Exhibit 10.11

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is entered into as of this 8th Day of
September, 2009 (“Effective Date”) between Lannett Company, Inc. (“Company”) and
Stephen J. Kovary (Executive).

 

RECITALS

 

Company wishes to employ Executive as its Vice President of Operations; and
Executive wishes to accept such employment under the terms and conditions set
forth in this Agreement.

 

IT IS AGREED as follows:

 

1.                                  Employment. Company hereby employs Executive
as its Vice President of Operations; and Executive accepts such employment.

 

2.                                  Term. The term of employment under this
Agreement shall commence on the Effective Date and shall continue, unless
otherwise terminated earlier under Section 8, until the day before the one-year
anniversary of the Effective Date, i.e., September 8, 2009 (the “Term”),
provided that on the day before the one-year anniversary of the Effective Date
and the day before the anniversary of any one-year renewal of such Agreement the
Term shall be automatically extended for successive additional one (1) year
periods unless at least ninety (90) days prior to such anniversary date, either
Company or Executive furnishes the other with written notice that the term is
not to be so extended.

 

3.                                  Duties. Executive shall devote his full-time
efforts to the proper and faithful performance of all duties customarily
discharged by a Vice President of Operations for a company doing the type of
business engaged in by Company and any additional duties assigned to him from
time to time by the President and Chief Executive Officer of Company and/or the
Board of Directors of Company. Executive shall report directly to the President
and CEO of the Company. Executive agrees to use his best efforts and comply with
all fiduciary and professional standards in the performance of his duties
hereunder. Executive shall provide services to any subsidiary or affiliate of
Company without additional compensation and benefits beyond those set forth in
this Agreement, and any compensation and benefits provided to Executive for such
services shall be a credit with regard to amounts due from Company under this
Agreement. Executive represents and warrants to Company that, at all times prior
to the Effective Date when he has served as Vice President of Operations of the
Company and at all times during the Term, he has either fulfilled or will
fulfill his duty of loyalty to Company; and he has either acted or will act in
the best interests of the Company’s shareholders.

 

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4.           Base Salary. Executive shall be paid a base salary of Two Hundred
Thousand and no cents ($200,000.00) per annum for the Term, payable, less
applicable withholdings, in proportional monthly payments or more frequently in
accordance with Company’s regular practice. Salary for a portion of any period
will be prorated. The Compensation Committee of the Board of Directors and the
President and CEO will conduct an annual performance review of Executive and, as
part of such review, will consider adjustments to the base salary set forth
herein based on the performance of both Executive and Company.

 

5.           Annual Bonus. Executive shall be eligible to participate in the
Management Incentive Bonus Plan (the “MIB”) administered by the Compensation
Committee, or any successor annual bonus plan or arrangement generally made
available to the executive officers of Company. The MIB shall provide Executive
with a target bonus opportunity for each fiscal year of Company (i.e. July 1 to
June 30), regardless of whether or not a bonus is declared for any fiscal year.

 

6.           Benefits.

 

During the Term Executive shall have the following benefits:

 

(a)                                  Executive may participate in all Company
sponsored stock option plans, retirement plans, 401(k) plans, life insurance
plans, medical insurance plans, disability insurance plans, executive stock
ownership plans and such other benefit plans generally available from time to
time to other executive employees of Company for which he qualifies under the
terms of the plans. Executive’s participation in and benefits under any benefit
plan shall be on the terms and subject to the conditions specified in such plan.

 

(b)                                 Vacation days or personal time off (PTO)
granted to Executive in accordance with the Company’s published vacation or PTO
policy generally afforded to salaried management employees.

 

7.           Reimbursement of Expenses. Company will reimburse Executive for the
reasonable and necessary expenses incurred by him in the performance of his
duties under this Agreement in accordance with Company’s policies in effect from
time to time.

 

8.           Termination of Employment.

 

(a)                                  Executive’s employment under this Agreement
may be terminated at any time by the President and Chief Executive Officer,
and/or the Board of Directors of Company, with or without Cause (as defined
below). Executive’s employment is “at-will.”

 

(b)                                 Executive’s employment under this Agreement
shall terminate upon his resignation or death.

