SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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
[X] Definitive proxy statement Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
K-V Pharmaceutical Company
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title to 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>
[KV LOGO]
K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 1, 1999
St. Louis, Missouri
June 11, 1999
The Annual Meeting of Shareholders of K-V Pharmaceutical Company will
be held on Thursday, July 1, 1999, 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; and
2. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on May 4, 1999, will be
entitled to vote at the 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 10 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 1999 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.
1
<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 for director
named in this proxy statement. This proxy statement and form of proxy were first
mailed to shareholders on or about June 11, 1999.
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 May 4, 1999, 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 the Class A director of
the Company, to hold office for three years and until his
successor has been duly elected and qualified; and
2. In their discretion on the transaction of such other business as
may properly come before the meeting or any adjournment thereof.
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 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 May 4, 1999, there were 11,889,604 shares of Class A Common Stock
("Class A Stock") outstanding and 6,360,215 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 594,480 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, each share of
Class A Stock has one-twentieth of one vote and each share of Class B Stock has
one vote, and votes representing Class A Stock and Class B Stock 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 10 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 on matters on which they are not voted are referred
to as "broker non-votes." With respect to most votes by shareholders, shares
represented by broker non-votes will be counted for purposes of determining
whether there is a quorum, but not in determining the number of shares necessary
for approval of a proposal.
2
<PAGE>
However, when shareholders are requested to vote on certain other
matters, 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.
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.
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 May 4, 1999, 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, 2,757,468(c) 23.2% 2,877,468(c) 43.1%
Minnette Hermelin and
Marc S. Hermelin Trustees
One Metropolitan Square
St. Louis, Missouri 63101
Minnette Hermelin 13,218(d) * 13,218(d) *
2503 S. Hanley Road
St. Louis, Missouri 63144
Marc S. Hermelin 59,638(e) * 416,340(e) 6.2%
2503 S. Hanley Road
St. Louis, Missouri 63144
Alan G. Johnson 224,250(f) 1.9% 219,750(f) 3.3%
7732 Forsyth Blvd.
20th Floor
St. Louis, Missouri 63105
Victor M. Hermelin 7,043 * 143,800 2.2%
2503 S. Hanley Road
St. Louis, Missouri 63144
Garnet E. Peck, Ph.D. -- * 7,500 *
1336 Robert E. Heine
Pharmacy Building
West Lafayette, Indiana 47907
Norman D. Schellenger -- * 1,500 *
2503 S. Hanley Road
St. Louis, Missouri 63144
Raymond F. Chiostri 24,000 * 24,000 *
2503 S. Hanley Road
St. Louis, Missouri 63144
Mitchell I. Kirschner 22,500(g) * 40,500(g) *
2503 S. Hanley Road
St. Louis, Missouri 63144
Gerald R. Mitchell 29,213 * 29,213 *
2503 S. Hanley Road
St. Louis, Missouri 63144
All current directors and 3,124,112(h) 26.2% 3,760,071(h) 56.4%
executive officers as
a group (8 individuals)
3
<PAGE>
<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:
SHARES OF SHARES OF
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
Marc S. Hermelin........................ -0- 180,000
Victor M. Hermelin...................... -0- 95,000
Alan G. Johnson......................... 1,500 -0-
Garnet E. Peck, Ph.D.................... -0- 7,500
Raymond F. Chiostri..................... -0- -0-
Mitchell I. Kirschner................... -0- 18,000
Gerald R. Mitchell...................... 8,513 8,513
Norman D. Schellenger................... -0- 1,500
(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, 11,899,617 shares of Class A
Common Stock and 6,670,728 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 885,500 shares of
Class A Common Stock and 925,500 shares of Class B Common Stock), Anne S.
Kirschner (as to 883,250 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 414,500 shares of Class A
Common Stock and 454,500 shares of Class B Common Stock).
(d) Does not include 2,757,468 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.
(e) 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
2,757,468 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.
(f) 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.
(g) Does not include 883,250 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.
