EXHIBIT 10.7

EMPLOYMENT AGREEMENT, dated December 27, 2007, by and between HI-TECH PHARMACAL
CO., INC., a Delaware corporation with offices at 369 Bayview Avenue,
Amityville, New York 11701 (the “Corporation”), and BRYCE M. HARVEY, an
individual residing at 1049 Merrywood Drive Pike Road, Alabama 36064
(“Employee”).

WITNESSETH

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

WHEREAS, Employee 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.  The Corporation hereby employs Employee and
Employee hereby accepts such employment, as an employee of the Corporation,
subject to the terms and conditions set forth in this Agreement.

Section 2.        Duties.  Employee shall serve as President of the division of
the Corporation which markets and distributes the products acquired from
Midlothian Laboratories, LLC (the “Division”).  Employee’s responsibilities
shall include without limitation, management of the daily operations of the
Division and identification and introduction to the market of new product
opportunities in a timely manner.  Employee shall further properly perform such
other duties as may be assigned to him from time to time by the Chief Executive
Officer and/or Board of Directors of the Corporation.  During the term of this
Agreement, Employee 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 this contract shall commence
as of December 27, 2007 (the “Effective Date”) and shall continue until December
26, 2009 unless earlier terminated by Employee upon 30 days advance written
notice to the Corporation, or unless earlier terminated pursuant to the
provisions of Section 5 hereof (the “Term”).

Section 4.        Compensation of Employee.

4.1.   Compensation.  As compensation for his services hereunder the Corporation
shall pay Employee an annual salary (“Salary”) equal to $232,782.  On the first
anniversary of the Effective Date, Employee’s Salary shall be increased by five
(5%) percent.  The Salary shall be payable weekly less such deductions as shall
be required to be withheld by applicable law and regulations.

 

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4.2.          Stock Options.

(a)          Employee shall receive, on the Effective Date, an option to
purchase five thousand (5,000) shares of the Corporation’s Common Stock, subject
to and in accordance with the terms and provisions of the Corporation’s Amended
and Restated Stock Option Plan (the “Plan”).  The Stock Options shall vest in
25% increments on the first through fourth anniversaries of the grant date and
shall be governed by the terms of the Plan, a copy of which has been provided to
Employee.

(b)           On or after the first anniversary of the Effective Date, Employee
may receive additional stock options at the sole discretion of the Corporation’s
management, such discretion to be exercised via recommendation by the
Corporation’s Chief Executive Officer to the Compensation Committee; provided
however, that the Compensation Committee shall make the final determination, in
its discretion, as to the number of options or other stock or equity based
compensation, if any, to be granted to Employee.

4.3.          Bonus.  During the Term of this Agreement;

(a)          For the period commencing on the first day of the month following
the Effective Date (the “Start Date”) and ending on the day immediately prior to
the first anniversary of the Start Date (“Year 1”), Employee shall receive a
bonus equal to the sum of (i) 1.5% of the first $2,000,000 of the Division’s
Pre-Tax Net Income (as hereinafter defined) for Year 1; (ii) 5% of the
Division’s Pre Tax Net Income in excess of $2,000,000 for Year 1.

(b)          For the period commencing on the first anniversary of the Start
Date and ending on the day immediately prior to the second anniversary of the
Start Date (“Year 2”), Employee shall receive a bonus equal to the sum of (i)
1.5% of the first $2,000,000 of the Division’s Pre-Tax Net Income (as
hereinafter defined) for Year 2; (ii) 5% of the Division’s Pre Tax Net Income in
excess of $2,000,000 for Year 2.

(c)           “Pre-Tax Net Income” shall mean gross sales less the sum of (i)
returns, chargebacks, refunds, rebates and discounts; (ii) cost of goods sold;
and (iii) all costs directly attributable to the Division, including without
limitation, Selling, General and Administrative expenses (SG&A) and Research and
Development expenses (R&D), all as determined in accordance with generally
accepted accounting principles of financial reporting in the United States,
applied on a consistent basis.

