AGREEMENT

         THIS  AGREEMENT  ("Agreement")  is  effective  as of  the  16Th  day of
December,  1996  (the  "Effective  Date"),  by and  between  K-V  PHARMACEUTICAL
COMPANY,  2503  South  Hanley  Road,  St.  Louis,  Missouri  63144,  a  Delaware
corporation ("Employer"), and MARC S. HERMELIN ("Employee").

         WHEREAS,  Employee has been employed by Employer for twenty-three  (23)
years and continues to serve as the Vice Chairman and Chief Executive Officer of
Employer and has made  significant  contributions to Employer during the term of
his employment;

         WHEREAS,   Employer   desires  to  assure   itself  of  the   continued
availability of the services of Employee and Employee  desires to be employed by
Employer;

         WHEREAS,  Employer  and Employee  executed an  agreement of  employment
dated  November 15, 1991,  which  agreement  amended and restated  certain prior
agreements (collectively, the "Employment Agreement");

         WHEREAS, Employer and Employee desire to amend and restate the terms of
the Employment Agreement and believe that it is to their mutual benefit to enter
into this Agreement.

         NOW,  THEREFORE,   in  consideration  of  the  mutual  promises  herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employer and Employee agree as follows:

         1.  Affiliates.  Employer  has or may in the  future  have  one or more
subsidiaries and/or affiliated companies (hereafter  collectively referred to as
the "Companies").  From time to time, Employer and the Companies may exchange or
use  facilities,  technology  and/or  Confidential  Information (as that term is
defined below) of the other.

         2.  Services.  Employer  hereby agrees to employ  Employee and Employee
agrees to be employed by Employer for the term of this Agreement in the capacity
of Vice  Chairman  and Chief  Executive  Officer  or in such other  capacity  as
Employer  and  Employee  shall  mutually  agree.  Employee  shall be employed at
Employer's  offices in St. Louis,  Missouri,  or such other location as shall be
mutually agreeable to Employee and Employer.  During the term of this Agreement,
Employee agrees to devote his best efforts to the performance of such reasonable
duties,  commensurate  with his  position(s),  as shall be mutually agreed to by
Employer and Employee.

         3. Term. The initial term of the Agreement shall begin on the Effective
Date,  and  shall  extend  through  March 31,  2002,  and  shall  thereafter  be
automatically renewed for successive twelve (12) month periods, unless and until
terminated by either Employee or Employer upon written notice to the other given
not less than ninety (90) calendar  days prior to the  expiration of the initial
term of this Agreement or any such renewal term.  Notwithstanding the foregoing,


<PAGE>
Employee  may  terminate  this  Agreement  at any time and for any  reason,  and
Employer may  terminate  this  Agreement at any time for Cause.  For purposes of
this Agreement, "Cause" shall mean that (i) Employee has committed a breach of a
fiduciary duty,  embezzlement,  larceny,  or has willfully failed to perform his
duties  to  Employer,  and in so doing  has acted  with  full  knowledge  of all
pertinent facts;  and (ii) such act has had a material and demonstrable  adverse
effect on  Employer.  For purposes of this  Agreement,  the phrase "term of this
Agreement" shall include the initial term and any and all renewal terms.

         4.       Compensation.

         (a) Base Salary.  For the fiscal year ending March 31, 1997, (the "Base
Year")  Employee is being paid a base  salary (the "Base  Salary") at the annual
rate of Five Hundred Ninety Three Thousand  Sixty-Eight Dollars  ($593,068).  As
compensation  for his services under  Paragraph 2, and in  consideration  of the
obligations  undertaken by Employee,  Employee shall receive annual compensation
in an amount equal to the Base Salary, increased, cumulatively, as of April 1 of
each year during the term of this  Agreement  subsequent to the Base Year by the
greater of eight percent (8%) or the  percentage  increase in the cost of living
for the preceding  calendar  year,  as measured by the U.S.  Department of Labor
Consumer Price Index for All Urban Consumers,  U.S. City Average,  All Items, or
comparable  index then in use (the "C.P.I."),  or at such other rate as shall be
mutually  agreed to by Employer and  Employee.  For purposes of this  Agreement,
Base  Salary  at any time  shall  mean  Base  Salary  as  adjusted  annually  in
accordance with the preceding sentence.  All salary payments (whether under this
Paragraph  or  another  Paragraph  of  this  Agreement)  shall  be  paid at such
intervals  as Employer  pays its other  executive  employees,  unless  otherwise
specifically agreed to by Employer and Employee.

         (b) Annual Bonus.  Employee  shall receive an annual bonus equal to the
following  percentage of the  Employer's  net income,  calculated on and payable
with respect to each incremental level of net income:

Employer's Net Income                   Employee's Bonus Percentage

Below $200,000                                    0%
$200,000 - $600,000                               5%
$600,000 - $3,000,000                             7%
$3,000,000 -$5,000,000                            6%
$5,000,000 - $10,000,000                          5%
Over $10,000,000                                  4%

         Employer  and  Employee  agree to  negotiate  in  advance  of the final
determination of the bonus, mutually acceptable terms and conditions under which
Employer pays Employee the bonus, in one or more of the following forms:


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<PAGE>
                  (i) Incentive Stock Options granted under Employer's  existing
         option plan or a similar plan applying the Black-Scholes option pricing
         model to  determine  the number of options  equivalent  in value to the
         Bonus to be paid by the delivery of Incentive Stock Options;

                  (ii) Shares of Restricted Stock equal in number to the portion
         of the Bonus to be paid by the delivery of Restricted Stock, divided by
         the fair  market  value of the same  class of  unrestricted  shares  of
         Employer's common stock to be so delivered;

                  (iii) Discounted Stock Options applying a discount  negotiated
         by Employer  and Employee and using the  Black-Scholes  option  pricing
         model to determine the number of discounted options equivalent in value
         to the portion of the Bonus to be paid by the  delivery  of  Discounted
         Stock Options; and/or

                  (iv)     Cash

         For purposes of this Agreement, calculations based on the Black-Scholes
option  pricing  model  shall  be made in the  same  manner,  applying  the same
assumptions  used in  Employer's  most recent  annual  proxy  statement.  Should
Employer and Employee fail to reach an agreement regarding the form of the Bonus
after negotiating in good faith, the Bonus as finally  determined by the formula
provided in this Paragraph shall be paid in cash.

         For purposes of  calculating  Employer's  net income to  determine  the
amount of the annual bonus,  the consolidated net income after taxes of Employer
and the  Companies  shall be  calculated  by the  Independent  Certified  Public
Accountants  regularly  in the employ of Employer,  based on generally  accepted
accounting  principles  consistently  applied,  without regard to the payment of
such bonus.  Employer shall promptly provide Employee with a written copy of all
calculations hereunder. Employee's bonus, if any, shall be payable within ninety
(90) calendar days following the end of each fiscal year of Employer  during the
term of this Agreement.

         Funds for the exercise of stock  options under  Paragraphs  4(b)(i) and
(iii) may be loaned by the Employer to Employee,  at the  agreement of Employer.
Such loans shall bear  interest at the long-term  federal rate  published by the
Internal Revenue Service ("AFR") as of the date of the loan.

         Notwithstanding the foregoing, consistent with his historical practice,
Employee  may in his sole  discretion  elect to receive a lesser  bonus based on
consideration for Employer.

         (c) Expenses.  Employer agrees to reimburse Employee for all reasonable
business  expenses  incurred  by  Employee in the  performance  of his  services
hereunder,  including,  but not be  limited  to,  business  travel,  association
membership dues and fees, subscriptions, and the maintenance of an office in his
home(s) for business use which expenses shall be substantiated to the reasonable
satisfaction of Employer.

