<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
K-V Pharmaceutical Company
----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
3) Filing Party:
______________________________________________________________________
4) Date Filed:
______________________________________________________________________
<PAGE> 2
[KV LOGO]
K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 20, 1996
St. Louis, Missouri
July 24, 1996
The Annual Meeting of Shareholders of K-V Pharmaceutical Company will be
held on Tuesday, August 20, 1996, at 9:00 A.M., Central Daylight Saving Time, at
The St. Louis Club (Founders Room, 14th Floor), 7701 Forsyth Boulevard, Clayton,
Missouri 63105, for the following purposes:
1. To elect one Class A director, to hold office for three years;
2. To consider approval of the K-V Pharmaceutical Company Amended and
Restated 1991 Incentive Stock Option Plan; and
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on June 21, 1996, will be
entitled to vote at said meeting or at any adjournment or adjournments thereof.
Lists of all holders of Class A Common Stock and all holders of Class B Common
Stock entitled to vote at the annual meeting will be open to the examination of
any shareholder, for any purpose germane to the annual meeting, for ten days
prior to the date thereof, at the office of the Company at 2503 South Hanley
Road, St. Louis, Missouri 63144.
A copy of the 1996 Annual Report to Shareholders is enclosed.
By Order of the Board of Directors
ALAN G. JOHNSON, Secretary
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY SO THAT YOUR SHARES MAY BE
REPRESENTED AND VOTED AT THE MEETING. A RETURN ADDRESSED ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
<PAGE> 3
K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
PROXY STATEMENT
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of K-V
Pharmaceutical Company (the ``Company''). Whether or not you expect to attend
the meeting in person, please specify your choice by marking and returning your
executed proxy in the enclosed envelope and the shares represented thereby will
be voted in accordance with your wish. If no election is made in the proxy the
Company receives from you, your proxy will be voted for the nominee named in
this proxy statement. This proxy statement and form of proxy were first mailed
to shareholders on or about July 24, 1996.
REVOCATION OF PROXY
If, after sending in your proxy, you decide to vote in person or desire to
revoke your proxy for any other reason, you may do so by notifying the Secretary
of the Company in writing, provided that your notice of revocation is actually
received by the Secretary prior to the voting of the proxy.
RECORD DATE
Shareholders of record at the close of business on June 21, 1996, will be
entitled to vote at the meeting.
ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the giver of the proxy, the persons named in
the enclosed form of proxy, Victor M. Hermelin and Marc S. Hermelin, or the one
of them who acts, will vote:
1. FOR the election of Marc S. Hermelin as Class A director of the Company,
to hold office for three years and until his successor have been duly
elected and qualified;
2. FOR the approval of the K-V Pharmaceutical Company Amended and Restated
1991 Incentive Stock Option Plan; and
3. In their discretion on the transaction of such other business as may
properly come before the meeting or any adjournment thereof.
2
<PAGE> 4
Marc S. Hermelin is presently a director. Should the nominee become
unavailable or decline to serve for any reason, it is intended that the persons
named in the proxy will vote for the election of such other person in his place
as may be designated by the Board of Directors. The Board of Directors is not
aware of any circumstances likely to cause the nominee to be unavailable for
election or to decline to serve.
SECURITY OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
On June 21, 1996, there were 7,187,343 shares of Class A Common Stock
(``Class A Stock'') outstanding and 4,649,436 shares of Class B Common Stock
(``Class B Stock'') outstanding, which constitute all of the outstanding voting
shares of the Company. Each share of Class A Stock is entitled to one-twentieth
of one vote (or 359,367 votes if all outstanding shares of Class A Stock are
voted) and each share of Class B Stock is entitled to one vote on all matters to
come before the Annual Meeting.
Under applicable state law and provisions of the Company's Certificate of
Incorporation and By-laws, (i) the vote required for the election of directors
is a plurality of the votes of the issued and outstanding shares of Class A
Stock and Class B Stock present in person or represented by proxy at the annual
meeting of stockholders and entitled to vote on the election of directors, and
(ii) the vote required for other matters that may come before the meeting is the
affirmative vote of the majority of the issued and outstanding shares of Common
Stock present in person or represented by proxy at the annual meeting of
stockholders and entitled to vote. In all voting, votes representing Class A
Stock and Class B Stock will vote as a single class.
Brokers who hold shares for the accounts of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the stock exchange or other organization of which they are members.
Brokers who are members of the New York Stock Exchange and American Stock
Exchange are permitted to vote proxies of any client in their own discretion as
to the election of directors if the client has not furnished voting instructions
within ten days of the meeting. Certain proposals other than the election of
directors are ``non-discretionary'' and brokers who have received no
instructions from their clients do not have discretion to vote on those items.
When brokers vote proxies on some but not all of the proposals at a meeting, the
missing votes are referred to as ``broker non-votes.''
Based on the above: (a) abstentions from voting and broker non-votes on the
issue of the election of a director will operate as neither a vote for nor a
vote against the nominee; (b) abstentions from voting on approval of the K-V
Pharmaceutical Amended and Restated 1991 Incentive Stock Option Plan will have
no effect on the outcome of the vote; and (c) abstentions from voting and broker
non-votes on any other proposal that may come before the meeting could have
either no effect on the outcome of the vote or could operate as a vote against
the proposal, depending on the nature of the proposal and vote required for its
passage.
3
<PAGE> 5
Votes will be counted by duly appointed inspectors of election, whose
responsibilities are to ascertain the number of shares outstanding and the
voting power of each, determine the number of shares represented at the meeting
and the validity of proxies and ballots, count all votes and report the results
to the Company.
The following table lists all shares of Class A Stock and Class B Stock
owned at June 21, 1996, by each person known to the Company to own beneficially
5% or more of its shares of either Class A Stock or Class B Stock, by each of
the Company's directors who is a shareholder and by all directors and executive
officers as a group. Except as indicated by the footnotes following the table,
each person listed has sole voting and investment power over the shares listed
opposite their names:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP-- OWNERSHIP--
CLASS A PERCENT OF CLASS B PERCENT OF
NAME AND ADDRESS STOCK<Fa> CLASS<Fb> STOCK<Fa> CLASS<Fb>
---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Lawrence Brody, 1,918,312<Fc> 26.6% 1,918,312<Fc> 40.5%
Minnette Hermelin and
Marc S. Hermelin Trustees
One Metropolitan Square
St. Louis, Missouri 63101
Oppenheimer Management 376,800<Fd> 5.2% -- --
Corporation
Two Broadway
New York, New York 10004
McCullough, Andrews 405,312<Fe> 5.6% -- <F*>
& Cappiello, Inc.
