EMPLOYMENT AGREEMENT
Exhibit 10.1
THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of November 12,
2008, by and between Hythiam, Inc., a Delaware corporation (“Employer”), and
Xxxxxxx Xxxxxx, an individual (“Employee”).
RECITALS
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:
AGREEMENT
1. TERM OF
AGREEMENT
1.1 Initial
Term. The initial term of this Agreement shall begin on
November 12, 2008 (“Commencement Date”) and shall continue until the earlier
of: (a) the date on which it is terminated pursuant to Section 5 of
this Agreement; 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. 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 the Chief Financial Officer of
Employer, reporting to Employer’s President, 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 President or 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 reasonably require or render advisable.
2.4 Exclusive
Service.
(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
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(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, attached hereto, 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. 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 salary of two
hundred forty thousand dollars ($240,000) annually in equal bi-weekly
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,
2010 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). The annual base salary of $240,000 shall be retroactive to
October 1, 2008.
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 forty percent
(40%) 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 President, 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
March 14th of the following year.
3.4 Equity Incentive
Plan.
(a) In
connection with this Agreement, Employee shall receive a new grant of options to
purchase one hundred thousand (100,000) shares of Employer’s common stock, at
fair market value, under the provisions of Employer’s 2007 Stock Incentive Plan,
upon approval by the Board. The options will vest in equal monthly
amounts over a three (3) year period from the Commencement date.
(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 below, Employee will be
entitled:
(a) to
participate, on the same basis as other employees of the Company, in any
medical, dental, vision, life, short-term and long-term disability insurance and
flexible spending accounts (subject to certain co-payments by
Employee). Employee’s participation in such plans shall be subject to
all terms and conditions of such plans, including Employee’s ability to satisfy
any medical or health requirements imposed by the underwriters of any insurance
policies paid to fund the plans; and
(b) to
participate, on the same basis as other employees of the Company, in the
Company’s 401(k) plan, with said participation subject to all terms and
conditions of such plans.
3.6 Paid Time
Off. Employee shall accrue, on a daily basis, a total of four
(4) work weeks of vacation per year following the date of this Agreement,
provided, however, that Employee’s accrued and unused vacation time may not
exceed a total of seven (7) work weeks. This vacation time 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 vacation benefits until he has used enough vacation
time to fall
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below
this maximum amount. Any accrued but unused vacation time will be paid to
Employee, on a pro rata basis, at the time that his employment is
terminated. In addition to vacation time, the Employee shall be
entitled to normal Company holidays, floating holidays and sick
leave.
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.
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. 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.
5.2 Termination Without Good
Cause; Resignation with Good Reason. Employer shall have the
right to terminate Employee’s employment without Good Cause. Employee shall have
the right to terminate his employment for Good Reason, provided Employee first
gives Employer written notice of his intention to terminate his employment
within thirty (30) days following the act or omission giving rise to Good Reason
and Employer fails to cure such act or omission within thirty (30) days of
receiving Employee’s notice. 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) All of
Employee’s unvested stock options will vest immediately and remain exercisable
for a period of three (3) years thereafter;
(c) In
addition to any rights under COBRA, Employee and his dependants shall continue
to participate in the Employer’s group medical plan for a period of one (1) year
from the date the Employee’s termination becomes effective, provided that
medical insurance coverage will terminate sooner if Employee becomes eligible
for coverage under another employer’s plan.
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In
addition, on the six (6) month anniversary of the date Employee’s termination
becomes effective, 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 one hundred percent (100%) of one (1) year’s targeted
bonus.
