**Exhibit10.11**

 

**EMPLOYMENTAGREEMENT**

 

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

 

**RECITALS**

 

Company wishes to employ Executive as its VicePresident of Operations; and Executive wishes to accept such employment underthe terms and conditions set forth in this Agreement.

 

**IT IS AGREED**as follows:

 

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

 

**2.****                                 ****Term.**The term of employment under this Agreement shallcommence on the Effective Date and shall continue, unless otherwise terminatedearlier under Section 8, until the day before the one-year anniversary ofthe Effective Date, i.e., September 8, 2009 (the “Term”), provided that onthe day before the one-year anniversary of the Effective Date and the daybefore the anniversary of any one-year renewal of such Agreement the Term shallbe automatically extended for successive additional one (1) year periodsunless at least ninety (90) days prior to such anniversary date, either Companyor Executive furnishes the other with written notice that the term is not to beso extended.

 

**3.****                                 ****Duties.**Executive shall devote his full-time efforts to theproper and faithful performance of all duties customarily discharged by a VicePresident of Operations for a company doing the type of business engaged in byCompany and any additional duties assigned to him from time to time by thePresident and Chief Executive Officer of Company and/or the Board of Directorsof Company. Executive shall report directly to the President and CEO of theCompany. Executive agrees to use his best efforts and comply with all fiduciaryand professional standards in the performance of his duties hereunder.Executive shall provide services to any subsidiary or affiliate of Companywithout additional compensation and benefits beyond those set forth in thisAgreement, and any compensation and benefits provided to Executive for suchservices shall be a credit with regard to amounts due from Company under thisAgreement. Executive represents and warrants to Company that, at all timesprior to the Effective Date when he has served as Vice President of Operationsof the Company and at all times during the Term, he has either fulfilled orwill fulfill his duty of loyalty to Company; and he has either acted or willact in the best interests of the Company’s shareholders.

 

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**4.           Base Salary.**Executive shallbe paid a base salary of Two Hundred Thousand and no cents ($200,000.00) perannum for the Term, payable, less applicable withholdings, in proportionalmonthly payments or more frequently in accordance with Company’s regularpractice. Salary for a portion of any period will be prorated. The CompensationCommittee of the Board of Directors and the President and CEO will conduct anannual performance review of Executive and, as part of such review, will consideradjustments to the base salary set forth herein based on the performance ofboth Executive and Company.

 

**5.**           **AnnualBonus.**Executive shall be eligible to participate in the Management IncentiveBonus Plan (the “MIB”) administered by the Compensation Committee, or anysuccessor annual bonus plan or arrangement generally made available to theexecutive officers of Company. The MIB shall provide Executive with a targetbonus opportunity for each fiscal year of Company (i.e. July 1 toJune 30), regardless of whether or not a bonus is declared for any fiscalyear.

 

**6.**           **Benefits.**

 

During the Term Executiveshall have the following benefits:

 

(a)                                  Executive mayparticipate in all Company sponsored stock option plans, retirement plans,401(k) plans, life insurance plans, medical insurance plans, disabilityinsurance plans, executive stock ownership plans and such other benefit plansgenerally available from time to time to other executive employees of Companyfor which he qualifies under the terms of the plans. Executive’s participationin and benefits under any benefit plan shall be on the terms and subject to theconditions specified in such plan.

 

(b)                                 Vacation daysor personal time off (PTO) granted to Executive in accordance with theCompany’s published vacation or PTO policy generally afforded to salariedmanagement employees.

 

**7.**           **Reimbursementof Expenses.**Company will reimburse Executive for the reasonable andnecessary expenses incurred by him in the performance of his duties under thisAgreement in accordance with Company’s policies in effect from time to time.

 

**8.**           **Terminationof Employment.**

 

(a)                                  Executive’semployment under this Agreement may be terminated at any time by the Presidentand Chief Executive Officer, and/or the Board of Directors of Company, with orwithout Cause (as defined below). Executive’s employment is “at-will.”

 

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

 

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

 

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

 

(i)                                     Executive’swillful commission of an act constituting fraud, embezzlement, breach of anyfiduciary duty owed to the Company or its stockholders or other materialdishonesty with respect to the Company;

 

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

 

(iii)                               Willful orreckless conduct of Executive which has an adverse impact (economic orotherwise) on Company;

 

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

 

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

 

(vi)                              Executive’swillful violation of any provision of this Agreement, including withoutlimitation violation of Sections 9, 10, 11 or 12;

 

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(vii)                           Executive’sconviction or plea of nolo contendere (or its equivalent) with respect to afelony or any other crime involving dishonesty or moral turpitude;

 

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

 

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

 

(x)                                   Executivebecoming under investigation by or subject to any disciplinary charges by anyregulatory agency having jurisdiction over the Company (including but notlimited to the Drug Enforcement Administration (DEA), Food and DrugAdministration (FDA) or the Securities and Exchange Commission (SEC)) or if anycomplaint is filed against Executive by any such regulatory agency.