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<PAGE>
         (d)  Vacation.  Employee  shall be  entitled to not less than eight (8)
weeks vacation during each fiscal year of Employer, during which time Employee's
compensation  shall  be  paid  in  full.  Vacations  need  not be  taken  over a
consecutive  eight (8) week period or at any  specific  time or times during the
course of any fiscal year. If Employee  takes less than eight (8) weeks vacation
during  any  fiscal  year,  he shall be  entitled  to carry over such days or to
receive a cash payment at such time as he elects equal to the pro rata amount of
his Base Salary for the portion of his vacation period not taken.

         (e) Automobile.  So long as Employee  continues to fulfill the position
as Vice  Chairman  of the Board,  Employer  agrees to provide  Employee  with an
automobile  (or  comparable  allowance)  similar  to  the  automobile  presently
provided for Employee's use plus a reasonable  estimate of the average  expenses
of its operation, insurance, maintenance and repair.

         (f) Financial  Services.  During the term of  Employee's  employment by
Employer  under this  Agreement,  Employer  agrees to provide  Employee  with an
annual  allowance  of up to Ten  Thousand  Dollars  ($10,000) to be used for tax
preparation,  estate planning and other similar  financial  services provided to
Employee  by  qualified  consultants  chosen  by and in the sole  discretion  of
Employee.

         (g) Deferred Compensation.  During the term of Employee's employment by
Employer under this Agreement,  Employee shall be entitled to participate in the
same  qualified  or  nonqualified  deferred  compensation  plans made  available
generally to other executive employees of Employer. In addition, Employer agrees
to implement  concurrent  with this  Agreement  the Deferred  Compensation  Plan
effective January 1, 1997,  providing  Employee with the opportunity to defer up
to fifty  percent (50%) of Base Salary and up to one hundred  percent  (100%) of
Employee's bonus during the term of Employee's employment by Employer.

         (h)  Charitable  Contribution.  In addition to any benefits that may be
payable to Employee on death pursuant to this  Agreement,  Employer shall make a
charitable  gift at the time of  Employee's  death  to the  charity  elected  by
Employee in the amount of Five Hundred  Thousand  Dollars  ($500,000).  However,
such amount shall be reduced if Employee  terminates  employment under the terms
of Paragraph 2 prior to  attaining  age sixty (60) by twenty  percent  (20%) for
each complete  twelve (12) month period between the retirement date and the date
that Employee  attains age sixty (60). The charity selected by Employee shall be
a  registered  public  charity,  university  or other  organization  approved by
Employer  (which  approval  shall  not be  unreasonably  withheld)  and to which
contributions are tax deductible to Employer for federal income tax purposes.

         (i) Miscellaneous. During the term of Employee's employment by Employer
under this Agreement,  Employer agrees to provide Employee with all other fringe
benefits  as are  from  time to time  available  generally  to  other  executive
employees of Employer.


                                        4

<PAGE>
         5.       Insurance Benefits.

         (a) Life  Insurance.  Employee shall be entitled to the same group term
life insurance  coverage  provided by Employer to other  executive  employees of
Employer.

         In  addition,  Employer  shall  continue  and  maintain  two  (2)  life
insurance  policies on Employee's life (the "Policies")  subject to that certain
split  dollar  agreement  dated  July 1,  1990 and  that  certain  split  dollar
agreement  dated  November 8, 1991 as each agreement may be amended from time to
time by the mutual consent of the parties (the "Split Dollar Agreements").

         In this  connection,  Employer  agrees to  continue to make the premium
payments contemplated by the Split Dollar Agreements except that such agreements
shall be amended to provide that  Employee  shall pay that portion of the annual
premiums due on the Policies equal to the economic  benefit that would otherwise
be attributable to Employee by reason of the death benefits  payable to Employee
under the Split Dollar Agreements (the "Economic  Benefit").  The balance of the
annual  premiums  contemplated by the Split Dollar  Agreements  shall be paid by
Employer.  Employer further agrees to pay Employee an additional amount equal to
the  Economic  Benefit to  Employee  grossed up to offset the  federal and state
marginal  income tax to Employee  generated  by this  additional  payment.  Such
additional  amount  shall be paid to  Employee in each year and at the same time
Employee is required to make an annual  premium  payment under the revised Split
Dollar Agreements.

         Upon the death of Employee or upon  cancellation  of the Policies  with
the mutual  consent of  Employee  and  Employer,  Employer  shall be entitled to
recover the greater of all premiums paid by Employer, net of reimbursements,  or
the  cash  surrender  value  of  the  Policies  as of  the  date  of  Employee's
retirement, net of any Employer loans or withdrawals. To assure the repayment of
such  amounts,  the  owner(s)  of the  Policies  shall  collaterally  assign the
Policies to Employer as security for Employer's interest in the Policies. In the
event Employer fails to make the premium payments  required by the revised Split
Dollar  Agreements or the additional  bonus described in this paragraph,  within
sixty (60) days of the date the  premium is due,  Employee  shall be entitled to
submit a thirty (30) day demand  letter to Employer  requesting  payment of such
amounts.  If  Employer  fails to make such  payments  within the thirty (30) day
notice  period,  the Split Dollar  Agreements  shall  terminate and the Policies
shall be  distributed  to Employee as provided in the Split  Dollar  Agreements.
However,  Employer  shall continue to be obligated to pay to Employee the amount
of the premium  payments and additional  bonus which would otherwise be required
by this Agreement and the Split Dollar Agreements for the period contemplated by
the Split Dollar Agreements.

         (b) Disability.  If and to the extent obtainable by Employer,  Employer
shall provide  Employee with one or more  noncancellable  policies of disability
insurance or a mutually  acceptable  equivalent  thereof which  provides for the

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<PAGE>
payment, in the event of the disability of Employee in accordance with the terms
of such policies,  of monthly  installments  equal to sixty percent (60%) of the
Base Salary of Employee,  as in effect under Paragraph 4, for the longer of: (A)
the benefit period provided under the insurance contracts, or (B) until Employee
reaches (or would have  reached)  sixty-five  (65) years of age,  which  amounts
shall  continue  to be  payable  to such  beneficiary  or  beneficiaries  as are
designated  by  Employee  in the event of  Employee's  death  during  the period
provided  for the  payment  thereof.  The  value  of the  disability  protection
provided to Employee  shall be imputed to Employee  currently  in order that the
ultimate disability benefits shall be income tax free.

         (c) Medical.  Employer shall provide Employee,  at Employer's  expense,
with health, accident, major medical and such other insurance coverage of a kind
and in amounts not less than those presently being provided Employee and no less
than those provided by Employer to other executive  employees during the term of
this Agreement.

         (d) Continuation of Coverage. After Employee is no longer in the active
employ of Employer,  to the extent  permitted by  Employer's  insurer,  Employee
shall continue to participate  in Employer's  regular life and health  insurance
programs at Employer's  expense.  Such continued insurance shall continue for so
long as permitted by Employer's insurer but in no event for longer than Employee
is receiving  payments  under this  Agreement or under any other  employment  of
consulting agreement between Employer and Employee, or, if earlier, in the event
of Employee's  voluntary  retirement  or permanent  disability,  until  Employee
reaches age seventy (70).

