KV.A KV Pharmaceutical Co. CL A

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14C

(RULE 14c-101)

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
(Amendment No. _____)

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K-V Pharmaceutical Company

(Name of Registrant as Specified in Its Charter)

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K-V Pharmaceutical Company

One Corporate Woods Drive

Bridgeton, MO 63044

 

January 28, 2010

 

We Are Not Asking You for Your Proxy or Consent and You are Requested Not to Send
Us Your Proxy or Consent.

 

To our Stockholders:

 

We are furnishing the attached Information Statement to the holders of Class A Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per share, (collectively, the “ Common Stock ”) of K-V Pharmaceutical Company, a Delaware corporation (the “ Company ”). The purpose of the Information Statement is to notify our stockholders that we have received written consents from stockholders representing a majority of the voting power of our outstanding shares of Common Stock, taking action to (1) remove Ronald J. Kanterman, or any successor to Mr. Kanterman, from the Board of Directors (the “ Board of Directors ”) of the Company and (2) appoint John Sampson as a director of the Company to fill the vacancy created by the removal of Mr. Kanterman (or any successor to Mr. Kanterman, if applicable), to hold such office until the next annual meeting of stockholders and until Mr. Sampson’s successor has been duly elected and qualified (collectively, the “ Director Changes ”). As previously disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “ Commission ”) on December 15, 2009, Mr. Kanterman resigned as a member of the Board of Directors on December 11, 2009.

 

Pursuant to the Delaware General Corporation Law, the Company’s Certificate of Incorporation and the Company’s By-Laws, the Company’s stockholders, by written consent without a meeting, may remove directors with or without cause and may fill director vacancies. The Board of Directors has not approved the Director Changes and is not seeking stockholder action with respect to the Director Changes.

 

The enclosed Information Statement is being furnished to inform you that the foregoing action has been approved by stockholders representing a majority of the voting power of our outstanding shares of Common Stock. The Board of Directors is not soliciting your proxy or consent in connection with the Director Changes. Pursuant to the regulations of the Commission, this Information Statement must be sent to stockholders at least 20 calendar days prior to the earliest date on which the proposed corporate action may be taken. You are urged to read the Information Statement in its entirety for a description of the action taken by certain stockholders representing a majority of the voting power of our outstanding shares of Common Stock.

 

The Information Statement is being mailed on or about February 5, 2010 to stockholders of record as of December 18, 2009, the record date for determining our stockholders eligible to consent in writing to the Director Changes and entitled to notice of these corporate actions.

 

Sincerely,

 

David A. Van Vliet

Interim President and

Interim Chief Executive Officer

 

Important Notice Regarding the Availability of Information Statement Materials in Connection with
this Notice of Stockholder Action by Written Consent: The Information Statement is available at:
www.kvpharmaceutical.com

K-V Pharmaceutical Company

One Corporate Woods Drive

Bridgeton, MO 63044

 

Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 and Rule 14c-2 Thereunder
January 28, 2010

 

No Vote, Consent or Other Action of K-V Pharmaceutical’s Stockholders is Required in
Connection with this Information Statement.

 

We Are Not Asking You for Your Proxy or Consent and You are Requested Not to Send
Us Your Proxy or Consent.

 

We are sending you this Information Statement to inform you that stockholders of K-V Pharmaceutical Company (the “ Company ”) representing a majority of the voting power of our outstanding shares of Class A Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per share, (collectively, the “ Common Stock ”) delivered certain written consents to the Company on December 22, 2009 to (1) remove Ronald J. Kanterman, or any successor to Mr. Kanterman, from the Board of Directors (the “ Board of Directors ”) of the Company and (2) appoint John Sampson as a director of the Company to fill the vacancy created by the removal of Mr. Kanterman (or any successor to Mr. Kanterman, if applicable), to hold such office until the next annual meeting of stockholders and until Mr. Sampson’s successor has been duly elected and qualified (collectively, the “ Director Changes ”). A copy of the stockholder written consents is attached hereto as Annex A.

 

As previously disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “ Commission ”) on December 15, 2009, Mr. Kanterman resigned as a member of the Board of Directors on December 11, 2009.

 

Pursuant to the Delaware General Corporation Law (the “ DGCL ”), the Company’s Certificate of Incorporation and the Company’s By-Laws, the Company’s stockholders, by written consent without a meeting, may remove directors with or without cause and may fill director vacancies. The Board of Directors has not approved the Director Changes and is not seeking stockholder action with respect to the Director Changes.

 

Pursuant to the regulations of the Commission, this Information Statement must be sent to stockholders at least 20 calendar days prior to the earliest date on which the proposed corporate action may be taken. The Board of Directors is not soliciting your proxy or consent in connection with the Director Changes and proxies and consents are not requested from stockholders.

 

We are distributing this Information Statement to stockholders of record as of December 18, 2009, the record date for determining our stockholders eligible to consent in writing to the Director Changes and entitled to notice of these corporate actions (the “ Record Date ”), in satisfaction of any notice requirements we may have under the DGCL and as required by the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations promulgated thereunder. No dissenters’ rights under the DGCL are afforded to you as a result of the Director Changes. We will pay the expenses incurred in connection with the distribution of this Information Statement.

 

Requirements for Appointing Directors

 

The Certificate of Incorporation of the Company provides that any director 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. It also provides that any vacancy on the Board of Directors, however caused, may be filled by the stockholders at a general meeting called for the purpose. Any director appointed to fill any such vacancy shall hold office until the next annual meeting of stockholders and until his or her successor has been duly elected and qualified.

