THIS EMPLOYMENT
AGREEMENT (“Agreement”) is made and entered into as of
the 29th day of September, 2003, by and between Hythiam, Inc., a
Delaware corporation (“Employer”), and Terren S.
Peizer, an individual (“Employee”).
A. WHEREAS,
Employer has agreed to employ Employee and Employee has agreed to
enter into employment as the Chief Executive Officer
(“CEO”) of Employer, on the terms set forth in this
Agreement.
B. WHEREAS,
Employer acknowledges that Employee desires definition of his
compensation and benefits, and other terms of his
employment.
NOW, THEREFORE, in
consideration thereof and of the covenants and conditions contained
herein, the parties agree as follows:
1.1
Initial Term . The initial term of this Agreement shall
begin on September 29, 2003 (“Commencement Date”)
and shall continue until the earlier of: (a) the date on which
it is terminated pursuant to Section 5; or (b) five
(5) years following the Commencement Date (“Initial
Term”). At the conclusion of the Initial Term, and each
successive term thereafter, the Agreement shall be automatically
renewed for an additional five-year term, unless either party gives
written notice of its intention to terminate the Agreement at least
two (2) years prior to the automatic renewal date.
2.1
Employment of Employee . Employer agrees to employ Employee
to render services on the terms set forth herein. Employee hereby
accepts such employment on the terms and conditions of this
Agreement.
2.2
Position and Duties . Employee shall serve as
Employer’s CEO, reporting directly to Employer’s Board
of Directors (“Board”), and shall have the general
powers, duties and responsibilities of management usually vested in
that office in a corporation and such other additional powers and
duties as may be prescribed from time to time by the
Board.
In the event that
Employee’s duties and responsibilities shall be significantly
diminished or there shall be assigned to him duties and
responsibilities materially inconsistent with his position and
either situation continues for thirty (30) days after notice
of either such situation is given such occurrence shall constitute
a termination without Good Cause under Section 5.3.
2.3
Board Membership . Employer acknowledges that Employee is
currently a member and Chairman of the Board, and subject to the
Board’s fiduciary obligations will take all reasonable action
necessary to assure that Employee remains Chairman throughout the
term of this Agreement. The Employee shall, to the extent appointed
or elected, serve as a member of any committee of the Board, or the
equivalent bodies in a subsidiary or affiliate, in all cases,
without additional compensation or benefits and any compensation
paid to the Employee, or benefits provided to the Employee, in such
capacities shall be a credit with regard to the amounts due
hereunder from the Employer.
2.4
Other Services . Employer acknowledges and pre-approves
Employee’s current responsibility as Chairman and CEO of
Clearant, Inc. (“Clearant”). Employer is hereby
notified and acknowledges that Employee is subject to a
Confidentiality Agreement under the terms of his employment with
Clearant. In addition, Employer acknowledges that Employee may do
charity work and conduct personal business as long as such
activities do not materially interfere with the Employee’s
duties hereunder.
2.5
Relocation or Change of Duties . Employer shall not, without
Employee’s consent, require Employee to permanently relocate
outside of Los Angeles, California. If Employer relocates more than
thirty (30) miles outside of Los Angeles, and Employee elects
not to relocate, such action shall be considered a resignation with
Good Reason under Section 5.4. If Employer requests and
Employee agrees to relocate, Employer will pay for reasonable and
standard relocation costs of Employee and Employee’s family,
including, but not limited to, closing points on the sale of
Employee’s house and purchase of a new house, temporary
housing, travel and moving expenses.
3.1
Compensation . During the term of this Agreement, Employer
shall pay the amounts and provide the benefits described in this
Section 3, and Employee agrees to accept such amounts and
benefits in full payment for Employee’s services under this
Agreement.
3.2
Base Salary . Employer shall pay to Employee a base annual
salary of $325,000, subject to increases under Section 3.4. In
no event shall Employee’s base annual salary be reduced below
$325,000.
3.3
Bonus Plan . Employee is eligible to receive an annual bonus
in the reasonable discretion of the Board, targeted at 100% of
Employee’s base salary, and based on achieving designated
individual goals and milestones and the overall performance and
profitability of Employer. The goals and milestones will be
established and reevaluated on an annual basis by mutual agreement
of Employee and the Board or its Compensation Committee.
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The bonus will
be based on a calendar year and paid no later than
April 15 th of
the following year.
3.4
Upon each anniversary of the Commencement Date, Employee’s
base salary and bonus target shall be reevaluated and adjusted by
the Compensation Committee to ensure appropriate compensation in
the competitive marketplace, such that Employee’s total
compensation shall be no less than the median compensation of
similarly positioned CEO’s of similarly situated
companies.
3.5
Equity Incentive Plan .
