LCI Lannett Company Inc

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Check the appropriate box:

LANNETT COMPANY, INC.

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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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December 6, 2019

Dear Lannett Company, Inc. Stockholders:

It is my pleasure to invite you to the 2020 Annual Meeting of Stockholders of Lannett Company, Inc. which will be held on January 22, 2020 at 9:00 am EST, at the Wyndham Grand Jupiter at Harbourside Place, 122 Soundings Avenue, Jupiter, Florida 33477.

The purpose of the meeting is to (i) elect seven members of our Board of Directors, (ii) vote to ratify the selection of Grant Thornton, LLP as our independent auditors, (iii) obtain an advisory vote on the compensation of the Company’s executive officers, and (iv) transact such other business as may properly come before the Annual Meeting.

Your vote is important.  Whether you plan to attend the meeting or not, we encourage you to read this Proxy Statement, in its entirety, and vote your shares.  Please sign, date and return the enclosed proxy card as soon as possible in the postage-paid envelope provided.

We look forward to seeing you at the Annual Meeting should you be able to attend.

Thank you.

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LANNETT COMPANY, INC.

9000 STATE ROAD

PHILADELPHIA, PENNSYLVANIA 19136

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LANNETT COMPANY, INC.

PROXY STATEMENT FOR

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JANUARY 22, 2020

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ATTENDANCE AND VOTING MATTERS

DATE, TIME, AND PLACE OF MEETING

This Proxy Statement is provided to you by the Board of Directors (the “Board”) of Lannett Company, Inc. (“Lannett” or the “Company”) in connection with the 2020 Annual Meeting of Stockholders (the “Annual Meeting”).  The Annual Meeting will be held on January 22, 2020 at 9:00 a.m., local time, at The Wyndham Grand Jupiter at Harbourside Place, 122 Soundings Avenue, Jupiter, Florida 33477, or at any adjournments or postponements of the Annual Meeting for the purposes set forth in the accompanying Notice of Annual Meeting.  We intend to mail this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders on or about December 19, 2019 to all stockholders of the Company entitled to vote at the Annual Meeting.

VOTING METHODS

You may vote on matters to come before the Annual Meeting in three ways:

·                  You may come to the Annual Meeting and cast your vote in person; or

·                  You may vote by internet or phone by following the instructions set forth on the proxy card; or

·                  You may vote by signing and returning the enclosed proxy card by mail.  If you do so, the individual named on the card will vote your shares in the manner you indicate.  You may revoke your proxy at any time prior to the Annual Meeting by sending written notice to the Secretary of the Company at 9000 State Road, Philadelphia, Pennsylvania 19136, or by attending the meeting.

If you come to the Annual Meeting to cast your vote in person and you are holding your stock in a brokerage account (“street name”), you will need to bring a legal proxy obtained from your broker.

You are entitled to cast one vote for each share of Lannett common stock owned on the record date, December 5, 2019.  As of the record date, there were 40,327,443 shares of Lannett common stock outstanding.  Stockholders are not entitled to cumulative voting in the election of directors.

QUORUM

A quorum of stockholders is necessary to hold a valid meeting for the transaction of business.  If the holders of a majority of Lannett common stock are present at the meeting, in person or by proxy, a quorum will exist.  Abstentions and “broker non-votes” are counted as present for purposes of establishing a quorum.

VOTE NECESSARY FOR ACTION

Directors are elected by a plurality vote of shares present in person or by proxy at the Annual Meeting.  Each other action to be considered by the stockholders will be approved by the affirmative vote of at least a majority of the shares present in person or by proxy at the meeting and entitled to vote on the matter.  For any proposal, an abstention will have the same effect as a vote against the proposal.  Broker non-votes will not be voted for or against any of these proposals and will have no effect on any of these proposals.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements.  Any statements made in this Proxy Statement that are not statements of historical fact or that refer to estimated or anticipated future events are forward-looking statements.  We have based our forward-looking statements on management’s beliefs and assumptions based on information available to them at this time.  Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” or “pursue,” or the negative other variations thereof or comparable terminology, are intended to identify forward-looking statements.  Such forward-looking statements reflect our current perspective of our business, future performance, existing trends and information as of the date of this filing.  These include, but are not limited to the impact of the nonrenewal of the exclusive distribution agreement with Jerome Stevens Pharmaceuticals on our future business and prospects, our beliefs about future revenue and expense levels, growth rates, prospects related to our strategic initiatives and business strategies, express or implied assumptions about government regulatory action or inaction, anticipated product approvals and launches, business initiatives and product development activities, assessments related to clinical trial results, product performance and competitive environment, anticipated financial performance and integration of acquisitions.  The statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.  We caution the reader that certain important factors may affect our actual operating results and could cause such results to differ materially from those expressed or implied by forward-looking statements.  We believe the risks and uncertainties discussed under “Item 1A - Risk Factors” contained in the Company’s Annual Report on Form 10-K and from time to time in our SEC filings may affect our actual results.

We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  We also may make additional disclosures in our Form 10-K, Form 10-Q, Current Reports on Form 8-K and in other filings that we may make from time to time with the SEC.  Other factors besides those listed here could also adversely affect us.

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BOARD OF DIRECTORS

The Role of the Board and Risk Oversight

The Board is responsible for overall corporate governance as well as for management and the strategic direction of the Company as a whole.  The corporate governance guidelines are available at www.lannett.com.  The Board and various committees of the Board meet regularly to discuss operating and financial reports presented by the Company, including but not limited to the Chief Executive Officer, Chief Financial Officer, and other members of management.

Assessing and managing risk is the responsibility of management; however the Board, through the Audit Committee, provides oversight and reviews various details regarding the Company’s risk mitigation efforts.  The Board is engaged in the Company’s strategic planning efforts, which include evaluating the objectives and risks associated with these initiatives.

Through the Board’s committees, the Board maintains broad oversight over various functions within the Company. The Audit Committee, under its charter, reviews and discusses risk exposures and the steps management has taken to monitor and mitigate each risk.  The Compensation Committee and the Governance and Nominating Committee monitor risks associated with succession planning and the attraction and retention of talent, as well as risks related to the design of compensation programs within the Company.

The Board has adopted a Code of Business Conduct and Ethics (the “code of ethics”).  The code of ethics applies to all employees including the Company’s Chief Executive Officer, Chief Financial Officer, Corporate Controller, and other finance employees.  The code of ethics is publicly available on our website at www.lannett.com.  If the Company makes any substantive amendments to the code of ethics or grants any waiver, including any implicit waiver, from a provision of the code of ethics to our Chief Executive Officer, Chief Financial Officer, or Corporate Controller, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.

