K-V PHARMACEUTICAL COMPANY
2503 South Hanley Road
St. Louis, Missouri 63144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 1998
St. Louis, Missouri
June 1, 1998
The Annual Meeting of Shareholders of K-V Pharmaceutical Company will
be held on Tuesday, June 23, 1998, at 8:00 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 C director, to hold office for three years;
2. To vote upon a proposal to amend the Certificate of Incorporation
to increase the number of authorized shares of Class A Common
Stock from 60,000,000 to 150,000,000 and the number of authorized
shares of Class B Common Stock from 60,000,000 to 175,000,000;
3. To consider approval of the Fifth Amendment to K-V Pharmaceutical
Company 1991 Incentive Stock Option Plan; and
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 30, 1998, 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 1998 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>
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 June 1, 1998.
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 April 30, 1998, 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 Garnet E. Peck, Ph.D. as the Class C director
of the Company, to hold office for three years and until his
successor has been duly elected and qualified;
2. FOR the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Class A Common Stock from 60,000,000 to 150,000,000 and the
number of authorized shares of Class B Common Stock from
60,000,000 to 175,000,000;
3. FOR the approval of the Fifth Amendment to the K-V Pharmaceutical
Company 1991 Incentive Stock Option Plan; and
<PAGE>
4. In their discretion on the transaction of such other business as
may properly come before the meeting or any adjournment thereof.
Garnet E. Peck, Ph.D. 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 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 April 30, 1998, there were 11,768,942 shares of Class A Common Stock
("Class A Stock") outstanding and 6,440,496 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 588,447 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 the provisions of the Company's
Certificate of Incorporation and By-laws: (i) the vote required for the election
of a director is a plurality of the votes of the issued and outstanding shares
of Class A Stock and Class B Stock, as a single class, 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 a majority of the issued
and outstanding shares of Common Stock present in person or represented by proxy
at a 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 or the American Stock
Exchange are permitted to vote proxies of any client in their own discretion as
to the non-contested 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." With respect
to most votes by shareholders, Shares represented by broker non-votes will not
be counted in determining the number of shares necessary for approval of a
proposal, although they will be counted for purposes of determining whether
there is a quorum.
When, however, shareholders are requested to vote on certain other
matters, including the Amendment to the Company's Certificate of Incorporation
as being proposed at the Annual Meeting, in determining whether such a proposal
has received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against the proposal.
<PAGE>
Based on the above: (a) abstentions from voting and broker non-votes on
the issue of the election of directors will operate as neither a vote for nor a
vote against any nominee; and (b) 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. Abstentions from voting and broker non-votes regarding the proposal at
the Annual Meeting to amend the Company's Certificate of Incorporation would
operate as votes against the proposal.
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 April 30, 1998, 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 the person's name:
<TABLE>
<CAPTION>
Amount of Amount of
Beneficial Beneficial
Ownership-- Ownership--
Class A Percent of Class B Percent of
Name and Address Stock (a) Class(b) Stock (a) Class(b)
---------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Lawrence Brody, Minnette Hermelin and Marc S. 2,786,418 (c) 23.7% 2,877,468 (c) 43.0%
Hermelin Trustees
One Metropolitan Square
St. Louis, Missouri 63101
McCullough, Andrews & Cappiello, Inc. 386,251 (d) 3.3% -- *
101 California Street
Suite 4250
San Francisco, California 94111
Minnette Hermelin 13,218 (e) * 13,218 (e) *
2503 S. Hanley Road
St. Louis, Missouri 63144
Marc S. Hermelin 89,354 (f) * 226,233 (f) 3.4%
2503 S. Hanley Road
St. Louis, Missouri 63144
<PAGE>
Alan G. Johnson 222,750 (g) 1.9% 219,750 (g) 3.3%
101 S. Hanley Road
St. Louis, Missouri 63105
Victor M. Hermelin 18,750 * 116,400 1.7%
2503 S. Hanley Road
St. Louis, Missouri 63144
Garnet E. Peck, Ph.D. -- * 6,000 *
1336 Robert E. Heine
Pharmacy Building
West Lafayette, Indiana 47907
Raymond F. Chiostri 20,972 * 20,972 *
2503 S. Hanley Road
St. Louis, Missouri 63144
Mitchell I. Kirschner 22,500 (h) * 44,136 *
2503 S. Hanley Road
St. Louis, Missouri 63144
Gerald R. Mitchell 28,199 * 28,248 *
2503 S. Hanley Road
St. Louis, Missouri 63144
All current directors and executive officers as a 3,188,743 (i) 27.1% 3,539,207 (i) 52.9%
group (7 individuals)
- - - --------------------------
<FN>
* Less than one percent
(a) 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:
</FN>
</TABLE>
<PAGE>
Shares of Shares of
Class A Class B
Common Stock Common Stock
------------ ------------
Marc S. Hermelin..................... -0- 129,990
Victor M. Hermelin................... -0- 97,500
Alan G. Johnson...................... 3,000 -0-
Garnet E. Peck, Ph.D................. -- 6,000
Raymond F. Chiostri.................. 2,100 2,100
Mitchell I. Kirschner................ -0- 12,000
Gerald R. Mitchell................... 6,225 6,225
(b) 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, 11,780,267 shares
of Class A Common Stock and 6,694,311 shares of Class B Common Stock
are deemed to be outstanding.