 

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

 

(f)                                    If Executive’semployment is terminated by Company without Cause following the completion oftwo (2) full years of employment with Company, in addition to the amountspayable under Section 8(e), Executive shall be entitled to receive thefollowing: (i) his base salary for a period of eighteen (18) months afterthe termination date, (ii) insurance coverage provided to him equal tosuch coverage provided to him on the date of termination at no cost or, ifineligible for continued coverage under Company policies, reimbursement of thecost of comparable coverage for a period of eighteen (18) months, (iii) apro rated annual cash bonus for the then current fiscal year calculated as ifall base targets and base goals are achieved (but no other incentivecompensation 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, tobe paid at the times and frequency regularly paid, and (iv) the Companyshall cause all outstanding Company stock options awarded Executive prior totermination of his employment to be one hundred percent (100%) vested attermination. As a condition to the salary, insurance continuation, under thisSection 8(f), Executive must first execute and deliver to Company, in aform prepared by Company, a release of all claims against Company and otherappropriate parties, excluding Company’s performance under thisSection 8(f) and Executive’s vested rights under Company sponsoredretirement plans, 401(k) plans and stock ownership plans. The obligationof Company to pay Executive’s salary as required by Subsection (i) of thisSection 8(f) shall not be subject to offset for earnings fromExecutive’s subsequent employment, 

 

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

 

(g)                                 The terminationof Executive’s employment with Company, for any reason and irrespective as towhether initiated by Executive or Company, shall be considered acontemporaneous resignation by Executive from the position of Company’s VicePresident of Operations; and shall be deemed a termination from employment withall entities related to Company.

 

(h)                                 The Executivemay terminate his employment hereunder at any time for any reason by giving theCompany prior written notice not less than thirty (30) days prior to suchtermination. Termination by the Executive pursuant to this Clause shall bedeemed a termination entitling the Executive to compensation Pursuant toSection 8(e) above.

 

**9.****                                 ****Confidential Information.**During Executive’semployment with Company and at all times after the termination of suchemployment, regardless of the reason for such termination, Executive shall holdall Confidential Information relating to Company in strict confidence and intrust for Company and shall not disclose or otherwise communicate, provide orreveal in any manner whatsoever any of the Confidential Information to anyoneother than Company without the prior written consent of Company. “ConfidentialInformation” includes, without limitation, financial information, related tradesecrets (including, without limitation, Company’s business plan, methods and/orpractices) and other proprietary business information of Company which mayinclude, without limitation, market studies, customer and client lists,referral lists and other items relative to the business of Company. “ConfidentialInformation” shall not include information which is or becomes in the publicdomain through no action by Executive or information which is generallydisclosed by Company to third parties without restrictions on such thirdparties.

 

**10.****                          ****Solicitation of Customers.**During his employment withCompany and for a period of eighteen (18) months after the termination ofExecutive’s employment, regardless of the reason for the termination (the “Non-CompetitionPeriod”), Executive shall not, whether directly or indirectly, for his ownbenefit 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 ofCompany to terminate any association with Company, in connection with thosecertain products being offered for sale by Company or in its research anddevelopment pipeline on the date of termination of Executive’s employment (the “RestrictedProducts”) or otherwise attempt to provide services to any customer of Companyin connection with the Restricted Products. Executive shall prevent suchsolicitation to the 

 

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extent he has authority to prevent same andotherwise shall not interfere with the relationship between Company and itscustomers. This provision shall not be interpreted to prohibit, prevent orotherwise impair the Executive’s ability and right to seek and obtainemployment from a competitor of the Company, even if said competitor iscurrently selling products to the Company’s customers that are the same asCompany products. While the Executive shall be unrestricted in seeking to sellproducts to the Company’s customers that are different than the Company’sproducts, it is the intent of this paragraph to preclude the Executive fromhaving said competitor replace the Company as a supplier of a product orotherwise take existing sales from the Company for the period in question.

