Exhibit 10.5

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (INCLUDING THE SECURITIES
ISSUABLE UPON EXERCISE OF THE SECURITIES) WERE ORIGINALLY ISSUED ON MARCH 2,
2011 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED ONLY IN COMPLIANCE WITH THE
REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT
TO THE CONDITIONS SPECIFIED IN THE STOCK WARRANT PURCHASE AGREEMENT, DATED AS OF
FEBRUARY 10, 2011, AND THE SECOND AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT, DATED AS OF MARCH 2, 2011, EACH AS AMENDED AND MODIFIED FROM TIME TO
TIME, BETWEEN THE ISSUER HEREOF (THE “COMPANY”) AND THE INITIAL HOLDER HEREOF,
AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. UPON WRITTEN
REQUEST, A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE
HOLDER HEREOF WITHOUT CHARGE.

K-V PHARMACEUTICAL COMPANY

STOCK PURCHASE WARRANT

 

Date of Issuance: March 2, 2011   Certificate No. W-3

FOR VALUE RECEIVED, K-V Pharmaceutical Company, a Delaware corporation (the
“Company”), hereby grants to U.S. Healthcare I, L.L.C. (“U.S. Healthcare I”) and
U.S. Healthcare, II L.L.C. (“U.S. Healthcare II” and together with U.S.
Healthcare I and each of their registered assigns, each a “Registered Holder”
and collectively, the “Registered Holders”) the right to purchase from the
Company, in the case of U.S. Healthcare I, 4,992,102 shares of Common Stock, and
in the case of U.S. Healthcare II, 2,458,797 shares of Common Stock, in each
case less the number of shares of Common Stock already issued in connection with
partial exercises of this Warrant (this “Warrant”), at a price per share of
$1.62 (as adjusted from time to time in accordance herewith, the “Exercise
Price”). This Warrant is one of several warrants (collectively, the “Warrants”)
issued by the Company pursuant to the terms of the Credit and Guaranty
Agreement, dated as of November 17, 2010 (as amended by that certain Amended and
Restated Amendment No. 1 to Credit Agreement and Amendment No. 1 to

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Commitment Letter, dated as of January 6, 2011, the “Credit Agreement”), by and
among the Company, as the borrower and certain of its subsidiaries, as
guarantors, the lenders party thereto from time to time and U.S. Healthcare I,
L.L.C., as administrative agent and collateral agent. In connection with the
Credit Agreement and the transactions contemplated thereby, the amount of the
purchase price allocated to the Warrants granted to (i) U.S. Healthcare I is
$9,504,962.84 and (ii) U.S. Healthcare II is $4,681,548.86. Certain capitalized
terms used herein are defined in Section 5. The amount and kind of securities
obtainable pursuant to the rights granted hereunder and the purchase price for
such securities are subject to adjustment pursuant to the provisions contained
in this Warrant.

This Warrant is subject to the following provisions:

Section 1. Exercise of Warrant.

1A. Exercise Period. Each Registered Holder may exercise, in whole or in part,
but not as to a fractional share of Common Stock, the purchase rights
represented by this Warrant, solely on a cashless exercise basis in accordance
with paragraph 1B(ii), at any time and from time to time after the Date of
Issuance to and including November 17, 2015 (the “Expiration Date”). Each
Registered Holder shall be required to exercise (subject to Section 14), in
whole or in part, but not as to a fractional share of Common Stock, the purchase
rights represented by this Warrant, solely on a cashless exercise basis in
accordance with paragraph 1B(ii), on the date (the “Company Mandatory Exercise
Date”, and the period from the Date of Issuance through the earlier of the
Expiration Date and the Company Mandatory Exercise Date, the “Exercise Period”)
that is 30 days following the Company’s notice to the Registered Holder (a
“Company Mandatory Exercise Notice”) that (a) the average of the Closing Prices
of Common Stock for at least 30 consecutive trading days (the first time such
condition is satisfied after the Date of Issuance, the “30-Day Average Closing
Price”) has exceeded $15.00 (subject to adjustment for stock splits, stock
dividends, recapitalizations or other similar events with respect to the Common
Stock), (b) the Closing Price of the Common Stock has exceeded $15.00 (subject
to adjustment for stock splits, stock dividends, recapitalizations or other
similar events with respect to the Common Stock) for at least the 10 consecutive
trading days immediately preceding the date of delivery of the Company Mandatory
Exercise Notice, (c) there shall be an effective registration statement,
approved by the Securities and Exchange Commission, with respect to the shares
to be issued or issuable pursuant to this Warrant and (d) the Common Stock shall
be designated for quotation on The New York Stock Exchange, Inc., The NASDAQ
Global Select Market or The NASDAQ Global Market and shall not have been
suspended from trading nor shall proceedings for such delisting or suspension
have been commenced, threatened or pending either (1) in writing or (2) by
falling below the minimum listing maintenance requirements of The New York Stock
Exchange, Inc., The NASDAQ Global Select Market or The NASDAQ Global Market, as
applicable; provided, however, that if the registration statement referred to in
clause (c) above relates to the resale of some but not all of the shares then
issuable pursuant to this Warrant, the Company Mandatory Exercise Notice shall
be deemed to require the exercise of this Warrant with respect to the shares
that may be resold pursuant to such registration statement and any shares which
may be sold by the Registered Holders pursuant to Rule 144 without compliance
with the current public information requirements of such rule, or subject to any
volume, manner of sale or timing restrictions or other conditions. If the
conditions in clause (c) and (d) of the immediately preceding sentence cease to
be satisfied as of the Company Mandatory Exercise Date (and are not waived by
the Registered Holders), then the Registered Holders shall not be required to
exercise this Warrant and the Company Mandatory Exercise Notice shall be null
and void, ab initio; provided, however, that the foregoing shall not affect the
Company’s right to require the exercise of this Warrant by delivery of a
subsequent Company