The Board has established effective anti-hedging and anti-pledging policies.  We have an insider trading policy which among other restrictions prohibits employees, officers and Directors, including Named Executive Officers (“NEOs”), from entering into short sales, calls or any other hedging transaction involving Lannett securities.  In addition, the Board has a policy that prohibits Directors and NEOs from pledging Lannett stock.  None of our Directors or NEOs has pledged Lannett stock as collateral for a personal loan or other obligations.

The members of the Board are expected to attend all Board meetings whether in person or via teleconference.  Additionally, members of the Board are expected to attend the Annual Meeting.

The Board met eight times during the fiscal year ended June 30, 2019 (“Fiscal 2019”).  In addition to meetings of the Board, Directors attended meetings of individual Board committees.  Each of the Directors attended at least 75% of the Board meetings and meetings of Board committees of which they were a member during Fiscal 2019.  All Directors were present at the 2019 Annual Meeting.

In the past year, the Board and management have worked diligently - and successfully - to reposition the Company on solid financial and operational footing following Jerome Stevens Pharmaceuticals (“JSP”) decision in August 2018 to not renew its distribution agreement when the contract was set to expire on March 23, 2019.  In addressing this challenge, last year we established the Board’s and the Special Committee’s plan and commitment to provide guidance and oversight: 1) to assure that management was achieving its goal set out in the November 2018 Cost Saving Program; 2) in considering thoughtful capital structure decisions, including, but not limited to, a debt refinancing; and 3) in analyzing many strategic alternatives.  We are pleased to report that all three of these objectives were fulfilled.  Regarding the November 2018 Cost Savings Program, all goals were met, including the cessation of operations at Cody Laboratories.  In reference to our capital structure, the Company has taken actions — including the September 2019 issuance of an $86 million convertible note, the net proceeds of which were used to pay down the Term A debt, as well as the voluntary repurchase of an additional $62 million of existing term debt throughout the year — all of which have alleviated potential concerns with the maturity of the Term A loan in November of 2020.  And lastly, we continue to be actively engaged in analyzing strategic alternatives on an ongoing basis.

Tantamount in importance to stabilizing the Company, we feel that Mr. Crew, the CEO, and management have firmly set the Company on a solid growth path well into the future.  After almost two years since the Board appointed Mr. Crew, the Board continues to be very satisfied with their choice, due mainly to Mr. Crew’s strong performance, his leadership, and his plan to drive future stockholder value.  With Mr. Crew at the helm, for the 12 months ended September 30, 2019 our net revenues (excluding sales of JSP Levothyroxine) grew by approximately 12% over the comparable prior-year period.  Concurrent with this top-line growth were solid increases to both our gross margin and operating margin on net revenues excluding sales of JSP Levothyroxine.  Moreover, through organic growth, R&D partnerships and distribution agreements, Mr. Crew and management are targeting a 15% top-line compound annual growth rate

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(“CAGR”) over the next three years, while continuing to maintain our historical, disciplined approach toward profit margins.  In addition, management continues to analyze and monitor the debt capital markets for the appropriate time to refinance.  Therefore, with management’s proven track record of strong results, a positive future outlook, and the continuing improvement of our balance sheet, we feel that we are well-positioned to create significant stockholder and stakeholder value moving forward.

As part of our effort to increase stockholder value, we constantly consider a diversified and optimal Board composition.  After analyzing our needs in late 2018 and early 2019, we began a director search for a senior, pharmaceutical research and development executive.  Following robust diligence, we are pleased to report that Dr. Melissa Rewolinski joined the Board as an independent director on July 1, 2019.  Dr. Rewolinski has over 20 years of experience in the pharmaceutical industry.  Along her professional career, she has worked for Intercept Pharmaceuticals, Amira Pharmaceuticals, Pfizer, and Pharmacia & Upjohn.  In addition, Dr. Rewolinski holds a B.S. in chemistry and Ph.D. in organic chemistry from Rice University.   Further in respect to the Board composition, after four and a half years of excellent service, Mr. Albert Paonessa, III, will not be standing for re-election to the Board for 2020.  Among his many contributions to the Board were Mr. Paonessa’s paramount role in the choice and recruitment of Mr. Crew, and his expertise and guidance in our understanding and our interaction with our largest customers.  This year on the proxy ballot are seven (7) director candidates, of which five (5) candidates are independent and two (2) candidates are non-independent, which significantly improves our independent to non-independent director ratio from a year ago.

Further on the topic of continuously improving our corporate governance, this year we were busy updating many of our corporate governance documents and policies.  In the past year, we have updated the Company’s Bylaws, the Corporate Governance Guidelines, and all Board Committee charters.  At the Company level, the Board has provided guidance for and approved of a new Compliance Committee charter, an updated and revised Code of Business Conduct and Ethics, the implementation of a new compliance hotline operated by a third-party vendor, and the completion of an Enterprise Risk Management Assessment.  In addition, the Board provided guidance and approval of a series of updated corporate policies, including an Insider Trading Policy, Antitrust Policy, Whistleblower Policy and Social Media Policy.  Finally, both the Board and Company have received compliance training.

Board Leadership Structure

The Company’s Corporate Governance Guidelines provide that a majority of our Directors should meet New York Stock Exchange (“NYSE”) independence requirements.  The director will not be considered independent unless the Board determines that the director meets the NYSE independence requirements and has no relationship that in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.

Our Board leadership structure is one under which Patrick G. LePore serves as the non-executive, independent Chairman of the Board.  We currently have seven other Directors, including Timothy C. Crew, Chief Executive Officer.  Five of the eight Directors currently serving on the Board of Directors are “independent” as defined by the NYSE. The Board has four permanent committees: the Audit Committee, Compensation Committee, Governance and Nominating Committee, and Strategic Planning Committee.  In addition, the non-management members of the Board of Directors meet regularly without management directors or management personnel present.

The Board believes that the role of Chairman of the Board and Chief Executive Officer should be separate, and that the Chairman should not be an employee of the Company.  The Board believes that this separation benefits the stockholders in the form of increased oversight.  As further oversight, the independent Board members also meet throughout the year in executive sessions where neither management personnel nor other non-independent directors are present.  In the Company’s case, this excluded Jeffrey Farber, Albert Paonessa, III and Timothy C. Crew, Chief Executive Officer.

Overall, we believe that the separation of the Chairmanship and Chief Executive Officer positions, our strong committee system, and regular non-management director and independent director meetings allow for effective Board oversight of management.

