UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
|
Filed
by the Registrant
|
þ
|
|
Filed
by a Party other than the Registrant
|
o
|
Check the
appropriate box:
|
o
|
Preliminary
proxy statement
|
|
o
|
Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|
|
þ
|
Definitive
proxy statement
|
|
o
|
Definitive
Additional Materials
|
|
o
|
Soliciting
Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
|
Hythiam,
Inc.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing proxy statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
|
þ
|
No
fee required.
|
|
|
(1)
|
Title
of each class of securities to which transaction
applies:
|
|
|
(2)
|
Aggregate
number of securities to which transaction
applies:
|
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was
determined):
|
|
o
|
Fee
paid previously with preliminary
materials.
|
|
|
(1)
|
Amount
Previously Paid:
|
|
|
(2)
|
Form,
Schedule or Registration Statement
No.:
|
|
(3)
|
Filing
Party:
|
|
(4)
|
Date
Filed:
|
1
Hythiam,
Inc.
11150
Santa Monica Blvd., Suite 1500
Los
Angeles, California 90025
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 20, 2008
Dear
fellow stockholders:
Our 2008
annual meeting of stockholders will be held at 11150 Santa Monica Blvd., Los
Angeles, California, on Friday, June 20, 2008, beginning at 10:00 a.m.
local time. At the meeting, stockholders will vote on the following
matters:
|
|
1.
|
Election
of directors to hold office until our 2009 annual meeting of stockholders
or until their successors are duly elected and
qualified;
|
|
|
2.
|
Increasing
by 6,000,000 the number of shares issuable under our 2007 Stock Incentive
Plan;
|
|
|
3.
|
Increasing
by 6,000,000 the number of shares available to be issued as incentive
stock options under our 2007 Stock Incentive
Plan;
|
|
|
4.
|
Increasing
to 6,000,000 the maximum number of shares with respect to which awards may
be granted under our 2007 Stock Incentive Plan in any one calendar
year;
|
|
|
5.
|
Increasing
to 2,500,000 the maximum number of shares with respect to which awards may
be granted to any participant in any fiscal year under our 2007 Stock
Incentive Plan; and
|
|
|
6.
|
Any
other matters that properly come before the
meeting.
|
Stockholders
of record as of the close of business on May 2, 2008 are entitled to vote their
shares by proxy or at the meeting or any postponement or adjournment
thereof.
|
By
order of the board of directors,
|
|
|
/s/ TERREN S. PEIZER
|
|
|
Terren
S. Peizer
|
|
|
Chairman
of the Board and Chief Executive
Officer
|
Los
Angeles, California
May 28,
2008
Whether
or not you expect to be present at the annual meeting, please complete, sign and
date the enclosed proxy card and return it promptly in the enclosed return
envelope. No postage is required if mailed in the United States. Stockholders
who execute a proxy card may nevertheless attend the meeting, revoke their proxy
and vote their shares in person.
2
TABLE OF CONTENTS
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
12
|
|
|
12
|
|
|
12
|
|
|
12
|
|
|
13
|
|
|
14
|
|
|
14
|
|
|
15
|
|
15
|
|
|
16
|
|
|
16
|
|
|
16
|
|
|
17
|
|
|
18
|
|
| 18 | |
| 18 | |
| 19 | |
| 20 | |
| 20 | |
| 20 | |
| 21 | |
| 21 | |
| 21 | |
| 21 | |
| 21 | |
| 21 | |
| 21 | |
|
22
|
|
|
22
|
|
|
22
|
|
|
23
|
|
|
24
|
|
|
25
|
|
|
25
|
|
|
26
|
|
|
26
|
|
|
26
|
|
|
27
|
|
|
29
|
|
|
29
|
|
|
29
|
|
|
29
|
2008 ANNUAL MEETING OF STOCKHOLDERS
OF
HYTHIAM,
INC.
PROXY
STATEMENT
The
enclosed proxy is solicited on behalf of Hythiam, Inc., a Delaware corporation,
for use at our annual meeting of stockholders to be held on Friday, June 20,
2008, beginning at 10:00 a.m. local time, at 11150 Santa Monica Blvd., Los
Angeles, California 90025.
The
approximate date that this proxy statement, the accompanying notice of annual
meeting and the enclosed form of proxy are being sent to stockholders is May 29,
2008. You should review this information in conjunction with our 2007 Annual
Report to Stockholders, which accompanies this proxy statement.
ANNUAL
MEETING OF STOCKHOLDERS OF HYTHIAM, INC.
What is the purpose of the annual meeting?
At the
annual meeting, stockholders will vote on the election of directors and any
other matters that properly come before the meeting. In addition, our management
will report on our performance during 2007 and respond to questions from our
stockholders.
Who is entitled to vote?
Only
stockholders of record at the close of business on the record date, May 2, 2008,
are entitled to receive notice of the annual meeting and vote the shares of
common stock that they held on the record date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share of common
stock entitles its holder to cast one vote on each matter to be voted
upon.
Who can attend the meeting?
All
stockholders as of the record date, or their duly appointed proxies, may attend
the meeting. Please note that if you hold shares in "street name" (that is,
through a broker or other nominee), you will need to bring evidence of your
share ownership, such as a copy of a brokerage statement, reflecting your stock
ownership as of the record date and valid picture identification.
What is the difference between holding shares as a
stockholder of record and as a beneficial owner?
Most of
our stockholders hold their shares through a stockbroker, bank or other nominee
rather than directly in their own name. As summarized below, there are some
differences between shares held of record and those beneficially
owned.