 

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Mandatory Exercise Notice at such time as the conditions in clauses (a) through
(d) are satisfied. To the extent this Warrant is still outstanding, at 5:00
p.m., New York City time on the last day of the Exercise Period, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value, provided, that, subject to Section 14 and unless a Registered Holder
delivers a notice to the contrary, if the Closing Price on such date is greater
than the Exercise Price on such Date, then this Warrant shall be deemed to have
been exercised in full (to the extent not previously exercised) at 5:00 p.m. New
York City time on such date.

1B. Exercise Procedure.

(i) This Warrant shall be deemed to have been exercised when the Company has
received all of the following items (the “Exercise Time”):

(a) a completed Exercise Agreement, as described in paragraph 1C, executed by
the Person exercising all or part of the purchase rights represented by this
Warrant (the “Purchaser”);

(b) this Warrant;

(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
the assignment of this Warrant to the Purchaser, in which case the applicable
Registered Holder shall have complied with the provisions set forth in
Section 7; and

(d) written notice to the Company that a Registered Holder is exchanging the
Warrant (or a portion thereof).

(ii) At the Exercise Time, the Registered Holders shall surrender to the Company
this Warrant for an aggregate number of shares of Common Stock specified in its
written notice to the Company, from which the Company shall withhold and not
issue to the holder a number of shares of Common Stock with an aggregate Market
Price equal to the Aggregate Exercise Price of the number of shares of Common
Stock specified in such notice (and such withheld shares shall no longer be
issuable under this Warrant); provided that in the event the holder of Warrants
is required to exercise this Warrant as a result of delivery of a Company
Mandatory Exercise Notice in accordance with paragraph 1A, the Market Price for
all exercises thereafter shall be deemed to be equal to the 30-Day Average
Closing Price, which price shall be indicated in the Company Mandatory Exercise
Notice. Thereupon, the Company shall issue to the holder of Warrants such number
of fully paid, validly issued and nonassessable shares of Common Stock as is
computed using the following formula:

X = Y (A - B)

    A

 

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  X = the number of shares of Common Stock to which the holder of Warrants is
entitled upon such cashless exercise;

 

  Y = the total number of shares of Common Stock covered by this Warrant for
which the holder has surrendered purchase rights at such time for cashless
exercise (including both shares to be issued to the holder and shares as to
which the purchase rights are to be canceled as payment therefor);

 

  A = the Market Price of one share of Common Stock as of the date the cashless
exercise election is made; provided that in the event the holder of Warrants is
required to exercise this Warrant on a cashless basis as a result of delivery of
a Company Mandatory Exercise Notice in accordance with paragraph 1A, the Market
Price shall be deemed to be equal to the 30-Day Average Closing Price ; and

 

  B = the Exercise Price

(iii) Certificates for shares of Common Stock purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within five business
days after the date of the Exercise Time. Unless this Warrant has expired or all
of the purchase rights represented hereby have been exercised, the Company shall
prepare a new Warrant, substantially identical hereto, representing the rights
formerly represented by this Warrant which have not expired or been exercised
and shall, within such five business-day period, deliver such new Warrant to the
Person designated for delivery in the Exercise Agreement.

