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                                                                    EXHIBIT 10.7

               TERMS OF EMPLOYMENT AGREEMENT WITH ARTHUR BEDROSIAN
                           EFFECTIVE JANUARY 25, 2002

         Your salary for this position (Vice President of Business Development)
will be paid at the rate of $2,980.77 per pay period (which is equivalent to an
annual base salary of $155,000 per year), in accordance with the weekly payment
schedule now being used by the Company. At the end of each calendar year, the
Board of Directors, or its designee, may, in their sole discretion, award you a
bonus based upon your individual performance and the Company's performance
during the immediately preceding calendar year.

         You will be eligible upon the inception of your employment to
participate in the employee benefit plans that the Company offers to other
full-time employees, including its health and dental insurance plans, subject to
the same cost-sharing and co-payment provisions, where applicable. Descriptions
of the benefit plans currently being offered are available in our Human
Resources Department. These plans may, from time to time, be amended or
terminated by the Company in its sole discretion with or without prior notice.
Lannett also will provide you during your employment with a $600 net monthly
allowance for a car.

         Should Lannett terminate your employment other than "for cause" (as
defined below) within the first year of your employment, you will be eligible
for severance compensation in an amount to be determined by Lannett, but not
less than the amount that when added to your compensation paid to date would be
equal to one year of compensation, or $155,000. You will also be eligible to
continue your participation in the Company's medical benefit plans for six (6)
months, at no cost to you. For purposes hereof, "for cause" is defined to
include engaging in unethical business practices or conduct which creates a
conflict of interest, fraud, malfeasance, criminal behavior, and willful conduct
in violation of Lannett's Non-Harassment Policy or Corporate Handbook. If the
Company is sold or a majority of the Company's ANDAs (Abbreviated New Drug
Applications) are sold during your employment, and the Company or new
organization terminates your employment, you will be eligible for severance
compensation in an amount equal to one year of your current base salary at the
time of termination, which will be no less than your original base salary of
$155,000. In this scenario, you will also be eligible to continue your
participation in the Company's medical benefit plans, at no cost to you, for up
to one year. Additionally, all option grants issued to you, whether they are
vested or unvested, will become immediately vested for your benefit. If the
Company is sold during your employment, and the organization that takes control
of the Board of Directors desires to continue your employment with the same
assignment and place of business, regardless of whether you remain with the
buying organization or not, you will be paid an amount equal to six months of
your current base salary at the time of the sale transaction for the Company,
which will be no less than six (6) months of your original base salary of
$155,000.

It is understood that you are not being offered employment for a definite period
of time and that either you or the Company may terminate the employment
relationship at any time and for any reason without prior notice. Nothing in the
Company's offer to you of compensation (including salary and bonus), stock
options or benefits should be interpreted as creating anything other than an
at-will employment relationship. In addition, the Company reserves the right to
periodically review



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the salary, bonus and benefits it offers to you and to adjust them from time to
time in its sole discretion but in no case will the salary be adjusted below
your original base salary.