(c) These shares are held in four irrevocable trusts created by another
party, the beneficiaries of which are Arnold L. Hermelin (as to 895,500
shares of Class A Common Stock and 925,500 shares of Class B Common
Stock), Anne S. Kirschner (as to 893,250 shares of Class A Common Stock
and 923,250 shares of Class B Common Stock), Marc S. Hermelin (as to
574,218 shares each of Class A Common Stock and Class B Common Stock),
and Minnette Hermelin, the mother of the other three beneficiaries (as
to 423,450 shares of Class A Common Stock and 454,500 shares of Class B
Common Stock).
(d) According to the latest report on Schedule 13G received by the Company,
McCullough, Andrews & Cappiello, Inc. is an investment advisor.
(e) Does not include 2,786,418 shares each of Class A Common Stock and
2,877,468 shares of Class B Common Stock referred to in footnote (c),
over which Minnette Hermelin shares voting and investment power as one
of three trustees.
(f) Does not include 176,250 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 2,786,418 shares of Class A Common Stock and 2,877,468 shares
of Class B Common Stock held in irrevocable trusts 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.
(g) Includes 176,250 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.
<PAGE>
(h) Does not include 893,250 shares of Class A Common Stock and 923,250
shares of 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.
(i) All of such shares are owned, or represented by shares purchasable as
set forth in footnote (a), solely by such persons.
Although 11,768,942 shares of the Class A Stock were outstanding as of
April 30, 1998, holders of the 241,000 outstanding shares of the 7% Preferred
Stock have the current right to convert such shares into 903,750 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 $6.67 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 45,187 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, 19,113,188 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 the table plus the number
of shares of Class A Common Stock listed in the table.
PROPOSAL 1 - ELECTION OF CLASS C 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 2001, 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:
<PAGE>
As a Occupation; Position
Director with Company; Age;
Name Since Other Directorships
- - - ---- -------- --------------------
Class C Nominee--
(term expires in 2001)
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 68.
Class B Directors--
(terms expire in 2000)
Victor M. Hermelin(a) 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 84.
Alan G. Johnson(b) 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 Siboney Corporation and MRL,
Inc.; Age 63.
<PAGE>
Class A Director--
(term expires in 1999)
Marc S. Hermelin(a) 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 56.
(a) Victor M. Hermelin is the father of Marc S. Hermelin and the
father-in-law of Mitchell I. Kirschner, Vice President--New Business
Development.
(b) Alan G. Johnson is a member of the law firm serving as corporate
counsel to the Company. See "TRANSACTIONS WITH ISSUER" for further
information.
INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 1998, the Board of Directors held one formal meetings 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 1998 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. This committee held two formal meetings.
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 Director, Compensation and
Benefits.
<PAGE>
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 1998 for service as a
director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1998.