101 California Street
Suite 4250
San Francisco, California 94111
Minnette Hermelin 8,812<Ff> <F*> 8,812<Ff> <F*>
2503 S. Hanley Road
St. Louis, Missouri 63144
Marc S. Hermelin 63,258<Fg> <F*> 97,450<Fg> 2.1%
2503 S. Hanley Road
St. Louis, Missouri 63144
Alan G. Johnson 144,500<Fh> 2.0% 144,500<Fh> 3.1%
101 S. Hanley Road
St. Louis, Missouri 63105
Victor M. Hermelin 17,500 <F*> 44,600 <F*>
2503 S. Hanley Road
St. Louis, Missouri 63144
4
<PAGE> 6
<CAPTION>
AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP-- OWNERSHIP--
CLASS A PERCENT OF CLASS B PERCENT OF
NAME AND ADDRESS STOCK<Fa> CLASS<Fb> STOCK<Fa> CLASS<Fb>
---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Garnet E. Peck, Ph.D. -- <F*> 2,000 <F*>
1336 Robert E. Heine
Pharmacy Building
West Lafayette, Indiana 47907
Raymond S. Chiostri 9,000 <F*> 9,000 <F*>
2503 S. Hanley Road
St. Louis, Missouri 63144
Mitchell I. Kirschner 15,000<Fi> <F*> 15,000<Fi> <F*>
2503 S. Hanley Road
St. Louis, Missouri 63144
Gerald R. Mitchell 16,637 <F*> 16,670 <F*>
2503 S. Hanley Road
St. Louis, Missouri 63144
All current directors and executive 2,184,207<Fj> 30.3% 2,247,532<Fj> 47.5%
officers as a group
(7 individuals)
<FN>
- -----
<F*> Less than one percent
<Fa> Includes the following shares which were not owned by the persons listed
but which could be purchased from the Company under options exercisable
currently or within 60 days after the date of this Proxy Statement:
<CAPTION>
SHARES OF SHARES OF
CLASS A CLASS B
STOCK STOCK
--------- ---------
<S> <C> <C>
Marc S. Hermelin........................ 5,000 36,880
Victor M. Hermelin...................... 5,000 32,000
Alan G. Johnson......................... 3,000 3,000
Garnet E. Peck, Ph.D.................... -- 2,000
Raymond F. Chiostri..................... 9,000 9,000
Gerald R. Mitchell...................... 2,100 2,100
<Fb> In determining the percentages of shares deemed beneficially owned by each
director and officer and by all directors and officers as a group, the
exercise of all options held by each person which are currently
exercisable or will become exercisable within 60 days of the date of this
Proxy Statement is assumed. For such purposes, 7,211,343 shares of Class A
Common Stock and 4,734,416 shares of Class B Common Stock are deemed to be
outstanding.
<Fc> These shares are held in four irrevocable trusts created by another party,
the beneficiaries of which are Arnold L. Hermelin (as to 617,000 shares of
each of Class A Common Stock and Class B Common Stock), Anne S. Kirschner
(as to 615,500 shares each of Class A Common Stock and Class B Common
Stock), Marc S. Hermelin (as to 382,812 shares each of Class A
5
<PAGE> 7
Common Stock and Class B Common Stock), and Minnette Hermelin, the mother
of the other three beneficiaries (as to 303,000 shares each of Class A
Common Stock and Class B Common Stock).
<Fd> According to the latest report on Schedule 13G received by the Company,
Oppenheimer Management Corporation is an investment advisor to registered
investment companies that beneficially own such shares.
<Fe> According to the latest report on Schedule 13G received by the Company,
McCullough, Andrews & Cappiello, Inc. is an investment advisor.
<Ff> Does not include 1,918,312 shares each of Class A Common Stock and Class B
Common Stock referred to in footnote (c), over which Minnette Hermelin
shares voting and investment power as one of three trustees.
<Fg> Does not include 117,500 shares each of Class A Common Stock and Class B
Common Stock held by Alan G. Johnson as trustee of an irrevocable trust
created by another party for the benefit of Marc S. Hermelin, who has no
voting or investment power over such shares. Also does not include
1,918,312 shares each of Class A Common Stock and Class B Common Stock
created by another party referred to in footnote (c), over which Marc S.
Hermelin is one of three trustees who shares voting and investment power.
<Fh> Includes 117,500 shares each of Class A Common Stock and Class B Common
Stock held as trustee of an irrevocable trust created by another party for
the benefit of Marc S. Hermelin.
<Fi> Does not include 615,500 shares each of Class A Common Stock and Class B
Common Stock referred to in footnote (c), which are held by an irrevocable
trust in favor of Anne S. Kirschner, wife of Mitchell I. Kirschner.
Neither Mitchell I. Kirschner nor Anne S. Kirschner holds any voting or
investment power over such shares.
<Fj> All of such shares are owned, or represented by shares purchasable as set
forth in footnote (a), solely by such persons.
</TABLE>
Although 7,187,343 shares of the Class A Stock were outstanding as of June
21, 1996, holders of the 241,000 outstanding shares of the 7% Preferred Stock
have the current right to convert such shares into 301,250 shares of Class A
Common Stock, each of which will entitle the holder thereof to one-twentieth
(1/20) vote with respect to all matters to be voted upon by stockholders. Each
share of 7% Preferred Stock is convertible into Class A Common Stock at a
conversion price of $20.00 per share. If all such shares of Class A Common Stock
were issued, the aggregate voting power thereof would be equivalent to the
voting power of 15,062 shares of Class B Common Stock.
In addition, all holders of Class B Common Stock have the right, at any
time, to convert their Class B Common Stock into Class A Common Stock on a
share-for-share basis. If all shares of Preferred Stock and all shares of Class
B Common Stock were converted into Class A Common Stock, 12,138,029 shares of
Class A Common Stock would be outstanding and each person included in the
previous table would hold the number of shares of Class A Common Stock equal to
the number of shares of Class B Common Stock listed in such table plus the
number of shares of Class A Common Stock listed in such table.
6
<PAGE> 8
PROPOSAL 1--ELECTION OF CLASS A DIRECTOR
INFORMATION CONCERNING NOMINEE AND
DIRECTORS CONTINUING IN OFFICE
The following table lists, for the nominee for director for a term expiring
at the annual meeting in 1999, and for present directors continuing in office,
each such person's principal occupation for at least the past five years, each
person's present position with the Company, the year in which each was first
elected as a director, each person's age and each person's directorships with
other companies whose securities are registered with the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
SERVICE PRINCIPAL
AS A OCCUPATION; POSITION
DIRECTOR WITH COMPANY; AGE;
NAME SINCE OTHER DIRECTORSHIPS
---- --------- --------------------
<S> <C> <C>
CLASS A NOMINEE--
(for term expiring in 1999)
Marc S. Hermelin<Fa>.......... 1973 Vice Chairman of the Board of the Company since 1974;
Chief Executive Officer from 1975 to February 1994 and
since December 1994; Director and Vice President of
Particle Dynamics, Inc. since 1974; Age 54.
CLASS C DIRECTOR--
(term expires in 1998)
Garnet E. Peck, Ph.D.......... 1994 Director; Professor of Industrial Pharmacy and Director
of the Industrial Pharmacy Laboratory of Purdue
University since 1975; member of the faculty of Purdue
University since 1967; Age 66.
CLASS B DIRECTORS--
(terms expire in 1997)
Victor M. Hermelin<Fa>........ 1946 Chairman of the Board of the Company since 1972;
Treasurer of the Company since 1971; Director and Vice
President of Particle Dynamics, Inc. since 1974; Age
82.
Alan G. Johnson<Fb>........... 1976 Director and Secretary of the Company; Attorney at Law
and member for more than the past five years in the
law firm of Gallop, Johnson & Neuman, L.C. and its
predecessor, St. Louis, Missouri; Director of Particle
Dynamics, Inc. since 1977; Director of ETHEX
Corporation since 1990; Director of MRL, Inc.;
Director of Siboney Corporation; Director of Triax
Communications Corporation; Age 61.
7
<PAGE> 9
<FN>
- -------
<Fa> Victor M. Hermelin is the father of Marc S. Hermelin and the father-in-law
of Mitchell I. Kirschner, Vice President--New Business Development.
<Fb> Alan G. Johnson is a member of the law firm serving as corporate counsel
to the Company. See ``TRANSACTIONS WITH ISSUER'' for further information.
</TABLE>
INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 1996, the Board of Directors held one formal meeting and took
action by unanimous written consent on various occasions.
The Company has a standing Stock Option Committee of the Board of Directors
consisting of Directors Alan G. Johnson and Garnet E. Peck, Ph.D. The duties of
the Stock Option Committee are to determine the individuals to whom options are
to be granted and the terms and provisions of such options under all stock
option plans of the Company. The Company's Director of Human Resources is an
advisor to this Committee. This Committee took action by unanimous written
consent on various occasions during fiscal 1996 but had no formal meetings.