Communicating with the Board of Directors

Interested persons may contact the non-management directors by sending written comments to 9000 State Road, Philadelphia, Pennsylvania 19136 Attn: Board of Directors.  The original communication as addressed, or a summary of the submissions will be forwarded to the directors for discussion in the next directors meeting.  If a summary of the communication is provided, the original communication will be maintained on file and available for the directors’ review upon request.

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Board Committees

The Board has four permanent committees - Audit Committee, Compensation Committee, Governance and Nominating Committee and Strategic Planning Committee.  There were nine (9) Audit Committee meetings, five (5) Compensation Committee meetings, four (4) Governance and Nominating Committee meetings, and no Strategic Planning Committee meetings held during Fiscal 2019.  In August 2018, the Board formed a Special Committee to provide oversight and strategic advice following JSP’s decision to not renew the JSP Contract.  The Special Committee has met eleven (11) times during Fiscal 2019.  In February 2019, the Board also formed a Special Stockholder Demand Committee for the purpose of investigating and responding to various stockholder demands against the Company; the Special Stockholder Demand Committee has met six (6) times.  The following table shows the directors who are currently members of each permanent Board Committee:

*Dr. Rewolinski joined the Board in July 2019

The Audit Committee has responsibility for overseeing the Company’s financial reporting process on behalf of the Board.  In addition, Audit Committee responsibilities include selection of the Company’s independent auditors, conferring with the independent auditors regarding their audit of the Company’s consolidated financial statements, pre-approving and reviewing the independent auditors’ fees and considering whether non-audit services are compatible with maintaining their independence, and considering the adequacy of internal financial controls.  The Audit Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com.  The charter describes the nature and scope of the Audit Committee’s responsibilities.  All members of the Audit Committee are independent directors as defined by the rules of the NYSE.  See “Report of the Audit Committee.”

Financial expert on Audit Committee:  The Board has determined that John C. Chapman, current director and chairman of the Audit Committee, is the Audit Committee financial expert as defined in section 3(a)(58) of the Exchange Act and the related rules of the Commission.

The Compensation Committee establishes and regularly reviews the Company’s compensation philosophy, strategy, objectives and ethics and determines the compensation of the executive officers of the Company.  For a discussion on the Compensation Committee’s process and factors used in determining executive compensation refer to “Compensation Discussion and Analysis” starting on page 14.  The Compensation Committee also administers the Company’s equity compensation plans.  The Compensation Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com.  All members of the Compensation Committee are independent directors as defined by the rules of the NYSE.

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Once a person has been identified by the Governance and Nominating Committee as a potential candidate, the Governance and Nominating Committee performs a robust review, which includes collection of outside information, to include publicly available information and all other relevant information available to determine if the person should be considered further.  Once this determination has been made the person is contacted.  If the person expresses a willingness and interest to be considered to serve on the Board, the Governance and Nominating Committee will request further information from the candidate including resumes, references and other relevant information.  A formal interview process is then held.  The Governance and Nominating Committee will then consider all information, qualifications, and accomplishments, including comparisons to other potential candidates before making its final decision.

The Governance and Nominating Committee will also consider candidates recommended by stockholders.  All nominees will be evaluated in the same manner, regardless of whether they were recommended by the Governance and Nominating Committee or recommended by a stockholder.  To have a candidate considered by the Governance and Nominating Committee, a stockholder must submit the recommendation in writing and must include the following information:

·                  The name of the stockholder and evidence of the person’s ownership of Company stock, including the number of shares owned and the length of ownership; and

·                  The name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a director of the Company and the person’s consent to be considered as a director nominee if recommended by the Governance and Nominating Committee to the Board and nominated by the Board to be included in the Proxy Statement for election at the Annual Meeting.

The stockholder recommendation and information described above must be sent to the Company at 9000 State Road, Philadelphia, Pennsylvania 19136, and must be received not less than 120 days prior to the anniversary date of the Company’s most recent Annual Meeting.

The Governance and Nominating Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com.  All members of the Governance and Nominating Committee are independent directors as defined by the rules of the NYSE.

The Strategic Planning Committee oversees the Company’s medium and long-term business strategies, including the decisions regarding new product initiatives, joint ventures and alliances, new markets and other matters related to the Company’s long-term planning process.  The Strategic Planning Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com.

Executive Sessions of Independent Directors

In accordance with the rules and regulations of the NYSE, non-management independent directors meet at regularly scheduled executive sessions without management participation.  At least once a year, an executive session is held with only independent Directors.  Executive sessions are chaired by the non-executive, independent, Chairman of the Board.

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(1)              Includes 33,056 unvested shares received pursuant to restricted stock awards granted in November 2016, April 2018, July 2018 and July 2019.

(2)              Includes 1,970 vested options to purchase common stock at an exercise price of $59.20 per share, 1,155 vested options to purchase common stock at an exercise price of $31.30 per share, 1,839 vested options to purchase common stock at an exercise price of $17.40 and 2,151 vested options to purchase common stock at an exercise price of $12.20.

(3)              Includes 58,479 unvested shares received pursuant to restricted stock awards granted in May 2018 and July 2019.

(4)              Includes 152,424 unvested shares received pursuant to restricted stock awards granted in January 2018, July 2018 and July 2019.

(5)              Includes 10,701 vested options to purchase common stock at an exercise price of $23.65 per share and 7,208 vested options to purchase common stock at an exercise price of $12.20 per share.

(6)              Includes 19,950 unvested shares received pursuant to restricted stock awards granted in November 2016, July 2018 and July 2019.

(7)              Includes 11,667 vested options to purchase common stock at an exercise price of $13.86 per share, 10,000 vested options to purchase common stock at an exercise price of $34.77 per share, 6,300 vested options to purchase common stock at an exercise price of $59.20 per share, 968 vested options to purchase common stock at an exercise price of $31.30 per share, 1,839 vested options to purchase common stock at an exercise price of $17.40 per share and 1,856 vested options to purchase common stock at an exercise price of $12.20 per share.

(8)              Includes 1,075,128 shares held by the Jeffrey Farber Family Foundation which is managed by Jeffrey Farber.  Jeffrey Farber disclaims beneficial ownership of these shares.  Includes 30,000 shares held by the Jeffrey and Jennifer Farber Family Foundation which is managed by Jeffrey Farber.  Jeffrey Farber disclaims beneficial ownership of these shares.  Includes 528,142 shares held by Farber Family LLC (“FFLLC”) which is managed by Jeffrey and David Farber.  David Farber and Jeffrey Farber each disclaim beneficial ownership of these shares.  Includes 73,408 shares held by Jeffrey Farber as custodian for his children, 17,279 shares held as joint custodian with David Farber for a relative, and also includes 38,000 shares held by Farber Investment Company (“FIC”).  Jeffrey Farber and David Farber each beneficially own 25% of FIC and each disclaim beneficial ownership of all but 9,500 shares held by FIC.  Includes 156,829 shares held by a Grantor Retained Annuity Trust, in which Jeffrey Farber is the trustee.