EXECUTIVE COMPENSATION
The following table reflects compensation paid or payable by the
Company and its subsidiary for fiscal years ended March 31, 1996, 1997 and 1998,
to the Company's Chief Executive Officer and the four other most highly
compensated executive officers whose combined salary and bonus earned in fiscal
1998 exceeded $100,000.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation
-------------------
All Other
Compensation
Name and principal position Year Salary($) Bonus($) ($)(1)
--------------------------- ---- --------- -------- ----------
<S> <C> <C> <C> <C>
Marc S. Hermelin 1998 881,265 610,958 (2) 2,800
Vice Chairman of the Board and 1997 695,064 296,534 (3) 3,720
Chief Executive Officer 1996 692,712 109,827 --
Raymond F. Chiostri 1998 256,727 3,000 4,166
President and Chief Executive 1997 269,269 7,954 1,555
Officer of Particle Dynamics, 1996 241,703 -- 1,236
Inc.
Mitchell I. Kirschner 1998 202,626 -- 3,951
Vice President, New Business 1997 200,497 -- 732
Development 1996 209,650 10,000 --
Victor M. Hermelin 1998 184,804 40,000 --
Chairman of the Board and 1997 181,740 -- --
Treasurer 1996 169,765 -- --
Gerald R. Mitchell 1998 146,669 25,000 4,017
Vice President, Finance 1997 146,715 -- 1,785
1996 150,116 10,000 1,231
<FN>
(1) Consists of Company contributions to the Company's profit sharing plan
and 401(k) plan.
(2) $316,000 of this amount was paid in the form of Class B Stock options,
which was elected to be taken in lieu of earned incentive cash
compensation
(3) $114,300 of this amount was paid in the form of Class B Stock options,
which was elected to be taken in lieu of earned incentive cash
compensation.
</FN>
</TABLE>
<PAGE>
INFORMATION AS TO STOCK OPTIONS
The following table lists the options to acquire Class A Stock and
Class B Stock issued during fiscal 1998 to the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Class A Stock)
Individual Grants
Percent of
Number of Total
Securities Options/
Underlying SARs
option/SARs Granted to Exercise of
Granted Employees in Base Price Expiration Grant
Name (#) Fiscal Year ($/Sh) Date Date
Present Value(1)
<S> <C> <C> <C> <C> <C>
Gerald R. Mitchell 7,500 6% 9.964 8/15/2007 $15,012
</TABLE>
<PAGE>
(1) These estimates of value were developed solely for the purposes of
comparative disclosure in accordance with the rules and regulations of
the Securities and Exchange Commission and are not intended to predict
future prices of the Corporation's Common Stock. The estimate was
developed using the Black-Scholes option pricing model (as provided by
Instruction 9 to Rule 402 of Regulation S-K governing disclosures
regarding options) incorporating the following assumptions: Volatility
of .295 and dividend yield of 0%, both based on the historical
three-year average for the underlying Common Stock; risk-free rate of
return of 6.17% based on a five-year treasury rate and time of exercise
of 10 years, being the term of the option grants. In addition, the
model assumed a 40% discount for lack of marketability/transferability.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Class B Stock)
<CAPTION>
Individual Grants
Percent of
Number of Total
Securities Options/
Underlying SARs
option/SARs Granted to Exercise of Grant
Granted Employees in Base Price Expiration Date
Name (#) Fiscal Year ($/Sh) Date Present Value
---- ----------- ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Marc S. Hermelin 300,000 (1) 95% 11,881 5/15/2000 $316,000(2)
Gerald R. Mitchell 7,500 2% 10,005 8/15/2007 15,074(3)
<PAGE>
<FN>
(1) Such options were elected to be taken in the form of Stock options in
lieu of earned incentive cash compensation and were subsequently
transferred by gift.
(2) 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 S-K governing disclosures
regarding options) incorporating the following assumptions: Volatility
of .295 and dividend yield of 0%, both based on the historical
three-year average for the underlying Common Stock; risk-free rate of
return of 6.55% based on a five-year treasury rate and time of exercise
of 3 years, being the term of the option grants. In addition, the model
assumed a 40% discount for lack of marketability/transferability.
(3) 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 S-K governing disclosures
regarding options) incorporating the following assumptions: Volatility
of .295 and dividend yield of 0%, both based on the historical
three-year average for the underlying Common Stock; risk-free rate of
return of 6.17% based on a five-year treasury rate and time of exercise
of 10 years, being the term of the option grants. In addition, the model
assumed a 40% discount for lack of marketability/transferability.