The Company has a standing Audit Committee of the Board of Directors
consisting of Directors Alan G. Johnson and Garnet E. Peck, Ph.D. The duties of
the Audit Committee include assisting the Board of Directors in fulfilling its
responsibility for the Company's accounting and financial reporting practices
and facilitating communications between the Board of Directors and the Company's
independent public accountants.
The full Board of Directors acts as a compensation committee, acting upon
the recommendation of a committee consisting of the Vice Chairman, Vice
President--Finance, Director of Human Resources and Corporate Controller.
Director Garnet E. Peck, Ph.D., receives $1,000 per day for attending each
meeting of the Board of Directors, plus reimbursement of related expenses. No
other director received any remuneration in fiscal 1996 for service as a
director.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and Directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file periodic
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Such individuals are required by SEC regulation to furnish the
Company with copies of all such forms they file. Based solely on a review of the
copies of all such forms furnished to the Company or written representations
that no Form 5 reports were required to be filed, the Company believes that such
persons complied with all Section 16(a) filing requirements applicable to them
with respect to transactions during fiscal 1996.
8
<PAGE> 10
EXECUTIVE COMPENSATION
The following table reflects compensation paid or payable by the Company and
its subsidiaries for fiscal years ended March 31, 1994, 1995 and 1996, to the
Company's Chief Executive Officer and the four other most highly compensated
executive officers whose salaries and bonuses combined that were earned in
fiscal 1996 exceeded $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
------------------------ ALL OTHER
SALARY COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)<F1> BONUS ($) ($)<F2>
- --------------------------- ---- ------- --------- ------------
<S> <C> <C> <C> <C>
Marc S. Hermelin 1996 692,712 109,827 --
Vice Chairman of the Board 1995 474,049 -- --
(Chief Executive Officer until 1994 550,964 -- 2,347
February 1994 and since
December 1994)
Raymond F. Chiostri 1996 241,703 -- 1,236
Vice President and Group President 1995 208,296 -- 1,054
of K-V and Chief Executive Officer of 1994 222,277 -- 2,223
Particle Dynamics, Inc.
Mitchell I. Kirschner 1996 209,650 10,000 --
Vice President, New 1995 182,535 9,450 --
Business Development 1994 195,096 12,450 --
Victor M. Hermelin 1996 169,765 -- --
Chairman of the Board 1995 166,345 -- --
and Treasurer 1994 164,352 -- --
Gerald R. Mitchell 1996 150,116 10,000 1,231
Vice President, Finance 1995 126,560 -- 950
1994 132,669 -- 1,327
<FN>
- ------------
<F1> Executive management agreed, for any month commencing July 1994 that the
Company operated at a loss, to a voluntary 10% deferral in salary until
the Company returned to profitability.
<F2> Consists of Company contributions to the Company's profit sharing plan and
401(k) plan.
</TABLE>
9
<PAGE> 11
INFORMATION AS TO STOCK OPTIONS
No options to acquire Class A Stock were issued during fiscal 1996 to any
person named in the Summary Compensation Table.
The following table lists the options to acquire Class B Stock issued during
fiscal 1996 to the persons named in the Summary Compensation Table.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(CLASS B STOCK)
<CAPTION>
INDIVIDUAL GRANTS
------------------------------
PERCENT OF
NUMBER OF TOTAL EXERCISE
SECURITIES OPTIONS/SARs OF
UNDERLYING GRANTED TO BASE
OPTIONS/SARs EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE PRESENT VALUE<FB>
---- ------------ ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Marc S. Hermelin...... 60,000<Fa> 34% $6.25625 5/31/2000 $27,000
40,000<Fa> 23% $6.325 5/31/2000 18,000
Victor M. Hermelin.... 75,000 43% $8.525 11/21/2000 53,775
<FN>
- -----
<Fa> Such options were granted to Mr. Hermelin in consideration for his
voluntary agreement to (i) defer the base salary increase due him until
the Company recorded two profitable quarters, and (ii) tap the amount of
any incentive compensation payable to him.
<Fb> These estimates of value were developed solely for the purposes of
comparative disclosure in accordance with the rules and regulations of the
Securities and Exchange Commission and are not intended to predict future
prices of the Corporation's Common Stock. The estimate was developed using
the Black-Scholes option pricing model (as provided by Instruction 9 to
Rule 402 of Regulation 5-K governing disclosures regarding options)
incorporating the following assumptions: Volatility of .1973 and dividend
yield of 0%, both based on the historical three-year average for the
underlying Common Stock; risk-free rate of return of 5.49% based on a
five-year treasury rate and time of exercise of 5 years, being the term of
the option grants. In addition, the model assumed a 40% discount for lack
of marketability/transferability.
</TABLE>
10
<PAGE> 12
The following tables list the value as of the end of fiscal 1996 of options
held by the persons listed in the Summary Compensation Table to acquire shares
of Class A Stock and Class B Stock:
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES (CLASS A STOCK)
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SARs AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)
SHARES ------------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Marc S. Hermelin................................. 22,500 83,565 5,000/0 29,460/0
Raymond F. Chiostri.............................. -- -- 9,000/7,000 91,822/70,682
Mitchell I. Kirschner............................ 15,000 71,794 0/0 0/0
Victor M. Hermelin............................... 5,000 22,099 5,000/0 29,455/0
Gerald R. Mitchell............................... 225 2,373 2,100/2,100 22,851/22,851
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES (CLASS B STOCK)
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SARs AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)
SHARES ------------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Marc S. Hermelin................................. 22,500 86,018 36,880/68,120 275,536/524,754
Raymond F. Chiostri.............................. -- -- 9,000/7,000 90,551/69,691
Mitchell I. Kirschner............................ 15,000 74,455 0/0 0/0
Victor M. Hermelin............................... 5,000 20,775 32,000/68,000 163,215/363,200
Gerald R. Mitchell............................... 225 2,370 2,100/2,100 22,560/22,560
</TABLE>
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW
The Company's executive compensation policy is to provide compensation and
benefit programs to enable it to attract and retain talented key employees, and
to encourage the enhancement of shareholder value by providing incentives for
corporate performance and
11
<PAGE> 13
individual performance, in terms of current achievements as well as significant
initiatives with long-term implications.
Decisions on compensation of the Company's executive officers are made by
the Board of Directors, with any member who is an executive officer abstaining
from the discussion and vote relating to his own compensation. The full Board
serves as a compensation committee, acting upon recommendations of a committee
consisting of the Vice Chairman, Vice President--Finance, Director of Human
Resources and Corporate Controller.
The Company's executive compensation program is based upon experience,
tenure and a pay-for-performance philosophy. The key components of executive
officer compensation are (1) salary, which is based on the individual's overall
experience, Company tenure, level of responsibility, and the general and
industry-specific business environment; (2) cash bonus awards, which are based
on individual performance and the performance of the Company, measured in terms
of the attainment of both defined and general objectives, and (3) stock option
grants, intended to align management's interest in the Company's long-term
success with the interests of the Company's stockholders. The size of individual
awards is dependent upon the executive officer's salary, number of vested
options, and both past and expected future contributions to the Company. The
Board applies the above-described criteria to each executive officer
subjectively based upon the Board's perception of each executive officer's
performance and value to the Company.
EXECUTIVE BENEFITS
In order to provide a competitively attractive package to secure and retain
executive officers, the Company supplements standard benefits packages offered
to all employees with appropriate executive benefits, sometimes including car
allowances, additional insurance coverage and appropriate expense
reimbursements.