(9)              Includes 854,443 shares held by the David and Nancy Family Foundation and 574,760 shares held by the David and Nancy Philanthropic foundation.  David Farber disclaims beneficial ownership of these shares.  Includes 528,142 shares held by FFLLC which is managed by Jeffrey and David Farber.  David Farber and Jeffrey Farber each disclaim beneficial ownership of these shares.  Includes 180,145 shares held by David Farber as joint custodian with his children, 148,160 shares held as trustee for his children and 17,279 shares held as joint custodian with Jeffrey Farber for a relative.  David Farber disclaims beneficial ownership of these shares.  Also includes 38,000 shares held by FIC.  Jeffrey Farber and David Farber each beneficially own 25% of FIC and each disclaim beneficial ownership of all but 9,500 shares held by FIC.

(10)       Includes 53,588 unvested shares received pursuant to restricted stock awards granted in July 2017, July 2018 and July 2019.

(11)       Includes 1,839 vested options to purchase common stock at an exercise price of $17.40 per share and 4,555 vested options to purchase common stock at an exercise price of $12.20 per share

(12)       Includes 37,300 unvested shares received pursuant to restricted stock awards granted in November 2016, September 2017, October 2017, July 2018 and July 2019.

(13)       Includes 4,000 vested options to purchase common stock at an exercise price of $4.16 per share, 9,334 vested options to purchase common stock at an exercise price of $13.86 per share, 4,200 vested options to purchase common stock at an exercise price of $34.77 per share and 3,317 vested options to purchase common stock at an exercise price of $12.20 per share.

*   Percent of class calculation is based on 40,335,406 outstanding shares of common stock at October 31, 2019.

** Assumes that all options exercisable within sixty days of October 31, 2019 have been exercised.

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The following table sets forth, as of October 31, 2019, information regarding the names and addresses of the stockholders known to the Company to be beneficial owners of more than five (5%) percent of the Company’s common stock.

(1)    Based on Schedule 13G/A filed by Blackrock, Inc. with the SEC on January 31, 2019, Blackrock, Inc. has sole voting power over 4,716,168 shares, shared voting power over 0 shares, sole dispositive power over 4,765,936 shares and shared dispositive power over 0 shares.

(2)              Based on Schedule 13G filed by D.E. Shaw & Co., L.P. with the SEC on August 9, 2019, D.E. Shaw & Co., L.P. has sole voting power over 0 shares, shared voting power over 3,154,618 shares, sole dispositive power over 0 shares and shared dispositive power over 3,375,318 shares.

(3)              Based on Schedule 13G/A filed by LSV Asset Management with the SEC on February 13, 2019, LSV Asset Management has sole voting power over 1,208,163 shares, shared voting power over 0 shares, sole dispositive power over 2,092,352 shares and shared dispositive power over 0 shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, officers and persons who own more than 10% of a registered class of the Company’s equity securities to file with the SEC reports of ownership and changes in ownership of common stock and other equity securities of the Company.  Officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that during Fiscal 2019 all filing requirements applicable to its officers, directors and greater-than-10% beneficial owners under Section 16(a) of the Exchange Act were complied with in a timely manner.

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Patrick G. LePore - See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. LePore.

John C. Chapman — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Chapman.

Timothy C. Crew — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Crew.

David Drabik — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Drabik.

Jeffrey Farber — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Farber.

Melissa Rewolinski — See “Proposal No. 1 - Election of Directors” for information pertaining to Dr. Rewolinski.

Albert Paonessa, III was appointed as a Director of the Company in July 2015.  In May 2017, Mr. Paonessa was appointed the Chief Executive Officer of KeySource Medical, a generic distributor (“KeySource”).  Prior to that, Mr. Paonessa served as the President of Anda, Inc., the fourth largest distributor of generic drugs in the U.S., for over 10 years until January 2015.  He previously served as Anda’s Senior Vice President of Sales and before that as Vice President of IT.  Earlier, Mr. Paonessa was Vice President of Operations for VIP Pharmaceuticals, which was acquired by Anda’s parent company Andrx, in 2000.  Mr. Paonessa earned a Bachelor of Arts degree in Interpersonal Communications from Bowling Green State University.  Mr. Paonessa will not be standing for re-election to the Board for 2020.

Paul Taveira — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Taveira.

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Timothy C. Crew was appointed as the Company’s Chief Executive Officer and a Director of the Company in January 2018.  Mr. Crew has more than 25 years of experience in the generic and branded pharmaceutical industries.  Previously, he served as Chief Executive Officer of Cipla North America, a global pharmaceutical company based in Mumbai, India.  Before Cipla, he worked for eight years at Teva Pharmaceuticals Industries Ltd. (“Teva”), where he ultimately served as Senior Vice President and Commercial Operating Officer of the North American Generics division, the world’s largest generic operation with multibillion dollars of annual sales.  Before that, he was Teva’s Vice President, Alliances and Business Development.  Mr. Crew was also an Executive Vice President, North America, for Dr. Reddy’s Laboratories Ltd.  Mr. Crew began his pharmaceutical career at Bristol-Myers Squibb, where he held a number of senior management positions in global marketing, managed healthcare, marketing, business development and strategic planning.  Prior to his pharmaceutical roles, Mr. Crew served in the United States Army, where he rose to the rank of Captain. Mr. Crew earned a Bachelor of Arts degree in economics from Pomona College and a Masters of Business Administration degree from Columbia Business School.

John Kozlowski joined the Company in 2009 and was promoted in 2010 to Corporate Controller.  In 2016, Mr. Kozlowski was promoted to Vice President Financial Operations & Corporate Controller.  In October 2017, Mr. Kozlowski was promoted to Chief Operating Officer.  In April 2018, Mr. Kozlowski was promoted to Chief of Staff and Strategy Officer.  In August 2019, Mr. Kozlowski succeeded Martin Galvan as the Vice President of Finance and Chief Financial Officer.  Prior to joining the Company, Mr. Kozlowski served in senior finance and accounting roles for Optium Corporation and Finisar Australia.  He earned a Bachelor of Arts degree in finance from James Madison University and a Masters of Business Administration degree from Rider University.  In July 2019, the Company announced that Mr. Kozlowski will succeed Mr. Galvan as the Vice President of Finance and Chief Financial Officer effective August 31, 2019.

