THIS EMPLOYMENT
AGREEMENT (“Agreement”) is made and entered into as of
September 29, 2003, by and between Hythiam, Inc., a Delaware
corporation (“Employer”), and Chuck Timpe, an
individual (“Employee”).
A. WHEREAS,
Employee has experience and expertise applicable to employment with
Employer to perform as the Chief Financial Officer of Employer,
Employer has agreed to employ Employee and Employee has agreed to
enter into such employment, 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 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) four
(4) years following the Commencement Date (“Initial
Term”). After the expiration of the Initial Term, Employee
shall be employed on an at-will basis, with either party able to
terminate the employment, with or without cause and with or without
notice.
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 the Chief
Financial Officer of Employer, reporting 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 powers and duties as may be prescribed from time to time
by the CEO and Employer’s Board of Directors
(“Board”).
2.3
Standard of Performance . Employee agrees that he will at
all times faithfully and industriously and to the best of his
ability, experience and talents perform all of the duties that may
be required of and from him pursuant to the terms of this
Agreement. Such duties shall be performed at such place or places
as the interests, needs, business and opportunities of Employer
shall require or render advisable.
2.4
Exclusive Service . Except as set forth in Attachment A, (a)
Employee shall devote all of his business energies and abilities
and all of his productive time to the performance of his duties
under this Agreement (reasonable absences during holidays and
vacations excepted), and shall not, without the prior written
consent of Employer, render to others any service of any kind
(whether or not for compensation) that, in the opinion of Employer,
would materially interfere with the performance of his duties under
this Agreement, and (b) Employee shall not, without the prior
written consent of Employer, maintain any affiliation with, whether
as an agent, consultant, employee, officer, director, trustee or
otherwise, nor shall he directly or indirectly render any services
of an advisory nature or otherwise to, or participate or engage in,
any other business activity. Employee and Employer agree that those
items set forth in Attachment A are subject to periodic review by
Employer and in the event that Employer determines, in its sole
discretion, that such obligations negatively impact Employer,
Employer shall have the right to direct Employee to terminate such
relationships.
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 salary
of $200,000 annually in equal semi-monthly installments, less
applicable taxes. At Employer’s sole discretion,
Employee’s base salary may be increased, but not decreased,
annually. Notwithstanding the foregoing, commencing on
January 1, 2005 and annually thereafter, the Base Salary shall
be increased by at least the Consumer Price Index for Los Angeles,
CA (or a reasonable proxy thereof).
3.3
Discretionary Bonus . Except as described in
Section 5.1 below, Employee is eligible to receive an annual
bonus in the sole discretion of Employer. This discretionary bonus
will be targeted at 50% of Employee’s base salary, and will
be based on Employee achieving designated individual goals and
milestones, and the overall performance and profitability of the
Company. 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. To the extent that a discretionary bonus is
granted, it will be based on a calendar year and shall be paid no
later than April 30 th of
the following year. The first annual bonus, to the extent granted
at the sole discretion of the Company, shall be prorated based on
the Commencement Date.
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3.4
Equity Incentive Plan .
(a) Employee
shall be granted options to purchase 300,000 shares of
Employer’s common stock, at fair market value, under the
provisions of Employer’s 2003 Stock Incentive Plan, upon
approval by the Board. The options will vest as follows: 20% on
June 26, 2004, and 20% on the second, third, fourth and fifth
anniversaries thereof.
(b) Except
as otherwise set forth herein, vesting of options will cease upon
the termination of Employee’s employment with
Employer.
3.5
Fringe Benefits . Subject to Section 3.7 and upon
satisfaction of the applicable eligibility requirements, Employee
and Employee’s family shall be provided with group medical
and dental insurance and group dental coverage through
Employer’s plans. Medical and dental benefits will commence
on the first day of the month following the Commencement Date. In
the event that no benefit plans are in place at that time, the
Company will reimburse Employee for COBRA coverage until such time
as Employee is covered under the Company’s group medical and
dental plans. Employer will pay for $300,000 of term life insurance
for the benefit of Employee, 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 beginning on
the first day of the month following the Commencement
Date.
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, provided, however, that
Employee’s accrued and unused PTO may not exceed a total of
seven (7) workweeks. This PTO shall be in addition to normal
Company holidays, which shall be determined at the discretion of
the Company from time to time. Thereafter, Employee will not
continue to accrue PTO benefits until he has used enough PTO time
to fall below this maximum amount. Any accrued but unused PTO will
be paid to Employee, on a pro rata basis, at the time that his
employment is terminated. In addition to PTO, the Employee shall be
entitled to normal Company holidays.
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.
4.
REIMBURSEMENT OF EXPENSES
4.1
Travel and Other Expenses . Employer shall pay to or
reimburse Employee for those travel, promotional, professional
continuing education and licensing costs (to the extent required),
professional society membership fees, seminars and similar
expenditures incurred by Employee which Employer determines are
reasonably necessary for the proper discharge of Employee’s
duties under this Agreement and for which Employee submits
appropriate receipts and indicates the amount, date, location and
business character in a timely manner.
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4.2
Liability Insurance . Employer shall provide Employee with
officers and directors’ insurance, or other liability
insurance, consistent with its usual 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 Employee, to the fullest extent
under applicable law, for all judgements, fines, settlements,
losses, costs or expenses (including attorney’s fees),
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. Such agreement by Employer shall
not be deemed to impair any other obligation of Employer respecting
indemnification of Employee otherwise arising out of this or any
other agreement or promise of Employer or under any
statute.
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
. 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
termination is given, together with any benefits accrued through
the date of termination;
(b) Employer
shall pay Employee in a lump sum an amount equal to one
(1) year’s salary (at the rate in effect at the time of
termination) plus a bonus equal to 100% of the targeted
bonus;
(c) All
of Employee’s unvested stock options will vest immediately;
and
(d) In
addition to any rights under COBRA, the term for continued medical
benefits provided by Employer shall continue for a period of one
year from the date of termination, provided that coverage will
terminate sooner if Employee becomes eligible for coverage under
another employer’s plan.
To
be eligible for the compensation provided for in
Section 5.2(b), (c) and (d) above, Employee must
execute a full and complete release of any and all claims
against
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Employer in the
standard form then used by Employer (“Release”).
Employer shall have no further obligations to Employee under this
Agreement or any other agreement.
5.3
Good Cause . For purposes of this Agreement, a termination
shall be for “Good Cause” if Employee, in the
subjective, good faith opinion of Employer, shall:
(a) Commit
an act of fraud, moral turpitude, misappropriation of funds or
embezzlement in connection with his duties;
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