Exhibit 10.1

 

 

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”), dated as
of May 1, 2004, by and between HI-TECH PHARMACAL CO., INC., a Delaware
corporation with offices at 369 Bayview Avenue, Amityville, New York 11701 (the
“Corporation”), and DAVID S. SELTZER, an individual residing at 10 Sterling
Place, Lawrence, NY 11559 (the “Executive”).

 

 

W I T N E S S E T H:

 

WHEREAS, the Corporation desires to secure the services of the Executive upon
the terms and conditions hereinafter set forth; and

 

WHEREAS, the Executive desires to render services to the Corporation upon the
terms and conditions hereinafter set forth.

 

NOW, THEREFORE, the parties mutually agree as follows:

 

Section 1. Employment. On the date hereof (the “Effective Date”), the
Corporation hereby employs the Executive and the Executive on the Effective Date
accepts such employment, as an executive of the Corporation, subject to the
terms and conditions set forth in this Agreement.

 

Section 2. Duties. The Executive shall serve as President and Chief Executive
Officer of the Corporation and shall properly perform such duties as may be
assigned to him from time to time by the Board of Directors of the Corporation.
During the term of this Agreement, the Executive shall devote substantially all
of his available business time to the performance of his duties hereunder unless
otherwise authorized by the Board of Directors.

 

Section 3. Term of Employment. The term of the Executive’s employment shall
commence on the Effective Date and shall continue for three (3) years or until
terminated

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pursuant to Section 5 hereof.

 

Section 4. Compensation of Employee.

 

4.1. Compensation. The Corporation shall pay to the Executive as annual
compensation for his services hereunder a base salary (“Base Salary”) as
follows: (i) for the fiscal year May 1, 2004 through April 30, 2005, the
Executive shall be paid a Base Salary equal to Three Hundred and Fifty Thousand
($350,000) Dollars and (ii) for each fiscal year thereafter, the Executive shall
be paid a Base Salary equal to the sum of (a) the Base Salary for the
immediately preceding fiscal year and (b) an amount determined by multiplying
the Base Salary in effect for the immediately preceding fiscal year by five (5%)
percent. The increased Base Salary thereby established shall continue in effect
and for all purposes of this Agreement be defined as Base Salary during the term
of this Agreement until again adjusted as hereinabove provided.

 

The Base Salary shall be payable weekly less such deductions as shall be
required to be withheld by applicable law and regulations.

 

4.2. Bonus. In addition to his annual Base Salary, the Executive may receive a
bonus (“Bonus”) during each year of employment during the term of this
Agreement. The Executive’s Bonus for each year shall be determined in accordance
with the goals set by the Board of Directors. The Board has set target
performance goals, so that if the Pre-Tax Net Income of the Corporation exceeds
120% of the prior year’s Pre-Tax Net Income, the Executive’s Bonus shall be
equal to a percentage of his Base Salary, which percentage shall be the product
of (i) the percentage increase of the Corporation’s Pre-Tax Net Income from the
Pre-Tax Net Income of the immediately preceding year and (ii) two and one-half
(2 ½). In the event the Pre-Tax Net Income of any year exceeds the Pre-Tax Net
Income of the immediately

 

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preceding year, the Bonus shall accrue up to a maximum of One Hundred (100%)
percent of the Base Salary. By way of illustration, in the event the Pre-Tax Net
Income for fiscal 2004 is 120% of $8,970,000, the Pre-Tax Net Income for fiscal
2003, or $10,764,000, the Executive’s Bonus shall be $175,000, or 50% of the
Base Salary of $350,000. In the event the Pre-Tax Net Income for fiscal 2004 is
$12,558,000 or 140% over the preceding year’s Pre-Tax Net Income of $8,970,000,
the Bonus will be 100% of the Base Salary or $350,000. In the event the Pre-Tax
Net Income does not exceed the prior year’s Pre-Tax Net Income, there shall be
no Bonus awarded to the Executive under this Section 4.2 however a bonus may
still be awarded under Section 4.3. The Bonus shall be payable within thirty
(30) days after the Corporation’s regularly employed independent certified
public accountants (“Accountants”), in accordance with generally accepted
accounting principles consistently applied, determine the Pre-Tax Net Income for
such year.

 

4.3. Additional Bonus. In addition to his Base Salary and Bonus, the Employee
may receive an additional bonus up to a maximum of one hundred (100%) percent of
his Base Salary (the “Additional Bonus”), with respect to each year of
employment hereunder at the discretion of the Corporation’s Board of Director,
taking into account, among other things, progress towards strategic objectives
not fully measured by Pre-Tax Net Income, including but not limited to the
Corporation’s acquisitions, strategic alliances, and approvals of Abbreviated
New Drug Applications by the Food and Drug Administration.