 

Pursuant to Section 228 of the DGCL and the By-Laws, any action which may be taken at an annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if consents in writing are received from the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were

present. The Director Changes (i.e., the appointment of Mr. Sampson to the Board of Directors) require that stockholders representing a majority of the voting power of our outstanding Common Stock execute written stockholder consents.

 

Section 228 of the DGCL and the By-Laws further provide that prompt notice of the taking of corporate action without a meeting shall be given to those stockholders who have not consented in writing.

 

In accordance with the Certificate of Incorporation, the By-Laws and the DGCL, stockholders representing a majority of the voting power of our outstanding shares of Common Stock have consented to the Director Changes. No further vote, consent or proxy is required by the stockholders to take such action.

 

No additional action is required by our stockholders in connection with the Director Changes. However, Regulation 14C promulgated under the Exchange Act requires the mailing to our stockholders of the information set forth in this Information Statement at least 20 days prior to the earliest date on which the corporate action may be taken.

 

The Director Changes

 

Background

 

On December 10, 2009, the Company received a written notice (the “ Notice ”) executed by the Marc S. Hermelin Revocable Trust DTD 7/23/99, a stockholder of the Company, requesting that the Board of Directors fix a record date for stockholder action by written consent relating to the Director Changes. In response to the Notice, on December 15, 2009, the Board of Directors set a record date of the close of business on December 18, 2009. The Company on December 22, 2009 received certain written consents (the “ Written Consents ”), of the stockholders listed on Annex B attached hereto (the “ Consenting Stockholders ”) consenting to the Director Changes. The Company retained IVS Associates, Inc. (“ IVS ”) to serve as inspector of elections to tally the votes represented by the Written Consents, and IVS has certified to the Company that the votes represented by the Written Consents are sufficient to approve the Director Changes.

 

Reason for the Director Changes

 

The Written Consents submitted to the Company did not specify the Consenting Stockholders’ reasons for the Director Changes. However, the Consenting Stockholders filed a Schedule 13D with the Commission in August 2009, which they subsequently amended in September and December 2009 (the “ Schedule 13D ”). The original Schedule 13D includes disclosure of matters related to the Director Changes under Item 4 “Purpose of Transaction.” The amendment to the Schedule 13D filed in December, 2009 includes disclosure of matters related to the Director Changes under “2. Item 6 of the Original Filing is hereby amended and supplemented with the following.”

 

The Schedule 13D and related amendments were filed by the following persons: Marc S. Hermelin, Arnold L. Hermelin, David S. Hermelin, Lawrence Brody, Thomas R. Corbett, Greg D. Kenley, Lisa M. Kenley and Joshua L. Hermelin. Marc S. Hermelin and David S. Hermelin are members of the Board of Directors of the Company. The filing parties are referred to in the Schedule 13D as the “ Reporting Persons. ” The Reporting Persons executed the Written Consents in various capacities, principally as trustees of various trusts that hold shares of Common Stock. The Reporting Persons do not include, however, Sarah R. Weltscheff, who has executed a Written Consent.

 

Effect of the Director Changes

 

Holders representing a majority of the voting power of our outstanding shares of Common Stock have consented to the Director Changes. The Board of Directors has not approved the Director Changes and the Board of Directors is not seeking any stockholder action with respect to the Director Changes.

 

The effect of the Director Changes is to (1) remove Ronald J. Kanterman, or any successor to Mr. Kanterman, from the Board of Directors of the Company and (2) appoint John Sampson as a director of the Company to fill the vacancy created by the removal of Mr. Kanterman (or any successor to Mr. Kanterman, if applicable), to hold such office until the next annual meeting of stockholders and until Mr. Sampson’s successor has been duly elected and qualified.

As previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on December 15, 2009, Mr. Kanterman resigned as a member of the Board of Directors on December 11, 2009.

 

Directors, Executive Officers and Corporate Governance

 

Directors

 

The Company’s Certificate of Incorporation provides for the election of the entire Board of Directors at each annual meeting. Directors are elected for one-year terms or until their successors are duly elected and qualified. The terms of the current directors expire at the 2009 Annual Meeting of Stockholders. The Company’s By-Laws specify that the number of directors shall be determined by the Board of Directors from time to time. The By-Laws also provide that an increase in the number of directors to a number which is in excess of eight requires unanimous approval by the Board of Directors. The Board of Directors currently has set the number of directors at eight. Seven directors are currently serving on the Board. There is one vacancy resulting from the resignation of Ronald J. Kanterman which will be filled as a result of the Director Changes. The Company has not yet held its 2009 Annual Meeting of Stockholders.

 

The following table lists, for each of the Company’s current directors and John Sampson, 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), each person’s age and each person’s directorships with other companies whose securities are registered with the Commission.

 

 

 

 

Executive Officers

 

The following is a list of the Company’s current executive officers, their ages, their positions with the Company and their principal occupations for at least the past five years.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s executive officers, 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 such ownership with the Commission. Such individuals are required by the rules and regulations of the Commission 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, the Company believes that such persons complied with all Section 16(a) filing requirements applicable to them with respect to transactions during fiscal year 2009 (which ended on March 31, 2009), except that Mr. M. Hermelin filed one late report on Form 4 regarding a distribution of shares from a trust without consideration during fiscal year 2009.

 

Standards of Business Ethics Policy

 

All of the Company’s directors, officers, managers and employees are required to comply with the Standards of Business Ethics Policy to ensure that the Company’s business is conducted in a legal and ethical manner. The 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 the Company’s business. Employees and directors are required to report any suspected violations of the Standards of Business Ethics Policy. Through the Audit Committee, the Company 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. A copy of the Standards of Business Ethics Policy is available on the Company’s website at www.kvpharmaceutical.com and can be obtained free of charge by written request to the attention of the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044 or by telephone at (314) 645-6600.