(iv) The Common Stock issuable upon the exercise of this Warrant shall be deemed
to have been issued to the Purchaser at the Exercise Time, and the Purchaser
shall be deemed for all purposes to have become the record holder of such Common
Stock at the Exercise Time.

(v) The issuance of certificates to the Registered Holders for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the
Registered Holders or the Purchaser for any stamp, duty, registration or
issuance tax in respect thereof or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Common
Stock. Each share of Common Stock issuable upon exercise of this Warrant shall,
upon payment of the Exercise Price therefor, be fully paid and nonassessable and
free from all liens and charges with respect to the issuance thereof.
Notwithstanding anything in this Warrant to the contrary, the Company shall be
permitted to withhold in accordance with applicable law upon any payment or
deemed payment made under this Warrant, and any amount so withheld shall be
treated as paid to the applicable holder.

(vi) The Company shall not close its books against the transfer of this Warrant
or of any share of Common Stock issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this Warrant.
The Company shall from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of this Warrant is at all times equal to or less than the Exercise
Price then in effect.

 

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(vii) The Company shall reasonably assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).

(viii) Notwithstanding any other provision hereof, if an exercise of any portion
of this Warrant is to be made in connection with a registered public offering or
the sale of the Company, the exercise of any portion of this Warrant may, at the
election of the holder hereof, be conditioned upon the consummation of the
public offering or sale of the Company in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.

(ix) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. The Company shall
take all such actions as may be reasonably necessary to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance). The Company shall not take any action which would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrants.

1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit I hereto,
except that if the shares of Common Stock are not to be issued in the name of
the Person in whose name this Warrant is registered, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the shares
of Common Stock are to be issued, and if the number of shares of Common Stock
with respect to which this Warrant is exercised does not include all the shares
of Common Stock purchasable hereunder, it shall also state the name of the
Person to whom a new Warrant for the unexercised portion of the rights hereunder
is to be delivered. Such Exercise Agreement shall be dated the actual date of
execution thereof.

1D. Fractional Shares. The Company shall not be required to issue any fraction
of a share of Common Stock upon exercise of any Warrants; provided, that, if
more than one Warrant shall be exercised hereunder at one time by the same
Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of all Warrants so
exercised, and shall include the aggregation of all fractional shares of Common
Stock issuable upon exercise of such Warrants. If after giving effect to the
aggregation of all shares of Common Stock (and fractions thereof) issuable upon
exercise of Warrants by the same Registered Holder at one time as set forth in
the previous sentence, any fraction of a share of Common Stock would, except for
the provisions of this paragraph 1D, be issuable upon the exercise of any
Warrant or Warrants, the Company shall, within five business days after the date
of the Exercise Time, deliver to the Purchaser a check payable to the Purchaser
in lieu of such fractional share in an amount equal to the Market Price of such
fractional share as of the date of the Exercise Time.

 

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Section 2. Adjustment of Exercise Price and Number of Shares. In order to
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.

2A. Adjustment of the Number of Shares upon Issuance of Common Stock. (i) If and
whenever on or after the Date of Issuance of this Warrant, the Company issues or
sells, or in accordance with paragraph 2B is deemed to have issued or sold, any
share of Common Stock, the number of shares of Common Stock acquirable upon the
exercise of the Warrant shall be computed using the following formula:

W = X x Y

        Z

 

  W = the total number of shares of Common Stock to which the holder of Warrants
is entitled following the issuance or sale of additional shares by the Company.

 

  X = the total number of shares of Common Stock Deemed Outstanding following
the issuance or sale of additional Common Stock pursuant to this Section 2A.

 

  Y = the total number of shares of Common Stock covered by this Warrant prior
to the issuance or sale of additional Common Stock pursuant to this Section 2A.

 

  Z = the total number of shares of Common Stock Deemed Outstanding prior to the
issuance or sale of Common Stock pursuant to this Section 2A.

Notwithstanding the foregoing, there shall be no adjustment to the Exercise
Price or the number of shares of Common Stock obtainable upon exercise of this
Warrant with respect to (x) the granting of stock options after the Date of
Issuance to employees, consultants or directors of the Company and its
Subsidiaries in accordance with compensation plans approved by the Company’s
board of directors (or the exercise of such options) such that the total maximum
number of shares of Common Stock issuable upon the exercise of such stock
options that are outstanding at any time is not greater than 5% of the sum of
(1) the number of shares of Common Stock actually outstanding as of the Date of
Issuance plus (2) the total maximum number of shares of Common Stock issuable
upon the exercise of Options outstanding as of the Date of Issuance plus (3) the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities (including the Warrants) outstanding as of
the Date of Issuance or (y)(i) the exercise of any Options or the conversion or
exchange of any Convertible Securities outstanding as of the Date of Issuance in
accordance with the terms of such Options or Convertible Securities as in effect
as of the Date of Issuance, or pursuant to any amendment to the terms of such
Options or Convertible Securities to which holders of a majority