If our
shares are registered directly in your name with our transfer agent, American
Stock Transfer & Trust Company, you are considered the stockholder of record
with regard to those shares. As the stockholder of record, you have the right to
grant your proxy directly to us to vote your shares on your behalf at the
meeting or the right to vote in person at the meeting.
If you
hold our shares in a stock brokerage account or by a bank or other nominee, you
are considered the beneficial owner of the shares held in street name, and these
materials have been forwarded to you by your broker or nominee, which is
considered the stockholder of record with regard to those shares. As the
beneficial owner, you have the right to direct your broker or nominee how to
vote and are also invited to attend the annual meeting so long as you bring a
copy of a brokerage statement reflecting your ownership as of the record date.
However, since you are not the stockholder of record, you may not vote these
shares in person at the meeting unless you obtain a signed proxy from your
broker or nominee giving you the right to vote the shares.
What constitutes a quorum?
The
presence at the meeting, in person or by proxy, of the holders of a majority of
the votes entitled to be cast at the meeting will constitute a quorum,
permitting the meeting to conduct its business. As of May 2, 2008, there were
approximately 54,362,772 shares of our common stock issued and outstanding,
held by approximately 80 stockholders of record representing
approximately 6,900 beneficial owners. Proxies received, but marked as
abstentions, as well as broker non-votes will be included in
calculating the number of shares considered present at the meeting for purposes
of determining a quorum, but will not be counted as votes cast "for" or
"against" any given matter.
If less
than a majority of outstanding shares entitled to vote are represented at the
meeting, a majority of the shares present at the meeting may adjourn the meeting
without further notice.
How do I vote?
If you
complete and properly sign the accompanying proxy card and return it to us, it
will be voted as you direct. If you are a registered stockholder and you attend
the meeting, you may deliver your completed proxy card in person. "Street name"
stockholders who wish to vote at the meeting will need to obtain a proxy from
the institution that holds their shares.
How can I change my vote after I submit my
proxy?
You may
change your vote at any time prior to the vote at the annual meeting. If you are
a stockholder of record, you may change your vote by granting a new proxy
bearing a later date (which automatically revokes any earlier proxy), by
providing a written notice of revocation to our corporate secretary prior to the
time your shares are voted, or by attending the Annual Meting and voting in
person. Attendance at the meeting will not cause your previously granted proxy
to be revoked unless you specifically so request.
For
shares you hold beneficially in street name, you may change your vote by
submitting new voting instructions to your broker, bank or nominee, or, if you
have obtained a legal proxy card from your broker, bank or nominee giving you
the right to vote your shares, by attending the meeting and voting in
person.
What are the board's recommendations?
Unless
you give other instructions on your proxy card, the persons named as proxy
holders on the proxy card will vote in accordance with the recommendations of
our board of directors. The board recommends a vote FOR the election of each of
the nominated slate of directors and FOR each of Proposals 2, 3, 4 and
5. See proposals below.
The board
does not know of any other matters that may be brought before the meeting nor
does it foresee or have reason to believe that the proxy holders will have to
vote for substitute or alternate board nominees. In the event that any other
matter should properly come before the meeting or any nominee is not available
for election, the proxy holders will vote as recommended by the board of
directors or, if no recommendation is given, in accordance with their best
judgment.
What vote is required to approve each
item?
Election of directors. A
plurality of the votes cast at the annual meeting is required to elect each
nominee. Accordingly, abstentions and broker non-votes will have no
effect on the election of directors, however, brokers will have authority to
vote shares they hold on behalf of beneficial holders in favor of the nominees
if they have not been instructed otherwise. Shares represented by
proxies will be voted for the election of the nominees named below unless
authority to do so is specifically withheld.
Other items. The
affirmative vote of a majority of the shares of our common stock present in
person or represented by proxy and entitled to vote is required to approve each
of Proposals 2, 3, 4 and 5. An abstention will be counted as a vote against
since it is one less vote for approval of the shares present. Broker
non-votes will not affect the outcome since they are not considered "shares
present" for voting purposes. Brokers do not have authority to vote
shares they hold on behalf of a beneficial holder in favor of any or these
proposals if they have not been instructed to do so by the beneficial
holder.
If you
hold your shares in "street name" through a broker or other nominee, your broker
or nominee may not be permitted to exercise voting discretion with respect to
some of the matters to be acted upon. Thus, if you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters and
will not be counted in determining the number of shares necessary for approval.
Shares represented by such "broker non-votes" will, however, be counted in
determining whether there is a quorum. Broker non-votes will not be counted for
purposes of the vote.
Who pays for the preparation of the proxy?
We will
pay the cost of preparing, assembling and mailing the notice of meeting, proxy
statement and enclosed proxy card. In addition to the use of mail, our employees
may solicit proxies personally and by telephone. Our employees will receive no
compensation for soliciting proxies other than their regular salaries. We may
request banks, brokers and other custodians, nominees and fiduciaries to forward
copies of the proxy materials to their principals and to request authority for
the execution of proxies. We may reimburse such persons for their expenses
incurred in connection with these activities.
Our
principal executive offices are located at 11150 Santa Monica Boulevard, Suite
1500, Los Angeles, California 90025, and our telephone number is (310)
444-4300. A list of stockholders entitled to vote at the annual meeting will be
available at our offices, during normal business hours, for a period of ten days
prior to the meeting and at the meeting itself for examination by any
stockholder.
How can I obtain additional copies?