         6.  Pre-retirement  Voluntary  Termination.   If  Employee  voluntarily
terminates his employment prior to attaining age sixty-five  (65),  Employee may
elect to provide  consulting  services in the areas  described in Paragraph 7(a)
between the date of such voluntary  termination  and thereafter  until not later
than the age of sixty-five  (65),  provided that such services may be terminated
by Employer  upon not less than ninety (90) days' notice at any time:  (i) after
such  services  have been  provided by Employee  for five (5) years,  or (ii) if
Employee is terminated  under  Paragraph 3 during the initial five (5) years, or
(iii) if Employee is unwilling to devote the minimum hours under Paragraph 6(a),
when and if needed,  at mutually agreed upon times, and Employee has not elected
to retire and receive  payments  under  Paragraph 7 (such period is  hereinafter
referred to as the  "Pre-retirement  Period"),  then during such  Pre-retirement
Period,  Employee's  employment  shall be  subject  to the  following  terms and
conditions:

         (a)  Employee  shall  devote a minimum  of three  hundred  (300)  hours
annually,  on an as-needed  basis as Employer and Employee shall agree,  for the
benefit of Employer.  Additional  hours worked over three hundred (300) shall be
compensated  on a pro-rata  basis.  Employee  shall be  compensated in an amount
equal to fifty  percent  (50%) of the Base Salary  being paid to Employee at the
time of his voluntary termination, adjusted annually, as of April 1 of each year
during the  Pre-retirement  Period,  by the greater of eight percent (8%) or the

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<PAGE>
C.P.I.  Employee  shall also be  compensated in an amount equal to fifty percent
(50%) of the annual bonus under  Paragraph 4(b) or on a pro-rata basis for hours
worked in excess of three hundred (300).

         (b) Additionally,  during the Pre-retirement Period,  Employee shall be
entitled to  participate in and continue to vest in all benefits he was entitled
to and was receiving during his employment period.

         (c) Employee's  termination  under this  Paragraph  shall be considered
voluntary only if such  termination is by Employee without duress from Employer,
its directors,  officers,  or shareholders,  or any federal or state agency, its
officers, agents, employees or directors.

         7. Retirement Benefits and Continued Services.  Any time after reaching
age fifty-five (55),  Employee may, as this sole option,  retire from performing
services  under the terms of Paragraph 2 or 6, and shall  (except in the case of
complete  disability  discussed in Paragraph 7(c)) perform  services as provided
under this Paragraph 7.

         (a) Consulting Services.  After retirement,  Employee agrees to perform
consulting services at the request of Employer for a ten (10) year period in the
following areas:

                  (i)  Industry and customer relations;
                  (ii) Strategic and financial planning and commercial  business
                       development; 
                  (iii)Mergers, Acquisitions and Divestitures; 
                  (iv) Application of Employer and Industry knowledge; 
                  (v)  Assistance in respect of the continuity of Employer's 
                       operations;  
                  (vi) Investment community relations.

Employee  agrees to devote up to three  hundred  (300)  hours  annually  for the
benefit of Employer  and to serve on the Board of  Directors,  at the request of
Employer.  Additional hours worked over three hundred (300) shall be compensated
on a pro-rata  basis.  To assist  Employee  in the  performance  of his  duties,
Employer shall provide Employee with internal support services consisting of one
(1)  full-time   employee  as  Project   Coordinator,   and  administrative  and
secretarial services as needed.  Employee shall have final approval with respect
to the selection of the Project Coordinator.

         (b) Consulting Compensation. Employee shall be entitled to compensation
for his  consulting  services  to be paid in the form of a single  life  annuity
equal to fifteen  percent (15%) of Employee's  Base Salary for the year in which
retirement  occurs  ("Final Base  Salary")  payable  each year  beginning at age
sixty-five  (65) and  continuing for the longer of ten (10) years or the life of
Employee.  Such payments  shall  continue to be payable to such  beneficiary  or
beneficiaries  as are  designated by Employee in the event of  Employee's  death
during the period  provided  for the  payment  thereof.  In  addition,  for each
additional complete year of employment under the terms of Paragraph 2 or 6 after
attaining  age fifty- five (55),  Employee  shall be  entitled  to an  increased
annual benefit based on the following  percentage  (the "Vested  Percentage") of

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<PAGE>
the  difference  between (i) fifteen  percent (15%) of Employee's  Final Average
Compensation, and (ii) fifteen percent (15%) of Employee's Base Salary.

         Post 55 years
         of Employment                       Vested %
         --------------------------------------------
              1                              40%
              2                              60%
              3                              80%
              4                              90%
              5 or More                     100%

In addition,  each annual benefit shall be increased by the C.P.I. as defined in
Paragraph 4(a).

         For purposes of this Agreement, "Final Average Compensation" shall mean
Employee's average annual compensation  (including bonuses and other non-regular
forms of  compensation  and adding back voluntary  deferrals  under any Employer
benefit  plans)  earned from Employer  during the highest three (3)  consecutive
years of the five (5) year period ending coincident with or immediately prior to
the retirement  date.  If, prior to retirement  under this Paragraph 7, Employee
was performing services under Paragraph 6, "Final Average Compensation" shall be
calculated  using one hundred  percent (100%) of the Employee's Base Salary plus
bonuses as if Employee was performing  services on a full-time basis during such
years.

         (c) Disability.  In the event of Employee's  retirement from performing
services  under  Paragraph  2 or 6 as a result  of  disability,  Employee  shall
continue to perform the consulting  services  specified in Paragraph 7(a) to the
extent Employee is able to do so. In the event of Employee's complete disability
on  or  after  retirement,  Employee  shall  nevertheless  be  entitled  to  the
consulting  compensation  provided in Paragraph 7(b). In the event of Employee's
disability on or after retirement, Employee shall continue to be entitled to the
benefits  provided  under  Paragraphs  7(d) and (e) below.  Notwithstanding  the
foregoing, the total annual benefits for any year payable under Paragraphs 7(c),
(d) and (e) shall be offset by the amount of any disability benefits payable for
such year under Paragraph 5(b).

         (d) Restrictive  Covenants.  After  retirement,  in  consideration  for
complying with the  restrictive  covenants  described in Paragraph 12,  Employee
shall receive additional compensation in the form of a single life annuity equal
to fifteen  percent  (15%) of  Employee's  Final Base Salary  payable  each year
beginning at age sixty-five (65) and continuing for the longer of ten (10) years
or the life of  Employee.  Such  payments  shall  continue to be payable to such
beneficiary  or  beneficiaries  as are  designated  by  Employee in the event of
Employee's  death  during  the  period  provided  for the  payment  thereof.  In
addition,  for each  additional  complete year of employment  under the terms of
Paragraph 2 or 6 after attaining age fifty-five (55), Employee shall be entitled

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<PAGE>
to an increased annual benefit based on the Vested  Percentage of the difference
between (i) fifteen percent (15%) of Employee's Final Average Compensation,  and
(ii) fifteen percent (15%) of Employee's  Final Base Salary.  In addition,  each
annual benefit shall be increased cumulatively by the C.P.I.

         (e) Retirement  Compensation.  In addition to the compensation provided
for in (b) and (c) above,  Employee  shall be  entitled  to  receive  retirement
compensation  paid in the form of a single life annuity equal to thirty  percent
(30%) of Employee's  Final Base Salary payable each year beginning at retirement
and  continuing  for the longer of ten (10) years or the life of Employee.  Such
payments shall continue to be payable to such  beneficiary or  beneficiaries  as
are  designated by Employee in the event of  Employee's  death during the period
provided for the payment thereof. In addition, for each additional complete year
of  employment  under the terms of Paragraph 2 or 6 after  attaining  age fifty-
five (55),  Employee  shall be entitled to an increased  annual benefit based on
the Vested  Percentage  of the  difference  between (i) thirty  percent (30%) of
Employee's  Final  Average  Compensation,  and  (ii)  thirty  percent  (30%)  of
Employee's  Final  Base  Salary.  In  addition,  each  annual  benefit  shall be
increased cumulatively by the C.P.I.

