EXECUTIVE CHAIRMAN AGREEMENT
This
Executive Chairman Agreement (“Agreement”)
is
made and entered into on August 10, 2007, for services commencing as of July
1,
2007 (“Commencement
Date”),
by
and between Xcorporeal, Inc., a Delaware corporation (“Company”),
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual (“Chairman”).
1. Term.
The
initial term of this Agreement shall begin on the Commencement Date and continue
for a period of three years (“Initial
Term”).
At
the conclusion of the Initial Term, and each successive term thereafter,
the
Agreement shall be automatically renewed for an additional one-year term,
unless
either party gives written notice of its intention to terminate the Agreement
at
least six months prior to the automatic renewal date (collectively, the
“Term”).
2. Services.
(a) Excutive
Chairman.
During
the Term the Chairman shall serve as Executive Chairman of the Board of
Directors (“Board”)
of
Company. Chairman is currently a director and Chairman of the Board of Company,
and subject to the Board’s fiduciary obligations will take all reasonable action
necessary to assure that Chairman remains Chairman of the Board. Chairman
shall,
to the extent appointed or elected, continue to serve as Executive Chairman
of
the Board throughout the Term.
(b) Position
and Duties.
Chairman shall have the general powers, duties and responsibilities usually
vested in the office of the Executive Chairman of a corporation, and such
other
additional powers as may be prescribed from time to time by the Board. In
the
event that Chairman’s shall be assigned to him duties and responsibilities
materially inconsistent with Chairman’s position and such situation continues
for 10 days after notice is given such occurrence shall constitute a termination
without Good Cause under Section
4(c).
(c) Other
Services.
Company
acknowledges and pre-approves Chairman’s current responsibilities as Chairman
and Chief Executive Officer (CEO) of Hythiam, Inc. (“Hythiam”).
Company further acknowledges that Chairman is subject to a Confidentiality
Agreement under the terms of Chairman’s employment and directorship with
Hythiam. In addition, Company acknowledges that Chairman may do charity work
and
conduct personal business, as long as such activities do not materially
interfere with the performance of Chairman’s duties hereunder.
3. Compensation.
During
the term of this Agreement, Company shall pay the amounts and provide the
benefits described in this section, and Chairman agrees to accept such amounts
and benefits in full payment for Chairman’s services under this
Agreement.
(a) Cash
Compensation.
Chairman’s initial cash compensation will be $450,000 per annum, payable in
accordance with the Company’s standard practices. In addition, Chairman will
receive a one-time signing bonus of $225,000 upon full execution of this
Agreement. Throughout the Term, Company shall pay to Chairman annual cash
compensation no less than the median cash compensation of similarly positioned
Executive Chairmen of similarly situated companies, subject to increases
as
provided below.
(b) Bonus.
Subject
to the foregoing and any restrictions under federal or state law of the rules
of
any exchange upon which the shares of Company’s common stock are then traded,
Chairman shall receive annual bonus cash compensation as determined in the
reasonable discretion of the Board or its Compensation Committee, targeted
at no
less than 100% of annual base cash compensation, and based on (1) the level
of
service of Chairman, (2) the achievement of designated individual goals and
milestones, and (3) the overall performance and profitability of Company
(collectively, the “Factors”).
The
Factors will be established as soon as reasonably practicable and reevaluated
on
an annual basis by mutual agreement of Chairman and the Board or its
Compensation Committee. The bonus will be based on a calendar year and paid
no
later than April 15th
of the
following year.
(d) Annual
Review.
Upon
each anniversary of the Commencement Date, Chairman’s cash compensation and
bonus target shall be reevaluated by the Board or its Compensation Committee
and, if appropriate, increased to ensure appropriate compensation in the
competitive marketplace based on the position and level of service of
Chairman.
(e) Replacement
Review.
In the
event that the Company appoints a Co-Chairman, CEO or other officer or director
who performs a substantial portion of the duties and responsibilities of
Chairman, Chairman’s cash compensation and bonus target shall be reevaluated,
and the Board or its Compensation Committee will mutually agree with Chairman
on
a decrease or adjustment, if appropriate, to ensure appropriate compensation
in
light of any material decrease or adjustment in the required level of service
of
Chairman.
(f) Equity
Incentive Plan.