If you
need additional copies of this proxy statement or the enclosed proxy card, you
should contact:
|
Hythiam,
Inc.
|
or
|
American
Stock Transfer & Trust Company
|
|
11150
Santa Monica Blvd., Suite 1500
|
59
Maiden Lane
|
|
|
Los
Angeles, California 90025
|
New
York, New York 10038
|
|
|
Telephone:
(310) 444-4300
|
Telephone:
(212) 936-5100
|
We
will provide to those persons that make a request in writing (Attn: Investor
Relations) or by e-mail (investor@hythiam.com) free of charge our (i) Annual
Report on Form 10-K, any amendments thereto and the financial statements and any
financial statement schedules filed by us with the Securities and Exchange
Commission, or SEC, under Section 16(a) of the Securities Exchange Act of 1934,
as amended, (ii) Audit Committee Charter, and (iii) Codes of Ethics. Our annual
report and other periodic reports and any amendments thereto are also available
on the SEC website at www.sec.gov by searching the EDGAR database for our
filings.
Annual report and other matters
Our 2007
Annual Report on Form 10-K, which was mailed to stockholders with or preceding
this proxy statement, contains financial and other information about us,
but is not incorporated into this proxy statement and is not to be considered a
part of these proxy soliciting materials or subject to Regulations 14A or 14C or
to the liabilities of Section 18 of the Exchange Act. The information contained
in the "Audit Committee Report," and the "Compensation Committee Report" below
shall not be deemed filed with the SEC, or subject to Regulations 14A or 14C or
to the liabilities of Section 18 of the Exchange Act.
CORPORATE GOVERNANCE
Our
current directors who are nominated for reelection and director nominees, and
their ages as of May 2, 2008, are as follows:
|
Name
|
Age
|
Position
|
Since
|
|||
|
Terren
S. Peizer
|
48
|
Director,
Chairman of the Board and Chief Executive Officer
|
2003
|
|||
|
Richard
A. Anderson
|
38
|
Director,
Senior Executive Vice President
|
2003
|
|||
|
Andrea
Grubb Barthwell, M.D.
|
53
|
Director
|
2005
|
|||
|
Marc
G. Cummins
|
48
|
Director,
Chair of Nominations and Governance Committee, Member of Audit
Committee
|
2004
|
|||
|
James
D. Donovan, Jr.
|
54
|
Director
Nominee
|
||||
|
Christopher
S. Hassan
|
47
|
Director,
Senior Executive Vice President
|
2007
|
|||
|
Steven
A. Kriegsman
|
66
|
Director
Nominee
|
||||
|
Jay
A. Wolf
|
35
|
Director
Nominee
|
Terren S. Peizer is our
founder and has served as our chief executive officer and chairman of the board
of directors since our inception in February, 2003. Mr. Peizer served
as chief executive officer of Clearant, Inc. until October 2003, a company
which he founded in April 1999 to develop and commercialize a universal
pathogen inactivation technology. He served as chairman of its board of
directors from April 1999 to October 2004 and as director until
February 2005. From February 1997 to February 1999,
Mr. Peizer served as president and vice chairman of Hollis-Eden
Pharmaceuticals, Inc., a Nasdaq Global Market listed company. In addition, from
June 1999 through May 2003 he was a director, and from June 1999
through December 2000 he was chairman of the board, of supercomputer
designer and builder Cray Inc., a Nasdaq Global Market listed company, and
remains its largest beneficial stockholder. Since August 2006, he has served as
chairman of the board of Xcorporeal, Inc. Mr. Peizer has been the largest
beneficial stockholder and has held various senior executive positions with
several technology and biotech companies. In these capacities, he has assisted
these companies with assembling management teams, boards of directors and
scientific advisory boards, formulating business and financial strategies,
investor and public relations and capital formation. Mr. Peizer has a
background in venture capital, investing, mergers and acquisitions, corporate
finance, and previously held senior executive positions with the investment
banking firms Goldman Sachs, First Boston and Drexel Burnham Lambert. He
received his B.S.E. in Finance from The Wharton School of Finance and
Commerce.
Richard A. Anderson has more
than fifteen years of experience in business development, strategic planning and
financial management. He has served as a director since July 2003 and an officer
since April 2005. He was the chief financial officer of Clearant, Inc. from
November 1999 until March 2005, and served as a director from November 1999 to
March 2006. Mr. Anderson was previously with
PriceWaterhouseCoopers, LLP, for seven years, and was most recently a director
and founding member of PriceWaterhouseCoopers Los Angeles Office
Transaction Support Group, where he was involved in operational and financial
due diligence, valuations and structuring for high technology companies. He
received a B.A. in Business Economics from University of California, Santa
Barbara.
Andrea Grubb Barthwell, M.D.
has served as the founder and chief executive officer of the global health care
and policy-consulting firm EMGlobal, LLC since February 2005. From January 2002
through July 2004, she served as deputy director for demand reduction in the
Office of National Drug Control Policy with the title of deputy drug czar, was a
principal advisor in the executive office of the president on policies aimed at
reducing the demand for illicit drugs, and was an active member of the White
House Task Force on Disadvantaged Youth and the White House Domestic Violence
Working Group, working closely with the National Institute on Drug Abuse to
define the scope of its Health Services Research portfolio. From June 2000
through January 2002, Dr. Barthwell served as executive vice president and
chief clinical officer of Human Resources Development Institute drug treatment
center, where she served as deputy executive director and medical director from
1985 through 1987. From 1999 through January 2002, she served as president and
chief executive officer of BRASS Foundation drug treatment center, where she was
medical director since 1995. From 1996 through January 2002, Dr. Barthwell
served as president of Encounter Medical Group (an affiliate of EMGlobal). From
1987 through 1996 she served as medical director of Interventions in Chicago,
Illinois. She was a founding member of the Chicago Area AIDS Task Force, hosted
a weekly local cable show on AIDS, and is a past president of the American
Society of Addiction Medicine. In 2003, Dr. Barthwell received the Betty
Ford Award, given by the Association for Medical Education and Research in
Substance Abuse. In 1997, Dr. Barthwell's peers named her one of the "Best
Doctors in America" in addiction medicine. Dr. Barthwell received a B.A. in
Psychology from Wesleyan University, an M.D. from University of Michigan
Medical School, and post-graduate training at University of Chicago and
Northwestern University.