 

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of the shares of Common Stock issuable upon exercise of the Warrants have
consented and (ii) the conversion of the Company’s 2.50% Subordinated Notes due
2033 (the “Notes”) issued pursuant to the Indenture, dated as of May 16, 2003,
by and between the Company and Deutsche Bank Trust Company Americas, as
indenture trustee, into Common Stock, so long as such Notes are converted into
Common Stock with a price per share as determined pursuant to the terms of the
Notes, as in effect as of the date hereof, or pursuant to any amendment to the
terms of the Notes to which holders of a majority of the shares of Common Stock
issuable upon exercise of the Warrants have consented (collectively, the
“Excluded Shares”).

(ii) Upon each such adjustment of the number of shares of Common Stock
acquirable upon exercise of this Warrant hereunder, the Exercise Price hereunder
shall be adjusted to the Exercise Price determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the number of shares of Common
Stock acquirable upon exercise of this Warrant resulting from such adjustment;
provided, however, that no adjustment to the Exercise Price hereunder shall be
made in connection with any issuance or sale of shares of Common Stock at a
price per share greater than or equal to $5.00 (as appropriately adjusted for
any subdivision or combination of one or more classes of the outstanding shares
of Common Stock or any Organic Change (as defined below)).

2B. Effect on Number of Shares of Common Stock Acquirable upon Exercise of this
Warrant of Certain Events. For purposes of determining the adjusted number of
shares of Common Stock issuable under paragraph 2A, the following shall be
applicable:

(i) Issuance of Rights or Options. If the Company in any manner grants or sells
any Options (other than rights to acquire Excluded Shares), then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options, or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options, shall be
deemed to be outstanding and to have been issued and sold by the Company at such
time.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Security (other than securities convertible into or
exchangeable for Excluded Shares), then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities shall
be deemed to be outstanding and to have been issued and sold by the Company at
such time.

(iii) No Further Adjustments. In each case, no further adjustment of the number
of shares of Common Stock acquirable upon exercise of this Warrant shall be made
upon the actual issuance of such Common Stock upon conversion, exchange or
exercise of such Convertible Securities or Options, and if any such issuance or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the number of shares of Common Stock acquirable upon
exercise of this Warrant had been or are to be made pursuant to other provisions
of this paragraph 2B, no further adjustment of the number of shares of Common
Stock acquirable upon exercise of this Warrant shall be made by reason of such
issue or sale.

 

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(iv) Change in Number of Shares of Common Stock Issuable upon Exercise of
Options or Conversion of Convertible Securities. If (x) the number of shares of
Common Stock issuable upon exercise of Options or conversion or exchange of
Convertible Securities changes at any time or (y) the number of shares of Common
Stock actually issued upon the exercise of any Options or Convertible Securities
is less than the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or Convertible Securities due to exercise on a
cashless basis, the number of shares of Common Stock issuable hereunder shall be
correspondingly adjusted. For purposes of this paragraph 2B, if the terms of any
Option or Convertible Security (other than any Option to acquire or security
convertible into or exchangeable for the Excluded Shares) which was outstanding
as of the Date of Issuance are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change.

(v) Treatment of Expired Options and Unexercised Convertible Securities. Upon
the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities without the exercise of such Option or
right, the number of shares of Common Stock acquirable upon exercise of this
Warrant shall be adjusted immediately to the number of shares which would have
been in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued. For purposes of this paragraph 2B,
the expiration or termination of any Option or Convertible Security which was
outstanding as of the Date of Issuance shall not cause the number of shares of
Common Stock acquirable upon exercise of this Warrant to be adjusted unless, and
only to the extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the date of issuance
of this Warrant.

(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company or any Subsidiary, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock.

(vii) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

2C. Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the number of shares of Common Stock obtainable upon exercise
of this Warrant shall be proportionately increased. If the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the number
of shares of Common Stock obtainable upon exercise of this Warrant shall be

 

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proportionately decreased. Upon any such subdivision or combination of one or
more classes of Common Stock, the Exercise Price in effect immediately prior to
the time of effectiveness of such subdivision or combination shall be adjusted
at such time of effectiveness to the price determined by multiplying such
Exercise Price by the quotient of (x) the number of shares of Common Stock
outstanding immediately prior to such time of effectiveness divided by (y) the
number of shares of Common Stock outstanding at the time of effectiveness of and
after giving effect to such subdivision or combination.