 

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(c)                                  Executive’s employment under this Agreement
shall terminate upon thirty (30) days written notice by Company to Executive of
a termination due to Disability, provided such notice is delivered during the
period of Disability. The term “Disability” shall mean, for purposes of this
Agreement, the inability of Executive, due to injury, illness, disease or bodily
or mental infirmity to engage in the performance of his material duties of
employment with Company as contemplated by Section 3 herein for (i) any period
of ninety (90) consecutive days or (ii) a period of one hundred fifty days (150)
in any consecutive twelve (12) months, provided that if the Executive returns to
work in the consecutive 12 month period for a period of less than ten
(10) consecutive business days in duration, such return to work shall not be
deemed to interfere with a determination of consecutive absent days if the
reason for absence before and after the interim return are the same. Benefits to
which Executive is entitled under any disability policy or plan provided by
Company shall reduce the base salary paid to Executive during any period of
Disability on a dollar-for-dollar basis.

 

(d)                                 Company shall have the right to terminate
Executive’s employment for Cause. For purposes of this Agreement, “Cause” shall
consist of any of the following:

 

(i)                                     Executive’s willful commission of an act
constituting fraud, embezzlement, breach of any fiduciary duty owed to the
Company or its stockholders or other material dishonesty with respect to the
Company;

 

(ii)                                  Gross negligence or willful misconduct in
the performance of Executive’s duties;

 

(iii)                               Willful or reckless conduct of Executive
which has an adverse impact (economic or otherwise) on Company;

 

(iv)                              Executive’s willful violation of any law,
rule or regulation relating to the operation of Company or any of its
subsidiaries or affiliates;

 

(v)                                 The order of any court or supervising
governmental agency with jurisdiction over the affairs of Company or any
subsidiary or affiliate;

 

(vi)                              Executive’s willful violation of any provision
of this Agreement, including without limitation violation of Sections 9, 10, 11
or 12;

 

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(vii)                           Executive’s conviction or plea of nolo
contendere (or its equivalent) with respect to a felony or any other crime
involving dishonesty or moral turpitude;

 

(viii)                        Abuse of illegal drugs or other controlled
substances or habitual intoxication;

 

(ix)                                Willful violation by Executive of Company’s
published business conduct guidelines, code of ethics, conflict of interest or
other similar policies; or

 

(x)                                   Executive becoming under investigation by
or subject to any disciplinary charges by any regulatory agency having
jurisdiction over the Company (including but not limited to the Drug Enforcement
Administration (DEA), Food and Drug Administration (FDA) or the Securities and
Exchange Commission (SEC)) or if any complaint is filed against Executive by any
such regulatory agency.

 

(e)                                  If Executive’s employment terminates for
Cause or for any reason other than as set forth in Section 8(f), Company shall
be obligated only to continue to pay Executive’s salary and, to the extent
earned, accrued and unpaid, annual cash bonus and long term incentive
compensation and furnish the then existing benefits under Section 6 up to the
date of termination (except as otherwise set forth in this Agreement).

 

(f)                                    If Executive’s employment is terminated
by Company without Cause following the completion of two (2) full years of
employment with Company, in addition to the amounts payable under Section 8(e),
Executive shall be entitled to receive the following: (i) his base salary for a
period of eighteen (18) months after the termination date, (ii) insurance
coverage provided to him equal to such coverage provided to him on the date of
termination at no cost or, if ineligible for continued coverage under Company
policies, reimbursement of the cost of comparable coverage for a period of
eighteen (18) months, (iii) a pro rated annual cash bonus for the then current
fiscal year calculated as if all base targets and base goals are achieved (but
no other incentive compensation beyond the date of termination), if it is more
likely than not, within the Company’s discretion, that the bonus will be earned
by Executive, to be paid at the times and frequency regularly paid, and (iv) the
Company shall cause all outstanding Company stock options awarded Executive
prior to termination of his employment to be one hundred percent (100%) vested
at termination. As a condition to the salary, insurance continuation, under this
Section 8(f), Executive must first execute and deliver to Company, in a form
prepared by Company, a release of all claims against Company and other
appropriate parties, excluding Company’s performance under this Section 8(f) and
Executive’s vested rights under Company sponsored retirement plans, 401(k) plans
and stock ownership plans. The obligation of Company to pay Executive’s salary
as required by Subsection (i) of this Section 8(f) shall not be subject to
offset for earnings from Executive’s subsequent employment,

