LOAN AGREEMENT

                            Dated as of June 18, 1997

                                      among

                           K-V PHARMACEUTICAL COMPANY,
                             PARTICLE DYNAMICS, INC.
                              and ETHEX CORPORATION

                                  as Borrowers,


                                       and

                              LASALLE NATIONAL BANK


                                     as Bank

<PAGE>
                                TABLE OF CONTENTS

This Table of Contents is not part of the  Agreement to which it is attached but
is inserted for convenience only.

1.  DEFINITIONS AND TERMS......................................................2
         1.1          Certain Definitions......................................2
         1.2          Certain UCC and Accounting Terms........................12

2.  LOANS:  BANK'S COMMITMENTS AND BORROWING PROCEDURES.......................13
         2.1          Revolving Credit Commitment.............................13
         2.2          Term Loan Commitment....................................13
         2.3          Borrowing Procedures under the Revolving Credit 
                      Commitment..............................................13
         2.4          Letters of Credit.......................................14
         2.5          Borrowing Procedure Under the Term Loan Commitment......14

3.  LOANS:  NOTES EVIDENCING LOANS............................................14
         3.1          Revolving Note..........................................14
         3.2          Term Note...............................................15
         3.3          Recordation.............................................15

4.  LOANS:  AMOUNTS; INTEREST; BALANCES.......................................15
         4.1          Applicable Borrowing Amounts; Interest Rates; Default 
                      Rate....................................................15
         4.2          Computation of Interest.................................16
         4.3          Conversion and Reborrowing of Loans.....................16
         4.4          Change of Law...........................................17
         4.5          Unavailability of Deposits or Inability to Ascertain 
                      the LIBOR Rate or Adjusted LIBOR Rate...................17
         4.6          Yield Protection, Etc...................................18
         4.7          Funding Indemnity.......................................19
         4.8          Discretion of Bank as to Manner of Funding..............19
         4.9          Interest Laws...........................................20
         4.10         Letter of Credit Fees...................................20

5.  LOANS:  GENERAL TERMS.....................................................21
         5.1          Payments to Bank........................................21
         5.2          Automatic Debit.........................................21
         5.3          Application of Payment..................................21
         5.4          Reserved................................................21
         5.5          Conditions Precedent Events.............................21
         5.6          Offset..................................................22
         5.7          Credit Termination Date; Continuance of Obligations, 
                      Etc.....................................................22
         5.8          Loan Evidence...........................................22

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         5.9          Over-Advances...........................................22
         5.10         Unused Portion Fee......................................22
         5.11         Prepayment..............................................23
         5.12         Transaction Fee.........................................24

6.  LOANS:  CONDITIONS TO LENDING.............................................24
         6.1          Initial Loan Conditions Precedent.......................24

7.  COLLATERAL FOR TERM LOAN:  GENERAL TERMS..................................27
         7.1          Grant of Security Interest..............................27
         7.2          Perfection of Security Interests........................28
         7.3          Inspection of Collateral................................28
         7.4          First Lien and Location of Collateral...................28
         7.5          Constructive Trust......................................29
         7.6          Application of Proceeds of Collateral...................29
         7.7          Third Party Collateral Claims...........................29
         7.8          Additional Collateral...................................29
         7.9          No Custom or Waiver.....................................29

8.  REPRESENTATIONS AND WARRANTIES; COVENANTS;
    INDEMNIFICATION; CONTINUING OBLIGATION....................................30
         8.1          Representations and Warranties of Borrower..............30
         8.2          Affirmative Covenants...................................35
         8.3          Negative Covenants......................................42
         8.4          Maintenance of Accounts.................................43

9.  DEFAULT...................................................................44
         9.1          Events of Default.......................................44
         9.2          Cumulative Remedies.....................................45
         9.3          Acceleration and Termination of Loans...................45
         9.4          Rights of Creditor......................................45
         9.5          Injunctive Relief.......................................45

10.  GENERAL..................................................................45
         10.1         Payment Application Date................................45
         10.2         Statement of Account....................................45
         10.3         Manner of Application; Waiver of Setoff Prohibition.....46
         10.4         Survival of Representations and Warranties..............46
         10.5         Integration; Amendment; Assignment; Participation.......46
         10.6         No Waiver...............................................47
         10.7         Severability............................................47
         10.8         Successors and Assigns..................................47
         10.9         Conflict with Other Agreements..........................47
         10.10        No Impairment by Termination............................47


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<PAGE>
         10.11        Waivers.................................................48
         10.12        Costs, Fees and Expenses Related to Agreement and 
                      Other Agreements........................................48
         10.13        Environmental Indemnity.................................48
         10.14        Release.................................................48
         10.15        Governing Law...........................................49
         10.16        Notices.................................................49
         10.17        Forum; Bank; Venue; Jury Trial Waiver...................49
         10.18        Other Costs, Fees and Expenses..........................49
         10.19        Revival.................................................50
         10.20        Acknowledgments.........................................50
         10.21        Section Headings........................................50
         10.22        Counterparts............................................50
         10.23        Effectiveness...........................................50
         10.24        Joint and Several Liability.............................50


                                       iii
<PAGE>
                                 LOAN AGREEMENT

         THIS LOAN AGREEMENT  (this  "Agreement")  is made as of the 18th day of
June,  1997, by and among K-V  PHARMACEUTICAL  COMPANY,  a Delaware  corporation
("K-V"),  PARTICLE  DYNAMICS,  INC.,  a  New  York  corporation  ("PDI"),  ETHEX
CORPORATION,  a Missouri corporation ("ETHEX"),  jointly and severally (K-V, PDI
and ETHEX are sometimes  referred to herein  collectively as the "Borrowers" and
individually  as  "Borrower"),  and LASALLE  NATIONAL  BANK, a national  banking
association ("Bank").

                               W I T N E S E T H:

         WHEREAS,  K-V owns 100% of the issued and outstanding  capital stock of
PDI and 100% of the issued and outstanding capital stock of ETHEX;

         WHEREAS,  Borrowers  desire to borrow funds and obtain other  financial
accommodations  from Bank for (i) working  capital and (ii) to purchase  two (2)
real  estate  parcels  located at 10876 Metro Court and  10850-62  Metro  Court,
Maryland Heights, Missouri,  pursuant to which K-V will be jointly and severally
liable  for the total  amount of all  borrowings  hereunder  and each of PDI and
ETHEX  shall  be  liable  only to the  extent  of  their  applicable  use of the
borrowings hereunder;

         WHEREAS,  K-V directly markets and distributes  generic  pharmaceutical
products through Ethex, its wholly-owned subsidiary;

         WHEREAS,   K-V  develops  and  markets  specialty   pharmaceutical  raw
materials,  including directly  compressible and  microencapsulated  ingredients
used in pharmaceutical  processing  through its other  wholly-owned  subsidiary,
PDI;

         WHEREAS, K-V manufactures such pharmaceutical  products for itself, for
ETHEX and for PDI, and ETHEX and PDI purchase certain products from K-V;

         WHEREAS, K-V, PDI and Ethex each derive and shall all derive a material
benefit from their respective  relationships  with each other and from the funds
to be borrowed and the other financial accommodations from Bank to Borrowers;

         WHEREAS,  neither K-V, PDI nor Ethex could borrow the  necessary  funds
from the Bank on as favorable  terms as herein set forth without the benefits of
the co- obligations of the other entities; and

         WHEREAS, pursuant to Borrowers' request, Bank is willing to lend monies
to Borrowers under the terms and conditions set forth herein;


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         NOW, THEREFORE,  in consideration of the premises, the mutual covenants
and agreements set forth herein,  Borrowers  agree to borrow from Bank, and Bank
agrees  to lend to  Borrowers,  subject  to and upon  the  following  terms  and
conditions:

                            1. DEFINITIONS AND TERMS

         1.1 Certain  Definitions.  The following  words,  terms and/or  phrases
shall  have  the  meanings  set  forth  thereafter  and such  meanings  shall be
applicable  to the  singular  and  plural  form  thereof,  giving  effect to the
numerical difference.

                           "Adjusted  LIBOR  Rate"  shall  mean a rate per annum
         determined pursuant to the following formula:

         Adjusted LIBOR Rate =       LIBOR
                                                     100% - Reserve Percentage

                           "Affiliate"  means any  Person (a) that  directly  or
         indirectly,  through  one  or  more  intermediaries,   controls  or  is
         controlled  by, or is under common  control with any Borrower or one or
         more Affiliates, (b) that directly or beneficially owns or holds 10% or
         more of any equity  interest in any Borrower or one or more  Affiliates
         or (c) 10% or more of whose  voting  stock  (or in the case of a Person
         which is not a  corporation,  10% or more of any  equity  interest)  is
         owned directly or  beneficially  or held by any Borrower or one or more
         Affiliates.  For purposes of this  definition and this  Agreement,  the
         term "control" shall mean, directly or indirectly,  the power to direct
         or cause the  direction  of the  management  or  policies  of a Person,
         whether  through  ownership  interest or otherwise,  including  without
         limitation  the power to elect or appoint,  directly or  indirectly,  a
         majority  of the  members  of its  governing  board or body;  provided,
         however,  the  term  "Affiliate"  shall  not  include  ETHEX or PDI for
         purposes of this Agreement.

                           "Applicable   Lending   Office"  means  the  "Lending
         Office" of Bank (or an Affiliate  thereof)  designated on the signature
         pages hereof or such other office of Bank (or an Affiliate  thereof) as
         Bank may from time to time  specify to Borrowers as the office by which
         its Loans are to be made and maintained.

                           "Assignment of Rents" means those certain Assignments
         of Rents  and  Leases to be  delivered  subsequent  to the date  hereof
         between K-V and Bank for each of the Mortgaged Properties,  as the same
         may be amended, restated and modified from time to time.

                           "Authorized   Officer"   means  Victor  M.  Hermelin,
         Chairman of the Board of K-V, Marc S.  Hermelin,  Vice Chairman and CEO
 
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<PAGE>
         of K-V, Gerald R. Mitchell, Vice President,  Finance and CFO of K-V and
         Richard H. Chibnall, Corporate Controller of K-V.

                           "Base Rate" means the rate of interest  (expressed as
         a percentage per annum) most recently  announced or published  publicly
         from time to time by Bank as its prime lending rate of interest,  which
         is not  necessarily  the  lowest  or most  favorable  rate of  interest
         charged  by Bank on  commercial  loans  at any one  time.  The  rate of
         interest  shall change  automatically  and  immediately as and when the
         Base Rate shall change,  without notice to Borrower,  and any notice to
         which it may be entitled is hereby  waived,  and any such change in the
         Bank's  Base Rate shall not affect any of the terms and  conditions  of
         this Agreement, all of which shall remain in full force and effect.

                           "Base Rate Loan" shall mean a Loan  bearing  interest
         as specified in Paragraph 4.1(a).

                           "Borrowers'  Liabilities"  means all  obligations and
         liabilities  of each  Borrower  in the  aggregate  to Bank  (including,
         without  limitation,   all  debts,  claims  and  indebtedness)  whether
         primary, secondary, direct, contingent, fixed or otherwise, heretofore,
         now and/or from time to time hereafter owing,  due or payable,  however
         evidenced,  created,  incurred,  acquired or owing and however arising,
         whether  under  this  Agreement  or the  Other  Agreements,  or by oral
         agreement or operation of law or otherwise.

                           "Business  Day" means (i) for all purposes other than
         as covered by clause (ii) below,  any day on which  commercial  banking
         institutions  are  open  for  the  transaction  of  commercial  banking
         business in Chicago, Illinois other than a Saturday or Sunday, and (ii)
         with respect to all notices and  determinations in connection with, and
         payments of principal and interest on, a LIBOR Loan, any day which is a
         Business  Day  described  in  clause  (i) and  which  is also a day for
         trading by and between banks in U.S.  dollar  deposits in the interbank
         eurodollar market.

                           "Capital  Expenditures"  means the cost of  acquiring
         any fixed assets,  or any  improvements,  replacements,  substitutions,
         accessions or additions thereto or therefor which have a useful life of
         more than one year, including without limitation, the cost of direct or
         indirect acquisitions of such assets by way of purchase,  capital lease
         or otherwise.

                           "Charges" means all national, federal, state, county,
         city,  municipal  and/or other  governmental  (or any  instrumentality,
         division,  agency,  body  or  department  thereof,  including,  without
         limitation,  the PBGC)  taxes,  levies,  assessments,  charges,  liens,

                                                         3

<PAGE>
         claims or encumbrances upon and/or relating to Borrowers'  Liabilities,
         Borrowers'  businesses,  Borrowers'  ownership and/or use of Borrowers'
         assets, income and/or gross receipts.

                           "Closing Date" means June 18, 1997.

                           "Code"  means the Internal  Revenue Code of 1986,  as
         amended  from  time to time  and the  regulations  promulgated  and the
         rulings issued thereunder.

                           "Collateral"  shall have the meaning assigned to such
         term in Paragraph 7.1 hereof.

                           "Conversion  Date" means the  Business Day on which a
         Base Rate Loan is converted to a LIBOR Loan.

                           "Debt"   means   all  of  a   Person's   liabilities,
         obligations  and  indebtedness  to any Person of any and every kind and
         nature,  whether  primary,  secondary,   direct,  indirect,   absolute,
         contingent,  fixed or  otherwise,  heretofore,  now and/or from time to
         time  hereafter  owing,  due or payable,  however  evidenced,  created,
         incurred,  acquired or owing and however arising, whether under written
         or oral agreement, by operation of law or otherwise. Without in any way
         limiting the generality of the foregoing,  Debt  specifically  includes
         (i) Funded  Debt and (ii)  liabilities  in respect of  unfunded  vested
         benefits  under Plans and  Multiemployer  Plans  covered by Title IV of
         ERISA.

                           "Default  Rate"  shall have the  meaning  assigned to
         such term in Paragraph 4.1(d) hereof.

                           "Early Termination Date" means the date,  pursuant to
         Paragraph 9.3, upon which, whether by notice or by right hereunder, the
         Banks' obligation to extend credit hereunder is terminated.

                           "EBITDA" means,  with respect to any fiscal period of
         Borrowers,  Borrowers'  aggregate (a) net income for such period,  plus
         (b) the aggregate  amounts  deducted in determining  such net income in
         respect of (i) Interest Expense,  (ii) income taxes, (iii) depreciation
         and (iv) amortization minus (c) extraordinary gains, each determined on
         a consolidated basis and in accordance with GAAP consistently applied.

                           "Environmental  Claim" means any notice of violation,
         claim, demand, abatement order or other order or direction (conditional
         or otherwise) by any Governmental Authority for any damage,  including,
         without  limitation,  personal injury (including  sickness,  disease or
         death),   tangible  or  intangible   property   damage,   contribution,

                                        4
<PAGE>
         indemnity,   indirect   or   consequential   damages,   damage  to  the
         environment,  nuisance, pollution, release of any Hazardous Material to
         the  environment,   contamination  or  other  adverse  effects  on  the
         environment, or for fines, penalties or restrictions, resulting from or
         based upon (i) the  occurrence  of a Release by any  Borrower  (whether
         sudden or non-sudden or accidental or  non-accidental)  of, or exposure
         to, any Hazardous  Material,  in, into or onto the  environment at, in,
         by, from, onto or related to any Facility,  (ii) the  generation,  use,
         handling,  transportation,  storage, treatment or disposal of Hazardous
         Materials  by any  Borrower in  connection  with the  operation  of any
         Facility,  or  (iii)  the  violation,  or  alleged  violation,  of  any
         Environmental  Laws or any Governmental  Authorizations by any Borrower
         relating to environmental matters in connection with the Facilities.

                           "Environmental   Indemnity   Agreement"   means  that
         certain  Environmental  Indemnity  Agreement between K-V and Bank to be
         delivered  subsequent  to the date hereof,  as the same may be amended,
         restated and modified from time to time.

                           "Environmental  Laws" means all applicable  statutes,
         ordinances,  orders,  rules,  regulations,  or  decrees  and  the  like
         relating to (i) fines, injunctions,  penalties, damages,  contribution,
         cost  recovery  compensation,  losses or  injuries  resulting  from the
         Release  or  threatened  Release  of  Hazardous  Materials,   (ii)  the
         generation,  use,  handling,  transportation,   storage,  treatment  or
         disposal  of  Hazardous  Materials  or (iii)  occupational  safety  and
         health,  industrial hygiene, land use or the protection of human, plant
         or animal  health or welfare  related to  Hazardous  Materials,  in any
         manner applicable to any Borrower or the Facilities, including, without
         limitation, the Comprehensive Environmental Response, Compensation, and
         Liability  Act (42 U.S.C.  ss.9601 et seq.),  the  Hazardous  Materials
         Transportation   Act  (49  U.S.C.   ss.1801  et  seq.),   the  Resource
         Conservation and Recovery Act (42 U.S.C.  ss.6901 et seq.), the Federal
         Water Pollution Control Act (33 U.S.C.  ss.1251 et seq.), the Clean Air
         Act (42 U.S.C.  ss.7401 et seq.), the Toxic Substances  Control Act (15
         U.S.C.  ss.2601 et seq.),  the  Occupational  Safety and Health Act (29
         U.S.C.  ss.651  et  seq.)  and the  Emergency  Planning  and  Community
         Right-To-Know  Act (42  U.S.C.  ss.11001  et seq.),  each as amended or
         supplemented.

                           "ERISA" means the Employee Retirement Income Security
         Act of 1974,  as the same may be amended from time to time and,  unless
         the context otherwise requires, the regulations  promulgated thereunder
         and any successor statute.

                           "ERISA   Affiliate"  means  each  trade  or  business
         (whether or not  incorporated)  which  together with any Borrower or an
         Affiliate would be deemed to be a "single  employer" within the meaning

                                        5
<PAGE>
         of Section 4001(b) of ERISA or, where applicable, would be treated as a
         "single employer" under Section 412(c)(11) of the Code.

                           "ERISA  Termination  Event"  means (i) a  "Reportable
         Event"  described in Section  4043 of ERISA  (other than a  "Reportable
         Event"  not  subject to the 30-day  reporting  requirement  to the PBGC
         under applicable  regulations),  (ii) the withdrawal under Section 4063
         or Section 4064 of ERISA of any Borrower or any  Affiliate  from a Plan
         during a plan year in which it was a "substantial employer," as defined
         in Section  4001(a)(2)  of ERISA,  including a cessation of  operations
         that is treated  as a  withdrawal  by a  "substantial  employer"  under
         Section  4062(e)  of ERISA,  (iii) the  filing of a notice of intent to
         terminate a Plan or the treatment of a Plan  amendment as a termination
         under Section 4041 of ERISA,  (iv) the institution of proceedings under
         Section  4042 of ERISA to  terminate a Plan by the PBGC,  (v) any other
         event or condition which in the reasonable  judgment of any Borrower is
         likely  to  constitute  grounds  under  Section  4042 of ERISA  for the
         termination  of,  or the  appointment  of a  trustee  to or  any  ERISA
         administer,  any  Plan,  or (vi) the  partial  or  complete  withdrawal
         pursuant to Section  4203 or Section  4205 of ERISA of any  Borrower or
         any ERISA Affiliate from a Multiemployer Plan.

