ST. LOUIS, Feb. 14, 2011 /PRNewswire/ -- K-V Pharmaceutical
Company (NYSE: KVa/KVb) (the "Company") today announced that
it intends to issue a warrant to U.S. Healthcare I, L.L.C. and U.S.
Healthcare II, L.L.C. (together, the "Lenders") that grant Lenders
the right to purchase up to an aggregate of 11,663,378 shares of
the Company's Class A Common Stock, par value $.01 per share (the "Warrant"), at an exercise
price of $1.62 per share. As
described more fully below, the Company anticipates that upon
closing of a private placement of its Class A Common Stock
separately announced today the number of shares of Class A Common
Stock issuable pursuant to the Warrant will be reduced to
7,450,899. As detailed below, in addition to the Warrant, the
Lenders currently hold warrants to purchase up to 12,587,511 shares
of the Company's Class A Common Stock (the "Initial Warrants").
The closing price of the Class A Common Stock on the New York
Stock Exchange (the "Exchange") was $4.38 on February 11,
2011. The Warrant will not be issued until on or prior
to February 28, 2011, but in any
event after the expiration of ten days following the date on which
the Company mails a letter to its stockholders notifying them of
its intention to issue the Warrant without seeking their approval.
The Company is issuing the Warrant in consideration for the
entry by the Lenders into a Waiver Agreement, dated as of
February 9, 2010 (the "Waiver"), with
respect to the financing arrangements entered into with Lenders on
November 17, 2010 under a Credit and
Guaranty Agreement entered into by and among the Company, certain
of the Company's subsidiaries and Lenders (the "Financing").
Pursuant to the Waiver Agreement, the Lenders agreed to negotiate
in good faith the definitive documentation implementing a proposed
amendment to the Financing to more permanently address developments
in the Company's actual and projected financial performance since
the date the Financing was put in place, and Lenders further agreed
to release the $12.5 million of the
funds that were paid by the Company to Hologic, Inc. on
February 10, 2011 to acquire Makena™,
which was approved by the FDA on February 3,
2011. Pursuant to the Waiver, the Lenders waived compliance
by the Company with certain covenants in the Financing through
February 18, 2011, and all past
covenant issues will be waived as part of the proposed amendment to
the Financing. The Warrant contains certain provisions that would
reduce the number of shares issuable upon exercise of the Warrant,
or the number of shares held by the Lenders in the event the
Warrant is exercised, if the Company completes certain sales of new
shares of its Common Stock or repays specified amounts under its
existing financing arrangements with Lenders by certain dates. In a
separate press release issued today, the Company announced a
$32 million private placement of its
Class A Common Stock to a group of institutional investors. The
Company anticipates that pursuant to these provisions in the
Warrant the closing of such private placement will result in a
reduction in the number of shares issuable upon exercise of the
Warrant from 11,663,378 to 7,450,899. The opportunity to raise
additional capital through the private placement was presented to
the Company by its financial advisors after the Company reached
agreement with the Lenders on the proposed amendment of its
existing credit facility and issuance of the Warrant. The Warrant
additionally contains certain anti-dilution provisions included at
the request of the Lenders, but does not contain any preemptive
rights. In connection with the issuance of the Warrant, the
Lenders will receive certain registration rights to register the
resale of the Class A Common Stock issuable upon exercise of the
Warrant. The Company filed the material contracts entered into in
connection with the Financing as exhibits to its Annual Report on
Form 10-K for the fiscal year ended March
31, 2010 (the "2010 Form 10-K") and a description of the
material terms of the Financing is set forth in the 2010 Form 10-K,
under Item 1—"Business—(b) Significant Recent
Developments—Financing."
The Stockholder Approval Policy of the Exchange provides that
stockholder approval is required prior to the issuance of common
stock or other securities convertible into or exercisable for
common stock, if, among other things, the stock issued or the stock
that may be issued upon conversion or exercise, equals or exceeds
20% of the number of shares of common stock outstanding before the
issuance. The Company currently has 38,580,559 shares of its
Class A Common Stock outstanding and 11,280,285 shares of its Class
B Common Stock outstanding for a total of 49,860,844 shares of
common stock outstanding on a combined basis. In connection
with the Financing, the Company issued the Initial Warrants to the
Lenders, which represented approximately 25.2% of the Company's
outstanding common stock at the time the Initial Warrants were
issued prior to exercise of such Initial Warrants. The shares
of Class A Common Stock that may be issued pursuant to the Warrant
represents approximately 23.4% of the Company's total outstanding
common stock prior to exercise of any Initial Warrants or the
Warrant. Accordingly, compliance with the Stockholder
Approval Policy would normally be required for the issuance of the
Warrant individually or if combined with the Initial Warrants.