(d)           Within sixty (60) days after the end of each of Year 1 and Year 2,
as the case may be, the Corporation shall deliver to the Employee the unaudited
financial statements of the Division for such Year, together with a
determination (“Bonus Determination”) of the amount of Bonus earned for such
Year and showing the calculations thereof.  Any Bonus payable as reflected in
such Bonus Determination shall be paid to the Employee concurrently with the
delivery of such Bonus Determination.  Absent manifest error or calculation
errors, such Bonus Determination shall be final, conclusive, and binding upon
the parties hereto.

4.4.          Expenses.  The Corporation shall pay or reimburse Employee for all
pre-approved reasonable and necessary business, travel or other expenses
incurred by him, upon proper documentation thereof, which may be incurred by him
in connection with the rendition of the services contemplated hereunder.

 
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4.5.          Benefits.  During the term of this Agreement, Employee shall be
entitled to participate in such pension, profit sharing, group insurance, option
plans, hospitalization, and group health benefit plans and all other benefits
and plans as the Corporation provides to its executives, which benefits plans
will cover Employee and his dependants. The Corporation shall pay for the full
cost of Employee’s family coverage health insurance.

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

Section 5.               Termination.

5.1.          Termination.  This Agreement and Employee’s employment hereunder
shall terminate immediately upon (i) Employee’s death or Total Disability; (ii)
the termination of employment of Employee For Cause, as hereinafter defined; or
(iii) a Corporation Termination.  Upon a termination of this Agreement, the
Corporation shall be released from all obligations to Employee with respect to
this Agreement, except as provided in Section 10.7 hereto.

5.2.          Definitions.

(a)           As used herein, the term “For Cause” shall mean (i) Employee’s
substantiated misappropriation of the Corporation’s assets or substantiated
perpetration of fraud against, or substantiated dishonesty in dealings with the
Corporation; (ii) Employee’s indictment, plea or conviction in a court of law of
any crime or offense involving willful misappropriation of money or other
property or any other crime involving moral turpitude which constitutes a
felony, whether or not involving the Corporation; (iii) Employee’s behavior
which is materially detrimental to the Corporation’s reputation; (iv) Employee’s
disobedience of a material directive from the Chief Executive Officer or Board
of Directors of the Corporation consistent with Employee’s duties hereunder or
Employee’s willful refusal to follow, or reckless disregard of, the policies and
directives of the Corporation; (v) Employee’s habitual drunkenness or habitual
use of illegal substances; (vi) Employee’s failure to cooperate with a
governmental or regulatory investigation concerning the Corporation or Employee;
(vii) Employee’s leaving of his employment hereunder; or (viii) Employee’s
repeated failure to perform his duties or Employee’s breach of his
responsibilities under this Agreement; provided that the Corporation shall have
given Employee notice of his failure to perform his duties or breach of his
responsibilities, and for a period of five (5) days thereafter, such failure or
breach shall not have been remedied to the reasonable satisfaction of the
Corporation.

 
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(b)           As used herein, the term “Corporation Termination” shall mean the
termination by the Corporation of this Agreement and Employee’s employment upon
the giving to Employee of two weeks prior written notice by the Corporation;
provided however, that a Corporation Termination shall not include a termination
by the Corporation For Cause and/or as a result of Employee’s death or Total
Disability.  The Corporation shall be permitted to effect a Corporation
Termination for any reason and at any time.

5.3.          Severance.  If Employee’s employment is terminated as a result of
a Corporation Termination during the two years of his employment, then the
Corporation shall pay to Employee after such termination, severance payments
(“Severance”) equal to eighty percent (80%) of Employee’s Salary for a period
beginning on the date that the Corporate Termination occurs and ending on the
earlier of (i) the two year anniversary date of this Agreement, or (ii) the one
year anniversary date of the Corporate Termination.  The Severance shall be
payable weekly less such deductions as shall be required to be withheld by
applicable law and regulations.  In addition, if Employee’s employment is
terminated as a result of a Corporation Termination, then Employee shall be
entitled to the Bonus for the year in which such termination occurs as provided
in Section 4.2 hereof as if Employee had not been terminated.  Employee shall
not be entitled to Severance if Employee’s employment is terminated For Cause,
or if Employee’s employment is terminated due to his death or Total Disability.