John M. Abt joined the Company in March 2015 as Vice President of Quality and was promoted to Vice President and Chief Quality and Operations Officer in April 2018.  Prior to joining the Company, Mr. Abt held senior level positions in both quality and operations and has extensive knowledge in pharmaceutical manufacturing, quality, strategy, business improvement and site transformation.  Prior to joining the Company, he most recently served as Teva Pharmaceuticals’ Vice President Global Quality Strategy, overseeing the development and implementation of strategy and associated initiatives for the global quality organization.  Before that, he held a number of leadership positions of increasing responsibility in operations, continuous improvement, quality systems and compliance.  He earned his Doctorate in Business Administration from Temple University, Masters of Administrative Science in Business Management from Johns Hopkins University and a Bachelor of Science in Biochemistry from Niagara University.

Maureen M. Cavanaugh joined the Company in May 2018 as Senior Vice President and Chief Commercial Operations Officer.  Prior to joining the Company, Ms. Cavanaugh spent the past 11 years at Teva, most recently as Senior Vice President, Chief Commercial Officer, North American Generics.  Earlier at Teva, Ms. Cavanaugh served as Senior Vice President and General Manager, US Generics and before that held a variety of positions in sales, marketing and customer operations.  Ms. Cavanaugh also previously served as Senior Director of Marketing at PAR Pharmaceuticals, as Director, Product Management and Marketing Research at Sandoz Inc., and held a number of finance, sales and marketing operations positions at Bristol Myers-Squibb.  Ms. Cavanaugh earned a Bachelor of Science in Business Administration degree from LaSalle University and a Masters of Business Administration degree from Rider University.

Robert Ehlinger joined the Company in July 2006 as Chief Information Officer.  In June 2011, Mr. Ehlinger was promoted to Vice President of Logistics and Chief Information Officer.  Prior to joining Lannett, Mr. Ehlinger was the Vice President of Information Technology at MedQuist, Inc., a healthcare services provider, where his career spanned 10 years in progressive operational and technology roles.  Prior to MedQuist, Mr. Ehlinger was with Kennedy Health Systems as their Corporate Director of Information Technology supporting acute care and ambulatory care health information systems and biomedical support services.  Earlier on, Mr. Ehlinger was with Dowty Communications where he held various technical and operational support roles prior to assuming the role of International Distribution Sales Executive managing the Latin America sales distribution channels.  Mr. Ehlinger received a Bachelor’s of Arts degree in Physics from Gettysburg College in Gettysburg, PA.

Samuel H. Israel joined the Company in July 2017 as General Counsel and Chief Legal Officer.  Prior to joining Lannett, Mr. Israel was a partner with Fox Rothschild LLP, a national, full-service law firm, with 26 offices that provide services in more than 60 practice areas, since 1998.  He served as chair of the firm’s Pharmaceutical and Biotechnology Practice and handled a variety of commercial litigation matters.  Mr. Israel earned a bachelor of science degree in chemical engineering from the University of Pennsylvania and a juris doctor degree with honors from Rutgers University School of Law.

To the best of the Company’s knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any director, executive officer, or significant employee during the past ten years.

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June 2019 to cease all operations at Cody Labs, resulting in additional costs and asset impairment charges in Fiscal 2019.  In response to these challenges, and under the leadership of Mr. Crew and the Board of Directors, the Company established a new strategy focused on growing our core business, launching new products, building our R&D pipeline, expanding strategic alliances, and reducing costs.  Our leadership team and Board are focused on executing our strategy, streamlining our operations, and developing new products and alliances to diversify and enhance our revenue streams, with considerable progress made in Fiscal 2019, including a record number of new product launches.  We believe these actions will better position the Company for long-term profitable growth and stockholder value creation.  We also appointed a new Board Chairman, effective July 1, 2018, and added two new directors: one new director effective July 1, 2018 and another new director effective July 1, 2019.  As discussed below, the Company is executing on a number of key strategic initiatives and continuing to operate profitably (excluding one-time asset impairment charges) despite ongoing challenging market conditions within the generic pharmaceuticals industry.

The Company achieved a number of strategic milestones in Fiscal 2019, including the implementation of a cost reduction program which is targeted to achieve annualized savings of approximately $66 million by Fiscal 2020 as compared with Fiscal 2018 levels.  This reduction included implementation of a restructuring plan for Cody Labs, significantly reducing the scope of operations and related costs, and, as noted above, eventually decided to cease all operations.  Effective December 1, 2018, we entered into an agreement to provide Levothyroxine Sodium Tablets USP exclusively to Amneal Pharmaceuticals, Inc. through the remaining duration of our contract with JSP, providing the Company with an up-front cash payment and guaranteed gross profit of at least $50 million over the remaining term of the agreement.  We also streamlined our production and supply chain functions by closing our manufacturing and distribution facilities in Philadelphia and transferring all operations to our plant in Seymour, Indiana.  In March 2019, we successfully completed our 2016 Restructuring Plan, which resulted in the realization of transaction-related synergies following the November 2015 acquisition of Kremers Urban Pharmaceuticals Inc. (“KUPI”), a deal that significantly increased our product portfolio and scope of operations.  In addition, we continued to significantly strengthen our balance sheet, reducing our debt by approximately $129 million in Fiscal 2019.

In addition, we continued to make important advances in product development and mix, market share, and in our regulatory approval process, allowing us to efficiently and safely place our products that span a variety of categories on the market.  We launched 18 new products during Fiscal 2019, most of which have a limited or moderate number of competitors, and more than twice the number of products launched in Fiscal 2018, with additional launches planned in Fiscal 2020 and beyond.  As of June 30, 2019, we had over 100 products available to the market, with approximately 60 products in our pipeline.  We also continue to capitalize on our strategic partnerships, both domestically and internationally.  Since January 2018, we acquired or in-licensed more than 40 products and entered into several new strategic alliance agreements which diversified and enhanced our revenue streams.  Along with our strategic alliance partner, HEC Group, we initiated a healthy adult male PK/PD for an insulin-based product with significant market potential to treat type 1 and type 2 diabetes, which impacts 29 million Americans.