 

The Company also has 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 Interim Chief Executive Officer, Interim Chief Financial Officer, Chief Accounting Officer and any other officer serving in a finance, accounting, treasury, tax or investor relations role. The Senior Executives Code of Ethics requires each such officer to provide accurate and timely information related to the Company’s public disclosure requirements. A copy of the Senior Executives Code of Ethics is available on the Company’s website at www.kvpharmaceutical.com and can be

obtained free of charge by written request to the attention of the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044 or by telephone at (314) 645-6600.

 

Determination of Director Independence

 

Under the rules of the New York Stock Exchange (the “ Exchange ”), a director of the Company only qualifies as “independent” if the 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) and as long as such director otherwise meets the requirements for independence set forth in Section 303A.02 of the Exchange’s Listed Company Manual. The Board of Directors has established guidelines to assist it in determining whether a director has a material relationship with the Company. Under these guidelines, a director is considered to be independent if he or she meets the criteria for independence set forth on Exhibit A of the Company’s Corporate Governance Guidelines and as required by the Sarbanes-Oxley Act of 2002, the Commission and the Exchange. A copy of the Company’s Corporate Governance Guidelines (including Exhibit A ) is available on the Company’s website at www.kvpharmaceutical.com and can be obtained free of charge by written request to the attention of the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044 or by telephone at (314) 645-6600.

 

The Board of Directors has determined that Messrs. Bellin, Carlie, Hatfield, Killmer and Schellenger are “independent” as determined under Section 303A.02 of the Exchange’s Listed Company Manual.

 

Board Meetings and Annual Meeting Attendance

 

During fiscal year 2009, the Board of Directors held 23 meetings, the Audit Committee held 40 meetings, the Compensation Committee held five meetings and the Nominating and Corporate Governance Committee held two meetings. During fiscal year 2009, 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 2009 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 2009 fiscal year.

 

The Board of Directors does not include any management directors at this time. In connection with its regular meetings, the Board of Directors periodically meets in executive session without any members of management present. These executive sessions occur not less than twice per year. The Chairman of the Board, a non-management director, is the presiding director at all such executive sessions. To the extent that a member of management joins the Board of Directors in the future, the Company will schedule at least two executive sessions of the Company’s non-management directors annually in conjunction with the regularly scheduled in-person meetings of the Board of Directors and the presiding director at such meetings will be the Chairman of the Board.

 

We encourage each director to attend the annual meetings of stockholders. The Company has not yet held its 2009 Annual Meeting of Stockholders. All directors were present at the Company’s 2008 Annual Meeting of Stockholders.

 

Stockholder Communications

 

A stockholder or interested party who wishes to communicate with the Board of Directors, specific individual directors or the non-management directors as a group may do so by directing a written request addressed to such director(s) in care of the Company’s Secretary at One Corporate Woods Drive, Bridgeton, Missouri 63044 (or via e-mail through the Company’s website at www.kvpharmaceutical.com ). Such communication will be forwarded to the intended director, group of directors or the entire Board of Directors, as the case may be, with the Secretary having the authority to discard inappropriate communications.

 

Committees of the Board of Directors

 

The Board of Directors currently has three standing committees, namely the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of these committees is comprised solely of independent directors in accordance with the listing standards of the Exchange. The charters of

the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are available on the Company’s website at www.kvpharmaceutical.com and can be obtained free of charge by written request to the attention of the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044 or by telephone at (314) 645-6600.

 

The Audit Committee

 

The Audit Committee currently consists of Kevin S. Carlie, CPA (Chairman), Jonathon E. Killmer and Terry B. Hatfield. The Board of Directors adopted the Audit Committee’s written charter and has determined that each member of the Audit Committee meets the standards of independence required by the Company’s Corporate Governance Guidelines and the Exchange, as well as the independence requirements for audit committee members under Rule 10A-3 promulgated under 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 Exchange and that each of Messrs. Carlie and 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 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.

 

The Compensation Committee

 

The Compensation Committee currently consists of Jonathon E. Killmer (Chairman) and Norman D. Schellenger. No other individuals served on the Compensation Committee during fiscal year 2009. The Board of Directors has determined that Messrs. Killmer and Schellenger are independent directors as defined by the 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 Interim Chief Executive Officer’s compensation based on an evaluation of the Interim 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.

 

The Role of Executive Officers in Determining or Recommending Compensation

 

The Interim Chief Executive Officer works closely with the Chairman of the Compensation Committee and makes recommendations to the Compensation Committee with respect to the compensation for executive officers, other than the Interim Chief Executive Officer. The Compensation Committee makes all final determinations with respect to compensation matters.

 

The Role of Compensation Consultants in Determining or Recommending Compensation

 

Pursuant to its charter, the Compensation Committee is authorized to retain compensation consultants, outside counsel and other advisors. During fiscal year 2009, the Compensation Committee retained Frederic W. Cook & Co., Inc. to act as its compensation consultant. The primary role of the compensation consultant has been to make recommendations to the Compensation Committee as to the compensation of the Interim Chief Executive Officer, other executive officers and the Board of Directors, including preparing reports regarding compensation levels at

comparable companies. The compensation consultant also makes suggestions regarding such matters as the appropriate mix of cash and equity compensation and the structure and features of equity awards.