5.4.           Stock Options.

(a)         Upon the death or Total Disability of Employee, all stock options
granted to Employee under the Plan (“Stock Options”) shall automatically become
fully vested and immediately exercisable.

(b)         In the event Employee is terminated pursuant to a Corporation
Termination, then Employee’s previously granted and unexercised Stock Options
shall continue to vest on their regular vesting dates until the date this
Agreement would have terminated had there not been a termination without cause.

(c)         In the event Employee is terminated For Cause, all unvested Stock
Options shall immediately terminate and be forfeited.

(d)         In the event there is a conflict between the terms of this Agreement
and the Plan, this Agreement shall govern.

Section 6.               Disability.

6.1.          Total Disability.  In the event Employee is mentally or physically
incapable or unable to perform his regular and customary duties of employment
with the Corporation for a period of ninety (90) days in any one hundred twenty
(120) day period, Employee shall be deemed to be suffering from a “Total
Disability” and the Corporation shall be entitled to terminate this Agreement.

6.2.          Payment During Disability.  In the event Employee 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
Employee his Salary during the continuance of such disability.  To the extent
any proceeds from a disability insurance policy owned by the Corporation are
paid to Employee or his designee, the Corporation shall receive a credit against
its obligations under this Section 6.2 in an amount equal to such proceeds.

 
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Section 7.               Vacations, Holidays, Sick Days, other
benefits.  Employee shall be entitled to a vacation of four (4) weeks for each
of Year One and Year Two, during which period his Salary shall be paid in
full.  Employee shall take his vacation at such time or times as Employee and
the Corporation shall determine is mutually convenient.  Employee shall also be
entitled to the same number of holidays, sick days and other benefits as are
generally allowed to other executives of the Corporation in accordance with the
Corporation policy in effect from time to time.

Section 8.               Disclosure of Confidential Information.

8.1.          Disclosure.  Employee hereby acknowledges that the principal
business of the Corporation is the marketing and distribution of generic and
branded pharmaceutical products and such other businesses as the Corporation may
conduct from time to time (the “Business”).  Employee acknowledges that he has
acquired and will acquire confidential information concerning the (i) the
products and business acquired by the Corporation from Midlothian Laboratories
LLC, for which Employee was President; and (ii) the Business, its products,
know-how, customers and plans and that, among other things, his knowledge of the
Business will be enhanced through his employment by the Corporation.  Employee
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.

8.2.          Confidentiality.  In consideration of the obligations undertaken
by the Corporation herein, Employee will not, at any time during or after the
term of Employee’s employment with the Corporation, directly or indirectly, use
for Employee’s own benefit or any other party’s benefit, or reveal, divulge or
make known to any person, any information which is treated as confidential by
the Corporation and not otherwise in the public domain.  Confidential
information shall not include information which was previously known by
Employee, information which was given to Employee by any third party under no
obligation of confidentiality, or information which Employee is required to
disclose as a result of a governmental investigation or by a court
order.  Employee agrees that all materials or copies thereof containing
confidential information of the Corporation in Employee’s custody or possession
will not, at any time, be removed from the Corporation’s premises without the
prior written consent of the Chief Executive Officer of the Corporation and
shall be delivered to the Corporation upon the earlier of (i) a request by the
Corporation or (ii) the termination of Employee’s employment with the
Corporation.  After such delivery, Employee shall not retain any such materials
or copies thereof.

8.3.          Survival.  The provisions of this Section 8 shall survive
Employee’s employment hereunder.

 
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Section 9.               Conflicts of Interest; Insider Trading.

9.1.           Conflicts of Interest.  In order to avoid actual or apparent
conflicts of interest, except with the Corporation’s consent, Employee shall not
have any direct or indirect ownership or financial interest in any company,
person or entity which is: (i) a service provider to, or vendor of, the
Corporation; (ii) a customer of the Corporation; or (iii) a competitor of the
Corporation.  Employee shall not be deemed to have any direct or indirect
ownership or financial interest for any such interest that does not exceed two
percent (2%) 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.

