EMPLOYMENT AGREEMENT

Exhibit 10.2

EMPLOYMENT AGREEMENT

     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”).

RECITALS

     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:

AGREEMENT

     1. TERM OF AGREEMENT

          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. EMPLOYMENT

          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. COMPENSATION

          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.

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.

          3.6 Fringe Benefits.

               (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.

               (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. TERMINATION

          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

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.

          5.2 Termination Without Good Cause; Resignation with Good Reason. Employee shall have the right to terminate his employment with notice and Good Reason. If Employer t