Marc G. Cummins is a managing
partner of Prime Capital, LLC, a private investment firm focused on consumer
companies. Prior to founding Prime Capital, Mr. Cummins was managing
partner of Catterton Partners, a private equity investor in consumer products
and service companies with over $1 billion of assets under management.
Prior to joining Catterton in 1998, Mr. Cummins spent fourteen years at
Donaldson, Lufkin & Jenrette Securities Corporation where he was managing
director of the consumer products and specialty distribution group, and was also
involved in leveraged buyouts, private equity and high yield
financings. He has been a director of Xcorporeal, Inc. since November
2006. Mr. Cummins received a B.A. in Economics, magna cum laude, from
Middlebury College, where he was honored as a Middlebury College Scholar
and is a member of Phi Beta Kappa. He also received an M.B.A. in Finance with
honors from The Wharton School at University of Pennsylvania.
James D. Donovan, Jr. currently serves
as senior vice president of AmeriChoice Corporation, a division of United
Health Group, where he designs and leads the business development, sales and
marketing functions. From 2006 to 2007, Mr. Donovan acted as a consultant
focused on improving the effectiveness of HMO contractors in state Medicaid
programs. From 2004 to 2006, he served as senior vice president of the
Centene Corporation, a multi-line healthcare enterprise operating primarily
in two segments: Medicaid Managed Care and Specialty Services. From 1995
to 2004, Mr. Donovan served as chief executive officer of AmeriGroup Texas, a
multi-market, multi-product start-up HMO. Mr. Donovan received a B.S. degree in
Business Administration from University of California, Berkeley and a
Master of Public Health degree from University of California, Los Angeles. Mr.
Donovan also completed the Kaiser Permanente Executive Program at Stanford
University.
Christopher S. Hassan is a
senior healthcare executive who, prior to joining us in July 2006, served as
vice president, sales for Reckitt Benckiser Pharmaceuticals since October 2003.
From 2000 to October 2002, he served as director of sales, North America for
Drugabuse Sciences, Inc. a bio-pharmaceutical company. From 1996 to 2000, Mr.
Hassan served as area business manager for Parke-Davis/Pfizer. From 1989 to 1996
he served as district sales manager for Bayer Pharmaceuticals. Mr. Hassan
received a B.B.A. in Accounting from University of Texas, Austin.
Steven A. Kriegsman is
president, chief executive officer and a director of CytRx Corporation, a
clinical-stage biopharmaceutical company engaged in developing human therapeutic
products. He also serves as a director of RXi. He previously served as a
director and chairman of Global Genomics from June 2000 until its merger with
Global Genomics in July 2002. Mr. Kriegsman is the chairman of the board and
founder of Kriegsman Capital Group LLC, a financial advisory firm specializing
in the development of alternative sources of equity capital for emerging growth
companies in the healthcare industry. He has advised such companies as SuperGen
Inc., Closure Medical Corporation, Novoste Corporation, Miravant Medical
Technologies, and Maxim Pharmaceuticals. Mr. Kriegsman has a B.S. degree with
honors from New York University in accounting and completed the Executive
Program in Mergers and Acquisitions at New York University, The Management
Institute. Mr. Kriegsman was formerly a Certified Public Accountant with KPMG in
New York City. From June 2003 until February 2008, he served as a director, and
he is the former chairman of the audit committee of, Bradley Pharmaceuticals,
Inc. In February 2006, Mr. Kriegsman received the Corporate Philanthropist of
the Year Award from the Greater Los Angeles Chapter of the ALS Association and
in October 2006, he received the Lou Gehrig Memorial Corporate Award from the
Muscular Dystrophy Association. Mr. Kriegsman has been active in various
charitable organizations including the Biotechnology Industry Organization, the
ALS Association, the Los Angeles Venture Association, the Southern California
Biomedical Council, and the Palisades-Malibu YMCA.
Jay A. Wolf is a partner and
co-founder of Trinad Capital, an activist hedge fund focused on micro-cap public
companies. Mr. Wolf has a broad range of investment and operations experience
that includes senior and subordinated debt lending, private equity and venture
capital investments, mergers & acquisitions and public equity investments.
Prior to his work at Trinad Capital which commenced in 2003, Mr. Wolf served as
executive vice president of Corporate Development for Wolf Group Integrated
Communications Ltd. where he was responsible for the company’s acquisition
program. Mr. Wolf worked at Canadian Corporate Funding, Ltd., a Toronto-based
merchant bank as an analyst in the firm’s senior debt department and
subsequently for Trillium Growth Capital, the firm’s venture capital fund. Mr.
Wolf currently sits on the boards of Mandalay Media, Inc. (MNDL), Optio
Software, Inc. (OPTO), Prolink Holdings Corporation (PLKH), Shells Seafood
Restaurants (SHLL), Xcorporeal, Inc. (XCR) and NorthStar Systems, Inc. Mr. Wolf
is also a member of the board of Governors at Cedars-Sinai Hospital. Mr. Wolf
received a BA from Dalhousie University.