(a) Employee
shall be entitled to participate in any stock option, stock bonus,
phantom stock right, equity pool, or other such plans or
arrangements, which may exist during the term of his employment,
provided that Employee’s entitlement is not inconsistent with
the terms of any such arrangement or plan.
(b) Employee
shall be granted options to purchase one million (1,000,000) shares
of Employer’s common stock under the provisions of
Employer’s 2003 Stock Incentive Plan, upon approval by the
Board. The options will vest as follows: 20% on the first, second,
third, fourth and fifth anniversaries of the Commencement
Date.
(c) Except
as otherwise set forth herein, vesting of options will cease upon
the termination of Employee’s employment with
Employer.
(a) Employer
shall provide to Employee, at Employer’s cost, all
perquisites to which other senior executives of the Employer are
generally entitled and such other perquisites which are suitable to
the character of the Employee’s position with the Employer
and adequate for the performance of his duties hereunder in
accordance with Employer’s policy.
(b) Upon
satisfaction of the applicable eligibility requirements, Employee
shall be provided with group medical and dental insurance through
Employer’s plans, as well as any fringe benefit plan(s) as
Employer may offer from time to time to its personnel.
Employee’s spouse and any dependent children of Employee
shall be covered under the Employer’s health care and dental
plans at Employer’s cost. Employer will pay for term life
insurance for the benefit of Employee in the amount of 1
1 / 2
times Employee’s annual base
salary, subject to the standard physical examination that is
required by the issuing insurance company. In addition, Employee
will be provided with accidental death and disability and long-term
disability insurance. Employer shall also provide Employee, up to
$2,500 each month (grossed up for related taxes), for the actual
cost of an automobile. Employee is also eligible to participate in
Employer’s 401K plan. Employer shall pay for Employee’s
membership at Sports Club LA or its equivalent. During the Term of
this Agreement, the Employee shall, at the expense of the Employer,
maintain membership in such club or clubs as is appropriate for a
person in his position and entertain at such club or clubs people,
the entertainment of whom is appropriate in the interests of the
Employer.
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(c) To
the extent legally permissible, the Employer shall not treat such
amounts as income to the Employee.
3.7
Paid Time Off . Employee shall accrue, on a daily basis, a
total of four (4) workweeks of paid time off (PTO) per year
following the date of this Agreement. Any accrued but unused
vacation will be paid to Employee, on a pro rata basis, at the time
that his employment is terminated.
3.8
Deduction from Compensation . Employer shall deduct and
withhold from all compensation payable to Employee all amounts
required to be deducted or withheld pursuant to any present or
future law, ordinance, regulation, order, writ, judgment, or decree
requiring such deduction and withholding.
4.
REIMBURSEMENT OF EXPENSES
4.1
Travel and Other Expenses . Employer shall pay to or
reimburse Employee for reasonable and necessary business, travel,
promotional and similar expenditures incurred by
Employee.
4.2
Liability Insurance . Employer shall provide Employee with
officers and directors’ insurance, consistent with usual
business practices and acceptable to Employee. Employer shall also
provide Employee with coverage for other forms of liability and
property damage insurance (including, but not limited to, and by
way of example only, automobile and travel accident), to cover
Employee against all insurable events related to his employment
with Employer.
4.3
Indemnification . Promptly upon written request from
Employee, Employer shall indemnify, defend and hold harmless
Employee, to the fullest extent under applicable law, for all
defense costs, judgements, fines, settlements, losses, costs or
expenses (including attorney’s fees, including fees
representing Employee), arising out of Employee’s activities
as an agent, employee, officer or director of Employer, or in any
other capacity on behalf of or at the request of Employer. Employee
shall have the right to approve of counsel selected to represent
him (such approval not to be unreasonably withheld), and in the
event a conflict of interest arises at any time Employer shall
provide Employee with separate and independent counsel at
Employer’s cost and expense. Notwithstanding the foregoing,
Employer may not enter into any settlement, of any kind, of any
claim, which requires Employee to admit liability or responsibility
or to have any order or judgment entered against Employee without
Employee’s consent.
5.1
Termination With Good Cause; Resignation Without Good Reason
. Employer may terminate Employee’s employment at any time,
with or without notice or Good Cause (as defined below). If
Employer terminates Employee’s employment with Good Cause, or
if Employee resigns without Good Reason (as defined below),
Employer shall pay Employee his salary prorated through the date of
termination, at the rate in effect at the time notice of
termination is given, together with any benefits accrued through
the date of termination. Employer shall have no further obligations
to Employee under this Agreement or any other
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agreement, and
all unvested options will terminate. To the extent legally
permissible under the Plan, all vested options shall be exercisable
until the end of their original term.
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