Our financial performance in Fiscal 2019 was adversely impacted by ongoing competitive pressures within the generic pharmaceutical industry, the expiration of the JSP contract, and operational issues at our Cody Labs subsidiary.  Despite these challenges, our executive leadership and other employees made significant progress in executing our strategic plan and positioning the Company for future growth.  Excluding the impact of JSP, our revenues grew sequentially in each quarter of Fiscal 2019.  The Committee adjusted financial performance goals for the Fiscal 2019 annual incentive (bonus) plan to account for the expiration of the JSP contract (for the period of March 24, 2019 - June 30, 2019) as well as forecasted positive benefits from cost savings initiatives.  Based on the revised internal budget, our financial results for Fiscal 2019 slightly exceeded target performance goals for each metric under the Annual Bonus Plan, and we achieved the superior performance hurdle for number of product launches.  Calculated award funding levels under our Annual Bonus Plan were equal to approximately 120% of target.  However, in light of the Company’s negative total stockholder return (“TSR”) in Fiscal 2019 and non-renewal of the JSP contract, the Committee reduced cash bonus payouts to 100% of target award levels for each NEO.  In July 2019, our NEOs received stock option and restricted stock grants that were slightly above target award levels based on Fiscal 2019 Company and individual performance results, as discussed further below.  They also received performance share grants tied to our relative TSR vs. companies in the S&P Pharmaceuticals Select Index for the three-year performance cycle running from July 29, 2019 through July 29, 2022 with any earned awards vesting on July 29, 2023 after one additional year of continued service.  Most outstanding stock options held by our NEOs are currently “underwater” and the value of most other outstanding equity awards are well below grant date target values.  Based on our interim relative TSR results through June 30, 2019, performance shares granted in Fiscal 2018 and 2019 are currently tracking below threshold levels which, if sustained over the applicable three-year performance periods, would result in no awards being earned by NEOs.

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Key financial performance highlights, as reported in accordance with GAAP requirements, are shown below.  GAAP-based results for Fiscal 2019 reflect significant asset impairments primarily associated with the JSP contract expiration and Cody Labs totaling $375.4 million along with other restructuring-related costs and charges. See the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details and discussion of Company performance.

†Peer Group average pertains to the Fiscal 2019 peer group.

Comparison of Target Versus Actual CEO Pay (In Year Earned)

The following chart compares actual versus target CEO pay for the past three fiscal years. To more accurately demonstrate the impact of Company performance on executive pay, comparisons include annual equity grants in the year earned, as opposed to the year granted. Values for fiscal year 2017 pertain to Mr. Arthur Bedrosian, our former CEO. Values for Fiscal years 2018 and 2019 pertain to Mr. Crew, with Fiscal 2018 values including annualized base salary and short-term incentives (STI) and new hire equity grants.  As shown below, actual pay levels earned for Fiscal 2017 and 2018 were well below target opportunities, even when one-time awards are included.  Mr. Crew’s actual pay earned for Fiscal 2019 was slightly above target, reflecting the Company’s significant progress towards achieving strategic objectives and positioning the Company for future growth.  Equity-based long-term incentives reflect grant-date award values, with current actual or realizable values for Fiscal 2017 and 2018 awards considerably lower based on our closing stock price as of June 30, 2019.

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Comparison of Disclosed Versus Realizable CEO Pay for Mr. Crew (Based on Summary Compensation Table)

Compared with values reported in the Summary Compensation Table for Mr. Crew, current realizable values are 52% lower for Fiscal 2018 and 24% lower for Fiscal 2019.  Mr. Crew’s reported compensation for Fiscal 2018 reflects his partial year of service and new hire equity grants, while Fiscal 2019 reported compensation reflects base salary plus bonus (STI) earned plus equity awards granted in Fiscal 2019 (with stock options and restricted stock based on Fiscal 2018 performance).  Realizable pay reflects no current value for outstanding stock options or performance shares, and restricted stock well below initial grant date values based on our stock price as of June 30, 2019.

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Fiscal 2019 Executive Compensation Program Changes

As our Company grows, the Committee is committed to the evolution and improvement of our Executive Compensation Program to ensure alignment with our business strategy and stockholder interests, as well as best competitive practices.  The Committee made the following adjustments to the program’s core compensation elements for 2019:

To address retention concerns and encourage NEOs to focus on achieving strategic objectives following the announced non-renewal of the JSP contract, the Committee adopted a retention bonus program in December 2018.  NEOs were eligible to receive cash payments equal to 100% of their Fiscal 2018 base salary if they remained employed and perform duties and responsibilities in a satisfactory manner through December 1, 2019, or if they are terminated other than for Cause (as defined in employment agreements) during the one-year retention period.  Retention awards were earned by our current NEOs on December 1, 2019 and will be reported in the Summary Compensation Table for Fiscal 2020.

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Overview of the Executive Compensation Program

Our Philosophy

A fundamental objective of our Executive Compensation Program is to focus our executives on creating long-term stockholder value — all aspects of our program are rooted in this goal and designed around the following guiding principles:

·                  Pay for performance: A significant portion of compensation should be variable and directly linked to corporate and individual performance goals and results.

·                  Competitiveness: Compensation should be sufficiently competitive to attract, motivate and retain an executive team fully capable of driving exceptional performance.

·                  Alignment: The interests of executives should be aligned with those of our stockholders through equity-based compensation and performance measures that help to drive stockholder value over the long term.

To support these guiding principles, our program includes the following compensation elements:

Target Compensation Mix

The charts below show that most of our NEO’s target compensation for Fiscal 2019 is variable (80% for our CEO and an average of 69% for our other NEOs).  Variable pay includes the target value of short-term cash incentives (“STI”), performance shares, stock options, and restricted stock.

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Based upon Fiscal 2019 compensation as reported in the Summary Compensation Table on page 30 of this Proxy Statement variable pay represents 65% of total pay for our CEO and 60% of average total pay for our other NEOs.  This mix reflects target annual incentives earned in Fiscal 2019 under the Annual Bonus Plan (shown as STI), target performance share grants in Fiscal 2019, and below-target stock option or restricted stock grants in Fiscal 2019 based on Fiscal 2018 Company performance.

How Compensation Decisions Are Made

·                  The Role of the Compensation Committee. The Committee, composed entirely of independent directors, is responsible for making executive compensation decisions for the NEOs.  The Committee works closely with its independent compensation consultant, Pearl Meyer & Partners (“Pearl Meyer”), and management to examine pay and performance matters throughout the year.  The Committee’s charter, which sets out its objectives and responsibilities, can be found at our website at www.lannett.com under the “Investors” section.

The Committee has authority and responsibility to establish and periodically review our Executive Compensation Program and compensation philosophy.  Importantly, the Committee also has the sole responsibility for approving the corporate performance goals upon which compensation for the CEO is based, evaluating the CEO’s performance and determining and approving the CEO’s compensation, including equity-based compensation, based on the achievement of his goals.  The Committee also reviews and approves compensation levels for other NEOs, taking into consideration recommendations from the CEO.

In making its determinations, the Committee considers market data and advice from Pearl Meyer, as well as budgets, reports, performance assessments and other information provided by management.  It also considers other factors, such as the experience, skill sets, and contributions of each NEO towards our overall success.  However, the Committee is ultimately responsible for all compensation-related decisions for the NEOs and may exercise its own business judgment when evaluating performance results and making compensation decisions.