To be
eligible for the compensation provided for in this Section 5.2 (other than in
Section 5.2(a)), Employee must execute a full and complete release of any and
all claims against Employer in the standard form then used by Employer
(“Release”), at which time 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;
(b) Breach
Employee’s fiduciary duty to Employer, including, but not limited to, acts of
self-dealing (whether or not for personal profit);
(c) Materially
breach this Agreement, the Confidentiality Agreement (defined below), or
Employer’s written Codes of Ethics as adopted by the Board;
(d) Willfully,
recklessly or negligently violate any material provision of Employer’s written
Employee Handbook, or any applicable state or federal law or
regulation;
(e) Fail or
refuse (whether willfully, recklessly or negligently) to comply with all
relevant and material obligations, assumable and chargeable to an executive of
his corporate rank and responsibilities, under the Xxxxxxxx-Xxxxx Act and the
regulations of the Securities and Exchange Commission promulgated
thereunder;
(f) Fail or
refuse or lack sufficient expertise (whether willfully, recklessly or
negligently) to perform the responsibilities and duties specified herein (other
than a failure caused by temporary disability); provided, however, that no
termination shall occur on that basis unless the Employer first provides the
Employee with written notice to cure; the notice to cure shall reasonably
specify the acts or omissions that constitute the Employee’s failure, refusal or
lack of sufficient expertise to perform his duties, and the Employee shall have
a reasonable opportunity (not to exceed ten (10) business days after the date of
notice to cure) to cure; termination shall be effective as of the date of
written notice of failure to cure; or
(g) Be
convicted of, or enter a plea of guilty or no contest to, a felony or
misdemeanor under state or federal law, other than a traffic violation or
misdemeanor not involving dishonesty or moral turpitude.
5.4 Good Reason. For
purposes of this Agreement, a resignation shall be for “Good Reason” as
described in Section 5.2 if tendered within thirty (30) days of any of the
following actions by Employer:
(a) A
substantial reduction in the nature or status of Employee’s
responsibilities;
(b) Relocation
of Employee’s site of employment outside a thirty (30) mile radius of Los
Angeles (unless closer to Employee’s residence) without Employee’s consent,
except for reasonably required travel on Employer’s business;
(c) Failure
to cause any acquiring or successor entity following a Change in Control to
assume Employer’s obligations under this Agreement (unless such assumption
occurs by operation of
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law in
which case the acquiring or successor entity automatically assumes Employer’s
obligations under this Agreement); or
(d) Material
breach of this Agreement by Employer, or failure to timely pay to Employee any
amount due under Section 3 above.
5.5 [Intentionally
Deleted.]
5.6 Change in
Control. For purposes of this Agreement, a “Change in Control”
shall be defined as:
(a) The
acquisition of Employer by another entity by means of a transaction or series of
related transactions (including, without limitation, any reorganization, merger,
stock purchase or consolidation); or
(b) The sale,
transfer or other disposition of all or substantially all of the Employer’s
assets.
5.7 No Change in
Control. Notwithstanding the provisions of Section 5.6 above,
the following shall not constitute a Change in Control:
(a) If the
sole purpose of the transaction is to change the state of the Employer’s
incorporation or to create or eliminate a holding company that will be owned in
substantially the same proportions by the same beneficial owners as before the
transaction;
(b) If
Employer’s stockholders of record as constituted immediately prior to the
transaction will, immediately after the transaction (by virtue of securities
issued as a consideration for Employer’s capital stock or assets or otherwise),
hold more than fifty percent (50%) of the combined voting power of the surviving
or acquiring entity’s outstanding securities;
(c) An
underwritten public offering of Employer’s common stock, if Employer’s
stockholders of record as constituted immediately prior to the offering will,
immediately after the offering, continue to hold more than fifty percent (50%)
of the combined voting power of Employer’s outstanding securities;
(d) The
private placement of preferred or common stock, or the issuance of debt
instruments convertible into preferred or common stock, for fair market value as
determined by the Board, provided the acquiring person does not as a result of
the transaction own more than fifty percent (50%) of the outstanding capital
stock of Employer, have the right to vote more than fifty percent (50%) of the
outstanding voting stock of Employer, or have the right to elect a majority of
the Board; or
(e) If
Employee is a member of a group that acquires control of Employer in an event
that would otherwise be a Change in Control, such event shall not be deemed a
Change in Control and Employee shall have no right to benefits hereunder as a
result of such event; provided, however, that Employee shall not be deemed a
member of any acquiring group solely by virtue of his continued employment or
ownership of stock or stock options following a Change in Control.
5.8 Death or
Disability. To the extent consistent with federal and state
law, Employee’s employment, salary, and accrual of commissions shall terminate
on his death or disability. “Disability” means (i) Employee’s
inability to engage in any substantial, gainful activity by reason of any
medically determinable physical of mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months, or (ii) Employee is, by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, receiving income replacement benefits for a period of not less than
three (3) months under an accident or health plan covering Employer’s
employees. In the event of termination due to
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death or
Disability, Employer shall pay Employee (or his legal representative) his salary
prorated through the date of termination, at the rate in effect at the time of
termination, together with any benefits accrued through the date of termination.