         (f)  Election  of  Alternative  Form of  Payment.  Notwithstanding  the
foregoing, for each of the above pieces of compensation payable over the life of
Employee,  Employee  shall be  entitled  to elect an  earlier  start  date after
retirement or an alternative  form (such as joint and survivor) of annuity which
shall be actuarially  adjusted to equate to the original benefit provided for in
this Paragraph 7. Such actuarial  calculations shall be performed by a qualified
actuary based on generally accepted actuarial principles.

         8.       Termination Benefits.

         (a) Triggering  Event. A "Triggering  Event" shall mean (i) termination
of this  Agreement  by its terms and with no  renewal,  or (ii)  termination  of
Employee's  employment  with  Employer in the capacity  described in Paragraph 2
during  the  term of  this  Agreement  for  any  reason  whatsoever  other  than
Employee's  voluntary  termination of employment or retirement,  as contemplated
under  Paragraph 6 or 7,  respectively,  or Employee's  death or disability,  or
(iii)  even if this  Agreement  is  still  in force  and  Employee  has not been
terminated,  failure of Employer to  maintain  the Letter of Credit  required by
Paragraph 9.

         (b) Termination  Payments.  Employer shall pay Employee, on the date of
the Triggering  Event, a lump sum cash payment (the "Lump Sum Payment") equal to
one (1) times  Employee's Base Salary as in effect on the date of the Triggering
Event; and Employer shall make monthly cash payments to Employee or his assigns,
on the first day of each of the thirty-six  (36) calendar  months  following the
date of the Triggering  Event,  equal to seventy-five  percent (75%) of the Lump
Sum Payment  divided by twelve (12). If Employee shall die during the thirty-six
(36) month period, any payments remaining due hereunder shall be accelerated and

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<PAGE>
shall become immediately due and payable to Employee's beneficiaries, or if none
have been designated by Employee, to the estate of Employee.

         (c) Adjustment of Stock Options and Restricted  Stock.  With respect to
any stock options or restricted  stock held by Employee at the occurrence of the
Triggering  Event,  such options or restricted stock agreements shall be amended
by Employer,  as of such time,  provided that the  provisions of the  applicable
stock optionor  restricted stock plans or agreements  provide for such amendment
and the  employment  record of Employee over the full tenure of such  Employee's
employment so justifies (the  determination  of which shall be made by the Board
of Directors of Employer,  but shall not be unreasonably  withheld) and provided
Employee has not been  terminated for Cause, to provide that upon the occurrence
of the  Triggering  Event:  (i) Employee  shall have the right to exercise  such
options for up to a two (2) year period following the Triggering Event, (ii) all
such stock options and restricted stock shall become  immediately  fully vested,
and (iii) any Holding Period  requirement with regard to any restricted stock or
shares purchased  pursuant to the exercise of a stock option shall be waived and
shall be inapplicable to such shares.

         (d) Payments Not Conditioned on Services.  Employer's obligations under
his  Paragraph  8,  including  the  making of any  monetary  payments,  shall be
independent of, and not conditioned upon,  Employee's  rendering  services under
Paragraph 6 or 7.

         9.       Letter of Credit.

         (a) Terms.  Employer has  delivered  to Employee  and will  continue to
maintain in effect during the term of Employee's  employment  under  Paragraph 2
and for the period of any unfilled  obligation  of Employer to make  payments to
Employee  under  Paragraph 8 an  irrevocable  letter of credit  (the  "Letter of
Credit"),  form a bank mutually acceptable to Employer and Employee (the "Bank")
for an amount which at all times  during the term thereof  shall be equal to the
lesser of: (A) three (3) times Employee's Base Salary, or (B) the amount payable
by Employer  under  Paragraph 8 after  deducting  any amounts  actually  paid to
Employee thereunder. Employer shall provide Employee with a copy of any amended,
extended or  replacement  Letter of Credit not later than ten (10) business days
prior to the effective date thereof and shall notify  Employee in writing of any
impending expiration of the Letter of Credit, as in effect at any time, no later
than forty-five (45) days prior to the expiration date of the Letter of Credit.

         The Letter of Credit  shall  provide  that  Employee  may draw upon the
Letter of credit the aggregate  amount of all payments to be made by Employer to
Employee under Paragraph 8 and not previously paid, in lieu of such payments, if
the following conditions exist:

                  (A)  (I)   Employee's   employment   with  Employer  has  been
         terminated  during the term of this agreement for any reason whatsoever
         (other than voluntary retirement, death, or permanent disability); or

                                       10

<PAGE>
                           (II) This  Agreement  has not been  renewed  upon the
         expiration of the initial term or any renewal term; or

                           (III) Employer has ceased operations; and

                  (B)  Employer  shall have failed,  refused,  or been unable to
         make the Lump Sum Payment or any monthly  payment to Employee  required
         by Paragraph 8, for any reason whatsoever.

         Notwithstanding the foregoing,  whether or not a condition described in
subparagraph  (A) or (B) exists,  and whether or not  Employee's  employment has
been terminated,  if the Letter of Credit is not renewed by the Bank or replaced
by Employer  within  twenty (20) days prior to the  expiration  of the Letter of
Credit at any time during the term of Employee's  employment  under Paragraph 2,
Employee  shall be  entitled  to draw upon the  Letter of Credit  the  aggregate
amount of all payments to be made by Employer to Employee under Paragraph 8.

         The Letter of Credit shall further  provide that funds  represented  by
the Letter of Credit shall be available to Employee thereunder against:

                  (A)  Employee's  sight  draft  drawn on the bank,  bearing the
         number of the Letter of Credit; and

                  (B)  Employee's  signed  certificate,  in  one  of  the  forms
         attached  to the  Letter  of  Credit,  stating  that one or more of the
         event(s)  specified in Paragraph 9(a) has occurred and the date of such
         occurrence.

         Payment  of  the  Letter  of  Credit   shall  not   require  any  other
documentation or the fulfillment of any other conditions of any kind.

         (b)  Limitation  on  Use.  Notwithstanding  anything  to  the  contrary
contained in this Paragraph 9, Employee  agrees that if a Triggering  Event,  as
defined in Paragraph 8, has occurred and Employer has not employed a replacement
chief executive  officer,  Employee will not exercise his rights to draw against
the Letter of Credit for a period not to exceed four (4) months from the date of
such Triggering Event. Provided,  however, that Employee shall not be prohibited
from  exercising  his right to draw against the Letter of Credit during the four
(4) month period if:

                  (i) the Letter of credit  will expire in less than twenty (20)
days or is in  jeopardy  of not  being  maintained  for any  reason,  and is not
scheduled to be renewed or replaced by Employer;

                  (ii) Employer is adjudicated a bankrupt or makes an assignment
for the benefit of creditors;

                                       11

<PAGE>
                  (iii)  Bankruptcy,  insolvency,  reorganization,  arrangement,
debt adjustment,  liquidation or receivership proceedings,  in which Employer is
alleged  to be  insolvent  or  unable  to pay  its  debts  as they  mature,  are
instituted by or against  Employer,  and Employer  consents thereto or admits in
writing the material  allegations of the petitions filed in said  proceedings or
said proceedings remain undismissed for sixty (60) days;

                  (iv)  There is an entry of a decree or order for  relieve by a
court having  jurisdiction with respect to Employer in an involuntary case under
the federal bankruptcy laws against Employer,  or Employer  commences  voluntary
proceedings under federal bankruptcy laws;

                  (v) A  significant  portion  of  the  assets  of  Employer  is
attached;

                  (vi) A judgment is obtained in a legal or equitable proceeding
against Employer and the sale of a significant  portion of Employer's  assets is
contemplated or threatened under legal process as a result of such judgment; or

                  (vii) an execution  process is issued  against  Employer which
affects a significant portion of Employer's assets or the existence or operation
of the Letter of Credit,  which is not removed or satisfied  within  twenty (20)
days.