                           "ETHEX"   means   ETHEX   Corporation,   a   Missouri
         corporation and wholly-owned Subsidiary of K-V.

                           "Event of Default" shall have the meaning assigned to
         such term in Paragraph 9.1 hereof.

                           "Excess  Interest" shall have the meaning assigned to
         such term in Paragraph 4.9 hereof.

                           "Facilities"   means   any  and  all  real   property
         (including,  without limitation,  all buildings,  or other improvements
         located thereon) now, hereafter or heretofore,  owned, leased, operated
         or used by Borrower or any of its  respective  successors  and assigns,
         including, but not limited to, the Mortgaged Properties.

                           "Financials"    means    those    consolidated    and
         internally-prepared  consolidating  financial  statements  of Borrowers
         heretofore  or  concurrently  herewith  delivered  by or on  behalf  of
         Borrowers to Bank.

                           "Fixed  Rate"  means  the  rate  determined  two  (2)
         Business Days prior to the date of the execution and delivery by K-V of
         the Term Note, as set forth in the Term Note.

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<PAGE>
                           "Fixed Rate Loan" shall mean a Loan bearing  interest
         at the Fixed Rate,  as  described  in more detail in  Paragraph  4.1(b)
         below.

                           "Funded  Debt"  means,   without   duplication,   (i)
         indebtedness for borrowed money,  (ii) obligations  evidenced by bonds,
         debentures,  notes or other similar instruments,  (iii) the face amount
         of all letters of credit  issued for the account of any  Borrower  and,
         without duplication,  all drafts drawn thereunder,  (iv) obligations to
         pay  the  deferred   purchase  price  of  property  or  services,   (v)
         obligations  as lessee  under  leases  which have been or should be, in
         accordance  with GAAP,  recorded as capital  leases,  (vi)  obligations
         under  direct or indirect  guaranties  in respect  of, and  obligations
         (contingent  or  otherwise)  to  purchase  or  otherwise  acquire,   or
         otherwise to assure a creditor against loss in respect of, indebtedness
         or obligations of other of the kinds referred to in clauses (i) through
         (v)  above,  (vii) all net  obligations  under any  interest  rate swap
         agreements,  any interest rate cap agreement,  any interest rate collar
         agreement or other  similar  agreement or  arrangement,  and (viii) all
         obligations  to pay a  specified  purchase  price for goods or services
         whether or not  delivered or accepted  (i.e.,  take-or-pay  and similar
         obligations).

                           "GAAP"  shall  mean  generally  accepted   accounting
         principles as in effect from time to time.

                           "Governmental  Authority" means any federal, state or
         local governmental authority, department, agency or court.

                           "Governmental   Authorization"   means  any   permit,
         license,  authorization,  plan,  directive,  consent  order or  consent
         decree of or from any Governmental Authority.

                           "Hazardous   Materials"   means  (i)  any   chemical,
         material  or  substance  defined as or included  in the  definition  of
         "hazardous  substances,"  "hazardous  wastes,"  "hazardous  materials,"
         "extremely hazardous waste," "restricted  hazardous waste," "infectious
         waste,"  "toxic  substances"  or any  other  formulations  intended  to
         define, list or classify substances by reason of deleterious properties
         such  as  ignitability,   corrosivity,   reactivity,   carcinogenicity,
         toxicity,  reproductive  toxicity,  "TCLP toxicity" or "EP toxicity" or
         words of similar  import  under any  applicable  Environmental  Laws or
         publications  promulgated pursuant thereto,  (ii) any oil, petroleum or
         petroleum derived substance, (iii) any drilling fluids, produced waters
         and  other  wastes  associated  with the  exploration,  development  or
         production of crude oil, natural gas or geothermal resources,  (iv) any
         flammable substances or explosives, (v) any radioactive materials, (vi)
         asbestos in any form  (which is or could  become  friable),  (vii) urea
         formaldehyde  foam  insulation,   (viii)  electrical   equipment  which
         contains   any  oil  or   dielectric   fluid   containing   levels   of

                                        7

<PAGE>
         polychlorinated  biphenyls in excess of fifty parts per  million,  (ix)
         pesticides or (x) any other chemical,  material or substance,  exposure
         to  which is  prohibited,  limited  or  regulated  by any  governmental
         authority  or which may or could pose a hazard to the health and safety
         of the owners, occupants or any Persons.

                           "Interest  Expense" means, for any period, the sum of
         all  interest in respect of Debt of  Borrowers  accrued or  capitalized
         during such period  (whether or not actually  paid during such period),
         determined on a consolidated basis and in accordance with GAAP.

                           "Interest  Period"  means  with  respect to the LIBOR
         Loans,  the period used for the  computation of interest  commencing on
         the date the relevant LIBOR Loan is effected by conversion or continued
         and concluding on the date thirty (30),  sixty (60) or ninety (90) days
         thereafter,  at Borrowers' option,  with any subsequent Interest Period
         commencing on the last day of the immediately preceding Interest Period
         and concluding  thirty (30), sixty (60) or ninety (90) days thereafter,
         at Borrowers' option;  provided,  however,  that no Interest Period for
         any LIBOR  Loan  made  under  the  Commitment  may  extend  beyond  the
         Revolving  Credit  Maturity Date or the Term Loan Maturity Date, as the
         case  may be.  Each  Interest  Period  for a  LIBOR  Loan  which  would
         otherwise  end on a day  which is not a  Business  Day shall end on the
         next succeeding  Business Day (unless such next succeeding Business Day
         is the first  Business  Day of a  calendar  month,  in which  case such
         Interest Period shall end on the next preceding Business Day).

                           "K-V" means K-V  Pharmaceutical  Company,  a Delaware
         corporation.

                           "Leases"   means  (a)  that   certain   Metro   Court
         Office/Warehouse   Lease  Agreement  by  and  between  Public  Employee
         Retirement System of Nevada, as Landlord, and Designer Blinds of Omaha,
         Inc., as Tenant,  dated August 14, 1993 for approximately  9,117 square
         feet of space at 10850 Metro Court,  Maryland  Heights,  Missouri;  (b)
         that  certain  Metro  Court  Office/Warehouse  Lease  Agreement  by and
         between Metro Court Corporation,  as Landlord, and Custom Floor Centre,
         Inc., as Tenant,  dated March 18, 1994 for  approximately  4,800 square
         feet of space at 10854 Metro Court,  Maryland  Heights,  Missouri;  (c)
         that  certain  Metro  Court  Office/Warehouse  Lease  Agreement  by and
         between  Metro  Court  Corporation,  as  Landlord,  and  Clean  Harbors
         Environmental  Services,  Inc.,  as  Tenant,  dated  June 1,  1994  for
         approximately  11,762  square  feet of  space  at  10862  Metro  Court,
         Maryland   Heights,    Missouri;   (d)   that   certain   Metro   Court
         Office/Warehouse   Lease  Agreement  by  and  between  Public  Employee
         Retirement  System of Nevada,  as Landlord,  and  American  Remodeling,

                                        8

<PAGE>
         Inc.,  as Tenant,  dated July 1, 1991 for  approximately  10,493 square
         feet at 10858 Metro Court, Maryland Heights, Missouri.

                           "Letter of Credit" means a standby, commercial import
         or other letter of credit at any time issued by Bank for the account of
         any Borrower.

                           "Letter of Credit Maturity Date" means June 18, 2000.

                           "Letter  of  Credit   Termination   Date"  means  the
         earliest to occur of (i) the Letter of Credit Maturity Date or (ii) the
         Early Termination Date.

                           "Leverage  Ratio" means, as of any date, the ratio of
         (i) Liabilities to (ii) Tangible Net Worth.

                           "Liabilities"  means,  as of any date,  the aggregate
         amount of all  liabilities  of Borrowers,  determined on a consolidated
         basis and in accordance with GAAP.

                           "LIBOR"  means for each  Interest  Period the rate of
         interest per annum as determined by Bank (rounded upward, if necessary,
         to the nearest whole multiple of  one-sixteenth  of one percent (1/16th
         of 1%) or such other integral  multiple thereof at which interest rates
         for  LIBOR-based  loans  are  commonly  quoted  to  major  banks in the
         interbank eurodollar market) at which deposits of United States Dollars
         in immediately available and freely transferable funds would be offered
         at 11:00  a.m.,  Chicago  time,  three (3)  Business  Days prior to the
         commencement of such Interest Period by the principal  offshore funding
         office of Bank to major banks in the interbank  eurodollar  market upon
         request by such major banks for a period equal to such Interest  Period
         and in an amount equal to the principal  amount of the LIBOR Loan to be
         outstanding from Bank during such Interest Period.  Each  determination
         of  LIBOR  made by Bank in  accordance  with  this  paragraph  shall be
         conclusive  and  binding on  Borrowers  except in the case of  manifest
         error.

                           "LIBOR Loan" means all or a portion of a Loan bearing
         interest  with  respect  to the  Adjusted  LIBOR Rate as  specified  in
         Paragraph 4.1(c).

                           "LIBOR Margin" means two percent (2.00%).

                           "Lien" means,  with respect to any asset of Borrower,
         any mortgage, pledge, security interest, encumbrance, lien or charge of
         any kind  (including  any agreement to give any of the  foregoing,  any
         conditional sale or other title retention  agreement,  any lease in the
         nature  thereof and the filing of or  agreement  to give any  financing
         statement   under  the  Uniform   Commercial  Code  in  effect  in  any
         jurisdiction).

                                        9

<PAGE>
                           "Loan" or  "Loans"  means  and  includes  Letters  of
         Credit issued and all Base Rate Loans, Fixed Rate Loans and LIBOR Loans
         made  hereunder,  unless  the  context in which such term is used shall
         otherwise require.

                           "Make Whole Amount"  shall have the meaning  assigned
         to such term in Paragraph 5.11 hereof.

                           "Maximum  Rate"  shall have the  meaning  assigned to
         such term in Paragraph 4.9 hereof.

                           "Mortgages"  means those  certain Deeds of Trust made
         by K-V in favor of Bank to be delivered  subsequent  to the date hereof
         for each of the  Mortgaged  Properties,  as the  same  may be  amended,
         restated or modified from time to time.

                           "Mortgaged Properties" means those certain parcels of
         real estate located at 10876-10888  Metro Court and  10850-10862  Metro
         Court, in the City of Maryland Heights, St. Louis County,  Missouri, in
         which  K-V has  granted  a first  priority  security  interest  to Bank
         pursuant to the Mortgage.

                           "Multiemployer  Plan" means a plan defined as such in
         Section  4001(a)(3) of ERISA to which  contributions  have been made by
         Borrower or an ERISA Affiliate.

                           "Net Worth"  means,  as of any date of  determination
         thereof, the total stockholders' equity of Borrowers, all as determined
         on a consolidated basis and in accordance with GAAP.

                           "Notes" means the Revolving Note and the Term Note.

                           "Other Agreements" means all agreements,  instruments
         and  documents,  including,  without  limitation,  letters  of  credit,
         mortgages,  deeds of trust,  guaranties,  pledges,  powers of attorney,
         consents, assignments, contracts, notices, security agreements, leases,
         financing  statements  and all other  written  matter  heretofore,  now
         and/or  from  time to time  hereafter  executed  by and/or on behalf of
         Borrowers  and delivered to Bank  including,  without  limitation,  the
         Revolving  Note, the Term Note,  the Mortgage,  the Assignment of Rents
         and the Environmental Indemnity Agreement.

                           "PBGC" means the Pension Benefit Guaranty Corporation
         and any entity succeeding to any or all of its functions under ERISA.

                           "PDI"  means  Particle  Dynamics,  Inc.,  a New  York
         corporation and wholly-owned Subsidiary of K-V.

                                       10

<PAGE>
                           "Permitted Debt" means (a) Debt incurred  pursuant to
         this Agreement or the Other  Agreements,  (b) Debt incurred pursuant to
         purchase money mortgages  (including,  without limitation,  capitalized
         lease obligations) not to exceed $750,000.00 at any time outstanding in
         the aggregate, (c) trade payables, accrued expenses and obligations not
         yet due and payable  incurred in the ordinary  course of business,  and
         (d) Subordinated Debt.

                           "Permitted   Investments"   shall  have  the  meaning
         assigned to such term in Paragraph 8.3(d) hereof.

                           "Permitted  Liens" shall have the meaning assigned to
         such term in Paragraph 8.3(a) hereof.

                           "Person"   means  and  includes  an   individual,   a
         partnership,  a  joint  venture,  a  corporation  (whether  or not  for
         profit),  a trust, an  unincorporated  organization,  any  Governmental
         Authority or any other entity or organization.

                           "Plan" means, at any time, any single-employer  plan,
         as  defined in Section  4001(a)(15)  and  subject to Title IV of ERISA,
         which is  maintained,  or at any time  during the five  calendar  years
         preceding  the time in question was  maintained,  for  employees of any
         Borrower or an ERISA Affiliate.

                           "Release" means any actual release,  spill, emission,
         leaking,  pumping, pouring,  injection,  escaping,  deposit,  disposal,
         discharge,  dumping, leaching, or migration of Hazardous Materials into
         the indoor or outdoor environment (including,  without limitation,  the
         abandonment  or disposal of any  barrels,  containers  or other  closed
         receptacles  containing  any  Hazardous  Materials  in violation of any
         Environmental Laws), or into or out of any Facility.

                           "Representative"  shall have the meaning  assigned to
         such term in Paragraph 2.3 hereof.

                           "Reserve   Percentage"  means,  for  the  purpose  of
         computing the Adjusted LIBOR Rate, the reserve  requirement  imposed by
         the Board of Governors of the Federal Reserve System (or any successor)
         under Regulation D on Eurocurrency liabilities (as such term is defined
         in Regulation D) for the applicable Interest Period as of the first day
         of such Interest Period,  but subject to any amendments of such reserve
         requirement by such Board or its successor, and taking into account any
         transitional   adjustments   thereto  becoming  effective  during  such
         Interest Period. For purposes of this definition,  LIBOR Loans shall be
         deemed to be  Eurocurrency  liabilities  as  defined  in  Regulation  D
         without  benefit of or credit  for  prorations,  exemptions  or offsets
         under Regulation D.


                                       11
<PAGE>
                           "Revolving Credit  Commitment" shall have the meaning
         assigned to such term in Paragraph 2.1 hereof.

                           "Revolving Credit Maturity Date" means June 18, 2000.

                           "Revolving   Credit   Termination   Date"  means  the
         earliest to occur of (i) the Revolving Credit Maturity Date or (ii) the
         Early Termination Date.

                           "Revolving  Loan" means and  includes  all Loans made
         under the Revolving Credit Commitment, unless the context in which such
         term is used shall otherwise require.

                           "Revolving Note" means that certain Revolving Note of
         even date herewith in the original  aggregate  maximum principal amount
         of TWENTY MILLION  DOLLARS  ($20,000,000),  as the same may be amended,
         modified  or  supplemented  from time to time,  and  together  with any
         renewals thereof or exchanges or substitutes therefor.

                           "Subordinated Debt" means, as of any date, the amount
         of Debt  which  is  subordinated  in  right of  payment  to  Borrowers'
         Liabilities on terms satisfactory to Bank in each particular case.

                           "Subsidiary"  means any corporation of which a Person
         owns, directly or indirectly through one or more  intermediaries,  more
         than 50% of the voting stock at the time of determination.

                           "Tangible Net Worth" means as of any date,  Net Worth
         minus intangible assets (as defined in accordance with GAAP).

                           "Term  Loan   Commitment"   shall  have  the  meaning
         assigned to such term in Paragraph 2.2 hereof.

                           "Term Loan" means and  includes  all Loans made under
         the Term Loan Commitment, unless the context in which such term is used
         shall otherwise require.

                           "Term Loan Maturity  Date" means the earlier to occur
         of (i) ninety (90) days after Bank has indicated in writing to K-V that
         it is  unwilling  to  renew  the  Revolving  Credit  Commitment  at the
         maturity thereof,  (ii) ninety (90) days after Borrowers  refinance the
         Revolving Loans with any other Person, and (iii) June 18, 2002.

                           "Term Loan  Termination  Date" means the  earliest to
         occur of the (i) Term  Loan  Maturity  Date or (ii)  Early  Termination
         Date.

                                       12

<PAGE>
                           "Term  Note"  means  that  certain  Term  Note  to be
         delivered subsequent to the date hereof in accordance with the terms of
         this Agreement in the original  principal  amount of THREE MILLION FIVE
         HUNDRED THOUSAND DOLLARS  ($3,500,000),  payable by K-V to Bank, as the
         same may be amended,  modified or  supplemented  from time to time, and
         together  with  any  renewals   thereof  or  exchanges  or  substitutes
         therefor.

                           "Transaction  Fee" shall have the meaning assigned to
         such term in Paragraph 5.12 below.

                           "Unused Portion Fee" shall have the meaning  assigned
         to such term in Paragraph 5.10 below.

         1.2 Certain UCC and Accounting  Terms.  Except as otherwise  defined in
this  Agreement or the Other  Agreements,  all words,  terms and/or phrases used
herein and therein shall be defined by the  applicable  definition  therefor (if
any) in the  Uniform  Commercial  Code as  adopted  by the  State  of  Illinois.
Notwithstanding the foregoing, any accounting terms used in this Agreement which
are not specifically  defined herein shall have the meaning customarily given to
them in accordance  with GAAP.  All financing  computations  hereunder  shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied.

              2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES

         2.1  Revolving  Credit  Commitment.  On the  terms and  subject  to the
conditions set forth in this  Agreement,  Bank agrees to make  revolving  credit
available and Letters of Credit  available to Borrowers  from time to time prior
to the Revolving Credit  Termination Date with respect to revolving credit loans
and the Letter of Credit  Termination  Date with respect to Letters of Credit in
such  aggregate  amounts as  Borrowers  may from time to time  request but in no
event exceeding  TWENTY MILLION  DOLLARS  ($20,000,000)  (the "Revolving  Credit
Commitment"). The Revolving Credit Commitment shall be available to Borrowers by
means of  Revolving  Loans and  Letters  of  Credit,  it being  understood  that
Revolving  Loans may be repaid  and used again  during the period  from the date
hereof to and including the Revolving Credit Termination Date, at which time the
Revolving Credit Commitment shall expire.

