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Former Executive Sues KV Pharmaceutical

Former Executive Sues KV Pharmaceutical [St. Louis Post-Dispatch]

From St. Louis Post-Dispatch (MO) (November 27, 2011)

Nov. 26--A former executive of KV Pharmaceutical Co. has accused the Bridgeton-based drug maker of cheating her out of stock options.

Melissa Hughes, the company's former vice president of human resources, filed a lawsuit Oct. 28 in the Circuit Court of St. Louis County. Her suit was transferred recently to federal court in St. Louis.

Hughes, who resides in St. Charles County, worked at KV from 2003 until 2010.

KV executives could not be reached for comment.

According to the lawsuit, KV awarded Hughes a stock option plan in February 2009, which granted her the right to purchase 40,000 shares of KV's Class A common stock at $2.95 per share. Two months later, the suit alleges, KV gave her a "retention incentive" that granted her the right to purchase an additional 10,000 shares of Class A common stock at $1.52 per share.

The retention incentive, the suit alleges, was given "for the purpose of retaining her as a key employee with critical and confidential knowledge concerning the financial well-being of the company" because the loss of Hughes and other key workers would have resulted in an exodus of talented employees.

In exchange for continuing to work at KV, the suit alleges, Hughes continued to work at the drug maker "and diligently pursued their economic objectives, and did so at great peril to her long term financial well-being" as the company verged on bankruptcy during the period from April 2009 through September 2010.

KV officials acted in bad faith by failing to inform her that her stock options could not be exercised due to the company's delays in filing its 2009 and 2010 annual reports with the Securities and Exchange Commission, the suit alleges. In addition, the suit alleges that KV officials repeatedly blocked Hughes' attempts to exercise her stock options in 2010 and 2011.

According to the suit, KV's former chief executive David Van Vliet told Hughes that her stock options "would be worth $2 million," but the suit did not specify what period of time Vliet may have referenced. Vliet could not be reached Friday for comment.

Hughes claims that during the time period when she attempted to exercise her stock options from June 2010 to June 2011, the fair market value of KV stock was well above the option purchase price as set forth in her stock option agreements.

According to Bloomberg News, the average price of KV's common shares during that time period was $3.17, with a low of 61 cents and a high of $13.07.

Hughes was notified last June that KV's board of directors had canceled her stock options because they had expired before being exercised, the suit alleges.


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Posted: November 2011