date hereof, together with appropriate stock powers or other instruments of assignment endorsed in blank. Pledgor warrants and represents to Pledgee that: (a) There are no restrictions on the transfer of any of the Pledged Stock, other than may appear on the face of the certificates; (b) The Pledged Stock is issued and registered in the name of Pledgor as the legal and beneficial owner thereof and is duly authorized, validly issued and fully paid and nonassessable; (c) Pledgor has the right to transfer the Pledged Stock free of any encumbrances without obtaining the consent of the Issuer thereof or any other shareholder of the Issuer thereof, and Pledgor will defend its title to and the pledge and security interest of the Pledgee in the Pledged Stock against the claims of all persons and entities; (d) Pledgor owns no securities issued directly or indirectly by any Issuer excepting only the Pledged Stock; (e) The pledge of, the grant of the security interest in, and the delivery of the certificates evidencing the Stock Collateral are effective to vest in the Pledgee a valid and perfected first and prior security interest, superior to the rights of any other person in and to the Stock Collateral; 2 (f) Pledgor has and will maintain at all times full and absolute equitable and legal title to and ownership of the Collateral, free of all security interests, liens, encumbrances, charges, claims of third parties and rights of set off or recoupment, excepting only the pledge and security interest granted pursuant to this Pledge Agreement, and has good right to pledge the Collateral and to subject the Collateral to the pledge and security interests herein granted; and (g) This Pledge Agreement has been duly executed and delivered by Pledgor and constitutes a legal, valid, and binding obligation of Pledgor, enforceable in accordance with its terms. Notice of acceptance of this Pledge Agreement by the Pledgee is hereby waived. 2. Voting. So long as no Event of Default has occurred and remains unremedied, Pledgor will have the right to exercise all voting rights with respect to the Stock Collateral. 3. Dividends/Distributions. For so long as no Event of Default has occurred and is continuing unremedied, and except as provided in Section 4, Pledgor has the right to receive any sums paid and any cash dividends and other distributions made upon or in respect of any of the Stock Collateral, including without limitation distributions made upon the liquidation or dissolution of any of the Issuers and all interest, cash dividends and other distributions made upon or in respect of any of the other Collateral (collectively, "DISTRIBUTIONS") as are permitted by the terms of the Credit Agreement and applicable law. Except as provided in the preceding sentence, all Distributions shall be paid over directly to Pledgee, and shall be held in trust as additional Collateral for the Obligations, or, at the option of Pledgee, applied against the Obligations in accordance with Section 7 of this Pledge Agreement. Pledgor agrees to take such action as Pledgee may reasonably require to collect or enforce any claim for payment or other right or privilege assigned to Pledgee pursuant to this Pledge Agreement. 4. Stock Dividends/Additional Collateral. In the event any additional shares are issued to Pledgor as a stock dividend on any of the Stock Collateral, as a result of any split of the Stock Collateral by reclassification or otherwise, such additional shares will be immediately delivered to Pledgee and will be subject to this Pledge Agreement as a part of the Stock Collateral to the same extent as the original Stock Collateral. Pledgor will cause any additional securities or property issued to or received by it in respect of any of the Collateral, whether for value paid by it or otherwise, to be delivered to Pledgee and pledged hereunder, in 3 each case accompanied by proper instruments of assignment duly executed in blank by Pledgor. 5. Covenants. Pledgor covenants and agrees that from and after the date hereof and until the Obligations are fully satisfied or the Collateral is otherwise released and delivered to Pledgor: (a) Without the prior written consent of Pledgee, Pledgor will not: (i) sell, assign, transfer, exchange, convert or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof; or (ii) take any other action with respect to any of the Collateral that would impair the interest or rights of Pledgee or Pledgor in, to or with respect to any of the Collateral; (b) Without the prior written consent of Pledgee, Pledgor will not vote to enable any Issuer to, and will not otherwise permit any Issuer to, nor shall any Issuer, issue any stock or other securities of any nature in addition to or in exchange or substitution for any of the Pledged Stock; (c) Without the prior written consent of Pledgee, Pledgor will not create, incur or permit to exist any lien, security interest, or other encumbrance in or against any of the Collateral, or any interest therein, except for the pledge and security interest provided under this Pledge Agreement, will take any and all action necessary to remove any lien, security interest or encumbrance, and Pledgor will pay prior to the delinquency all taxes and assessments against any of the Collateral; (d) Pledgor will, at Pledgor's expense, duly and promptly execute and deliver any and all further instruments and documents and take such further