2D. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company’s assets or other transaction, in
each case which is effected in such a way that the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as “Organic Change.” Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance satisfactory
to the Registered Holders of the Warrants representing a majority of the Common
Stock obtainable upon exercise of all Warrants then outstanding) to insure that
each of the Registered Holders of the Warrants shall thereafter have the right
to acquire and receive, in lieu of or addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of such holder’s Warrant, such shares of stock, securities or
assets as would have been issued or payable in such Organic Change (if the
holder had exercised this Warrant immediately prior to such Organic Change) with
respect to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder’s Warrant had
such Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders of the Warrants representing a majority of the Common Stock obtainable
upon exercise of all Warrants then outstanding) with respect to such holders’
rights and interests to insure that the provisions of this Section 2 and
Section 3 and Section 4 shall thereafter be applicable to the Warrants
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment in the number of shares of Common Stock acquirable and receivable
upon exercise of the Warrants). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Common Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.

2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
board of directors shall make an appropriate adjustment in the number of shares
of Common Stock obtainable upon exercise of this Warrant so as to protect the
rights of the holders of the Warrants; provided that no such adjustment shall
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 2.

 

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2F. Notices.

(i) Promptly upon any adjustment of the number of shares of Common Stock
acquirable upon exercise of this Warrant, the Company shall use commercially
reasonable efforts to provide written notice thereof to the Registered Holders,
setting forth in reasonable detail and certifying the calculation of such
adjustment.

(ii) The Company shall use commercially reasonable efforts to give written
notice to the Registered Holders at least 20 days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation.

(iii) The Company shall also use commercially reasonable efforts to give written
notice to the Registered Holders at least 20 days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.

Section 3. Dividends. If the Company declares or pays a dividend, except for a
stock dividend payable in shares of Common Stock (a “Dividend”), then the
Company shall pay to the Registered Holders of this Warrant at the time of
payment thereof the Dividend which would have been paid to such Registered
Holder had this Warrant been fully exercised on a cashless basis immediately
prior to the date on which a record is taken for such Dividend, or, if no record
is taken, the date as of which the record holders of stock entitled to such
dividends are to be determined.

Section 4. Purchase Rights. If at any time the Company grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the Registered Holders of this
Warrant shall be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant on a cashless basis immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

Section 5. Definitions. The following terms have meanings set forth below:

“Aggregate Exercise Price” means an amount equal to the product of the Exercise
Price multiplied by the number of shares of Common Stock being purchased upon
such exercise.

“Closing Price” means as to any security the average of the closing prices of
such security’s sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by Pink OTC Markets,
Inc., or any similar successor organization. If at any time such security is not
listed on any domestic

 

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securities exchange or quoted in the domestic over-the-counter market, the
“Closing Price” shall be the fair value thereof determined jointly by the
Company and the Registered Holders of Warrants representing a majority of the
Common Stock purchasable upon exercise of all the Warrants then outstanding;
provided that if such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an appraiser jointly
selected by the Company and the Registered Holders of Warrants representing a
majority of the Common Stock purchasable upon exercise of all the Warrants then
outstanding (or, if the parties are unable to agree on an appraiser, by an
appraiser selected by the American Arbitration Association). The determination
of such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.

“Common Stock” means the Company’s Class A Common Stock, par value $0.01 per
share, the Company’s Class B Common Stock, par value $0.01 per share, and any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company;
provided that with respect to the shares of Common Stock issuable upon the
exercise of this Warrant, “Common Stock” means the Company’s Class A Common
Stock, par value $0.01 per share.

“Common Stock Deemed Outstanding” means, at any given time, the number of shares
of Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to paragraph 2B hereof regardless
of whether the Options or Convertible Securities are actually exercisable at
such time.

“Convertible Securities” means any stock or securities (directly or indirectly)
convertible into or exchangeable for Common Stock.

“Fully-Diluted Basis” means on a fully-diluted basis in accordance with the
terms of this Warrant and the related Stock Warrant Purchase Agreement without
taking into account Excluded Shares.

“Market Price” means the Closing Price averaged over a period of 21 days
consisting of the day as of which “Market Price” is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term “business days” as used in
this sentence means business days on which such exchange is open for trading.

“Options” means any rights or options to subscribe for or purchase Common Stock
or Convertible Securities.

“Person” means an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

“Reduction Date” shall mean the date set forth in the Reduction Notice by which
the number of securities Owned or Controlled by the Registered Holders is to be
reduced.