Timing of Committee Meetings and Grants; Option and Share Pricing

The Committee meets as necessary to fulfill its responsibilities, and the timing of these meetings is established during the year.  The Committee holds special meetings from time to time as its workload requires.  Annual equity grants typically occur after finalizing fiscal year end performance results.  Historically, annual grants of equity awards were typically approved at a meeting of the Committee in August/September of each year to reward prior year performance.  Beginning with grants made in Fiscal 2015, annual equity grants occur in the July/August time frame, reflecting the Company’s status change to an accelerated filer (with an expedited filing date requirement).  Individual grants (for example, associated with the timing of a new NEO or promotion to an NEO position) and special recognition awards may occur at any time of year.  The exercise price of each stock option and fair value of restricted stock awarded to our NEOs is the closing price of our common stock on the date of grant.

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·                  The Role of the CEO. The CEO does not play any role in the Committee’s determination of his own compensation.  However, he presents the Committee with recommendations for each element of compensation including base salaries and short- and long-term incentive awards for the other NEOs, as well as non-executive employees who are eligible for equity grants.  The CEO bases these recommendations upon his assessment of each individual’s performance, as well as market practice.  The Committee has full discretion to modify the recommendations of the CEO in the course of its approvals.

·                  The Role of the Independent Consultant. The Committee consults, as needed, with an outside compensation consulting firm.  As it makes decisions about executive compensation, the Committee reviews data and advice from its consultant about current compensation practices and trends among publicly-traded companies in general and comparable generic pharmaceutical companies in particular.  The Committee also periodically reviews recommendations from its outside consultant and makes recommendations to the Board about the compensation for non-employee directors.

In Fiscal 2018, Pearl Meyer was retained by the Committee, as its independent consultant, to review the competitiveness of the Executive Compensation Program.  Pearl Meyer provided the Committee with compensation data with respect to similarly sized biopharmaceutical and life sciences companies and consulted with the Committee about a variety of issues related to competitive compensation practices and incentive plan designs. Pearl Meyer was also retained by the Committee in Fiscal 2019 to review the competitiveness of the Executive Compensation Program and to provide ongoing advice relating to the Executive Compensation Program.  The Committee assessed the independence of Pearl Meyer pursuant to the SEC rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from independently advising the Committee.

Peer Group & Benchmarking

The Committee evaluates industry-specific and general market compensation practices and trends to ensure the Executive Compensation Program is appropriately competitive.  When making decisions about the program for Fiscal 2019, the Committee considered publicly-available data, as well as a market study conducted by Pearl Meyer in May 2018.  The Pearl Meyer study developed market values using a blend of peer group proxy pay data for the companies shown below as well as published survey data for the broader life sciences industry.  Using this information, the Committee compared our program to the compensation practices of other companies which the Committee believes are comparable to the Company in terms of size, scope and business complexity (the “peer group”).  As shown below, the Company ranked in the upper half of the peer group in terms of employee headcount, near the 50th percentile for net sales, between the 25th and 50th percentiles for enterprise value, and below the 25th percentile for operating income.

Subsequent to the 2018 study, former peer Aceto Corporation filed for bankruptcy protection and former peer Impax Laboratories Inc. was combined into the newly-formed company Amneal Pharmaceuticals, Inc.

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For purposes of a subsequent market pay analysis conducted by Pearl Meyer in April 2019, the Committee approved a revised peer group consisting of 12 companies, including 8 of the 2018 peers shown above (Acorda Therapeutics Inc., Akorn Inc., Amphastar Pharmaceuticals Inc., Assertio Therapeutics Inc., Cambrex Corporation, Prestige Consumer Healthcare Inc., Supernus Pharmaceuticals Inc., and United Therapeutics Corporation) plus 4 new companies (Amneal Pharmaceuticals Inc., ANI Pharmaceuticals Inc., Catalent Inc., and Momenta Pharmaceuticals Inc.). The revised peer group aligns more closely with us in terms of company size and industry focus following the non-renewal of the JSP contract.  The Committee uses external market data as a reference point to ensure the Company’s executive compensation program is sufficiently competitive to attract, retain, and motivate highly experienced and talented NEOs.  The Committee generally seeks to position target total direct compensation for NEOs at or near 50th percentile market values for comparable positions but does not utilize a purely formulaic benchmarking approach.  Based on the May 2018 Pearl Meyer study, target total direct compensation, including the sum of base salary plus target short-term and long-term incentives, was within the competitive range (defined as +/- 15%) of 50th percentile market values for all then-current NEOs other than Mr. Kozlowski, who was above the range, and equal to 103% of the 50th percentile in the aggregate.  Actual total direct compensation was well-below 50th percentile market values for all then-current executive officers participating in the Fiscal 2018 short-term and long-term incentive programs and equal to 42% of the 50th percentile in the aggregate, reflecting below-target incentive awards based on actual vs. planned performance.  As previously noted, when evaluating our executive compensation program, the Committee considers a variety of other factors in addition to external market data, such as Company and individual performance, and each NEO’s qualifications, skill sets, and past and expected future contributions towards our success.

2019 Executive Compensation Program Decisions

Base Salary

We attribute much of our success to our highly-experienced executive management team, and the strength of their leadership has been clearly demonstrated by our exceptional long-term performance results and growth.  In order to remain competitive among our industry peers, the Committee believes it should set compensation at market-competitive levels that reflect the executive’s experience, role and responsibilities.  Based on Pearl Meyer’s 2018 study, current salaries were below 50th percentile market values for 4 of our 5 current NEOs and within a competitive range (+/- 10%) of the 50th percentile for all incumbents.  The Committee decided to not provide salary increases to any of our NEOs for Fiscal 2019. The following table summarizes annualized salaries for Fiscal 2018 and 2019 for our NEOs. Annualized Fiscal 2018 salaries differ from actual values received as reported in the Summary Compensation Table for certain incumbents with less than a full year of service or promotions.

Short-Term Incentives (Annual Bonus)

The Company’s NEOs participate in an annual bonus program, which is designed to reinforce the annual business plan and budgeted goals and to recognize yearly performance achievements focused primarily on financial and operating results.  Actual payouts can range from 0% (below threshold) to 200% (superior performance) of target awards and are paid in cash.  The Committee sets each NEO’s threshold, target and superior bonus opportunity as a percentage of base salary, as follows:

Expressed as percentages of salary, Fiscal 2019 award opportunities were the same as those established in Fiscal 2018 for all NEOs who were employed during both years.