         2.2 Term Loan  Commitment.  On the terms and subject to the  conditions
set  forth in this  Agreement,  Bank  agrees to make the Term Loan to K-V in the
principal  amount of THREE MILLION FIVE HUNDRED  THOUSAND  DOLLARS  ($3,500,000)
(the "Term Loan  Commitment").  Amounts borrowed in respect of the Term Loan and
repaid may not be reborrowed. The Term Loan Commitment shall be used to purchase
the Mortgaged Properties and for no other purpose.


                                       13

<PAGE>
         2.3  Borrowing   Procedures  under  the  Revolving  Credit  Commitment.
Representative shall give Bank irrevocable  telephonic notice, written notice or
telecopied  notice by no later than 11:00  a.m.,  Chicago  time,  on the date it
requests Bank to make a Base Rate Loan hereunder. Representative shall give Bank
irrevocable  telephonic  notice  (which  notice  shall be promptly  confirmed in
writing) no later than 10:00 a.m.,  Chicago time,  three (3) Business Days prior
to the date that it  requests  Bank to make a LIBOR Loan  hereunder  or effect a
conversion  from a Base Rate Loan to a LIBOR Loan,  including a  reborrowing  as
provided in  Paragraph  4.3 below.  Each such  notice  shall be  effective  upon
receipt  by Bank  and  shall  specify  the date of the  Loan  (which  shall be a
Business Day), the amount of such Loan,  whether the Loan is a Base Rate Loan or
LIBOR Loan and,  with respect to a LIBOR Loan,  the Interest  Period  applicable
thereto.  Representative  agrees  that Bank may rely on any notice  given by any
person it  reasonably  believes to be an  Authorized  Officer of  Representative
without the necessity of independent investigation. Each borrowing shall be on a
Business  Day.  Notwithstanding  anything  contained  in this  Agreement  to the
contrary,  the Borrowers  hereby  appoint K-V (the  "Representative")  to act as
their sole and exclusive  representative  under this Agreement for all purposes,
including without limitation,  to receive funds advanced  hereunder,  to receive
notices and other  communications from the Bank hereunder,  to make requests for
advances of funds hereunder and to amend this Agreement. The Bank shall have (i)
no obligation to  communicate  with any Borrower  other than the  Representative
concerning  this  Agreement,  any  note  or any  matter  related  to  Borrowers'
Liabilities  and (ii) no  responsibility  with respect to the  allocation  among
Borrowers of the funds advanced hereunder.

         2.4 Letters of Credit.  (a) Subject to all of the terms and  conditions
of this Agreement,  if requested to do so by any Borrower, Bank shall issue its,
or cause to be  issued,  Letters of Credit  for the  account  of such  Borrower;
provided that the aggregate face amount of all Letters of Credit  outstanding at
any  time  shall  not  exceed  the  availability   under  the  Revolving  Credit
Commitment.  No  Letter  of Credit  may have an  expiration  date that is either
greater  than one (1) year from the date of issuance of such Letter of Credit or
later than the Letter of Credit  Termination  Date.  Any amounts paid by Bank in
connection  with any  Letter  of  Credit  (i) shall  become  part of  Borrowers'
Liabilities,  (ii) shall be paid from the proceeds of a Revolving Loan requested
pursuant  to  Paragraph  2.1 above,  to the extent  Bank is  required  to make a
Revolving  Loan  pursuant to the terms  hereof,  and (iii)  otherwise,  shall be
payable on demand.  In no event  shall Bank be  required to issue or cause to be
issued  Letters  of Credit at any time  there  exists an Event of  Default or an
event which with  passage of time or giving of notice or both would  mature into
an Event of Default.

                   (b) K-V and any  Subsidiary  for  whose  account  a Letter of
Credit is issued, jointly and severally,  agree to unconditionally,  irrevocably
and  absolutely  pay  immediately  to Bank the  amount  drawn  under a Letter of
Credit. If any Borrower at any time fails to make such payment,  Borrowers shall

                                       14

<PAGE>
be deemed to have elected to borrow from Bank on such date Revolving Loans equal
in aggregate amount to the amount paid by Bank under such Letter of Credit.

         2.5 Borrowing Procedures Under the Term Loan Commitment.  Provided that
all of the  conditions  precedent to making the Term Loan described in Paragraph
5.5 and 6.1(B) are satisfied,  K-V shall give Bank irrevocable telephonic notice
(which  notice shall  promptly be confined in writing) no later than 10:00 a.m.,
Chicago time,  two (2) Business Days prior to the date K-V requests Bank to make
the Term Loan  hereunder.  K-V agrees that Bank may rely on any notice  given by
any person Bank reasonably  believes to be an Authorized Officer of K-V, without
the necessity of independent investigation.

                        3. LOANS: NOTES EVIDENCING LOANS

         3.1  Revolving  Note.  The  Revolving  Loans  made  by Bank  under  the
Revolving   Credit   Commitment   shall  be  evidenced  by  the  Revolving  Note
substantially  in the form set forth in  Exhibit  3.1 dated the date  hereof (or
such other date prior thereto as shall be satisfactory to Bank),  payable to the
order  of Bank  in the  maximum  principal  amount  of  TWENTY  MILLION  DOLLARS
($20,000,000).  The unpaid  principal  amount of the  Revolving  Loan shall bear
interest and be due and payable as provided in this  Agreement and the Revolving
Note. Payments to be made by Borrowers under the Revolving Note shall be made at
the time, in the amounts and upon the terms set forth herein and therein.

         3.2  Term  Note.  The  Term  Loan  made by Bank  under  the  Term  Loan
Commitment  shall be  evidenced by the Term Note  substantially  in the form set
forth in Exhibit 3.2 dated the date hereof (or such other date subsequent hereto
as shall be satisfactory to Bank), payable to the order of Bank in the principal
amount of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS  ($3,500,000).  The unpaid
principal  amount of the Term Loan shall bear interest and be due and payable as
provided in this  Agreement and the Term Note.  Payments to be made by K-V under
the Term Note shall be made at the time,  in the  amounts and upon the terms set
forth herein and therein.

         3.3  Recordation.  The type, date and amount of each Loan made by Bank,
the  interest  rate,  and the date and  amount of each  repayment  of  principal
received by Bank shall be recorded by Bank in its records.  The aggregate unpaid
principal  amount so  recorded  shall be prima facia  evidence of the  principal
amount owing and unpaid on the Revolving  Note and the Term Note. The failure to
so record any such amount or any error in so recording any such amount shall not
limit or otherwise  affect the  obligations of Borrowers  hereunder or under the
Revolving  Note and the Term  Note to repay  the  principal  amount of the Loans
together with all interest accrued thereon.

                                       15

<PAGE>
                      4. LOANS: AMOUNTS; INTEREST; BALANCES

         4.1       Applicable Borrowing Amounts; Interest Rates; Default Rate

                   (a)  Borrowers  hereby  promise to pay interest on the unpaid
principal  amount of each  Revolving  Loan at a rate per annum equal to the Base
Rate  from  time to  time in  effect  (the  "Base  Rate  Loan")  for the  period
commencing  on the date of such Loan until such Base Rate Loan is (A)  converted
to a LIBOR Loan pursuant to Paragraph 4.3 hereof,  or (B) paid in full.  Accrued
interest  on the  outstanding  principal  amount of Loans  shall be payable  (i)
monthly in arrears on the last Business Day of each  calendar  month in the case
of a Base Rate Loan,  (ii) on the last day of the applicable  Interest Period in
the case of a LIBOR Loan,  (iii) upon  conversion  of any Loan into a LIBOR Loan
(such amount of accrued  interest then coming due to be calculated  based on the
principal  amount of the Loan so converted)  and (iv) upon the Revolving  Credit
Termination  Date  (in the  case of a  Revolving  Loan),  which  payments  shall
commence  with the last  Business  Day of June,  1997 in the case of a Base Rate
Loan.  After the Revolving  Credit  Termination Date (in the case of a Revolving
Loan) or the Conversion  Date (with respect to accrued  interest coming due as a
result of the conversion),  as applicable,  accrued interest on such Loans shall
be payable on demand.

                   (b)  K-V  hereby  promises  to pay  interest  on  the  unpaid
principal  amount of the Term Loan at a rate per annum  equal to the Fixed  Rate
for the period commencing on the date of such Loan until such Fixed Rate Loan is
paid in full. Accrued interest and principal on the outstanding principal amount
of the Term Loan shall be payable monthly in arrears on the last Business Day of
each calendar  month which payments shall commence with the last Business Day of
the calendar  month in which such Loan is made,  with a final payment of accrued
and unpaid  interest  due on the Term Loan  Maturity  Date.  After the Term Loan
Maturity Date,  accrued  interest and principal on such Loan shall be payable on
demand.

                   (c)  Each  LIBOR  Loan  shall  be  in  a  minimum  amount  of
$1,000,000 or such greater amount which is an integral  multiple of $100,000 and
shall bear interest (computed on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such LIBOR Loan is
effected by conversion or continued  until maturity  (whether by acceleration or
otherwise)  at a rate per annum  equal to the sum of the LIBOR  Margin  plus the
Adjusted  LIBOR Rate,  with such interest  payable in accordance  with Paragraph
4.1(a) above.

                   (d)  If an  Event  of  Default  shall  have  occurred  and be
continuing hereunder,  the Loans shall bear interest from the date of such Event
of Default, payable on demand, at a rate per annum (the "Default Rate") equal to
the sum of two percent (2%) plus the applicable  interest rate from time to time
in effect (computed on the basis of a 360 day year and actual days elapsed).

                                       16

<PAGE>
         4.2  Computation  of Interest.  Interest on each Loan shall be computed
for the  actual  number of days  elapsed  on the basis of a  360-day  year.  The
interest rate applicable to each Base Rate Loan shall change simultaneously with
each change in such Base Rate.  Upon  conversion  of less than all the aggregate
principal amount of Base Rate Loans outstanding at any one time to a LIBOR Loan,
interest on the remaining  principal amount of Base Rate Loans shall continue to
bear interest at the Base Rate.

         4.3       Conversion and Reborrowing of Loans.

                   (a)  Provided  that no Event of Default has  occurred  and is
continuing, Base Rate Loans may, subject to Paragraphs 2.3 and 4.1(a) hereof, at
any time be converted  by any  Borrower to LIBOR Loans,  which LIBOR Loans shall
mature  and  become  due and  payable  on the  last day of the  Interest  Period
applicable  thereto.  Provided  that no Event of  Default  has  occurred  and is
continuing,  Borrower shall have the right,  subject to the terms and conditions
of this  Agreement,  to  reborrow  through a new LIBOR Loan in whole or in part,
subject to Paragraph  4.1(c),  any LIBOR Loan from any current  Interest  Period
into a subsequent Interest Period, provided that Borrower shall give Bank notice
of the reborrowing of any such LIBOR Loan as provided in Paragraph 2.3 hereof.

                   (b) In the event that (i) Representative fails to give notice
pursuant to Paragraph 2.3 hereof of the  reborrowing  of any LIBOR Loan or fails
to specify the Interest Period  applicable to such  reborrowing or (ii) an Event
of Default has occurred and is  continuing at the time any such LIBOR Loan is to
be reborrowed hereunder,  then such LIBOR Loan shall be automatically reborrowed
as a Base Rate Loan,  subject to Paragraphs  4.1(d) (in the case of subpart (ii)
of this Paragraph 4.3(b)) and 9.3 hereof if an Event of Default has occurred and
is continuing,  whichever is applicable,  unless the relevant LIBOR Loan is paid
in full on the last day of the then applicable Interest Period.

                   (c)   Notwithstanding   anything   contained  herein  to  the
contrary,  Borrowers may not have outstanding at any one time more than four (4)
LIBOR Loans.

         4.4  Change  of  Law.  Notwithstanding  any  other  provisions  of this
Agreement or the Notes,  if at any time Bank shall  determine in good faith that
any change in  applicable  law or regulation  or in the  interpretation  thereof
makes it unlawful or  impossible  for Bank to effect a conversion of a Base Rate
Loan into a LIBOR Loan or to  continue to  maintain  any LIBOR Loan,  Bank shall
promptly  give  notice  thereof  (together  with an  explanation  of the reasons
therefor) to  Borrowers,  and the  obligation of Bank to effect by conversion or
continue such LIBOR Loan under this  Agreement  shall  terminate  until it is no
longer  unlawful or impossible for Bank to effect by conversion or maintain such
LIBOR Loan.  Upon the receipt of such notice,  Borrowers may elect to either (i)

                                       17

<PAGE>
pay or prepay, as the case may be, the outstanding  principal amount of any such
LIBOR Loan,  together  with all interest  accrued  thereon and all other amounts
payable to Bank under this  Agreement,  or (ii) convert the principal  amount of
such affected LIBOR Loan to a Base Rate Loan available hereunder, subject to the
terms and conditions of this Agreement.

         4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR Rate
or Adjusted LIBOR Rate. Notwithstanding any other provision of this Agreement or
the Notes to the contrary,  if prior to the  commencement of any Interest Period
Bank shall  determine in good faith (i) that deposits in the amount of any LIBOR
Loan  scheduled  to be  outstanding  are not  available  to Bank in the relevant
market  or (ii) by  reason  of  circumstances  affecting  the  relevant  market,
adequate and reasonable  means do not exist for  ascertaining  the LIBOR rate or
Adjusted LIBOR Rate,  then Bank shall promptly give notice thereof to Borrowers,
and the  obligation  of Bank to effect by  conversion or continue any such LIBOR
Loan in such amount and for such Interest  Period shall terminate until deposits
in such amount and for the Interest  Period  selected by Borrower shall again be
readily available in the relevant market and adequate and reasonable means exist
for ascertaining the LIBOR rate or Adjusted LIBOR Rate, as the case may be. Upon
the giving of such notice,  Borrowers may elect to either (i) pay or prepay,  as
the case may be,  the  outstanding  principal  amount  of any such  LIBOR  Loan,
together with all interest accrued thereon and all other amounts payable to Bank
under this Agreement or (ii) convert the principal amount of such affected LIBOR
Loan to a Base  Rate  Loan  available  hereunder,  subject  to all the terms and
conditions of this Agreement.

         4.6       Yield Protection, Etc.

                   (a)  Increased  Costs.  If (x)  Regulation  D of the Board of
Governors of the Federal Reserve  System,  or (y) the adoption of any applicable
law, treaty, rule, regulation or guideline, or any change therein, or any change
in the interpretation or administration  thereof by any governmental  authority,
central  bank  or  comparable   agency  charged  with  the   interpretation   or
administration thereof, or compliance by any Bank or its lending branch with any
request  or  directive  (whether  or not  having  the  force of law) of any such
authority, central bank or comparable agency,

                           (i) shall  subject  Bank,  its lending  branch or any
         Loan to any tax, duty, change,  stamp tax, fee, deduction,  withholding
         or other charge in respect of this  Agreement,  any Loan,  the Notes or
         the  obligation  of Bank to make or maintain any Loan,  or shall change
         the  basis of  taxation  of  payments  to Bank of the  principal  of or
         interest on any Loan or any other  amounts due under this  Agreement in
         respect  of any Loan or its  obligation  to make or  maintain  any Loan
         (except  for  changes in the rate of tax on the  overall  net income of
         Bank  imposed  by the  federal,  state or local  jurisdiction  in which
         Bank's principal executive office or its lending branch is located);


                                       18

<PAGE>
                           (ii)  shall  impose,  modify or deem  applicable  any
         reserve  (including,  without  limitation,  any reserve  imposed by the
         Board of Governors of the Federal Reserve  System),  special deposit or
         similar requirement against assets of, deposits with or for the account
         of, or credit extended by, Bank; or

                           (iii) shall  impose on Bank any penalty  with respect
         to the foregoing or any other condition  affecting this Agreement,  any
         Loan, the Notes or the obligation of Bank to make or maintain any Loan;

and the result of any of the  foregoing is to increase the cost to (or to impose
a cost on) Bank of making or  maintaining  any Loan,  or to reduce the amount of
any sum received or receivable  by Bank under this  Agreement or under the Notes
with respect  thereto,  then Bank shall notify Borrowers after it receives final
notice of any of the foregoing and, within  forty-five (45) days after demand by
Bank (which demand shall be accompanied  by a statement  setting forth the basis
of such demand), Borrowers shall pay directly to Bank for such additional amount
or amounts as will compensate Bank for such increased cost or such reduction.

                   (b) Capital Adequacy.  If, after the date hereof,  either (i)
the introduction of or any change in or change in the  interpretation of any law
or regulation or (ii)  compliance by Bank with any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law)  affects or would  affect the amount of capital  required or expected to be
maintained by Bank or any corporation  controlling Bank and Bank determines that
the  amount of such  capital  is  increased  solely by or solely  based upon the
existence of Bank's  commitment to lend hereunder and other  commitments of this
type,  then, upon demand by Bank,  Borrower shall  immediately pay to Bank, from
time to time as specified by Bank,  additional  amounts sufficient to compensate
Bank in the light of such  circumstances,  to the  extent  that Bank  reasonably
determines  such  increase in capital to be allocable to the existence of Bank's
commitment to lend hereunder.

         4.7 Funding Indemnity.  In the event Bank shall incur any loss, cost or
expense (including, without limitation, any loss of profit and any loss, cost or
expense  incurred by reason of the liquidation or  re-employment  of deposits or
other funds acquired by Bank to fund or maintain any LIBOR Loan or the relending
or  reinvesting of such deposits or amounts paid or prepaid to Bank) as a result
of:

                   (a) any payment of a LIBOR Loan on a date other than the last
day of the then applicable Interest Period;

                   (b) any failure by any  Borrower to effect by  conversion  or
continue any LIBOR Loan on the date  specified  in the notice given  pursuant to
Paragraph 2.3 hereof;

                                       19
<PAGE>
                   (c) any  failure  by any  Borrower  to make  any  payment  of
principal or interest when due on any LIBOR Loan, whether at stated maturity, by
acceleration or otherwise; or

                   (d) the occurrence of any Event of Default;

then,  upon the demand by Bank,  Borrowers shall pay to Bank such amount as will
reimburse  Bank for such loss,  cost or expense.  If Bank makes such a claim for
compensation  under  this  Paragraph  4.7,  Bank  shall  provide  to  Borrower a
certificate setting forth the amount of such loss, cost or expense in reasonable
detail.