</FN>
</TABLE>
<PAGE>
The following tables list the value as of the end of fiscal 1998 of
options held by the persons listed in the Summary Compensation Table to
acquire shares of Class A Stock and Class B Stock:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values (Class A Stock)
Value of
Number of unexercised
unexercised in-the-money
options/SARs at options/SARs at
fiscal year-end fiscal year-end
(#) ($)
Shares acquired Value Realized Exercisable/ Exercisable/
Name on exercise (#) ($) unexercisable unexercisable
---- --------------- ---- ---- ------------- -------------
<S> <C> <C> <C> <C>
Raymond F. Chiostri 14,250 364,208 2,100/900 48,054/20,595
Gerald .R. Mitchell -- -- 6,225/7,575 148,351/147,961
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values (Class B Stock)
Number of Value of unexercised
unexercised in-the-money
options/SARs at options/SARs at fiscal
fiscal year-end year-end
(#) ($)
Shares acquired on Value Realized Exercisable/ Exercisable/
Name exercise (#) ($) unexercisable unexercisable
---- ------------ ------ ---- ------------- -------------
<S> <C> <C> <C> <C>
Marc S. Hermelin.......... -- -- 129,990/95,010 2,948,673/2,055,042
Raymond F. Chiostri....... 14,250 364,073 2,100/900 48,010/20,576
Mitchell I. Kirschner..... -- -- 12,000/18,000 232,140/348,210
Victor M. Hermelin........ -- -- 97,500/45,000 2,141,138/998,325
Gerald R. Mitchell........ -- -- 6,225/7,575 148,252/147,702
</TABLE>
<PAGE>
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
[1997 Report; needs to updated]
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 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 Director of
Compensation and Benefits.
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 Office
Under an agreement commencing in 1996 and expiring in March 2002, Marc
S. Hermelin, Vice Chairman and Chief Executive Officer until February
1994 and since December 1994, received base compensation of $593,068,
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 decreasing from 7% to 4% of net income based on a
formula related to the Company exceeding certain net income levels.
In the event of voluntary termination of full-time employment prior to
age 65, 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 base salary and/or
bonus or additional payments for services in excess of the minimum. Upon
retirement after age 55, the agreement provides for consulting payments
of 30% of average base salary/bonus and retirement benefits of 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 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, 2000, 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. Based on regulations issued by the
Internal Revenue Service, the Company has taken the necessary actions to
ensure deductibility of performance-based compensation paid to such
officers.
Submitted by the Board of Directors:
Marc S. Hermelin Victor M. Hermelin
Alan G. Johnson Garnet E. Peck
<PAGE>
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, 1993, 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.
<TABLE>
<CAPTION>
------------------------------------- ------------------------------------------------------------------
FOR FISCAL YEAR ENDED MARCH 31
------------------------------------------------------------------
------------ -------------- -------------- ----------- -----------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
KV 59 43 91 107
AMEX MARKET VALUE 112 118 145 147
S&P DRUGS INDEX 71 108 173 222
------------------------------------- ------------ -------------- -------------- ----------- -----------
</TABLE>
<PAGE>
TRANSACTIONS WITH ISSUER
Alan G. Johnson, Secretary and a Director of the Company, is a
member of the law firm of Gallop, Johnson & Neuman, L.C., which has
been the Company's general counsel for more than the past five years.
PROPOSAL 2 - INCREASE IN AUTHORIZED STOCK
On May 15, 1998, the Board of Directors unanimously
approved an Amendment to the Certificate of Incorporation of the
Company to increase the number of authorized shares of Class A Common
Stock from 60,000,000 to 150,000,000 and the number of shares of Class
B Common Stock from 60,000,000 to 75,000,000 and directed that the
proposed Amendment be submitted to a vote of shareholders at the Annual
Meeting.
The proposed Amendment will amend the first two unnumbered
paragraphs of Article 4 of the Certificate of Incorporation, which
would read as follows in their entirety after Amendment:
4. The aggregate number, class and par value of shares which
the corporation shall have authority to issue shall be Three Hundred
and Five Million (305,000,000), which shall be divided among the
following classes:
Par Value Number
Class of Stock Per Share of Shares
Preferred Stock $ .01 5,000,000
Class A Common Stock $ .01 150,000,000
Class B Common Stock $ .01 75,000,000
The number of authorized shares of Preferred Stock or any
class of Common Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative majority
vote of the stock of the corporation entitled to vote, without the
separate vote of holders of any class of Common Stock or any class or
series of Preferred Stock, unless a vote of any such holders of a class
or series of Preferred Stock is required pursuant to the certificate or
certificates establishing such class or series.