However, the Audit Committee of the Board of Directors of the
Company determined that the delay necessary in securing stockholder
approval prior to the issuance of the Warrant would seriously
jeopardize the financial viability of the Company. Because of
that determination, the Audit Committee, pursuant to an exception
provided in the Exchange's Stockholder Approval Policy for such a
situation, expressly approved the Company's omission to seek the
stockholder approval that would otherwise have been required under
that policy. The Exchange has accepted the Company's
application of the exception with respect to the Warrant. The
Company also relied on this exception in connection with the
issuance of the Initial Warrants.
As discussed in the Company's Annual Report on Form 10-K for its
fiscal year ended March 31, 2010, the
Company believes that there is substantial doubt regarding its
ability to continue as a going concern and, as a result, the report
of its independent registered public accounting firm accompanying
its annual consolidated financial statements for the fiscal year
ended March 31, 2010, included an
explanatory paragraph disclosing the existence of substantial doubt
regarding the Company's ability to continue as a going concern. The
Company does not expect that the substantial doubt will be resolved
as of the end of the period covered by the Form 10-Q for the
quarter ended December 31, 2010 or
possibly the year ended March 31,
2011.
The Audit Committee based its determination on the current
financial condition of the Company, including management's latest
forecast of the Company's liquidity position and need for funds to
pay amounts due under the Hologic agreement and to sustain its
operations, as well as developments since November 17, 2010, the date of the previous loan
with Lenders, and certain other factors including the
following:
- Prior to making the $12.5 million
milestone payment to Hologic, Inc. on February 10, 2011, the Company's cash balance was
approximately $25 million of which
approximately $6 million was held in
the Company's operating accounts and approximately $19 million was held in an account that is
controlled by the Lenders. After giving effect to the payment
to Hologic, Inc., the cash balance was approximately $12 million.
- The Company expects its cash operating expenses in the next 90
days to be in the range of $50 to $60
million, including the payment of $12.5 million which was paid on February 10, 2011 to Hologic, Inc. triggered by
the recent FDA approval of Makena™.
- Without access to the funds controlled by the Lenders, the
Company would have been unable to make the $12.5 million payment that was due to Hologic.
If the Company failed to make this payment, the rights to
Makena™ would not transfer and the Company would not be able to
execute its sales launch plans related to Makena™. As
discussed in the 2010 Form 10-K, the future viability of the
Company is almost entirely dependent on the successful transfer of
this asset and the future sales of this product.
The Company, in reliance on the exception, is mailing to all of
its stockholders a letter notifying them of its intention to issue
the Warrant without seeking their approval. On or prior to
February 28, 2011, but in any event
after the expiration of ten days following the date on which the
Company mails a letter to its stockholders notifying them of its
intention to issue the Warrant without seeking their approval, the
Company will proceed to issue the Warrant to the Lenders.
About K-V Pharmaceutical Company
K-V Pharmaceutical Company is a fully-integrated specialty
pharmaceutical company that develops, manufactures, markets, and
acquires technology-distinguished branded prescription
pharmaceutical products. The Company markets its
technology-distinguished products through Ther-Rx Corporation, its
branded drug subsidiary.
For further information about K-V Pharmaceutical Company, please
visit the Company's corporate Website at
www.kvpharmaceutical.com.
Cautionary Note Regarding Forward-looking Statements
This press release contains various forward-looking statements
within the meaning of the United States Private Securities
Litigation Reform Act of 1995 (the "PSLRA") and that may be based
on or include assumptions concerning the operations, future results
and prospects of the Company. Such statements may be identified by
the use of words like "plan," "expect," "aim," "believe,"
"project," "anticipate," "commit," "intend," "estimate," "will,"
"should," "could," "potential" and other expressions that indicate
future events and trends.
All statements that address expectations or projections about
the future, including without limitation, statements about product
development, product launches, regulatory approvals, governmental
and regulatory actions and proceedings, market position,
acquisitions, sale of assets, revenues, expenditures, resumption of
manufacturing and distribution of products and the impact of the
recall and suspension of shipments on revenues, and other financial
results, are forward-looking statements.