         4.8  Discretion  of Bank as to Manner of Funding.  Notwithstanding  any
provision of this Agreement to the contrary other than Paragraph 4.7, Bank shall
be entitled to fund and  maintain its funding of all or any part of the Loans in
any manner it sees fit, it being understood,  however,  that for the purposes of
this  Agreement  all  determinations  hereunder  shall  be made  as if Bank  had
actually  funded and maintained  each LIBOR Loan during each Interest Period for
such LIBOR Loan through the purchase of deposits in the London  Interbank Market
having a maturity  corresponding to such Interest Period and bearing an interest
rate equal to the Adjusted LIBOR Rate for such Interest Period.

         4.9  Interest  Laws.  Notwithstanding  any  provision  to the  contrary
contained in this  Agreement  or the Other  Agreements,  Borrowers  shall not be
required  to pay,  and Bank shall not be  permitted  to  collect,  any amount of
interest in excess of the maximum  amount of interest  permitted by law ("Excess
Interest").  If any Excess  Interest is provided for or determined by a court of
competent  jurisdiction to have been provided for in this Agreement or in any of
the Other  Agreements,  then in such event: (a) the provisions of this Paragraph
shall govern and control; (b) Borrowers shall not be obligated to pay any Excess
Interest;  (c) any Excess  Interest that Bank may have received  hereunder shall
be, at Bank's option, (i) applied as a credit against the outstanding  principal
balance of Borrowers'  Liabilities or accrued and unpaid interest (not to exceed
the maximum amount  permitted by law),  (ii) refunded to the payor  thereof,  or
(iii) any combination of the foregoing;  (d) the interest  rate(s)  provided for
herein shall be  automatically  reduced to the maximum  lawful rate allowed from
time to time under applicable law (the "Maximum  Rate"),  and this Agreement and
the Other  Agreements  shall be deemed  to have been and shall be  reformed  and
modified to reflect such reduction;  and (e) Borrowers shall not have any action
against  Bank for any damages  arising out of the payment or  collection  of any
Excess  Interest.  Notwithstanding  the  foregoing,  if for any  period  of time
interest on any Borrowers'  Liabilities is calculated at the Maximum Rate rather
than the applicable  rate under this  Agreement,  and thereafter such applicable
rate becomes less than the Maximum  Rate,  the rate of interest  payable on such
Borrowers'  Liabilities  shall  remain at the Maximum Rate until Bank shall have

                                       20

<PAGE>
received  the amount of  interest  which Bank would have  received  during  such
period on such Borrowers'  Liabilities had the rate of interest not been limited
to the Maximum Rate during such period.

         4.10 Letter of Credit Fees. As additional consideration for issuing, or
causing to be issued,  Letters of Credit for  Borrowers  at  Borrowers'  request
pursuant to Paragraph 2.4 hereof, Borrower agrees to pay fees in respect to each
Letter of Credit so  issued.  Said fees  shall be payable on the date which such
Letter of Credit is issued and (a) for  "standby"  Letters of Credit shall be in
an amount  equal to one percent  (1.0%) per annum of the amount of the Letter of
Credit multiplied by a fraction, the numerator of which is the number of days in
the term of the applicable Letter of Credit and the denominator of which is 360,
payable quarterly in advance, and (b) for "trade" or other Letters of Credit, in
accordance  with Bank's  published fee schedule  then in effect.  In the event a
Letter of Credit is renewed or extended, a fee calculated in the manner provided
above  shall be  payable  for any such  renewal  or  extended  period.  Further,
Borrowers shall pay and/or  reimburse Bank for all fees and charges paid by Bank
on account of any Letter of Credit,  and  Borrowers  shall pay to Bank its usual
and  customary  charges in respect to the  issuance,  or renewal,  of Letters of
Credit.

                             5. LOANS: GENERAL TERMS

         5.1 Payments to Bank. That portion of Borrowers' Liabilities consisting
of: (a)  principal  payable  on  account of the Loans made by Bank to  Borrowers
pursuant to this Agreement shall be payable by Borrowers to Bank (i) as provided
in the Revolving Note or any Letter of Credit in respect of the Revolving  Loans
and (ii) as  provided  in the Term Note in respect of the Term Loan;  (b) costs,
fees and  expenses  payable  pursuant  to this  Agreement  shall be  payable  by
Borrowers  to Bank on demand  (except  the  Unused  Portion  Fee which  shall be
payable as described in Paragraph 5.10 below);  (c) interest payable pursuant to
this  Agreement  shall be payable by  Borrowers to Bank as provided in Paragraph
4.1; and (d) the balance of Borrowers' Liabilities,  if any, shall be payable by
Borrowers to Bank as and when provided in this Agreement.

         5.2  Automatic  Debit.  In order to cause timely  payment to be made to
Bank,  for the account of Bank, of all  Borrowers'  Liabilities as and when due,
Borrowers  hereby  authorize  and direct Bank,  at Bank's  option,  to debit the
amount  of such  Borrowers'  Liabilities  to any  ordinary  deposit  account  of
Borrowers  (including,  without limitation,  by increasing the principal balance
due under the Revolving Loan).

         5.3 Application of Payment.  Each Borrower shall, at the time of making
each  payment  under this  Agreement  or any Note  (whether by account  debit or
otherwise),  specify  to Bank the Loan or other  amounts  payable  by  Borrowers
hereunder to which such payment is to be applied (and in the event that it fails
to so specify,  or if an Event of Default has occurred and is  continuing,  Bank
may  distribute  such  payment  in such  manner  as  Bank  may  determine  to be
appropriate.

                                       21

<PAGE>
         5.4       Reserved.

         5.5 Conditions Precedent Events. Each Loan made by Bank to Borrowers at
the request of  Borrowers  pursuant to this  Agreement  or the Other  Agreements
shall in any event be subject to the following conditions  precedent:  (a) there
shall not then exist an Event of Default (as  hereinafter  defined) or any event
or  condition  which with  notice,  lapse of time and/or the making of such Loan
would constitute an Event of Default;  (b) the  representations,  warranties and
covenants of each Borrower contained in this Agreement shall be true and correct
as of the date of such Loan except for those made as of a  particular  date with
the same  effect as  though  made on such  date;  (c) all of the  covenants  and
agreements of each Borrower in this  Agreement,  and all of the  requirements of
this Agreement with respect to such Loan, shall have been complied with; and (d)
there shall not have occurred,  since the date of this  Agreement,  any material
adverse change in the financial condition,  results of operations or business of
any  Borrower.  Each  borrowing  by any  Borrower  hereunder  shall be  deemed a
representation and warranty by such Borrower that the foregoing  conditions have
been fulfilled as of the date of such  borrowing.  Bank shall have received upon
request a certificate signed by an Authorized Officer of such Borrower dated the
date of such requested Loan certifying  satisfaction of the conditions specified
in clauses (a)-(d) of this Paragraph 5.5.

         5.6 Offset.  Each  Borrower  agrees  that,  in addition to (and without
limitation  of) any right of set-off,  bankers'  lien or  counterclaim  Bank may
otherwise have, Bank shall be entitled,  at its option,  to offset balances held
by it for  account of such  Borrower  at any of its  offices,  in United  States
Dollars or in any other currency, against any principal of or interest on any of
its Loans, or any other amount payable to Bank hereunder, which is not paid when
due (regardless of whether such balances are then due to such Borrower).

         5.7 Credit  Termination  Date;  Continuance of  Obligations,  Etc. This
Agreement,  Bank's  obligation to loan monies to Borrowers,  and each Borrower's
ability to borrow monies from Bank shall be in effect until the Revolving Credit
Termination Date or Term Loan Termination  Date, as applicable.  Notwithstanding
the foregoing and until such date when Borrowers'  Liabilities  shall be paid in
full, each Borrower's obligations hereunder and under the Other Agreements shall
continue,  interest shall  continue to be paid in accordance  with the foregoing
and Bank shall retain all of its rights and remedies under this Agreement.

         5.8 Loan  Evidence.  Loans made by Bank to  Borrowers  pursuant to this
Agreement may or may not (at Bank's sole and absolute  discretion)  be evidenced
by notes or other  instruments  issued or made by Borrowers to Bank.  Where such
loans are not so evidenced, such loans shall be evidenced solely by entries upon
the ledgers,  books, records and/or computer records of Bank maintained for that

                                       22

<PAGE>



purpose, which entries shall be rebuttably presumptive evidence of such loans in
the absence of manifest error.

         5.9  Over-Advances.  If, at any time and for any reason,  the aggregate
amount  of  Borrowers'  Liabilities  outstanding  hereunder  in  respect  of the
Revolving  Loans exceeds the Revolving  Credit  Commitment (an  "Over-Advance"),
then  Borrowers  shall  immediately  pay to Bank,  in cash,  the  amount of such
Over-Advance.  If such Over-Advance  remains outstanding for more than three (3)
Business Days until such  Over-Advance  is so repaid to Bank, the amount of such
Over-Advance shall bear interest at the applicable Default Rate.

         5.10 Unused  Portion Fee. To compensate  Bank for the cost of reserving
funds to be made available to Borrowers  under this  Agreement,  Borrowers shall
pay to Bank, on the last day of each calendar  quarter an unused  revolving line
fee (the "Unused  Portion  Fee") equal to the sum of the daily  amounts by which
the  maximum  aggregate  principal  amount of the  Revolving  Credit  Commitment
exceeds the actual  principal  amount of  Revolving  Loans made  hereunder.  The
Unused Portion Fee is calculated  for each  applicable day of such quarter in an
amount  equal to the excess of the  maximum  aggregate  principal  amount of the
Revolving  Credit  Commitment  over  the  principal  amount  of all  outstanding
advances under the Revolving Loans on such day,  multiplied by one-eighth of one
percent  (1/8%) and divided by three hundred  sixty (360).  All fees and charges
imposed on Borrowers pursuant to this Agreement  including,  without limitation,
the  Unused  Portion  Fee  accrued  through  the date of  termination,  shall be
nonrefundable  to Borrowers,  notwithstanding  any prepayment and termination by
Borrowers of this Agreement.

         5.11 Prepayment.  (a) Term Loan Prepayment. K-V may, from time to time,
prepay  the Loan  evidenced  by the  Term  Note in whole or in part and the same
shall pay,  subject to Section 5.7  hereof,  the  Make-Whole  Amount (as defined
below)  plus a  prepayment  fee  equal  to (i) two  percent  (2%) of the  unpaid
principal  balance of the Term Loan prior to the first (1st)  anniversary of the
Closing Date, and (ii) one percent (1%) of the unpaid  principal  balance of the
Term Loan prior to the second (2nd)  anniversary of the Closing Date;  provided,
however,  that, prior to the occurrence of an Event of Default,  such prepayment
fee shall not be due and payable upon prepayment under  circumstances where Bank
has been requested by Borrowers to renew the Revolving Credit  Commitment at the
expiration  or maturity  thereof and either (a) Bank has refused to do so or (b)
Bank has offered  such renewal upon terms  materially  different  and adverse to
Borrowers. For the purposes hereof, the "Make- Whole Amount" shall be the amount
calculated as follows:

                           (i) There shall first be  determined,  as of the date
fixed for prepayment (the "Prepayment  Date"),  the amount, if any, by which (A)
the Fixed  Rate  exceeds  (B) the yield to  maturity  percentage  for the United
States Treasury Note maturing June,  2002 (the "Treasury  Note") as published in


                                       23

<PAGE>
The Wall Street Journal on the fifth business day preceding the Prepayment  Date
plus Two Hundred and Twenty-Five basis points (2.25%) (the "Current Yield").  If
(A) publication of The Wall Street Journal is  discontinued,  or (B) publication
of the Treasury Note in The Wall Street  Journal is  discontinued,  Bank, in its
sole  discretion,  shall  designate  another  daily  financial  or  governmental
publication of national circulation to be used to determine the Current Yield;

                           (ii) The difference calculated pursuant to clause (i)
above shall be  multiplied by the  outstanding  principal  balance  hereof as of
Prepayment Date;

                           (iii) The product calculated  pursuant to clause (ii)
above shall be multiplied by the quotient,  rounded to the nearest one-hundredth
of one percent,  obtained by dividing (A) the number of days from and  including
the Prepayment Date to and including the Maturity Date, by (B) 365; and

                           (iv) The sum  calculated  pursuant  to  clause  (iii)
above shall be discounted at the annual rate of the Current Yield to the present
value thereof as of the Prepayment  Date, on the assumption  that said sum would
be received in equal monthly  installments  on each monthly  anniversary  of the
Prepayment Date prior to the Maturity Date,  with the final such  installment to
be deemed  received on the Maturity Date;  provided that Borrowers  shall not be
entitled in any event to a credit  against,  or a  reduction  of, the Debt being
prepaid if the Current Yield exceeds the Fixed Rate or for any other reason.

                   (b) Revolving  Loan  Prepayment.  The  Revolving  Loan may be
prepaid in full, and the Revolving Credit Commitment  extinguished,  if and only
if the Term  Loan has been paid in full in  accordance  with  Paragraph  5.11(a)
above.

         5.12 Transaction Fee. On or prior to the Closing Date,  Borrowers shall
pay an aggregate fee of $85,000, comprised of a fee of $50,000 in respect of the
Revolving Loan and $35,000 in respect of the Term Loan (the  "Transaction  Fee")
to Bank, of which $25,000 in respect of the Revolving  Loan has been  previously
paid by K-V.

                         6. LOANS: CONDITIONS TO LENDING

         6.1 Initial Loan Conditions Precedent.  In addition to those conditions
set  forth in  Paragraph  5.5 above  with  respect  to all  Loans  and  advances
hereunder,  prior to or contemporaneously with the making of the initial advance
of funds,  Bank's  obligation to make any Loan is subject to the satisfaction of
the following conditions precedent:

                   (a) Fees and  Expenses.  Borrowers  shall  have paid all fees
owed to Bank and reimbursed  Bank for all expenses due and payable  hereunder on
or before the date hereof  including,  but not limited to, counsel fees provided

                                       24

<PAGE>



for in Paragraph  10.12 hereof and the Transaction Fee provided for in Paragraph
5.12 hereof.

                   (b)  Documents.  (A) Bank shall have  received the  following
documents with respect to the closing of the Revolving Loan on the Closing Date,
in  form  and  substance  satisfactory  to  Bank,  and  all of the  transactions
contemplated by each such document shall have been consummated or each condition
contemplated by each such document shall have been satisfied (with the exception
of  transactions  and conditions  associated  with the closing of the Term Loan,
which will close at a later date as provided in Subparagraph (B) below):

                           (i) Related  Documents.  Copies of this  Agreement as
         required  by Bank and one copy of the  Revolving  Note  payable to Bank
         conforming to the  requirements  hereof duly executed by each Borrower,
         as applicable.

                           (ii) Legal Opinion.  The Revolving Loan legal opinion
         of Borrowers' counsel.

                           (iii) Officer's  Certificate.  A certificate executed
         by an Authorized  Officer of each Borrower  stating that (A) no default
         or Event of Default has  occurred  and is  continuing,  (B) no material
         adverse change in the financial condition or operations of the business
         of  any  Borrower  has  occurred  since  December  31,  1996,  (C)  the
         representations,  warranties  and covenants of each Borrower  contained
         herein are true and correct,  and (D) each condition  precedent of each
         Borrower to the consummation of the Loans contemplated  hereby has been
         met or satisfied.

                           (iv)  Insurance  Policies.   Certificates  from  each
         Borrower's  insurance  carriers  evidencing that all insurance policies
         and coverage required by Paragraph 8.2(h) below is in effect.

                           (v) Certificate of  Incorporation  and Bylaws. A copy
         of each Borrower's  Articles or Certificate of  Incorporation,  and all
         amendments,  certified  by the  Secretary  of State  of the  applicable
         jurisdiction of incorporation  and a copy of each of Borrower's  Bylaws
         certified by an Authorized Officer.

                           (vi)  Good  Standing  Certificate.  A  Good  Standing
         Certificate  for each  Borrower  from the  applicable  jurisdiction  of
         incorporation  and each state in which each  Borrower is required to be
         qualified to transact business as a foreign corporation.

                           (vii)   Board   Resolutions.   Certified   copies  of
         resolutions of the Board of Directors of each Borrower  authorizing the
         execution  and  delivery of and the  consummation  of the  transactions
         

                                       25

<PAGE>
         contemplated  by this Agreement and the Other  Agreements and all other
         documents or  instruments  to be executed and delivered in  conjunction
         herewith and therewith on behalf of each Borrower.

                           (viii) Incumbency Certificates.  A certificate of the
         Secretary or an Assistant  Secretary of each  Borrower  certifying  the
         names of the officer or officers of each  Borrower  authorized  to sign
         this  Agreement  and the Other  Agreements  on behalf of each  Borrower
         together with a sample of the true signature of each such officer.

                           (ix) Pay-Off  Letter.  Pay-off letter with respect to
         all Debt of Borrower  previously owed to Foothill  Capital  Corporation
         and a Form UCC-3 Termination Statement with respect to Liens granted in
         favor of such lender.

                           (x)  Lender's  Loss Payable  Endorsement.  A Lender's
         Loss Payable  Endorsement in favor of Bank for each insurance policy of
         each Borrower naming Bank as loss payee and additional insured.

                           (xi) Other  Documents.  Such other  documents as Bank
         may reasonably request.

                   (B) Bank shall have  received the  following  documents on or
before June 30, 1997 with  respect to the closing of the Term Loan,  in form and
substance satisfactory to Bank, and all of the transactions contemplated by each
such document shall have been consummated or each condition contemplated by each
such document shall have been satisfied:

                           (i)  Mortgages.  A Deed of Trust duly executed by K-V
         in favor of Bank for each Mortgaged Property.

                           (ii)  Assignment of Rents. An Assignment of Rents and
         Leases  duly  executed  by K-V in  favor  of Bank  for  each  Mortgaged
         Property.

                           (iii)   Environmental    Indemnity   Agreement.    An
         Environmental  Indemnity  Agreement  duly  executed  by K-V in favor of
         Bank.

                           (iv)  Collateral  Assignments  of Leases.  Collateral
         Assignments  of leasehold  interests  and leases from each lessee under
         the Lease of each Mortgaged Property;

                           (v)  Estoppel  Letters and Leases.  A fully  executed
         original copy by each lessor and lessee under the Leases of an estoppel
         letter,  and a true and correct copy of each Lease of Borrower  related
         to each Mortgaged Property.

                                       26

<PAGE>
                           (vi) Title Policy.  A loan policy for each  Mortgaged
         Property issued by a title insurance company  acceptable to Bank in the
         amount of  $3,500,000,  which  policies  shall be in form and substance
         acceptable to Bank.