How are directors compensated?
Compensation. Prior
to July 1, 2007, non-affiliated directors did not receive any cash compensation
for attendance at meetings of the board of directors or its committees.
Commencing July 1, 2007, non-employee directors receive an annual fee of
$15,000, plus $2,500 for meetings in excess of four meetings per year, and
$1,500 per committee meeting attended. In addition, the audit
committee chair receives an annual fee of $10,000 and the compensation
committee chair and the nominations and governance committee chair each
receive an annual fee of $2,500. Directors who are also employed by us do not
receive any fee or compensation for their services as directors. All members of
the board of directors receive reimbursement for actual travel-related expenses
incurred in connection with their attendance at meetings of the board or
committees.
Options. Directors
are eligible to receive options under our 2007 Stock Incentive Plan. However,
except for an initial grant on August 2, 2007 of 100,000 options to Judge
Freeman-Wilson, no options were granted to any directors in 2007.
How often did the board meet during 2007?
The board
of directors held five meetings during 2007. All of our incumbent directors
attended at least 80% of the meetings of the board and 100% of the meetings held
by each committee on which he or she served except Marc Cummins who
attended 50% of the audit committee meetings.
Which
directors nominated for election or reelection are
independent?
After
review of all of the relevant transactions or relationships of each director
(and his family members), our board of directors has determined that Dr.
Barthwell and Mr. Cummins are independent as defined by the applicable
Nasdaq rules. Upon election, Steven A. Kriegsman, James D. Donovan,
Jr., and Jay A. Wolf will also be considered independent under such rules. There
are no family relationships among any of our directors, executive officers or
key employees.
What committees has the board
established?
The board
of directors has a standing audit committee, compensation committee, and
nominations and governance committee. The board also has adopted written
corporate governance guidelines for the board and a written committee charter
for each of the board's committees, describing the authority and
responsibilities delegated to each committee by the board. A copy of our audit
committee charter, compensation committee charter and nominations and governance
committee charter can be found on our website at
http://www.hythiam.com.
Audit committee
The audit
committee consists of three directors, Mr. Leslie F. Bell (chairman),
Judge Karen Freeman-Wilson and Mr. Marc. G. Cummins. The board of
directors has determined that each of Messrs. Bell and Cummins and Judge
Freeman-Wilson are independent as defined by the applicable Nasdaq rules, meet
the applicable requirements for audit committee members, including
Rule 10A-3(b) under the Securities and Exchange Act of 1934, as amended,
and Messrs. Bell and Cummins qualify as audit committee financial
experts as defined by Item 401(h)(2) of Regulation S-K. The audit
committee held four meetings during 2007. The duties and responsibilities of the
audit committee include (i) selecting, evaluating and, if appropriate,
replacing our independent registered accounting firm, (ii) reviewing
the plan and scope of audits, (iii) reviewing our significant accounting
policies, any significant deficiencies in the design or operation of internal
controls or material weakness therein and any significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation and (iv) overseeing related
auditing matters.
Compensation committee
The
compensation committee consists of two directors who are independent as defined
by the applicable Nasdaq rules. The committee consists of Dr. Ivan M.
Lieberburg (chairman) and Mr. Leslie F. Bell, and held three meetings
during 2007. The compensation committee reviews and recommends to the board of
directors for approval the compensation of our executive
officers.
Nominations and governance committee
The
nominations and governance committee consists of up to two directors who are
independent as defined by the applicable Nasdaq rules. The committee consists of
Mr. Marc G. Cummins (Chairman), and held one meeting during 2007. The committee
nominates new directors and periodically oversees corporate governance
matters.
The
charter of the nominations and governance committee provides that the committee
will consider board candidates recommended for consideration by our
stockholders, provided the stockholders provide information regarding candidates
as required by the charter or reasonably requested by us within the timeframe
proscribed in Rule 14a-8 of Regulation 14A under the Exchange Act, and
other applicable rules and regulations. Recommendation materials are required to
be sent to the nominations and governance committee c/o Hythiam, Inc., 11150
Santa Monica Blvd., Suite 1500, Los Angeles, California 90025. There are no
specific minimum qualifications required to be met by a director nominee
recommended for a position on the board of directors, nor are there any specific
qualities or skills that are necessary for one or more of our board of directors
to possess, other than as are necessary to meet any requirements under the rules
and regulations applicable to us. The nominations and governance committee
considers a potential candidate's experience, areas of expertise, and other
factors relative to the overall composition of the board of
directors.
The
nominations and governance committee considers director candidates that are
suggested by members of the board of directors, as well as management and
stockholders. Although it has not previously done so, the committee may also
retain a third-party executive search firm to identify candidates. The process
for identifying and evaluating nominees for director, including nominees
recommended by stockholders, involves reviewing potentially eligible candidates,
conducting background and reference checks, interviews with the candidate and
others (as schedules permit), meeting to consider and approve the candidate and,
as appropriate, preparing and presenting to the full board of directors an
analysis with respect to particular recommended candidates. The nominations
and governance committee endeavors to identify director nominees who have the
highest personal and professional integrity, have demonstrated exceptional
ability and judgment, and, together with other director nominees and members,
are expected to serve the long term interest of our stockholders and contribute
to our overall corporate goals.
Annual meeting attendance
Three of
our directors attended our 2007 annual meeting of stockholders. We have adopted
a policy for attendance by the board of directors at our annual stockholder
meetings which encourages directors, if practicable and time permitting, to
attend our annual stockholder meetings.
Do we have a code of ethics?