 

4.4. Pre-Tax Net Income Defined. The term “Pre-Tax Net Income” as used in
Sections 4.2, 4.3 and 4.4 shall mean the net income of the Corporation prior to
the payment or provision for any Federal, state or local income or other taxes,
but after deducting the Executive’s Base Salary for such year, as computed by
the Corporation’s Accountants

 

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in accordance with generally accepted accounting principles.

 

4.5. Expenses. The Corporation shall pay or reimburse the Executive for all
reasonable and necessary business, travel or other expenses, upon proper
documentation thereof, which may be incurred by him in connection with the
rendition of the services contemplated hereunder. In order to facilitate travel
by the Executive in the performance of his duties hereunder, the Corporation
shall furnish the Executive, without cost to him, with a Corporation owned or
leased automobile of his choice. The Corporation shall pay all the expenses of
maintaining, insuring and operating said automobile upon presentation of
appropriate vouchers and/or receipts to the extent that the Corporation does not
pay such expenses directly.

 

4.6. Benefits. During the term of this Agreement, the Executive shall be
entitled to participate in such pension, profit sharing, group insurance, option
plans, hospitalization, group health benefit plans and all other benefits and
plans as the Corporation provides to its senior executives. The Corporation
shall continue to pay all premiums under the life insurance policies in force
immediately prior to the date hereof.

 

4.7. Discretionary Payments. Nothing herein shall preclude the Corporation from
paying the Executive such bonus or bonuses or other compensation as the Board of
Directors, in its discretion, may authorize from time to time.

 

4.8. Employee Stock Options. During the term of this Agreement, the Executive
shall be eligible to receive annually options to purchase a minimum amount of
fifty (50,000) thousand shares of the Corporation’s Common Stock in accordance
with the terms and provisions of the Corporation’s Amended and Restated Stock
Option Plan (the “Plan”). Such options shall vest in accordance with the terms
of the Plan, a copy of which has been provided to

 

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the Executive.

 

Section 5. Termination.

 

5.1. Base Salary and Bonus Payments. This Agreement shall terminate upon the
death, Total Disability, as hereinafter defined, or termination of employment of
the Executive. The Corporation shall pay to the Executive, any person designated
in writing or if no such person is designated, to his estate, as the case may
be, the aggregate amount of the Base Salary up to the end of the month in which
death or termination of employment occurs. In the event of either death or a
Total Disability, the Executive or his estate, as the case may be, shall
continue to receive his Base Salary for the remaining term of this Agreement;
provided, however, that (i) in the case of death, to the extent any proceeds in
excess of $1,000,000 from a key man life insurance owned by the Corporation on
the life of the Executive are paid to the Executive’s estate and (ii) in the
case of a Total Disability, to the extent any proceeds from a disability
insurance policy owned by the Corporation are paid to the Executive or his
designee, the Corporation shall receive a credit against its salary payment
obligations in an amount equal to the insurance proceeds paid to the Executive,
his designee or his estate. In addition to the Base Salary, the Executive, his
designee or his estate shall be paid an amount equal to the product of (i) the
Guaranteed Bonus for such year in which death, Total Disability or termination
of employment occurred and (ii) a fraction, the numerator of which are the
number of months during the year of such death, Total Disability or termination
of employment during which the Executive was employed by the Corporation through
and including the month of his death, Total Disability or termination of
employment, and the denominator of which is twelve (12).

 

5.2. Termination For Cause. In the event the Executive is terminated For Cause,
as hereinafter defined, or because Executive wrongfully leaves his employment

 

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hereunder then, upon such occurrence, this Agreement shall be deemed terminated
and the Corporation shall be released from all obligations to the Executive with
respect to this Agreement except for any Base Salary and Bonuses accrued and
unpaid through the date of termination.

 

5.3. Definitions. As used herein, the term “For Cause” shall mean (i) the
Executive’s final non-appealable conviction in a court of law of any crime or
offense which constitutes a felony in the jurisdiction involved, or (ii) willful
misconduct, or (iii) reckless disregard of his responsibilities under this
Agreement.

 

Section 6. Disability.

 

6.1. Total Disability. In the event the Executive is mentally or physically
incapable or unable to perform his regular and customary duties of employment
with the Corporation for a period of one hundred eighty (180) consecutive days
in any one hundred eighty (180) consecutive day period during the term, the
Executive shall be deemed to be suffering from a “Total Disability”.