                           (vii) Form UCC-1 and Form UCC-2 Financing  Statements
         for each Mortgaged  Property to be filed with the Secretary of State of
         Missouri and the Recorder of Deeds of St. Louis County, Missouri.

                           (viii)   Survey.   ALTA  Survey  for  each  Mortgaged
         Property in form and substance acceptable to Bank.

                           (ix) Appraisal and  Environmental  Report.  Appraisal
         and Phase I Environmental  Assessment covering each Mortgaged Property,
         satisfactory in each case to Bank.

                           (x) ALTA Statement.  An ALTA Statement  acceptable to
         Chicago Title Insurance Company ("Title Company") duly executed by K-V.

                           (xi)  Purchase  Contract.  Purchase  contract for the
         purchase of each of the Mortgaged Properties, together with evidence of
         transfer of each Mortgaged Property to K-V.

                           (xii) Environmental  Reports.  Environmental  Reports
         for each of the Mortgaged Properties.

                           (xiii) Gap-Personal  Undertaking.  A statement by K-V
         that, among other things,  it shall be liable to Title Company and Bank
         for any liens or other title defects placed on the Mortgaged Properties
         between the date of the title  commitment  issued by Title  Company and
         the date of the recording of the Mortgages.

                           (xiv) Officer's  Certificate.  A certificate executed
         by an Authorized Officer of K-V stating that (A) no default or Event of
         Default has occurred and is continuing,  (B) no material adverse change
         in the  financial  condition or  operations  of the business of K-V has
         occurred since December 31, 1996, (C) the  representations,  warranties
         and  covenants of K-V  contained  herein are true and correct,  and (D)
         each condition  precedent of K-V to the  consummation  of the Term Loan
         contemplated hereby has been met or satisfied.

                           (xv)  Good  Standing  Certificate.  A  Good  Standing
         Certificate  for K-V from the  Secretary  of State of Delaware and each
         state in which K-V is required to be qualified to transact  business as
         a foreign corporation.

                                       27

<PAGE>
                           (xiv) Other  Documents.  Such other documents as Bank
         may reasonably request.

                   7. COLLATERAL FOR TERM LOAN: GENERAL TERMS

         7.1  Grant of  Security  Interest.  To secure  the  prompt  payment  of
Borrowers'  Liabilities  in  respect of the Term Loan and the  prompt,  full and
faithful  performance  by K-V of all of the  provisions to be kept,  observed or
performed by K-V under the Term Loan, K-V does hereby pledge,  assign,  transfer
and deliver to Bank, for the benefit of Bank, and grant to Bank, for the benefit
of Bank,  a security  interest in and to and a first  mortgage on each parcel of
Mortgaged Property pursuant to the Mortgage and Assignment of Rents. (All of the
foregoing personal property and real property securing Borrowers' Liabilities in
respect  of the Term Loan  hereunder,  in  addition  to all  rents and  proceeds
thereof including,  without limitation,  proceeds of insurance policies insuring
the same, is  hereinafter  sometimes  individually  and  sometimes  collectively
referred  to as  "Collateral").  K-V shall  make  appropriate  entries  upon its
financial  statements and books and records  disclosing Bank's security interest
in the Collateral.

         7.2 Perfection of Security Interests.  K-V shall execute and/or deliver
to Bank, at any time and from time to time hereafter at the request of Bank, all
agreements,  instruments,  financing  statements,  documents  and other  written
matter  (sometimes  hereinafter  individually  and  collectively  referred to as
"Supplemental  Documentation")  that Bank  reasonably  may request,  in form and
substance  acceptable to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and to consummate the transactions contemplated in or
by this  Agreement  and the Other  Agreements.  After an Event of Default,  K-V,
irrevocably,  hereby  makes,  constitutes  and  appoints  Bank (and all  Persons
designated  by Bank for that  purpose)  as K-V's  true and lawful  attorney  and
agent-in-fact to sign the name of K-V on the Supplemental  Documentation  and to
deliver the  Supplemental  Documentation  to such Persons as Bank may reasonably
elect.  K-V agrees  that a carbon,  photographic  or  photostatic  copy or other
reproduction of this Agreement or of any financing statement shall be sufficient
as a financing statement.

         7.3 Inspection of Collateral.  Bank (by any of its officers,  employees
and/or  agents) shall have the right to inspect the  Collateral  and all related
records (and the premises upon which it is located) and to verify the amount and
condition of or any other matter relating to the  Collateral.  After an Event of
Default,  all costs,  fees and expenses  incurred by Bank, or for which Bank has
become obligated,  in connection with such inspection and/or  verification shall
constitute part of Borrowers'  Liabilities,  payable by each Borrower to Bank on
demand.  Notwithstanding  any other  provision  hereof,  the  provisions of this
Paragraph  7.3 shall  govern and  control  with  respect  to matters  concerning
inspection and verification of the Collateral.

                                       28
<PAGE>
         7.4 First Lien and Location of Collateral.  K-V warrants and represents
to and covenants  with Bank that:  (a) as of the Closing Date,  Bank's  security
interest in the Collateral is and at all times  hereafter shall be perfected and
have a first  priority;  (b) the offices  and/or  locations  where K-V keeps the
Collateral consisting of personal property, and the books and records concerning
the  Collateral,  consisting  of books and records with respect to both real and
personal property,  are at the locations  specified on Exhibit 7.4 and K-V shall
not remove such books and records and/or the Collateral  therefrom and shall not
keep any of such books and records  and/or the Collateral at any other office or
location  without  the prior  written  consent  of Bank;  and (c) the  addresses
specified on Exhibit 7.4 include and designate  K-V's executive  offices,  chief
place of business  and other  offices and places of business  and are K-V's sole
offices and places of businesses.  K-V, by written  notice  delivered to Bank at
least thirty (30) days prior thereto,  shall advise Bank of K-V's opening of any
new office or place of business or its closing of any  existing  office or place
of  business  and any new  office  or place of  business  shall  be  within  the
continental United States of America. There are no liens on the Collateral other
than the lien of Bank pursuant hereto.

         7.5  Constructive  Trust.  Borrowers  shall  receive,  as the  sole and
exclusive property of Bank, and as trustee for Bank, all monies,  checks, notes,
drafts and all other payment for and/or  proceeds of Collateral  which come into
the  possession  or under the  control  of  Borrowers  (or any of its  partners,
officers,  employees,  agents or those  Persons  acting for or in  concert  with
Borrowers) and immediately upon receipt thereof,  Borrowers shall remit the same
(or cause the same to be remitted),  in kind,  to Bank at the address  described
herein.

         7.6  Application of Proceeds of Collateral.  Bank, at any time or times
in its sole and absolute discretion, may take control of, in any manner, and may
endorse any Borrower's  name, as appropriate,  to any of the items of payment or
proceeds  described in Paragraph  7.5 above and,  pursuant to the  provisions of
this Agreement, Bank may, in its sole and absolute discretion, apply the same to
and on account of Borrowers'  Liabilities  in respect of the Term Loan.  For the
purposes  of  this  Paragraph,   each  Borrower,   irrevocably,   hereby  makes,
constitutes  and  appoints  Bank (and all  persons  designated  by Bank for that
purpose) as each  Borrower's  true and lawful  attorney and  agent-in-fact  with
power, without notice to any Borrower, to take any such actions.

         7.7 Third  Party  Collateral  Claims.  Bank,  in its sole and  absolute
discretion,  without  waiving or releasing  any Event of Default or  obligation,
liability, or duty of any Borrower under this Agreement or the Other Agreements,
may at any time or times  hereafter,  but shall be under no obligation  to, pay,
acquire and/or accept an assignment of any security interest, lien, encumbrance,
or claim asserted by any Person against the Collateral. All sums paid by Bank in
respect  thereof  and  all  costs,  fees  and  expenses,   including  reasonable

                                       29

<PAGE>
attorney's fees,  court costs,  expenses and other charges relating thereto that
are incurred by Bank on account thereof shall be part of Borrowers'  Liabilities
payable by Borrower to Bank on demand.

         7.8       Reserved.

         7.9 No Custom or Waiver.  No  authorization  given by Bank  pursuant to
this  Agreement  or the  Other  Agreements  to sell  any  specified  portion  of
Collateral or any items thereof,  and no waiver by Bank in connection  therewith
shall  establish a custom or constitute a waiver of the limitation  contained in
this Agreement against such sales, with respect to any portion of the Collateral
or any item thereof not covered by said authorization.

                  8. REPRESENTATIONS AND WARRANTIES; COVENANTS;
                     INDEMNIFICATION; CONTINUING OBLIGATION

         8.1  Representations  and Warranties of Borrower.  Each Borrower hereby
represents  and  warrants  to Bank as of the date  hereof  and with  respect  to
subsections (a) through (d) and  subsections (f) through (y) below,  the date of
disbursement of each Loan or advance hereunder, as follows:

                   (a) Corporate  Existence and Authority.  Each of K-V, PDI and
ETHEX are  corporations  duly organized,  validly  existing and in good standing
under the laws of the State of Delaware,  New York and  Missouri,  respectively,
and each is duly qualified to do business and is in good standing under the laws
of each state in which the ownership of its properties and the nature and extent
of the activities  transacted by it makes such  qualification  necessary  except
where the failure to be so qualified  could not reasonably be expected to have a
material  adverse  effect on its  performance,  business,  assets,  liabilities,
operations,  properties, financial condition or prospects. Each Borrower has the
requisite  corporate  power and authority to conduct its activities as presently
conducted,  to own its  properties  and to perform  its  obligations  under this
Agreement.

                   (b) Authorization;  No Conflict. The execution,  delivery and
performance by each Borrower of this Agreement and the Other Agreements to which
each is a party are within  each  Borrower's  corporate  powers,  have been duly
authorized  by all  necessary  corporate  action and do not  contravene  (i) any
Borrower's Certificate or Articles of Incorporation or Bylaws or (ii) any law or
any contractual  restriction  binding on or affecting each of K-V, PDI and ETHEX
or their respective properties,  and do not result in or require the creation of
any Lien (except as may be created under this Agreement or the Other Agreements)
upon or with respect to any of its properties.

                   (c) No Approval. No authorization or approval or other action
by, and no notice to or filing with,  any  governmental  authority or regulatory

                                       30

<PAGE>
body is  required  for the  due  execution,  delivery  and  performance  by each
Borrower of this  Agreement or any Other  Agreement to which each  Borrower is a
party.

                   (d) Validity and Binding  Nature.  This Agreement is, and the
Other Agreements to which each Borrower is a party when delivered hereunder will
be, legal, valid and binding  obligations of each Borrower,  enforceable against
each  Borrower  in  accordance  with  their  respective  terms,  except  as such
enforcement is limited by bankruptcy,  insolvency,  rehabilitation or moratorium
laws or general principles of equity.

                   (e) Financial  Statements  and  Condition.  The balance sheet
(including  the notes  thereto) of K-V and its  Subsidiaries  on a  consolidated
basis as at March  31,  1997,  and the  related  statements  of  operations  and
stockholders'  equity and  statements of cash flows of K-V and its  consolidated
Subsidiaries  for the fiscal year then ended,  have been audited by BDO Seidman,
LLP and are complete and correct,  in accordance  with GAAP,  and fairly present
the financial  condition of K-V and its Subsidiaries on a consolidated  basis as
at such date and the results of the  operations of Borrower for the period ended
on such date and since March 31, 1997, there has been no material adverse change
in any Borrower's financial condition,  business,  properties or operations. The
interim balance sheet (including the notes thereto) of K- V and its Subsidiaries
on a  consolidated  basis as at April 30, 1997,  and the related  statements  of
operations and stockholders'  equity and statements of cash flows for the period
then ended, are complete and correct and fairly present the financial  condition
of K-V and its Subsidiaries on a consolidated  basis at such date, in accordance
with GAAP (subject to normal year-end audit  adjustments and except as specified
in the notes thereto).  No Borrower has on the date hereof, nor will have on the
date of any Loan or advance  made by Bank  hereunder,  any  material  contingent
obligations,  long-term  leases or material  forward or  long-term  commitments,
which are required to be reflected in the foregoing  statements (and the related
notes thereto) and are not so reflected.

                   (f) Litigation. There is no pending or, to the best knowledge
of each Borrower, threatened action, suit, inquiry, investigation, or proceeding
affecting,  directly or indirectly,  any Borrower before any court, governmental
agency or arbitrator, which, in any case, (i) is reasonably likely to materially
and adversely affect the financial condition or operations of any Borrower, (ii)
seeks to  restrain  or would  otherwise  have a material  adverse  effect on the
transactions  contemplated  herein,  or  (iii)  would  affect  the  validity  or
enforceability of this Agreement or the Other Agreements.

                   (g)  Securities  Transaction.  No  proceeds  of any  Loan  or
advance  made by Bank to any  Borrower  hereunder  will be used to  acquire  any
security  in  any  transaction  which  is  subject  to  Section  13 or 14 of the
Securities Exchange Act of 1934, as amended.

                                       31

<PAGE>
                   (h)  Regulation  U. No Borrower is engaged in the business of
extending  credit for the purpose of purchasing or carrying margin stock (within
the  meaning of  Regulation  U issued by the Board of  Governors  of the Federal
Reserve  System),  and no  proceeds  of any Loan or advance  made by Bank to any
Borrower  hereunder  will be used to  purchase  or carry any margin  stock or to
extend  credit to others for the purpose of  purchasing  or carrying  any margin
stock.

                   (i) ERISA Termination Event and Funding. No ERISA Termination
Event  has  occurred  with  respect  to any Plan and all  Plans,  to the  extent
governed by ERISA, meet the minimum funding standards of Section 302 of ERISA.

                   (j) Withdrawal  Liability and Reportable  Events. No Borrower
or any ERISA  Affiliate  has  incurred,  or  expects  to incur,  any  withdrawal
liability under Section 4201 of ERISA to any  Multiemployer  Plan. No Reportable
Event (as  defined in ERISA  Section  4043,  other than a  Reportable  Event not
subject  to the  30-day  reporting  requirement  to the  PBGC  under  applicable
regulations) has occurred with respect to any Plan.

                   (k) Taxes.  Each Borrower has filed all tax returns (Federal,
state and local)  required  to be filed and paid all taxes  shown  thereon to be
due, including interest and penalties,  other than such taxes that a Borrower is
contesting in good faith by appropriate legal proceedings and as to which proper
reserves therefor have been established on the books of each Borrower.

                   (l) Liens.  There are no Liens upon or with respect to any of
the  properties  of any  Borrower  or the  Collateral  or any  right to  receive
revenues of any Borrower or the Collateral other than Permitted Liens.

                   (m)  Conflicts.  No Borrower or any  Subsidiary  thereof is a
party to any indenture, loan or credit agreement or any lease or other agreement
or instrument  (including corporate charters) which is likely to have a material
adverse effect on the ability of any Borrower to perform its  obligations  under
this  Agreement  or the Other  Agreements  or which would  restrict or otherwise
limit the  incurring of the Debt  represented  by this  Agreement  and the Other
Agreements.

                   (n)  Environmental  Matters.  Except as  disclosed on Exhibit
8.1(n) hereto,

                           (i)  the   operations   of  each  Borrower  and  each
         Subsidiary,   (including,   without  limitation,   all  operations  and
         conditions at or in the Facilities) and the Mortgaged Properties comply
         with all Environmental Laws;

                                       32

<PAGE>
                           (ii) Each Borrower and each  Subsidiary have obtained
         or have  timely  applied  for  all  Governmental  Authorizations  under
         Environmental  Laws necessary to their respective  operations,  if any,
         and all such  Governmental  Authorizations as have been obtained are in
         good standing,  and each Borrower and each  Subsidiary is in compliance
         with all terms and conditions of such Governmental Authorizations;

                           (iii) No Borrower  nor any  Subsidiary  has  received
         from any Person (A) any notice or claim to the effect that it is or may
         be  liable  to any  Person as a result  of the  Release  or  threatened
         Release of any  Hazardous  Materials  or (B) any letter or request  for
         information  under  Section  104  of  the  Comprehensive  Environmental
         Response,  Compensation,  and  Liability  Act (42  U.S.C.  ss.9604)  or
         comparable  state laws,  and none of the  operations of any Borrower or
         any  Subsidiary  is the subject of any  federal or state  investigation
         evaluating  whether  any  remedial  action is needed  to  respond  to a
         Release  or  threatened  Release  of  any  Hazardous  Materials  at any
         Facility, the Mortgaged Properties or at any other location;

                           (iv) no operations of any Borrower or any  Subsidiary
         are  subject  to  any   investigation  or  judicial  or  administrative
         proceeding   alleging  the   violation   of  or  liability   under  any
         Environmental Laws;

                           (v) no Borrower  nor any  Subsidiary  or any of their
         respective  Facilities or operations  or the Mortgaged  Properties  are
         subject  to  any  outstanding  written  order  or  agreement  with  any
         governmental   authority   or  private   party   relating  to  (a)  any
         Environmental Laws or (b) any Environmental Claims;

                           (vi)  no  Borrower   nor  any   Subsidiary   has  any
         contingent  liability  in  connection  with any  Release or  threatened
         Release of any Hazardous Materials;

                           (vii) no Borrower nor any  Subsidiary or any of their
         respective  predecessors  has filed any notice under any  Environmental
         Law indicating past or present treatment,  storage, disposal or Release
         of  Hazardous  Materials at any  Facility or the  Mortgaged  Properties
         except in accordance with Environmental Laws, and no Borrower's nor any
         Subsidiary's   operations   involve  the  generation,   transportation,
         treatment,  storage or disposal of hazardous waste, as defined under 40
         C.F.R. Parts 260-270 or any state equivalent;

                           (viii) no  Hazardous  Material  exists  on,  under or
         about any  Facility  or the  Mortgaged  Properties  in a manner that is
         reasonably  likely to give rise to an  Environmental  Claim no Borrower

                                       33

<PAGE>



         nor any  Subsidiary  has filed any notice or report of a Release of any
         Hazardous  Materials  that is  reasonably  likely  to  give  rise to an
         Environmental Claim;

                           (ix) no Borrower nor any  Subsidiary  or any of their
         respective  predecessors  has disposed of any Hazardous  Materials in a
         manner  that is  reasonably  likely  to give  rise to an  Environmental
         Claim;

                           (x)  no   underground   storage   tanks  or   surface
         impoundments are on or at any Facility or the Mortgaged Properties; and

                           (xi) no  lien  in  favor  of any  Person  for (a) any
         liability under any  Environmental  Laws or (b) damages arising from or
         costs  incurred by such  Person in response to a Release or  threatened
         Release  has been filed or has been  attached  to any  Facility  or the
         Mortgaged Properties.