 

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provided however, that, if and to the extent required under Section 409A of the
Internal Revenue Code (“Section 409A”), payments required under
Section 8(f)(i) shall be made in twenty-six (26) equal biweekly installments
commencing as of the first biweekly pay period immediately following the end of
the six-month period commencing on the Termination Date and ending six months
following the Termination Date. Neither the Company nor the Executive shall have
the right hereunder to alter the payment schedule applicable to the Severance
Package.

 

(g)                                 The termination of Executive’s employment
with Company, for any reason and irrespective as to whether initiated by
Executive or Company, shall be considered a contemporaneous resignation by
Executive from the position of Company’s Vice President of Operations; and shall
be deemed a termination from employment with all entities related to Company.

 

(h)                                 The Executive may terminate his employment
hereunder at any time for any reason by giving the Company prior written notice
not less than thirty (30) days prior to such termination. Termination by the
Executive pursuant to this Clause shall be deemed a termination entitling the
Executive to compensation Pursuant to Section 8(e) above.

 

9.                                  Confidential Information. During Executive’s
employment with Company and at all times after the termination of such
employment, regardless of the reason for such termination, Executive shall hold
all Confidential Information relating to Company in strict confidence and in
trust for Company and shall not disclose or otherwise communicate, provide or
reveal in any manner whatsoever any of the Confidential Information to anyone
other than Company without the prior written consent of Company. “Confidential
Information” includes, without limitation, financial information, related trade
secrets (including, without limitation, Company’s business plan, methods and/or
practices) and other proprietary business information of Company which may
include, without limitation, market studies, customer and client lists, referral
lists and other items relative to the business of Company. “Confidential
Information” shall not include information which is or becomes in the public
domain through no action by Executive or information which is generally
disclosed by Company to third parties without restrictions on such third
parties.

 

10.                           Solicitation of Customers. During his employment
with Company and for a period of eighteen (18) months after the termination of
Executive’s employment, regardless of the reason for the termination (the
“Non-Competition Period”), Executive shall not, whether directly or indirectly,
for his own benefit or for the benefit of any other person or entity, or as a
partner, stockholder, member, manager, officer, director, proprietor, employee,
consultant, representative, agent of any entity other than Company, solicit,
directly or indirectly, any customer of Company, or induce any customer of
Company to terminate any association with Company, in connection with those
certain products being offered for sale by Company or in its research and
development pipeline on the date of termination of Executive’s employment (the
“Restricted Products”) or otherwise attempt to provide services to any customer
of Company in connection with the Restricted Products. Executive shall prevent
such solicitation to the

 

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extent he has authority to prevent same and otherwise shall not interfere with
the relationship between Company and its customers. This provision shall not be
interpreted to prohibit, prevent or otherwise impair the Executive’s ability and
right to seek and obtain employment from a competitor of the Company, even if
said competitor is currently selling products to the Company’s customers that
are the same as Company products. While the Executive shall be unrestricted in
seeking to sell products to the Company’s customers that are different than the
Company’s products, it is the intent of this paragraph to preclude the Executive
from having said competitor replace the Company as a supplier of a product or
otherwise take existing sales from the Company for the period in question.

 

11.                           Solicitation of Executives and Others. During his
employment with Company and during the Non-Competition Period, Executive shall
not, whether directly or indirectly, for his own benefit or for the benefit of
any other person or entity, or as a partner, stockholder, member, manager,
officer, director, proprietor, employee, consultant, representative, agent of
any entity other than Company, solicit, for purposes of employment or
association, any Executive or agent of Company (“Solicited Person”), or induce
any Solicited Person to terminate such employment or association for purposes of
becoming employed or associated elsewhere, or hire or otherwise engage any
Solicited Person as an Executive or agent of an entity with whom Executive may
be affiliated or permit such, or otherwise interfere with the relationship
between Company and its employees and agents. For purposes of this Agreement, an
employee or agent of Company shall mean an individual employed or retained by
Company during the Term and/or who terminates such association with Company
within a period of six (6) months after the termination of Executive’s
employment with Company.