(h) All of such shares are owned, or represented by shares purchasable as set
forth in footnote (a), solely by such persons.
</FN>
</TABLE>
4
<PAGE>
Although 11,889,604 shares of the Class A Stock were outstanding as of
May 4, 1999, 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 on 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, 19,153,569 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 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 2002, 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:
SERVICE
AS A OCCUPATION; POSITION
DIRECTOR WITH COMPANY; AGE;
NAME SINCE OTHER DIRECTORSHIPS
---- -------- --------------------
CLASS A NOMINEE--
(term expires in 2002)
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
57.
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 85.
Alan G. Johnson(b)............ 1976 Director and Secretary of the Company;
Chairman and Chief Executive Officer since
January 1999 of Pauli Johnson Capital and
Research Inc., an investment banking firm;
Attorney at Law and prior to January 1,
1999, member for more than the previous
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 Ther-Rx Corporation since
1998; Director of Siboney Corporation; Age
64.
CLASS C DIRECTOR--
(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 69.
Norman D. Schellenger..........1998 Director; Retired since 1997; President of
Whitby Pharmaceuticals 1992 to 1997; Age
67.
5
<PAGE>
- ------------
(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) Until December 31, 1998, Alan G. Johnson was 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 1999, 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 1999 but had no formal meetings.
The Company has a standing Audit Committee of the Board of Directors
consisting of Director 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 in fiscal 1999.
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 and Director of Compensation and Benefits.
Directors Garnet E. Peck, Ph.D. and Norman Schellenger receive $1,000
each per day for attending each meeting of the Board of Directors, plus
reimbursement of related expenses. No other director received any remuneration
in fiscal 1999 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 1999, except that the initial report
for Director Norman D. Schellenger on Form 3 was not filed in a timely manner.
EXECUTIVE COMPENSATION
The following table reflects compensation paid or payable by the
Company and its subsidiary for fiscal years ended March 31, 1997, 1998 and 1999,
to the Company's Chief Executive Officer and the four other most highly
compensated executive officers whose combined salary and bonus earned in fiscal
1999 exceeded $100,000.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1)
- --------------------------- ---- ---------- --------- ------------
<S> <C> <C> <C> <C>
Marc S. Hermelin 1999 705,013 986,429(2) 147,342
Vice Chairman of the Board 1998 676,990 610,800(3) 133,169
and Chief Executive Officer 1997 621,958 296,534(3) 79,626
Raymond F. Chiostri 1999 255,088 -- 7,284
President and Chief Executive 1998 256,727 3,000 4,166
Officer of Particle Dynamics, Inc. 1997 247,242 7,954 23,582
Mitchell I. Kirschner 1999 202,781 30,000 5,457
Vice President, New 1998 202,626 -- 3,951
Business Development 1997 193,910 -- 7,319
Victor M. Hermelin 1999 187,503 75,000 --
Chairman of the Board 1998 184,804 40,000 --
and Treasurer 1997 181,740 -- --
Gerald R. Mitchell 1999 155,359 25,000 5,475
Vice President, Finance 1998 146,669 25,000 4,017
1997 146,715 -- 1,785
<FN>
- ------------
(1) Consists of Company contributions to the Company's profit sharing plan and
401(k) plan, and vacation earned, but not taken, and paid; which was
previously classified as salary in 1997.
(2) $57,000 of this amount was paid in the form of Class B Stock options, which
were elected to be taken in lieu of earned incentive cash compensation.
(3) $316,000 of this amount was paid in the form of Class B Stock options,
which were elected to be taken in lieu of earned incentive cash
compensation.
(3) $114,300 of this amount was paid in the form of Class B Stock options,
which were elected to be taken in lieu of earned incentive cash
compensation.
</FN>
</TABLE>
7
<PAGE>
INFORMATION AS TO STOCK OPTIONS
[UPDATE FOR FY 1999]
The following table lists the options to acquire Class B Stock issued
during fiscal 1999 to the persons named in the Summary Compensation Table. No
options to acquire Class A Stock were issued to persons named in the Summary
Compensation Table during fiscal 1999.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(CLASS B STOCK)
<CAPTION>
INDIVIDUAL GRANTS
----------------------------
PERCENT OF
NUMBER OF TOTAL EXERCISE
SECURITIES OPTIONS/SARS OF
UNDERLYING GRANTED TO BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE(1)
- ---- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marc S. Hermelin......... 75,000 64% 15.400 3/31/2004 105,525
Victor M. Hermelin....... 25,000 21% 15.400 3/31/2004 35,175
Norman D. Schellenger.... 7,500 6% 14.000 3/31/2004 12,007
<FN>
- ------------
(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 .384 and dividend
yield of 0%, both based on actual history since 1991 for the underlying
Common Stock; risk-free rate of return of 5.12% 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 47.5% discount for lack of
marketability.
</FN>
</TABLE>
8
<PAGE>
The following tables list the value as of the end of fiscal 1999 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
FISCAL YEAR-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>
Raymond F. Chiostri..... 5,250 56,280 -- --
Gerald R. Mitchell...... -- -- 8,513/5,287 81,616/30,120
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-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........ 23,406 241,761 231,594/120,000 1,647,208/270,450
Raymond F. Chiostri..... 5,250 56,199 -- --
Mitchell I. Kirschner... -- -- 18,000/12,000 88,460/65,640
Victor M. Hermelin...... 30,000 242,400 95,000/42,500 747,900/315,000
Gerald R. Mitchell...... -- -- 8,513/5,287 77,193/27,286
</TABLE>
9
<PAGE>
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 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 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 position, 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 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 or death 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% for a minimum of 10 years or life. 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 year periods)
providing base compensation based on performance.
10
<PAGE>
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 the
chief executive officer and any one of the 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
Norman D. Schellenger
11
<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, 1994, 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]
- --------------------------------------------------------------------------------
For Fiscal Year Ended March 31
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
K-V 73 154 181 305 236
AMEX MARKET VALUE 105 129 131 173 168
S&P DRUGS INDEX 152 242 311 552 750
- --------------------------------------------------------------------------------
TRANSACTIONS WITH ISSUER
Prior to January 1, 1999 Alan G. Johnson, Secretary and a Director of
the Company, was 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.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP served as the Company's independent public accountants
for the fiscal year ended March 31, 1999 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, 2000 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 1999 accompanies this
notice.
FUTURE PROPOSALS OF SECURITY HOLDERS
Any shareholder who intends to submit a proposal for consideration at
the 2000 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, 2000. 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.
12
<PAGE>
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(INCLUDING RELATED FINANCIAL STATEMENTS AND SCHEDULES), IS 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 11, 1999
13
<PAGE>
APPENDIX
Page 16 of the printed proxy contains a stock performance graph. The
information contained in the graph is represented in the table that immediately
follows the graph.
<PAGE>
P R O X Y
(Class A Shareholder)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
K-V PHARMACEUTICAL COMPANY
1999 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
Thursday, July 1, 1999, commencing at 8:00 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:
|_| FOR the nominee WITHHOLD AUTHORITY |_|
listed below to vote for nominee
listed below
MARC S. HERMELIN
2. In their discretion with respect to the transaction of such other
business as may properly come before the meeting or any adjournment
thereof.
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 June 1, 1999.
Dated: __________________, 1999
----------------------------------------
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>
P R O X Y
(Class B Shareholder)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
K-V PHARMACEUTICAL COMPANY
1999 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
Thursday, July 1, 1999, commencing at 8:00 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:
|_| FOR the nominee WITHHOLD AUTHORITY |_|
listed below to vote for nominee
listed below
MARC S. HERMELIN
2. In their discretion with respect to the transaction of such other
business as may properly come before the meeting or any adjournment
thereof.
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 June 1, 1999.
Dated: __________________, 1999
-----------------------------------------
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.