 

6.2. Payment During Disability. In the event the Executive is unable to perform
his duties hereunder by reason of a disability, which disability does not
constitute a Total Disability, the Corporation shall continue to pay the
Executive his Base Salary during the continuance of such disability; provided,
however, that in the event the Executive shall, within twelve (12) months after
his disability, recover sufficiently to return to work for a period of sixty
(60) consecutive working days, he shall be fully reinstated. Any relapse which
thereafter occurs shall be deemed to be a subsequent disability. To the extent
the Corporation maintains disability insurance for its employees, the
Corporation shall pay to the Executive the difference between the Executive’s
Base Salary and the disability payments made under such insurance on behalf of

 

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the Employee.

 

Section 7. Vacations. The Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his Base Salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient.

 

Section 8. Disclosure of Confidential Information.

 

8.1. Disclosure. Executive recognized that he will have access to secret and
confidential information regarding the Corporation, its products, know-how,
customers and plans. Executive acknowledges that such information is of great
value to the Corporation, is the sole property of the Corporation, and has been
and will be acquired by him in confidence. In consideration of the obligations
undertaken by the Corporation herein, Executive will not, at any time, during or
after his employment hereunder, reveal, divulge or make known to any person, any
information acquired by Executive during the course of his employment, which is
treated as confidential by the Corporation and not otherwise in the public
domain.

 

8.2. Survival. The provisions of this Section 8 shall survive Executive’s
employment hereunder.

 

Section 9. Covenant Not To Compete.

 

9.1. Covenant. Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Corporation that Executive
agrees, and, accordingly, Executive does hereby agree, that he will not,
directly or indirectly, at any time during the Restricted Period, as hereinafter
defined:

 

  (i) except as provided in Section 9.3 hereof, engage in any business

 

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    competitive with the business conducted by the Corporation either on his own
behalf or as an officer, director, stockholder, partner, consultant, associate,
employee, owner, agent, creditor, independent contractor, or co-venturer of any
third party; or

 

  (ii) employ or engage, or cause or authorize, directly or indirectly, to be
employed or engaged, for or on behalf of himself or any third party, any
employee, representative or agent of the Corporation.

 

9.2. Enforceability. If any of the restrictions contained in this Section 9
shall be deemed to be unenforceable by reason of the extent, duration or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Section shall
then be enforceable in the manner contemplated hereby.

 

9.3. Exception. This Section 9 shall not be construed to prevent Executive from
owning, directly and indirectly, in the aggregate, an amount not exceeding five
percent (5%) of the issued and outstanding voting securities of any class of any
corporation whose voting capital stock is traded on a national securities
exchange or in the over-the-counter market.

 

9.4. Restricted Period Defined. The term “Restricted Period”, as used in this
Section 9, shall mean the period of one (1) year after the date Executive leaves
his employment hereunder.

 

9.5. Survival. The provisions of this Section 9 shall survive the termination of
Executive’s employment hereunder and until the end of the Restricted Period as
provided in Section 9.4 hereof.

 

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Section 10. Change in Control.

 

10.1. Payment on Change in Control. In the event of a Change in Control, as
hereinafter defined, of the Corporation at any time during the term of the
Executive’s employment hereunder, followed by the Executive’s employment
hereunder being terminated for any reason whatsoever, including voluntary
termination of the Executive within twenty-four (24) months of a Change in
Control, by the Executive or the Corporation and/or its successor, the
Corporation and/or its successor shall be obligated to furnish the Executive
with an office consistent with the office provided to the Executive immediately
prior to such termination at a comparable location for a period of one (1) year
and to pay to the Executive a lump sum in an amount equal to three (3) times:
(i) the Salary to be paid to the Executive pursuant to Section 4.1 hereof for
the calendar year in which such termination occurs, plus (ii) the bonus declared
payable to the Executive for the immediately preceding calendar year. The
payment of the above amount shall be made as soon as practicable after
Executive’s termination of employment, but in no event more than thirty (30)
days after termination and shall be in addition to any other payments to which
the Executive may be entitled pursuant to Sections 4.1, 4.2 and 4.3 hereof. In
addition, the Corporation shall: (i) continue to allow Executive to participate
in the hospitalization, group health benefit and disability plans of the
Corporation for 24 months from the date of Executive’s termination of employment
on the same terms and conditions as immediately prior to Executive’s termination
(or provide the equivalent thereof if such plans do not allow such
participation), (ii) continue to pay to Executive the automobile allowance
provided in Section 4.5 hereof until the end of the automobile lease then in
effect (but not for more than three (3) years) and (iii) provide appropriate
outplacement services the cost of which shall not exceed $15,000 as selected by
the Executive for up to 12 months from the date of

 

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Employee’s termination of employment. In the event it shall be determined that
any payment or distribution to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this paragraph of Section 10.1 (a “Payment”)) is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”) in connection with a Change in Control of the Corporation
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then the Executive
shall be entitled to receive an additional payment (a “Gross-Up Payment”) from
the Corporation in an amount such that after payment by the Executive of all
taxes, including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and any Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.

