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K-V Pharmaceutical Company Announces Reliance On Financial Distress Exception To NYSE's Shareholder Approval Policy

ST. LOUIS, Nov. 17, 2010 /PRNewswire/ -- K-V Pharmaceutical Company (NYSE:  KVa/KVb) (the "Company") today announced that it issued a warrant to U.S. Healthcare I, L.L.C. and U.S. Healthcare II, L.L.C. (together the "Lenders") that grant Lenders the right to purchase up to 9,900,000 shares of the Company's Class A Common Stock, par value $.01 per share (the "Initial Warrant"), and that it intends to issue a second warrant to Lenders that grants Lenders the right to purchase up to 2,687,511 shares of the Company's Class A Common Stock, par value $.01 per share (the "Second Warrant," and together with the Initial Warrant, the "Warrants"), in each case at an exercise price of $1.62 per share.  The closing price of the Class A Common Stock on the New York Stock Exchange (the "Exchange") was $2.11 on November 16, 2010.  In connection with the issuance of the Warrants, the Lenders will receive certain registration rights to register the resale of the Class A Common Stock issuable upon exercise of the Warrants.  The Company is issuing the Warrants in connection with the financing arrangements being entered into with Lenders pursuant to the terms of a Credit and Guaranty Agreement, dated November 17, 2010, entered into by and among the Company, certain of the Company's subsidiaries and the Lenders (the "Financing").  The Warrants contain certain anti-dilution provisions included at the request of the Lender, but do not contain any preemptive rights.  Except for the number of shares, the Initial Warrant and the Second Warrant contain the same terms and conditions.

The Financing includes immediate funding of $60 million to the Company under a senior secured term loan.  The Company is obligated to use approximately $20 million of the proceeds from this loan to repay existing debt, accrued interest and closing fees owed to the Lenders, which amounts will not be available to the Company for future draw.  The Financing also includes commitments from the Lenders to provide additional funding to the Company of up to $120 million in a series of draws when certain milestones and/or conditions are met, including $60 million to repay existing debt and $20 million that may be drawn upon FDA approval of Gestiva™ if the Company is otherwise in compliance with its obligations under the loan agreement.  The Lenders will not be entitled to any additional warrants if additional amounts are funded.  The loans will accrue interest at an annual rate of 16.5%, 11.5% of which will be payable in cash and 5% of which will be payable in kind by adding such amounts to the outstanding principal balance of the loans.  The loans have a stated maturity of March 20, 2013 and are secured by substantially all of the assets of the Company and its subsidiaries.

The Stockholder Approval Policy of the Exchange provides that stockholder approval is required prior to the issuance of warrants to purchase common stock if, among other things, the stock exercisable upon issuance of the warrants equals or exceeds 20% of the number of shares of common stock outstanding before the issuance.  The Company currently has 37,747,470 shares of its Class A Common Stock outstanding and 12,112,285 shares of its Class B Common Stock outstanding for a total of 49,859,755 shares of common stock outstanding on a combined basis.  The shares of Class A Common Stock that may be issued pursuant to the Initial Warrant represent approximately 19.9% of the Company's outstanding common stock.  The shares of Class A Common Stock that may be issued pursuant to the Second Warrant represent approximately 5.3% of the Company's outstanding common stock.  Accordingly, compliance with the Stockholder Approval Policy would normally be required for the issuance of the Second Warrant because when combined the Initial Warrant, the Warrants represent approximately 25.2% of the Company's outstanding common stock.  However, the Audit Committee of the Board of Directors of the Company determined that the delay necessary in securing stockholder approval prior to the issuance of the Second Warrant would seriously jeopardize the financial viability of the Company.  Because of that determination, the Audit Committee, pursuant to an exception provided in the Exchange's Stockholder Approval Policy for such a situation, expressly approved the Company's omission to seek the stockholder approval that would otherwise have been required under that policy.  The Exchange has accepted the Company's application of the exception.

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