 

12.                           Non-Competition. Without the written consent of
the President and Chief Executive Officer, during his employment with Company
and during the Non-Competition Period, Executive shall not directly or
indirectly, as an officer, director, shareholder, member, partner, joint
venturer, Executive, independent contractor, consultant, or in any other
capacity:

 

(a)

Engage, own or have any interest in;

(b)

Manage, operate, join, participate in, accept employment with, render advice to,
or become interested in or be connected with;

(c)

Furnish consultation or advice to; or

(d)

Permit his name to be used in connection with;

 

Any person or entity engaged in a business in the United States or Canada which
is engaged in the manufacture, distribution or sale of the Restricted Products
or which otherwise competes with the business of Company as it exists from time
to time and, in the case of termination of this Agreement, as it exists on the
termination date. Notwithstanding the foregoing, holding one percent (1%) or
less of an interest in the equity, stock options or debt of any publicly traded
company shall not be considered a violation of this Section 12.

 

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13.                           Disclosure and Ownership of Work product and
Information.

 

(a)                              Executive agrees to disclose promptly to
Company all ideas, inventions (whether patentable or not), improvements,
copyrightable works of original authorship (including but not limited to
computer programs, compilations of information, generation of data, graphic
works, audio-visual materials, technical reports and the like), trademarks,
know-how, trade secrets, processes and other intellectual property, developed or
discovered by Executive in the course of his employment relating to the business
of Company, or to the prospective business of Company, or which utilizes
Company’s information or staff services (collectively, “Work product”).

 

(b)                             Work product created by Executive within the
scope of Executive’s employment, on Company time, or using Company resources
(including but not limited to facilities, staff, information, time and funding),
belongs to Company and is not owned by Executive individually. Executive agrees
that all works of original authorship created during his employment are “works
made for hire” as that term is used in connection with the U.S. Copyright Act.
To the extent that, by operation of law, you retain any intellectual property
rights in any Work product, Executive hereby assigns to Company all right, title
and interest in all such Work product, including copyrights, patents, trade
secrets, trademarks and know-how.

 

(c)                              Executive agrees to cooperate with Company, at
Company’s expense, in the protection of Company’s information and the securing
of Company’s proprietary rights, including signing any documents necessary to
secure such rights, whether during or after your employment with Company, and
regardless of the fact of any employment with a new company.

 

14.                           Enforcement of Agreement; Injunctive Relief;
Attorneys’ Fees and Expenses. Executive acknowledges that violation of this
Agreement will cause immediate and irreparable damage to Company, entitling it
to injunctive relief. Executive specifically consents to the issuance of
temporary, preliminary, and permanent injunctive relief to enforce the terms of
this Agreement. In addition to injunctive relief, Company is entitled to all
money damages available under the law. If Executive violates this Agreement, in
addition to all other remedies available to Company at law, in equity, and under
contract, Executive agrees that Executive is obligated to pay all Company’s
costs of enforcement of this Agreement, including attorneys’ fees and expenses.

 

15.                           Severability and Savings. Each provision in this
Agreement is separate. If necessary to effectuate the purpose of a particular
provision, the Agreement shall survive the termination of Executive’s employment
with Company. If any provision of this Agreement, in whole or in part, is held
to be invalid or unenforceable, the parties agree that any such provision shall
be deemed modified to make such provision enforceable to the maximum extent
permitted by applicable law. As to any provision held to be invalid or
unenforceable, the remaining provisions of this Agreement shall remain in
effect.

 

16.                           Binding Effect. This Agreement shall be binding
upon and shall inure to the benefit of Company and its successors and assigns.
This Agreement

 

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shall be binding upon and inure to the benefit of Executive, his heirs and
personal representatives. This Agreement is not assignable by Executive.

 

17.                           Statute of Limitations. Executive agrees not to
initiate any action or suit relating directly or indirectly to employment with
Company or the termination of such employment more than one (1) year after the
effective date of termination of employment. Executive expressly waives any
other longer statute of limitations. However, Executive agrees that any shorter
statute(s) of limitations remain in effect.