Employer shall have no further obligations to Employee (or his legal
representative) under this Agreement.
5.9 Return of Employer
Property. Within five (5) days after the Termination Date,
Employee shall return to Employer all products, books, records, forms,
specifications, formulae, data processes, designs, papers and writings relating
to the business of Employer including without limitation proprietary or licensed
computer programs, customer lists and customer data, and/or copies or duplicates
thereof in Employee’s possession or under Employee’s
control. Employee shall not retain any copies or duplicates of such
property and all licenses granted to him by Employer to use computer programs or
software shall be revoked on the Termination Date.
6. DUTY OF
LOYALTY
6.1 During
the term of this Agreement, Employee shall not, without the prior written
consent of Employer, directly or indirectly render services of a business,
professional, or commercial nature to any person or firm, whether for
compensation or otherwise, or engage in any activity directly or indirectly
competitive with or adverse to the business or welfare of Employer, whether
alone, as a partner, or as an officer, director, employee, consultant, or holder
of more than one percent (1%) of the capital stock of any other
corporation. Otherwise, Employee may make personal investments in any
other business so long as these investments do not require him to participate in
the operation of the companies in which he invests.
7. CONFIDENTIAL
INFORMATION
7.1 Trade Secrets of
Employer. Employee, during the term of this Agreement, will
develop, have access to and become acquainted with various trade secrets which
are owned by Employer and/or its affiliates and which are regularly used in the
operation of the businesses of such entities. Employee shall not
disclose such trade secrets, directly or indirectly, or use them in any way,
either during the term of this Agreement or at any time thereafter, except as
required in the course of his employment by Employer. All files,
contracts, manuals, reports, letters, forms, documents, notes, notebooks, lists,
records, documents, customer lists, vendor lists, purchase information, designs,
computer programs and similar items and information, relating to the businesses
of such entities, whether prepared by Employee or otherwise and whether now
existing or prepared at a future time, coming into his possession shall remain
the exclusive property of such entities, and shall not be removed for purposes
other than work-related from the premises where the work of Employer is
conducted, except with the prior written authorization by Employer.
7.2 Confidential Data of
Customers of Employer. Employee, in the course of his duties,
will have access to and become acquainted with financial, accounting,
statistical and personal data of customers of Employer and of their
affiliates. All such data is confidential and shall not be disclosed,
directly or indirectly, or used by Employee in any way, either during the term
of this Agreement (except as required in the course of employment by Employer)
or at any time thereafter.
7.3 Inevitable
Disclosure. After Employee’s employment has terminated,
Employee shall not accept employment with any competitor of Employer, where the
new employment is likely to result in the inevitable disclosure of Employer’s
trade secrets or confidential information, or it would be impossible for
Employee to perform his new job without using or disclosing trade secrets or
confidential information.
7.4 Continuing
Effect. The provisions of this Section 7 shall remain in
effect after the Termination Date.
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8. NO
SOLICITATION
8.2 No Solicitation of
Customer. Employee agrees that he will not, during his
employment with Employer, and for two (2) years thereafter, directly or
indirectly call on, or otherwise solicit, business from any actual customer or
potential customer known by Employee to be targeted by Employer, nor will he
assist others in doing so.
9. INTELLECTUAL
PROPERTIES.
To the
extent permissible under applicable law, all intellectual properties made or
conceived by Employee during the term of this employment by Employer shall be
the right and property solely of Employer, whether developed independently by
Employee or jointly with others. The Employee will sign the Employer’s standard
Employee Innovation, Proprietary Information and Confidentiality Agreement
(“Confidentiality Agreement”).
10. OTHER
PROVISIONS
10.1 Compliance With Other
Agreements. Employee represents and warrants to Employer that
the execution, delivery and performance of this Agreement will not conflict with
or result in the violation or breach of any term or provision of any order,
judgment, injunction, contract, agreement, commitment or other arrangement to
which Employee is a party or by which he is bound.