action as Pledgee may deem reasonably necessary to perfect and continue perfected the pledge and security interest granted in this Pledge Agreement, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code as in effect in each relevant jurisdiction and the giving of appropriate notices to bailees or other parties in actual or constructive possession of any of the Collateral, and Pledgor also hereby authorizes Pledgee to file any such financing statement or continuation statement without the signature of Pledgor to the extent permitted by applicable law; (e) Immediately following the execution of this Pledge Agreement, Pledgor shall give written notice to each of the Issuers, together with a copy of this Pledge 4 Agreement, instructing each of the Issuers in writing (which instructions by their terms shall not be revocable by Pledgor) that upon receipt by such Issuer of written notice from Pledgee, the Issuer is to pay all Distributions, as and when payable, directly to Pledgee. 6. Rights of Pledgee. (a) In the event Pledgor fails or refuses to perform any of its covenants and obligations under this Pledge Agreement, Pledgee may, but shall have no obligation to, do all things deemed necessary or appropriate by it to fulfill discharge of such covenants and obligations, and sums paid and expenses incurred by Pledgee in connection therewith (including, without limitation, attorneys' fees and expenses) shall be reimbursed by Pledgor on demand by Pledgee, shall constitute a part of the Obligations and shall bear interest at the Default Rate from the date paid or incurred. Pledgor acknowledges and agrees that nothing contained herein shall obligate or impose any duty upon Pledgee to assume any duties or obligations of Pledgor with respect to the Collateral. (b) Pledgee may hold any of the Collateral, endorsed or assigned in blank, and may deliver any of the Collateral to the Issuer or other issuer thereof for the purpose of making denominational exchanges or registrations or transfers or for such other purpose in furtherance of this Pledge Agreement as Pledgee may deem desirable. 7. Events of Default/Remedies. The occurrence of each of the following events shall constitute an Event of Default by Pledgor under this Pledge Agreement ("EVENT OF DEFAULT"): (a) The occurrence of any "Event of Default," as such term is defined in the Credit Agreement. (b) Any breach by Pledgor of any term, covenant or provision of this Pledge Agreement or any failure by Pledgee to fully and timely perform any of its obligations under this Pledge Agreement. Upon the occurrence of an Event of Default, Pledgee may, itself or through one or more nominees, at its option: (i) exercise all rights and remedies of a pledgee and secured party allowed by applicable law and this Pledge Agreement; (ii) cause the Stock Collateral and other securities included in the Collateral to be registered in the name of Pledgee or its nominee or cause new 5 certificates evidencing the Stock Collateral and such other securities to be issued; (iii) exercise all voting and corporate rights at any meeting of any Issuer, or otherwise, and exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any Stock Collateral as if it were the absolute owner thereof; and (iv) demand, collect, receive, settle, compromise, adjust, sue for, foreclose or realize upon any of the Collateral, as Pledgee may determine, and may receive, open and dispose of mail addressed to Pledgor and endorse notes, checks, drafts, money orders, documents of title or other evidences of payment, shipment or storage or any form of Collateral on behalf of and in the name of Pledgor, as its attorney-in-fact. Further, Pledgee may, without demand and without advertisement, notice or legal process of any kind (except as may be required by law), all of which Pledgor waives, at any time or times (i) apply any cash dividends received by Pledgee pursuant to Section 3 hereof to the Obligations in accordance with Section 7, and (ii) if following such application there remains outstanding any Obligations, sell the remaining Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as Pledgee shall deem appropriate. Pledgee shall be authorized at any such sale (if, on the advice of counsel, it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or resale thereof, and upon consummation of any such sale Pledgee shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely and free from any claim or right of Pledgor, and Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which Pledgor now has or may have at any time in the future under any rule of law or statute now existing or hereafter enacted. The proceeds realized from the sale of any Collateral shall be applied first to the reasonable costs, expenses and attorneys' fees and expenses incurred by Pledgee for collection and for acquisition, completion, protection, removal, sale and delivery of the Collateral; and second to the remainder of the Obligations, applied in accordance with the terms of the Credit Agreement. If any deficiency shall remain, Pledgor shall remain liable therefor. 