All forward-looking statements are based on current expectations
and are subject to risk and uncertainties. In connection with the
PSLRA's "safe harbor" provisions, the Company provides the
following cautionary statements identifying important economic,
competitive, political, regulatory and technological factors, among
others, that could cause actual results or events to differ
materially from those set forth or implied by the forward-looking
statements and related assumptions.
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Such factors include (but are
not limited to) the following:
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(1)
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the ability to continue as a
going concern;
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(2)
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the terms of our secured loan
agreement with U.S. Healthcare I, L.L.C. and U.S. Healthcare II,
L.L.C. (together, the "Lenders"), as more fully described in Item
1— "Business—(b) Significant Recent Developments—Financing" in the
Company's Annual Report on Form 10-K for the year ended March 31,
2010 (the "Form 10-K"), as amended, could have an adverse effect on
us if we are not able to refinance it or repay it at maturity on
March 20, 2013, or earlier if we experience an event of default
that is not waived by the Lenders or if a waiver expires and is not
extended, and such terms contain numerous affirmative and negative
covenants and conditions that must be met in order to avoid default
and/or to qualify for additional loan tranches, and there are
substantial risks of triggering defaults with respect to such
covenants and/or the occurrence or non-occurrence of conditions
that would preclude the Company from being able to draw down
additional loan tranches, which could materially adversely impact
the Company, lead to foreclosure on the Company assets acting as
collateral for the loan agreement, and adversely affect the
Company's ability to operate, including the launch of
Makena;
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(3)
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the possibility of not obtaining
FDA approvals or delay in obtaining FDA approvals;
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(4)
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new product development and
launch, including the possibility that any product launch may be
delayed or unsuccessful, including with respect to
Makena™;
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(5)
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acceptance of and demand for the
Company's new pharmaceutical products, including Makena™, and for
our current products upon their return to the marketplace, as well
as the number of preterm births for which Makena™ may be prescribed
and its safety profile and side effects profile;
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(6)
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the possibility that any period
of exclusivity may not be realized, including with respect to
Makena™, a designated Orphan Drug;
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(7)
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the satisfaction or waiver of
the terms and conditions for the acquisition and continued
ownership of the full U.S. and worldwide rights to Makena™ set
forth in the previously disclosed Makena™ acquisition agreement, as
amended;
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(8)
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the consent decree between the
Company and the U.S. Food and Drug Administration ("FDA") and the
Company's suspension of the production and shipment of all of the
products that it manufactures (other than the Potassium Chloride ER
Capsule products that are the subject of the FDA letter received
September 8, 2010 allowing the return of those products to the
marketplace) and the related nationwide recall affecting all of the
other products that it manufactures, as well as the related
material adverse effect on its revenue, assets and liquidity and
capital resources, as more fully described in Item 1—"Business—(b)
Significant Recent Developments—Discontinuation of Manufacturing
and Distribution; Product Recalls; and the FDA Consent Decree" in
the Form 10-K for fiscal 2010;
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(9)
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the two agreements between the
Company and the Office of Inspector General of the U.S. Department
of Health and Human Services ("HHS OIG") pertaining to the
exclusion of our former chief executive officer from participation
in federal healthcare programs and pertaining to the dissolution of
our ETHEX subsidiary, in order to resolve the risk of potential
exclusion of our company, as more fully described in Note
15—"Commitments
and Contingencies—Litigation
and Governmental Inquiries" of the Notes to the Consolidated
Financial Statements included in the Form 10-K for fiscal
2010;
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(10)
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the plea agreement between the
Company and the U.S. Department of Justice and the Company's
obligations therewith, as well as the related material adverse
effect, if any, on its revenue, assets and liquidity and capital
resources, as more fully described in Item 1—"Business—(b)
Significant Recent Developments—Plea Agreement with the U.S.