Article 4 of the Certificate of Incorporation as currently in
effect authorizes the issuance of up to 60,000,000 shares of Class A
Common Stock and 60,000,000 shares of Class B Common Stock. As of the
record date for the 1998 Annual Meeting, there were 11,768,942 shares
of Class A Common Stock and 6,440,496 shares of Class B Common Stock
outstanding. In addition, if all holders of preferred stock of the
Company converted there preferred stock into Class A Common Stock and
if holders of all Class B Common Stock exercised their right to convert
such stock into the same number of shares of Class A Common Stock,
12,672,692 shares of Class A Common Stock would be outstanding. In
addition, the Company has issued employee stock options which, if fully
exercised, would result in 148,522 additional shares of Class A
Common Stock and 763,304 additional shares of Class B Common Stock
(which in turn would be convertible into Class A Common Stock on a
share-for-share basis). The Board believes it would be desirable to
increase the number of shares of authorized Common Stock in order to
make available additional shares for possible stock splits,
acquisitions, employee benefit plan issuances and for such other
corporate purposes as may arise. The Board of Directors believes that
stock splits and stock dividends enhance the liquidity and
marketability of the Company's Common Stock by increasing the number of
shares outstanding.
<PAGE>
The Company has no specific plans currently calling for the
issuance of any additional shares of Common Stock. The rules of the
American Stock Exchange currently requires stockholder approval of
issuances of Common Stock under certain circumstances including those
in which the number of shares to be issued is equalled to or exceeds
20% of then outstanding Common Stock. All newly authorized shares of
Common Stock would have the same rights as the presently authorized
shares of the same class. Under the Company's Certificate of
Incorporation, shareholders do not have preemptive rights. The Board
does not intend or view the increase in authorized Common Stock as an
anti-take over measure, nor is the Company aware of any proposed or
contemplated transactions of this type, although the issuance of shares
in certain instances could have the effect of forestalling such a
transaction.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
Assuming the presence of a quorum, the affirmative vote of the
holders of the majority of all outstanding shares of Common Stock,
voting as a single class, is required for adoption of the proposed
Amendment. Under applicable Delaware law, in determining whether this
matter has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same
effect as a vote against this proposal.
PROPOSAL 3 - APPROVAL OF FIFTH AMENDMENT
TO K-V PHARMACEUTICAL COMPANY 1991 INCENTIVE STOCK OPTION PLAN
AND ITS RESTATEMENT, AS AMENDED
In 1991, the Board of Directors adopted and the Company's
shareholders subsequently approved the K-V Pharmaceutical Company 1991
Incentive Stock Option Plan ("Plan") which was designed to proved for
the grant of incentive stock options intended to qualify under Section
422 of the Internal Revenue code of 1986, as amended ("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. Currently, the
number of shares of Class A Common Stock issuable under the Plan is
1,125,000 shares and the number of shares of Class B Common Stock
issuable under the Plan is 1,012,500 shares.
In May 1998, the Board of Directors again determined that the number of
shares available under the Plan was insufficient 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. At that time, the Board of
Directors adopted a Fifth Amendment to the Plan increasing the number
of shares of Class A Common Stock and Class B Common Stock issuable
under the Plan to 1,500,000 shares in each case. The Board directed
that such amendment be submitted to the shareholders of the Company for
their approval. No options have been granted subject to approval of
this Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE FIFTH AMENDMENT TO RESTATEMENT OF THE PLAN.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP served as the Company's independent public
accountants for the fiscal year ended March 31, 1998 and has served in
such capacity since May 1996. As of the date of this Proxy Statement,
the process of selection of the Company's independent public
accountants for the current fiscal year ending March 31, 1999 has not
been completed.
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 1998 accompanies
this notice.
FUTURE PROPOSALS OF SECURITY HOLDERS
Any shareholder who intends to submit a proposal for
consideration at the 1998 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
February 1, 1999. 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.
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, 1998, 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
June 1, 1998