CHIEF EXECUTIVE OFFICER
Under an agreement commencing in 1993 and expiring in March 1997, Marc S.
Hermelin, Vice Chairman and Chief Executive Officer until February 1994 and
since December 1994, received base compensation of $470,797, increasing annually
by the greater of the consumer price index (CPI) increase or 8%. The agreement
provides life insurance with an annual premium of $24,000. Mr. Hermelin is
insured under an additional policy for which the premium is loaned by the
Company, to be repaid out of policy proceeds. In addition, Mr. Hermelin is
entitled to receive an incentive bonus of from 5% to 7 1/2% of net income based
on a formula related to the Company exceeding certain net income levels. For
fiscal 1997, Mr. Hermelin has voluntarily agreed to cap the amount of any
incentive compensation payable to him at 50% of his base salary.
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<PAGE> 14
In the event of voluntary termination of full-time employment prior to age
55, Mr. Hermelin's agreement provides for a consulting arrangement, whereby he
would provide a minimum number of hours of consulting services to the Company in
return for 50% of his previous base salary and additional payments for services
in excess of the minimum. Upon retirement after age 55, the agreement provides
for consulting payments of 30% of base salary and retirement benefits of 15% to
30% of base salary, adjusted annually by the greater of CPI or 8%. In the event
of his termination, other than by death or disability, the agreement provides
for payment of an amount equal to his then base salary and 36 monthly payments
equal to 75% of his last monthly base salary. In the event of a change of
control, Mr. Hermelin could receive the above payment or elect a lump sum cash
payment of 2 1/2 times his base salary, acceleration of stock options, and
employee benefits for 30 months. The Company has secured its obligations to Mr.
Hermelin as required by the agreement.
OTHER EXECUTIVE OFFICERS
Consistent with the Board's executive compensation program: (a) Mitchell I.
Kirschner receives a base salary and an incentive bonus based upon performance;
(b) Gerald R. Mitchell has an employment agreement (extending from year to year)
establishing base levels of compensation, and subject to normal compensation
reviews; and (c) Raymond F. Chiostri has an employment agreement (through March
31, 1998, with automatic renewal for successive two years periods) providing
base compensation based on performance.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation of over $1 million paid to any
one of the chief executive officer and four other most highly compensated
executive officers for any fiscal year. Qualifying performance-based
compensation is not subject to the limitation if certain requirements are met.
Given current compensation levels of the Company's executive officers, it has
been unnecessary for the Board to determine whether to structure the
performance-based portion of their compensation in a manner that meets the
requirements of Section 162(m).
Submitted by the Board of Directors:
Marc S. Hermelin Victor M. Hermelin
Alan G. Johnson Garnet E. Peck, Ph.D.
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<PAGE> 15
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Set forth below is a line-graph presentation comparing cumulative
stockholder returns for the last five fiscal years on an indexed basis with the
Amex Market Value Index and the S&P Health Care (Drugs) Index, which is a
nationally recognized industry standard index. The graph assumes the investment
of $100 in K-V Class A and Class B Common Stock, the Amex Composite Index and
the S&P Health Care (Drugs) Index on March 31, 1991, and reinvestment of all
dividends. There can be no assurance that K-V's stock performance will continue
into the future with the same or similar trends depicted in the graph below.
[GRAPH]
<TABLE>
<CAPTION>
For Fiscal Year Ended
------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
K-V 118 70 70 50 107
AMEX MARKET VALUE 110 118 123 129 159
S&P DRUGS INDEX 121 94 87 132 209
</TABLE>
14
<PAGE> 16
PROPOSAL 2--APPROVAL OF K-V PHARMACEUTICAL COMPANY
AMENDED AND RESTATED 1991 INCENTIVE STOCK OPTION PLAN
In 1991, the Board of Directors adopted and the Company's shareholders
subsequently approved the K-V Pharmaceutical Company Amended and Restated 1991
Incentive Stock Option Plan (the ``Plan''), which was designed to provide for
the grant of incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code of 1986 as amended (the ``Code''). Under the Plan, as
originally approved, the number of shares of Class A Common Stock of the Company
that could be issued under the Plan was limited to 125,000 shares and the number
of shares of Class B Common Stock that could be issued under the Plan was also
limited to 125,000 shares, subject to certain adjustments in either case. By
resolution adopted November 1, 1995, the Board of Directors determined that, in
order to provide a continuing means of fulfilling the purpose of the Plan--to
increase employees' proprietary interest in the business of the Company and
provide them with an increased personal interest in the continued success and
progress of the Company--it was necessary to amend the Plan to increase the
number of shares issuable under the Plan. The Board therefore amended the Plan,
subject to approval of the shareholders, to increase the aggregate number of
shares that may be issued under options granted under the Plan to 550,000 shares
of Class A Common Stock and 375,000 shares of Class B Common Stock and directed
that such plan amendment be submitted to the shareholders of the Company for
their approval.
In addition, the Board also determined that it would be appropriate to amend
and restate the Plan in its entirety in order to clarify the terms and
conditions of the Plan, including certain prior amendments not requiring
shareholder approval as follows:
(a) Amending paragraph 6 to provide that any outstanding options under the
Plan would expire and terminate upon the occurrence of various events, including
cessation of employment or engagement of the optionee by the Company for any
reason other than retirement (the amendment included within such provision
cessation of employment ``as provided by contract between the Company and any
such person'') in order to provide the Board of Directors flexibility in
formulating employment and other agreements with executives that would include
as part of a compensation package the issuance of options; and
(b) An amendment to paragraph 7 of the Plan to take into account amendments
to the Code that could cause portions of an incentive stock option to be deemed
to be a non-qualified stock option if acceleration of the option upon death or
disability would result in the fair market value of shares first exercisable in
any calendar year exceeding $100,000.
The full text of the Amended and Restated Plan is attached as Exhibit A, and
the foregoing description is qualified in its entirety by the terms of the
Amended Plan. Except for the increase in authorized shares issuable under the
Plan and the technical amendments described above,
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<PAGE> 17
there are no other changes, modifications or amendments to the Plan included in
the Amended Plan.
For a tabular presentation of the number and value of the options granted
subject to approval of the proposal to amend and restate the Plan, see
``INFORMATION AS TO STOCK OPTIONS.'' No person, other than Victor M. Hermelin,
has received new benefits under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE ``FOR'' THE APPROVAL OF THE AMENDED AND
RESTATED K-V PHARMACEUTICAL COMPANY 1991 INCENTIVE STOCK OPTION PLAN.
TRANSACTIONS WITH ISSUER
Alan G. Johnson, Secretary and a Director of the Company, is a member in the
law firm of Gallop, Johnson & Neuman, L.C., which has been the Company's general
counsel for more than the past five years.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. (the ``former accountant'') resigned as the
certifying accountant of the Company on May 21, 1996, for the reason that the
relationship between the Company and the former accountant had become
incompatible. BDO Seidman LLP agreed on May 24, 1996 to become the Company's
certifying accountant in connection with the Company's financial statements for
the years ended March 31, 1996, 1995 and 1994.
The former accountant's reports on the financial statements for the two most
recent fiscal years ended March 31, 1995 and 1994 did not contain an adverse
opinion or a disclaimer of opinion nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with the audits of the financial statements of the Company for
the two fiscal years ended March 31, 1995 and 1994 and during the interim period
preceding the resignation of the former accountant, there were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused the former accountant to make reference in its report to such
matters.