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The overall annual bonus plan for Fiscal 2019 was comprised of two components:

·                  Corporate Financial & Operational Goals: 80% of the total target award opportunity is tied to operating results versus targets established by the Committee to promote a focus on Company-wide profitable growth and collaboration:

Fiscal 2019 performance metrics and weightings were the same as those established in Fiscal 2018.

Adjusted EPS is defined as diluted EPS excluding bonus and stock-based compensation expense, as further adjusted for certain non-recurring items.

·                  Strategic / Individual Objectives: 20% of the total target award opportunity is based on the achievement of pre-established quantitative and qualitative strategic and individual goals, to reinforce key strategic objectives and to promote individual accountability and “line of sight.”  For Fiscal 2019, half of the award opportunity for all NEOs was tied to new product launches and half was tied to various other strategic, financial and operational objectives, taking into consideration each NEO’s job function and responsibilities.  For competitive harm reasons, the Company does not disclose specific details on individual goals and other strategic objectives.

2019 Short-Term Incentives (Annual Bonus): Results and Payouts

·                  Corporate Financial & Operational Results (Collectively Weighted 80% of Total Target Award). Fiscal 2019 Target goals for Adjusted Operating Income, Adjusted EPS, and Net Sales were set below Fiscal 2018 actual levels based on our 2019 internal budgets which anticipated continued challenging market conditions within the generic pharmaceuticals sector.  In December 2018, the Committee adjusted incentive plan performance targets to account for the expiration of the JSP contract (for the period of March 24, 2019 — June 30, 2019).  Based on our revised 2019 internal budget, performance targets were reduced by approximately 7% from original levels for Net Sales and Adjusted Operating Income metrics and by 9.5% for Adjusted EPS.  In applying these adjustments, the Committee also included anticipated positive impacts from the Company’s cost savings initiatives, which offset more than half of the negative adjustments associated with the expiration of the JSP contract for the period of March 24, 2019 through our fiscal year end of June 30, 2019.  The Committee viewed these revised performance hurdles as very challenging in light of then-current internal forecasts, the uncertainty resulting from the JSP contract expiration, and industry and economic conditions. The Committee established Threshold performance hurdles at 85% of Target goals and Superior hurdles at 120% of Target to account for stretch goals, challenging market conditions, and to align more closely with our historical performance range spreads.  Fiscal 2019 financial performance goals and actual results are shown in the following table:

* Original Target performance goals were $220.3 million for Adjusted Operating Income, $3.13 for Adjusted EPS, and $700.0 million for Net Sales.

Actual Fiscal 2019 performance results were between Target and Superior levels for all three financial metrics.  Actual Adjusted Operating Income for Fiscal 2019 excluded pre-tax items totaling approximately $472.1 million, including acquisition-related and restructuring expenses, impairments, and other non-recurring items.  Actual Adjusted EPS excluded the same $472.1 million in pre-tax items plus $19.1 million primarily related to non-cash interest expense and a loss on extinguishment of debt as well as the related tax effects for all of these items.  For Fiscal 2019, the Net Sales result was the same as the GAAP-reported value, with no adjustments applied.

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·                  Strategic and Individual Performance Results (Collectively Weighted 20% of Total Target Award). For Fiscal 2019, the Target goal for new product launches was 15 for the fiscal year.  The actual number of launches was 18, at the Superior goal. The Committee also considered each NEO’s contributions towards a variety of other company-wide strategic and function-specific objectives.  While no specific weightings were assigned to these other objectives, the Committee considered each NEO’s contributions towards the Company’s ongoing success with restructuring activities, the continued strengthening of our balance sheet, maintaining operational discipline within a challenging market environment, and achievement of various other strategic growth milestones.  Based on the Committee’s overall assessment, each NEO met or exceeded all goals for the strategic / individual performance component.

Total Annual Bonus

Based on our Fiscal 2019 performance results, calculated award funding levels were equal to approximately 120% of target levels for our NEOs.  However, in light of the Company’s negative TSR and non-renewal of the JSP contract, the Committee exercised negative discretion and capped all payouts at 100% of Target opportunities.  Total Fiscal 2019 payouts for current NEOs are summarized in the following table:

The target value mix for our NEOs in Fiscal 2019 is summarized below:

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All equity grants are tied to performance.  For the stock option and restricted stock components, grant levels are tied to Company and individual performance, using the same metrics and weightings as under the Annual Bonus Plan.  Actual grants can range from 0% (for below Threshold results) to 150% (for Superior performance) of target award levels, as shown in the following table:

Any earned stock option and restricted stock grants will be made following the end of the fiscal year in which performance is measured.  These grants typically occur in the first quarter of the next fiscal year.

For the performance share component, award opportunities can range from 0% to 200% of target levels, based on our three-year TSR relative to companies in the S&P Pharmaceuticals Select Industry Index, as follows:

Because they are tied to prospective goals, performance share grants will occur during the first 90 days of each three-year performance cycle.

Grants Made in Fiscal 2019 (Based on Fiscal 2018 Performance)

In Fiscal 2018, the Company achieved financial performance results between Threshold and Target for Net Sales and below threshold levels for the profitability metrics.  Based on Company financial and strategic / individual objective performance results, the Committee approved the following stock option and restricted stock grants, effective as of July 30, 2018:

These stock options vest in three equal annual increments, beginning on the first anniversary of the grant date and expire on the tenth anniversary from the date of grant. Each stock option has an exercise price of $12.20, equal to our closing stock price on the date of grant.  Restricted stock also vests in three equal annual increments, beginning on the first anniversary of grant.

Our NEOs also received the following TSR performance share grants:

Grants were made on July 30, 2018 and were determined by dividing target award values by the grant date fair value of $17.69 per share, based on a Monte-Carlo binomial modeling valuation tool, as discussed in Note 16 “Share-based Compensation” of our consolidated financial statements.   Award vesting will be based on the Company’s TSR relative to companies in the S&P Pharmaceuticals Index for the three-year period ending July 30, 2021, with no awards earned for below-Threshold results and maximum awards of up to 200% of target grants for Superior performance.

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Grants Made in Fiscal 2020 (Based on Fiscal 2019 Performance)

In Fiscal 2019, the Company achieved financial performance results between Target and Superior levels for Adjusted Operating Income, Adjusted EPS, and Net Sales.  Based on Company financial and strategic / individual objective performance results, the Committee approved the following stock option and restricted stock grants, effective as of July 29, 2019:

These stock options vest in four equal annual increments, beginning on the first anniversary of the grant date and expire on the tenth anniversary from the date of grant. Each stock option has an exercise price of $6.57, equal to our closing stock price on the date of grant.  Restricted stock also vests in four equal annual increments, beginning on the first anniversary of grant.

Our NEOs also received the following TSR performance share grants: