UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14-101)
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:
[x] Preliminary Proxy Statement.
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)).
[ ] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12.
K-V PHARMACEUTICAL COMPANY
(Name of Registrant as Specified in Charter)
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 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:
K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 5, 2008
ST. LOUIS, MISSOURI
JULY 29, 2008
The 2008 Annual Meeting of Stockholders (the "Annual Meeting") of K-V
Pharmaceutical Company (the "Company") will be held on Friday, September 5,
2008, at 9:00 A.M., Central Daylight Savings Time, at The St. Louis Club
(Lewis and Clark Room, 16th Floor), 7701 Forsyth Boulevard, Clayton, Missouri
63105, for the following purposes:
1. To consider and approve an amendment to the Company's
Certificate of Incorporation to provide that members of the
Board of Directors be elected annually;
2. If the proposal to amend the Company's Certificate of
Incorporation is approved, to elect eight directors, to hold
office until the 2009 Annual Meeting of Stockholders and
until their successors are elected and qualified;
3. If the proposal to amend the Company's Certificate of
Incorporation is not approved, to elect three Class C
directors, to hold office for two years and until their
successors are elected and qualified;
4. If the proposal to amend the Company's Certificate of
Incorporation is not approved, to elect two Class A
directors, to hold office for three years and until their
successors are elected and qualified;
5. To amend the Company's Incentive Stock Option Plan to
increase by 3,000,000 the number of shares of Class A Common
Stock available for issuance upon exercise of stock options
granted under the Plan;
6. To ratify the selection of KPMG LLP to serve as the
Company's independent registered public accounting firm; and
7. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on July 7, 2008, will
be entitled to notice of and vote at the Annual Meeting or at any adjournment
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, arranged in
alphabetical order and showing the address of and number of shares registered
in the name of each stockholder, will be open during usual business hours to
the examination of any stockholder, for any purpose germane to the annual
meeting, for 10 days prior to the date thereof, at the principal office of the
Company at 2503 South Hanley Road, St. Louis, Missouri 63144.
A copy of the 2008 Annual Report to Stockholders is enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
RONALD J. KANTERMAN, ASSISTANT 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.
K-V PHARMACEUTICAL COMPANY
2503 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63144
PROXY STATEMENT
SOLICITATION OF PROXIES
The Board of Directors of K-V Pharmaceutical Company (the "Company")
is soliciting proxies on the enclosed form for use at the Annual Meeting of
Stockholders to be held on September 5, 2008, or any adjournment thereof (the
"Annual Meeting"). Solicitation will be made primarily by mail. In addition to
solicitation by mail, officers, directors and employees of the Company may
solicit personally, by mail or telephone if proxies are not promptly received.
The cost of solicitation of proxies will be paid by the Company and will also
include reimbursement paid to brokerage firms and others for their reasonable
out-of-pocket expenses of forwarding solicitation material to their
principals. 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 will be voted in accordance with
your wishes. This proxy statement and form of proxy were first mailed to
stockholders on or about August 1, 2008.
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 Assistant Secretary of the Company in writing. Your notice of revocation
must actually be received by the Assistant Secretary before the voting of the
proxy.
RECORD DATE
Stockholders of record at the close of business on July 7, 2008, will
be entitled to vote at the Annual 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, Marc S. Hermelin and Ronald J. Kanterman,
or the one of them who acts, will vote:
1. FOR the amendment of the Company's Certificate of Incorporation to
provide that members of the Board of Directors be elected annually;
2. FOR the election of Jean M. Bellin, Kevin S. Carlie, Terry B.
Hatfield, David S. Hermelin, Marc S. Hermelin, Ronald J. Kanterman,
Jonathon E. Killmer and Norman D. Schellenger as the directors of the
Company, to hold office until the 2009 Annual Meeting of Stockholders
and until their respective successors have been duly elected and
qualified if the amendment to the Company's Certificate of
Incorporation is approved;
3. FOR the election of Jean M. Bellin, Terry B. Hatfield and Norman D.
Schellenger as the Class C directors of the Company, to hold office
for two years and until their respective successors have been duly
elected and qualified if the amendment to the Company's Certificate
of Incorporation is not approved;
1
4. FOR the election of Kevin S. Carlie and Marc S. Hermelin as the Class
A directors of the Company, to hold office for three years and until
their respective successors have been duly elected and qualified if
the amendment to the Company's Certificate of Incorporation is not
approved;
5. FOR the amendment of the Company's Incentive Stock Option Plan to
increase by 3,000,000 the number of shares of Class A Common Stock
available for issuance upon exercise of stock options granted under
the Plan;
6. FOR the ratification of the engagement of KPMG LLP as the Company's
independent registered public accounting firm; and
7. In their discretion on the transaction of such other business as may
properly come before the Annual Meeting.
Each of Jean M. Bellin, Kevin S. Carlie, Terry B. Hatfield, David S.
Hermelin, Marc S. Hermelin, Ronald J. Kanterman, Jonathon E. Killmer and
Norman D. Schellenger are presently directors. Should any nominee become
unavailable or decline to serve for any reason, the Company expects that the
persons named in the proxy will vote for the election of another person as may
be designated by the Board of Directors. The Board of Directors is not aware
of any circumstances likely to cause any nominee to be unavailable for
election or to decline to serve.
On July 7, 2008, there were 37,755,933 shares of Class A Common
Stock, par value $0.01 per share ("Class A Common Stock"), outstanding and
12,163,482 shares of Class B Common Stock, par value $0.01 per share ("Class B
Common Stock" and collectively, with the Class A Common Stock, the "Common
Stock"), outstanding, which constitute all of the outstanding voting shares of
the Company. Each share of Class A Common Stock is entitled to one-twentieth
of one vote (or 1,887,797 votes if all outstanding shares of Class A Common
Stock are voted), and each share of Class B Common Stock is entitled to one
vote on all matters to come before the Annual Meeting. There are no cumulative
voting rights for holders of Class A Common Stock or Class B Common Stock.
Under applicable state law and the provisions of the Company's
Certificate of Incorporation and Bylaws: (1) the vote required for the
approval of the amendment to the Company's Certificate of Incorporation is a
majority vote of holders of the issued and outstanding shares of Class A
Common Stock and Class B Common Stock of the Company, as a single class, (2)
the vote required for the election of a director is a plurality of the votes
of the issued and outstanding shares of Class A Common Stock and Class B
Common Stock, as a single class, present in person or represented by proxy at
the Annual Meeting and entitled to vote on the election of directors, and (3)
the vote required for the approval of the amendment to the Company's Incentive
Stock Option Plan, and the ratification of KPMG LLP as the Company's
independent registered public accounting firm and all other matters that may
come before the Annual Meeting generally is the majority vote of holders of
the issued and outstanding shares of Class A Common Stock and Class B Common
Stock, as a single class, present in person or represented by proxy at a
meeting of stockholders and entitled to vote. In addition, under New York
Stock Exchange rules, in order to be approved the total votes cast on the
amendment to the Company's Incentive Stock Option Plan must represent more
than 50% in interest of all shares entitled to vote on the proposal.
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 are permitted to vote proxies of any client in their own
discretion as to
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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."
Based on the above:
o With respect to the proposal to amend the Company's Certificate
of Incorporation, shares held by holders present at the meeting
that abstain (including by executing proxies that deny
discretionary authority on any matters properly brought before
the meeting) will be counted as shares present and entitled to
vote and will have the same effect as a vote against the
proposal. Shares not represented at the meeting and broker
non-votes will also have the same effect as a vote against the
proposal.
o With respect to the election of directors, shares held by
holders present at the meeting that abstain or shares
represented by proxies that are marked "WITHHOLD AUTHORITY" will
be considered in determining the number of votes cast. However,
because the eight nominees that receive the most votes will be
elected (or if the proposal to amend the Company's Certificate
of Incorporation is not approved, the three Class C nominees and
the two Class A nominees that receive the most votes), those
proxies will have no effect on the election of directors. Shares
not represented at the meeting will not affect the election of
directors. Broker non-votes will not be treated as shares
represented at the meeting with respect to the election of
directors and, therefore, will likewise have no effect.
o With respect to all other matters, shares held by holders at the
meeting who abstain (including by executing proxies that deny
discretionary authority on any matters properly brought before
the meeting) will be counted as shares present and entitled to
vote and will have the same effect as a vote against any such
matter. Except for the proposal to amend the Company's Incentive
Stock Option Plan, shares not present at the meeting will not
affect the outcome as to any such matter. Broker non-votes will
not be treated as shares present at the meeting as to such
matter voted on and, therefore, will have no effect. Shares not
represented at the meeting and broker non-votes will not affect
the outcome of the proposal to amend the Company's Incentive
Stock Option Plan except that those shares and broker non-votes
may cause the total votes cast on the proposal to represent 50%
or less of the shares entitled to vote on the proposal.
Votes will be counted by a duly appointed inspector 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.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of July 7, 2008, with
respect to each person known by the Company to be the beneficial owner of more
than 5% of the outstanding shares of our Class A or Class B Common Stock in
addition to those holders listed under "Security Ownership of Management."
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF PERCENT OF
OF BENEFICIAL OWNER TITLE OF CLASS OF BENEFICIAL OWNERSHIP CLASS A CLASS B
------------------- -------------- ----------------------- ------- -------
Neuberger Berman, Inc. (1) Class A 4,348,183 11.5% --
605 Third Avenue Common Stock
New York, NY 10158
Lord, Abbett & Co. LLC (2) Class A 3,002,743 8.0% --
90 Hudson Street Common Stock
Jersey City, NJ 07302
Snyder Capital Management, LP (3) Class A 2,067,500 5.5% --
1 Market Plaza Common Stock
Steuart Tower, Suite 1200
San Francisco, CA 94105
<FN>
- -----------------------------
(1) As reflected on the Schedule 13G/A dated February 12, 2008, filed by
Neuberger Berman, Inc. ("NBI"). Shares reported by NBI were reported
as being beneficially owned by its subsidiaries, Neuberger Berman,
LLC, Neuberger Berman Management Inc., and Neuberger Berman Equity
Funds of which Neuberger Berman, LLC serves as sub advisor and
Neuberger Berman Management Inc. serves as investment manager. NBI
reported sole voting power of 255,647 shares of Class A Common Stock;
shared voting power of 3,474,643 shares of Class A Common Stock; no
sole dispositive power; and shared dispositive power of 4,884,241
shares of Class A Common Stock.
(2) As reflected on the Schedule 13G dated February 14, 2008, filed by
Lord Abbett & Co. LLC, which reported sole voting power of 2,487,176
shares of Class A Common Stock; no shared voting power; sole
dispositive power of 2,659,888 shares of Class A Common Stock; and no
shared dispositive power.
(3) As reflected on the Form 13F for the quarter ended March 31, 2008,
filed by Snyder Capital Management, LP, which reported sole voting
power of 43,600 shares of Class A Common Stock; shared voting power
of 1,819,100 shares of Class A Common Stock; and no voting power of
204,800 shares of Class A Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
Under regulations of the Securities and Exchange Commission, persons
who have power to vote or to dispose of our shares, either alone or jointly
with others, are deemed to be beneficial owners of those shares. The following
table shows, as of July 7, 2008, the beneficial ownership of (1) each of the
executive officers named in the Summary Compensation Table, (2) each present
director and nominee for director of the Company and (3) all present directors
and executive officers as a group of all of our shares of Class A Common Stock
and Class B Common Stock. Unless otherwise noted, voting and dispositive power
relating to the shares described below is exercised solely by the listed
beneficial owner. The individuals named have furnished this information to us.
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AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP- PERCENT OF OWNERSHIP- PERCENT OF
NAME AND ADDRESS CLASS A STOCK (a) CLASS A (b) CLASS B STOCK (a) CLASS B (b)
---------------- ----------------- ----------- ----------------- -----------
Shares beneficially attributed to
Marc S. Hermelin pursuant to trusts:
Lawrence Brody and Marc S. 1,235,304 (c) 3.3% 2,077,312 (c) 17.1%
Hermelin, Trustees
One Metropolitan Square
St. Louis, MO 63101
Lawrence Brody, Arnold L. 1,212,284 (d) 3.2% 2,082,375 (d) 17.1%
Hermelin and Marc S.
Hermelin, Trustees
One Metropolitan Square
St. Louis, MO 63101
Lawrence Brody, Marc S. 1,414,331 (e) 3.7% 2,637,085 (e) 21.7%
Hermelin and David S.
Hermelin, Trustees
One Metropolitan Square
St. Louis, MO 63101
Marc S. Hermelin, individually owned 218,677 o 1,316,613 (f) 10.8%
Total shares attributable 4,080,596 10.8% 8,113,385 66.7%
to Marc S. Hermelin
Shares beneficially attributed to
David S. Hermelin pursuant to a
trust:
Lawrence Brody, Marc S. 1,414,331 (e) 3.7% 2,637,085 (e) 21.7%
Hermelin and David S.
Hermelin, Trustees
One Metropolitan Square
St. Louis, MO 63101
David S. Hermelin, individually 15,375 (g) o 102,875 (g) o
owned
Total shares attributable 1,429,706 3.8% 2,739,960 22.5%
to David S. Hermelin
Gerald R. Mitchell 58,125 (h) o 77,625 o
Jean M. Bellin 1,500 o 9,500 o
Norman D. Schellenger 1,500 o 2,000 o
5
AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP- PERCENT OF OWNERSHIP- PERCENT OF
NAME AND ADDRESS CLASS A STOCK (a) CLASS A (b) CLASS B STOCK (a) CLASS B (b)
---------------- ----------------- ----------- ----------------- -----------
Kevin S. Carlie 5,300 o 15,500 o
Terry B. Hatfield 1,500 o 6,000 o
David A. Van Vliet 21,500 o 7,000 o
Jonathon E. Killmer 1,000 o 2,500 o
Gregory S. Bentley 7,500 o --- ---
Michael S. Anderson 95,600 o --- ---
Ronald J. Kanterman 18,100 o --- ---
All current directors and executive 4,423,721 (i) 11.7% 8,343,135 (i) 68.6%
officers as a group (17 individuals)
<FN>
- ---------------------
o Less than one percent
(a) Includes the following shares that were not owned by the persons listed
but which could be purchased from the Company under options exercisable
currently or within 60 days after July 7, 2008.
SHARES OF CLASS A SHARES OF CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
Marc S. Hermelin ................... 100,000 ---
David S. Hermelin................... --- 50,000
Gerald R. Mitchell.................. 3,000 ---
Jean M. Bellin...................... 1,500 9,500
Norman D. Schellenger............... 1,500 2,000
Kevin S. Carlie..................... 5,300 2,000
Terry B. Hatfield................... 1,500 6,000
David A. Van Vliet.................. 20,000 7,000
Jonathon E. Killmer................... --- 2,500
Gregory S. Bentley.................. 7,500 ---
Michael S. Anderson................. 47,500 ---
Ronald J. Kanterman................. 15,000 ---
6
(b) In determining the percentages of shares deemed beneficially owned by
each director and officer listed herein, the exercise of all options
held by each person that are currently exercisable or will become
exercisable within 60 days of July 7, 2008, is assumed.
(c) These shares are held in an irrevocable trust created by another party,
the beneficiary of which is Anne S. Kirschner, of which 81,250 shares
of Class A Common Stock are held as security for a loan.
(d) These shares are held in an irrevocable trust created by another party,
the beneficiary of which is Arnold L. Hermelin.
(e) These shares are held in two irrevocable trusts created by another
party, the beneficiaries of which are Marc S. Hermelin (as to 1,112,869
shares of Class A Common Stock, of which 189,716 shares are held as
security for a loan, and 1,614,460 shares of Class B Common Stock) and
Minnette Hermelin (deceased), the mother of Marc S. Hermelin (as to
301,462 shares of Class A Common Stock, of which 106,250 shares are
held as security for a loan, and 1,022,625 shares of Class B Common
Stock, of which 180,000 shares are held as security for a loan).
(f) Includes 464,891 shares which are held as security for a loan.
(g) Includes 15,375 shares of Class A Common Stock and 52,875 shares of
Class B Common Stock that are held as security for a loan.
(h) These shares include 22,635 shares beneficially owned by the officer
listed herein, but constructively owned by relatives residing in his
home. In addition, includes 11,475 shares held as security for a loan.
Mr. Mitchell retired from the Company effective March 23, 2008.
(i) All of such shares are owned, or represented by shares purchasable as
set forth in footnote (a). In determining the percentage of shares
deemed beneficially owned by all directors and executive officers as a
group, the exercise of all options held by each person which are
currently exercisable or exercisable within 60 days of July 7, 2008, is
assumed. For such purposes, 37,755,933 shares of Class A Common Stock
and 12,163,482 shares of Class B Common Stock are assumed to be
outstanding.
In addition to the 37,755,933 shares of Class A Common Stock
outstanding as of July 7, 2008, 40,000 shares of the 7% Preferred Stock were
issued and outstanding. Each share of 7% Preferred Stock is convertible into
Class A Common Stock at a ratio of 8.4375 shares of Class A Common Stock for
each share of 7% Preferred Stock. Other than as required by law, holders of 7%
Preferred Stock have no voting rights. If all shares of the 7% Preferred Stock
were converted, the aggregate voting power thereof would be equivalent to the
voting power of 16,875 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, 50,538,715
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, which
includes options exercisable by all directors and executive officers currently
or within 60 days after July 7, 2008.
In addition, the Company issued $200.0 million principal amount of
Convertible Subordinated Notes due 2033 ("the Notes") that are convertible,
under certain circumstances, into shares of our Class A Common Stock at a
conversion price of $23.01 per share, subject to possible adjustment. At the
current conversion price, the Notes are convertible into 8,691,880 shares of
Class A Common Stock.
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PROPOSAL 1 - APPROVAL OF
AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION
At the meeting, you will be asked to approve an amendment (the
"Amendment") to the Company's Certificate of Incorporation (the "Certificate")
to eliminate the current classified board structure and provide for the annual
election of all directors. The Board of Directors has unanimously approved and
is recommending that stockholders approve the Amendment.
Article 8 of the Certificate currently provides that the Board of
Directors shall be divided into three classes as nearly equal in size as
possible, with members of each class serving for three-year terms. Article 8
also provides that any director elected by the Board to fill a vacancy
resulting from the death, resignation, disqualification or removal of a
director shall hold office for the unexpired portion of the term of the
director whose office was vacated. Any director elected as a result of an
increase in the size of the board will also serve the remainder of the term of
the class of director in which the new directorship was created.
If the Amendment is approved all directors will be elected annually
and each director elected at the 2008 Annual Meeting will hold office until
the 2009 annual meeting. If the Amendment is not approved, the Board of
Directors will remain classified, the Class C directors elected at the 2008
Annual Meeting will serve two-year terms expiring in 2010 and the Class A
directors elected at the 2008 Annual Meeting will serve three-year terms
expiring in 2011. All other directors will continue in office for the
remainder of their three-year terms.
In recent years, public companies with classified boards of
directors, including the Company, have increasingly received requests from
their stockholders to declassify their boards of directors. In light of
evolving standards of corporate governance practice for publicly held
companies, the Board of Directors has considered the advisability of changing
the terms served by the directors from three years to one year, and has
determined it would be advisable to change the terms served by directors from
three years to one year, such that each director would be subject to election
by the stockholders at each annual meeting.
The majority vote of the holders of shares of the Company's issued
and outstanding Class A Common Stock and Class B Common Stock, voting as a
single class, will be required for approval of the Amendment. Holders of Class
A Common Stock have one-twentieth vote per share and holders of Class B Common
Stock have one vote per share on this matter. The proposed Amendment, marked
to show the changes to the relevant sections, is attached to this proxy
statement as Appendix A. Deletions are marked as strike outs and additions are
----------
underlined. If approved, the Amendment will become effective upon filing with
the Secretary of State of the State of Delaware, which the Company intends to
do promptly following approval by stockholders at the 2008 Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION.
The directors have advised the Company that they intend to vote the
shares they beneficially own "FOR" the proposal to amend the Company's
Certificate of Incorporation. Accordingly, the Company expects that the
proposal will be approved.
8
PROPOSAL 2 - ELECTION OF EIGHT DIRECTORS
IF PROPOSAL 1 IS APPROVED
INFORMATION CONCERNING NOMINEES AND
DIRECTORS CONTINUING IN OFFICE
The Company's Certificate of Incorporation, as amended, currently
provides for a division of the Board of Directors into three classes. One of
the classes is elected each year to serve a three-year term. The terms of the
current Class C directors would have expired at the 2007 Annual Meeting and
the terms of the current Class A directors expire at the 2008 Annual Meeting.
Due to delays in its fiscal 2007 financial reporting, the Company did not hold
an annual meeting in 2007.
If Proposal 1 to amend the Company's Certificate of Incorporation to
provide for directors to be elected annually is approved, each director,
including Class C directors and Class A directors, will stand for reelection
at the 2008 Annual Meeting.
The Board of Directors has nominated Jean M. Bellin, Kevin S. Carlie,
Terry B. Hatfield, David S. Hermelin, Marc S. Hermelin, Ronald J. Kanterman,
Jonathon E. Killmer and Norman D. Schellenger for a term expiring at the
Company's annual meeting of its stockholders in 2009 if Proposal 1 is
approved. It is the intention of the persons named in the accompanying proxy,
unless otherwise directed, to vote for the election of each of these nominees.
The Company's Bylaws, as amended, specify that the number of
directors shall be determined by the Board of Directors from time to time. The
Board of Directors currently has set the number of directors at eight. There
are currently eight directors and no vacancies on the Board of Directors.
The following table lists, for each of the nominees for director,
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 serving continuously since first elected or
appointed), the directorship of each person, each person's age and each
person's directorships with other companies whose securities are registered
with the Securities and Exchange Commission and the class and current
expiration of such director's term as director.
CLASS C: ELECTED TO SERVE AS DIRECTORS UNTIL 2007
SERVICE AS A OCCUPATION, POSITION WITH COMPANY;
NAME AGE DIRECTOR SINCE OTHER DIRECTORSHIPS
- ---- --- -------------- -------------------
Jean M. Bellin 58 2003 President of Metagenics, Inc., a life
sciences company and distributor of
science-based medical foods and
nutraceuticals since September 2006; CEO of
Mountain View Pharmaceuticals, Inc., a
biopharmaceutical company focused on the
development of long-acting therapeutic
proteins; Vice President of Osteohealth
Company and Luitpold Animal Health from 2003
to 2004; CEO and Director of New Medical
Concepts from 1997 to 2001.
9
Terry B. Hatfield 60 2004 President of ZeaVision since 2003; Consultant
for merger and acquisition transactions from
2001 to 2003.
Norman D. Schellenger 76 1998 Director, ProEthics Pharmaceuticals, Inc.
since 2004; Retired from 1997 to 2004; Vice
President of Sales and Marketing of UCB
Pharma from 1995 to 1996; President of Whitby
Pharmaceuticals from 1992 to 1994.
CLASS A: ELECTED TO SERVE AS DIRECTORS UNTIL 2008
SERVICE AS A OCCUPATION, POSITION WITH COMPANY;
NAME AGE DIRECTOR SINCE OTHER DIRECTORSHIPS
- ---- --- -------------- -------------------
Kevin S. Carlie 52 2001 Member or Partner since 1984 in the Certified
Public Accounting Firm of Stone Carlie &
Company, LLC, and its predecessors.
Marc S. Hermelin 66 1973 Chairman of the Board since August 2006;
Chief Executive of the Company since 1974;
Vice Chairman of the Company from 1974 to
August 2006.
CLASS B: ELECTED TO SERVE AS DIRECTORS UNTIL 2009
SERVICE AS A OCCUPATION, POSITION WITH COMPANY;
NAME AGE DIRECTOR SINCE OTHER DIRECTORSHIPS
- ---- --- -------------- -------------------
David S. Hermelin (a) 41 2004 Vice President of Corporate Strategy and
Operations Analysis of the Company since
2002; Vice President of Corporate Planning
and Administration from 1995 to 2002; Manager
of Strategic Planning and Administration from
1993 to 1995; Manager of Business Development
from 1990 to 1993.
Jonathon E. Killmer 66 2006 Retired in 2004; Consultant of Hypercom
Corporation, an electronic payment products
and services company from 2002 to 2004.
Presently, Chairman of Blue Plus, a Minnesota
domiciled HMO.
Ronald J. Kanterman 54 2008 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary since March
2008; Vice President, Strategic Financial
Management, Treasurer and Assistant Secretary
from March 2006 to March 2008; Vice
President, Treasury from January 2004 to
March 2006; Partner at Brown Smith Wallace,
LLP from 1993 to 2004; Partner at Arthur
Andersen & Co., from 1987 to 1993.
<FN>
- ---------------------
(a) David S. Hermelin is the son of Marc S. Hermelin.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THE
NOMINEES FOR DIRECTOR NAMED ABOVE IF PROPOSAL 1 IS APPROVED.
10
PROPOSAL 3 - ELECTION OF THREE CLASS C DIRECTORS
IF PROPOSAL 1 IS NOT APPROVED
As described above, the Company's Certificate of Incorporation, as
amended, currently provides for a division of the Board of Directors into
three classes. One of the classes is elected each year to serve a three-year
term. The terms of the current Class C directors would have expired at the
2007 Annual Meeting if such meeting had been held by the Company. If Proposal
1 is not approved at the 2008 Annual Meeting, the stockholders will elect
three Class C directors at the 2008 Annual Meeting.
The Board of Directors has nominated Jean M. Bellin, Terry B.
Hatfield and Norman D. Schellenger for a term expiring at the Company's annual
meeting of its stockholders in 2010 if Proposal 1 is not approved at the 2008
Annual Meeting. It is the intention of the persons named in the accompanying
proxy, unless otherwise directed, to vote for the election of each of these
Class C nominees if Proposal 1 is not approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THE
NOMINEES FOR CLASS C DIRECTOR NAMED ABOVE IF PROPOSAL 1 IS NOT
APPROVED.
PROPOSAL 4 - ELECTION OF TWO CLASS A DIRECTORS
IF PROPOSAL 1 IS NOT APPROVED
As described above, the Company's Certificate of Incorporation, as
amended, currently provides for a division of the Board of Directors into
three classes. The terms of the current Class A directors expire at the 2008
Annual Meeting. If Proposal 1 is not approved at the 2008 Annual Meeting, the
stockholders will elect two Class A directors at the 2008 Annual Meeting.
The Board of Directors has nominated Kevin S. Carlie and Marc S.
Hermelin for a term expiring at the Company's annual meeting of its
stockholders in 2011 if Proposal 1 is not approved at the 2008 Annual Meeting.
It is the intention of the persons named in the accompanying proxy, unless
otherwise directed, to vote for the election of each of these Class A nominees
if Proposal 1 is not approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THE
NOMINEES FOR CLASS A DIRECTOR NAMED ABOVE IF PROPOSAL 1 IS NOT
APPROVED.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
DETERMINATION OF DIRECTOR INDEPENDENCE
Under our criteria for director independence set forth in our
Corporate Governance Guidelines, which meet the standards in the rules of the
New York Stock Exchange ("NYSE"), a director of the Company only qualifies as
"independent" if our Board of Directors affirmatively determines that the
director has no material relationship with the Company (either directly or as
a partner, shareholder or officer of an organization that has a relationship
with the Company). Our Board of Directors applies our Corporate Governance
Guidelines to assist it in determining whether a director has a material
relationship with the Company. Under these guidelines, a director is not
considered to have a material relationship
11
with the Company if he or she does not meet any of the exceptions for
determining independence listed in the guidelines. The Company's Corporate
Governance Guidelines are available on its website at http://www.kvph.com and
can be obtained free of charge by written request to the attention of the
Assistant Secretary of the Company at the address appearing on the first page
of this Proxy Statement or by telephone at (314) 645-6600.
Our Board of Directors has determined that Messrs. Schellenger,
Killmer, Carlie, Bellin and Hatfield are "independent" as determined under our
corporate governance guidelines and Section 303A.02 of the NYSE Listed Company
Manual.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS; CORPORATE GOVERNANCE
The business and affairs of our Company are overseen by our Board of
Directors, which currently consists of eight members.
During fiscal 2008, the Board of Directors held nine meetings, the
Audit Committee held ten meetings, the Compensation Committee held one meeting
and the Nominating and Corporate Governance Committee held one meeting. In
addition, the independent directors are scheduled to meet twice annually in
executive sessions in conjunction with the regularly scheduled in-person
meetings of the Board of Directors and the presiding director of such meetings
rotates among the independent directors. During the fiscal year, each director
attended no fewer than 75% of the aggregate of (1) the total number of
meetings of the Board of Directors held during that portion of the 2008 fiscal
year during which he was a director and (2) the meetings held during the
period by all committees of the Board of Directors on which he served during
that portion of the 2008 fiscal year. We encourage each director to attend the
Annual Meeting of Stockholders. The Company did not hold an annual meeting
during its 2007 fiscal year due to delays in its financial reporting. All
directors were present at the Company's 2006 Annual Meeting of Stockholders.
The Board of Directors currently has three standing committees,
namely Audit, Compensation, and Nominating and Corporate Governance. Each of
these committees is comprised solely of independent directors in accordance
with the New York Stock Exchange listing standards. A charter for each
committee is available on the Company's website at http://www.kvph.com and can
be obtained free of charge at the Company's address appearing on the first
page of this proxy statement by written request to the attention of the
Assistant Secretary or by telephone at (314) 645-6600.
Audit Committee
Structure and Responsibilities. The Company has a standing Audit
------------------------------
Committee of the Board of Directors consisting of Kevin S. Carlie, CPA
(Chairman), Jonathon E. Killmer and Terry B. Hatfield. The Company's Board of
Directors adopted the Audit Committee's written charter. The Board of
Directors has determined that each member of the Audit Committee meets the
standards of independence required by our Corporate Governance Guidelines and
the New York Stock Exchange, as well as the independence requirements for
audit committee members under Rule 10A-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In addition, the Board
of Directors has determined that each member is financially literate and
possesses sufficient accounting or related financial management expertise
within the meaning of the listing standards of the New York Stock Exchange and
that each of Mr. Carlie and Mr. Killmer qualifies as an "audit committee
financial expert" under the definition set forth in Item 407(d)(5) of
Regulation S-K. The Audit Committee annually appoints the Company's
independent registered public accounting firm, reviews with the independent
registered public accounting firm a plan and scope of the audit and audit
fees, meets periodically with representatives of the independent registered
public accounting firm, the internal auditors, the Board of Directors and
management to monitor the adequacy of reporting, internal controls and
compliance with
12
the Company's policies, reviews its annual and interim consolidated financial
statements and performs the other functions or duties provided in the Audit
Committee Charter.
Fostering Confidential and Anonymous Employee Reporting. The Audit
-------------------------------------------------------
Committee has adopted a complaint monitoring procedure to enable confidential
and anonymous reporting to the Audit Committee of concerns regarding, among
other things, questionable accounting or auditing matters. The Audit Committee
Policy on Employee Complaint Procedures for Accounting and Auditing Matters is
available on the Company's website at http://www.kvph.com or can be obtained
free of charge by written request to the attention of the Assistant Secretary
of the Company at the address appearing on the first page of this proxy
statement or by telephone at (314) 645-6600.
Compensation Committee
Structure and Responsibilities. The Compensation Committee currently
------------------------------
consists of Jonathon E. Killmer (Chairman) and Norman D. Schellenger. These
were the only individuals that served on the Compensation Committee during
fiscal 2008. The Board of Directors has determined that Mr. Schellenger and
Mr. Killmer are independent directors as defined by the New York Stock
Exchange. The Compensation Committee's responsibilities include: (1) reviewing
the Company's compensation policy, (2) reviewing and evaluating the
competitiveness of the total compensation of the Company's executive officers,
(3) determining and approving the Chief Executive Officer's compensation based
on an evaluation of the Chief Executive Officer's performance and the
Company's performance, and (4) approving and administering the Company's
compensation and equity-based incentive plans and authorizing grants or awards
under these plans.
The Annual Compensation Process. In determining the appropriate
-------------------------------
aggregate and individual executive compensation levels for the performance
year, the Compensation Committee considers quantitative performance results,
the overall need to attract, retain and incentivize the executive team, and
the total cost of the compensation program to the Company.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists
of Terry B. Hatfield (Chairman) and Kevin S. Carlie. The Board of Directors
has determined that each member of the Nominating and Corporate Governance
Committee is independent under our Corporate Governance Guidelines and meets
the definition of independence adopted by the New York Stock Exchange. The
Nominating and Corporate Governance Committee is responsible for: (1)
establishing standards for the functioning of the Board of Directors and
evaluating the overall functioning and performance of the Board of Directors
and its Committees, (2) identifying and recommending individuals qualified to
become directors and selecting, or recommending to the Board of Directors to
select, the director nominees for the annual meetings of stockholders, (3)
developing and overseeing the Company's Corporate Governance Guidelines, (4)
approval of certain related party transactions, and (5) other matters of
corporate governance.
The Nominating and Corporate Governance Committee will accept for
consideration stockholders' nominations for directors if made in writing. The
nominee's written consent to the nomination and sufficient background
information on the candidate must be included to enable the committee to make
proper assessments as to his or her qualifications. Nominations must be
addressed to the Assistant Secretary of the Company at its address appearing
on the first page of this proxy statement. The Nominating and Corporate
Governance Committee may also conduct its own search for potential candidates
that may include candidates identified directly by a variety of means as
deemed appropriate by the Committee. Irrespective of how a candidate may be
brought to the Nominating and Corporate
13
Governance Committee's attention, at the appropriate time, qualified
candidates may be asked to conduct one or more personal interviews with
appropriate directors. Chosen candidates are extended an invitation to join
the Board of Directors and, if the candidate accepts, he or she is formally
nominated for election by stockholders.
The Board of Directors has adopted a set of corporate governance
guidelines establishing general principles with respect to, among other
things, director qualifications and responsibility. These Corporate Governance
Guidelines establish certain criteria, experience and skills requirements for
potential candidates. There are no established term limits for service as a
director of the Company. In general, it is expected that each director of the
Company will have the highest personal and professional ethics and integrity
and be devoted to representing the interests of the Company and its
stockholders. In addition, it is expected that the Board of Directors as a
whole will be made up of individuals with diverse experience in business and
technology related to the business and strategic direction the Company may be
interested in pursuing. The Company's Corporate Governance Guidelines are
available on its website at http://www.kvph.com and can be obtained free of
charge by written request to the attention of the Assistant Secretary of the
Company at the address appearing on the first page of this proxy statement or
by telephone at (314) 645-6600.
Standards of Business Ethics Policy
All directors and employees of the Company, including its Chief
Executive Officer, Chief Financial Officer, Chief Accounting Officer and other
principal finance and accounting officers, are required to comply with the
Company's Standards of Business Ethics Policy to ensure that the Company's
business is conducted in a legal and ethical manner. The Company's Standards
of Business Ethics Policy covers all areas of professional conduct, including
employment policies and practices, conflicts of interest and the protection of
confidential information, as well as strict adherence to all laws and
regulations applicable to the conduct of our business. Employees and directors
are required to report any suspected violations of our Standards of Business
Ethics Policy. The Company, through the Audit Committee, has procedures in
place to receive, retain and treat complaints received regarding accounting,
internal accounting control or auditing matters and to allow for the
confidential and anonymous submission by employees of concerns regarding
questionable accounting or auditing matters. The Company's Standards of
Business Ethics Policy can be reviewed on the Company's website,
http://www.kvph.com, or by contacting the Company at the address appearing on
the first page of this proxy statement to the attention of the Assistant
Secretary, or by telephone at (314) 645-6600.
The Company has also established a Senior Executives Code of Ethics
as a supplement to the Standards of Business Ethics Policy. The Senior
Executives Code of Ethics applies to the Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer and any other officer of the
Company serving in a finance, accounting, treasury, tax or investor relations
role. The Senior Executives Code of Ethics requires each of such officers to
provide accurate and timely information related to the Company's public
disclosure requirements. The Company's Senior Executives Code of Ethics can be
reviewed on the Company's website, http://www.kvph.com, or by contacting the
Company at the address appearing on the first page of this proxy statement to
the attention of the Assistant Secretary, or by telephone at (314) 645-6600.
The Company intends to post any amendment to, or waiver of, the Senior
Executives Code of Ethics on its website.
14
COMPENSATION OF DIRECTORS
The following table sets forth the annual compensation to
non-employee directors for the fiscal year ended March 31, 2008:
------------------------------------------------------------------------------------
FEES
EARNED OR
PAID IN OPTION
CASH STOCK AWARDS ($) TOTAL
NAME ($) AWARDS ($) (1) ($)
------------------------------------------------------------------------------------
Jean M. Bellin 21,125 - 15,228 36,353
------------------------------------------------------------------------------------
Kevin S. Carlie 39,795 - 41,077 80,872
------------------------------------------------------------------------------------
Terry B. Hatfield 48,475 - 13,771 62,246
------------------------------------------------------------------------------------
Jonathon E. Killmer 42,200 - 6,759 48,959
------------------------------------------------------------------------------------
Norman D. Schellenger 28,100 - 5,989 34,089
------------------------------------------------------------------------------------
<FN>
- ---------------------
(1) Option awards represent the compensation expense recognized for
financial statement reporting purposes for the fiscal year ended
March 31, 2008 in accordance with SFAS 123(R) for stock options
granted in and prior to fiscal 2008. Fair value is based on the
Black-Scholes option pricing model using the fair value of the
underlying shares at the measurement date. For additional discussion
on the valuation assumptions used in determining stock-based
compensation and the grant date fair value for stock options, see
Stock-Based Compensation in Note 16 of the Notes to our Consolidated
Financial Statements. Effective as of March 31, 2008, the following
Non-Officer Directors had the following outstanding unexercised
options (the amounts in the table reflect the effect of repricing
certain stock options as a result of the Special Committee's
investigation into the Company's stock option grant practices. See
"Explanatory Note" in our Annual Report on Form 10-K for the fiscal
year ended March 31, 2007):
---------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING OPTIONS (#)
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B OPTION OPTION OPTION GRANT
COMMON COMMON EXERCISE EXPIRATION DATE FAIR
NAME STOCK STOCK PRICE ($) DATE VALUE ($)
---------------------------------------------------------------------------------------------------------
Jean M. Bellin 7,500 18.87 5/23/2008 85,225
2,500 18.42 9/10/2009 26,973
2,500 19.99 11/01/2010 30,067
---------------------------------------------------------------------------------------------------------
Kevin S. Carlie 450 19.37 4/01/2008 5,893
2,500 18.42 9/10/2009 26,973
7,500 19.70 11/01/2010 88,358
2,000 23.70 10/05/2011 25,302
---------------------------------------------------------------------------------------------------------
Terry B. Hatfield 5,000 25.25 6/29/2009 73,283
2,500 18.42 9/10/2009 26,973
2,500 19.26 11/01/2010 28,524
---------------------------------------------------------------------------------------------------------
15
---------------------------------------------------------------------------------------------------------
Jonathon E. Killmer 5,000 23.80 10/05/2011 63,522
---------------------------------------------------------------------------------------------------------
Norman D. Schellenger 2,500 18.42 9/10/2009 25,903
2,500 19.99 11/01/2010 30,067
---------------------------------------------------------------------------------------------------------
Additional Information About Director Compensation
--------------------------------------------------
Director Compensation is designed to attract individuals who have the
required background, experiences and functional expertise to provide strategic
direction and oversight to the Company. Only those directors who are not also
officers of the Company are compensated for their services as directors of the
Company ("Non-Officer Directors"). With respect to such Non-Officer Directors,
the Compensation Committee of the Board recommends the appropriate levels of
compensation to the Board, and the full Board of Directors approves the actual
compensation to be paid to the Non-Officer Directors.
The Company's director compensation program consists of a
combination of cash compensation and stock options in order to align the
interest of the directors with those of the Company's shareholders.
Basic Retainer - The cash compensation component for Non-Officer
Directors consists of a base retainer of $15,000 per year ($20,000 for the
Chairman of the Audit Committee).
Meeting Fees - In addition, such directors also receive $1,000 per
day for in-person meetings of the Board of Directors or other Committees on
which the director serves. Fees for telephonic meetings are $500. Total annual
compensation received by the Non-Officer Directors, therefore, is determined
by the number of Committee and Board meetings attended each year.
Expense Reimbursement - The Company also pays for the reasonable
out-of-pocket expenses incurred by the Non-Officer Directors for attendance at
Board of Directors and Committee meetings.
Stock Options - As stated above, the stock option component of the
director compensation program is designed to align the interest of the
directors with those of the Company's shareholders. As such, upon appointment
as a director, each Non-Officer Director is currently granted options to
acquire 7,500 shares of Class B Common Stock. Subsequent grants for
Non-Officer Directors who are not members of the Compensation Committee are
determined periodically by the Board based on the recommendation of the
Compensation Committee. Subsequent grants for members of the Compensation
Committee are determined periodically by the Board. Such options are granted
as non-qualified options under the Company's Incentive Stock Option Plan and
generally vest ratably over five years. The shares acquired upon exercise are
subject to a two-year forfeiture period, during which time they cannot be
sold.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, the Company's 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 Securities and Exchange
Commission 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 reports were required to be
filed,
16
the Company believes that such persons complied with all Section 16(a) filing
requirements applicable to them with respect to transactions during fiscal
2008 except that Jean Bellin, Rita Blesser, Terry Hatfield, Ronald Kanterman
and Gerald Mitchell each filed one late report during fiscal 2008.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION;
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Since June 2004, the Compensation Committee of the Board of Directors
has deliberated and taken any required actions regarding the compensation of
the Company's executive officers and reviewed the compensation process for the
entire Company.
Victor M. Hermelin, the founder and Chairman Emeritus of the Company
and father of Marc S. Hermelin, received a salary, consulting fees and other
compensation of $142,970, $156,060 and $7,077, respectively, during fiscal
2008.
Marc S. Hermelin, the Chairman and Chief Executive Officer of the
Company, is a partner in a partnership that leases certain real property to
the Company. Lease payments made by the Company to the partnership for this
property during fiscal 2008 totaled $273,819.
In accordance with an investigation by a Special Committee of the
Board of Directors of the Company's stock option grant practices, a
remediation plan was developed by the Special Committee that recommended
reimbursement of $1,401,000 by Mr. Hermelin. The recommended reimbursement was
made by Mr. Hermelin in November 2007 by delivery to the Company of 45,531
shares of Class A Common Stock.
David S. Hermelin, the son of Marc S. Hermelin, is a director and is
employed by the Company as Vice President, Corporate Strategy and Operations
Analysis. Pursuant to the terms of his employment agreement with the Company,
for fiscal 2008, David S. Hermelin received a salary, earned incentive and
other compensation of $277,178, $93,300 and $8,274, respectively, from the
Company.
Sarah R. Weltscheff is employed by the Company as Senior Vice
President, Human Resource Management and Corporate Communications. Ms.
Weltscheff and Marc S. Hermelin are married under religious law. For fiscal
2008, Ms. Weltscheff received a salary, earned incentive and other
compensation of $343,608, $165,000, and $8,766, respectively, from the
Company. In addition, Ms. Weltscheff exercised options during the fiscal year
with a realized value of $1,242,745. Realized value is based on the difference
between the market price of the stock on the date of exercise and the exercise
price.
Procedures for Approving Related Party Transactions
---------------------------------------------------
Pursuant to the written policies and procedures adopted by the Board
of Directors of the Company (the "Related Party Transaction Guidelines"), the
Nominating and Corporate Governance Committee is responsible for reviewing,
approving and ratifying all related party transactions. A related party
transaction is any transaction in which the Company is a party, and in which
an executive officer, director, nominee for director, a shareholder owning 5%
or more of the Company's securities or any of such person's immediate family
members, is a party or is known by the Company to have a direct or indirect
material benefit. In cases where a member of the Nominating and Corporate
Governance Committee is a party to the related party transaction, such member
shall not participate in approving the transaction. Compensation paid to
related parties or their immediate family members need not be approved if (1)
the total compensation amount is less than $120,000 a year, or (2) the
compensation has otherwise been approved by the Compensation Committee or the
Board of Directors.
In determining whether a related party transaction is in, or not
opposed to, the Company's best interest, the Nominating and Corporate
Governance Committee may consider any factors deemed relevant or appropriate,
including (but not be limited to):
o whether there are any actual or apparent conflicts of
interest;
17
o the nature, size or degree of those conflicts;
o whether such conflicts may be mitigated;
o the potential benefits and detriments to the Company of such
related party transaction;
o whether the nature or terms of the related party transaction
are unusual; and
o whether steps have been taken to ensure fairness to the
Company.
In making its decision, the Nominating and Corporate Governance
Committee may consider the Company's compliance officer's written
recommendation as to issues raised under the Company's Standard of Business
Ethics Policy. In addition, the Nominating and Corporate Governance Committee
may seek such additional information as it deems necessary, including, without
limitation, any other legal or expert advice considered appropriate. All
transactions above were approved under the Company's related party transaction
guidelines.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee of the Company's Board of Directors is
responsible for establishing and periodically reviewing the Company's
executive compensation philosophy and guiding principles. No less frequently
than annually, the Compensation Committee evaluates its plans and policies
against current and emerging competitive practices, legal and regulatory
developments and corporate governance trends. The purpose of the review is to
provide assurance that in light of the changing corporate environment, the
Company's executive compensation program continues to help attract and retain
the talent necessary to foster strong sales growth, long-term financial
performance and shareholder returns.
Compensation and Benefits Philosophy
- ------------------------------------
The Company's executive compensation program is designed with the
goal of providing compensation that is fair, reasonable and competitive. The
program is intended to help the Company recruit and retain highly qualified
and experienced executives and to provide rewards that are linked to
performance while also aligning the interests of executives with those of the
Company's shareholders. The program is based on the following guiding
principles:
Performance - The Company believes the best way to accomplish
alignment of compensation plans with the interest of its shareholders is to
link executive pay directly to the Company's performance.
Competitiveness - The Company's executive compensation and benefits
program is designed to be competitive with those provided at companies in the
pharmaceutical and drug delivery industries for similar talent. The benefits
component of the program is designed to provide competitive levels of
protection and financial security and is not based on individual performance.
Cost - The Company's total compensation and benefit program is
designed to be cost-effective and affordable, ensuring that the interests of
the Company's shareholders are considered in determining executive pay levels.
The Company seeks to adequately fund its executive compensation program while,
at the same time, ensuring that enough funding remains for its short-term and
long-term goals.
The Company believes that its philosophy of aligning management and
shareholder interests is an important element in creating an environment of
trust and teamwork that furthers the long-term interests of the organization.
18
Components of Total Compensation
- --------------------------------
The Company's total compensation program for executive officers has
two main components: direct compensation and benefit plans.
The key components of direct compensation for executive officers are:
Base salary - Base salary is designed to attract and retain highly
experienced executives who can manage the Company to achieve its short-term
and long-term strategic goals. Executive salaries are based on an individual's
overall experience, Company tenure, level and scope of responsibility and the
general and industry-specific business competitive environment.
Cash earned incentives - This component of direct compensation is
designed to place a significant portion of an executive's annual compensation
at risk - that is, linked to both the Company's and the individual's annual
performance. Cash earned incentives are based on individual performance,
performance of the Company and performance of the department or division under
the responsibility of the executive, measured in terms of the attainment of
both defined and general objectives.
Stock option grants - This component of direct compensation is
designed to strengthen the link between compensation and returns for
shareholders and, thereby, align management's interest in the Company's
long-term success with the interests of the Company's shareholders. Awards
granted to executive officers are discretionary under the Company's Incentive
Stock Option Plan. The size of individual awards is dependent upon the
executive's position, tenure and number of vested and previously exercised
options.
The above-described criteria are applied to each executive officer
subjectively, based upon the Compensation Committee's evaluation of each
executive officer's performance and value to the Company.
Benefit plans for executive officers include:
Insurance plans - The Company provides standard company-sponsored
insurance plans to its employees, including the executive officers. The core
insurance package includes health, dental, disability and basic group life
insurance coverage. In general, executives participate in these benefits on
the same basis as other Company employees.
401(k) Plan - Through the Company's 401(k) Plan the named executive
officers are provided an opportunity to save for retirement on a tax-favored
basis. Participation in the 401(k) Plan is generally available to all Company
employees the beginning of each pay period (except for union employees covered
by a collective bargaining agreement). The Company matches employee
contributions to the 401(k) Plan at 50% of the first 7% of the employee's
contributions.
Perquisites - Executives are generally provided a car allowance or
use of a company car. The Chief Executive Officer is entitled to receive
certain perquisites under the terms of his employment agreement, which are
more fully described in the footnotes to the Summary Compensation Table under
the heading "Other Compensation."
Determining Benefit Levels. The Compensation Committee periodically
reviews the benefits offered to the executives to ensure that the benefits
program provided is competitive and cost-effective for the Company, and
support its need for a qualified and experienced executive team. The benefits
19
component of the executive compensation program is not tied to the Company's
or individual performance.
Establishing Overall Compensation Levels. The Company makes this
decision based on the competitive market value for the area of responsibility
as well as the education and experience of the executive.
Direct compensation levels (base salary, cash earned incentive and
stock option grant awards) are established based on performance. The
performance factor consists of how well the individual executive and her or
his area of responsibility performed against goals and objectives which were
established before the fiscal year commenced as well as how the executive
promoted an environment of results, teamwork and talent development in their
areas of responsibility.
Determining Incentive Compensation Allocation - Annual and Long-Term
Incentives - The amount allocated to annual versus long-term compensation is
determined based on the amount of available funding for the Company's overall
compensation programs, including executive compensation. The overall funding
levels are ultimately subject to the judgment and approval of the Compensation
Committee to ensure an appropriate alignment with the interests of the
Company's shareholders and the Company's ability to meet its long-term
strategic goals. In determining individual executive officer pay levels, the
Compensation Committee considers the total compensation to be delivered to
individual executives and, as such, may exercise discretion in determining the
portion allocated to annual versus long-term incentives. The Company believes
this "total compensation" approach - permitting flexibility to shift the mix
of annual and long-term compensation - provides the ability to align pay
decisions with the short- and long-term needs of the business. It also allows
for the flexibility needed to recognize differences in performance by
providing differentiated pay.
Each named executive officer is evaluated on an annual basis and, to
the extent the Compensation Committee determines to grant options to such
named executive officer, options are typically granted at the end of the
review period. The Company has not adopted any policy with respect to
coordinating option grant dates with the release of material non-public
information. Rather, the grant date with respect to any options granted to a
named executive officer generally is the date the Compensation Committee
determines to grant such options. In general, stock options are granted on a
Company-wide basis on the last trading day of each fiscal quarter. As such,
there may be times when the Compensation Committee grants options when the
Board or Compensation Committee is in possession of material non-public
information. The Compensation Committee typically does not take such
information into account when determining whether and in what amount to make
option grants.
Determining Individual Compensation Levels
- ------------------------------------------
Named Executive Officers Other than the Chief Executive Officer.
Compensation levels for named executive officers are determined based on the
overall performance of the Company and individual performance, as well as the
executive's experience and tenure at the Company.
Individual performance objectives target specific areas for
improvement or set specific goals against key performance indicators within an
executive's area of responsibility. The objectives are proposed by the
executive and approved by a committee that includes the Chief Executive
Officer.
(1) Base Salary. The Company grants regular, annual base salary
-----------
increases to executives who are performing at or above expectations at the
beginning of each fiscal year. Among other factors, annual increases seek to
achieve an appropriate competitive level to account for increases in the cost
of
20
living and similar factors and/or to address changes in the external
competitive market for a given position.
(2) Cash Earned Incentives and Stock Option Awards. Cash earned
----------------------------------------------
incentives for executive officers are generally determined based on the terms
of their individual Incentive Plans. These plans typically provide for a range
of pay-outs expressed as a percentage of annual salary that are tied to the
successful completion of the executive's individual and department performance
objectives. At the end of the fiscal year, each executive's performance
against his or her objectives is evaluated by a committee that includes the
Chief Executive Officer to determine the incentive pay-out level per the
Incentive Plan. These evaluations are submitted to the Compensation Committee
for approval along with the Incentive Plan for review after the end of the
fiscal year when incentive compensation decisions are made.
The Company has adopted Incentive Compensation Plans with certain
executive officers, for the fiscal year ended March 31, 2008, to reward
achievement of certain corporate objectives, as determined at fiscal year end.
The officer is entitled to receive a percentage of his/her base salary as
determined by the percentage of goals achieved. If the employee is actively
employed at fiscal year-end, incentives are payable in one lump sum within 90
days. If the participant is promoted or transferred within the Company to a
position of greater or equal authority, all eligibilities under the plan
terminate unless otherwise stipulated.
The Company adopted fiscal 2008 Incentive Compensation Plans for
Ronald J. Kanterman, Vice President and Chief Financial Officer, David A. Van
Vliet, Chief Administration Officer, and Gregory S. Bentley, Senior Vice
President and General Counsel, rewarding each for achieving specific
objectives.
Under the terms of his Incentive Compensation Plan, Mr. Kanterman was
entitled to receive up to 15% of his base salary for achieving corporate
objectives, projects and tasks and special projects assigned to his areas of
responsibility. Based on his achievement of objectives under his Incentive
Compensation Plan, Mr. Kanterman was awarded compensation of $42,900 for the
2008 fiscal year.
Under the terms of his Incentive Compensation Plan, Mr. Van Vliet was
entitled to receive up to 50% of his base salary for achieving business
objectives for the pharmaceutical division and corporate objectives in the
areas of human resource management and corporate communications. Mr. Van Vliet
could receive up to 35% of his base salary for achieving business objectives
for the pharmaceutical division and up to 15% of his base salary for achieving
corporate objectives in the areas of human resource management and corporate
communications. Based on his achievement of objectives under his Incentive
Compensation Plan, Mr. Van Vliet was awarded compensation of $64,500 for the
2008 fiscal year.
Under the terms of his Incentive Compensation Plan, Mr. Bentley was
entitled to receive up to 30% of his base salary for achieving corporate
objectives, projects and tasks and special projects assigned to his areas of
responsibility. Based on his achievement of objectives under his Incentive
Compensation Plan, Mr. Bentley was awarded compensation of $94,500 for the
2008 fiscal year.
The Company did not adopt a fiscal 2008 Incentive Compensation Plan
for Michael Anderson, Vice President of Industry Presence and Development. Mr.
Anderson was awarded a discretionary bonus of $75,000 for the 2008 fiscal
year.
The Company believes that the design of its variable compensation
program supports its overall compensation objectives by: allowing for
significant differentiation of pay based on performance; providing the
flexibility necessary to ensure that pay packages for the executive officers
are competitive relative to the external market; and providing the Committee
with the ability to deliver compensation in a
21
manner that is linked to results that benefit the Company's shareholders, and
appropriately reflects the contributions of each executive to the short- and
long-term success of the Company.
Chief Executive Officer. The Chief Executive Officer's compensation
is based upon an evaluation of the compensation received by chief executive
officers at similarly situated companies, historical performance of the Chief
Executive Officer and the terms of his employment agreement. For a description
of the compensatory elements of the employment agreement please refer to the
information under "--Employment Arrangements with Named Executive Officers"
below.
Employment Arrangements with Named Executive Officers
Chief Executive Officer
The Company has an employment agreement with Marc S. Hermelin,
Chairman and Chief Executive Officer, that commenced in 1996 and was extended
in November 2004 through March 2010, and which automatically renews for
successive 12-month periods thereafter unless terminated by Mr. Hermelin or
the Company. Pursuant to the terms of his employment agreement, Mr. Hermelin's
base compensation increases annually by the greater of the consumer price
index (CPI) or 8%. Mr. Hermelin's base salary for fiscal 2008 was $1,383,847
and for fiscal 2007 was $1,281,764. In addition, Mr. Hermelin is entitled to
receive an incentive bonus based on the Company's net income for each fiscal
year. The annual bonus is calculated on and payable with respect to the level
of net income reported by the Company for each fiscal year as follows: for net
income of $200,000 and below, the bonus percentage is zero; for net income
between $200,000 and $600,000, the bonus percentage is 5%; for net income
between $600,000 and $3,000,000 the bonus percentage is 7%; for net income
between $3,000,000 and $5,000,000, the bonus percentage is 6%; for net income
between $5,000,000 and $10,000,000, the bonus percentage is 5%; and for net
income in excess of $10,000,000, the bonus percentage is 4%.
The bonus is payable in one or more of the following forms: stock
options, shares of restricted stock, discounted stock options or cash, as
agreed upon by the Company and Mr. Hermelin. Mr. Hermelin is also provided the
use of a Company vehicle and an annual allowance up to $10,000 for personal
financial planning services. Mr. Hermelin may elect to defer up to 50% of his
base salary and up to 100% of any bonus during his employment pursuant to the
terms of a Deferred Compensation Plan effective January 1, 1997. As of March
31, 2008, Mr. Hermelin has not elected to defer any compensation.
Mr. Hermelin is also insured under life insurance policies for which
the premiums are to be repaid to the Company out of policy proceeds, in
accordance with split-dollar agreements between the Company and Mr. Hermelin
dated July 1, 1990, November 8, 1991 and June 9, 1999. Mr. Hermelin has the
right to name the beneficiaries of these insurance policies. Mr. Hermelin is
entitled to participate in the Company's group life and health insurance
programs or other comparable coverage at the Company's expense for the
duration of his life.
Upon his retirement, Mr. Hermelin is entitled to receive compensation
for consulting services and consideration for complying with certain
restrictive covenants, paid in the form of a single life annuity equal to 15%
of final average base salary/bonus for each, and retirement benefits in the
form of single life annuity payments equal to 30% of final average base
salary/bonus. Such payments would be adjusted annually by the greater of CPI
or 8% for the longer of ten years or life, and continue the longer of ten
years or life, payable to his beneficiaries upon his death. Final average base
salary/bonus is the average of total salary/bonus paid for the three highest
consecutive years in the five-year period ending coincident with the
retirement date.
22
Under the terms of his employment agreement, Mr. Hermelin is entitled
to benefits in the event of his termination other than voluntary termination,
retirement or termination as a result of death or disability, or if his
employment is terminated following a change in control of the Company. Please
see "--Potential Payments Upon Termination or Change-in-Control" for a
description of these benefits.
Based on a recommendation from the Compensation Committee, in 2004
the Board of Directors approved an amendment to the Chief Executive Officer's
employment agreement extending it to March 31, 2010. The recommendation to
extend the agreement was based on the Chief Executive Officer's performance.
The decision to extend the agreement considered the background and experience
of the Chief Executive Officer relative to the Company, the historical
performance of the Company during his tenure and the determination that
provisions needed to be made for a succession plan in the event he was not
available to continue as CEO for any reason.
In 2004, the Compensation Committee engaged Watson Wyatt, a
compensation, employee benefit and human resources consulting firm, to review
the terms of Mr. Hermelin's employment agreement to determine if his
compensation package and contract terms were fair and reasonable relative to
industry standards and comparable peer groups. Watson Wyatt concluded that the
sum of the financial components in the employment contract was competitive
with the median total direct compensation of comparable peer group companies.
While Mr. Hermelin's salary and bonus were at the high end of the range within
the group, long-term incentives were low resulting in total compensation below
the peer group's median.
In reaching its conclusion, Watson Wyatt compared Mr. Hermelin's
compensation to a peer group of 13 companies in the pharmaceutical industry
similar in size to the Company. Mr. Hermlin's total direct compensation (base
salary, bonus and stock option grants) was between the 25th percentile and
median of the peer group. Mr. Hermelin's base salary and bonus were in the top
quartile of the peer group, whereas his long-term incentives were below the
25th percentile of the peer group. Watson Wyatt noted that Mr. Hermelin had 31
years experience at the Company and 29 years as the Company's Chief Executive
Officer, while the tenures of chief executives in the peer group ranged from
one to 21 years with an average of 9.7 years.
Watson Wyatt also concluded that the provisions of Mr. Hermelin's
employment contract were within the range of market practices. It observed out
that all provisions were within the market range, such as annual salary
increase, the bonus formula, continued medical coverage and certain charitable
contributions. Although Watson Wyatt noted that terms providing for retirement
consulting arrangements and payments for non-compete covenants were not
typical in employment agreements, it again pointed out that Mr. Hermelin's
tenure was significantly longer than the chief executive officers of the peer
companies.
The Compensation Committee also reviewed a Bank of America report on
chief executive officers' compensation in the specialty pharmaceutical
industry. The Bank of America report reviewed compensation practices of 21
specialty pharmaceutical companies. Based on the report, Mr. Hermelin's then
total compensation package of $2.6 million was less than both the median and
average total compensation packages of $3.6 million and $4.5 million paid to
chief executive officers in the specialty pharmaceutical sector. The study
also provided, and the Compensation Committee considered, the mix of cash and
non-cash (such as stock options) in chief executive officers' compensation
packages, the dilutive effect of stock options granted to chief executive
officers, and stock option compensation paid to the peer group chief executive
officers.
23
Other Named Executive Officers
Consistent with the Company's executive compensation program, the
other named executive officers have employment agreements (extending from year
to year) establishing base levels of compensation, subject to normal
compensation reviews and an incentive bonus based on performance.
Chief Financial Officer
The Company has an employment agreement with Ronald J. Kanterman,
Vice President and Chief Financial Officer that commenced on January 26, 2004,
and which was amended effective March 23, 2008, upon his appointment as Chief
Financial Officer. The agreement renews for successive 12-month periods unless
terminated by the Company or Mr. Kanterman. The employment agreement, as
amended, provides for a base salary of $330,000, subject to the Company's
normal compensation review. Mr. Kanterman may be entitled to stock options as
provided in a separate stock option agreement. In connection with his
appointment as Chief Financial Officer, Mr. Kanterman was awarded options to
acquire 25,000 shares of the Company's Class A Common Stock. In addition, Mr.
Kanterman received an incentive bonus based on his participation in an
Incentive Plan, which gave Mr. Kanterman the opportunity to earn up to 15% of
his base salary, based upon meeting certain performance criteria.
Under the terms of his employment agreement, Mr. Kanterman is
entitled to benefits if his employment is terminated without cause. Please see
"--Potential Payments Upon Termination or Change-in-Control" for a description
of these benefits.
The employment agreement also contained restrictive covenants
preventing Mr. Kanterman from competing against the Company or soliciting
customers or employees of the Company for a period of 36 months after the end
of his employment with the Company.
Chief Administration Officer
The Company has an employment agreement with David A. Van Vliet,
Chief Administration Officer, that commenced on September 29, 2006 and
automatically renews for successive 12-month periods unless terminated by the
Company or Mr. Van Vliet. Mr. Van Vliet's base salary in fiscal 2008 was
$371,035 and for fiscal 2007 was $350,000. In addition, Mr. Van Vliet received
an incentive bonus based on his participation in an Incentive Plan, which gave
Mr. Van Vliet the opportunity to earn up to 50% of his base salary, based upon
meeting certain performance criteria. Mr. Van Vliet had a guaranteed incentive
of $72,916 for his first five months of employment. Mr. Van Vliet is also
provided with use of a company vehicle.
Mr. Van Vliet is also eligible to receive stock-based awards under
the Company's Incentive Stock Option Plan. He has received a grant of stock
options with respect to 100,000 shares of KV Class A Common Stock. Mr. Van
Vliet is also eligible to participate in the Company's Profit Sharing and
401(k) Plans.
Under the terms of his employment agreement, Mr. Van Vliet is
entitled to benefits if his employment is terminated by the Company without
cause or if his employment is terminated following a change of control of the
Company. Please see "--Potential Payments Upon Termination or
Change-in-Control" for a description of these benefits.
The employment agreement also contains restrictive covenants
preventing Mr. Van Vliet from competing against the Company or soliciting
customers or employees of the Company for a period of 36 months after the end
of his employment with the Company.
24
Vice President, Industry Presence and Development
The Company has an employment agreement with Michael S. Anderson,
Vice President, Industry Presence and Development, that commenced on May 23,
1994 and was subsequently amended on May 5, 1997, February 16, 2000, and
February 20, 2006 and automatically renews for successive 12-month periods
until terminated by the Company or Mr. Anderson. Mr. Anderson's base salary
was $344,300 for fiscal 2008 and in fiscal 2007 was $332,000 effective
February 20, 2006.
Under the terms of his employment agreement, Mr. Anderson is entitled
to benefits if his employment is terminated by the Company without cause or if
his employment is terminated following a change of control of the Company.
Please see "--Potential Payments Upon Termination or Change-in-Control" for a
description of these benefits.
The employment agreement also contains restrictive covenants
preventing Mr. Anderson from competing against the Company or soliciting
customers or employees of the Company for a period of 36 months after the end
of his employment with the Company.
Senior Vice President and General Counsel
The Company has an employment agreement with Gregory S. Bentley,
Senior Vice President and General Counsel, that commenced on April 24, 2006
and automatically renews for successive 12-month periods until terminated by
the Company or Mr. Bentley. Mr. Bentley's base salary was $315,680 for fiscal
2008 and in fiscal 2007 was $300,000. In addition, Mr. Bentley received an
incentive bonus based on his participation in an Incentive Plan, which gave
Mr. Bentley the opportunity to earn up to 30% of his base salary, based upon
meeting certain performance criteria.
Under the terms of his employment agreement, Mr. Bentley is not
entitled to benefits if his employment is terminated by the Company without
cause or if his employment is terminated following a change of control of the
Company.
The employment agreement also contains restrictive covenants
preventing Mr. Bentley from competing against the Company or soliciting
customers or employees of the Company for a period of 36 months after the end
of his employment with the Company.
Former Chief Financial Officer
Gerald R. Mitchell served as our Vice President and Chief Financial
Officer until his retirement in March 2008. Mr. Mitchell notified the Company
of his intention to retire approximately three years ago in order to allow the
Company sufficient time to identify and hire a successor. Effective March 23,
2008, Mr. Mitchell retired from the Company and resigned from the Company's
Board of Directors.
The Company had an employment agreement with Mr. Mitchell, which was
amended and restated in 1994. Mr. Mitchell initially received base
compensation of $130,400 in 1994, subject to the Company's normal compensation
review. Mr. Mitchell also received a company vehicle. Mr. Mitchell was
entitled to stock options as provided in separate stock option agreements.
Under the terms of his employment agreement, Mr. Mitchell was
entitled to benefits if his employment was terminated following a change in
control of the Company. Please see "--Potential Payments Upon Termination or
Change-in-Control" for a description of these benefits.
25
The employment agreement also contained restrictive covenants
preventing Mr. Mitchell from competing against the Company or soliciting
customers or employees of the Company for a period of 36 months after the end
of his employment with the Company.
In connection with his retirement, the Company entered into a
consulting agreement with Mr. Mitchell with an initial term of 24 months from
its effective date, and which renews for successive 12-month periods unless
terminated by the Company or Mr. Mitchell.
Under the consulting agreement, Mr. Mitchell will provide up to 80
hours per month of consulting services at an hourly rate of $115 per hour. The
consulting agreement provides for a guaranteed minimum of 80 hours per month
for the first year. Mr. Mitchell will also be entitled to reimbursement of
expenses incurred in providing services to the Company under the consulting
agreement. Any stock options previously granted to Mr. Mitchell will continue
to be exercisable, and with respect to unvested options vest and become
exercisable, for so long as the consulting agreement is in effect.
The consulting agreement also provides that the restrictive covenants
in Mr. Mitchell's employment agreement that prevent him from competing against
the Company or soliciting customers or employees of the Company for a period
of 36 months after the end of his employment with the Company will remain in
force and will be unaffected by the consulting agreement.
The Impact of Accounting and Tax Treatments on Forms of Compensation
Paid
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 named executive officers. Section
162(m) of the Internal Revenue Code generally disallows a tax deduction to
public companies for compensation exceeding $1 million paid to the Chief
Executive Officer and any one of the four other most highly compensated
executive officers for any fiscal year. Qualifying performance-based
compensation is not subject to the limitation if certain requirements are met.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
annual and long-term compensation for services rendered to us in all
capacities for the fiscal years ended March 31, 2008 and 2007 of those persons
who were (1) our principal executive officer, (2) our principal financial
officer, (3) the three most highly compensated executive officers other than
the principal executive officer and principal financial officer who were
serving as executive officers at fiscal-year end, and (4) one individual,
Gerald R. Mitchell, who was not serving as an executive officer at fiscal-year
end (each, a "named executive officer" and collectively, the "named executive
officers").
26
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED ALL
NAME AND OPTION PLAN COMPENSATION OTHER
PRINCIPAL FISCAL SALARY BONUS AWARDS ($) COMPENSATION EARNINGS COMPENSATION TOTAL
POSITION YEAR ($) ($) (1) ($) (2) ($) (3) ($) (4) ($)
- ----------------------------------------------------------------------------------------------------------------------------
Marc S. 2008 1,383,847 - - 4,276,735 2,232,000 775,909 8,668,491
Hermelin, ----------------------------------------------------------------------------------------------------------
Chairman of the 2007 1,281,764 - - 2,545,857 877,000 602,652 5,307,273
Board and Chief
Executive
Officer
- ----------------------------------------------------------------------------------------------------------------------------
Ronald J. 2008 298,975 - 34,470 42,900 - 8,510 384,855
Kanterman ----------------------------------------------------------------------------------------------------------
Vice President 2007 280,420 35,000 34,296 - - 5,726 355,442
and Chief
Financial
Officer
- ----------------------------------------------------------------------------------------------------------------------------
Michael S. 2008 344,300 75,000 113,186 - - 8,621 541,107
Anderson Vice ----------------------------------------------------------------------------------------------------------
President, 2007 332,000 166,000 113,028 - - 13,582 624,610
Industry (5)
Presence and
Development
- ----------------------------------------------------------------------------------------------------------------------------
Gregory S. 2008 315,680 - 25,105 94,500 - 8,563 443,848
Bently, Senior ----------------------------------------------------------------------------------------------------------
Vice President 2007 273,071 90,000 18,863 - - 3,884 385,818
and General
Counsel
- ----------------------------------------------------------------------------------------------------------------------------
David A. Van 2008 371,035 52,628 144,549 64,500 - 8,593 641,305
Vliet ----------------------------------------------------------------------------------------------------------
Chief 2007 176,641 72,916 74,914 - - 3,170 327,641
Administration (7) (7)
Officer (6)
- ----------------------------------------------------------------------------------------------------------------------------
Gerald R. 2008 224,769 - 15,734 - - 8,774 249,277
Mitchell, ----------------------------------------------------------------------------------------------------------
Former Vice 2007 208,526 50,000 16,213 - - 12,511 287,250
President and (8)
Chief Financial
Officer
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
- ---------------------
(1) Option awards represent the compensation expense recognized by us for
financial statement reporting purposes for fiscal 2008 in accordance with
SFAS 123(R). Grant date fair value is based on the Black-Scholes option
pricing model on the date of grant. For additional discussion on the
valuation assumptions used in determining the compensation expense, see
"--Stock-Based Compensation" in Note 16 of the Notes to our Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2008.
(2) Non-equity incentive plan compensation represents payment for fiscal 2008
under our annual cash incentive award programs. For additional discussion
of our annual cash incentive award programs, see "--Cash Earned
Incentives and Stock Option Awards" above under the heading "Compensation
Discussion and Analysis."
27
(3) Per the terms of his employment agreement, Mr. Hermelin is entitled to
receive retirement compensation paid in the form of a single life annuity
equal to 30% of his final average compensation payable each year
beginning at retirement and continuing for the longer of ten years or
life. Based on this agreement, we recognized expense of $2,232,000 and
$877,000 for fiscal 2008 and 2007, respectively, in accordance with APB
No. 12, Omnibus Opinion, as amended by SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions ("APB 12"),
based on an annual actuarial valuation of the liability assuming
retirement at age 75.
(4) All other compensation includes the following:
Fiscal 2008
CAR 401(k) SPLIT DOLLAR GROUP TERM OTHER TOTAL OTHER
ALLOWANCE MATCH LIFE INSURANCE LIFE INSURANCE PERQUISITES COMPENSATION
NAME ($) ($) ($) ($) ($) ($)
- ---- --------- ------ -------------- -------------- ----------- ------------
Marc S. Hermelin 3,554 8,519 507,326 11,990 244,520 775,909
Ronald J. Kanterman - 8,362 - 148 - 8,510
Michael S. Anderson - 8,306 - 315 - 8,621
Gregory S. Bentley - 8,295 - 268 - 8,563
David A. Van Vliet - 8,450 - 143 - 8,593
Gerald R. Mitchell - 7,983 - 791 - 8,774
Fiscal 2007
CAR 401(k) SPLIT DOLLAR GROUP TERM OTHER TOTAL OTHER
ALLOWANCE MATCH LIFE INSURANCE LIFE INSURANCE PERQUISITES COMPENSATION
NAME ($) ($) ($) ($) ($) ($)
- ---- --------- ------ -------------- -------------- ----------- ------------
Marc S. Hermelin 2,072 7,765 508,794 495 83,526 602,652
Ronald J. Kanterman - 5,588 - 138 - 5,726
Michael S. Anderson 4,297 8,968 - 317 - 13,582
Gregory S. Bentley - 3,636 - 248 - 3,884
David A. Van Vliet - 3,096 - 74 - 3,170
Gerald R. Mitchell 4,147 7,602 - 762 - 12,511
<FN>
Other compensation for Mr. Hermelin includes $507,326 and $508,794 for
fiscal 2008 and 2007, respectively, of premiums paid by us under
split-dollar life insurance agreements with Mr. Hermelin dated July 1,
1990, November 8, 1991 and June 9, 1999. Under the terms of the
agreements, the policies are collaterally assigned to us to secure
repayment of the premiums paid by us, which are to be paid out of the
cash surrender value of the policies if the policies are terminated or
canceled, or from the death benefit proceeds if Mr. Hermelin should die
while the agreements and policies remain in force. Mr. Hermelin has the
right to name the beneficiaries of these insurance policies. The policies
have a total death benefit of $19.5 million. Cumulative premiums paid
since the date of the agreements total $4,627,717. We have recorded the
cash surrender value of the policies as an asset, the value of which was
$4,152,229 as of March 31, 2008. During fiscal 2008, the cash surrender
value of the policies increased by $415,735, which when compared to the
premiums paid of $507,326 resulted in a net cost to the Company of
$91,591.
Other perquisites for Mr. Hermelin include the following:
Disability Insurance - Under the terms of his employment agreement, we
are required to provide disability insurance for Mr. Hermelin equal to
60% of his base salary. The value of the disability protection is imputed
28
to Mr. Hermelin currently in order for the ultimate disability benefits
to be tax-free. The amount of compensation relative to this perquisite
for fiscal 2008 and 2007 was $9,380 and $13,934, respectively.
Vacation Payout - Under the terms of his employment agreement, Mr.
Hermelin is entitled to either carry over up to eight weeks of vacation
days or receive a cash payment equal to the pro rata amount of his base
salary for the portion of his vacation period not taken. The amount of
vacation paid out in fiscal 2008 to Mr. Hermelin was $159,675.
Tax Gross-up - Represents the amount payable under the employment
agreement for taxes due on the imputed value of life and disability
insurance. The amount of tax gross-up was $65,465 and $59,592 for fiscal
2008 and 2007, respectively.
Financial Services - Under the terms of his employment agreement, Mr.
Hermelin is entitled to an annual allowance of up to $10,000 to be used
for tax preparation, estate planning and similar financial services. The
amount of compensation relative to this perquisite for fiscal 2008 and
2007 was $10,000 and $10,000, respectively.
(5) Mr. Anderson was guaranteed a one-time bonus of $166,000 for fiscal 2007
per the terms of his Fiscal 2007 Incentive Compensation Plan.
(6) Mr. Van Vliet joined the Company in October 2006. His salary for fiscal
2007 covers the period October 1, 2006 through March 31, 2007.
(7) Mr. Van Vliet was guaranteed a bonus of $72,916 for fiscal 2007 per the
terms of his employment offer. In addition, he received a stock option
grant of 100,000 shares of Class A Common Stock under the terms of our
2001 Incentive Stock Option Plan in fiscal 2007.
(8) Mr. Mitchell received a discretionary bonus for his individual
performance for fiscal 2007 as recommended at the end of the fiscal year
by the Chairman and CEO and subsequently approved by the Compensation
Committee.
GRANTS OF PLAN-BASED AWARDS
The following table provides information about equity and non-equity awards
granted to named executive officers for fiscal 2008:
ALL OTHER
OPTION
ESTIMATED POSSIBLE PAYOUTS AWARDS: GRANT DATE
UNDER NON-EQUITY NUMBER OF EXERCISE OR FAIR VALUE
INCENTIVE PLAN AWARDS(1) SECURITIES BASE PRICE OF STOCK
------------------------------ UNDERLYING OF OPTION AND OPTION
THRESHOLD TARGET MAXIMUM OPTIONS AWARDS AWARDS
NAME GRANT DATE ($) ($) ($) (#) ($/SH) ($)(2)
- ---- ------------ --------- --------- --------- ------------ ------------- ------------
Marc S. Hermelin (3) N/A 0 4,276,735 0 0 0 0
Ronald J. Kanterman (4) 3/31/2008 0 - - 25,000 24.96 332,607
N/A 0 42,900 44,846 - - -
Michael S. Anderson (5) N/A 0 0 0 0 0 0
Gregory S. Bentley (6) N/A 0 94,500 94,704 0 0 0
David A. Van Vliet (7) N/A 0 64,500 185,518
Gerald R. Mitchell (8) N/A 0 0 0 0 0 0
<FN>
- ---------------------
(1) We provide performance-based annual cash incentive awards to our
Chief Executive Officer under the terms of his employment agreement
and to certain of our executive officers under individual Fiscal
2008 Incentive Compensation Plans. These columns indicate the
ranges of possible payouts targeted for fiscal 2008 performance
under the applicable annual cash incentive
29
award plan for each named executive officer. Actual cash incentive
awards for fiscal 2008 performance are set forth in the "Summary
Compensation Table." For additional discussion on our annual cash
incentive award programs, see "--Cash Earned Incentives and Stock
Option Awards" above under the heading "Compensation Discussion and
Analysis."
(2) The grant date fair value of stock option awards is based on the
Black-Scholes option pricing model using the fair value of the
underlying shares at the measurement date, in accordance with SFAS
123(R). For additional discussion on the valuation assumptions used
in determining the grant date fair value and the accounting for
stock options, see Share-Based Compensation in Note 16 of the Notes
to Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.
(3) The target amount is the result of applying the bonus formula in
Mr. Hermelin's employment agreement (see "--Employment Arrangements
With Named Executive Officers" for a description of the formula) to
the Company's net income for fiscal 2008. There are no threshold,
target or maximum amounts established for Mr. Hermelin's non-equity
incentive compensation. The terms of his employment agreement
determine the amount earned.
(4) The target amount represents the actual non-equity incentive plan
pay-out to Messrs. Kanterman, Bentley and Van Vliet for fiscal 2008
under the terms of their respective incentive plans. Under the
plans the officers had the ability to earn up to the following
percentage of their respective base salaries in incentive pay,
which are shown as the maximum pay-out: Mr. Kanterman, 15%; Mr.
Bentley, 30%; and Mr. Van Vliet, 50%. There are no threshold or
target amounts established under these incentive plans.
INFORMATION AS TO STOCK OPTIONS
The following tables list certain information concerning option exercises and
option holdings as of the end of fiscal 2008 of options held by the named
executive officers to acquire shares of Class A Common Stock and Class B
Common Stock (the amounts in the table reflect the effect of repricing certain
stock options as a result of the Special Committee's investigation into the
Company's stock option grant practices. See "Explanatory Note" in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2007).
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER
SECURITIES OF SECURITIES
UNDERLYING UNDERLYING
UNEXERCISED UNEXERCISED OPTION OPTION OPTION GRANT
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION DATE FAIR
NAME EXERCISABLE UNEXERCISABLE PRICE ($) DATE VALUE $
- ------------------------------------------------------------------------------------------------------------------
Marc S. Hermelin 100,000 0 25.04 5/10/2008 1,061,334
- ------------------------------------------------------------------------------------------------------------------
Ronald J. Kanterman 12,500 12,500 24.56 3/26/2014 386,660
2,500 22,500 24.96 3/31/2018 332,607
- ------------------------------------------------------------------------------------------------------------------
30
- ------------------------------------------------------------------------------------------------------------------
Michael S. Anderson 45,000 30,000 (2) 24.12 3/31/2011 992,977
2,500 2,500 (3) 23.09 5/21/2014 74,824
- ------------------------------------------------------------------------------------------------------------------
Gregory S. Bentley 7,500 17,500 (4) 18.66 6/30/2016 283,441
- ------------------------------------------------------------------------------------------------------------------
David A. Van Vliet 18,500 81,500 (5) 23.70 10/05/2016 1,420,320
5,000 - 25.23 6/29/2009 73,283
2,000 500 17.85 9/10/2009 26,973
1,500 1,000 19.99 11/1/2010 30,067
- ------------------------------------------------------------------------------------------------------------------
Gerald R. Mitchell 3,000 7,000 (1) 19.99 11/01/2015 131,477
- ------------------------------------------------------------------------------------------------------------------
<FN>
- ---------------------
(1) Option granted on 11/01/2005 and vests ratably as to 10% per year from
date of grant.
(2) Option granted on 3/31/2006 and vests ratably as to 20% per year from
date of grant.
(3) Option granted on 5/21/2004 and vests ratably as to 10% per year from
date of grant.
(4) Option granted on 3/31/2006 and vests ratably as to 10% per year from
date of grant.
(5) Option granted on 10/05/2006 and vests ratably as to 10% per year from
date of grant.
OPTION EXERCISES AND STOCK VESTED
- -------------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES REALIZED
ACQUIRED ON ON
EXERCISE EXERCISE
NAME (#) (a)
- -------------------------------------------------------------------------------------
Gerald R. Mitchell 13,655 $272,952
- -------------------------------------------------------------------------------------
<FN>
- ---------------------
(a) Value realized on exercise is determined based on the difference
between the market price of the stock on the date of exercise
and the exercise price. Shares are considered exercised upon
completion of a two-year forfeiture period.
PENSION PLANS
PAYMENTS
PRESENT VALUE OF DURING LAST
NAME PLAN NAME ACCUMULATED BENEFIT FISCAL YEAR
---- --------- ------------------- -----------
Marc S. K-V $8,550,000 $0
Hermelin Pharmaceutical
Company
Non-Qualified
Retirement Plan
31
Under the terms of his employment agreement, Mr. Hermelin is entitled
to receive retirement compensation paid in the form of a single life annuity
equal to 30% of his final average compensation payable each year at the
beginning of retirement and continuing for the longer of ten years or life.
Final average compensation is based on the highest compensation (including
bonuses) earned during the three consecutive years of the five-year period
ending immediately prior to the retirement date. The present value of the
accumulated benefit assumes retirement at age 75, a 10% annual increase in the
Company's net income for purposes of estimating future non-equity incentive
payments, and a 6% discount rate. If Mr. Hermelin were to retire at age 66
(his age at the end of fiscal year 2008) the present value of the accumulated
benefit would increase to $18,219,000.
In addition, the employment agreement entitles Mr. Hermelin to
consulting compensation for up to 300 hours annually and additional
compensation in consideration for complying with certain restrictive covenants
each equal to 15% of final average compensation payable in the form of a
single life annuity for the longer of ten years or life.
Retirement expense is recognized under the requirements of APB 12.
Under APB 12, to the extent the terms of the contract attribute all or a
portion of the expected future benefits to a period of service greater than
one year, the cost of those benefits are accrued over that period of the
employee's service in a systematic and rational manner. The method used for
this calculation allocates expense to each year as the difference between the
present value of accrued benefits (based upon updated compensation and
discount rates) at the end of the fiscal year and the beginning of the fiscal
year. The present value of the accumulated benefit is unfunded.
There are no defined benefit arrangements for the other named
executive officers.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Certain of the Company's named executive officers are entitled,
pursuant to employment agreements, to benefits upon termination of employment
or termination of employment after a change of control of the Company. The
following discussion provides information with respect to payments to which
named executive officers are entitled upon termination of employment or
following termination resulting from a change in control of the Company. The
dollar amounts described below assume that the triggering event for each named
executive officer occurred at March 31, 2008. For additional discussion
regarding employment agreements with named executive officers, including
discussion of conditions and obligations applicable to the receipt of the
payments described below, see "--Employment Arrangements with Named Executive
Officers" above under "Compensation Discussion and Analysis."
Under the terms of his employment agreement, Mr. Hermelin is entitled
to benefits if his employment with the Company is terminated other than as a
result of a voluntary termination, his retirement or his termination as a
result of death or disability or if his employment is terminated following a
change of control of the Company.
In the event of his termination other than voluntary termination,
retirement or termination as a result of death or disability, Mr. Hermelin is
entitled to receive an amount equal to his then base salary and 36 monthly
payments equal to 75% of his last monthly base salary. In addition, all stock
options would become immediately vested and available for exercise up to two
years following termination. Assuming that Mr. Hermelin's employment was
terminated as of March 31, 2008, the value of these benefits would be:
Base salary $1,592,804
Undiscounted value of 36 monthly payments 3,583,809
----------
Total value $5,176,613
==========
32
In the event of a termination following a change of control of the
Company, Mr. Hermelin has the right to elect to receive either the payments
described above or a lump sum cash payment equal to 2.5 times his base salary,
bonus payments over the 30 months following termination as if he had continued
in his position, acceleration of stock options, employee benefits for 30
months following termination and unconditional retirement compensation equal
to 60% of his final average compensation payable in the form of a single life
annuity. In addition, Mr. Hermelin is entitled to a gross-up payment for any
payments made for a termination following a change of control that would be
considered excess parachute payments under Section 280G(b) and subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code. Assuming that
Mr. Hermelin's employment was terminated as of March 31, 2008 following a
change of control, the value of these benefits to Mr. Hermelin would be
approximately $40,124,161 calculated as follows:
2.5x base salary $ 3,982,010
Bonus (a) 9,820,409
Acceleration of stock options (b) -
Retirement compensation (c) 21,371,000
Employee benefits (d) 273,396
Tax gross-up for Section 280G payments (e) 4,677,346
-----------
Total value $40,124,161
===========
<FN>
---------------------
(a) Represents the total amount of estimated bonuses to be
paid over the 30 months following termination assuming
a 10% annual increase in net income for each of the
fiscal 2009 and 2010, which are the years included in
the 30-month period following the triggering event.
The bonus for fiscal 2008 is excluded from the table
as the triggering event is assumed to have occurred on
the last day of the performance period and thus the
pay out would be the same as if the termination had
not occurred.
(b) Mr. Hermelin currently has no unvested stock options.
(c) Represents the present value of the accumulated
benefit assuming Mr. Hermelin retired on March 31,
2008.
(d) Represents the benefits to be paid to Mr. Hermelin
including car allowance, 401(k) match, group term
insurance, disability insurance, medical benefits and
financial services allowance, over the 30 months
following termination assuming no increase in cost
over the cost incurred for the 12 months ended March
31, 2008.
(e) Represents the tax reimbursement needed to provide the
benefit outlined in the employment agreement related
to the excise tax imposed by Internal Revenue Code
Section 4999 with respect to excess parachute payments
computed under Internal Revenue Code Section 280G(b).
In the event that Mr. Hermelin's employment is terminated as a result
of his death, his employment agreement provides that the Company will make a
charitable contribution in the amount of $500,000 to a charity selected by Mr.
Hermelin.
33
Under the terms of his employment agreement, Mr. Anderson is entitled
to benefits if his employment is terminated by the Company without cause or if
his employment is terminated following a change of control of the Company.
In the event of involuntary termination, except for cause, Mr.
Anderson is entitled to receive severance pay equal to one-half of his annual
salary payable in 12 equal installments, 12 months of continued medical,
disability and term life insurance coverage and acceleration of unvested stock
options to be immediately exercisable. Assuming that Mr. Anderson's employment
was terminated as of March 31, 2008, the value of these benefits would be
approximately $209,932 calculated as follows:
0.5x base salary $178,548
Acceleration of stock options (a) 29,875
Employee benefits (b) 1,509
--------
Total value $209,932
========
<FN>
---------------------
(a) Represents the aggregate value of the acceleration of
unvested stock options based on the spread between the
closing price of our Class A Common Stock on March 31,
2008 of $24.96 and the exercise price of the option.
(b) Represents the benefits paid for Mr. Anderson
including group term insurance, disability insurance
and medical benefits.
In the event of a termination following a change of control of the
Company, Mr. Anderson is entitled to receive severance pay equal to 1.5 times
base compensation plus any bonus that would be payable to him for 18 months
following termination, and continued medical benefits for 24 months. In
addition, any outstanding stock options will fully vest and remain exercisable
for 90 days following termination. Assuming that Mr. Anderson's employment was
terminated as of March 31, 2008 following a change of control, the value of
these benefits to Mr. Anderson would be approximately $729,229 calculated as
follows:
1.5x base salary $535,643
Bonus (a) 160,693
Acceleration of stock options (b) 29,875
Employee benefits (c) 3,018
--------
Total value $729,229
========
<FN>
---------------------
(a) Represent estimated bonus to be paid assuming an
annual bonus of 30% of his base salary prorated over
18 months.
(b) Represents the aggregate value of the acceleration of
unvested stock options based on the spread between the
closing price of our Class A Common Stock on March 31,
2008 of $24.96 and the exercise price of the option.
(c) Represents the benefits to be paid to Mr. Anderson
including group term life insurance and medical
benefits over the next 24 months assuming no increase
in cost over the cost incurred for the 12 months ended
March 31, 2008.
Under the terms of his employment agreement, Mr. Van Vliet is
entitled to benefits if his employment is terminated by the Company without
cause or if his employment is terminated following a change of control of the
Company. In either case, Mr. Van Vliet is entitled to receive severance pay
equal to his annual base salary in effect at the date of termination,
continued benefits over the 12-month period and acceleration of unvested stock
options to become immediately exercisable. Assuming that Mr. Van Vliet's
employment was terminated as of March 31, 2008 either by the Company without
cause or
34
following a change of control of the Company, the value of these benefits
would be approximately $519,217 calculated as follows:
Annual base salary $406,585
Acceleration of stock options (a) 111,295
Employee benefits (b) 1,337
--------
Total value $519,217
========
<FN>
---------------------
(a) Represents the aggregate value of the acceleration of
unvested stock options based on the spread between the
closing prices of our Class A and Class B Common Stock
on March 31, 2008 of $24.96 and $25.12, respectively,
and the exercise price of the option.
(b) Represents the benefits to be paid to Mr. Van Vliet
including 401(k) match, group term life insurance and
medical benefits over the next 12 months assuming no
increase in cost over the cost incurred for the 12
months ended March 31, 2008.
Under the terms of his employment agreement, Mr. Kanterman is
entitled to benefits if his employment is terminated by the Company without
cause. In such event, Mr. Kanterman is entitled to receive severance pay equal
to one-half of his annual salary payable in six equal installments and six
months of continued medical, disability and term life insurance coverage.
Assuming that Mr. Kanterman's employment was terminated as of March 31, 2008,
the value of these benefits would be approximately $165,671 calculated as
follows:
0.5x base salary $165,000
Employee benefits (b) 671
--------
Total value $165,671
========
<FN>
---------------------
(a) Represents the benefits paid for Mr. Kanterman
including group term insurance, disability insurance
and medical benefits.
Gregory S. Bentley's employment agreement with the Company does not
contain provisions related to severance or change of control. Mr. Bentley is
entitled to at least 120 days' notice of termination and is entitled to
receive his normal compensation for such period, even if the Company exercises
its option to request that Mr. Bentley not work during the notice period.
Except for this situation, Mr. Bentley is only entitled to benefits upon
termination or upon a change of control of the Company that are generally
available to the Company's salaried employees.
35
EQUITY COMPENSATION PLAN INFORMATION
The following information regarding compensation plans of the Company
is furnished as of March 31, 2008.
EQUITY COMPENSATION PLAN INFORMATION
REGARDING CLASS A COMMON STOCK
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
------------------- ---------------------------- ------------------------
PLAN CATEGORY (a) (b) (c)
Equity compensation plans
approved by security holders (1) 3,697,049 $19.09 96,405
Equity compensation plans not
approved by security holders -- -- --
--------- ------ ------
Total 3,697,049 $19.09 96,405
========= ====== ======
<FN>
- ---------------------
(1) Consists of the Company's 1991 and 2001 Incentive Stock Option Plans.
See Note 16 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended March 31,
2008.
EQUITY COMPENSATION PLAN INFORMATION
REGARDING CLASS B COMMON STOCK
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
------------------- ---------------------------- ------------------------
PLAN CATEGORY (a) (b) (c)
Equity compensation plans
approved by security holders (1) 263,415 $14.85 1,212,500
Equity compensation plans not
approved by security holders -- -- --
------- ------ ---------
Total 236,415 $14.85 1,212,500
======= ====== =========
<FN>
- ---------------------
(1) Consists of the Company's 1991 and 2001 Incentive Stock Option Plans.
See Note 16 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended March 31,
2008.
36
COMPENSATION COMMITTEE REPORT
In fulfilling its oversight responsibilities with respect to the
Compensation Disclosure and Analysis included in this Proxy Statement the
Compensation Committee, among other things, has:
o reviewed and discussed the Compensation Disclosure and Analysis with
management; and
o following such review, the Compensation Committee approved the
inclusion of such Compensation Disclosure and Analysis in this proxy
statement.
Respectfully submitted,
THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS OF K-V
PHARMACEUTICAL COMPANY
Jonathon E. Killmer, Chairman
Norman D. Schellenger, Member
NOTWITHSTANDING ANYTHING SET FORTH IN ANY OF OUR PREVIOUS FILINGS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN
PART, THE PRECEDING REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE IN
ANY SUCH FILINGS.
37
PROPOSAL 5 - APPROVAL OF
AMENDMENT TO
2001 INCENTIVE STOCK OPTION PLAN
At the meeting, you will be asked to approve an amendment to the
Company's 2001 Incentive Stock Option Plan (the "2001 Plan") to increase the
shares of Class A Common Stock available for issuance under the 2001 Plan by
3,000,000 shares.
The 2001 Plan was originally approved by our Board of Directors in
January 2002 and by our shareholders in July 2002. The general purpose of the
2001 Plan is to encourage ownership of stock of the Company by certain
employees of the Company and its subsidiaries, to provide additional incentive
for them to promote the success and progress of the business of the Company by
increasing their proprietary interest in the Company.
As of July 7, 2008, the Plan had 141,392 shares of Class A Common
Stock and 1,222,250 shares of Class B Common Stock remaining available for
grant as stock options. In order to attract and retain the quantity and
quality of employees, directors and consultants that are critical to our
future success, the Board believes that the number of shares of Class A Common
Stock available for grant under the 2001 Plan needs to be increased.
In March 2008, our Board of Directors approved, subject to and
effective upon, shareholder approval, an amendment to the 2001 Plan. The
amendment proposes to increase the shares of our Class A Common Stock
available under the 2001 Plan by 3,000,000 shares.
The following is a summary of the principal features of the 2001 Plan,
prior to the proposed amendment, which summary is qualified in its entirety by
reference to the terms and conditions of the 2001 Plan.
Options issued under the 2001 Plan may be incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or may be nonqualified stock
options ("Nonqualified Stock Options").
Shares which may be issued pursuant to options granted under the 2001
Plan are not to exceed in the aggregate 2,000,000 shares of Class A Common
Stock and 1,000,000 shares of Class B Common Stock; provided, however, in no
event may more than 3,000,000 shares of common stock of the Company in the
aggregate be issued as an original grant under the 2001 Plan. Effective
September 2003, the Company effected a three-for-two stock split in the form
of a 50% stock dividend. This had the effect of increasing the number of
shares available for issuance under the Plan to 3,000,000 shares of Class A
Common Stock and 1,500,000 shares of Class B Common Stock.
The 2001 Plan will expire in January 2012, subject to the right of the
Board of Directors to terminate the 2001 Plan at any time prior thereto. The
Board of Directors may also amend the 2001 Plan at any time.
An option enables the optionee to purchase shares of Class A Common
Stock or Class B Common Stock (whichever class is designated by the Committee
in connection with issuance of the option) at an option price per share of not
less than the fair market value of such class of common stock at the time the
option is granted; provided that, in the event of the grant of an option to an
optionee who is or would be the beneficial owner of more than 10% of the total
combined voting power of all classes of the Company's stock, the option price
may not be less than 110% of the fair market value of the particular class of
common stock for which the option is granted on the date of grant. In order to
obtain shares, an
38
option holder must pay the full option price to the Company at the time of the
exercise of the option. The purchase price may be paid in cash or, with the
consent of the Committee, shares of the Company's stock that are free and
clear of all liens and encumbrances. The shares acquired upon exercise are
subject to a two-year forfeiture period, during which time they cannot be
sold.
Options may be granted with terms of no more than ten years from the
date of grant; except that, in the event of the grant of an option to an
optionee who is or would be the beneficial owner of more than 10% of the total
combined voting power of all classes of the Company stock, the term of such
option may not exceed five years. If employment or engagement ceases due to
death or disability, such option or options will be exercisable by the
optionee or successor for a period of one year thereafter. Options also
survive for three months after retirement. Otherwise, any outstanding option
and all unexercised rights thereunder expire and terminate automatically upon
cessation of the employment or engagement of the optionee by the Company. Any
shares as to which an option expires, lapses unexercised or is terminated or
cancelled may be subject to a new option.
Regarding Incentive Stock Options, an optionee will not realize any
income, nor will the Company be entitled to a deduction, at the time an
Incentive Stock Option is granted. If an optionee does not dispose of the
shares acquired on the exercise of an Incentive Stock Option within one year
after the transfer of such shares to him or her or within two years from the
date the incentive stock option was granted, for federal income tax purposes:
(a) the optionee will not recognize any income at the time of exercise of the
option; (b) the amount by which the fair market value (determined without
regard to any restriction other than a restriction which by its terms will
never lapse) of the shares at the time of exercise exceeds the exercise price
is an item of tax preference subject to the alternative minimum tax on
individuals; and (c) the difference between the option price and the amount
realized upon sale of the shares of the optionee will be treated as long-term
capital gain or loss. The Company will not be entitled to a deduction upon the
exercise of an Incentive Stock Option. Except in the case of a disposition
following the death of an optionee and certain other very limited exceptions,
if stock acquired pursuant to an Incentive Stock Option is not held for the
minimum periods described above, the excess of the fair market value of the
stock at the time of exercise over the amount paid for the stock generally
will be taxed as ordinary income to the optionee in the year of disposition.
The Company is entitled to a deduction for federal income tax purposes
at the time and in the amount in which income is taxed to the optionee as
ordinary income by reason of the sale of stock acquired upon the exercise of
an Incentive Stock Option.
Regarding a Nonqualified Stock Option, an optionee will not realize
any income, nor will the Company be entitled to a deduction, at the time a
Nonqualified Option is granted. Upon exercise of a Nonqualified Option, an
optionee will recognize ordinary income (and the Company will be entitled to a
deduction) in the amount by which the fair market value (determined without
regard to any restriction other than a restriction which by its terms will
never lapse) of the shares at time of exercise exceeds the exercise price. The
difference between the fair market value of the shares on date of exercise and
the amount realized upon sale of the shares acquired by exercise of a
Nonqualified Option will be treated as capital gain or loss. If the optionee
does not dispose of the shares until at least one year after acquisition of
the shares, such amount will be treated as ordinary income.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 2001 INCENTIVE STOCK OPTION PLAN.
39
AUDIT COMMITTEE REPORT
In fulfilling its oversight responsibilities with respect to the
consolidated financial statements for the fiscal year ended March 31, 2008,
the Audit Committee, among other things, has:
(a) reviewed and discussed with management the Company's consolidated
audited financial statements as of and for the fiscal year ended
March 31, 2008, including a discussion of the quality and
acceptability of the Company's financial reporting and internal
controls;
(b) discussed with the Company's independent registered public accounting
firm who is responsible for expressing an opinion on the conformity
of those audited consolidated financial statements with generally
accepted accounting principles, its judgment as to the quality, not
just the acceptability, of the accounting principles utilized, the
reasonableness of significant accounting judgments and estimates and
such other matters as are required to be discussed with the Audit
Committee under professional standards, including Statement on
Auditing Standards No. 61, Communication with Audit Committees, as
amended;
(c) received and reviewed the written disclosures and the letter from the
Company's independent registered public accounting firm required by
Independence Standards Board Standard No. 1, Independence Discussion
with Audit Committees, as amended, discussed with the independent
registered public accounting firm its independence and considered the
compatibility of non-audit services with the independent registered
public accounting firm's independence; and
(d) discussed with the Company's internal auditor and independent
registered public accounting firm the overall scope and plans for
their respective audits.
The Audit Committee met with the Company's internal auditor and
independent registered public accounting firm, with and without management
present, to discuss the results of their examinations, their evaluations of
the Company's internal controls and the overall quality of the Company's
financial reporting.
Based on the reviews and discussions referred to above, the Audit
Committee has recommended to the Board of Directors that the audited
consolidated financial statements referred to above be included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2008.
Respectfully submitted,
THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS OF K-V PHARMACEUTICAL
COMPANY
Kevin S. Carlie, Chairman
Jonathon E. Killmer, Member
Terry B. Hatfield, Member
NOTWITHSTANDING ANYTHING SET FORTH IN ANY OF OUR PREVIOUS FILINGS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN
PART, THE PRECEDING REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE IN
ANY SUCH FILINGS.
40
PROPOSAL 6 - RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed KPMG LLP
as the Company's independent registered public accounting firm to audit the
consolidated financial statements of the Company for the current fiscal year
ending March 31, 2009. On August 17, 2004, the Company engaged KPMG LLP as its
independent registered public accounting firm. The engagement was approved by
the Audit Committee of the Company's Board of Directors.
A proposal will be presented at the Annual Meeting to ratify the
appointment of KPMG LLP as the Company's independent registered public
accounting firm. One or more of the representatives of that firm are expected
to be present at the Annual Meeting to respond to appropriate questions and to
make a statement if they desire to do so. Neither the Company's Bylaws, as
amended, nor its other governing documents or law require stockholder
ratification of the selection of KPMG LLP as the Company's independent
registered public accounting firm. However, the Audit Committee is submitting
the selection of KPMG LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Audit Committee will reconsider whether or not to retain that firm. Even if
the selection is ratified, the Audit Committee in its discretion may direct
the appointment of a different independent registered public accounting firm
at any time during the year if the Audit Committee determines that such a
change would be in the best interests of the Company and its stockholders.
The Audit Committee and the Company have policies in place to ensure
that its independent registered public accounting firm is only engaged to
provide other permitted services when it is believed that such firm is the
most qualified service provider, and the services do not conflict with the
role of the Company's independent registered public accounting firm as the
Company's independent registered public accounting firm. The Company does not
at this time intend to engage its independent registered public accounting
firm for fiscal 2009 for any services that are not audit or tax related. The
Audit Committee and the Company also have policies in place covering rotation
of key audit personnel and a prohibition on hiring personnel who have been
engaged on the Company's audit.
The majority vote of the holders of shares of Class A Common Stock
and Class B Common Stock present in person or represented by proxy at the
meeting will be required for the ratification of KPMG LLP as the Company's
independent registered public accounting firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM.
41
FEES BILLED BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
The following table sets forth the amount of audit fees,
audit-related fees, tax fees and all other fees billed or expected to be
billed by KPMG LLP, the Company's current independent registered public
accounting firm, for the fiscal years ended March 31, 2008 and March 31, 2007,
respectively:
MARCH 31, 2008 MARCH 31, 2007
-------------- --------------
Audit Fees (1) $1,000,000 $ 1,995,000
Audit-Related Fees - -
---------- -----------
Total Fees $1,000,000 $ 1,995,000
========== ===========
<FN>
- ---------------
(1) Includes fees for professional services rendered in connection with
the audit of our consolidated financial statements and internal
control over financial reporting and the review of consolidated
financial statements included in our Form 10-Q's for the related
annual period.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has adopted a policy that requires advance
approval of all audit, audit-related, tax services, and other services
provided to the Company by the independent registered public accounting firm.
The policy provides for pre-approval by the Audit Committee of specifically
defined audit and non-audit services. Unless the specific service has been
previously pre-approved with respect to that year, the Audit Committee must
approve the permitted service before the independent registered public
accounting firm is engaged to perform it. The Audit Committee has delegated to
the Chair of the Audit Committee authority to approve permitted services
provided that the Chair reports any decisions to the Committee at its next
scheduled meeting. The Audit Committee approved all audit and non-audit
services provided by the independent registered public accounting firm for
fiscal 2008. The Audit Committee, after review and discussion with KPMG LLP of
the Company's pre-approval policies and procedures, determined that the
provision of these services in accordance with such policies and procedures
was compatible with maintaining KPMG LLP's independence.
ANNUAL REPORT
The Annual Report of the Company for fiscal 2008 accompanies this
Notice of Annual Meeting and Proxy Statement.
FUTURE PROPOSALS OF SECURITY HOLDERS
Proposals of stockholders and nominations for directors intended to
be presented at the 2009 Annual Meeting of Stockholders must be received by
the Company's Assistant Secretary no later than March 6, 2009 for
consideration and inclusion in the proxy statement and proxy card for that
meeting. Upon receipt of any such proposal, the Company will determine whether
or not to include such proposal in the proxy statement and proxy in accordance
with regulations governing the solicitation of proxies.
Stockholder proposals and nominations for directors that do not
appear in the proxy statement may be considered at the 2009 Annual Meeting of
Stockholders only if written notice of the proposal is received by the
Company's Assistant Secretary no later than May 18, 2009. Such notice must
include a description of the proposed business and the reasons therefor. The
Board of Directors or the presiding officer at the 2009 Annual Meeting may
reject any such proposals that are not made in accordance with these
procedures or that are not a proper subject for stockholder action in
accordance with applicable law.
42
These requirements are separate from the procedural requirements a stockholder
must meet to have a proposal included in the Company's proxy statement. All
proposals should be addressed to the Assistant Secretary, K-V Pharmaceutical
Company, 2503 South Hanley Road, St. Louis, 63144.
COMMUNICATION WITH THE BOARD OF DIRECTORS
A stockholder or interested party who wishes to communicate with our
Board of Directors, specific individual directors or the independent directors
as a group may do so by directing a written request addressed to such
director(s) in care of the Assistant Secretary at the address appearing on the
first page of this proxy statement (or via e-mail through our website at
http//:www.kvph.com). Such communication will be directed to the intended
director, group of directors or the entire Board of Directors, as the case may
be, with the Assistant Secretary having the authority to screen-out
inappropriate communications.
HOUSEHOLDING OF MATERIALS
In some instances, only one copy of this proxy statement, our annual
report or Notice of Internet Availability of Proxy Materials is being
delivered to multiple stockholders sharing an address, unless the Company has
received instructions from one or more of the stockholders to continue to
deliver multiple copies. We will deliver promptly upon oral or written request
a separate copy of the proxy statement, our annual report, or Notice of
Internet Availability of Proxy Materials as applicable, to any stockholder at
your address. If you wish to receive a separate copy of the proxy statement,
our annual report or Notice of Internet Availability of Proxy Materials, you
may call us at (314) 645-6600 or send a written request to K-V Pharmaceutical
Company, 2503 South Hanley Road, St. Louis, 63144, Attention: Assistant
Secretary. Alternatively, stockholders sharing an address who now receive
multiple copies of the proxy statement, our annual report or Notice of
Internet Availability of Proxy Materials may request delivery of a single copy
also by calling us at the number or writing to us at the address listed above.
OTHER BUSINESS
The Board of Directors knows of no business to be brought before the
Annual Meeting other than as set forth 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.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED MARCH 31, 2008, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (INCLUDING RELATED FINANCIAL STATEMENTS AND SCHEDULES), IS
AVAILABLE TO STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE
ASSISTANT SECRETARY, K-V PHARMACEUTICAL COMPANY, 2503 SOUTH HANLEY ROAD, ST.
LOUIS, MISSOURI 63144. STOCKHOLDERS MAY ALSO ACCESS THE FORM 10-K AND THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION THROUGH
THE COMPANY'S WEBSITE AT HTTP://WWW.KVPH.COM.
BY ORDER OF THE BOARD OF DIRECTORS
RONALD J. KANTERMAN
Assistant Secretary
St. Louis, Missouri
July 29, 2008
43
APPENDIX A
AMENDMENT TO ARTICLE 8 OF CERTIFICATE OF INCORPORATION
8. All directors shall be of one class and shall serve for a
=========================================================
term ending at the next annual meeting of stockholders. Each director
=====================================================================
elected or appointed thereafter shall serve for a term ending at the
====================================================================
next annual meeting of stockholders to occur after such director was
====================================================================
elected or appointed. [The Board of Directors shall be divided into
=====================
three classes which are hereby designated Class A, Class B and Class
C. The authorized number of directors of each class shall be
one-third of the total number of directors from time to time
authorized by by-law; provided that if the authorized number of
directors is not a multiple of three, the authorized number of Class
A directors shall be the number nearest to but not exceeding
one-third of the total authorized number of directors; the authorized
number of Class B directors shall be the number nearest to but not
exceeding one-half of the remaining authorized number of directors;
and the authorized number of Class C directors shall be the remaining
authorized number of directors]
[At the first annual meeting of stockholders following the
day on which these provisions become effective Class A directors to
the authorized number thereof shall be elected to hold office until
the first annual meeting of stockholders after their election; Class
B directors to the authorized number thereof shall be elected to hold
office until the second annual meeting of stockholders after their
election; and Class C directors to the authorized number thereof
shall be elected to hold office until the third annual meeting of
stockholders after their election.]
At each succeeding annual meeting of stockholders [the
directors of the class whose term of office expires on the day of
such meeting shall retire and shall be replaced by the election of
directors of the same class to the then authorized number thereof to
hold office until the third annual meeting of stockholders after
their election. Retiring] directors shall be eligible for re-election
if otherwise qualified and shall in any event continue in office
until their successors shall have been duly elected or appointed.
In the event of any vacancy however caused occurring on the
board, such vacancy may be filled either by the stockholders at a
general meeting called for the purpose or by the board if the
remaining directors constitute a quorum. Any director elected or
appointed to fill any such vacancy shall hold office [for the
unexpired portion of the term of the director whose office has been
vacated]until the next annual meeting of stockholders and until his or
==============================================================
her successor has been duly elected and qualified.
==================================================
Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at any election of directors.
<FN>
- -----------------------------
Stricken text appears as bracketed.
44
APPENDIX B
K-V PHARMACEUTICAL COMPANY
2001 INCENTIVE STOCK OPTION PLAN,
AS AMENDED
1. Purpose of the Plan
The K-V Pharmaceutical Company 2001 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 A common stock of the Company and the $.01 par value
Class B common stock of the Company (collectively, 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 may be either options ("Incentive Stock Options") which are
intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") or nonqualified stock
options ("Nonqualified Options"). Each employee or other person 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
The Plan shall be administered by a committee of the Board of
Directors of the Company (the "Board") consisting of not less than two members
of the Board as the Board may appoint (the "Board Committee"); provided that
so long as the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended ("1934 Act"), the members of the
Board Committee shall be "Non-Employee Directors" within the meaning of Rule
16b-3 promulgated under the 1934 Act, as such Rule or its equivalent is then
in effect ("Rule 16b-3") and "outside directors" as defined under Section
162(m) of the Code. Board Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Board Committee,
however caused, shall be filled by the Board. The Board Committee shall act by
a majority of its members in office and the Board Committee may act either by
vote at a telephonic or other meeting or by a consent or other written
instrument signed by all of the members of the Board Committee.
The Board Committee shall have the sole power:
(a) subject to the provisions of the Plan, to grant Options; to
determine whether the Option shall be an Incentive Stock Option
or a Nonqualified Option; 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 Board Committee shall be conclusive
and binding on all Optionees and on their legal representatives
and beneficiaries; and
(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.
The Board, by resolution duly adopted, may authorize one or more
officers or employees of the Company to serve on a committee (the "Management
Option Committee") to do one or both of the following: (1) recommend to the
Board Committee recipients of Options and (2) recommend the number, types and
terms of Options.
In the exercise of its powers and responsibilities under paragraphs
7, 8 and 13 hereunder, the Management Option Committee, or any member thereof
acting individually, may request that the Board Committee review any action
which the Management Option Committee proposes to take under the authority
granted to it said paragraphs and assume responsibility with respect to such
matter. In addition, at any time, the Board Committee may assume and take
over, on a prospective basis, any one or more, or all of the powers and
responsibilities granted to the Management Option Committee under paragraphs
7, 8 and 13 hereunder, subject to later relinquishment of such powers and
responsibilities to the Management Option Committee at the pleasure of the
Board Committee.
Any action which either the Board Committee or the Management Option
Committee is authorized to take under this Plan may be taken by the full Board
at any time.
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 million (5,000,000) shares of
Class A Common Stock of the Company and one million (1,000,000)
shares of Class B Common Stock of the Company; provided,
however, in no event may more than six million (6,000,000)
shares of the Common Stock of the Company in the aggregate be
issued as an original grant hereunder. 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 Board 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 and other persons, including but not
limited to, directors, consultants and contractors of the Company shall be
eligible to receive the grant of Options under the Plan; provided, however,
persons who are members of the Board Committee shall not be eligible to
receive a grant of Options hereunder unless granted by the Board as a whole.
Only employees shall be eligible to receive a grant of Incentive Stock
Options. The Board Committee shall determine the persons 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 Board Committee shall seek information, advice and
recommendations from the Management Option Committee to assist
- 2 -
the Board Committee in its independent determination as to the employees to
whom Options shall be granted. A person who has been granted an Option (an
"Optionee"), if he or she is otherwise eligible, may be granted additional
Options.
5. Purchase Price and Limitations on Grants
The purchase price of each share of Stock covered by each Option
("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
Option is granted; provided, however, if when an Incentive Stock Option is
granted the Optionee receiving the Incentive Stock Option 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 Incentive Stock
Option shall not be less than one hundred and ten percent (110%) of the Fair
Market Value Per Share of the Stock on the date the Incentive Stock Option 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 Board 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 Board Committee in
accordance with Section 20.2031-2 of the Federal Estate Tax Regulations.
To the extent that the aggregate fair market value (determined at the
Grant Date) of Stock with respect to which Incentive Stock Options (determined
without regard to this sentence) are exercisable for the first time by any
individual during any calendar year (under all plans of the Company and its
subsidiaries) exceeds One Hundred Thousand Dollars, such Options shall be
treated as Nonqualified Options (this sentence shall be applied by taking
Incentive Stock Options into account in the order in which they were granted).
Notwithstanding the foregoing, the maximum number of shares
underlying Options that may be granted to any Optionee during any calendar
year shall be 250,000, subject to adjustment as provided in paragraph 13.
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 Board 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 Incentive Stock Option is granted the
Optionee owns (or would be considered to
- 3 -
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 Board 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 an Incentive Stock Option under the
Code.
7. Exercise of Options
(a) An Option may be exercisable in installments or otherwise upon
such terms as the Management Option Committee shall determine
when the Option is granted. In the event that an Option is
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 (as defined in Section 22(e)(3)
of the Code), 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 an 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.
(b) The Management Option Committee at any time: (i) may accelerate
the time at which any Option granted hereunder is exercisable or
otherwise vary the terms of an Option, notwithstanding the fact
that such variance may cause the Option to be treated as a
Nonqualified Option; (ii) in the case of a Non-Qualified Stock
Option, may permit the transferability of such Option and may
remove any restrictions or conditions to which a Non-Qualified
Stock Option is subject; and (iii) subject to the consent of the
Optionee, may convert an outstanding Incentive Stock Option to a
Non-Qualified Stock Option it deems such conversion to be in the
best interest of the Optionee.
(c) 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.
(d) In the event that a portion of an Incentive Stock Option 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
- 4 -
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) The Management Option Committee's shall determined at the time
the Option is granted, whether 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.
(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 Management Option Committee shall
have the right to terminate the Option with respect to such
shares.
9. Nontransferability of Options
No Incentive Stock 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 at any time (a) to terminate such employment, (b) to increase or
decrease the compensation of the Optionee from the rate in existence at the
time of the granting of any Option, or (c) to alter the title, duties or
responsibilities of an Optionee.
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.
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
- 5 -
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 Management Option 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 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
Management Option 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 by the Board Committee
upon the recommendation of the Management Option Committee. If
any purchase of Stock is voided by reason of the provisions of
this paragraph 14, an amount determined as provided in paragraph
14(d) shall thereupon be returned in full to the Optionee.
Notwithstanding the foregoing, upon the recommendation of the
Management Option Committee, the Board Committee at any time may
modify any requirement set forth herein with respect to any
outstanding options or with respect to stock acquired pursuant
to any Option.
(b) At any time within the Holding Period that there exists a public
market for Class A Common Stock of the Company, the Optionee and
the Management Option Committee may agree to the cancellation of
an Optionee's Class B Common Stock of the Company then being
held, and the issuance in lieu thereof an equivalent number of
Class A Common Stock of the Company.
- 6 -
(c) In the event that an Optionee incurs a financial hardship within
the Holding Period, which is determined by the Management Option
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 Management Option
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.
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 Management
Option 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 Management Option 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 and the terms
of any agreement that may be required by the Management Option
Committee as a condition of delivery of any Stock.
(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
- 7 -
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.
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 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 or decrease the benefits accruing to
- 8 -
participants under the Plan; (ii) increase or decrease 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 or its approval by the shareholders.
Notwithstanding the foregoing, if a longer term is permitted
with respect to the duration of an incentive stock option plan
under law, the Board may extend the term of this Plan to a term
not to exceed the longest term permitted with respect to an
incentive stock option plan.
(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 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, 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 the
Company or the date of approval by the Company's shareholders. Notwithstanding
the foregoing, if a longer term is permitted with respect to the duration of
an incentive stock option plan under law, the Board may extend the term of
this Plan to a term not to exceed the longest term permitted with respect to
an incentive stock option plan.
21. Miscellaneous
(a) All distributions under the Plan are subject to withholding of
all applicable taxes, and the Management Option Committee may
condition the delivery of any shares or other benefits under the
Plan on satisfaction of the applicable withholding obligations.
The Management Option Committee, in its discretion, and subject
to such requirements as the Management Option Committee may
impose prior to the occurrence of such withholding, may permit
such withholding obligations to be satisfied through cash
payment by the Optionee, through the surrender of shares of
Stock that the Optionee already owns, or through the surrender
of shares of Stock to which the Optionee is otherwise entitled
under the Plan.
(b) Nothing contained in the Plan shall be construed as conferring
upon any employee the right to continue in the employ of the
Company or any of its subsidiaries.
(c) Employment by the Company for the purpose of this Plan shall be
deemed to include employment by, and to continue during any
period in which an employee is in the employment of, any
subsidiary.
(d) An employee shall have no rights as a shareholder with respect
to shares covered by such employee's Option until the date of
the issuance of shares to the employee pursuant thereto. No
adjustment will be made for dividends or other distributions or
rights for which the record date is prior to the date of such
issuance.
- 9 -
(e) Nothing contained in the Plan shall be construed as giving any
employee, such employee's beneficiaries or any other person any
equity or other interest of any kind in any assets of the
Company or any subsidiary or creating a trust of any kind or a
fiduciary relationship of any kind between the Company or any
subsidiary and any such person. Any Optionee shall have only a
contractual right to shares of Stock as set forth in the
Agreement, unsecured by any assets of the Company or any
subsidiary, and nothing contained in the Plan shall constitute a
guarantee that the assets of the Company or any subsidiary shall
be sufficient to pay any benefits to any person.
(f) Nothing contained in the Plan shall be construed to prevent the
Company or any subsidiary from taking any corporate action that
is deemed by the Company or such subsidiary to be appropriate or
in its best interests, whether or not such action would have an
adverse effect on the Plan or any Option made under the Plan. No
employee, beneficiary or other person shall have any claim
against the Company or any subsidiary as a result of any such
action.
(g) Neither an employee nor an employee's beneficiary shall have the
power or right to sell, exchange, pledge, transfer, assign or
otherwise encumber or dispose of such employee's or
beneficiary's interest arising under the Plan or any Option
received under the Plan; nor shall such interest be subject to
seizure for the payment of an employee's or beneficiary's debts,
judgments, alimony, or separate maintenance or be transferable
by operation of law in the event of an employee's or
beneficiary's bankruptcy or insolvency and to the extent any
such interest arising under the Plan or an Option received under
the Plan is awarded to a spouse pursuant to any divorce
proceeding, such interest shall be deemed to be terminated and
forfeited notwithstanding any vesting provisions or other terms
herein or in the agreement evidencing such option.
(h) The proceeds received by the Company from the sale of shares of
Stock pursuant to the Plan shall be used for general corporate
purposes.
(i) Unless otherwise specified herein, each election required or
permitted to be made by any Optionee or other person entitled to
benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing at such times, in such
form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Board Committee
shall require.
(j) All rights and obligations under the Plan shall be governed by,
and the Plan shall be construed in accordance with, the laws of
the State of Missouri without regard to the principles of
conflicts of laws. Titles and headings to Sections herein are
for purposes of reference only, and shall in no way limit,
define or otherwise affect the meaning or interpretation of any
provisions of the Plan.
- 10 -
P R O X Y
(CLASS A SHAREHOLDER)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF K-V PHARMACEUTICAL COMPANY
2008 ANNUAL SHAREHOLDERS' MEETING
The undersigned shareholder of CLASS A COMMON STOCK of K-V
PHARMACEUTICAL COMPANY, a Delaware corporation, hereby appoints MARC S.
HERMELIN and RONALD J. KANTERMAN, 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
(Lewis and Clark Room, 16th Floor), 7701 Forsyth Boulevard, Clayton, Missouri
63105, on Friday, September 5, 2008, 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. AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE
THAT MEMBERS OF THE BOARD OF DIRECTORS BE ELECTED ANNUALLY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF EIGHT DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS APPROVED:
[ ] FOR all eight nominees [ ] WITHHOLD AUTHORITY to vote for
listed below all eight nominees listed below
JEAN M. BELLIN KEVIN S. CARLIE TERRY B. HATFIELD
DAVID S. HERMELIN MARC S. HERMELIN RONALD J. KANTERMAN
JONATHON E. KILLMER NORMAN D. SCHELLENGER
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
3. ELECTION OF THREE CLASS C DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS NOT APPROVED:
[ ] FOR all three nominees [ ] WITHHOLD AUTHORITY to vote for
listed below all three nominees listed below
JEAN M. BELLIN TERRY B. HATFIELD NORMAN D. SCHELLENGER
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
4. ELECTION OF TWO CLASS A DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS NOT APPROVED:
[ ] FOR both nominees [ ] WITHHOLD AUTHORITY to vote for
listed below both nominees listed below
KEVIN S. CARLIE MARC S. HERMELIN
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
5. AMENDMENT OF THE COMPANY'S INCENTIVE STOCK OPTION PLAN TO INCREASE BY
3,000,000 THE NUMBER OF SHARES OF CLASS A COMMON STOCK AVAILABLE FOR
ISSUANCE UPON EXERCISE OF STOCK OPTIONS GRANTED UNDER THE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. RATIFICATION OF ENGAGEMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. 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 APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION UNDER
PROPOSAL NO. 1, FOR THE ELECTION OF THE ABOVE LISTED NOMINEES UNDER PROPOSAL
NO. 2 IF PROPOSAL NO. 1 IS APPROVED, FOR THE ELECTION OF THE ABOVE LISTED
NOMINEES UNDER PROPOSAL NO. 3 IF PROPOSAL NO. 1 IS NOT APPROVED, FOR THE
ELECTION OF THE ABOVE LISTED NOMINEES UNDER PROPOSAL NO. 4 IF PROPOSAL NO. 1 IS
NOT APPROVED, FOR APPROVAL OF THE AMENDMENT TO THE STOCK OPTION PLAN UNDER
PROPOSAL NO. 5, AND FOR RATIFICATION OF THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM UNDER PROPOSAL NO. 6.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY. A POSTAGE-PAID
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and accompanying Proxy Statement, each dated July 29,
2008.
Dated: __________________, 2008
--------------------------------------------
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.
P R O X Y
(CLASS B SHAREHOLDER)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF K-V PHARMACEUTICAL COMPANY
2008 ANNUAL SHAREHOLDERS' MEETING
The undersigned shareholder of CLASS B COMMON STOCK of K-V
PHARMACEUTICAL COMPANY, a Delaware corporation, hereby appoints MARC S.
HERMELIN and RONALD J. KANTERMAN, 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
(Lewis and Clark Room, 16th Floor), 7701 Forsyth Boulevard, Clayton, Missouri
63105, on Friday, September 5, 2008, 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. AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE
THAT MEMBERS OF THE BOARD OF DIRECTORS BE ELECTED ANNUALLY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF EIGHT DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS APPROVED:
[ ] FOR all eight nominees [ ] WITHHOLD AUTHORITY to vote for
listed below all eight nominees listed below
JEAN M. BELLIN KEVIN S. CARLIE TERRY B. HATFIELD
DAVID S. HERMELIN MARC S. HERMELIN RONALD J. KANTERMAN
JONATHON E. KILLMER NORMAN D. SCHELLENGER
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
3. ELECTION OF THREE CLASS C DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS NOT APPROVED:
[ ] FOR all three nominees [ ] WITHHOLD AUTHORITY to vote for
listed below all three nominees listed below
JEAN M. BELLIN TERRY B. HATFIELD NORMAN D. SCHELLENGER
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
4. ELECTION OF TWO CLASS A DIRECTORS IF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS NOT APPROVED:
[ ] FOR both nominees [ ] WITHHOLD AUTHORITY to vote for
listed below both nominees listed below
KEVIN S. CARLIE MARC S. HERMELIN
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below:
- -------------------------------------------------------------------------------
5. AMENDMENT OF THE COMPANY'S INCENTIVE STOCK OPTION PLAN TO INCREASE BY
3,000,000 THE NUMBER OF SHARES OF CLASS A COMMON STOCK AVAILABLE FOR
ISSUANCE UPON EXERCISE OF STOCK OPTIONS GRANTED UNDER THE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. RATIFICATION OF ENGAGEMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. 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 APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION UNDER
PROPOSAL NO. 1, FOR THE ELECTION OF THE ABOVE LISTED NOMINEES UNDER PROPOSAL
NO. 2 IF PROPOSAL NO. 1 IS APPROVED, FOR THE ELECTION OF THE ABOVE LISTED
NOMINEES UNDER PROPOSAL NO. 3 IF PROPOSAL NO. 1 IS NOT APPROVED, FOR THE
ELECTION OF THE ABOVE LISTED NOMINEES UNDER PROPOSAL NO. 4 IF PROPOSAL NO. 1 IS
NOT APPROVED, FOR APPROVAL OF THE AMENDMENT TO THE STOCK OPTION PLAN UNDER
PROPOSAL NO. 5, AND FOR RATIFICATION OF THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM UNDER PROPOSAL NO. 6.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY. A POSTAGE-PAID
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and accompanying Proxy Statement, each dated July 29,
2008.
Dated: __________________, 2008
--------------------------------------------
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.