 

The 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 the Company’s Corporate Governance Guidelines and meets the definition of independence adopted by the 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) approving 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 nominee must be included to enable the committee to make proper assessments as to the nominee’s qualifications. Nominations must be addressed to the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044. 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 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 composed of individuals with diverse experience in business and technology related to the business and strategic direction the Company may be interested in pursuing. A copy of the Company’s Corporate Governance Guidelines is available on the Company’s website at www.kvpharmaceutical.com and can be obtained free of charge by written request to the attention of the Secretary of the Company at One Corporate Woods Drive, Bridgeton, Missouri 63044 or by telephone at (314) 645-6600.

 

Interest of Certain Persons in Matters to be Acted Upon

 

As noted above, Marc S. Hermelin and David S. Hermelin, both of whom have executed Written Consents in various capacities, are members of the Company’s Board of Directors. In addition, Marc S. Hermelin in his capacity as Trustee of the Marc S. Hermelin Revocable Trust DTD 7/23/99 made the request pursuant to the Company’s By-Laws that the Board of Directors fix a record date to allow the action by Written Consent. Except as noted herein, no director, executive officer, associate of any director, executive officer or nominee, or any other person, has any substantial interest, direct or indirect, by security holdings or otherwise, in the Director Changes, which is not shared by all other stockholders of the same class.

 

Executive Compensation

 

Explanatory Note

 

As previously disclosed on the Company’s Form 12b-25 filed with the Commission on June 2, 2009, the Company’s Current Report on Form 8-K filed with the Commission on November 12, 2009 (the “ November Form 8-K ”), as well as in other filings with the Commission, the Company has been unable to file its Annual Report

on Form 10-K for the Company’s fiscal year ended March 31, 2009 (the “ 2009 Annual Report ”). In addition, in connection with the matters set forth in the November Form 8-K, the Company has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to the disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which includes information on executive compensation, is presented as of fiscal year 2008, which ended on March 31, 2008, and is set forth on Annex C attached hereto.

 

In reading the information contained in the “Executive Compensation” section of Annex C attached hereto, please note certain significant changes that took place with respect to the management of the Company after March 31, 2008, as described under “— Significant Changes in Management since March 31, 2008.”

 

Significant Changes in Management since March 31, 2008

 

For purposes of the information contained in the “Executive Compensation” section of Annex C attached hereto, the Company’s named executive officers (as defined on Annex C attached hereto) consisted of the following:

 

 

The following changes in management, which have resulted in a change of employment of the named executive officers, have occurred since March 31, 2008.

 

On December 5, 2008, the Board of Directors, acting upon the recommendation of the Audit Committee as a result of an internal investigation, terminated the employment agreement of Marc S. Hermelin, the Chief Executive Officer of the Company at that time, “for cause” (as that term is defined in such employment agreement). In addition, the Board of Directors removed Mr. Hermelin as the Chairman of the Board of Directors and as the Chief Executive Officer, effective December 5, 2008. Mr. Hermelin remains a member of the Board of Directors. In accordance with the termination provisions of his employment agreement, Mr. Hermelin is not entitled to any severance benefits. In addition, as a result of Mr. Hermelin’s termination “for cause,” the Company determined it was no longer obligated for the retirement benefits specified in the employment agreement. Mr. Hermelin has informed the Company, however, that he believes he effectively retired from his employment with the Company prior to the action on December 5, 2008 by the Board of Directors.

 

Effective December 5, 2008, the Board of Directors appointed David A. Van Vliet (formerly President and Chief Executive Officer of ETHEX Corporation) to serve as Interim Chief Executive Officer and Terry B. Hatfield, a director, to serve as non-executive Chairman of the Board of Directors. As disclosed on the Company’s Current Report on Form 8-K filed with the Commission on November 25, 2009, the Company on November 23, 2009 entered into an employment agreement with Mr. Van Vliet that replaces the employment and confidentiality agreement the Company previously entered into with Mr. Van Vliet.

 

On September 2, 2009, Thomas S. McHugh, the Vice President of Finance and Corporate Controller of the Company, was named Interim Chief Financial Officer and Interim Treasurer. Mr. McHugh replaced Ronald J. Kanterman, who ceased serving as the Chief Financial Officer and Treasurer of the Company as of such date. Mr. Kanterman resigned as a member of the Board of Directors on December 11, 2009. As disclosed on the

Company’s Current Report on Form 8-K filed with the Commission on December 15, 2009, the Company on December 14, 2009 entered into a separation agreement and general release and a consulting and confidentiality agreement with Mr. Kanterman that replace the employment agreement the Company previously entered into with Mr. Kanterman.

 

Since December 2008, Mr. Anderson no longer serves as the Company’s Vice President, Industry Presence and Development and now serves as the Chief Executive Officer, ETHEX Corporation.

 

On January 16, 2009, the Company provided written notice to Gregory S. Bentley that the Employment and Confidential Information Agreement dated April 24, 2006 and the letter agreement dated March 23, 2006 will terminate at the end of the 120-day notice period provided for in the employment agreement. In addition, the Company removed Mr. Bentley as Senior Vice President and General Counsel of the Company, effective immediately.

 

Compensation Committee Interlocks and Insider Participation

 

Jonathon E. Killmer served as the Chairman of the Compensation Committee, and Norman D. Schellenger served as a member of the Compensation Committee, during fiscal year 2008 and fiscal year 2009. Neither has ever served as an officer or employee of the Company or had any relationship requiring disclosure under any paragraph of Item 404 of Regulation SK.