(1) Chairman
shall be entitled to participate in any equity compensation, stock option,
restricted stock, phantom stock right, equity pool, or other such plans or
arrangements which may exist during the Term, provided that Chairman’s
entitlement is not inconsistent with the terms of any such arrangement or
plan.
(2) Chairman
shall be granted options to purchase shares of Company’s common stock under the
provisions of Company’s stock incentive plan, at 110% of the fair market value
on the date of grant, in amounts and at such times as agreed between Chairman
and the Board or its Compensation Committee based upon the Factors. Except
as
otherwise set forth herein, vesting of options will cease upon the termination
of all of Chairman’s services to Company.
(g) Reimbursement
of Expenses.
Company
shall pay to or reimburse Chairman for all reasonable business, travel,
promotional and similar expenditures incurred by Chairman.
(h) Deductions.
Company
shall deduct and withhold from all compensation payable to Chairman 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. To the extent legally permissible, the Company shall not
treat
any fringe benefits or expense reimbursement as income to Chairman.
4. Termination
(a) Termination
With Good Cause or Without Good Reason.
Company
may terminate Chairman’s services at any time, with or without notice or Good
Cause (as defined below). If Company terminates Chairman’s services with Good
Cause, or if Chairman resigns without Good Reason (as defined below), Company
shall pay Chairman any accrued but unpaid cash compensation, 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.
Company shall have no further obligations to Chairman under this Agreement
or
any other agreement, and all unvested options will terminate. To the extent
legally permissible under the incentive compensation plan, all vested options
shall be exercisable until the end of their original term.
(b) Termination
Without Good Cause or with Good Reason.
Chairman shall have the right to terminate Chairman’s services to Company with
notice and Good Reason. If Company terminates Chairman’s employment without Good
Cause, or Chairman resigns for Good Reason:
(1) Company
shall pay Chairman’s cash compensation 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;
(2) Company
shall pay Chairman in a lump sum an amount equal to three years’ of additional
(i) cash compensation (at the rate in effect at the time of termination)
and
(ii) bonus (based on 100% of the targeted bonus for the year of
termination);
(3) All
of
Chairman’s unvested stock options will vest immediately, and remain exercisable
for the full term thereof; and
Company
shall have no further obligations to Chairman under this Agreement or any
other
agreement.
(c) Good
Cause.
For
purposes of this Agreement, a termination shall be for “Good
Cause”
if
Chairman shall willfully:
(1) Commit
fraud or embezzlement in connection with Chairman’s duties;
(2) Materially
violate the Company’s written Codes of Ethics as adopted by the Board under the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act;
(3) Refuse
to
comply with a relevant and material obligation assumable and chargeable to
an
executive of Chairman’s corporate rank and responsibilities under the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act and the regulations of the Securities and Exchange Commission
promulgated thereunder; or
(4) Be
convicted of, or enter a plea of guilty to, a felony under state or federal
law,
other than a vehicle related offense or an offense not involving dishonesty
or
moral turpitude.
(d) Good
Reason.
For
purposes of this Agreement, a resignation shall be with “Good
Reason”
following:
(1) The
assignment to Chairman of duties materially inconsistent with Chairman’s status
and title, or the removal of Chairman as a director or as Chairman of the
Board;
(2) Company’s
failure to cause any acquiring or successor entity following a Change in
Control
to assume Company’s obligations under this Agreement, unless such assumption
occurs by operation of law; or
(3) Material
breach of this Agreement by Company, which continues after written notice
and
reasonable opportunity to cure (not to exceed 10 days after the date of notice),
or failure to timely pay to Chairman any amount due under Section
3.
(e) Effects
of Change in Control.
Immediately upon a Change in Control (as defined below) all of Chairman’s
unvested options shall vest immediately, and remain exercisable for a period
of
three years thereafter.
(f) Change
in Control.
For
purposes of this Agreement, a “Change
in Control”
means:
(1) any
“person” (as used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange
Act”)),
other than a trustee or other fiduciary holding under an employee benefit
plan,
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act) of securities representing at least 50% of (i) the outstanding
shares of common stock of the Company or (ii) the combined voting power of
the
Company’s then outstanding securities;
(2)
the
Company is party to a merger or consolidation which results in the voting
securities of the Company outstanding immediately prior thereto failing to
continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or another entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving or other entity outstanding immediately after such merger or
consolidation;
(3)
the
sale
or disposition of all or substantially all of the Company’s assets (or
consummation of any transaction having similar effect);
(4)
the
dissolution or liquidation of the Company; or
(5) the
composition of the Board changes during any period of 36 months such that
individuals who at the beginning of the period were members of the Board
(the
“Continuing
Directors”)
cease
for any reason to constitute a majority thereof; unless a majority of the
Continuing Directors has either (i) approved the election of the new directors,
or (ii) if the election of the new directors is voted on by shareholders,
recommended that the shareholders vote for approval.
