THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made and entered
into as of April 19, 2005, by and between Hythiam, Inc., a
Delaware corporation (“Employer”), and Richard A.
Anderson, an individual (“Employee”).
A.
WHEREAS, Employer has agreed to employ Employee and Employee has
agreed to enter into employment as the Chief Administrative Officer
(“CAO”) of Employer, on the terms set forth in this
Agreement.
B.
WHEREAS, Employee acknowledges that this Agreement is necessary for
the protection of Employer’s investment in its business, good
will, products, methods of operation, information, and
relationships with its customers and other employees.
C.
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 the date first set forth above, or as soon thereafter as
Employee commences services hereunder (“Commencement
Date”) and shall continue until the earlier of: (a) the
date on which it is terminated pursuant to Section 5; or
(b) four (4) 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 three-year term, unless
either party gives written notice of its intention to terminate the
Agreement at least nine (9) months 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 CAO, reporting directly to Employer’s Chief
Executive Officer (“CEO”), 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 CEO and
Employer’s Board of Directors
(“Board”).
2.3
Other Services . Employer acknowledges and pre-approves
Employee’s current responsibility as member of the Board of
Directors of Clearant, Inc. (“Clearant”). Employer is
hereby notified and acknowledges that Employee is subject to a
Confidentiality Agreement 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.
2.4
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 $266,800 annually, payable in accordance with
Employer’s standard payroll practices, less applicable
withholding. At Employer’s sole discretion, Employee’s
base salary may be increased, but not decreased. Notwithstanding
the foregoing, beginning on January 1, 2006 and annually
thereafter, the Employee’s annual salary then in effect shall
be increased by at least the Consumer Price Index for Los Angeles,
CA (or a reasonable proxy thereof).
3.3
Bonus Plan . Except as described in Section 5.1 below,
Employee is eligible to receive an annual bonus in the reasonable
discretion of Employer. This discretionary bonus will be targeted
at 50% of Employee’s base salary, 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 CEO, subject to review and approval
by the Board or its Compensation Committee. In the first year of
this Agreement, the goals and objectives related to the 2005 target
bonus shall be established by June 30, 2005. The bonus will be
based on a calendar year and shall be paid no later than April
30 th
of the following year.
3.4
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 two hundred
fifty-five thousand (255,000) shares of Employer’s common
stock under the provisions of
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Employer’s 2003 Stock Incentive Plan
(“Plan”), upon approval by the Board. To the extent
permissible such options shall be incentive stock options. The
options will vest as follows: 20% on the first, second, third,
fourth and fifth anniversaries of the Commencement Date.
(c)
Employee’s previous grant of options under the Plan shall
continue to be outstanding and vest in accordance with the terms of
such grant. For the avoidance of doubt, Employee’s Service
(as defined in the Plan) will continue uninterrupted for so long as
Employee is a director and/or an employee, or either of the
foregoing.
(d)
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. Employee is also eligible to participate in
Employer’s 401K plan.
(c)
To the extent legally permissible, the Employer shall not treat
such amounts as income to the Employee.
3.6
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. This PTO shall be in addition
to normal Company holidays, which shall be determined at the
discretion of the Company from time to time. Any accrued but unused
PTO will be paid to Employee, on a pro rata basis, at the time that
his employment is terminated.
3.7
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.
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4.
REIMBURSEMENT OF EXPENSES
4.1
Travel and Other Expenses . Employer shall pay to or
reimburse Employee for reasonable and necessary business, travel,
promotional, professional continuing education and licensing costs
(to the extent required), professional society membership fees,
seminars and similar expenditures incurred by Employee for which
Employee submits appropriate receipts and indicates the amount,
date, location and business character in a timely
manner.
4.2
Liability Insurance . Employer shall provide Employee with
officers and directors’ insurance and other liability
insurance, consistent with usual and reasonable business practices
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 agreement, and all
unvested options will terminate.
5.2
Termination Without Good Cause; Resignation with Good Reason
. Employer shall have the right to terminate Employee’s
employment under this Agreement without Good Cause at any time.
Employee shall have the right to terminate his employment with
notice and Good Reason. If Employer terminates Employee’s
employment without Good Cause, or Employee resigns for Good
Reason:
(a)
Employer shall pay Employee his salary prorated through the date of
termination, at the rate in effect at the time notice of
terminatio
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