 

Compensation Committee Report

 

As set forth under “Executive Compensation — Explanatory Note” above, the Company has been unable to file its 2009 Annual Report and has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to the disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which includes the Compensation Committee Report, is presented as of fiscal year 2008, which ended on March 31, 2008, and is set forth on Annex C attached hereto.

 

Compensation of Directors

 

Director Compensation is designed to attract individuals who have the required background, experience and functional expertise to provide strategic direction and oversight to the Company. Only those directors who are not also employees of the Company are compensated for their service as directors. With respect to such non-employee directors, the Compensation Committee recommends the appropriate levels of compensation to the Board of Directors, and the full Board of Directors approves the actual compensation to be paid to the non-employee directors.

 

On January 12, 2009, the Board of Directors adopted and approved a revised compensation plan for directors for calendar year 2009 (the “ 2009 Plan ”). On December 22, 2009, the Board of Directors adopted and approved a revised compensation plan for directors for calendar year 2010 (the “ 2010 Plan ”). The 2010 Plan is expected to be reviewed annually thereafter.

 

Director Compensation Until December 31, 2008

 

Basic Retainer  — The cash compensation component for non-employee directors consisted 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 received $1,000 per day for in-person meetings of the Board of Directors or other committees (including the Special Committee appointed by the Board of Directors in response to the initiation of a series of putative class action shareholder lawsuits alleging violations of the federal securities laws by the Company and certain individuals, the initiation of lawsuits alleging violations under the Employee Retirement Income Security Act (ERISA), as well as the receipt by the Company of an informal inquiry from the Commission) on which the director served. Fees for telephonic meetings were $500. Total annual compensation

received by the non-employee directors, therefore, was determined by the number of committee and Board of Director meetings attended each year.

 

Expense Reimbursement  — The Company also paid for the reasonable out-of-pocket expenses incurred by the non-employee directors for attendance at Board of Director and committee meetings.

 

Stock Options  — As stated above, the stock option component of the director compensation program was designed to align the interest of the directors with those of the Company’s stockholders. As such, upon appointment as a director, each non-employee director was granted options to acquire 7,500 shares of Class B Common Stock. Subsequent grants for non-employee directors who were not members of the Compensation Committee were determined periodically by the Board of Directors, based on the recommendation of the Compensation Committee. Subsequent grants for members of the Compensation Committee were determined periodically by the Board of Directors. Such options were granted as non-qualified options under the K-V Pharmaceutical Company 2001 Incentive Stock Option Plan and generally vested ratably over five years. The shares acquired upon exercise are subject to a two-year forfeiture period, during which time they cannot be sold.

 

Total Director Compensation Paid During Fiscal Year 2008

 

As set forth under “Executive Compensation — Explanatory Note” above, the Company has been unable to file its 2009 Annual Report and has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which includes the director compensation information for fiscal year 2008, is presented as of fiscal year 2008, which ended on March 31, 2008, and is set forth on Annex C attached hereto.

 

Director Compensation During Calendar Year 2009

 

Annual Retainers  — The 2009 Plan provided that, instead of receiving a fee for each meeting, every director received an annual retainer in the amount of $116,000. The 2009 Plan also included additional annual retainers in the following amounts:

 

 

Annual retainers were payable in equal quarterly installments. If a director attended fewer than 75% of meetings during the calendar year, the 2009 Plan provided that such director’s retainer would be reduced on a pro-rata basis and that excess amounts already received were required to be reimbursed to the Company.

 

Meetings of Independent Directors  — Independent directors received a fee in the amount of $2,000 for every meeting lasting more than one hour and $750 for every meeting lasting one hour or less. Such fees were not required to be pro-rated.

 

One-Time Stock Option Grant  — On January 13, 2009, the Board of Directors granted each non-employee director the option to purchase 15,000 shares of the Company’s Class A Common Stock pursuant to the K-V Pharmaceutical Company 2001 Incentive Stock Option Plan at an exercise price equal to the closing price of the Class A Common Stock on the Exchange on that date. The non-incentive stock options, which have a 10 year life, vest in 25% increments on March 31, 2009, June 30, 2009, September 30, 2009 and December 31, 2009 and are

exercisable upon vesting. In the event a director ceases to be a director within 12 months of a change of control, the options are exercisable immediately.

 

Director Compensation During Calendar Year 2010

 

Annual Retainers  — The 2010 Plan provides that every director receives an annual retainer in the amount of $175,000. The 2010 Plan also includes additional annual retainers in the following amounts:

 

 

Annual retainers are payable in advance in equal quarterly installments on the first business day of each calendar quarter. If, during any quarter, a director resigns, including due to incapacity or death, is removed without cause, or is not reelected, any previously paid quarterly installment is deemed fully earned. If a director attends fewer than 75% of meetings during the calendar year, the 2010 Plan provides that such director’s retainer will be reduced on a pro-rata basis and that excess amounts already received are required to be reimbursed to the Company.

 

Meetings of Independent Directors  — Independent directors receive a fee in the amount of $2,000 for every meeting lasting more than one hour and $750 for every meeting lasting one hour or less. Such fees are not required to be pro-rated.

 

Per-Meeting Fees  — Beginning with the thirteenth meeting of each calendar year, each non-employee director will receive (1) a fee in the amount of $2,000 for every Board of Directors meeting lasting more than two hours and $1,000 for every Board of Directors meeting lasting less two hours or less and (2) a fee in the amount of $1,500 for every committee meeting lasting more than two hours and $750 for every committee meeting lasting two hours or less.