Department of Justice" in the Form 10-K for fiscal 2010;
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(11)
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changes in the current and
future business environment, including interest rates and capital
and consumer spending;
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(12)
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the availability of raw
materials and/or products, including Makena™, manufactured for the
Company under contract manufacturing agreements with third
parties;
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(13)
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the regulatory environment,
including regulatory agency and judicial actions and changes in
applicable laws or regulations, including the risk of obtaining
necessary state licenses in a timely manner;
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(14)
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fluctuations in
revenues;
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(15)
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the difficulty of
predicting the pattern of inventory movements by the Company's
customers;
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(16)
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the impact of competitive
response to the Company's sales, marketing and strategic efforts,
including introduction or potential introduction of generic or
competing products against products sold by the Company and its
subsidiaries, including Makena™, and including competitive pricing
changes;
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(17)
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risks that the Company may not
ultimately prevail in litigation, including product liability
lawsuits and challenges to its intellectual property rights by
actual or potential competitors or to its ability to market generic
products due to brand company patents and challenges to other
companies' introduction or potential introduction of generic or
competing products by third parties against products sold by the
Company or its subsidiaries including without limitation the
litigation and claims referred to in Note 15 – "Commitments and
Contingencies" of the Notes to the Consolidated Financial
Statements in the Form 10-K, and that any adverse judgments or
settlements of such litigation, including product liability
lawsuits, may be material to the Company;
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(18)
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the possibility that our current
estimates of the financial effect of certain announced product
recalls could prove to be incorrect;
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(19)
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whether any product recalls or
product introductions result in litigation, agency action or
material damages;
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(20)
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failure to supply claims by
certain of the Company's customers, including CVS Pharmacy, Inc.,
that, despite the formal discontinuation action by the Company of
its products, the Company should compensate such customers for any
additional costs they allegedly incurred for procuring products the
Company did not supply;
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(21)
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the series of putative class
action lawsuits alleging violations of the federal securities laws
by the Company and certain individuals, as more fully described in
Note 15 – "Commitments and Contingencies – Litigation and
Governmental Inquiries" of the Notes to the Consolidated Financial
Statements in the Form 10-K for fiscal 2010;
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(22)
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the possibility that insurance
proceeds are insufficient to cover potential losses that may arise
from litigation, including with respect to product liability or
securities litigation;
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(23)
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the informal
inquiries initiated by the SEC and any related or additional
government investigation or enforcement proceedings as more fully
described in Note 15 – "Commitments and Contingencies – Litigation
and Government Inquiries," of the Notes to the Consolidated
Financial Statements in the Form 10-K for fiscal 2010;
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(24)
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the possibility that the pending
investigation by the Office of Inspector General of the Department
of Health and Human Services into potential false claims under the
Title 42 of the U.S. Code as more fully described in Note 15 –
"Commitments and Contingencies – Litigation and Government
Inquiries" of the Notes to the Consolidated Financial Statements in
the Form 10-K for fiscal 2010 could result in significant civil
fines or penalties, including exclusion from participation in
federal healthcare programs such as Medicare and
Medicaid;
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(25)
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delays in returning, or failure
to return, certain or many of the Company's approved products to
market, including loss of market share as a result of the
suspension of shipments, and related costs;
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(26)
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the ability to sell or license
certain assets, and the purchase prices, milestones, terms and
conditions of such transactions;
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(27)
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the possibility that default on
one type or class of the Company's indebtedness, or in certain
contracts or agreements referenced in our recently executed secured
loan agreement with the Lenders, could result in cross default
under, and the acceleration of, its other indebtedness or such
secured loan agreement;
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(28)
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the risks that present or future
changes in the Board of Directors or management may lead to an
acceleration of the Company's bonds or to adverse actions by
government agencies, our lenders or our auditors;
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(29)
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the risk that even though the
price and 30-day average price of the Company's Class A common
stock and Class B common stock have recently again begun satisfying
the quantitative listing standards of the New York Stock Exchange,
including with respect to minimum share price and public float, the
Company can provide no assurance that they will remain at such
levels thereafter; and
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(30)
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the risks detailed from
time-to-time in the Company's filings with the SEC.
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This discussion is not exhaustive, but is designed to highlight
important factors that may impact the Company's forward-looking
statements. Because the factors referred to above, as well as
the statements included under the captions Part I, Item 1A—"Risk
Factors," Part II, Item 7—"Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in the
Form 10-K, could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements
made by the Company or on the Company's behalf, you should not
place undue reliance on any forward-looking statements.
All forward-looking statements attributable to the Company are
expressly qualified in their entirety by the cautionary statements
in this "Cautionary Note Regarding Forward-Looking Statements" and
the risk factors that are included under Part I, Item 1A – "Risks
Factors" in the Form 10-K , as supplemented by the Company's
subsequent SEC filings. Further, any forward-looking
statement speaks only as of the date on which it is made and the
Company is under no obligation to update any of the forward-looking
statements after the date of this release.
New factors emerge from time-to-time, and it is not possible for
the Company to predict which factors will arise, when they will
arise and/or their effects. In addition, the Company cannot assess
the impact of each factor on its future business or financial
condition or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
SOURCE K-V Pharmaceutical Company