 

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“Reduction Notice” shall mean that notice of reduction sent by the Company to
the Registered Holders. Each Reduction Notice shall set forth: (i) the Reduction
Date (which shall be a date not sooner than three days following the date such
notice shall have been delivered); (ii) the computation of the amount of
reduction in the right to purchase shares of securities pursuant to the Warrant;
(iii) a certification by an authorized officer of the Company as to the
satisfaction of the applicable Prepayment requirement; (iv) the place where
certificates for such shares shall be surrendered for cancellation, as
applicable; and (v) any other requirements of surrender of the certificates,
including how they are to be endorsed, if at all.

Other capitalized terms used in this Warrant but not defined herein shall have
the meanings set forth in the Purchase Agreement.

Section 6. No Voting Rights; Limitations of Liability. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision hereof, in the absence of affirmative action by any
Registered Holder to purchase Common Stock, and no enumeration herein of the
rights or privileges of the Registered Holders shall give rise to any liability
of such holder for the Exercise Price of Common Stock acquirable by exercise
hereof or as a stockholder of the Company.

Section 7. Warrant Transferable. Subject to the transfer conditions referred to
in the legend endorsed hereon, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II hereto) at the principal
office of the Company. The Registered Holders shall be responsible for any tax
or other governmental charges that may be imposed in connection with any
registration of transfer of this Warrant or the issuance of shares of Common
Stock to a person other than the Registered Holders upon exercise of this
Warrant.

Section 8. Partial Reduction of Warrants. This Warrant and the securities
issuable upon exercise of this Warrant shall be subject to partial repurchase by
the Company subject to the following terms and conditions:

8A. At any time during the period beginning on the date hereof and ending prior
to February 19, 2011:

(i) the Company shall have (a) raised, in the aggregate (without duplication)
gross proceeds (before the payment of customary and reasonable offering
expenses) of at least $30,000,000 in cash through the issuance of shares of
Common Stock of the Company and (b) caused to be permanently prepaid loans
outstanding under the Credit Agreement as a voluntary prepayment thereunder
(the “Prepayment”) of not less than $20,000,000. Upon the occurrence of each of
the conditions in clauses (a) and (b) of this subsection (i), the Company may
serve a Reduction Notice on the Registered Holders, in which case (i) the right
to purchase shares of Common Stock from the Company pursuant to this Warrant or,
in the event this Warrant has been previously exercised, the number of shares
which shall be surrendered to the Company for cancellation, shall be reduced
such that after taking into account such reduction and surrender, as applicable,
the Registered Holders shall in the aggregate own interests equaling, on a
Fully-Diluted Basis, 24.0% of the Common Stock of the Company (with such
reduction and surrender, as applicable, to be on a pro rata basis as between
U.S. Healthcare I and U.S. Healthcare II) and (ii), all rights of the Company
under this Section 8, other than its rights under this Section 8A(i), shall
cease; or

 

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(ii) the Company shall have (a) raised, in the aggregate (without duplication),
gross proceeds (before the payment of customary and reasonable offering
expenses) of at least $20,000,000 in cash through the issuance of shares of
Common Stock of the Company and (b) caused a Prepayment of not less than
$20,000,000. Upon the occurrence of each of the conditions in clauses (a) and
(b) of this subsection (ii), the Company may serve a Reduction Notice on the
Registered Holders, in which case (i) the right to purchase shares of Common
Stock from the Company pursuant to this Warrant or, in the event this Warrant
has been previously exercised, the number of shares which shall be surrendered
to the Company for cancellation, shall be reduced such that after taking into
account such reduction and surrender, as applicable, the Registered Holders
shall in the aggregate own interests equaling, on a Fully-Diluted Basis, 26.5%
of the Common Stock of the Company (with such reduction and surrender, as
applicable, to be on a pro rata basis as between U.S. Healthcare I and U.S.
Healthcare II) and (ii), all rights of the Company under this Section 8, other
than its rights under this Section 8A(ii), shall cease.

8B. In the event that no reductions have occurred pursuant to Section 8A, then
at any time during the period beginning on February 19, 2011 and ending prior to
June 30, 2011:

(i) the Company shall have (a) raised, in the aggregate (without duplication),
gross proceeds (before the payment of customary and reasonable offering
expenses) of at least $20,000,000 in cash through the issuance of shares of
Common Stock of the Company and (b) caused a Prepayment of not less than
$20,000,000. Upon the occurrence of each of the conditions in clauses (a) and
(b) of this subsection (i), the Company may serve a Reduction Notice on the
Registered Holders, in which case the right to purchase shares of Common Stock
from the Company pursuant to this Warrant or, in the event this Warrant has been
previously exercised, the number of shares which shall be surrendered to the
Company for cancellation, shall be reduced such that after taking into account
such reduction and surrender, as applicable, the Registered Holders shall in the
aggregate own interests equaling, on a Fully-Diluted Basis, 28.7% (or, if and
only if at the time when the Company serves such Reduction Notice the Prepayment
shall have been, in addition to the amount specified in clause (b), not less
than $80,000,000, 26.5%), of the Common Stock of the Company (with such
reduction and surrender, as applicable, to be on a pro rata basis as between
U.S. Healthcare I and U.S. Healthcare II); or

(ii) the Company shall have (a) raised, in the aggregate (without duplication),
gross proceeds (before the payment of customary and reasonable offering
expenses) of at least $30,000,000 in cash through the issuance of shares of
Common Stock of the Company and (b) caused a Prepayment of not less than
$20,000,000. Upon the occurrence of each of the conditions in clauses (a) and
(b) of this subsection (ii), the Company may serve a Reduction Notice on the
Registered Holders, in which case the right to purchase shares of Common Stock
from the Company pursuant to this Warrant or, in the event this Warrant has been
previously exercised, the number of shares which shall be surrendered to the
Company for cancellation, shall be reduced such that after taking into account
such reduction and surrender, as applicable, the Registered Holders shall in the
aggregate own interests equaling, on a Fully-Diluted Basis, 26.2% (or, if and
only if at the time when the Company serves such Reduction Notice the

 

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Prepayment shall have been, in addition to the amount specified in clause (b),
not less than $80,000,000, 24.0%), of the Common Stock of the Company (with such
reduction and surrender, as applicable, to be on a pro rata basis as between
U.S. Healthcare I and U.S. Healthcare II);

8C. In the event that no reductions have occurred pursuant to Section 8A or
Section 8B, but during the period beginning on February 19, 2011 and ending
prior to June 30, 2011 the Company shall have (a) caused a Prepayment of not
less than $80,000,000, the Company may serve a Reduction Notice on the
Registered Holders, in which case the right to purchase shares of Common Stock
from the Company pursuant to this Warrant or, in the event this Warrant has been
previously exercised, the number of shares which shall be surrendered to the
Company for cancellation, shall be reduced such that after taking into account
such reduction and surrender, as applicable, the Registered Holders shall in the
aggregate own interests equaling, on a Fully-Diluted Basis, 29.0% of the Common
Stock of the Company (with such reduction and surrender, as the applicable, to
be on a pro rata basis as between U.S. Healthcare I and U.S. Healthcare II).

8D. Solely for the purposes of determining the percentage, on a Fully-Diluted
Basis, of interest owned by the Registered Holders after giving effect to any
reduction or surrender, as applicable, in accordance with the provisions of the
foregoing Sections 8A, 8B and 8C, the Registered Holders’ purchases and sales to
non-affiliated persons of Common Stock of the Company or securities convertible
or exercisable into Common Stock of the Company from the date hereof through the
date of any Reduction Notice, shall be disregarded.

Section 9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Registered Holders at the
principal office of the Company, for new Warrant of same tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrant shall
represent such portion of such rights as is designated by the Registered Holders
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the “Date of Issuance” hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
“Warrants.”

Section 10. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Registered Holders shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.

Section 11. Notices. Except as otherwise expressly provided herein, all notices,
demands or other communications referred to in this Warrant shall be in writing
and shall be deemed to have been given (i) when delivered personally to the
recipient, (ii) when sent to the recipient by confirmed electronic mail or
facsimile if sent during normal business hours of

 

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the recipient; but if not, then on the next business day, (iii) one business day
after it is sent to the recipient by reputable overnight courier service
(charges prepaid) or (iv) three days after it is mailed to the recipient by
first class mail, return receipt requested, and shall be addressed (a) to the
Company, at its principal executive offices and (b) to the Registered Holders of
this Warrant, at Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York
10022, Attention: Leonard Klingbaum, Esq.

Section 12. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrant may be amended or waived and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrant representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrant; provided that no such action may
change the Exercise Price of the Warrant or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrant representing at least 75% of the shares of
Common Stock obtainable upon exercise of the Warrant.