We have
adopted a Code of Conduct and Ethics that applies to
all of our directors, officers and employees. We have also
adopted a Code of Ethics for CEO and Senior Financial Officers that applies to
our chief executive officer and senior financial officers, including our
principal financial officer and principal accounting officer. A copy of our Code
of Ethics can be found on our website at http://www.hythiam.com.
How can stockholders communicate with our board of
directors?
Our board
of directors believes that it is important for our stockholders to have a
process to send communications to the board. Accordingly, stockholders desiring
to send a communication to the board or a specific director may do so by sending
a letter addressed to the board of directors or any individual director at the
address listed in this proxy statement. All such letters must identify the
author as a stockholder. Our corporate secretary will open the communications,
make copies and circulate them to the appropriate director or
directors.
PROPOSAL 1: ELECTION OF DIRECTORS
Our
bylaws provide that the number of members on the board of directors shall be
determined from time to time by resolution of the board. At present, our board
of directors consists of eight members. Nominees are elected for a one-year term
expiring at the next annual meeting of stockholders or until their successors
are duly elected and qualified.
Nominees standing for election
The
current members of our board of directors who are nominated for reelection are
Terren S. Peizer, Richard A. Anderson, Andrea Grubb Barthwell,
M.D., Marc G. Cummins and Christopher S. Hassan. In addition, James
D. Donovan, Jr., Steven A. Kriegsman and Jay A. Wolf have been nominated for
election to the board of directors. All of the directors’ terms will
expire at the 2009 annual meeting or until their successors are duly elected and
qualified. The board of directors has no reason to believe that any nominee will
refuse to act or be unable to accept election. However, if any of the nominees
for director is unable to accept election or if any other unforeseen
contingencies should arise, the board may designate a substitute nominee. In
that case, the persons named as proxies will vote for the substitute nominee
designated by the board.
Recommendation of the board
The
board of directors unanimously recommends that you vote "FOR" the election as
directors of each of the nominees named above.
AUDIT COMMITTEE REPORT
The
following report of the audit committee does not constitute soliciting material
and should not be deemed filed or incorporated by reference into any of our
other filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
The audit
committee has the sole authority to select, evaluate and, if appropriate,
replace our independent registered public accounting firm, and to
pre-approve all auditing and permitted non-auditing services performed by them
for the Company including their fees and other terms. BDO Seidman, LLP was
engaged as the independent registered public accounting firm for the Company in
September 2003. Since our last meeting in June 2007, the audit committee
has consisted of Messrs. Bell and Cummins and Honorable Karen
Freeman-Wilson. The board of directors has determined that all members of the
audit committee are financially literate and independent within the requirements
of Nasdaq, the Securities and Exchange Commission and the Company's audit
committee charter.
Management,
not the audit committee, is responsible for the preparation, presentation,
accuracy and integrity of the Company's financial statements, establishing,
maintaining and evaluating the effectiveness of internal controls and disclosure
controls and procedures; and evaluating any change in internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect internal control over financial reporting. The Company's
independent registered public accounting firm is responsible for performing an
independent audit of the Company's consolidated financial
statements, expressing an opinion as to their conformity with U.S.
generally accepted accounting principles and reporting on management's
assessment of the effectiveness of the Company's internal controls over
financial reporting. The audit committee's responsibility is to oversee these
processes. Members of the committee rely on the information provided to them and
on the representations made by management and the independent registered public
accounting firm.
In
fulfilling its responsibilities, the audit committee met with management and BDO
Seidman, including sessions at which management was not present, and reviewed
and discussed the unaudited financial statements contained in the Company's
quarterly reports on Form 10-Q for each of the quarters ended in 2007, and the
audited financial statements contained in the 2007 Annual Report on Form 10-K,
prior to their filing with the Securities and Exchange Commission. The audit
committee discussed with BDO Seidman the matters required to be discussed by
Statement on Auditing Standards No. 61, Communications with Audit
Committees, as currently in effect, including the independent registered
public accounting firm's overall evaluations of the quality, not just the
acceptability, of the Company's accounting principles, the critical accounting
policies and practices used in the preparation of the financial statements, the
reasonableness of significant judgments, and such other matters as are required
to be discussed with the committee under generally accepted auditing standards.
The audit committee also received the written disclosures and the letter from
BDO Seidman required by Independence Standards Board Standard No. 1,
Independence Discussion with Audit Committees, and reviewed with BDO Seidman its
independence.
Based on
the review and discussions with management and the independent accountants, and
subject to the limitations on its role and responsibilities described above and
in its Charter, the audit committee recommended to the board of directors that
the audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2007 that was filed with the
SEC.
Submitted
by the audit committee:
Leslie F.
Bell, Chairman
Marc G.
Cummins
Honorable
Karen Freeman-Wilson
Dated:
May 28, 2008
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
Who are the largest owners of our stock and
how many shares do our directors and executive officers
own?