10.2 Injunctive
Relief. Employee acknowledges that the services to be rendered
under this Agreement and the items described in Sections 6, 7, 8 and 9 of this
Agreement are of a special, unique and extraordinary character, that it would be
difficult or impossible to replace such services or to compensate Employer in
money damages for a breach of this Agreement. Accordingly, Employee
agrees and consents that if he violates any of the provisions of this Agreement,
Employer, in addition to any other rights and remedies available under this
Agreement or otherwise, shall be entitled to temporary and permanent injunctive
relief, without the necessity of proving actual damages and without the
necessity of posting any bond or other undertaking in connection
therewith.
10.3 Attorneys’
Fees. The prevailing party in any suit or other proceeding
brought to enforce, interpret or apply any provisions of this Agreement, shall
be entitled to recover all costs and expenses of the proceeding and
investigation (not limited to court costs), including all attorneys’
fees.
10.4 Counsel. The parties
acknowledge and represent that, prior to the execution of this Agreement, they
have had an opportunity to consult with their respective counsel concerning the
terms and conditions set forth herein. Additionally, Employee
represents that he has had an opportunity to receive independent legal advice
concerning the taxability of any consideration received under this
Agreement. Employee has not relied upon any advice from Employer
and/or its attorneys with respect to the taxability of any consideration
received under this Agreement. Employee further acknowledges that
Employer has not made any representations to him with respect to tax
issues.
10.5 Nondelegable
Duties. This is a contract for Employee’s personal
services. The duties of Employee under this Agreement are personal
and may not be delegated or transferred in any manner whatsoever, and shall not
be subject to involuntary alienation, assignment or transfer by Employee during
his life.
10.6 Governing
Law. The validity, construction and performance of this
Agreement shall be governed by the laws, without regard to the laws as to choice
or conflict of laws, of the State of California.
10.7 Venue. If
any dispute arises regarding the application, interpretation or enforcement
of any provision of this Agreement, including fraud in the
inducement, such dispute shall be resolved either in federal or state court in
Los Angeles, California.
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10.8 No Jury. If any
dispute arises regarding the application, interpretation or enforcement
of any provision of this Agreement, including fraud in the
inducement, the parties hereby waive their right to a jury trial.
10.9 No Punitive Damages.
If any dispute arises regarding the application, interpretation or enforcement
of any provision of this Agreement, including fraud in the
inducement, the parties hereby waive their right to seek punitive damages in
connection with said dispute.
10.10 Severability. The
invalidity or unenforceability of any particular provision of this Agreement
shall not affect the other provisions, and this Agreement shall be construed in
all respects as if any invalid or unenforceable provision were
omitted.
10.11 Binding
Effect. The provisions of this Agreement shall bind and inure
to the benefit of the parties and their respective successors and permitted
assigns.
10.12 Notice. Any
notices or communications required or permitted by this Agreement shall be
deemed sufficiently given if in writing and when delivered personally or
forty-eight (48) hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as
follows:
(a) If to
Employer, to the principal office of Employer in the State of California, marked
“Attention: Chief Executive Officer”; or
(b) If to
Employee, to the most recent address for Employee appearing in Employer’s
records.
10.13 Headings. The
Section and other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.14 Amendment and
Waiver. This Agreement may be amended, modified or
supplemented only by a writing executed by each of the
parties. Either party may in writing waive any provision of this
Agreement to the extent such provision is for the benefit of the waiving
party. No waiver by either party of a breach of any provision of this
Agreement shall be construed as a waiver of any subsequent or different breach,
and no forbearance by a party to seek a remedy for noncompliance or breach by
the other party shall be construed as a waiver of any right or remedy with
respect to such noncompliance or breach.
10.15 Entire
Agreement. This Agreement is the only agreement and
understanding between the parties pertaining to the subject matter of this
Agreement, and supersedes all prior agreements, summaries of agreements,
descriptions of compensation packages, discussions, negotiations,
understandings, representations or warranties, whether verbal or written,
between the parties pertaining to such subject matter.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
| EMPLOYEE: | EMPLOYER: | |||
| HYTHIAM, INC. | ||||
|
/s/
XXXXXXX XXXXXX
|
|
By:
/s/ XXXXXXX X. XXXXXXXX
|
||
|
Xxxxxxx
Xxxxxx
|
Xxxxxxx
X. Xxxxxxxx
|
|||
|
|
Its
President & COO
|
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