Employment Agreement of William Peters, Vice President - Corporate Development

Exhibit 10


EMPLOYMENT AGREEMENT , as of July 30, 2003, by and between HI-TECH PHARMACAL CO., INC., a Delaware corporation with offices at 369 Bayview Avenue, Amityville, New York 11701 ( the "Corporation"), and WILLIAM PETERS, an individual residing at 107 West 69 th Street, #4D, New York, New York 10023 ( the " Executive").


W I T N E S S E T H


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


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

Section 2. Duties . Executive shall serve as Vice President-Corporate Development of the Corporation and shall properly perform such duties as may be assigned to him from time to time by the Chief Executive Officer and/or Board of Directors of the Corporation. If requested by the Corporation, Executive shall serve on any committee of the Board of Directors without additional compensation. During the term of this Agreement, 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 Executive's employment shall commence as of September 8, 2003 and shall continue until July 31, 2005 and shall automatically renew for successive one year terms unless terminated by the Corporation upon six months' advance written notice to Executive of the Corporation's decision not to renew the contract, or by Executive, upon 30 days advance written notice to the Corporation, or unless earlier terminated pursuant to the provisions of Section 5 hereof.

Section 4. Compensation of Executive .

4.1. Compensation . As compensation for his services hereunder the Corporation shall pay Executive (i) for the period September 8, 2003 through July 31, 2004 ("Year One"), an annual salary ("Salary") equal to $175,000 ($3,365.38 per week); and (ii) for the period August 1, 2004 through July 31, 2005 ("Year Two"), an annual salary ("Salary") equal to $200,000 ($3,846.15 per week). Executive's compensation after July 31, 2005 shall be adjusted upward annually on August 1 of each year by the greater of 5% or the annual percentage change in the New York City Metropolitan Consumer Price Index or such other agreed upon substitute. The Salary shall be payable weekly less such deductions as shall be

required to be withheld by applicable law and regulations.


4.2. Bonus; Stock Options .


(a) In addition to his annual Salary, Executive shall receive a bonus ("Bonus") during each year of employment. The Bonus for each of Year One and Year Two shall not be less than $25,000. Such Bonus may be in excess of such amount, as shall be determined by the Compensation Committee or the Board of Directors, in their sole discretion. The Bonus shall be paid in cash within 30 days of August 1 of each year.


(b) During the term of this Agreement, Executive shall receive, at the commencement of Year One, options to purchase fifteen thousand (15,000) shares of the Corporation's Common Stock, and at the commencement of Year Two, options to purchase twenty-five thousand (25,000) shares of the Corporation's Common Stock, each in accordance with the terms and provisions of the Corporation's Amended and Restated Stock Option Plan (the "Plan"). Such 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 Executive.

4.3. Expenses . The Corporation shall pay or reimburse Executive for all 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.

4.4. Relocation Expenses . The Corporation shall pay on behalf of Executive all properly documented reasonable and necessary moving expenses incurred by Executive, up to a maximum of $15,000 in connection with the relocation of Executive and his immediate family from New York, New York to Long Island, New York. Such moving expenses shall include expenses incurred for packing and unpacking, moving company charges, attorneys' fees, inspection costs, title insurance and other closing costs (not including points) for Executive's new residence. Moving expenses shall not mean any expenses incurred for construction, renovation or maintenance of Executive's new residence.


4.5. Benefits .


(a) After the commencement of Year One, during the term of this Agreement and all extensions thereto, Executive 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 senior executives, which benefits plans will cover Executive and his dependants.

(b) Effective as of the date hereof, the Corporation shall reimburse Executive for the COBRA payments made to his former employer in order to retain health insurance coverage under his former employer's group health benefit plan until Executive becomes eligible to participate in the Corporation's group health benefit plan.


2

4.6. Life Insurance; Disability Insurance . Upon the commencement of Year one, the Corporation shall procure for Executive, at the Corporation's expense, term life insurance and long-term disability insurance as more specifically detailed on Exhibit A attached hereto.


4.7. Discretionary Payments . Nothing herein shall preclude the Corporation from paying Executive 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 Executive's employment hereunder shall terminate upon Executive's death or Total Disability, upon termination of employment of Executive For Cause, upon Executive leaving his employment hereunder, or by the Corporation upon six months advanced written notification to Executive of the Corporation's decision not to renew this Agreement.


5.2. Termination For Cause or Termination By Executive . In the event Executive is discharged For Cause, as hereinafter defined, or if this Agreement is not renewed by the Corporation upon at least 6 months' advance written notice or Executive leaves his employment hereunder, this Agreement shall be deemed terminated and the Corporation shall be released from all obligations to Executive with respect to this Agreement, except as provided in section 10.7 hereto.


5.3. Definitions . As used herein, the term "For Cause" shall mean (i) Executive's conviction in a court of law of any crime or offense involving willful misappropriation of money or other property or any other crime which constitutes a felony, whether or not involving the Corporation; (ii) Executive's willful misconduct, (iii) behavior by Executive which is materially detrimental to the Corporation's reputation; or (iv) a material breach of his responsibilities under this Agreement.

5.4. Payments . If Executive's employment is terminated, or if Executive terminates his employment for Good Reason, as defined in this Agreement, then Corporation shall pay to Executive after such termination, severance payments ("Severance") equal to the sum of (i) Executive's Salary for the greater of six (6) months or the balance of the term of this Agreement and (ii) the pro rata portion of Executive's annual bonus, which in no event shall be less than the annual bonus stated in this Agreement for Year Two. The Severance shall be payable weekly less such deductions as shall be required to be withheld by applicable law and regulations. In addition, the Corporation shall continue to keep in force and effect all health, insurance and welfare benefits for Executive and Executive's dependents for a period of the lesser of six months from the date of Executive's termination or until Executive and his dependents are eligible for similar health, insurance and welfare benefits from Executive's new employer. Executive shall not be entitled to Severance if the Corporation gives six months advance written notice to Executive of the Corporation's decision not to renew this Agreement, or if Executive's employment is terminated For Cause, as defined in this Agreement, or if Executive's employment is terminated due to Executive's death or Total Disability or if


3

Executive's employment is terminated due to a Change in Control, as defined in this Agreement. If Executive's employment is terminated due to a Change in Control, payments shall be made to Executive in accordance with Section 11 of this Agreement

5.5. Termination for Good Reason . Good Reason shall include any of the following, (i) any assignment of Executive's duties inconsistent with Executive's position of Vice President-Corporate Development or which constitutes a significant reduction in authority, responsibilities, or status, (ii) any demotion, including, but not limited to reporting to an individual in the Corporation who is not the Corporation's CEO or Board of Directors, (iii) requiring Executive to have his principal place of employment more than 15 miles beyond the Corporation's principal place of business as of the effective date of this Agreement, without providing Executive with relocation benefits at least equal to those set forth in Section 4.4 of this Agreement, (iv) any attempted reduction in Executive's base ...