                   (o) Investment Company Act. No Borrower nor any Subsidiary is
an "investment  company" or a company  "controlled  by an "investment  company,"
within the meaning of the Investment Company Act of 1940, as amended.

                   (p) Compliance with Laws. Each Borrower is in compliance with
all laws, orders,  regulations and ordinances of all federal, foreign, state and
local governmental authorities binding upon or affecting the business, operation
or  assets  of each  Borrower  including,  without  limitation,  zoning or other
ordinances relating to permissive  non-conforming uses of property, except where
the  failure to be in  compliance  could not  reasonably  be  expected to have a
material  adverse effect on the business,  financial  condition or operations of
each Borrower.

                   (q)  Other  Agreements.  Each  Borrower  makes  each  of  the
representations  and warranties of Borrower contained in the Other Agreements to
which each Borrower is a party  operative and applicable for the benefit of Bank
as if the same were set forth at length herein.

                   (r)  Subsidiaries.  Except as disclosed on Exhibit 8.1(r), no
Borrower has any Subsidiaries.

                   (s) Labor. Except as disclosed on Exhibit 8.1(s), none of the
employees of any Borrower is subject to any collective bargaining agreement, and
there are no strikes, work stoppages,  election or decertification  petitions or
proceedings pending or, to any Borrower's  knowledge,  threatened  involving any
Borrower and any of its employees and no Borrower has received  notice of unfair
labor  charges,  equal  employment  opportunity  proceedings,  wage  payment  or
material unemployment compensation proceedings,  material workmen's compensation
proceedings or other material labor or employee-related controversies pending or
threatened  involving any Borrower and any of its  employees,  except for any of

                                       34

<PAGE>
of foregoing which would not in the aggregate have a material  adverse effect on
the financial condition, results of operations or business of any Borrower.

                   (t) Solvency.  Each Borrower has capital  sufficient to carry
on its business and transactions and all businesses and transactions in which it
is about to engage and is solvent and able to pay its debts as they mature,  and
each Borrower owns property the fair saleable value of which is greater than the
amount  required to pay each  Borrower's  Debt. No transfer of property is being
made  and no  Debt  is  being  incurred  in  connection  with  the  transactions
contemplated  by this  Agreement  with the  intent to  hinder,  delay or defraud
either present or future creditors of any Borrower or any Affiliate.

                   (u) Title.  Each Borrower has good and merchantable  title to
and  ownership  of its  assets,  free and clear of all Liens,  claims,  security
interests and other encumbrances except for Permitted Liens.

                   (v) Credit  Agreements.  Exhibit  8.1(v) hereto is a complete
and correct list, as of the date of this  Agreement,  of each credit  agreement,
loan  agreement,  indenture,  guarantee or other  arrangement  providing  for or
otherwise relating to any Debt or any extension of credit (or commitment for any
extension  of credit)  to, or  guarantee  by,  each  Borrower  (other  than this
Agreement) in each case involving, in the aggregate, more than $250,000, and the
aggregate  principal or face amount  outstanding or which may become outstanding
under each such arrangement is correctly described in such exhibit.

                   (w) Debt. As of the date of this  Agreement,  no Borrower has
any Debt  except for the  Permitted  Debt or Debt  otherwise  permitted  by this
Agreement.

                   (x) Insurance.  Each Borrower is adequately insured under its
policies of insurance  currently in effect,  no notice of cancellation  has been
received  with  respect  to such  policies  and  each  Borrower  is in  material
compliance with all conditions contained in such policies.

                   (y)  Accuracy  of   Information.   All  factual   information
heretofore  or  contemporaneously  furnished by or on behalf of each Borrower to
Bank for purposes of or in  connection  with this  Agreement or any  transaction
contemplated hereby (excluding  projections  referred to below in this Paragraph
and factual information superseded or replaced prior to the date hereof) is, and
all other factual  information  (taken as a whole) hereafter  furnished by or on
behalf of each  Borrower  to Bank will be true and  accurate  in every  material
respect on the date as of which such  information is dated or certified,  and no
Borrower  has omitted and nor will omit any material  fact  necessary to prevent
such information from being false or misleading.

                                       35

<PAGE>
         8.2 Affirmative Covenants.  At all times prior to the later of the Term
Loan Termination  Date or the Revolving  Credit  Termination Date and thereafter
for so long as any amounts  are due or owing to Bank  hereunder,  each  Borrower
hereby covenants that it will, unless Bank otherwise consents in writing:

                   (a)  Existence,  Etc.  Do or  cause  to be  done  all  things
necessary to preserve and maintain each Borrower's  corporate  existence in good
standing.

                   (b)  Compliance  with Laws,  Etc.  Comply with all applicable
present and future laws,  rules,  ordinances,  regulations and orders including,
without limitation,  laws, rules,  ordinances,  regulations and orders regarding
the operation and maintenance of each Borrower's business.

                   (c) Payment of Taxes and Other  Claims.  Pay or  discharge or
cause to be paid or  discharged,  before the same shall become  delinquent,  all
material Charges levied or imposed upon any Borrower or upon the income, profits
or property of any Borrower,  provided,  however,  that  Borrowers  shall not be
required to pay or discharge or cause to be paid or  discharged  any such Charge
or claim whose  amount,  applicability  or validity is being  contested  in good
faith by  appropriate  proceedings  to the extent  adequate  reserves  have been
established on the books of Borrowers.

                   (d) Reporting  Requirements.  Maintain a system of accounting
in accordance with GAAP consistently applied and shall furnish to Bank:

                           (i) as soon as possible  and in any event  within ten
         (10) days  after the  occurrence  of an Event of  Default  or any event
         which,  with the  giving  of  notice,  lapse of  time,  or both,  would
         constitute an Event of Default,  the statement of an Authorized Officer
         setting  forth details of such Event of Default or event and the action
         which Borrowers have taken or propose to take to cure the same;

                           (ii) as soon as  available,  copies  of the  periodic
         Form 10-Q quarterly report or comparable  successor report filed by K-V
         with the  Securities and Exchange  Commission or any successor  agency;
         provided,  that if such report is not made available within  forty-five
         (45) days after the end of each of the first three quarterly accounting
         periods in each fiscal year of K-V  beginning  with the quarter  ending
         June   30,   1997,   K-V   shall   immediately   deliver   to  Bank  an
         internally-prepared  balance  sheet  of K-V and its  Subsidiaries  on a
         consolidated  basis  as at the end of  such  quarter  and  the  related
         statements  of operations  and  statements of cash flows of K-V and its
         Subsidiaries  on a  consolidated  basis  for such  quarter  and for the
         portion of the fiscal  year ended at the end of such  quarter,  setting
         forth  in  each  case  in   comparative   form  the   figures  for  the
         corresponding  quarter and the  corresponding  portion of the  previous
         fiscal year, all  in reasonable detail and certified (subject to normal

                                       36

<PAGE>
         year-end  adjustments)  as to fairness of  presentation,  in accordance
         with GAAP (other than footnotes  thereto),  by an Authorized Officer or
         Controller (if such Controller is a corporate officer) of K-V;

                           (iii) as soon as  available,  copies of the Form 10-K
         Annual  Report or  comparable  successor  report  filed by K-V with the
         Securities and Exchange  Commission or any successor agency;  provided,
         that if such report is not made available within ninety (90) days after
         the close of each fiscal year of K-V, K-V shall immediately  deliver to
         Bank a  balance  sheet  and  the  related  consolidated  statements  of
         operations  and  stockholders'  equity and  statements of cash flows of
         Borrower and its Subsidiaries on a consolidated  basis as of the end of
         such  fiscal  year,  fairly and  accurately  presenting  the  financial
         condition of K-V and its  Subsidiaries  on a  consolidated  basis as at
         such  date  and  the  results  of   operations   of  Borrower  and  its
         Subsidiaries  for such fiscal  year and  setting  forth in each case in
         comparative form the corresponding figures for the corresponding period
         of the preceding  fiscal year,  all in reasonable  detail,  prepared in
         accordance with GAAP consistently  applied, and audited by BDO Seidman,
         LLP or such other independent  certified public accountants  acceptable
         to Bank (the "Accountants");

                           (iv)  Together  with  each  delivery  of  the  Annual
         Reports or financial  statements  required by subsection (v) above, K-V
         shall deliver to Bank a certificate  executed by the President or Chief
         Financial  Officer  of each  Borrower  stating  whether  any  Event  of
         Default,  or event which,  with the passage of time or giving of notice
         or both,  would  constitute such an Event of Default,  currently exists
         and is continuing and what activities,  if any, Borrowers are taking or
         proposing to take with respect thereto;

                           (v)  concurrently  with the  delivery  of the reports
         and/or  financial  statements  referred to in  Sub-paragraphs  (ii) and
         (iii), a compliance certificate duly completed and executed by both the
         Chairman of the Board or President and the Chief  Financial  Officer of
         each  Borrower (a) stating that Borrower has observed and performed all
         of its covenants and other  agreements and satisfied  every  condition,
         contained in this Agreement,  the Term Note, the Revolving Note and all
         Other Agreements to which Borrower is a party to be observed, performed
         or  satisfied by it and that such officer has no knowledge of any Event
         of Default except as specified in such  certificate,  (b) stating that,
         to the best of such officer's knowledge,  all such financial statements
         are  complete  and correct in all  respects  and have been  prepared in
         accordance  with  GAAP  consistently  applied  throughout  the  periods
         reflected therein,  and (c) showing calculations of compliance with the
         financial covenants set forth in Paragraph 8.2(g) below;

                                       37

<PAGE>
                           (vi) promptly upon receipt and, in any event,  within
         fifteen  (15) days  after  receipt  thereof,  copies  of all  auditors'
         letters to management and management's  response thereto  pertaining to
         the  balance  sheet and  related  financial  statements  of K-V and its
         Subsidiaries;

                           (vii)  (A) as soon as  possible  and in any event (i)
         within thirty (30) days after any Borrower or any ERISA Affiliate knows
         or has reason to know that any ERISA  Termination  Event  described  in
         clause (i) of the definition of ERISA Termination Event with respect to
         any Plan has  occurred and (ii) within ten (10) days after any Borrower
         or any ERISA Affiliate knows or has reason to know that any other ERISA
         Termination Event with respect to any Plan has occurred, a statement of
         the Chief Financial  Officer (or designee) of such Borrower  describing
         such ERISA Termination Event and the action, if any, which Borrower, or
         any such ERISA Affiliate proposes to take with respect thereto;

                                    (B) promptly and in any event within fifteen
         (15) Business  Days after receipt  thereof by any Borrower or any ERISA
         Affiliate from the PBGC,  copies of each notice  received of the PBGC's
         intention  to  terminate  any Plan or to have a  trustee  appointed  to
         administer any Plan; and

                                    (C) promptly and in any event within fifteen
         (15) Business  Days after receipt  thereof by any Borrower or any ERISA
         Affiliate  from a  Multiemployer  Plan  sponsor,  a copy of each notice
         received  concerning the  imposition or amount of withdrawal  liability
         which has been assessed pursuant to Section 4202 of ERISA;

                           (viii) within fifteen (15) Business Days after notice
         to any Borrower of the commencement thereof, notice, in writing, of any
         action, suit, arbitration or other proceeding instituted,  commenced or
         threatened  against  or  affecting  any  Borrower  with  an  amount  in
         controversy in excess of $750,000;

                           (ix) at  Bank's  request,  each  Borrower's  federal,
         state and local tax returns as soon as said  returns are  completed  in
         the form said returns will be filed with the Internal  Revenue  Service
         and any state or local department of revenue or taxing authority;

                           (x) promptly upon their becoming available, copies of
         (A) all registration  statements and regular periodic reports which K-V
         shall have filed with the  Securities  and Exchange  Commission (or any
         governmental  agency substituted  therefor) or any national  securities
         exchange and (B) all financial statements, reports and proxy statements
         so mailed; and

                                       38

<PAGE>
                           (xi) such other information  respecting the condition
         or operations, financial or otherwise, of any Borrower or any Affiliate
         as Bank may from time to time reasonably request.

                   (e) Visitation Rights. At least once annually, at any time or
times during the regular business hours of Borrowers,  permit Bank or any agents
or representatives  thereof to perform a field audit with respect to the records
and books of account of and visit and inspect the  properties and assets of each
Borrower,  and to discuss the affairs and finances and the Mortgaged  Properties
of Borrowers with each Borrower's officers or directors.

                   (f)     Environmental Disclosure and Inspection.

                           (i)  Exercise  due  diligence in order to comply with
         all Environmental Laws.

                           (ii) Permit Bank, from time to time and in their sole
         and absolute  discretion,  to retain, at Bank's expense, an independent
         professional  consultant  to review any report  relating  to  Hazardous
         Materials  prepared by or for any Borrower and at reasonable  times and
         subject to reasonable  conditions to conduct their own investigation at
         Bank's expense of any Facility  currently  owned,  leased,  operated or
         used by Borrowers or any  Subsidiary,  and each Borrower  agrees to use
         its   respective   best  efforts  to  obtain   permission   for  Bank's
         professional  consultant  to  conduct  its  own  investigation  of  any
         Facility previously owned, leased, operated or used by Borrowers or any
         Subsidiary.  Borrowers  hereby  grant to Bank,  its agents,  employees,
         consultants,  and  contractors  the  right to enter  into or on to,  at
         reasonable times, the Facilities currently owned,  leased,  operated or
         used by  Borrowers  or any  Subsidiary  to  perform  such tests on such
         property as are  reasonably  necessary to conduct such a review  and/or
         investigation.

                           (iii)   Promptly   advise  Bank  in  writing  and  in
         reasonable  detail upon  obtaining  knowledge of (i) any Release of any
         Hazardous  Materials  required to be reported to any federal,  state or
         local   governmental   or  regulatory   agency  under  any   applicable
         Environmental  Laws,  (ii)  any and  all  written  communications  with
         respect to  Environmental  Claims or any Release of Hazardous  Material
         required to be reported to any federal,  state or local governmental or
         regulatory agency,  (iii) any remedial action taken by Borrowers or any
         other  person in response to (1) any  Hazardous  Material  on, under or
         about any Facility, the existence of which is reasonably likely to give
         rise to an  Environmental  Claim, or (2) any  Environmental  Claim that
         could have a material  adverse  effect on Borrowers or any  Subsidiary,
         (iv) any  Borrower's  discovery of any  occurrence  or condition on any
         real  property  adjoining or in the vicinity of any Facility that could

                                       39
<PAGE>
         cause  such  Facility  or  any  part  thereof  to  be  subject  to  any
         restrictions on the ownership, occupancy,  transferability or use there
         of under any  Environmental  Laws, and (v) any request for  information
         from any governmental  agency indicating that such agency has initiated
         an  investigation  as to  whether  Borrower  or any  Subsidiary  may be
         potentially   responsible  for  a  Release  or  threatened  Release  of
         Hazardous Materials.

                           (iv) Promptly  notify Bank of (i) any  acquisition of
         stock,  assets,  or property by any  Borrower  or any  Subsidiary  that
         reasonably  could be expected to expose such Borrower to, or result in,
         Environmental  Claims that could have a material adverse effect or that
         could be expected to have a material adverse effect on any Governmental
         Authorization then held by any Borrower or any Subsidiary, and (ii) any
         proposed action outside of the normal course of business to be taken by
         any  Borrower  or  any  Subsidiary  to  commence  industrial  or  other
         operations  that could  subject  any  Borrower  or such  Subsidiary  to
         additional laws, rules or regulation,  including,  without  limitation,
         laws, rules and regulations requiring additional  environmental permits
         or licenses.

                           (v)  At its  own  expense,  provide  copies  of  such
         documents or information as Bank may reasonably  request in relation to
         any matters disclosed pursuant to this Paragraph 8.2(f).

                           (vi)  Promptly  take any and all  necessary  remedial
         action  in  connection  with  the  presence,  storage,  use,  disposal,
         transportation,   Release  or  threatened   Release  of  any  Hazardous
         Materials  on,  under or about any Facility in order to comply with all
         applicable Environmental Laws and Governmental  Authorizations.  In the
         event any Borrower or any  Subsidiary  undertakes  any remedial  action
         with respect to any Hazardous Material on, under or about any Facility,
         such  Borrower  or such  Subsidiary  shall  conduct and  complete  such
         remedial  action in compliance with all applicable  Environmental  Laws
         and in  accordance  with the  policies,  orders and  directives  of all
         federal, state and local governmental authorities.

                   (g)  Financial   Covenants.   Each   Borrower   warrants  and
represents  to and  covenants  with Bank that they shall  maintain the following
financial covenants on a consolidated basis:

                                       40
<PAGE>
                           (i) Maintain,  at all times,  a Tangible Net Worth of
         not less  than the  amounts  set  forth  below,  during  the  following
         periods:


            Fiscal Year Ended                             Amount
                  1997                                  $23,000,000
                  1998                                  $23,500,000
                  1999                                  $32,000,000
           2000 and thereafter                          $40,000,000


                           (ii) Maintain EBITDA,  at all times, of not less than
         the amounts set forth below,  calculated  each month for the  preceding
         twelve-month period on a trailing twelve month basis:


            Fiscal Year Ended                             Amount
                  1997                                  $10,000,000
                  1998                                  $13,000,000
                  1999                                  $25,000,000
           2000 and thereafter                          $40,000,000


                           (iii) Maintain a Leverage Ratio, at all times, of not
         greater than 1.10 to 1.0.

                           (iv) Not permit  Capital  Expenditures  to exceed the
         following amounts for the periods set forth below:



            Fiscal Year Ended                             Amount
                  1997                                  $6,500,000
                  1998                                  $7,000,000
                  1999                                  $14,000,000
           2000 and thereafter                          $17,000,000


                                       41

<PAGE>
         provided,  however,  that the amount of Capital Expenditures may exceed
         the  limits  set  forth  above  on a  cumulative  basis  so long as the
         aggregate amount of Capital  Expenditures are (a) made with funds other
         than Loan  proceeds  or other  Funded  Debt and (b) at all times do not
         exceed $7,900,000 plus 75% of Borrower's net income, in accordance with
         GAAP,   for  the  period   from  the  Closing   Date  and   thereafter.
         Notwithstanding  the foregoing,  to the extent that the proceeds of the
         Term Loan are used to purchase the Mortgaged Properties,  the amount of
         such proceeds shall not be included  within the  calculation of Capital
         Expenditures hereunder.

                   (h)     Insurance.