 

10.2. Change in Control Defined. A “Change in Control” shall be deemed to occur
upon the earliest to occur after the date of this Agreement of any of the
following events:

 

  (i) Acquisition of Stock by Third Party. Any Person (as hereinafter defined)
is or becomes the Beneficial Owner (as hereinafter defined), directly or
indirectly, of securities of the Corporation representing twenty-five percent
(25%) or more of the combined voting power of the Corporation’s then outstanding
securities and such Person has initiated in the past or thereafter initiates
actions or demonstrates an intent to influence or control the business, affairs

 

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    or management of the Corporation or to cause the Corporation to enter into a
transaction or a series of transactions with such Person or a third party
without the prior consent or request of the Board of Directors;

 

  (ii) Change in Board of Directors. During any period of 12 months, individuals
who at the beginning of such period constitute the Board, and any new director
whose election by the Board or nomination for election by the Corporation’s
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board;

 

  (iii) Corporate Transactions. The effective date of a merger or consolidation
of the Corporation with any other entity, other than a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 51% of the combined voting power of the voting
securities of the surviving entity outstanding immediately after such merger or
consolidation and with the power to elect at least a majority of the board of
directors or other

 

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    governing body of such surviving entity;

 

  (iv) Liquidation. The approval by the shareholders of the Corporation of a
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation’s
assets;

 

  (v) Other Events. There occurs any other event of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or a response to any similar item on any similar schedule or form)
promulgated under the Exchange Act, whether or not the Corporation is then
subject to such reporting requirement.

 

  (vi) Certain Definitions. For purposes of this Section 10, the following terms
shall have the following meanings:

 

  (a) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

  (b) “Person” shall have the meaning as set forth in Section 13(d) and 14(d) of
the Exchange Act; provided, however, that Person shall exclude (i) the
Corporation, (ii) any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, and (iii) any corporation owned,
directly or indirectly, by the shareholders of the Corporation in substantially
the same proportions as their ownership of stock of the Company.

 

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  (c) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3
under the Exchange Act: provided, however, that Beneficial Owner shall exclude
any Person otherwise becoming a Beneficial Owner by reason of the shareholders
of the Corporation approving a merger of the Corporation with another entity.

 

Section 11. Miscellaneous.

 

11.1. Injunctive Relief. Executive acknowledges that the services to be rendered
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, Executive agrees that any breach or threatened
breach by him of Sections 8 or 9 of this Agreement shall entitle the
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to enjoin such breach or threatened
breach. The parties understand and intend that each restriction agreed to by
Executive hereinabove shall be construed as separable and divisible from every
other restriction, that the unenforceability of any restriction shall not limit
the enforceability, in whole or in part, of any other restriction, and that one
or more of all of such restrictions may be enforced in whole or in part as the
circumstances warrant. In the event that any restriction in this Agreement is
more restrictive than permitted by law in the jurisdiction in which the
Corporation seeks enforcement thereof, such restriction shall be limited to the
extent permitted by law.

 

11.2. Assignment. Neither Executive nor the Corporation may assign or delegate
any of their rights or duties under this Agreement.

 

11.3. Entire Agreement. This Agreement constitutes and embodies the

 

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full and complete understanding and agreement of the parties with respect to the
Executive’s employment by the Corporation, supersedes all prior understandings
and agreements, if any, whether oral or written, between the Executive and the
Corporation and shall not be amended, modified or changed except by an
instrument in writing executed by the party to be charged. The invalidity or
partial invalidity of one or more provisions of this Agreement shall not
invalidate any other provision of this Agreement. No waiver by either party of
any provision or condition to be performed shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or any prior or subsequent
time.

 

11.4. Binding Effect. This Agreement shall inure to the benefit of, be binding
upon and enforceable against, the parties hereto and their respective successors
and permitted assigns.

 

11.5. Captions. The captions contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.

 

11.6. Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by certified mail,
postage prepaid to the party at the address set forth above or to such other
address as either party may hereafter give notice of in accordance with the
provisions hereof.

 

11.7. Governing Law. This Agreement shall be governed by and interpreted under
the laws of the State of New York.

 

11.8. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together

 

 

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shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth above.

 

 

 

HI-TECH PHARMACAL CO., INC.

By:

 

/S/    BERNARD SELTZER

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    BERNARD SELTZER

/S/    DAVID S. SELTZER

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DAVID S. SELTZER

 

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