(g) No
Change in Control.
Notwithstanding the provisions of Section
4(f),
the
following shall not constitute a Change in Control:
(1) If
the
sole purpose of the transaction is to change the state of the Company’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;
(2) If
Company’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 Company’s capital stock or assets or otherwise),
hold more than 50% of the combined voting power of the surviving or acquiring
entity’s outstanding securities;
(3) An
underwritten public offering of Company’s common stock, if Company’s
stockholders of record as constituted immediately prior to the offering will,
immediately after the offering, continue to hold more than 50% of the combined
voting power of Company’s outstanding securities;
(4) 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 at least 50% of the outstanding capital stock of Company,
have the right to vote at least 50% of the outstanding voting stock of Company,
or have the right to elect a majority of the Board; or
(5) If
Chairman is a member of a group that acquires control of Company in an event
that would otherwise be a Change in Control, such event shall not be deemed
a
Change in Control and Chairman shall have no right to benefits hereunder
as a
result of such event; provided, however, that Chairman shall not be deemed
a
member of any acquiring group solely by virtue of Chairman’s continued
employment or ownership of stock or stock options following a Change in
Control.
(h) Gross-Up
Payment.
(1) Notwithstanding
the above, if any of the compensation payable upon termination of Chairman’s
services as provided for above (the “Payments”)
triggers the application of Internal Revenue Code Section 280G, or makes
Chairman liable for payment of the excise tax (the “Excise
Tax”)
provided for under Section 4999 of the Code, or
any
other statute or regulation under which Chairman may be penalized as a result
of
the nature or amount of such compensation, then
Company or the acquiring or successor entity of Company shall pay to Chairman
an
additional amount (the “Gross-Up”)
such
that the net after-tax amount retained by the Chairman, after deduction of
(A)
any Excise Tax on the Payments, and (B) any federal, state, local or foreign
income, employment or other tax and Excise Tax upon any payment provided
for by
this section, shall be equal to the Payments, reduced by the amount of any
United States federal, state and local income or employment tax liability
of the
Chairman calculated as if the Payments were not subject to the Excise Tax.
The
determination of whether any of the Payments will be subject to the Excise
Tax
and the amount of such Excise Tax will be made by Company’s regular independent
public accounting firm.
(2) In
the
event that the Excise Tax is subsequently determined to be less than the
amount
taken into account under this section, Chairman shall repay to Company at
the
time that the amount of such reduction of Excise Tax is finally determined,
an
amount equal to the sum of the following: (i) the amount of the reduction
of the
Excise Tax, (ii) the amount of the reduction in all other taxes generated
by the
reduction in the Excise Tax, and (iii) interest on the amount of the sum
of (i)
and (ii) at the rate provided in Section 1274(b)(2)(B) of the Code.
(3) In
the
event that the Excise Tax is determined to exceed the amount previously taken
into account under this section (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up),
Company shall make an additional Gross-Up payment in respect to such excess
(plus any interest payable with respect to such excess) at the time that
the
amount of such excess is finally determined in accordance with the principles
set forth above.
(i) Death
or Disability.
To the
extent consistent with federal and state law, Chairman’s services and cash
compensation shall terminate on Chairman’s death or Disability. “Disability”
means
any physical or mental health condition beyond Chairman’s control that
completely prevents Chairman from performing Chairman’s duties, even after all
reasonable accommodations are made by Company, for a period of more than
180
consecutive days within an annual period of the Term. In the event of
termination due to death or Disability, Company shall pay Chairman (or
Chairman’s legal representative) Chairman’s cash compensation prorated through
the date of termination, at the rate in effect at the time of termination
and
continue to provide insurance and other fringe benefits to Chairman and
Chairman’s spouse and dependent children for a period of one year from
Chairman’s termination date. In the event of a termination due to death or
Disability, in addition to all options already vested, 100% of the options set
to vest in the year that death or disability occurs shall vest and Chairman
shall have until the end of the option term to exercise all options. Company
shall have no further obligations to Chairman under this Agreement, except
for
those created under any stock option agreements executed prior to the effective
date of termination, and any other vested rights under the employee benefit
plans and programs and the right to receive reimbursement for business expenses
as provided for in Section
3(h).