         (c) Employee's Election. If at any time Employee: (i) has exercised his
right to draw against the Letter of Credit  provided for under this Paragraph 9,
and (ii) there is a Change of Control and Employee becomes eligible for benefits
under Paragraph 10 of this Agreement,  then the benefits which Employee would be
entitled to receive under Paragraph 10 shall be reduced by the proceeds Employee
received  when  Employee  exercised  his  rights to draw  against  the Letter of
Credit;  provided,  however,  that if the proceeds  received  from the Letter of
Credit exceed the benefits to be received  under  Paragraph  10, this  Paragraph
shall not be construed to require Employee to repay any amounts to Employer.

         10.      Change of Control.

         (a) Definition.  For purposes of this Agreement,  a "Change of Control"
of Employer shall mean the occurrence of any one of the following events:

                  (i) any "person," as such term is used in Sections 3(a)(9) and
13(d) of the Securities  Exchange Act of 1934, becomes a "beneficial  owner," as
such term is used in Rule 13d-3  promulgated  under that Act, of twenty  percent
(20%) or more of the voting stock of Employer.

                  (ii) the majority of the Board consists of  individuals  other
than Incumbent Directors,  which term means the members of the Board on the date
of this Agreement;  provided that any person  becoming a director  subsequent to


                                       12

<PAGE>
such date whose  election or nomination for election was supported by two-thirds
(2/3) of the directors  who then  comprised  the  Incumbent  Directors  shall be
considered to be an Incumbent Director;

                  (iii) Employer  adopts any plan of  liquidation  providing for
the distribution of all or substantially all of its assets;

                  (iv) all or  substantially  all of the assets or  business  of
Employer is disposed of pursuant to a merger, consolidation or other transaction
(unless  the  shareholders  of  Employer   immediately  prior  to  such  merger,
consolidation or other transaction beneficially own, directly or indirectly,  in
substantially the same proportion as they owned the voting stock of the company,
all of the voting stock or other ownership  interests of the entity or entities,
if any; that succeed to the business of Employer); or

                  (v)  Employer   combines  with  another  company  and  is  the
surviving  corporation but, immediately after the combination,  the shareholders
of Employer,  immediately  prior to the combination  hold, direct or indirectly,
fifty percent (50%) or less of the voting stock of the combined  company  (there
being excluded from the number of shares held by such shareholders, but not from
the voting stock of the combined  company,  any shares received by affiliates of
such other company in exchange for stock of such other company).

         (b)  Termination  After Change in Control.  In the event of a Change of
Control of  Employer,  if (i)  immediately  preceding  such  Change of  Control,
Employee was providing services under Paragraph 2, 6, or 13, and (ii) Employee's
employment in such capacity  terminates within three (3) years after such Change
of Control ("Termination"), voluntarily or involuntarily, with or without cause,
for any reason  whatsoever,  except  for the death or  disability  of  Employee,
Employee  shall be entitled to the  benefits  provided in Paragraph  10(c).  For
purposes of this Agreement, "Date of Termination" shall mean the date on which a
Notice of  Termination  is given,  unless the parties agree to another date, and
"Notice of Termination" shall mean a written notice communicated by either party
to the other party which indicates that  Employee's  employment with Employer is
being terminated.

         (c)      Payments on Termination After Change in Control.

                  (i) Employee's  Base Salary through the Date of Termination at
the rate in  effect  on the date  Notice  of  Termination  is  given,  including
expenses,  vacation pay,  allowances and other  compensation  and benefits under
Paragraphs 4 and 5, and (ii) the amount,  if any, of any bonus for a past fiscal
year (and pro rata for any portion of the then  current  fiscal year through the
Date of Termination) which has not been awarded or paid under any bonus plans in
which  Employee is entitled to  participate at the time of the Change of Control
or under other bonus plans at least as  beneficial  to  Employee.  In  addition,
Employer  shall  continue  in full force and effect for the  benefit of Employee
through the Date of Termination all stock  ownership,  purchase or option plans,


                                       13

<PAGE>
employee  benefit or compensation  plans,  and insurance or disability  plans in
effect  immediately  preceding  the  Change of  Control  or plans  substantially
similar thereto.

                  (ii) In lieu of any further payments or benefits to be paid or
otherwise  provided under  Paragraph 4 (excluding any stock option or restricted
stock grants and any deferred  compensation  benefits  payable under  Paragraphs
4(b) and (g)) for any period  subsequent  to the Date of  Termination,  Employer
shall pay as  severance  pay  ("Severance  Pay") to  Employee a lump sum payment
equal to the sum of: (A) two and  one-half  (2-1/2)  times the  greater  of: (x)
Employee's  Base Salary  immediately  prior to the Date of  Termination,  or (y)
Employee's  Base  Salary  in effect  immediately  prior to the date on which the
Change of Control  occurred,  and (B) Employee's  bonus,  if any, which would be
payable  in respect of the thirty  (30) month  period  beginning  on the Date of
Termination  as if Employee had continued his position,  computed based upon the
formula in Paragraph 4(b). Such Severance Pay shall be subject to all applicable
federal and state  income  taxes.  The portion of the  Severance  Pay based upon
Employee's  Base Salary shall be paid on or before the fifth (5th) day following
the Date of  Termination,  and the portion of the  Severance  Pay based upon any
bonus plan shall be paid to Employee as and when payable  under the terms of the
applicable plan had Employee's employment continued. Employee, by written notice
to  Employer at any time prior to a Change of Control of Employer or the Date of
Termination,  may elect, in his sole  discretion,  to receive said Severance Pay
interest-free  at a future time, but in no event any later than twenty-four (24)
months after the Date of Termination.

                  (iii) To the extent not otherwise provided for under the terms
of any of Employer's stock option  agreements,  all stock options and restricted
stock granted by Employer or any  predecessor of Employer to Employee shall vest
and be exercisable or transferable as of the Date of Termination and, except for
"incentive  stock options" within the meaning of 26 U.S.C.  ss.422,  all options
shall  remain  fully  exercisable  for  six (6)  months  following  the  Date of
Termination. In addition, any holding period for the underlying shares specified
under any of Employer's  stock option  agreements or restricted stock agreements
with Employee  shall  automatically  be amended and deemed to be the earlier of:
(i) two (2) years from the date of  exercise  of the stock  option,  or (ii) the
Date of Termination.

                  (iv) Employer shall maintain in full force and effect, for the
continued benefit of Employee and members of Employee's  family, for a period of
thirty (30) months after the Date of Termination, all employee benefit plans and
programs,  including,  but not  limited  to plans and  programs  provided  under
Paragraphs 4, 5, 6, and 7 concerning profit-sharing, retirement, life insurance,
medical,  health and accident,  automobile and  disability  plans or programs in
which he or such family members were entitled to participate  immediately  prior
to:  (i) the  Date of  Termination,  or (ii)  the  date of  Change  of  Control,
whichever plans provide greater benefits,  provided that continued participation
is possible  under the general terms and  provisions of such plans and programs.
To the extent the terms of the individual agreements or policies contemplated by
Paragraph 5 require  benefits to be  provided  for a period  which would be less


                                       14

<PAGE>
than thirty (30) months after the Date of Termination,  then notwithstanding the
terms of Paragraph 5 to the  contrary,  Employer  shall  provide  benefits for a
period  of time no less  than  thirty  (30)  months  from and  after the date of
Termination.  If Employee's participation in any such plan or program is barred,
Employer shall arrange to provide Employee with benefits  substantially  similar
to those  which  Employee  would be  entitled  to  receive  under such plans and
programs as if Employee's participation was not barred.