                           (i) At its sole cost and  expense,  keep and maintain
         business  interruption  insurance  and public  liability  and  property
         damage  insurance  relating  to its  business  and  properties  and its
         ownership and use of its assets.  All such policies of insurance  shall
         be in form and with insurers recognized as adequate by prudent business
         persons and all such policies  shall be in amounts as may be reasonably
         satisfactory to Bank. Each Borrower shall deliver to Bank a certificate
         of  insurance,  and  evidence of payment of all  premiums  then due and
         owing for each such  policy on or prior to the date of this  Agreement.
         Such policies shall:  (A) contain a lender's loss payable clause naming
         Bank as loss payee and  additional  insured as its interest may appear;
         and (B) provide that the  insurance  companies  will give Bank at least
         thirty (30) days written  notice  before any such policy or policies of
         insurance shall be altered or canceled.

                           (ii) In the event any  Borrower  at any time or times
         hereafter  shall  fail to obtain or  maintain  any of the  policies  of
         insurance  required  above  or to pay any  premium  in whole or in part
         relating  thereto,   then  Bank,   without  waiving  or  releasing  any
         obligation  or Event of Default by any Borrower  hereunder,  may at any
         time or times  thereafter  (but shall be under no obligation to) obtain
         and maintain  such  policies of insurance and pay such premium and take
         any other action with respect thereto which Bank deems  advisable.  All
         sums so disbursed by Bank,  including  reasonable attorneys fees, court
         costs,  expenses and other charges relating  thereto,  shall be part of
         Borrowers'  Liabilities,  payable  by  Borrowers  to  Bank  on  demand.
         Borrowers authorize Bank, in Bank's sole discretion, to cause such sums
         to be paid by making an advance in the amount thereof to the applicable
         Borrower under the Revolving Loan.

         8.3 Negative Covenants. Prior to the later of the Term Loan Termination
Date or the Revolving Credit  Termination Date and thereafter for so long as any
amount is due or owing to Bank hereunder, unless Bank shall otherwise consent in
writing, no Borrower nor any Subsidiary shall:


                                       42

<PAGE>
                   (a)  Liens,  Etc.  Create  or suffer to exist any Lien or any
other  type of  preferential  arrangement,  upon or with  respect  to any of its
assets or  properties,  whether now owned or hereafter  acquired,  or assign any
right to receive  income,  except for Permitted  Liens in each case to secure or
provide  for the  payment of any Debt of any  Person,  except for the  permitted
Liens set forth on Exhibit 8.3(a) ("Permitted Liens").

                   (b)  Maintain   Existence,   Merger,  Etc.  (i)  dissolve  or
liquidate or amend or modify its Articles or  Certificate of  Incorporation,  as
applicable,  or the Articles or Certificate of Incorporation of any Affiliate or
Subsidiary;  or (ii) convey, transfer, lease or otherwise dispose of (whether in
one transaction or in a series of transactions) any assets (whether now owned or
hereafter acquired) to any Person except in the ordinary course of business;  or
(iii) together with one or more Affiliates convey,  transfer, lease or otherwise
dispose of (whether in one  transaction or in a series of  transactions)  all or
substantially all of the assets of any Borrower and such Affiliates (whether now
owned or hereafter acquired) to any Person; or (iv) purchase, lease or otherwise
acquire all or substantially  all of the assets or properties of, or acquire any
capital stock,  equity  interests,  debt or other  securities of any Person,  or
enter into any joint venture or become a partner in any partnership;  (v) engage
in any  transaction  out of the ordinary  course of  business;  or (vi) merge or
consolidate with any Person, except as permitted under Exhibit 8.3(b).

                   (c) Debt. Incur, create,  assume,  become or be liable in any
manner with respect to or permit to exist, any Debt except for Permitted Debt.

                   (d) Investments or Loans. Make or permit to exist investments
or loans in or to any other  Person,  except  for (i)  salaries  and  reasonable
advances of money to its employees in payment of reasonable expenses incurred by
such  employees in the  ordinary  course of business  and  consistent  with past
practices, (ii) investments in certificates of deposits of a banking institution
having a net worth in excess of  $100,000,000  or in  securities  of the  United
States of America or  commercial  paper with a P1 rating  (all of the  foregoing
maturing within one year) and (iii)  investments  already made as of the Closing
Date  as  set  forth  or as  otherwise  listed  on  Exhibit  8.3(d)  ("Permitted
Investments").

                   (e)  Guaranties.  Guaranty,  endorse or  otherwise in any way
directly,  indirectly  or  contingently  become  liable for the  obligations  or
liabilities of any other Person,  except endorsements of negotiable  instruments
for collection in the ordinary course of business.

                   (f)  Stock  and  Dividends.   Redeem,  retire,   purchase  or
otherwise  acquire,  directly or  indirectly,  any common  capital  stock of any
Borrower or other  evidence of ownership  interest,  or declare or pay dividends
upon any  common  capital  stock of any  Borrower  or make any  distribution  of

                                       43
<PAGE>
Borrowers'  property  or assets  to any  stockholders  except  Ethex and PDI may
declare and pay dividends to K-V.  Notwithstanding the foregoing, if no Event of
Default  has  occurred  and  is  continuing,  K-V  may  pay  dividends  or  make
distributions up to an amount not to exceed  twenty-five  percent (25%) of K-V's
prior fiscal year's consolidated net income, determined in accordance with GAAP,
in any one fiscal year.

                   (g) Transactions with Affiliates or Insiders.  Enter into, or
be a party to, any transaction with any Affiliate of any Borrower, except in the
ordinary  course of and pursuant to the  reasonable  requirements  of Borrowers'
businesses and upon fair and reasonable  terms which are fully disclosed to Bank
and are no less  favorable to Borrower  than would obtain in a comparable  arm's
length transaction with a Person not an Affiliate of such Borrower.

         8.4  Maintenance  of  Accounts.  Each  Borrower  agrees to maintain its
primary operational  accounts with Bank and shall maintain an average balance of
collected, available funds in a non-interest bearing demand deposit account with
Bank  (the  "Operating  Account")  in an amount  at least  equal to that  amount
required to  compensate  Bank for its  services  in  maintaining  such  account.
Borrowers  acknowledge that Bank will charge Borrowers  standard service charges
in effect from time to time for various services performed by Bank in connection
with any aspect of the  relationship  between  Borrowers and Bank, and Borrowers
hereby agree that if such service charges exceed the credit to Borrowers arising
from  earnings  attributable  to funds on  deposit  with Bank in the  applicable
Operating Account, such service charge deficiency shall be deducted by Bank from
any Borrower's  Operating  Account,  monthly,  in arrears,  within ten (10) days
following  the end of each  month.  Bank may cause  interest  and other  amounts
payable on the obligations of Borrowers to Bank hereunder to be paid by making a
direct charge to the applicable  Operating  Account in accordance with the terms
hereof.

                                   9. DEFAULT

         9.1  Events of  Default.  The  occurrence  of any one of the  following
events shall  constitute a default (an "Event of Default") under this Agreement:
(a) if any Borrower  fails or neglects to perform,  keep or observe any covenant
or agreement  contained in this  Agreement or in the Other  Agreements  which is
required to be  performed,  kept or observed by any  Borrower  and such  failure
continues for thirty (30) days thereafter;  (b) any  representation  or warranty
made by any Borrower  herein or in any Other Agreement is untrue in any material
respect,  or any exhibit or certificate  furnished by any Borrower or any of its
Affiliates,  directors,  officers, employees, or agents to Bank is untrue in any
material  respect on the date as of which the facts therein set forth are stated
or certified;  (c) if any Borrower fails to pay Borrower's  Liabilities when due
and  payable or  declared  due and  payable;  (d) if a  material  portion of any
Borrower's assets or the Collateral is attached,  seized, subjected to a writ or
distress  warrant  or is levied  upon,  or come  within  the  possession  of any


                                       44
<PAGE>
receiver,  trustee,  custodian or assignee for the benefit of creditors  and the
same is not terminated or dismissed within thirty (30) days thereafter; (e) if a
petition under any section or chapter of the  Bankruptcy  Reform Act of 1978, as
amended,  or any  similar  law or  regulation  shall be filed by  Borrower or if
Borrower  shall make an  assignment  for the benefit of its  creditors or if any
case or proceeding is filed by Borrower for its dissolution or liquidation;  (f)
if a petition under any section or chapter of the Bankruptcy Reform Act of 1978,
as amended, or any similar law or regulation is filed against any Borrower or if
any  case or  proceeding  is  filed  against  Borrower  for its  dissolution  or
liquidation and the same is not terminated or dismissed  within  forty-five (45)
days  of  filing;  (g) if an  application  is  made  by  any  Borrower  for  the
appointment of a receiver,  trustee or custodian for any of Borrowers' assets or
the  Collateral;  (h) if an  application  is made by any Person  other than such
Borrower for the appointment of a receiver,  trustee or custodian for the assets
of any  Borrower  or the  Collateral  and  the  same  is  not  dismissed  within
forty-five  (45) days after the  application  therefor;  (i) if any  Borrower is
adjudicated  insolvent  or admits its  inability to pay its debts as they become
due;  (j) if any  Borrower  is in default in the payment of Debt in an amount in
excess of $750,000;  (k) if Borrower is in default in the payment of any Debt to
Bank including, without limitation, any reimbursement obligations for letters of
credit  issued  or to be  issued  by  Bank  subsequent  to the  date  hereof  in
connection with the Industrial Development Authority of the County of St. Louis,
Missouri,  Private  Activity  Refunding and Revenue  Bonds,  Series 1989(f) (K-V
Pharmaceutical Company Project); or (l) if a conservator is appointed for all or
any material portion of the assets of any Borrower or the Collateral.

         9.2 Cumulative  Remedies.  All of Bank's rights and remedies under this
Agreement and the Other Agreements are cumulative and non-exclusive.

         9.3  Acceleration  and  Termination  of Loans.  Upon the occurrence and
during  the  continuance  of an Event of  Default,  (a) upon  notice  by Bank to
Borrowers,  Borrowers' Liabilities shall be immediately due and payable,  unless
there shall have occurred an Event of Default under  subparagraphs  9.1(d), (e),
(f),  (g),  (h),  (i)  or  (l),  in  which  case  Borrowers'  Liabilities  shall
automatically  become due and payable without notice or demand,  and (b) without
notice by Bank to or demand by Bank of  Borrowers,  Bank  shall  have no further
obligation to and may then forthwith cease advancing  monies or extending credit
to or  for  the  benefit  of  Borrowers  under  this  Agreement  and  the  Other
Agreements.

         9.4 Rights of Creditor. Upon an Event of Default, Bank, in its sole and
absolute  discretion,  may  exercise  any one or more of the rights and remedies
accruing  (a) under  applicable  law upon  default  by a  debtor,  (b) under any
instrument,  including,  without limitation,  the Mortgage and the Assignment of
Rents, or (c) under any document or agreement.  Nothing  contained  herein shall
interfere  with Bank's  right  under law to set-off the  balances of any deposit
accounts maintained by any Borrower with Bank against Borrowers' Liabilities.

                                       45
<PAGE>
         9.5 Injunctive Relief.  Each Borrower  recognizes that in the event any
Borrower  fails to  perform,  observe or  discharge  any of its  obligations  or
liabilities under this Agreement or the Other Agreements,  no remedy of law will
provide  adequate  relief to Bank,  and agrees  that Bank shall be  entitled  to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages or the posting of bond, surety or other security.

                                   10. GENERAL

         10.1 Payment  Application  Date. Any check,  draft,  or similar item of
payment by or for the account of any  Borrower  delivered  to Bank on account of
Borrowers'  Liabilities  shall  be  applied  by Bank on  account  of  Borrowers'
Liabilities  on the date final  settlement  thereof is reflected by  irrevocable
credit to Bank.

         10.2 Statement of Account.  Each statement of account by Bank delivered
to any Borrower relating to Borrowers' Liabilities shall be presumed correct and
accurate,  absent manifest error, and shall constitute an account stated between
Borrowers and Bank unless,  within ninety (90) days after Borrowers'  receipt of
said  statement,  Borrowers  deliver to Bank, by  registered  or certified  mail
addressed to Bank at its Address for Notices  specified on the  signature  pages
hereto,  written  objection  thereto  specifying  the error or  errors,  if any,
contained in any such statement.

         10.3  Manner of  Application;  Waiver of Setoff  Prohibition.  Upon the
occurrence  and during the  continuance  of an Event of Default,  each  Borrower
waives the right to direct the  application  of any and all payments at any time
or times  hereafter  received by Bank on account of Borrowers'  Liabilities  and
Borrower  agrees  that Bank  shall  have the  right,  in its  absolute  and sole
discretion,  to apply and re-apply any and all such payments  toward  Borrowers'
Liabilities in such manner as Bank may deem advisable, notwithstanding any entry
by Bank upon any of its books and  records.  Each  Borrower  further  waives any
right  under or  benefit of any law that  would  restrict  or limit the right or
ability of Bank to obtain payment of Borrowers'  Liabilities,  including any law
that would  restrict or limit Bank in the  exercise of its right to  appropriate
any indebtedness  owing from Bank to Borrower and any deposits or other property
of  Borrower in the  possession  or control of Bank and apply the same toward or
setoff the same against the payment of Borrowers' Liabilities.

         10.4  Survival  of  Representations   and  Warranties.   Each  Borrower
covenants,  warrants  and  represents  to  Bank  that  all  representations  and
warranties  of Borrower  contained in this  Agreement  and the Other  Agreements
shall be true at the time of each Borrower's execution of this Agreement and the
Other  Agreements  and shall  survive the  execution,  delivery  and  acceptance
thereof by the parties  thereto and the  closing of the  transactions  described
therein or related thereto.

                                       46
<PAGE>
         10.5      Integration; Amendment; Assignment; Participation.

                   (a) This  Agreement and the Other  Agreements  constitute the
entire agreement and  understanding  between the parties relating to the subject
matter hereof and supersede all prior agreements,  whether oral or written. This
Agreement  and the Other  Agreements  may not be  modified,  altered  or amended
except by an  agreement  in writing  signed by each  Borrower  and Bank,  and no
provision of this  Agreement may be waived except with the consent in writing of
Bank.

                   (b) Bank  shall have the right to assign to one or more banks
or other financial  institutions  all or a portion of its rights and obligations
under this Agreement  (including,  without  limitation,  the Loans and the Other
Agreements).  Upon any such  assignment,  (i) the assignee  shall become a party
hereto and, to the extent of such assignment, have all rights and obligations of
Bank hereunder and under the Other Agreements and (ii) Bank shall, to the extent
of such  assignment,  relinquish its rights and be released from its obligations
hereunder and under the Other Agreements;  provided,  however, in the event Bank
assigns all or a portion of its rights and obligations  hereunder  pursuant to a
transaction in which Bank (including  successors thereto) is not the lead agent,
Borrowers  will not be subject to the  prepayment  fee provided for in Paragraph
5.11 hereof as long as K-V has paid in full all Borrowers'  Liabilities  due and
owing in respect of the Term Loan  within  ninety  (90) days of the date of such
assignment.  Each Borrower  hereby agrees to execute and deliver such documents,
and to take such other actions, as Bank may reasonably request to accomplish the
foregoing.

                   (c) In addition to the  assignments  permitted in  subsection
(b) of this  Paragraph  10.5,  Bank and any assignee  pursuant to subsection (b)
above shall have the right to grant participations to one or more banks or other
financial  institutions  in or to any Loan hereunder (and the Other  Agreements)
without notice to or consent from any Borrower.

         10.6 No  Waiver.  Bank's  failure  at any  time or times  hereafter  to
require strict performance by Borrowers of any provision of this Agreement shall
not waive,  affect or diminish  any right of Bank  thereafter  to demand  strict
compliance  and  performance  therewith.  Any suspension or waiver by Bank of an
Event of Default by Borrowers under this Agreement or the Other Agreements shall
not suspend,  waive or affect any other Event of Default by Borrowers under this
Agreement  or the  Other  Agreements,  whether  the same is prior or  subsequent
thereto  and  whether  of  the  same  or  of  a  different  type.  None  of  the
undertakings,  agreements, warranties, covenants or representations of Borrowers
contained in this  Agreement or the Other  Agreements and no Event of Default by
Borrowers under this Agreement or the Other  Agreements  shall be deemed to have
been  suspended  or waived by Bank  unless  such  suspension  or waiver is by an
instrument  in writing by Bank  specifying  such  suspension or waiver and given
pursuant to the requirements of Paragraph 10.16 hereof.

                                       47
<PAGE>
         10.7  Severability.  If any  provision  of this  Agreement or the Other
Agreements  or the  application  thereof to any Person or  circumstance  is held
invalid  or  unenforceable,  the  remainder  of this  Agreement  and  the  Other
Agreements   and  the   application  of  such  provision  to  other  Persons  or
circumstances  will not be affected thereby and the provisions of this Agreement
and the Other Agreements shall be severable in any such instance.

         10.8  Successors and Assigns.  This Agreement and the Other  Agreements
shall be binding upon and inure to the benefit of the  successors and assigns of
each Borrowers and Bank. This provision,  however, shall not be deemed to modify
Paragraph 10.5 hereof.

         10.9  Conflict  with  Other  Agreements.  The  provisions  of the Other
Agreements are incorporated in this Agreement by this reference thereto.  Except
as  otherwise  provided in the Other  Agreements  by specific  reference  to the
applicable  provision  of this  Agreement,  if any  provision  contained in this
Agreement is in conflict with, or inconsistent  with, any provision in the Other
Agreements, the provision contained in this Agreement shall govern and control.

         10.10 No Impairment by  Termination.  Except to the extent  provided to
the contrary in this  Agreement and in the Other  Agreements,  no termination or
cancellation  (regardless  of cause or procedure) of this Agreement or the Other
Agreements  shall in any way affect or impair the powers,  obligations,  duties,
rights and  liabilities  of Borrowers or Bank in any way or respect  relating to
(a) any transaction or event occurring prior to such termination or cancellation
and/or  (b)  any of the  undertakings,  agreements,  covenants,  warranties  and
representations   of  Borrowers   contained  in  this  Agreement  or  the  Other
Agreements.  All  such  undertakings,   agreements,  covenants,  warranties  and
representations shall survive such termination or cancellation.

         10.11  Waivers.  Except  as  otherwise  specifically  provided  in this
Agreement, Borrowers waive any and all notice or demand which Borrowers might be
entitled to receive with respect to this  Agreement or the Other  Agreements  by
virtue of any  applicable  statute  or law and  waives  presentment,  demand and
protest and notice of  presentment,  protest,  default,  dishonor,  non-payment,
maturity, release,  compromise,  settlement,  extension or renewal of any or all
commercial paper, accounts,  contract rights,  documents,  instruments,  chattel
paper and guaranties at any time held by Bank on which  Borrowers may in any way
be liable and hereby ratifies and confirms whatever Bank may do in this regard.