9.2.           General Requirements.  Employee shall observe such lawful
policies of the Corporation as may from time to time apply.

9.3.           Insider Trading.  Considering that the Corporation is a
publicly-traded corporation, Employee hereby agrees that Employee shall comply
with any and all federal and state securities laws, including but not limited to
those that relate to non-disclosure of information, insider trading and
individual reporting requirements and shall specifically abstain from discussing
the non-public aspects of the Corporation’s business affairs with any individual
or group of individuals (e.g., Internet chat rooms) who does not have a business
need to know such information for the benefit of the Corporation.  Employee
hereby agrees to immediately notify the Corporation’s Compliance Officer in
accordance with the Corporation’s Insider Trading Policy prior to Employee’s
acquisition or disposition of the Corporation’s securities.

Section 10.             Indemnification.

10.1.        Indemnification.  The Corporation hereby agrees to indemnify and
hold harmless Employee to the fullest extent permitted by the Corporation’s
Certificate of Incorporation, By-Laws, the Delaware General Corporation Law or
any other applicable law, as any or all may be amended from time to time.  Such
reimbursements shall include but not be limited to Employee’s reasonable and
necessary out of pocket expenses including attorneys fees, settlement payments
and any other such costs and expenses.

10.2.        Directors and Officers Policy.  The Corporation shall ensure that
its Directors’, Officers’, Insured Entity and Employment Practices Liability
Insurance policy (“D&O Policy”) shall cover Employee as an Insured Person, as
such term is defined in the D&O Policy.  Such D&O Policy is currently in effect
and the Corporation knows of no reason why such policy would be terminated or
allowed to lapse.  If so, the Corporation shall immediately notify Employee of
such policy termination.  Upon Employee’s written request therefor, Employee
will be provided with an annual certificate of insurance, demonstrating this
coverage.

10.3.        Undertaking.  To the extent that the Corporation advances payment
for any fees or expenses to Employee pursuant to this Section 10, such advance
shall be accompanied by a written undertaking by Employee to repay such amounts
if it shall be ultimately determined by a court of competent jurisdiction in a
final disposition, that Employee (i) is not entitled to be indemnified by the
Corporation or (ii) that the amount advanced exceeded the indemnification to
which he is entitled, in which case the amount of such excess shall be repaid to
the Corporation.

 
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10.4.        Notice.  As a condition precedent to his right to be indemnified
hereunder, Employee shall give the Corporation notice in writing as soon as
practicable of any claim made against him for which indemnity will or could be
sought under this Agreement.

10.5.        Cooperation.  Employee shall fully cooperate with the Corporation
in connection with any matter, which results in the assertion of a claim by
Employee for indemnification hereunder.  The Corporation shall be entitled at
its own expense to participate in the defense of any proceeding, claim or
action, or, if it shall elect, to assume such defense, in which event such
defense shall be conducted by counsel chosen by the Corporation, subject to the
consent of Employee, which consent shall not be unreasonably withheld or
delayed.  Employee may elect, at his own cost and expense, to have separate
counsel represent him as well.

10.6.        Exceptions.  The Corporation shall not be liable under this
Agreement to make any payment in connection with any claim:

(a)           For which payment is actually made to Employee under valid and
collectable insurance policies, premiums for which are paid by the Corporation
or any of its affiliates, except in respect of any deductible and excess beyond
the amount of payment under such insurance;

(b)           For which Employee is indemnified by the Corporation otherwise
than pursuant to this Agreement, provided such amount has previously been paid
to Employee;

(c)           Brought about or contributed to by the dishonesty of Employee; and

(d)           By Employee who acts as a plaintiff suing the Corporation, its
affiliates or directors, officers or shareholders of the Corporation or its
affiliates except with regard to Employee’s successful enforcement of Section
10.1 hereof.