                  (v)  In  lieu  of the  compensation  and  retirement  benefits
provided  under  Paragraph  7,  Employee  shall be entitled to receive an annual
retirement  benefit equal to sixty  percent  (60%) of  Employee's  Final Average
Compensation  (as defined in  Paragraph  7) payable in the form of a single life
annuity over the life of Employee beginning at age sixty-five (65). Such benefit
shall not be conditioned on the covenants  described in Paragraph 7. If Employee
has elected an actuarially  reduced  alternative  form of benefit as provided in
Paragraph 7(e), the retirement benefit shall be paid in such alternative form.

         (d)  Coordination  with  Paragraph 8. The benefits  provided under this
Paragraph  10 shall  be in lieu of the  benefits  provided  under  Paragraph  8.
Notwithstanding  the  foregoing,  the Employee may elect,  by written  notice to
Employer  given  within  thirty  (30)  days  after  the  date of the  Notice  of
Termination to receive the benefits  provided  under  Paragraph 8 in lieu of the
benefits provided under this Paragraph 10.

         (e)  Mitigation.  Employee shall not be required to mitigate the amount
of any payment  provided for in this Paragraph 10 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Paragraph 10
be reduced by any  compensation  earned by Employee as a result of employment by
another employer after the Date of Termination, or otherwise.

         (f)      Application of Section 280G.

                  (i) If it shall be determined that any payment or distribution
by  Employer  to or for the  benefit  of  Employee  (whether  paid or payable or
distributable pursuant to the terms of this Paragraph 10, but determined without
regard to any  additional  payments  required under  subparagraph  (c) above) (a
"Payment"),  would be  subject  to the  payment  by  Employee  of the excise tax
imposed by Section  280G(b)(2) of the Internal  Revenue Code of 1987, as amended
(the  "Code"),  or any interest or penalties is alleged to be due from  Employee
with respect to such excise tax (such excise tax, together with any interest and
penalties,  are hereinafter  collectively referred to as the "Excise Tax"), then
Employee  shall be  entitled  to receive  an  additional  payment  (a  "Gross-Up
Payment")  in an  amount  such  that  after  payment  by  Employee  of all taxes
(including  any  interest or  penalties  imposed  with  respect to such  taxes),
including,  without limitation, any income taxes and excise tax imposed upon the
Gross-Up  Payment,  Employee  retains an amount of the Gross-Up Payment equal to
the Excise Tax payable by Employee upon the Payment.


                                       15

<PAGE>
                  (ii) Subject to the provisions of  subparagraph  (c)(1) above,
all determinations required to be made under subparagraph (c), including whether
and when a Gross-Up  Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such  determination,  shall be
made by a nationally  recognized accounting firm mutually acceptable to Employee
and Employer (the "Accounting  Firm"),  which shall provide detailed  supporting
calculations  both to Employer and Employee within fifteen (15) business days of
the  receipt of notice  from  Employee  that  there has been a Payment,  or such
earlier  time  as is  requested  by  Employer.  All  fees  and  expenses  of the
Accounting  Firm shall be borne solely by Employer.  Any  Gross-Up  Payment,  as
determined  pursuant to subparagraph  (c), shall be paid by Employer to Employee
within five (5) days of the receipt of the Accounting Firm's  determination.  If
the Accounting  Firm  determines  that no Excise Tax is payable by Employee,  it
shall furnish  Employee with a written opinion that failure to report the Excise
Tax on Employee's  applicable  federal income tax return would not result in the
imposition  of a  negligence  or  similar  penalty.  Any  determination  by  the
Accounting Firm shall be binding upon Employer and Employee.  As a result of the
uncertainty  in the  application of Code Section 280G at the time of the initial
determination  by the Accounting  Firm  hereunder,  it is possible that Gross-Up
Payments  which  will not have  been  made by  Employee  should  have  been made
("Underpayment"),   consistent  with  the  calculations   required  to  be  made
hereunder. If Employer exhausts its remedies pursuant to subparagraph (c)(3) and
Employee  thereafter  is  required  to make a payment  of any  Excise  Tax,  the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such  Underpayment  shall be  promptly  paid by  Employer  to or for the
benefit of Employee.

         (iii)  Employee  shall  notify  Employer in writing of any claim by the
Internal  Revenue  Service  that,  if  successful,  would require the payment by
Employer of the Gross-Up Payment.  Such  notification  shall be given as soon as
practicable  but no later than ten (10) business days after Employee is informed
in writing of such claim, and shall apprise Employer of the nature of such claim
and the date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the  expiration of the thirty (30) day period  following the
date on which  Employee  gives such notice to Employer (or such  shorter  period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer  notifies Employee in writing prior to the expiration of such period
that it desires to contest such claim, Employee shall:

                  (A) give  Employer  any  information  reasonably  requested by
         Employer relating to such claim;

                  (B) take such action in connection  with contesting such claim
         as  Employer  shall  reasonably  request in writing  from time to time,
         including  without  limitation,  accepting  legal  representation  with
         respect to such claim by an attorney reasonably selected by Employer;

                  (C) cooperate with Employer to contest such claim; and

                                       16

<PAGE>
                  (D) permit Employer to participate in any proceedings relating
         to such claim;

provided,  however,  that  Employer  shall bear and pay  directly  all costs and
expenses  (including  additional  interest and penalties) incurred in connection
with  such  contest  and  shall  indemnify  and hold  Employee  harmless,  on an
after-tax  basis,  for any  Excise  Tax or income tax  (including  interest  and
penalties with respect thereto) imposed as a result of such  representation  and
payment of costs and expenses. Without limitation on the foregoing provisions of
this  subparagraph  (c)(3),  Employer  shall  control all  proceedings  taken in
connection  with such contest and, at its sole option,  may pursue or forego any
and all administrative  appeals,  proceedings,  hearings or conferences with the
taxing  authority in respect of such claim and may, at its sole  option,  either
direct  Employee  to pay the tax  claimed  and sue for a refund,  or contest the
claim in any permissible manner.  Employee agrees to prosecute such contest to a
determination  before  any  administrative  tribunal,  in  a  court  of  initial
jurisdiction and in one or more appellate  courts,  as Employer shall determine;
provided,  however,  that if Employer directs Employee to pay such claim and sue
for a refund,  Employer  shall  advance the amount of such  payment to Employee,
interest-free,  and shall  indemnify and hold Employee  harmless on an after-tax
basis) from any Excise Tax or income tax  (including  interest or penalties with
respect  thereto)  imposed  with  respect to such advance or with respect to any
imputed  income with  respect to such  advance;  and further  provided  that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of Employee with respect to which such contested  amount is claimed
to be due is limited solely to such contested  amount.  Furthermore,  Employer's
control of a contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder,  and Employee shall be entitled to settle or
contest,  as the case may be, any other  issue  raised by the  Internal  Revenue
Service or any other taxing authority.