 

18.                           Indemnification. To the fullest extent permitted
by applicable law, the Company shall indemnify, defend, and hold harmless the
Executive from and against any and all claims, demands, actions, causes of
action, liabilities, losses judgments, fines, costs and expenses (including
reasonable attorneys’ fees and settlement expenses) arising from or relating to
his service or status as an officer, director, employee, agent or representative
of the Company or any affiliate of the Company or in any other capacity in which
the Executive serves or has served at the request of, or for the benefit of, the
Company or its affiliates. The Company’s obligations under this section shall be
in addition to, and not in derogation of, any rights the Executive may have
against the Company to indemnification or advancement of expenses, whether by
statute, contract or otherwise, and the Company’s obligation pursuant to this
Section 18 shall survive termination of the Executive’s employment.

 

19.                           Section 409A Compliance. No payment shall be made
under this Agreement in a form or at a time that would subject the recipient to
interest or penalties under Section 409A. It is the intention of the Parties to
make all payments hereunder in compliance with Section 409A and the provisions
of this Agreement should be interpreted and applied to give effect to this
intention. Neither Executive nor Company, nor any provision of this Agreement,
shall be permitted to cause the acceleration of payments hereunder, except as
permitted under Section 409A, nor shall either of the Parties be permitted to
defer the payment of any payments hereunder.

 

20.                           Miscellaneous.

 

(a)

No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by Company
and Executive. The waiver or nonenforcement by Company of a breach by Executive
of any provision of this Agreement shall not be construed as a waiver of any
subsequent breach by Executive. This Agreement is the parties’ entire agreement
relating to the subject matter hereof and any and all prior agreements,
representations or promises, oral or otherwise, express or implied, are
superseded by and/or merged into this Agreement.

 

 

(b)

Notices and all other communications provided for in this Agreement shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid
overnight courier to the parties at the addresses set forth below (or such other
addresses as shall be specified by the

 

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parties by like notice): To Company, Lannett Company, Inc., 9000 State Road,
Philadelphia, PA 19136 Attn.: President/Chief Executive Officer; To the
Executive: Stephen J. Kovary, 22 Heritage Court, Randolph, New Jersey 07869. All
notices shall be deemed effective upon receipt. The failure to accept mail
forwarded through the U.S. Postal Service, certified, return receipt requested,
shall be deemed received as of the earlier of the first date such delivery is
refused or, alternatively, if notices are provided of attempts to deliver, the
date on which said first notice was provided to the Company.

 

 

(c)

This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania
without regard to choice of law rules. Any action to enforce this Agreement
shall be filed in the state or federal courts located in Pennsylvania

 

 

(d)

Although this Agreement was drafted by Company, the parties agree that it
accurately reflects the intent and understanding of each party and should not be
construed against Company for the sole reason that it was the drafter if there
is any dispute over the meaning or intent of any provisions.

 

 

(e)

Executive agrees that this Agreement is confidential and Executive will not
disclose the terms and conditions of this Agreement to any Company employee or
other third party, other than Executive’s attorney, accountant, professional
advisors and members of his immediate family, except as may be permitted by
applicable law.

 

 

(f)

This Agreement may be executed in counterparts, which together shall constitute
one Agreement.

 

 

(g)

Executive agrees that this Agreement is the sole Employment Agreement between
Company and Executive and supersedes any and all prior Employment Agreements,
Letters of Understandings, Verbal understandings or commitments.

 

 

(h)

By their signatures below, the parties acknowledge that they have had sufficient
opportunity to read and consider, and that they have carefully read and
considered, each provision of this Agreement and that they are voluntarily
signing this Agreement intending to be legally bound hereby. The parties have
executed this Agreement as of the Effective Date.

 

WITNESS

 

 

 

 

 

/s/ Daniel Sell

 

/s/ Stephen J. Kovary

 

 

Stephen J. Kovary

 

 

 

 

 

LANNETT COMPANY INC.

 

 

 

 

 

By

/s/ Arthur Bedrosian

 

 

Arthur Bedrosian

 

 

Its President and CEO

 

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