         10.12  Costs,   Fees  and  Expenses  Related  to  Agreement  and  Other
Agreements. In accordance with this Agreement on or prior to the date hereof and
thereafter  upon demand by Bank therefor,  Borrowers shall pay or reimburse Bank
for all reasonable  costs, fees and expenses incurred by Bank, or for which Bank


                                       48
<PAGE>
becomes  obligated,   in  connection  with  the  negotiation,   preparation  and
consummation  of this  Agreement  and the Other  Agreements,  including  but not
limited  to,  attorneys'  fees,  costs  and  expenses;  search  fees,  costs and
expenses;  and all taxes payable in connection  with this Agreement or the Other
Agreements. That portion of Borrowers' Liabilities consisting of costs, expenses
or advances to be reimbursed by Borrowers to Bank pursuant to this  Agreement or
the Other  Agreements which are not paid on or prior to the date hereof shall be
payable by Borrower to Bank on demand.

         10.13  Environmental  Indemnity.  Borrowers agree to indemnify and save
Bank,  its  officers,  directors,  employees  and agents,  harmless of, from and
against any liability,  loss, damage or expense (including reasonable attorneys'
fees) to which Bank or any of such persons may become  subject,  arising from or
based upon (a) any violation,  or claim of violation,  by Borrowers of any laws,
regulations or ordinances relating to Hazardous Materials,  or (b) any Hazardous
Materials located or disposed of on or released or transported from any property
owned, leased or operated by Borrowers, or any claim of any of the foregoing.

         10.14  Release.  Borrowers  release  Bank  from any and all  causes  of
action, claims or rights which Borrowers may now or hereafter have for, or which
may arise  from,  any loss or  damage  caused  by or  resulting  from any act or
omission to act on the part of Bank, its officers,  agents or employees,  except
in each instance for willful misconduct and gross negligence.

         10.15 Governing Law. This Agreement and the Other  Agreements  shall be
governed and  controlled by the internal  laws of the State of Illinois  without
regard to  principles  of conflicts of laws as to  interpretation,  enforcement,
validity,  construction,  effect, and in all other respects  including,  but not
limited to, the legality of the interest rate and other charges.

         10.16  Notices.  All  notices,  consents,  requests,  demands and other
communications  hereunder  shall be in writing and shall be deemed duly given to
any party or parties (a) upon delivery to the address of the party or parties as
specified in the "Address for Notices"  below such party or parties' name on the
signature  pages  hereof if  delivered  in person  or by  courier  or if sent by
certified or registered mail (return receipt requested), or (b) upon dispatch if
transmitted by telecopy or other means of facsimile transmission, in any case to
the party or parties at the telecopy  numbers  specified on the same, or to such
other address or telecopy number as any party may hereafter designate by written
notice in the aforesaid manner.

         10.17 FORUM;  BANK;  VENUE; JURY TRIAL WAIVER. TO INDUCE BANK TO ACCEPT
THIS AGREEMENT AND THE OTHER AGREEMENTS,  BORROWERS,  IRREVOCABLY AGREE THAT ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER, OR RESPECT, ARISING OUT OF OR FROM OR
RELATED TO THIS  AGREEMENT OR THE OTHER  AGREEMENTS  SHALL BE LITIGATED  ONLY IN

                                       49
<PAGE>
COURTS  HAVING SITUS WITHIN  CHICAGO,  ILLINOIS.  BORROWERS  HEREBY  CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL,  STATE, OR FEDERAL COURT LOCATED WITHIN
SAID CITY AND STATE.  BORROWERS HEREBY IRREVOCABLY  APPOINT AND DESIGNATE KURTIS
B. REEG OF GALLOP,  JOHNSON & NEUMAN,  L.C.  WHOSE  ADDRESS IS 33 BRONZE  POINT,
SUITE 1D,  BELLEVILLE,  ILLINOIS,  OR ANY OTHER PERSON HAVING AND  MAINTAINING A
PLACE OF BUSINESS IN SUCH STATE,  WHOM BORROWERS MAY FROM TIME TO TIME HEREAFTER
DESIGNATE  (HAVING  GIVEN  FIVE (5) DAYS'  WRITTEN  NOTICE  THEREOF  TO BANK) AS
BORROWERS'  TRUE AND LAWFUL  ATTORNEY AND DULY AUTHORIZED BANK FOR ACCEPTANCE OF
SERVICE OF LEGAL PROCESS. BORROWERS AGREE THAT SERVICE OF SUCH PROCESS UPON SUCH
PERSON SHALL  CONSTITUTE  PERSONAL  SERVICE OF SUCH PROCESS UPON EACH  BORROWER.
BORROWERS  HEREBY WAIVE ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY  LITIGATION  BROUGHT  AGAINST  BORROWERS  BY BANK IN  ACCORDANCE  WITH  THIS
PARAGRAPH.  BORROWERS HEREBY  IRREVOCABLY  WAIVE THE RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION IN WHICH A BORROWER IS A PARTY.

         10.18 Other Costs, Fees and Expenses. If at any time or times hereafter
Bank: (a) employs counsel for advice or other representation (i) with respect to
this  Agreement  or  the  Other  Agreements,  (ii)  to  represent  Bank  in  any
litigation,  contest,  dispute,  suit or proceeding or to commence,  defend,  or
intervene  or to take any other  action in or with  respect  to any  litigation,
contest, dispute, suit, or proceeding (whether instituted by Bank, any Borrower,
or any other  Person) in any way or respect  relating to this  Agreement  or the
Other Agreements or (iii) to enforce any rights of Bank against Borrowers or any
other Person  which may be obligated to Bank by virtue of this  Agreement or the
Other  Agreements;  and/or (b) attempts to or enforces  any of Bank's  rights or
remedies under the Agreement or the Other  Agreements,  the reasonable costs and
expenses  incurred by Bank in any manner or way with  respect to the  foregoing,
shall be part of Borrowers' Liabilities, payable by Borrower to Bank on demand.

         10.19 Revival.  To the extent that Bank receives any payment on account
of Borrowers'  Liabilities and any such  payment(s)  and/or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside,  subordinated and/or required to be repaid to a trustee,  receiver or
any other party under any bankruptcy  act,  state or federal law,  common law or
equitable  cause,  then,  to the  extent  of  such  payment(s)  and/or  proceeds
received,  Borrowers' Liabilities or part thereof intended to be satisfied shall
be revived and continue in full force and effect,  as if such payment(s)  and/or
proceeds  had not been  received  by Bank and  applied on account of  Borrowers'
Liabilities.

         10.20 Acknowledgments.  Each Borrower acknowledges that (i) it has been
advised  by  counsel  of its  choice  with  respect  to this  Agreement  and the

                                       50
<PAGE>
transactions  contemplated hereby, (ii) each of the waivers set forth herein was
knowingly and  voluntarily  made; and (iii) the  obligations of Bank  hereunder,
including  the  obligation  to advance and lend funds to Borrowers in accordance
herewith,  shall be strictly  construed  and shall be expressly  subject to each
Borrower's  compliance in all respects with the terms and conditions  herein set
forth.

         10.21 Section Headings. Section headings used in this Agreement are for
convenience only and shall not effect the construction or interpretation of this
Agreement.

         10.22  Counterparts.  This  Agreement  may be  executed  in one or more
counterparts,  each of which shall be deemed an original  and all of which taken
together shall constitute one and the same instrument.

         10.23  Effectiveness.  This Agreement  shall become  effective upon the
execution  and  delivery  to Bank of  counterparts  of  this  Agreement  by each
Borrower and Bank.

         10.24 Joint and Several  Liability.  The liability of each Borrower for
Borrowers' Liabilities in respect of the Revolving Loan under this Agreement and
the Other  Agreements in general shall be joint and several,  and each reference
to  Borrowers  herein  shall  be  deemed  to  refer to each  such  Borrower.  In
furtherance and not in limitation of Bank's rights and remedies  hereunder or at
law, Bank may proceed under this Agreement and the Other Agreements  against one
or  more  of the  Borrowers  in its  absolute  and  sole  discretion  for any of
Borrowers' Liabilities in respect of the Revolving Loan.

                                       51
<PAGE>
         IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.


ATTEST:                         K-V PHARMACEUTICAL COMPANY

                                By:/s/ Gerald R. Mitchell
                                Title: Vice-President, Finance


                                Address for Notices:

                                2503 South Hanley
                                St. Louis, Missouri  63144-2555
                                Telephone No.:  (314) 645-6600
                                Telecopier No.:  (314) 645-6732
                                Attention:  President

                                With a copy to:

                                Title:  Secretary

                                Address for Notices:

                                2503 South Hanley
                                St. Louis, Missouri  63144-2555
                                Telephone No.:  (314) 645-6600
                                Telecopier No.:  (314) 645-6732
                                Attention:  President

                                       52

<PAGE>
                                With a copy to:

                                John P. Walsh, Esq.
                                Gallop, Johnson & Neuman, L.C.
                                Interco Corporate Tower
                                101 South Hanley
                                St. Louis, Missouri  63105
                                Telephone No.:  (314) 862-1200
                                Telecopier No.:  (314) 862-1219


ATTEST:                         ETHEX CORPORATION

                                By: /s/ Gerald R. Mitchell
                                Title:  Vice-President


                                Address for Notices:

                                2503 South Hanley
                                St. Louis, Missouri  63144-2555
                                Telephone No.:  (314) 645-6600
                                Telecopier No.:  (314) 645-6732
                                Attention:  President

                                With a copy to:

                                John P. Walsh, Esq.
                                Gallop, Johnson & Neuman, L.C.
                                Interco Corporate Tower
                                101 South Hanley
                                St. Louis, Missouri  63105
                                Telephone No.:  (314) 862-1200
                                Telecopier No.:  (314) 862-1219

                                       53
<PAGE>
                                LASALLE NATIONAL BANK


                                 By:
                                 Title:  Vice President


                                 Address for Notices:

                                 LaSalle National Bank
                                 135 South LaSalle Street
                                 Chicago, Illinois 60603
                                 Telecopier No.:  (312) 904-6546
                                 Telephone No.:  (312) 904-2766
                                 Attention:  Mr. Charles E. Schroeder, Jr.
                                             Vice President

                                 With a copy to:

                                 Michael A. Nemeroff, Esq.
                                 Vedder, Price, Kaufman & Kammholz
                                 222 N. LaSalle Street
                                 Chicago, Illinois 60601-1003
                                 Telecopy No.:  (312) 609-5005
                                 Telephone No.: (312) 609-7500


                                                        54
<PAGE>
                                LIST OF EXHIBITS



         Exhibit 3.1                        Form of Revolving Note

         Exhibit 3.2                        Form of Term Note

         Exhibit 7.4                        Location of Collateral

         Exhibit 8.1(n)                     Environmental Matters

         Exhibit 8.1(r)                     Subsidiaries

         Exhibit 8.1(s)                     Labor

         Exhibit 8.1(v)                     Credit Agreements

         Exhibit 8.3(a)                     Permitted Liens

         Exhibit 8.3(b)                     Permitted Acquisitions

         Exhibit 8.3(d)                     Permitted Investments


<PAGE>
                                   EXHIBIT 3.1
                                       to
                                 Loan Agreement


                                 REVOLVING NOTE


$20,000,000                                                   Chicago, Illinois
                                                              June 18, 1997

         FOR VALUE RECEIVED,  on or before June 18, 2000 (or, if such day is not
a Business  Day, on the next  following  Business  Day),  the  undersigned,  K-V
PHARMACEUTICAL COMPANY, a Delaware corporation;  PDI DYNAMICS,  INC., a New York
corporation;  and  ETHEX  CORPORATION,  a  Missouri  corporation,   jointly  and
severally (herein,  collectively and together with their successors and assigns,
called  "Borrowers"),  promise to pay to the order of LASALLE  NATIONAL  BANK, a
national banking association (herein,  together with its successors and assigns,
called the  "Bank"),  the  maximum  principal  sum of TWENTY  MILLION and 00/100
DOLLARS  ($20,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving  Loans made by Bank to the  undersigned  pursuant to that certain Loan
Agreement of even date herewith between Borrowers and Bank (herein,  as the same
may be amended,  modified or  supplemented  from time to time,  called the "Loan
Agreement") as shown in Bank's records.

         The Borrower  further  promises to pay to the order of Bank interest on
the aggregate  unpaid principal amount hereof from time to time outstanding from
the date  hereof  until paid in full at such rates and at such times as shall be
determined in accordance  with the  provisions  of the Loan  Agreement.  Accrued
interest shall be payable on the dates specified in the Loan Agreement.

         Payments of both  principal  and  interest are to be made in the lawful
money of the United States of America in immediately  available  funds at Bank's
principal  office at 135 South LaSalle  Street,  Chicago,  Illinois 60603; or at
such other place as may be designated by Bank to the Borrower in writing.

         This Note is the Revolving Note referred to in, evidences  indebtedness
incurred  under,  and is  subject  to the  terms  and  provisions  of,  the Loan
Agreement.  The Loan  Agreement,  to which  reference is hereby made, sets forth
said terms and provisions,  including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated.  Terms used but
not otherwise defined herein are used herein as defined in the Loan Agreement.


                                        1
<PAGE>
         In  addition  to,  and not in  limitation  of,  the  foregoing  and the
provisions of the Loan Agreement  hereinabove  referred to, the Borrower further
agrees,  subject only to any  limitation  imposed by applicable  law, to pay all
expenses, including attorneys' fees and expenses, incurred by the holder of this
Note in seeking to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.

         All  parties  hereto,  whether  as  makers,   endorsers  or  otherwise,
severally  waive  presentment,   demand,  protest  and  notice  of  dishonor  in
connection with this Note.

         The  liability  of each  Borrower  under this Note in general  shall be
joint and several, and each reference herein to the Borrowers shall be deemed to
refer to each such  Borrower.  In  furtherance  and not in  limitation of Bank's
rights  and  remedies  hereunder  or at law,  Bank may  proceed  under this Note
against any one or more of the Borrowers in its absolute and sole discretion for
any of  Borrowers'  Liabilities  or any other  liability  or  obligation  of the
Borrowers arising hereunder.

         This  Note is  binding  upon the  undersigned  and its  successors  and
assigns,  and shall inure to the benefit of Bank and its successors and assigns.
This  Note is made  under  and  governed  by the laws of the  State of  Illinois
without regard to conflict of laws principles.


ATTEST:                                  K-V PHARMACEUTICAL COMPANY, a
                                         Delaware Corporation
By:                  
    Secretary

Borrower's Address:                       By:                        
                                          Title:                        
2503 South Hanley
St. Louis, Missouri 63144-2555


                                        2
<PAGE>
ATTEST:                                   PARTICLE DYNAMICS, INC.,
                                          a New York corporation
By:                    
    Secretary
                                          By:                       
Borrower's Address:                       Title:               

2503 South Hanley
St. Louis, Missouri  63144-2555


ATTEST:                                   ETHEX CORPORATION, a
                                          Missouri corporation
By: 
    Secretary

Borrower's Address:                       By: 
2503 South Hanley                         Title:
St. Louis, Missouri  63144-2555

                                        3
<PAGE>
                                   EXHIBIT 3.2
                                       to
                                 Loan Agreement


                                    TERM NOTE


$3,500,000                                                   Chicago, Illinois
                                                             June __, 1997

         FOR VALUE RECEIVED,  the undersigned,  K-V  PHARMACEUTICAL  COMPANY,  a
Delaware corporation (herein,  together with its successors and assigns,  called
the  "Borrower"),  promises  to pay to the order of  LASALLE  NATIONAL  BANK,  a
national banking association (herein,  together with its successors and assigns,
called the "Bank"),  the principal  sum of THREE  MILLION FIVE HUNDRED  THOUSAND
DOLLARS  ($3,500,000),  plus interest at the rate of ___________  percent (___%)
per  annum,  payable  in  monthly  installments  commencing  June  ___,  1997 of
principal  of [NINETEEN  THOUSAND  FOUR HUNDRED  FORTY-FOUR  AND 44/100  DOLLARS
($19,444.44),]  on the last  Business  Day of each  month  through  ___________,
_____,  with  a  final  payment  of the  entire  principal  balance  outstanding
hereunder due on ____________, _____, pursuant to that certain Loan Agreement of
even date herewith  between the Borrower,  Particle  Dynamics,  Inc., a New York
corporation, ETHEX Corporation, a Missouri corporation, and Bank (herein, as the
same may be amended,  modified  or  supplemented  from time to time,  called the
"Loan Agreement") as shown in Bank's records, plus interest as described below.

         The Borrower  further  promises to pay to the order of Bank interest on
the aggregate  unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at the Fixed Rate described above and at such
times as shall be  determined  in  accordance  with the  provisions  of the Loan
Agreement.  Accrued interest shall be payable on the dates specified in the Loan
Agreement.

         Payments of both  principal  and  interest are to be made in the lawful
money of the United States of America in immediately  available  funds at Bank's
principal  office at 135 South LaSalle  Street,  Chicago,  Illinois 60603, or at
such other place as may be designated by Bank to the Borrower in writing.

         This  Note is the Term  Note  referred  to in,  evidences  indebtedness
incurred  under,  and is  subject  to the  terms  and  provisions  of,  the Loan
Agreement.  The Loan  Agreement,  to which  reference is hereby made, sets forth
said terms and provisions,  including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated.  Terms used but
not otherwise defined herein are used herein as defined in the Loan Agreement.

                                        1
<PAGE>
         In  addition  to,  and not in  limitation  of,  the  foregoing  and the
provisions of the Loan Agreement  hereinabove  referred to, the Borrower further
agrees,  subject only to any  limitation  imposed by applicable  law, to pay all
expenses, including attorneys' fees and expenses, incurred by the holder of this
Note in seeking to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.

         All  parties  hereto,  whether  as  makers,   endorsers  or  otherwise,
severally  waive  presentment,   demand,  protest  and  notice  of  dishonor  in
connection with this Note.

         This  Note is  binding  upon the  undersigned  and its  successors  and
assigns,  and shall inure to the benefit of Bank and its successors and assigns.
This  Note is made  under  and  governed  by the laws of the  State of  Illinois
without regard to conflict of laws principles.

                                            K-V PHARMACEUTICAL COMPANY, a
                                            Delaware corporation
ATTEST:


By:                                         By:
     Secretary                              Title:


Borrower's Address:

2503 South Hanley
St. Louis, Missouri  63144-2555

                                        2