                  (iv) If,  after the receipt by Employee of an amount  advanced
by Employer  pursuant  to  subparagraph  (c)(3).  Employee  becomes  entitled to
receive  any refund  with  respect to such  claim,  Employee  shall  (subject to
Employer's  complying with the requirements of subparagraph  (c)(3) promptly pay
to  Employer  the amount of such  refund  (together  with any  interest  paid or
credited  thereon  after taxes  applicable  thereto).  If,  after the receipt by
Employee of an amount advanced by Employer  pursuant to subparagraph  (c)(3),  a
determination  is made that  Employee  shall not be  entitled to any refund with
respect to such claim and  Employer  does not notify  Employee in writing of its
intent to contest such denial or refund prior to the  expiration  of thirty (30)
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such  advance  shall  offset,  to the
extent thereof, the amount of Gross-Up Payment required to be paid.

         (g)  Adjustment  of  Index.  In the  event of a Change  of  Control  of
Employer has occurred and Employee is providing services under Paragraph 2 or 6,
then  notwithstanding  anything  herein to the contrary,  annual  adjustments to
continuing  payments due under  Paragraph 4, shall  thereafter be the greater of

                                       17

<PAGE>
ten percent (10%) or the percentage increase in the costs of living based on the
U.S. Department of Labor Consumer Price Index for All Urban Consumers, U.S. City
Average, All Items, or comparable successor index.

         11. Indemnity.  Upon the termination of Employee's employment hereunder
by any party and for any  reason,  Employer  shall  immediately,  to the fullest
extent  permitted by applicable law,  indemnify and hold Employee and Employee's
estate, heirs, personal  representatives,  successor and assigns,  harmless from
and against any and all  losses,  costs,  expenses,  claims,  damages,  demands,
liabilities,  derivative and other suits, actions and/or judgments of any nature
and description  (including,  without  limitation,  attorneys'  fees) arising in
connection  with any of  Employee's  past or  present  services  as a  director,
officer  and/or  employee of Employer or the  Companies.  Immediately  upon such
termination, Employer shall obtain a rider to its errors and omissions insurance
policy covering Employer's obligations pursuant to the Paragraph 11.

          12. Restrictive  Covenants.  During the term of Employee's  employment
under this  Agreement  (including,  for the purposes of this  Paragraph  12, any
period during which Employee is providing  services to Employer under  Paragraph
7, and for a period of three (3) years after the termination of such employment,
unless  Employer  experiences  a Change of Control or fails to make the payments
required to be made to Employee by Employer under  Paragraph 8 for reasons other
than the breach of the Agreement by Employee, Employee covenants and agrees that
Employee will not, in any manner directly or indirectly:

         (a) Except as  required in his duties to Employer or as required by law
(in which case Employee shall give Employer notice in advance of such disclosure
in  sufficient  time to  permit  Employer  to take such  legal  action as may be
necessary to prevent such disclosure,  unless the circumstances under which such
disclosure is required make it impracticable for Employee to give such notice to
Employer ), disclose or divulge to any person, entity, firm or company, directly
or  indirectly,  any  privileged  knowledge,   formulae,  devices,  confidential
information,  proprietary business methods,  unique techniques,  customer lists,
supplier lists or other data of Employer ("Confidential Information").

         (b)  Solicit,  divert,  take  away or  interfere  with:  (i) any of the
employees or agents of Employer, or (ii) any customer of or supplier to Employer
with respect to any area of business which is  competitive  with the business of
Employer at the date of such termination of employment.

         (c)  Engage,  directly  or  indirectly,  either  personally  or  as  an
employee,  partner,  associate partner,  manager, agent, advisor,  consultant or
otherwise,  or by means of any corporate or other device,  in any business which
is competitive  with the business of Employer at the date of such termination of
employment;  provided  nothing  contained  herein shall  restrict  Employee from
owning  securities of a competitor of Employer  which are listed on any National
Securities  Exchange or actively  traded over the  counter,  if Employee  has no
other  connection or  relationship,  direct or indirect,  with the issuer o such
securities.


                                       18

<PAGE>
         (d) It is the  intention of the parties to restrict the  activities  of
Employee under Paragraphs 11(a), (b) and (c) only to the extent necessary, after
a review  of all facts  and  circumstances,  for the  protection  of  legitimate
business interests of Employer,  and the parties specifically covenant and agree
that  should  any  of  the  provisions  set  forth  herein,  under  any  set  of
circumstances  not now  foreseen  by the  parties,  be deemed too board for that
purpose,  said  provisions  will  nevertheless  be valid and  enforceable to the
extent necessary for such protection. It is also agreed that Employee may engage
in  activities  which  would be covered by  Paragraph  12(c),  with the  written
consent of Employer.

         (e) To the extent that  Employer  Patent and  Confidential  Information
Agreement and Agreement to assign Inventions with Employer, entered into between
Employer and Employee, which shall remain in full force and effect, shall impose
any other or greater  obligations on Employee (and/or any obligations of greater
duration) than those set forth in this  Paragraph 12, then such greater  (and/or
longer)  obligations:  (i) shall prevail (in addition to those set forth in this
Paragraph  12); and (ii) shall  survive any  expiration or  termination  of this
Agreement for any reason whatsoever.

         (f) If  Employee  breaches  any of the terms of this  Paragraph  12, in
addition to any other rights  which  Employer  may have  against  Employee,  any
amounts due Employee  under  Paragraph 6 or 7 shall be suspended  for so long as
such violation  continues and are forfeited if the violation is not cured within
six (6) months, or waived, at Employer's option,  based on a review of the facts
and circumstances.

         13. Succession.  If Employee shall voluntarily terminate his employment
under  Paragraph 2, as provided in Paragraph 6 and 7, and a period of transition
is  needed  for a  successor  chief  executive  officer,  Employee  may,  at his
election,  provide  services,  in his position as Vice  Chairman of the Board to
assist the successor chief executive officer in the transition,  for a period of
one (1) year or such lesser period as Employee shall agree. If Employee provides
such services, then he shall receive compensation for such period, in accordance
with  Paragraph  4,  instead of  Paragraph  6 or 7, as the case may be, and only
thereafter the provisions of Paragraphs 6 and 7 shall apply.

         14.      Miscellaneous.

         (a)  Remedies.  Employee  acknowledges  and  agrees  that any breach or
evasion of any of the terms of Paragraph 12 of this  Agreement by Employee  will
result in immediate and irreparable injury to Employer for which Employer cannot
be adequately  protected or  compensated by the payment of damages and therefore
shall authorize  recourse by Employer to injunction and/or specific  performance
as well as to all other legal or  equitable  remedies to which  Employer  may be
entitled.  No  remedy  conferred  by any  of the  specific  provisions  of  this
Agreement is intended to be exclusive  of any other  remedy,  and each and every
remedy shall be cumulative  and shall be in addition to every other remedy given
hereunder  or now or  hereafter  existing  at law or in  equity,  by  statute or


                                       19

<PAGE>
otherwise.  The  election of any one or more  remedies by either party shall not
constitute a waiver of the right to pursue other available remedies.

         (b) Severability.  The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other  provisions  hereof.  Any
provision which is invalid or unenforceable (whether generally or limited to one
or  more  individual  jurisdictions)  shall  be  modified  in its  scope  and/or
application in such a manner and to such an extent (either  generally or in such
individual  jurisdictions  as is  necessary) as to be valid and  enforceable  as
nearly as  possible  consistent  with its stated  purpose and intent or, if such
modification  is  not  possible,  shall  be  construed  (generally  or  in  such
jurisdiction(s)) as if such invalid or unenforceable provisions were omitted.