 

Transactions with Related Persons

 

As described above under “Executive Compensation — Explanatory Note,” the Company has been unable to file its 2009 Annual Report and has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to the disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which includes the information regarding transactions with related parties, is presented as of fiscal year 2008, which ended on March 31, 2008, and is set forth on Annex C attached hereto.

 

In reading the information set forth on Annex C attached hereto regarding transactions with related persons, please note that, as set forth under “Executive Compensation — Explanatory Note — Significant Changes in Management since March 31, 2008” above, Marc S. Hermelin’s employment agreement with the Company was terminated in December 2008 and he no longer serves as the Company’s Chairman and Chief Executive Officer. In addition, David S. Hermelin’s employment agreement with the Company was terminated in December 2008 and he is no longer employed by the Company. He remains a member of the Board of Directors. Ms. Weltscheff’s employment agreement with the Company was terminated in December 2008 and she is no longer employed by the Company.

Review, Approval or Ratification of Transactions with Related Persons

 

Pursuant to the related party transaction guidelines adopted by the Board of Directors, 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 stockholder 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 does 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 per 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):

 

 

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 Standards 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 described above were approved under the Company’s related party transaction guidelines.

 

Audit Committee Report

 

As set forth under “Executive Compensation — Explanatory Note” above, the Company has been unable to file its 2009 Annual Report and has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to the disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which includes the Audit Committee Report, is presented as of fiscal year 2008, which ended on March 31, 2008, and is set forth on Annex C attached hereto.

 

Voting Securities of Shares Outstanding

 

At the close of business on the Record Date, (1) there were 37,727,163 shares of our Class A Common Stock outstanding, which outstanding shares are entitled to 1,886,358 votes, and (2) there were 12,112,112 shares of our Class B Common Stock outstanding, which outstanding shares are entitled to 12,112,112 votes.

 

Security Ownership of Certain Beneficial Owners

 

Under regulations of the Commission, persons who have power directly or indirectly to vote or to dispose of our shares of Common Stock, either alone or jointly with others, are deemed to be beneficial owners of those shares. The following table sets forth information with respect to each person known by the Company as of the Record Date 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.”

 

 

 

Security Ownership of Management

 

The following table shows, as of the Record Date, the beneficial ownership of (1) each of the “named executive officers” as such term is defined in Regulation S-K Item 402(a)(3), (2) each present director of the Company and John Sampson and (3) all present directors and executive officers and John Sampson 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.

 

 

 

 

 

 

Householding and Where You Can Find More Information

 

In some instances, only one copy of this Information Statement 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 this Information Statement to a stockholder at a shared address to which a single copy of the documents was delivered. If you wish to (1) receive a separate copy of this Information Statement, (2) receive separate copies of the Information Statement in the future, or (3) receive only a single copy of the Information Statement in future, you may call us at (314) 645-6600 or send a written request to K-V Pharmaceutical Company, One Corporate Woods Drive, Bridgeton, MO 63044, Attention: Secretary.

 

We file annual, quarterly and current reports, proxy statements and other information with the Commission. Our filings are also available to the public at the website maintained by the Commission at www.sec.gov.

 

You should rely only on the information contained in, or incorporated by reference as an Annex to, this Information Statement. We have not authorized anyone else to provide you with different information.

NO ADDITIONAL ACTION IS REQUIRED BY OUR STOCKHOLDERS IN CONNECTION WITH THE CORPORATE ACTION TO APPROVE THE DIRECTOR CHANGES. HOWEVER, REGULATION 14C PROMULGATED UNDER THE EXCHANGE ACT REQUIRES THE MAILING TO OUR STOCKHOLDERS OF THE INFORMATION SET FORTH IN THIS INFORMATION STATEMENT AT LEAST TWENTY (20) DAYS PRIOR TO THE EARLIEST DATE ON WHICH THE CORPORATE ACTION MAY BE TAKEN.

ANNEX A

 

ACTION BY WRITTEN CONSENT OF STOCKHOLDERS

 

Pursuant to § 228 of the Delaware General Corporation Law, the undersigned stockholders of K-V Pharmaceutical Company, a Delaware corporation (the “Corporation”), holding, as of December 18, 2009 (“Record Date”), outstanding stock in the Corporation having not less than the minimum number of votes that would be necessary to authorize or take the actions set forth in this Action by Written Consent of Stockholders at any annual or special meeting of the stockholders of the Corporation at which all shares entitled to vote thereon were present and voted, hereby consent to and adopt the following actions of the stockholders of the Corporation in lieu of a special meeting of the stockholders of the Corporation:

 

RESOLVED , that pursuant to Article 8 of the Corporation’s Certificate of Incorporation, Ronald Kanterman, or any successor to Ronald Kanterman, if applicable, be, and hereby is, removed as a director of the Corporation; and

 

RESOLVED , that pursuant to Article 8 of the Corporation’s Certificate of Incorporation, John Sampson be, and hereby is, elected as a director of the Corporation, to fill the vacancy created by the removal of Ronald Kanterman, or any successor to Ronald Kanterman, if applicable, as a director of the Corporation, to hold such office until the next annual meeting of the stockholders of the Corporation and until John Sampson’s successor has been duly elected and qualified.