The
following table sets forth certain information regarding the shares of common
stock beneficially owned as of April 24, 2008 by: (i) each person
known to us to be the beneficial owner of more than 5% of our common stock,
(ii) each of our directors, (iii) each executive officer named in the
Summary Compensation Table set forth in the Executive Compensation section, and
(iv) all such directors and officers as a group:
|
Name
of Beneficial Owner (1)
|
Common
Stock
Beneficially
Owned(2)
|
Options
& Warrants
Exercisable
on
or before
June
23, 2008
|
Total
Common
Stock
Beneficially
Owned
|
Percent
of
Class(3)
|
||||||||||||
|
Terren S. Peizer(4)
|
13,800,000
|
1,067,499
|
14,867,499
|
22.53
|
%
|
|||||||||||
|
Fred
Knoll(5)
|
3,811,372
|
208,768
|
4,020,140
|
6.09
|
%
|
|||||||||||
|
Aberdeen
Asset Management PLC(6)
|
3,697,728
|
125,000
|
3,822,728
|
5.79
|
%
|
|||||||||||
|
Marc
G. Cummins(7)
|
1,583,111
|
360,960
|
1,944,071
|
*
|
||||||||||||
|
Anthony
M. LaMacchia (8)
|
-
|
365,458
|
365,458
|
*
|
||||||||||||
|
Ivan
M. Lieberburg
|
44,444
|
237,500
|
281,944
|
*
|
||||||||||||
|
Chuck
Timpe
|
28,020
|
342,124
|
370,144
|
*
|
||||||||||||
|
Richard
A. Anderson
|
-
|
448,511
|
448,511
|
*
|
||||||||||||
|
Christopher
S. Hassan
|
-
|
193,645
|
193,645
|
*
|
||||||||||||
|
Leslie
F. Bell
|
-
|
137,500
|
137,500
|
*
|
||||||||||||
|
Andrea
Grubb Barthwell, M.D.
|
-
|
50,000
|
50,000
|
*
|
||||||||||||
|
Honorable
Karen Freeman-Wilson
|
-
|
-
|
-
|
*
|
||||||||||||
|
All
directors and named executive officers as a group (10
persons)
|
15,455,575
|
3,203,197
|
18,658,772
|
28.28
|
%
|
|||||||||||
* Less
than 1%
Notes
to Beneficial Ownership Table:
|
|
(1)
|
The
mailing address of all individuals listed is c/o Hythiam, Inc., 11150
Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025, unless otherwise
indicated.
|
|
|
(2)
|
The
number of shares beneficially owned includes shares of common stock in
which a person has sole or shared voting power and/or sole or shared
investment power. Except as noted below, each person named reportedly has
sole voting and investment powers with respect to the common stock
beneficially owned by that person, subject to applicable community
property and similar laws.
|
|
|
(3)
|
On
April 24, 2008, there were 54,387,604 shares of common stock
outstanding. Common stock not outstanding but which underlies options and
rights (including warrants) vested as of or vesting within 60 days
after April 24, 2008 is deemed to be outstanding for the purpose of
computing the percentage of the common stock beneficially owned by each
named person (and the directors and executive officers as a group), but is
not deemed to be outstanding for any other
purpose.
|
|
|
(4)
|
13,800,000
shares are held of record by Reserva Capital, LLC and Bonmore, LLC, which
are owned and controlled by
Mr. Peizer.
|
|
|
(5)
|
Based
on information provided on Schedule 13G filed with the SEC on
February 8, 2008, by Fred Knoll, individually and as president of Knoll
Capital Management LP, 237 Park Avenue, 9th Floor, New York, New York
10166.
|
|
|
(6)
|
Based
on information provided on Schedule 13G filed with the SEC on January 10,
2008 by Aberdeen Asset Management PLC, 10 Queens Terrace, Aberdeen,
Scotland.
|
|
|
(7)
|
Includes
751,566 shares and 187,892 warrants held by CPS Opportunities, LLC,
167,015 shares and 41,754 warrants held by GPC LX1 LLC, 73,069 shares and
18,267 warrants held by Prime Logic 1 LLC, 52,192 shares and 13,048
warrants held by GPC 78 LLC, for which Mr. Cummins serves as investment
manager and 317,047 shares held by Prime Logic Capital LLC, for which Mr.
Cummins serves as managing partner. Additionally, 100,000
shares are held of record by Bexley Partners, L.P., 23,000 by Cummins
Children's Trust, 22,000 by C.F. Partners, L.P., and 35,000 by
Mr. Cummins' wife Lisa Cummins. Mr. Cummins disclaims
beneficial ownership of such
shares.
|
|
|
(8)
|
As
of May 9, 2008, Mr. LaMacchia is no longer employed by the
Company.
|
Section 16(a) beneficial ownership reporting
compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers, and persons who own more than 10% of our outstanding common
stock, to file with the SEC, initial reports of ownership and reports of changes
in ownership of our equity securities. Such persons are required by SEC
regulations to furnish us with copies of all such reports they
file.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us and written or oral representations that no other reports were required for
such persons, all Section 16(a) filing requirements applicable to our officers,
directors and greater than 10% beneficial owners have been complied
with.
COMPENSATION DISCUSSION AND ANALYSIS
The
following discussion and analysis contains statements regarding future
individual and company performance targets and goals. These targets and goals
are disclosed in the limited context of our compensation programs and should not
be understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply these
statements to other contexts.
We
believe our long term success is dependent on a leadership team with the
integrity, skills, and dedication necessary to oversee a growing organization on
a day-to-day basis. In addition, the leadership must have the vision to
anticipate and respond to future market and regulatory developments. Our
executive compensation program is designed to enable us to attract, motivate and
retain a senior management team with the collective and individual abilities to
meet these challenges. The program's primary objective is to align executives'
efforts with the long term interests of stockholders by enhancing our
reputation, financial success and capabilities.
General executive compensation philosophy
We
compensate our executives, including the named executive officers who are
identified in the Summary Compensation Table, through a combination of base
salary, cash bonus incentives, long term equity incentive compensation, and
related benefits. These components are designed, in aggregate, to be competitive
with comparable organizations and to align the financial incentives for the
executives with the short and long term interests of stockholders.