10.7.        Survival.  The obligations of the Corporation hereunder will
survive (i) any actual or purported termination of this Agreement by the
Corporation or its successors or assigns, whether by operation of law or
otherwise, (ii) any change in the Corporation’s Certificates of Incorporation or
By-laws, (iii) termination of Employee’s services to the Corporation (whether
such services were terminated by the Corporation or Employee), if such claim
arises as a result of an occurrence prior to the termination of this Agreement,
whether or not a claim is made or an action or proceeding is threatened or
commenced before or after the actual or purported termination of this Agreement,
change in the Corporation’s Certificate of Incorporation or By-laws, or
termination of Employee’s services.

 
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Section 11.             Miscellaneous.

11.1.        Injunctive Relief.  Employee 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
Employee herein 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 or 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.        Impact of Restatement of Financial Statements Upon Previous
Awards.  If any of the Corporation’s financial statements are required to be
restated, resulting from errors, omissions, or fraud, the Corporation may (in
its sole discretion, but acting in good faith) recover all or a portion of any
performance bonus paid to Employee with respect to any fiscal year of the
Corporation the financial results of which are negatively affected by such
restatement.  The amount to be recovered from Employee shall be the amount by
which the affected bonus exceeded the amount that would have been payable to
Employee had the financial statements been initially filed as restated, or any
greater or lesser amount (including, but not limited to, the entire award) that
the Corporation shall determine.  The Compensation Committee of the Corporation
shall determine whether the Corporation shall effect any such recovery (i) by
seeking repayment from Employee; (ii) by reducing (subject to applicable law and
the terms and conditions of the applicable agreement, plan, program or
arrangement) the amount that would otherwise be payable to Employee; (iii) by
withholding payment of future increases in compensation (including the payment
of any discretionary bonus amount) or grants of compensatory awards that would
otherwise have been made in accordance with the Corporation’s otherwise
applicable compensation practices; or (iv) by any combination of the
foregoing.  This Section shall survive the termination of this Agreement.

11.3.        Assignment.  Neither Employee nor the Corporation may assign or
delegate any of their rights or duties under this Agreement, except as expressly
provided herein.

11.4.        Entire Agreement.  This Agreement constitutes and embodies the
entire and complete understanding and agreement of the parties with respect to
Employee’s employment by the Corporation, supersedes all prior understandings
and agreements, if any, whether oral or written, between Employee 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.

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

 
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11.6.        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.

11.7.        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 fax or
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.

11.8.        Governing Law.  This Agreement shall be governed by and interpreted
under the laws of the State of New York applicable to contracts made and to be
performed therein without giving effect to the principles of conflict of laws
thereof.  Except in respect of any action commenced by a third party in another
jurisdiction, the parties hereto agree that any legal suit, action, or
proceeding against them arising out of or relating to this Agreement may be
brought in the United States Federal Courts in the State of New York or the
state courts, in the State of New York.  The parties hereto hereby accept the
jurisdictions of such courts for the purpose of any such action or proceeding,
and agree that venue for any action or proceeding brought in the State of New
York shall lie in the United States Federal Courts in the Eastern District or
any state court located in Nassau County, New York, as the case may be.  By its
execution hereof, the parties hereby irrevocably waive any objection and any
right of immunity on the ground of venue, the convenience of the forum or the
jurisdiction of such courts or from the execution of judgments resulting
therefrom.  The parties hereby irrevocably accept and submit to the jurisdiction
of the aforesaid courts in any such suit, action or proceeding.

11.9.        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 shall constitute one and the same instrument.

11.10.      WAIVER OF JURY TRIAL.  THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT
AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY ACTION OR PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.

11.11  No Restriction Imposed Hereby.  Nothing contained in this Employee
Agreement shall preclude Employee from negotiating an employment agreement that
contains compensation and/or bonus terms comparable or superior to the terms
contained herein upon the two year anniversary of this agreement.

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

 
HI-TECH PHARMACAL CO., INC.
     
/s/David Seltzer
   
By: David Seltzer, President and Chief Executive Officer
 
Dated: 12/27/07
     
/s/Bryce M. Harvey
   
BRYCE M. HARVEY
 
Dated: 12/27/2007

 
 
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