 

The undersigned stockholders of the Corporation have executed this Action by Written Consent of Stockholders on the respective dates indicated below each respective stockholder’s signature. Wherever possible, each individual action in this Action by Written Consent of Stockholders shall be interpreted in such a manner as to be valid, operable, lawful, enforceable and effective under applicable law, but if any individual action in this Action by Written Consent of Stockholders is determined or deemed to be invalid, inoperative, unlawful, unenforceable or ineffective to any extent for any reason, such circumstances shall not have the effect of rendering the action in question invalid, inoperative, unlawful, unenforceable or ineffective in any other jurisdiction, case or circumstance, or of rendering any other action in this Action by Written Consent of Stockholders invalid, inoperative, unlawful, unenforceable or ineffective. This Action by Written Consent of Stockholders may be executed in one or more counterparts, each of which will be deemed to be an original, but all of which shall constitute one and the same written document. Pursuant to § 228(d) of the Delaware General Corporation Law, any copy, facsimile or other reliable reproduction of this Action by Written Consent of Stockholders may be substituted or used in lieu of the original of this document, and a signature by any of the stockholders to this Action by Written Consent of Stockholders, transmitted by facsimile or other electronic transmission, shall be deemed to constitute an original and fully effective signature of such stockholder.

 

[Remainder of page intentionally left blank. Signature pages follow.]

[Note: Signature pages and share counts intentionally omitted.]

ANNEX B

 

CONSENTING STOCKHOLDERS

 

MARC S HERMELIN TR

MARC S HERMELIN REVOCABLE TRUST

U/A DTD 07/23/1999

By: Marc S. Hermelin, Trustee

 

MARC S HERMELIN TR UA 7/23/99 MARC S HERMELIN REVOCABLE TRUST

By: Marc S. Hermelin, Trustee

 

MARC S HERMELIN TR UA 7/23/99 MARC S HERMELIN TRUST

By: Marc S. Hermelin, Trustee

 

MARC S HERMELIN TR UA 7/23/99 MARC S HERMELIN REV LIVING TRUST

By: Marc S. Hermelin, Trustee

 

THOMAS R CORBETT TR UA 06/02/71 VICTOR M HERMELIN TRUST

FBO MARC HERMELIN

By: Thomas R. Corbett, Trustee

 

THOMAS R CORBETT TR

UA 06/02/71 VICTOR M HERMELIN TRUST

FBO MARC HERMELIN

By: Thomas R. Corbett, Trustee

 

THOMAS R CORBETT TR UA 06/02/71

VICTOR M HERMELIN TRUST

FBO ARNOLD HERMELIN

By: Thomas R. Corbett, Trustee

 

MARC HERMELIN, DAVID HERMELIN, LAWRENCE BRODY TTEE

VICTOR HERMELIN TR DT 12/22/73

FBO MARC S HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & MINNETTE HERMELIN & LAWRENCE BRODY

TR UA 12/22/73 MARC S HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN MINNETTE HERMELIN & LAWRENCE BRODY

TR UA 22-DEC-73 MARC S HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & LAWRENCE BRODY & DAVID HERMELIN TR

UA 12/22/73 1973 VICTOR M HERMELIN TRUST FBO MARC S HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & DAVID HERMELIN & LAWRENCE BRODY TR

UA 12/22/73 VICTOR M HERMELIN TRUST FBO MARC HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC HERMELIN, LAWRENCE BRODY

ARNOLD HERMELIN TTEE

VICTOR HERMELIN TR DT 12-22-73

FBO ARNOLD HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC & ARNOLD HERMELIN & LAWRENCE BRODY TR UA 12/22/73

VICTOR HERMELIN TRUST FBO ARNOLD HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & MINNETTE HERMELIN & LAWRENCE BRODY

TR UA 12/22/73 ARNOLD HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & MINNETTE HERMELIN & LAWRENCE BRODY

TR 12/22/73 ARNOLD M HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & MINNETTE HERMELIN & LAWRENCE BRODY

TR UA 12/22/73 ARNOLD M HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & ARNOLD HERMELIN & LAWRENCE BRODY

TR UA 12/22/73 VICTOR M HERMELIN TRUST FBO ARNOLD HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

TRUST UA DTD 10/22/73 FBO ARNOLD HERMELIN

Arnold L. Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC HERMELIN, DAVID HERMELIN

LAWRENCE BRODY TTEE

VICTOR HERMELIN TR-DT 12/23/73 FBO MINETTE HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

MARC S HERMELIN & MINNETTE HERMELIN & LAWRENCE BRODY

TR UA 12/23/73 MINNETTE HERMELIN

David Hermelin, Trustee

Lawrence Brody, Trustee

 

ROSH CHODESH 1 PARTNERSHIP

By: Marc S. Hermelin, General Partner

 

SARAH R. WELTSCHEFF AKA CHRISTINA M. WELTSCHEFF, INDIVIDUALLY

 

MARC HERMELIN, INDIVIDUALLY

 

THOMAS R CORBETT TR UA 01/01/97 YOSEF TRUST

By: Thomas R. Corbett, Trustee

 

SUZAN M WILSON TR

UA 1/1/1997 YOSEF TRUST

By: Thomas R. Corbett, Trustee

 

LISA KENLEY GREG KENLEY

& JOSHUA HERMELIN TR UA 10/17/91 JACOB TRUST

Lisa M. Kenley, Trustee

Joshua L. Hermelin, Trustee

 

LISA KENLEY & GREG KENLEY & JOSHUA HERMELIN TR

UA 10/17/91 JACOB TRUST

Lisa M. Kenley, Trustee

Joshua L. Hermelin, Trustee

 

GREG KENLEY OR LISA KENLEY TR

UA 10/17/91 JACOB TRUST

Lisa M. Kenley, Trustee

Joshua L. Hermelin, Trustee

ANNEX C

 

INFORMATION PRESENTED AS OF FISCAL YEAR ENDED MARCH 31, 2008

 

Explanatory Note

 