In connection with its resignation, the former accountant indicated that it
has withdrawn as the Company's accountant and that its reports dated June 28,
1995 and June 28, 1994 related to the Company's financial statements as of and
for the years ended March 31, 1995 and March 31, 1994, respectively, should no
longer be relied upon. In addition, the former accountant has also indicated
that its consents dated June 28, 1994, June 28, 1995 and January 16, 1996
related to Forms S-8 have also been withdrawn. The former accountant advised the
Company that it determined to withdraw its reports and consents for such
previous years because it questioned,
16
<PAGE> 18
although it had not reached a conclusion regarding, the Company's amortization
of ``Deferred Improved Drug Entities'' during such years.
In connection with its resignation, the former accountant indicated there
were two reportable events.
First, in connection with preliminary work performed by the former
accountant relating to the Company's fiscal year ended March 31, 1996, the
former accountant questioned the application of the Company's accounting policy
concerning the amortization of ``Deferred Improved Drug Entities'' and indicated
a possible need for a restatement of the prior year financial statements with
respect thereto. The Company has followed a policy of amortizing ``Deferred
Improved Drug Entities'' costs over a five to ten year period commencing with
the date of marketing of the applicable product. In fiscal 1993, it was
determined that the ``five year'' portion of such amortization would commence
after five years in any event. The former accountant raised a question as to
whether it was clearly understood that the amortization of such clinical costs
was deferred until the earlier of either the product being marketed or five
years. The former accountant did not inform the Company as to its conclusion as
to any specific change required to be made in the application of the Company's
amortization policies. Consequently, the Company is not presently in a position
to know what quantifiable effect, if any, any change or restatement of either
the nature of such policies or their application would have had on the Company's
financial statements. Such policies and their application are being reviewed and
discussed by the Company with its new accountants.
Second, the former accountant questioned, but did not reach a conclusion as
to the appropriate revenue recognition accounting for a transaction entered into
and recorded by the Company in the fourth quarter of the fiscal year ended March
31, 1996, dealing with certain of the Company's technology and the fair market
valuation of certain stock purchase options issued in connection therewith.
Under this transaction, which was entered into between the Company and a major
drug marketer, partially in consideration of and replacing certain other
products, the two companies entered into an agreement for future royalties and
product opportunities and the Company gave the other company the right to
explore the Company's drug delivery technologies with the possibility of
entering into agreements with respect to individual products and issued certain
Class A common stock purchase options to the other party. The Company received a
total amount of $10,000,000 in the transaction, of which $5,000,000 was paid for
the purchase of the common stock purchase options. The accounting treatment for
the balance of the funds received was to reimburse the Company for, and
eliminate from its balance sheet, approximately $2,500,000 of Deferred Improved
Drug Entities, receivables and inventory of approximately $400,000, and patents
and trademarks relating to the Company's technologies of approximately $200,000,
with approximately $1,700,000 allocated to agreement revenues and $200,000 as a
reimbursement of expenses. Of the funds received for the common stock purchase
options, $1,150,000 was allocated to a stock purchase option providing the right
to purchase the
17
<PAGE> 19
Company's Class A common stock at a minimum price of $35 per share, exercisable
for a 30 day period ending March 30, 1997, an additional $1,250,000 was
allocated to an option to purchase shares of Class A common stock at a minimum
price of $40 per share, exercisable for a 30 day period ending September 29,
1997, an additional $1,300,000 was allocated to an option to purchase Class A
common stock at a minimum purchase price of $45 per share, exercisable for a 30
day period ending March 30, 1998, and an additional $1,300,000 was allocated to
an option to purchase Class A common stock at a minimum price of $50 per share,
exercisable for a 30 day period ending September 29, 1998. The actual exercise
price and number of shares of Class A common stock to be purchased are dependent
on the fair market value of the stock for a ten day period prior to exercise. At
the date of the former accountant's resignation, the revenue recognition and
valuation issues were unresolved. The Company has authorized the former
accountant to discuss these issues with its new accountant. The Company has
provided information with respect to the above matters to its new accountant and
expects to review the application thereof with its new accountant in connection
with the audit and certification of the Company's financial statements.
Representatives of BDO Seidman LLP are expected to be present at the annual
meeting of shareholders and to be available to respond to appropriate questions.
Such representatives will have the opportunity to make a statement if they
desire to do so.
ANNUAL REPORT
The Annual Report of the Company for fiscal 1996 accompanies this notice.
FUTURE PROPOSALS OF SECURITY HOLDERS
Any shareholder who intends to submit a proposal for consideration at the
1996 annual meeting of shareholders under the applicable rules of the Securities
and Exchange Commission must send the proposal so that it reaches the Company's
Secretary not later than April 23, 1997. All proposals should be addressed to
the Secretary, K-V Pharmaceutical Company, 2503 South Hanley Road, St. Louis,
Missouri 63144.
OTHER BUSINESS
The Board of Directors knows of no business to be brought before the annual
meeting other than as set out above. If other matters properly come before the
meeting, it is the intention of the persons named in the solicited proxy to vote
the proxy thereon in accordance with the judgment of such persons.
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<PAGE> 20
MISCELLANEOUS
The Company will bear the cost of the solicitation of proxies. In addition
to solicitation by use of the mails, certain officers and regular employees of
the Company may solicit the return of proxies by telephone or personal contact
and may request brokerage houses, custodians, nominees and fiduciaries to
forward soliciting material to their principals and will reimburse them for
their reasonable out-of-pocket expenses.
Shareholders are urged to mark, sign, date and send in their proxies without
delay.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 1996, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING
RELATED FINANCIAL STATEMENTS AND SCHEDULES) WILL BE AVAILABLE TO SHAREHOLDERS,
WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE SECRETARY, K-V PHARMACEUTICAL
COMPANY, 2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144.
ALAN G. JOHNSON
Secretary
St. Louis, Missouri
July 24, 1996
19
<PAGE> 21
EXHIBIT A
---------
K-V PHARMACEUTICAL COMPANY
AMENDED AND RESTATED
1991 INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The K-V Pharmaceutical Company Amended and Restated 1991 Stock Option Plan
(``Plan'') is intended to provide additional incentive to certain valued and
trusted employees of K-V Pharmaceutical Company, a Delaware corporation, and its
subsidiaries (the ``Company''), by encouraging them to acquire shares of the
$.01 par value Class B common stock of the Company (the ``Stock'') through
options to purchase Stock granted pursuant to the Plan (``Options''), thereby
increasing such employees' proprietary interest in the business of the Company
and providing them with an increased personal interest in the continued success
and progress of the Company, the result of which will promote both the interests
of the Company and its shareholders.
Options granted under the Plan will be intended to qualify as ``incentive
stock options'' (``1505'') within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the ``Code''). Each employee granted an Option
shall enter into an agreement with the Company (the ``Option Agreement'')
setting forth the terms and conditions of the Option, as determined in
accordance with this Plan.
2. ADMINISTRATION OF PLAN
This Plan shall be administered by the Compensation and Stock Option
Committee appointed by the Board of Directors of the Company (the
``Committee''), to be composed of at least two (2) members of the Board of
Directors of the Company. Members of the Committee shall not be eligible to
receive Options under this Plan. The Committee shall have the sole power:
(a) Subject to the provisions of the Plan, to determine the terms and
conditions of all Options; to construe and interpret the Plan and Options
granted under it; to determine the time or times an Option may be exercised, the
number of shares as to which an Option may be exercised at any one time, and
when an Option may terminate; to establish, amend and revoke rules and
regulations relating to the Plan and its administration; and to correct any
defect, supply any omission, or reconcile any inconsistency in the Plan, or in
any Option Agreement, in a manner and to the extent it shall deem necessary, all
of which determinations and interpretations made by the Committee shall be
conclusive and binding on all Optionees and on their legal representatives and
beneficiaries, and
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<PAGE> 22
(b) To determine all questions of policy and expediency that may arise in
the administration of the Plan and generally exercise such powers and perform
such acts as are deemed necessary or expedient to promote the best interests of
the Company.
3. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of paragraph 13 below, the Stock which may be
issued pursuant to Options granted under the Plan shall not exceed in the
aggregate five hundred fifty thousand (550,000) shares of Class A Common Stock
of the Company and three hundred seventy-five thousand (375,000) shares of Class
B Common Stock of the Company. If any Options granted under the Plan terminate,
expire or are surrendered without having been exercised in full, the number of
shares of Stock not purchased under such Options shall be available again for
the purpose of the Plan.
(b) At any time that the Committee determines that there exists a public
market for Class A Common Stock of the Company, it may designate that an Option
to purchase shares of Class B Common Stock of the Company shall be exercisable
to purchase shares of Class A Common Stock of the Company instead of Class B
Common Stock. Such redesignation of an Option shall not affect the purchase
price under such Option or the number of shares with respect to which such
Option has been granted. Notwithstanding the foregoing, no redesignation of an
Option shall be effective if such redesignation constitutes a modification of
such Option within the meaning of Section 424(h) of the Code.
4. PERSONS ELIGIBLE FOR OPTIONS
All employees of the Company who are not members of the Committee shall be
eligible to receive the grant of Options under the Plan. The Committee shall
determine the employees to whom Options shall be granted, the time or times such
Options shall be granted, the number of shares to be subject to each Option and
the times when each Option may be exercised. The Committee shall seek
information, advice and recommendations from management to assist the Committee
in its independent determination as to the employees to whom Options shall be
granted. An employee who has been granted an Option (an ``Optionee''), if he or
she is otherwise eligible, may be granted additional Options.
5. PURCHASE PRICE
The purchase price of each share of Stock covered by each ISO (``Purchase
Price'') shall not be less than one hundred percent (100%) of the Fair Market
Value Per Share (as defined below) of the Stock on the date the ISO is granted;
provided, however, if when an ISO is granted the Optionee receiving the ISO owns
or will be considered to own by reason of Section 424(d) of the Code more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company, the purchase price of the Stock covered by such ISO shall not be
less than one
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<PAGE> 23
hundred and ten percent (110%) of the Fair Market Value Per Share of the Stock
on the date the ISO is granted.
``Fair Market Value Per Share'' of the Stock shall mean: (i) if the Stock is
not publicly traded, the amount determined by the Committee on the date of the
grant of the Option; (ii) if the Stock is traded only otherwise than on a
securities exchange and is not quoted on the National Association of Securities
Dealers Automated Quotation System (``NASDAQ''), the closing quoted selling
price of the Stock on the date of grant of the Option as quoted in ``pink
sheets'' published by the National Daily Quotation Bureau; (iii) if the Stock is
traded only otherwise than on a securities exchange and is quoted on NASDAQ, the
closing quoted selling price of the Stock on the date of grant of the Option, as
reported by the Wall Street Journal; or (iv) if the Stock is admitted to trading
on a securities exchange, the closing quoted selling price of the Stock on the
date of grant of the Option, as reported in the Wall Street Journal. For
purposes of Items (i) through (iv) of this paragraph, if there were no sales on
the date of the grant of an Option, the Fair Market Value Per Share shall be
determined by the Committee in accordance with Section 20.2031-2 of the Federal
Estate Tax Regulations.
6. DURATION OF OPTIONS
Any outstanding Option and all unexercised rights thereunder shall expire
and terminate automatically upon the earliest of: (i) the cessation of the
employment or engagement of the Optionee by the Company for any reason other
than retirement (as provided by contract between the Company any such person or
otherwise under normal Company policies), death or disability; (ii) the date
which is three months following the effective date of the Optionee's retirement
from the Company's service; (iii) the date which is one year following the date
on which the Optionee's service with the Company ceases due to disability (or
due to the death with respect to Options issued prior to the date of this
amendment); (iv) the date of expiration of the Option determined by the
Committee at the time the Option is granted and specified in such Option; and
(v) in any event, the tenth annual anniversary date of the granting of the
Option, or, if when an ISO is granted the Optionee owns (or would be considered
to own by reason of Section 424(d) of the Code) more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company, then on
the fifth such anniversary; provided, however, that the Committee shall have the
right, but not the obligation, to extend the expiry of the Options held by an
Optionee whose service with the Company has ceased for any reason to the end of
their original terms (either upon issuance of the Option or at such time as the
Option would otherwise terminate), notwithstanding that such Options may no
longer qualify as ISOs under the Code.
7. EXERCISE OF OPTIONS
(a) An Option may be exercisable in installments or otherwise upon such
terms as the Committee shall determine when the Option is granted. In the event
that an Option is
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exercisable only in installments and the Optionee has been employed by the
Company for five or more years as of the date such Option was granted, such
Option shall become fully exercisable upon the termination of employment of the
Optionee by reason of death or disability, if and to the extent that such
acceleration would not cause a violation of the limitations contained in Section
422(b) (7) of the Code. If acceleration by reason of termination because of
disability would cause a violation of the limitations contained in Section
422(b) (7) of the Code, acceleration shall occur only in amount such that such
acceleration does not cause a violation of Section 422(b) (7) of the Code and
the acceleration of the exercisability of any portion of the Option which would
be in violation of such limitation shall be deferred until January 1 of the year
following that in which termination of employment occurs. In the event
termination of employment occurs by reason of death, acceleration of the
exercisability of any portion of the Option shall occur only as and to the
extent that such acceleration will not cause a violation of the limitations
contained in Section 422(b) (7) of the Code. Notwithstanding anything to the
contrary contained in this Plan, the Committee at any time may accelerate the
time at which any Option granted hereunder is exercisable.
(b) No Option will be exercisable (and any attempted exercise will be deemed
null and void) if such exercise would create a right of recovery for
``short-swing profits'' under Section 16(b) of the Securities Exchange Act of
1934, unless the Optionee pays the Company the amount of such ``short-swing
profits'' at the time of the exercise of the Option.
(c) In the event that a portion of an ISO which first becomes exercisable
exceeds the limitations contained in Section 422(b) (7) of the Code, the shares
purchased pursuant to Options in excess of such limitation shall be deemed to be
non-qualified stock options and shall be identified accordingly on the
certificates representing such shares and in the stock transfer records of the
Company.
8. METHOD OF EXERCISE
(a) When the right to purchase shares accrues, Options may be exercised by
giving written notice to the Company stating the number of shares for which the
Option is being exercised, accompanied by payment in full by cash, or its
equivalent, acceptable to the Company, of the purchase price for the shares
being purchased. The Company shall issue a separate certificate or certificates
of Stock for each Option exercised by an Optionee.
(b) In the Committee's discretion, determined at the time the Option is
granted, payment of the purchase price for the shares may be made in whole or in
part with other shares of Stock of the Company which are free and clear of all
liens and encumbrances. The value of the shares of Stock tendered in payment for
the shares being purchased shall be the Fair Market Value Per Share on the date
of the Optionee's notice of exercise.
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<PAGE> 25
(c) Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be required
for the Company, with reasonable diligence, to comply with any applicable
listing requirements of any national securities exchange or the National
Association of Securities Dealers, Inc. or any Federal, state or local law. If
the Optionee, or other person entitled to exercise the Option, fails to timely
accept delivery of and pay for the shares specified in such notice, the
Committee shall have the right to terminate the Option with respect to such
shares.
9. NONTRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by the
Optionee, either voluntarily or by operation of law, other than by will or the
laws of descent and distribution, and, during the lifetime of the Optionee,
shall be exercisable only by the Optionee.
10. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan shall
confer upon any Optionee any rights with respect to the continuation of
employment by the Company or interfere in any way with the right of the Company
(subject to the terms of any separate employment agreement to the contrary) at
any time to terminate such employment or to increase or decrease the
compensation of the Optionee from the rate in existence at the time of the
granting of any Option.
11. RESTRICTIONS ON SHARES
If the Company shall be advised by counsel that certain requirements under
the Federal or state securities laws must be met before Stock may be issued
under this Plan, the Company shall notify all persons who have been issued
Options, and the Company shall have no liability for failure to issue Stock
under any exercise of Options because of delay while such requirements are being
met or the inability of the Company to comply with such requirements.
12. PRIVILEGE OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall have
the rights or privileges of a stockholder of the Company for any shares of Stock
issuable upon exercise of such Option until such person has become the holder of
record of such shares. No adjustment shall be made for dividends or other rights
for which the record date is prior to the date on which such person becomes the
holder of record, except as provided in paragraph 13 below.
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<PAGE> 26
13. ADJUSTMENT
(a) If the number of outstanding shares of Stock are Increased or decreased,
or such shares are exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization,
reclassification, stock dividend, stock split, combination of shares, or other
similar transaction, the aggregate number of shares of Stock subject to the Plan
as provided in paragraph 3 above, and the shares of Stock subject to issued and
outstanding Options under the Plan shall be appropriately and proportionately
adjusted by the Committee. Any such adjustment in an outstanding Option shall be
made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with an appropriate adjustment in the
price for each share or other unit of any security covered by the Option.
(b) Notwithstanding paragraph (a), upon: (i) the dissolution or liquidation
of the Company, (ii) a reorganization, merger or consolidation of the Company
with one or more corporations in which the Company is not the surviving
corporation, (iii) a sale of substantially all of the assets of the Company, or
(iv) the transfer of more than 80% of the then outstanding Stock of the Company
to another entity or person in a single transaction or series of transactions,
the Plan shall terminate, and any outstanding Options granted under the Plan
shall terminate on the day before the consummation of the transaction; provided
that the Board shall have the right, but shall not be obligated, to accelerate
the time in which any Options may be exercised prior to such a termination.
However, the termination of such Options shall not occur if provision is made in
writing in connection with the transaction, in a manner acceptable to the Board,
for: (A) the continuance of the Plan and assumption of outstanding Options, or
(B) the substitution for such Options of new options to purchase the stock of a
successor corporation (or parent or subsidiary thereof), with appropriate
adjustments as to number and kind of shares and option price. The Board of
Directors shall have the authority to amend this paragraph to provide for a
requirement that a successor corporation assume any outstanding Options.
(c) Adjustments under this paragraph 13 shall be made by the Committee whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan or in connection with any such adjustment.
14. HOLDING PERIOD AND FORFEITURE OF STOCK
(a) All Stock purchased pursuant to the exercise of an Option shall be held
by the Company for a period of two (2) years from the date of exercise (the
``Holding Period''). Notwithstanding anything contained herein to the contrary,
if an Optionee leaves the employ of the Company during the Holding Period for
any reason other than the retirement (under normal Company policies), death or
disability of such Optionee, the Optionee's purchase of such Stock shall be
voidable at the Committee's sole option and discretion. If any purchase of Stock
is voided by reason of the provisions of this paragraph 14, an amount determined
as provided in paragraph
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<PAGE> 27
14(d) shall thereupon be returned in full to the Optionee. Notwithstanding the
foregoing, the Committee at any time may waive the Holding Period requirement
set forth herein with respect to any outstanding options.
(b) At any time within the Holding Period that the Committee determines that
there exists a public market for Class A Common Stock of the Company, it may
cancel an Optionee's Class B Common Stock of the Company then being held, and
issue in lieu thereof an equivalent number of Class A Common Stock of the
Company.
(c) In the event that an Optionee incurs a financial hardship within the
Holding Period, which is determined by the Committee in its sole discretion upon
written application by the Optionee and after review of the facts and
circumstances to be of an immediate and heavy nature, the Committee may
authorize the repurchase of the Optionee's Stock by the Company at a price as
determined under paragraph 14(d) and payment of the proceeds of such repurchase
to the Optionee.
(d) In the event that a purchase of Stock is voided by reason of the
provisions of this paragraph 14(a) or repurchased by the Company by reason of
the financial hardship of an Optionee, the amount paid to such Optionee by
reason of the voided transaction or the repurchase of such Stock shall be the
least of: (i) the funds paid by the Optionee in connection with the voided
transaction; (ii) the value in cash of Stock used to purchase such Stock,
determined as of the date of such purchase, less any amount which would have
been forfeited by reason of this paragraph 14 relative to Stock used to purchase
the forfeited Stock if such Stock had not been so used and the Holding Period
relative to such Stock had not expired; or (iii) the Fair Market Value Per
Share, as determined in accordance with the provisions of paragraph 5 hereof, on
the termination date of the Optionee's employment with the Company or the date
of the repurchase made pursuant to paragraph 14(b), as the case may be.
(e) In order to facilitate the repurchase of Stock by the Company in
accordance with the terms of paragraph 14(a) hereof, if an Optionee leaves the
employ of the Company during the Holding Period and the Company rescinds the
purchase of Stock by such Optionee, each Optionee who exercises any Option or
portion thereof shall, at the time of payment thereof, as provided in paragraph
7(a) hereof, deliver to the Company a form of stock power and assignment signed
by such Optionee in form and substance satisfactory to the Company, rendering
the certificate representing the shares purchased negotiable to the Company. An
Optionee may at any time request delivery of Stock in payment of the Purchase
Price for additional Stock pursuant to paragraph 8(b) hereof notwithstanding the
fact that such Stock has not been held for two (2) years from the date of
exercise of the Option pursuant to which it was purchased.
26
<PAGE> 28
15. OPTIONEE'S RIGHT TO PLEDGE
(a) Notwithstanding the provisions of paragraph 14(a) hereof, if any
Optionee who exercises an Option demonstrates to the Committee a need to obtain
financing for the purchase of Stock pursuant to such exercise and indicates his
good faith intention to remain in the employ of the Company during the Holding
Period, the Committee, in its sole discretion, may permit delivery of any Stock
purchased pursuant to the exercise of any Option to a financial institution for
use by such Optionee as collateral security for the purchase of the Stock,
subject to any necessary or appropriate restrictions with respect thereto as may
be required to comply with applicable Federal and state securities laws and/or
the listing requirements of any national securities exchange.
(b) If Stock is delivered to an Optionee in order to facilitate a pledge
described in paragraph 15(a), the Company shall have the right to cancel said
Stock upon the exercise of the Company's election to void the purchase of such
Stock pursuant to the provisions of paragraph 14(a). Upon the cancellation of
such Stock and application by the holder thereof, the Company shall pay to the
holder the amount payable for such Stock as calculated under the provisions of
paragraph 14(c) hereof.
(c) Any Stock delivered to an Optionee pursuant to the provisions of this
paragraph 15 shall contain a legend stating that the Stock is subject to
cancellation pursuant to the terms of this Plan and that upon cancellation the
amount payable to the holder thereof shall be limited as provided in the Plan.
16. DELIVERY OF CERTIFICATES
If the Optionee remains in the employ of the Company throughout the Holding
Period, or leaves the employ of the Company by reason of retirement (under
normal Company policies), death or disability, the Company shall deliver to the
Optionee or his personal representative (as the case may be), as soon as
practicable thereafter, certificates representing the Stock purchased by the
Optionee under the Option free and clear of restriction except for the
restrictions which are necessary to assure compliance by the Company and the
Optionee with applicable Federal and state securities laws and/or the listing
requirements of any national securities exchange (the ``Certificates''). If the
Company fails or declines to exercise its right to void any purchase pursuant to
the terms of paragraph 14 hereof, the Company shall deliver the Certificates to
those Optionees as soon as practicable after the expiration of two (2) years
from the date of exercise of the applicable Option. In the event an Option is
exercised using Stock as consideration for the Purchase Price, the Company shall
issue separate certificates for each block of shares delivered in payment of the
Option Price and for the balance of shares purchased at such exercise.