(j) Return
of Company Property.
Within
30 days after the Termination Date, Chairman shall return to Company all
products, books, records, forms, specifications, formulae, data processes,
designs, papers and writings relating to the business of Company including
without limitation proprietary or licensed computer programs, customer lists
and
customer data, and/or copies or duplicates thereof in Chairman’s possession or
under Chairman’s control. Chairman shall not retain any copies or duplicates of
such property and all licenses granted to him by Company to use computer
programs or software shall be revoked on the Termination Date.
5. Duty
Of Loyalty.
During
the term of this Agreement, Chairman shall not, without the prior written
consent of Company, engage in any activity directly competitive with the
business or welfare of Company, whether alone, as a partner, or as an officer,
director, employee, consultant, or holder of more than 10% of the capital
stock
of any other corporation. Otherwise, Chairman may make personal investments
in
any other business. The parties agree that the activities provided for in
Section
2(c)
are not
directly competitive with the business or welfare of Company.
6. Cure
Period
In
the
event that Chairman or Company breaches this Agreement, the breaching party
shall have 30 days within which to cure such breach, after receiving written
notice from the other party specifying in reasonable detail the basis for
the
claimed breach (“Cure
Period”).
No
breach of the Agreement shall be actionable if the breaching party is able
to
cure the breach within the Cure Period.
7. Other
Provisions.
(a) Compliance
With Other Agreements.
Company
acknowledges that Chairman is subject to an Employment Agreement and
Confidentiality agreement with Hythiam. Chairman represents to Company that,
to
the best of Chairman’s knowledge and belief, 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 other agreement, order, judgment
or
injunction to which Chairman is a party or by which Chairman is bound. Should
claims, demands, causes of action, costs or expenses (including attorneys’ fees)
arise from any alleged breach of contract as a result of accepting a position
with Company, Company will indemnify Chairman for all reasonable legal fees,
costs and expenses arising out of or relating thereto.
(b) Nondelegable
Duties.
This is
a contract for Chairman’s personal services. The duties of Chairman 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 Chairman during Chairman’s life.
(c) 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.
(d) Venue.
If any
dispute arises regarding the application, interpretation or enforcement of
any
provision of this Agreement, such dispute shall be resolved in Los Angeles
County, California.
(e) 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.
(f) Binding
Effect.
The
provisions of this Agreement shall bind and inure to the benefit of the parties
and their respective successors and permitted assigns.
(g) Notice.
Any
notices or communications required or permitted by this Agreement shall be
deemed sufficiently given if in writing and when delivered personally or
four
(4) business days after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows: (1)
If
to Company, to the principal office of Company in the State of California,
marked “Attention: Compensation Committee,” with a copy to the Company’s general
outside counsel; or (2) If to Chairman, to the most recent address for Chairman
appearing in Company’s records.
(h) Arbitration.
Any
disputes, controversies or claims arising out of or relating to this Agreement,
including without limitation any failure to reach mutual agreement pursuant
to
Sections
3(b) or (e),
shall
be resolved by binding arbitration before a retired judge at JAMS in Santa
Monica, California, in accordance with its Employment Arbitration Rules and
Procedures. To the extent permitted by the rules and applicable law, the
prevailing party shall be awarded its reasonable attorney’s fees, costs and
expenses.
(i) 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.
(j) No
Third Party Beneficiaries. This
Agreement shall inure to the benefit of the parties and their permitted
successors and assigns only. There are no intended third party beneficiaries
under this Agreement.
(k) No
Disparagement. During
the Term, and at all times thereafter, the parties agree that they will not
disparage each other in any fashion.
(l) 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.
(m) Entire
Agreement.
This
Agreement contains the entire agreement and understanding between the parties,
and supersedes all prior and contemporaneous agreements, negotiations,
understandings, promises, representations and warranties, whether oral or
written.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
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COMPANY:
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By:
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Director
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By:
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Director
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| CHAIRMAN: | ||||
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
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