As previously disclosed on the Form 12b-25 filed by K-V Pharmaceutical Company (the “ Company ”) with the Securities and Exchange Commission (the “ Commission ”) on June 2, 2009, the Company’s Current Report on Form 8-K filed with the Commission on November 12, 2009 (the “ November Form 8-K ”), as well as in other filings with the Commission, the Company has been unable to file its Annual Report on Form 10-K for the Company’s fiscal year ended March 31, 2009 (the “ 2009 Annual Report ”). In addition, in connection with the matters set forth in the November Form 8-K, the Company has not held its annual stockholders’ meeting for fiscal year 2009 or prepared and filed a related proxy statement. Because the Company has not yet filed a proxy statement for fiscal year 2009 or its 2009 Annual Report, this Information Statement includes certain disclosure which is copied from and is identical to the disclosure contained in the Company’s definitive proxy statement with respect to the Company’s annual stockholders’ meeting for fiscal year 2008, which was filed with the Commission on July 29, 2008. Such disclosure, which is set forth below, is presented as of fiscal year 2008, which ended on March 31, 2008, and is indented and denoted by a line in the left margin.

 

In reading the information contained in this Annex C , please note certain significant changes that took place with respect to the management of the Company after March 31, 2008, as described below.

 

For purposes of the information set forth under “Executive Compensation” below, the Company’s named executive officers (as defined below) consisted of the following:

 

 

The following changes in management, which have resulted in a change of employment of the named executive officers, have occurred since March 31, 2008.

 

On December 5, 2008, the Board of Directors (the “ Board of Directors ”) of the Company, acting upon the recommendation of the Audit Committee as a result of an internal investigation, terminated the employment agreement of Marc S. Hermelin, the Chief Executive Officer of the Company at that time, “for cause” (as that term is defined in such employment agreement). In addition, the Board of Directors removed Mr. Hermelin as the Chairman of the Board of Directors and as the Chief Executive Officer, effective December 5, 2008. Mr. Hermelin remains a member of the Board of Directors. In accordance with the termination provisions of his employment agreement, Mr. Hermelin is not entitled to any severance benefits. In addition, as a result of Mr. Hermelin’s termination “for cause,” the Company determined it was no longer obligated for the retirement benefits specified in the employment agreement. Mr. Hermelin has informed the Company, however, that he believes he effectively retired from his employment with the Company prior to the action on December 5, 2008 by the Board of Directors.

 

Effective December 5, 2008, the Board of Directors appointed David A. Van Vliet (formerly President and Chief Executive Officer of ETHEX Corporation) to serve as Interim Chief Executive Officer and Terry B. Hatfield, a director, to serve as non-executive Chairman of the Board of Directors. As disclosed on the Company’s Current Report on Form 8-K filed with the Commission on November 25, 2009, the Company on November 23, 2009 entered into an employment agreement with Mr. Van Vliet that replaces the employment and confidentiality agreement the Company previously entered into with Mr. Van Vliet.

      On September 2, 2009, Thomas S. McHugh, the Vice President of Finance and Corporate Controller of the Company, was named Interim Chief Financial Officer and Interim Treasurer. Mr. McHugh replaced Ronald J. Kanterman, who ceased serving as the Chief Financial Officer and Treasurer of the Company as of such date. Mr. Kanterman resigned as a member of the Board of Directors on December 11, 2009. As disclosed on the Company’s Current Report on Form 8-K filed with the Commission on December 15, 2009, the Company on December 14, 2009 entered into a separation agreement and general release and a consulting and confidentiality agreement with Mr. Kanterman that replace the employment agreement the Company previously entered into with Mr. Kanterman.

      Since December 2008, Mr. Anderson no longer serves as the Company’s Vice President, Industry Presence and Development and now serves as the Chief Executive Officer, ETHEX Corporation.

      On January 16, 2009, the Company provided written notice to Gregory S. Bentley that the Employment and Confidential Information Agreement dated April 24, 2006 and the letter agreement dated March 23, 2006 will terminate at the end of the 120-day notice period provided for in the employment agreement. In addition, the Company removed Mr. Bentley as Senior Vice President and General Counsel of the Company, effective immediately.

      For purposes of the information set forth under “Transactions with Related Persons” below, please note the following:

	•		David S. Hermelin’s employment agreement with the Company was terminated in December 2008 and he is no longer employed by the Company. He remains a member of the Board of Directors; and
	•		Ms. Weltscheff’s employment agreement with the Company was terminated in December 2008 and she is no longer employed by the Company.

      The information set forth under “Compensation Committee Report” and “Audit Committee Report” below is not deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

(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.”
(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:

(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 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.

(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.

(1)		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.

(1)		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.
(2)		Mr. Hermelin currently has no unvested stock options.
(3)		Represents the present value of the accumulated benefit assuming Mr. Hermelin retired on March 31, 2008.
(4)		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.
(5)		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).

(1)		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.
(2)		Represents the benefits paid for Mr. Anderson including group term insurance, disability insurance and medical benefits.

(1)		Represents estimated bonus to be paid assuming an annual bonus of 30% of his base salary prorated over 18 months.
(2)		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.
(3)		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.

(1)		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.
(2)		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.

(1)		Represents the benefits paid for Mr. Kanterman including group term insurance, disability insurance and medical benefits.

(1)		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.

(1)		Consists of the Company’s 1991 and 2001 Incentive Stock Option Plans. See Note 16 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

(1)		Consists of the Company’s 1991 and 2001 Incentive Stock Option Plans. See Note 16 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

(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 year 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 the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008.
		Effective as of March 31, 2008, the following non-employee 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 the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007):

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