27
<PAGE> 29
17. INVESTMENT PURPOSE
Each Option granted hereunder may be issued on the condition that any
purchase of Stock pursuant to the exercise of an Option which shall not be the
subject of a registration statement permitting the sale or other distribution
thereof shall be for investment purposes and not with a view to resale or
distribution (the ``Restricted Stock''). If requested by the Company; each
Optionee must agree at the time of the purchase of any Restricted Stock, to
execute an ``investment letter'' setting forth such investment intent in the
form acceptable to the Company and must consent to any stock certificate issued
to him thereunder bearing a restrictive legend setting forth the restrictions
applicable to the further resale, transfer or other conveyance thereof without
registration under the Securities Act of 1933, as amended, and under the
applicable securities or blue sky laws of any other jurisdiction (together, the
``Securities Laws''), or the availability of exemptions from registration
thereunder and to the placing of transfer restrictions on the records of the
transfer agent for such Stock. No Restricted Stock may thereafter be resold,
transferred or otherwise conveyed unless:
(1) an opinion of the Optionee's counsel is received, in form and substance
satisfactory to counsel for the Company, that registration under the
applicable Securities Laws is not required; or
(2) such Stock is registered under the applicable Securities Laws; or
(3) ``no action'' letters are received from the staff of the Securities and
Exchange Commission and from the administrative agencies administering
all other applicable securities or blue sky laws, based on the option of
counsel for Optionee in form and substance reasonably satisfactory to
counsel for the Company, advising that registrations under the
Securities Laws are not required.
18. AMENDMENT AND TERMINATION OF PLAN
(a) The Board of Directors of the Company may, from time to time, with
respect to any shares at the time not subject to Options, suspend or terminate
the Plan or amend or revise the terms of the Plan; provided that any amendment
to the Plan shall be approved by a majority of the shareholders of the Company
if the amendment would (i) materially increase the benefits accruing to
participants under the Plan; (ii) increase the number of shares of Stock which
may be issued under the Plan, except as permitted under the provisions of
paragraph 13 above; or (iii) materially modify the requirements as to
eligibility for participation in the Plan.
(b) Subject to the provisions in paragraph 13 above, the Plan shall
terminate ten (10) years from the earlier of the adoption of the Plan by the
Board of Directors or its approval by the shareholders.
28
<PAGE> 30
(c) Subject to the provisions in paragraph 13 above, no amendment,
suspension or termination of this Plan shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option granted to
such Optionee under the Plan.
19. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board of Directors of
the Company and approval by the Company's shareholders; provided, however, that
prior to approval of the Plan by the Company's shareholders but after adoption
by the Board of Directors, Options may be granted under the Plan subject to
obtaining such approval.
20. TERM OF PLAN
No Option shall be granted pursuant to the Plan after ten (10) years from
the earlier of the date of adoption of the Plan by the Board of Directors of the
Company or the date of approval by the Company's shareholders.
29
<PAGE> 31
P R O X Y
(CLASS A SHAREHOLDER)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
K-V PHARMACEUTICAL COMPANY
1996 ANNUAL SHAREHOLDERS' MEETING
The undersigned shareholder of Class A Common Stock of K-V PHARMACEUTICAL
COMPANY, a Delaware corporation, hereby appoints VICTOR M. HERMELIN and MARC S.
HERMELIN, and each of them, with full power of substitution, the true and lawful
attorneys-in-fact, agents and proxies of the undersigned, to represent the
undersigned at the annual meeting of the shareholders of K-V PHARMACEUTICAL
COMPANY, to be held at The St. Louis Club (Founders Room, 14th Floor), 7701
Forsyth Boulevard, Clayton, Missouri 63105, on Tuesday, August 20, 1996,
commencing at 9:00 A.M., Central Daylight Savings Time, and at any adjournments
thereof, and to vote, according to the number of votes the undersigned would be
entitled to vote if personally present, upon the following matters:
1. ELECTION OF DIRECTOR: WITHHOLD AUTHORITY / /
/ / FOR the nominee listed below to vote for both of the
nominee listed below
MARC S. HERMELIN
2. Approval of K-V Pharmaceutical Company Amended and Restated 1991 Incentive
Stock Option Plan as discussed in the accompanying proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion with respect to the transaction of such other business
as may properly come before the meeting or any adjournment thereof.
(Continued on Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE ABOVE LISTED NOMINEE UNDER PROPOSAL NO. 1.
---
The undersigned hereby acknowledges receipt of Notice of Annual Meeting of
Shareholders and accompanying Proxy Statement, each dated July 24, 1996.
Dated:______________________________, 1996
------------------------------------------------
Signature
------------------------------------------------
Signature
------------------------------------------------
Signature
Please sign name(s) exactly as it appears on this
proxy. In the case of joint holders all should
sign. If executed by a corporation, the proxy
should be signed by a duly authorized officer. If
executed by a partnership, this proxy should be
signed by an authorized partner. Executors,
administrators and trustees should so indicate
when signing.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY. A
POSTAGE-PREPAID RETURN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 32
P R O X Y
(CLASS B SHAREHOLDER)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
K-V PHARMACEUTICAL COMPANY
1996 ANNUAL SHAREHOLDERS' MEETING
The undersigned shareholder of Class B Common Stock of K-V PHARMACEUTICAL
COMPANY, a Delaware corporation, hereby appoints VICTOR M. HERMELIN and MARC S.
HERMELIN, and each of them, with full power of substitution, the true and lawful
attorneys-in-fact, agents and proxies of the undersigned, to represent the
undersigned at the annual meeting of the shareholders of K-V PHARMACEUTICAL
COMPANY, to be held at The St. Louis Club (Founders Room, 14th Floor), 7701
Forsyth Boulevard, Clayton, Missouri 63105, on Tuesday, August 20, 1996,
commencing at 9:00 A.M., Central Daylight Savings Time, and at any adjournments
thereof, and to vote, according to the number of votes the undersigned would be
entitled to vote if personally present, upon the following matters:
1. ELECTION OF DIRECTOR: WITHHOLD AUTHORITY / /
/ / FOR the nominee listed below to vote for both of the
nominee listed below
MARC S. HERMELIN
2. Approval of K-V Pharmaceutical Company Amended and Restated 1991 Incentive
Stock Option Plan as discussed in the accompanying proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion with respect to the transaction of such other business
as may properly come before the meeting or any adjournment thereof.
(Continued on Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE ABOVE LISTED NOMINEE UNDER PROPOSAL NO. 1.
---
The undersigned hereby acknowledges receipt of Notice of Annual Meeting of
Shareholders and accompanying Proxy Statement, each dated July 24, 1996.
Dated:------------------------------, 1996
------------------------------------------------
Signature
------------------------------------------------
Signature
------------------------------------------------
Signature
Please sign name(s) exactly as it appears on this
proxy. In the case of joint holders all should
sign. If executed by a corporation, the proxy
should be signed by a duly authorized officer. If
executed by a partnership, this proxy should be
signed by an authorized partner. Executors,
administrators and trustees should so indicate
when signing.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY. A
POSTAGE-PREPAID RETURN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 33
APPENDIX
Page 14 of the printed proxy statement contains a stock price performance
graph. The information contained in the graph is depicted in the table that
immediately follows the graph.