6 In addition thereto, Pledgor further agrees that (i) in the event that notice is necessary under applicable law, written notice given to Pledgor in the manner specified herein for notice, ten (10) business days prior to the date of the disposition of the Collateral at any such public sale or sale at any broker's board or on any such securities exchange, or prior to the date after which private sale or any other disposition of said Collateral will be made, shall constitute reasonable and fair notice. Pledgor irrevocably designates, makes, constitutes and appoints Pledgee (and all persons designated by Pledgee) as Pledgor's true and lawful attorney, and Pledgee, or Pledgee's designee, may, without notice to Pledgor, and at such time or times thereafter as Pledgee, in its discretion, may determine, in Pledgor's or Pledgee's name: (i) do all acts and things necessary, in Pledgee's discretion, to fulfill Pledgor's obligations under this Pledge Agreement; (ii) execute and deliver stock powers and bond powers with respect to any of the Collateral; and (iii) endorse the name of Pledgor upon any checks, notes, acceptances, money orders, certificates, drafts or other forms of payment of security relating to the Collateral that come into Pledgee's possession. All remedies of Pledgee shall be cumulative to the full extent provided by law. Pursuit by Pledgee of certain judicial or other remedies shall not abate nor bar resort to other remedies with respect to all or some of the Collateral shall not bar other remedies with respect to the Obligations or to other portions of the Collateral. Pledgee may exercise its rights to the Collateral without resorting or regard to other collateral or sources of security or reimbursement for the Obligations. 8. Limitations on Pledgee's Duty. Pledgee shall exercise reasonable care in the custody and preservation of the Collateral, and shall be deemed to have exercised such reasonable care if it takes such action for that purpose as Pledgor shall request in writing, but failure of Pledgee to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure on the part of Pledgee to preserve or protect any rights with respect to the Collateral against prior parties shall be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral. Except as otherwise provided in the preceding sentence, Pledgee shall be accountable only for amounts that it actually receives as a result of the exercise of powers herein conferred, and neither it nor any of its officers, directors, employees or agents shall be responsible to Pledgor for any act or failure to act or any delay in acting, except for Pledgee's gross negligence or willful misconduct. Except as otherwise provided in this Pledge Agreement, Pledgee shall not be under any duty or obligation whatsoever to make or give any presentment, demand for performance, notice of 7 nonperformance, protest, notice of protest, or notice of dishonor in connection with any of the Obligations. Pledgor recognizes that Pledgee may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in applicable laws, but it may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale (if otherwise conducted in a commercially reasonable manner) shall be deemed to have been made in a commercially reasonable manner. Pledgee shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit any Issuer to register such securities for public sale under applicable laws. Pledgor represents and warrants that it has made its own arrangements for keeping informed of changes or potential changes affecting the Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and Pledgor agrees that Pledgee shall have no obligation to inform Pledgor of any such changes or potential changes or to take any action or omit to take any action with respect thereto. 9. Waiver; Amendment. All rights and remedies of Pledgee expressed herein are in addition to all other rights and remedies possessed by it. No delay on the part of Pledgee in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action of Pledgee permitted hereunder shall impair or affect the rights of Pledgee in and to the Collateral. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Pledgee. 10. Termination. Upon full satisfaction of the Obligations and the other obligations of Pledgor hereunder, or such earlier date that Pledgee voluntarily releases the Collateral to Pledgor, Pledgee shall promptly cause to be redelivered to Pledgor the Collateral, and this Pledge Agreement shall thereupon terminate. 11. Successors and Assigns. This Pledge Agreement and all obligations of Pledgor hereunder shall be binding upon Pledgor 8 and his successors and assigns and shall inure to the benefit of Pledgee and its successors and assigns. 12. General. This Pledge Agreement shall be governed by the laws of the State of Indiana. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under any such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. 13. Notices. Any and all notices or other communications required or permitted under this Pledge Agreement shall be in writing and shall be sufficiently given if delivered in the manner and at such addresses as provided in the Credit Agreement. Executed and delivered as of the 10th day of February, 1995. K-V PHARMACEUTICAL COMPANY, a Delaware corporation By: /s/ Gerald R. Mitchell --------------------------------- Printed: Gerald R. Mitchell ---------------------------- Title: Vice-President, Finance ------------------------------ ACKNOWLEDGMENT -------------- STATE OF Missouri ) ----------- )SS: COUNTY OF St. Louis ) ----------- Before me, a Notary Public in and for the State of Missouri, personally appeared Gerald R. Mitchell, who, being first duly sworn, acknowledged that he is the Vice-President, Finance of K-V Pharmaceutical Company, a Delaware corporation, and who executed the foregoing Pledge Agreement for and on behalf of said corporation as its duly authorized officer. Witness my hand and Notarial Seal this 10th day of February, 1995. /s/ Carol J. Hund ---------------------------------- (SEAL) _____________________, Notary Public Printed Name I am a resident of St. Louis City , MO - - -------------------- -------- My commission expires: - - ----------------------- 9 CONSENT AND ACKNOWLEDGMENT -------------------------- Each of the undersigned hereby acknowledges and consents to the pledge of the Pledged Stock of which it is the Issuer and by executing this consent and acknowledgment it acknowledges receipt of a copy of this Pledge Agreement which it agrees shall be deemed to constitute written notice of such pledge and of irrevocable instructions from Pledgor that upon receipt of written notice from Pledgee, it is to make all payments of Distributions directly to Pledgee. Date: February 10, 1995 PARTICLE DYNAMICS, INC., a New York corporation By: /s/ Gerald R. Mitchell ---------------------------- Printed: Gerald R. Mitchell ----------------------- Title: Vice-President ------------------------- Date: February 10, 1995 ETHEX CORPORATION, a Missouri corporation By: /s/ Gerald R. Mitchell ---------------------------- Printed: Gerald R. Mitchell ----------------------- Title: Vice-President ------------------------- 10 Exhibit A to Pledge Agreement PLEDGED STOCK ------------- Certificate Number of Corporation No. Shares - - ----------- ----------- --------- Particle Dynamics, Inc. 4 100 Ethex Corporation 2 1 11 EX-11 4 EARNINGS/SHARE COMPUTATION EXHIBIT 11 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES Earnings (Loss) Per Share Calculation Primary Earnings (Loss) Per Share
For the Three Months Ended For the Nine Months Ended 12/31/94 12/31/93 12/31/94 12/31/93 --------- --------- ----------- ----------- Net income (loss) $ 602,467 $(829,052) $(3,840,738) $(4,223,367) Less dividends on preferred stock (105,438) (105,438) (316,314) (316,314) --------- --------- ----------- ----------- Income (Loss) Attributed to Common Stock $ 497,029 $(934,490) $(4,157,052) $(4,539,681) ========= ========= =========== =========== Average Number of Common Shares and Common Share Equivalents Outstanding: Average common shares outstanding 11,205,525 11,055,661 11,106,320 11,054,733 Common share equivalents (after application of treasury stock method): Shares issuable upon conversion of stock options 230,865 N/A N/A N/A ---------- ---------- ---------- ---------- Average Common Shares and Common Share Equivalents Outstanding 11,436,390 11,055,661 11,106,320 11,054,733 ========== ========== ========== ========== Primary Income (Loss) per Share (1): $0.04 $(0.09) $(0.37) $(0.41) ===== ====== ====== ======
(1) The two-class method for Class A and Class B common stock is not presented because the earnings (loss) per share are equivalent to the if converted method since dividends were not declared or paid and each class of common stock has equal ownership of the Company. EXHIBIT 11 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES Earnings (Loss) Per Share Calculation Fully-Diluted Earnings (Loss) Per Share
For the Three Months Ended For the Nine Months Ended 12/31/94 12/31/93 12/31/94 12/31/93 ----------- ----------- ----------- ------------ Net income (loss) $ 602,467 $ (829,052) $(3,840,738) $(4,223,367) Less dividends on preferred stock (105,438) (105,438) (316,314) (316,314) Plus dividends not payable due to preferred stock conversion 105,438 105,438 316,314 316,314 ----------- ----------- ----------- ----------- Income (Loss) Attributed to Common Stock $ 602,467 $ (829,052) $(3,840,738) $(4,223,367) =========== =========== =========== =========== Average Number of Shares Outstanding on a Fully- Diluted Basis: Average common shares outstanding 11,205,525 11,055,661 11,106,320 11,054,733 Common share equivalents (after application of treasury stock method): Shares issuable upon conversion of stock options 170,740 370,256 254,500 364,940 Common equivalent shares for preferred stock 301,250 602,500 301,250 602,500 ----------- ----------- ----------- ----------- Average Number of Shares Outstanding on a Fully-Diluted Basis 11,677,515 12,028,417 11,662,070 12,022,173 =========== =========== =========== =========== Fully-Diluted Income (Loss) per Share (1) (2): $0.05 $(0.07) $(0.33) $(0.35) ===== ====== ====== ======
(1) The two-class method for Class A and Class B common stock is not presented because the earnings (loss) per share are equivalent to the if converted method since dividends were not declared or paid and each class of common stock has equal ownership of the Company. (2) This calculation is submitted although it is contrary to Paragraph 40 of APB Opinion No. 15 as it produces an anti-dilutive result. Also, the preferred stock would not qualify as a common share equivalent because the cash yield at issuance was not less than 66 2/3% of the then current average Aa corporate bond yield. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS MAR-31-1995 APR-01-1994 DEC-31-1994 1,191,620 0 7,655,329 0 8,703,710 17,801,867 20,001,743 11,545,085 31,335,901 13,948,692 6,537,205 113,562 0 2,410 10,734,032 31,335,901 27,757,028 27,757,028 17,927,233 31,597,766 0 0 906,272 0 0 (3,840,738) 0 0 0 (3,840,738) (0.37) (0.33)
-----END PRIVACY-ENHANCED MESSAGE-----