         (c) Waiver.  No waiver,  modification or amendment of this Agreement or
of any covenant,  condition or limitation  herein  contained  shall be effective
unless in writing  specifically  referring  thereto,  and duly  executed  by the
parties  hereto.  The failure of either party to exercise or otherwise  act with
respect  to any of its rights  hereunder  in the event of a breach of any of the
terms or conditions hereof by the other party shall not be construed as a waiver
of such breach,  nor prevent the  nonbreaching  party from thereafter  enforcing
strict compliance with any and all of the terms and conditions hereof.

         (d) Complete Agreement. Except for the agreements specifically referred
to in this Agreement, and the provisions contained in Employer's profit sharing,
stock option and other  employee  benefit  plans,  this  Agreement  contains the
complete agreement concerning the employment arrangement between the parties and
shall, as of the effective date hereof, supersede all other agreements,  oral or
written,  between the parties.  The parties  stipulate  that neither of them has
made any  representations  or warranties  with respect to the subject  matter of
this  Agreement,  including  the execution  and delivery  hereof,  except as are
specifically set forth herein.

         (e) Controlling Law. This Agreement shall be governed by, construed and
interpreted according to the laws of the State of Missouri,  notwithstanding the
place  of  execution  hereof,  nor the  performance  of any  acts in  connection
herewith or hereunder in any other jurisdiction.

         (f) Successors; Binding Agreement.

                  (i) Employer  shall require any successor  (whether  direct or
indirect,   by  purchase,   merger,   consolidation  or  otherwise)  to  all  or
substantially  all of the business or assets of  Employer,  by agreement in form
and substance satisfactory to Employee, to expressly assume and agree to perform
this  Agreement in the same manner and to the same extent that Employer would be
required  to  perform if no such  succession  had taken  place.  As used in this
Agreement,  "Employer"  shall mean Employer,  as hereinbefore  defined,  and any
successor to its business or assets as aforesaid which executes and delivers the

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<PAGE>
agreement  provided for in this Paragraph 14 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.

                  (ii)  This  Agreement  shall  inure to the  benefit  of and be
enforceable  by  Employee's  personal  or  legal   representatives,   executors,
administrators,  successors,  heirs,  distributees,  devisees and  legatees.  If
Employee  should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts,  unless  otherwise  provided herein,
shall be paid in  accordance  with the terms of this  Agreement  to his devisee,
legatee or other designee or, if there be no such designee, to his estate.

         (g) Notice.  Any notice  given by either  party  hereunder  shall be in
writing and shall be personally delivered or shall be mailed, Express, certified
or registered mail, or sent by a generally recognized next business day courier,
postage or other charges prepaid, as follows:

                  To Employer:

                           K-V Pharmaceutical Company
                           2503 South Hanley Road
                           St. Louis, Missouri 63144
                           Attention: Director, Human Resources

                  To Employee:

                           At his address as set forth on the payroll records
                           of Employer,

or to such  other  address  as may have been  furnished  to the  other  party by
written notice.  Notice shall be deemed given on the date personally  delivered,
or if sent by Express  Mail or next  business  day courier on the  business  day
following  the date sent,  or if otherwise  mailed,  two calendar days after the
date postmarked.

         (h)  Accounting.  If Employee  does not agree with any  calculation  by
Employer hereunder, within thirty (30) calendar days after Employee has received
written  notice of the  calculation,  Employee  may notify  Employer's  Board of
Directors of his disagreement and thereby cause an independent review to be made
by an accountant  selected by Employee.  If such accountant  determines that the
calculation is in error and Employee is entitled to additional  compensation and
Employee's  accountant cannot agree as to the amount,  the two accountants shall
select an independent third accountant to review the calculation and any payment
made,  whose decision  shall be binding on both parties.  If as a result of such
review employee's  payment is increased,  Employer shall bear the expense of the
review, including the cost of Employee's accountant and the third account.


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<PAGE>
         (i) Headings.  The headings herein are for  convenience  only and shall
not affect the interpretation of this Agreement.

         (j) Stock  Options.  Except for "incentive  stock  options"  within the
meaning  of 26  U.S.C.  ss.  422,  Employer  agrees  to  continue  in  effect in
accordance with the terms and conditions  thereof (other than the requirement of
Employee's  continuing  employment  with  Employer)  during  the  term  of  this
Agreement  and  subsequent  to  Employee's  retirement  and so long as  Employee
remains a director  or a  consultant  to  Employer,  all stock  options  for the
purchase of Employer's shares held by Employee at the date of his Agreement.  In
addition,  upon  Employee's  retirement,  any period  provided  for  Employer to
continue to hold shares  subsequent  to the prior  exercise of any stock  option
shall  terminate and be of no further force or effect,  and any such shares then
held by Employer shall be delivered to Employee, subject to Employee's agreement
to comply with applicable  securities laws and the provisions of any restrictive
legend required to be included on any certificate(s)  issued therefor under such
securities laws.

         (k) Attorney's  Fees. If Employee  retains legal counsel as a result of
the  termination of his  employment by Employer,  or to enforce any term of this
Agreement,  by reason of Employer's alleged failure to perform or alleged breach
of this  Agreement,  Employer shall pay to Employee all such attorneys' fees and
costs  associated  with such legal counsel,  whether or not litigation  shall be
commenced.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.

                                   "EMPLOYEE"


                                   /s/ Marc S. Hermelin
                                   MARC S. HERMELIN


                                   "EMPLOYER"

                                   K-V PHARMACEUTICAL COMPANY


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



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<PAGE>
STATE OF MISSOURI       )
                        ) ss.
COUNTY OF ST. LOUIS     )

         I, Chris  Lahar,  do hereby  certify that on this 16th day of December,
1996,  before me  personally  appeared Marc S.  Hermelin,  to me known to be the
person  described  in  and  who  executed  the  foregoing   instrument  and  who
acknowledged that he executed the same as his free act and deed.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal in said County and State on the day and year above written.


                                             /s/ Chris Lahar

My Commission Expires:



STATE OF MISSOURI       )
                        ) ss.
COUNTY OF ST. LOUIS     )

         I, Chris  Lahar,  do hereby  certify that on this 16th day of December,
1996,  before me personally  appeared Gerald R. Mitchell,  to me known to be the
VP, Finance of KV Pharmaceutical  Company, a Delaware corporation,  and known to
me to be the same person whose name is subscribed  to the foregoing  instrument,
who  acknowledged  that he signed and  delivered  said  instrument  pursuant  to
authority given by the Board of Directors of said  corporation,  as his free act
and deed, as the free act and deed of said corporation for the uses and purposes
therein set forth.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal in said County and State on the day and year above written.


                                               /s/ Chris Lahar

My Commission Expires:



                                       23

<PAGE>
KV PHARMACEUTICAL COMPANY




December 16, 1996


Mr. Marc S. Hermelin
2503 S. Hanley Road
St. Louis, MO 63144

RE:      Agreement between KV Pharmaceutical Company
         and Marc S. Hermelin, dated December 16, 1996

Dear Mr. Hermelin:

This letter will  confirm our  understanding  that your Annual  Bonus for Fiscal
Year 1997 will be  calculated  and paid to you under your old  Agreement,  dated
November 15, 1993 and the Amendments attached thereto.

Except as specifically  modified by this letter, it is agreed that the Agreement
will remain in full force and effect as originally written.

If this  accurately  reflects  our  understanding,  please sign one copy of this
letter and return it to me for our files.

Sincerely,

KV PHARMACEUTICAL COMPANY

/s/ Gerald R. Mitchell

Gerald R. Mitchell
Vice-President, Finance


AGREED:   /s/ Marc S. Hermelin       DATE:   12/16/96
          Marc S. Hermelin



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