 

**11.**                           **Solicitation of Executives and Others.**During his employment withCompany and during the Non-Competition Period, Executive shall not, whetherdirectly or indirectly, for his own benefit or for the benefit of any otherperson or entity, or as a partner, stockholder, member, manager, officer,director, proprietor, employee, consultant, representative, agent of any entityother than Company, solicit, for purposes of employment or association, anyExecutive or agent of Company (“Solicited Person”), or induce any SolicitedPerson to terminate such employment or association for purposes of becomingemployed or associated elsewhere, or hire or otherwise engage any SolicitedPerson as an Executive or agent of an entity with whom Executive may beaffiliated or permit such, or otherwise interfere with the relationship betweenCompany and its employees and agents. For purposes of this Agreement, anemployee or agent of Company shall mean an individual employed or retained byCompany during the Term and/or who terminates such association with Companywithin a period of six (6) months after the termination of Executive’semployment with Company.

 

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

 
| (a) | Engage, own or have any interest in;                                                                                            |
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| (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 orCanada which is engaged in the manufacture, distribution or sale of theRestricted Products or which otherwise competes with the business of Company asit exists from time to time and, in the case of termination of this Agreement,as it exists on the termination date. Notwithstanding the foregoing, holdingone percent (1%) or less of an interest in the equity, stock options or debt ofany 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)                              Executiveagrees to disclose promptly to Company all ideas, inventions (whetherpatentable 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 reportsand the like), trademarks, know-how, trade secrets, processes and otherintellectual property, developed or discovered by Executive in the course ofhis employment relating to the business of Company, or to the prospectivebusiness of Company, or which utilizes Company’s information or staff services(collectively, “Work product”).

 

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

 

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

 

**14.****                          ****Enforcement of Agreement; Injunctive Relief; Attorneys’ Fees andExpenses.**Executive acknowledges that violation of thisAgreement will cause immediate and irreparable damage to Company, entitling itto injunctive relief. Executive specifically consents to the issuance oftemporary, preliminary, and permanent injunctive relief to enforce the terms ofthis Agreement. In addition to injunctive relief, Company is entitled to allmoney damages available under the law. If Executive violates this Agreement, inaddition to all other remedies available to Company at law, in equity, andunder contract, Executive agrees that Executive is obligated to pay all Company’scosts of enforcement of this Agreement, including attorneys’ fees and expenses.

 

**15.****                          ****Severability and Savings.**Each provision in thisAgreement is separate. If necessary to effectuate the purpose of a particularprovision, the Agreement shall survive the termination of Executive’semployment with Company. If any provision of this Agreement, in whole or inpart, is held to be invalid or unenforceable, the parties agree that any suchprovision shall be deemed modified to make such provision enforceable to themaximum extent permitted by applicable law. As to any provision held to beinvalid or unenforceable, the remaining provisions of this Agreement shallremain in effect.

 

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

 

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shall be binding upon and inure to the benefit ofExecutive, his heirs and personal representatives. This Agreement is notassignable by Executive.

 

**17.****                          ****Statute of Limitations.**Executive agrees not toinitiate any action or suit relating directly or indirectly to employment withCompany or the termination of such employment more than one (1) year afterthe effective date of termination of employment. Executive expressly waives anyother longer statute of limitations. However, Executive agrees that any shorterstatute(s) of limitations remain in effect.

 

**18.****                          ****Indemnification.** To the fullest extent permitted byapplicable law, the Company shall indemnify, defend, and hold harmless theExecutive from and against any and all claims, demands, actions, causes ofaction, liabilities, losses judgments, fines, costs and expenses (includingreasonable attorneys’ fees and settlement expenses) arising from or relating tohis service or status as an officer, director, employee, agent orrepresentative of the Company or any affiliate of the Company or in any othercapacity in which the Executive serves or has served at the request of, or forthe benefit of, the Company or its affiliates. The Company’s obligations underthis section shall be in addition to, and not in derogation of, any rights theExecutive may have against the Company to indemnification or advancement ofexpenses, whether by statute, contract or otherwise, and the Company’sobligation pursuant to this Section 18 shall survive termination of theExecutive’s employment.

 

**19.****                          ****Section 409ACompliance**. No payment shall be made under this Agreement in aform or at a time that would subject the recipient to interest or penaltiesunder Section 409A. It is the intention of the Parties to make all paymentshereunder in compliance with Section 409A and the provisions of thisAgreement should be interpreted and applied to give effect to this intention.Neither Executive nor Company, nor any provision of this Agreement, shall bepermitted to cause the acceleration of payments hereunder, except as permittedunder Section 409A, nor shall either of the Parties be permitted to deferthe 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. |
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| (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. |
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| (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                                                                                                                                                                                                                                                                                                                                                                                                   |
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| (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.                                                                                                                                                                                                                                                                                                                               |
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| (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.                                                                                                                                                                                                                                                                                            |
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| (f)    | This Agreement may be executed in counterparts, which together shall  constitute one Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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| (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.                                                                                                                                                                                                                                                                                                                                                                                                          |
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| (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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