Section 13. Descriptive Headings; Governing Law. The descriptive headings of the
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The corporation laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be governed by
the internal law of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

Section 14. Beneficial Ownership. The Company shall not effect the exercise of
this Warrant, and no Registered Holder shall have the right to exercise this
Warrant and any such exercise shall be null and void and treated as if never
made, to the extent that after giving effect to such exercise, such Person
(together with such Person’s affiliates) would beneficially own in excess of
4.99% (the “Maximum Percentage”) of the shares of Class A Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Class A Common Stock
beneficially owned by such Person and its affiliates shall include the number of
shares of Class A Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being made, but shall
exclude shares of Class A Common Stock which would be issuable upon (i) exercise
of the remaining, unexercised portion of this Warrant beneficially owned by such
Person and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
such Person and its affiliates (including, without limitation, any convertible
notes or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “1934 Act”). For purposes of this Warrant,
in determining the number of outstanding shares of Class A Common Stock, the
Registered Holders may rely on the number of outstanding shares of Class A
Common Stock as reflected in (1) the Company’s most recent

 

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Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company’s transfer agent setting forth the number of shares of Class A Common
Stock outstanding. The Registered Holder shall certify in any Exercise Agreement
delivered pursuant to Section 1B hereof the beneficial ownership of such
Registered Holder’s and such Person’s affiliates of shares of Class A Common
Stock other than pursuant to the Warrants. In connection with any exercise of
this Warrant, the Company shall be entitled to rely upon such certification by
the Registered Holder. For any reason at any time, upon the written or oral
request of a Registered Holder, the Company shall within one business day
confirm orally and in writing to the Registered Holder the number of shares of
Class A Common Stock then outstanding. In any case, the number of outstanding
shares of Class A Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the Warrants, by
each Registered Holder and its affiliates since the date as of which such number
of outstanding shares of Class A Common Stock was reported. The limitations
contained in this Section 14 shall apply to a successor Registered Holder of
this Warrant. The holders of the Class A Common Stock shall be third party
beneficiaries of this paragraph with respect to the Maximum Percentage
limitation contained herein and the Company may not waive the Maximum Percentage
limitation without the consent of holders of a majority of its Class A Common
Stock. The provisions of this Section 14 shall be construed and implemented in a
manner other than in strict conformity with the terms of this Section 14 to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. Notwithstanding any provision to the contrary in this
Warrant, in the event that the Maximum Percentage limitation herein limits the
Company from issuing to the Registered Holders the total number of shares of
Common Stock either (i) otherwise issuable upon an exercise in whole of this
Warrant following receipt of a Company Mandatory Exercise Notice delivered under
Section 1A or (ii) required pursuant to the proviso of the last sentence of
Section 1A upon the expiration of this Warrant (such shares referred to in
clauses (i) and (ii) not able to be so issued, the “Limited Shares” and the date
such Limited Shares were to be issued but for the limitation herein, the
“Determination Date”), the Exercise Period shall be extended for a period of up
to two years from the otherwise applicable expiration of the Exercise Period
(the “Limited Shares Extension Period”). During the Limited Shares Extension
Period, this Warrant shall remain exercisable and shall not terminate until the
earlier of (i) such time that all Limited Shares may be issued without violating
the provisions hereof, and (ii) the expiration of the Limited Shares Extension
Period. Notwithstanding any other provision of this Warrant to the contrary,
from and after the Determination Date the Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant shall no longer
be subject to adjustment or increase pursuant to Section 2B of this Warrant. The
Registered Holders agree to use reasonable efforts to notify the Company once
the Maximum Percentage limitation does not apply to the delivery of Limited
Shares.

*     *     *     *

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.

 

K-V PHARMACEUTICAL COMPANY

By  

/s/ Gregory J. Divis, Jr.

  Gregory J. Divis, Jr. Its  

President and CEO

 

[Corporate Seal] Attest:

/s/ Gregory Bentley

Secretary

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EXHIBIT I

EXERCISE AGREEMENT

 

To:   Dated:

The undersigned, pursuant to the provisions set forth in the attached Warrant
(Certificate No. W-3), hereby agrees to exercise the Warrant on a cashless basis
with respect to                      of Common Stock (the “Exercise Amount”) and
herewith surrenders the Warrant Certificate and all right, title and interest
therein to the Company. The undersigned directs that the shares of Common Stock
deliverable upon exercise of the attached Warrant be registered in the name and
delivered at the address specified below, together with, if the Exercise Amount
is less than the shares of Common Stock purchasable under the Warrant, a new
Warrant.

 

Signature  

 

Address  

 

Please issue a certificate or certificates representing the shares issuable in
respect hereof under the terms of the attached Warrant, together with a new
Warrant if applicable, as follows:

 

Name  

 

Address  

 

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EXHIBIT II

ASSIGNMENT

FOR VALUE RECEIVED,                                          hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-3) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:

 

Names of Assignee

  

Address

  

No. of Shares

 

Dated:

    Signature   

 

      

 

    Witness