The
compensation committee of the board of directors receives the Company's
management recommendations and then discusses, reviews and considers
management's recommendations with respect to the compensation of those members
of senior management whose compensation the committee considers. The committee
then makes its recommendation to the board which discusses and then decides
raises, bonuses and options. Although their advice may be sought and
they may be questioned by the committee, executive members of the board do not
participate in the committee's or the board's discussion and
vote. Prior to the committee making its recommendations, the members
of the committee have several discussions among themselves and meet to discuss,
among other things, the performance and contributions of each of the members of
senior management whose compensation they are considering as well as
expectations (of the individual for the year and the future and those of the
Company), results, responsibilities, and desire to retain such executive. In
addition, the committee may have conversations with certain others before making
its recommendations.
The
Company's philosophy is to provide a compensation package that attracts,
motivates and retains executive talent, and delivers rewards for superior
performance as well as consequences for
underperformance. Specifically, our executive compensation program is
designed to:
|
|
•
|
provide
a competitive total compensation package that is competitive within the
healthcare management and substance abuse treatment industries in which we
compete for executive talent, and will assist in the retention of our
executives and motivate them to perform at a superior
level
|
|
|
•
|
link
a substantial part of each executive's compensation to the achievement of
our financial and operating objectives and to the individual's
performance
|
|
|
•
|
provide
long-term incentive compensation that focuses executives' efforts on
building stockholder value by aligning their interests with our
stockholders
|
|
|
•
|
provide
incentives that promote executive
retention.
|
Each
year, the management and the board approve financial and non-financial
objectives for the Company and the executive officers, which may be reflected in
the Company's executive employment agreements and incentive compensation plans.
We design our incentive compensation plans to reward company-wide performance.
In addition, we also consider the individual performance of each executive
officer and other relevant criteria, such as the accomplishments of the
management team as a whole. In designing and administering our executive
compensation programs, we attempt to strike an appropriate balance among these
elements.
The major
compensation elements for our named executive officers are base salary,
performance-based bonuses, stock options, insurance benefits and perquisites.
Each of these elements is an integral part of and supports our overall
compensation objectives. Base salaries (other than increases), insurance
benefits and perquisites form stable parts of our executive officers'
compensation packages that are not dependent on our performance during a
particular year. We set these compensation elements at competitive levels so
that we are able to attract, motivate and retain highly qualified executive
officers. Consistent with our performance-based philosophy, we reserve the
largest potential compensation awards for performance- and incentive-based
programs. These programs include awards that are based on our financial
performance and provide compensation in the form of both cash and equity to
provide incentives that are tied to both our short-term and long-term
performance. Our performance-based bonus program rewards short-term and
long-term performance, while our equity awards, in the form of stock options,
reward long-term performance and align the interests of management with our
stockholders.
Board determination of compensation awards
The
compensation committee recommends and the board determines the compensation
awards to be made to our executive officers. The compensation committee
recommends and the board determines the total compensation levels for our
executive officers by considering several factors, including each executive
officer's role and responsibilities, how the executive officer is performing
against those responsibilities, our performance, and the competitive market data
applicable to the executive officers’ positions.
In
arriving at specific levels of compensation for executive officers, the board
has relied on
|
|
•
|
the
recommendations of management;
|
|
|
•
|
benchmarks
provided by generally available compensation surveys;
and
|
|
|
•
|
the
experience of board members and their knowledge of compensation paid by
comparable companies or companies of similar size or generally engaged in
the healthcare services business.
|
The
Company seeks an appropriate relationship between executive pay and corporate
performance. Executive officers are entitled to customary benefits generally
available to all Company employees, including group medical, dental and life
insurance and a 401(k) plan. The Company has employment agreements (which
include severance arrangements) with three (3) of our key executive officers to
provide them with the employment security and severance deemed necessary to
retain them.
Components of executive compensation
Base salary. Base salaries
provide our executive officers with a degree of financial certainty and
stability. We seek to provide base salaries sufficient to attract and retain
highly qualified executives. Whenever management proposes to enter into a new
employment agreement or to renew an existing employment agreement, the
compensation committee reviews and recommends, and the board determines, the
base salaries for such persons, including our chief executive officer
and our other executive officers. Salaries are also reviewed in the case of
executive promotions or other significant changes in responsibilities. In each
case, the compensation committee and the board each take into account
competitive salary practices, scope of responsibilities, the results previously
achieved by the executive and his or her development potential.
On an
individual basis, a base salary increase, where appropriate and as contemplated
by the individual's employment agreement, is designed to reward performance
consistent with our overall financial performance in the context of competitive
practice. Performance reviews, including changes in an executive officer's scope
of responsibilities, in combination with general market trends determine
individual salary increases. Aside from contractually provided minimum cost of
living adjustments, no formulaic base salary increases are provided to the named
executive officers.
In
addition to complying with the executive compensation policy and to the
requirements of applicable employment agreements, compensation for each of the
executive officers for 2007 was based on the executive's performance of his or
her duties and responsibilities, the performance of the Company, both financial
and otherwise, and the success of the executive in managing, developing and
executing our business development, sales and marketing, financing and strategic
plans, as appropriate. With the exception of one $60,000 bonus for a
senior executive vice president, no merit raises or bonuses were approved or
recommended for our executive officers for 2008.
Bonus. Executive officers are
eligible to receive cash bonuses based on the degree of the Company's
achievement of financial and other objectives and the degree of achievement by
each such officer of his or her individual objectives. Within such guidelines
the amount of any bonus is discretionary.
The
primary purpose of our performance incentive awards is to motivate our
executives to meet or exceed our company-wide short-term performance objectives.
Our cash bonuses are designed to reward management-level employees for their
contributions to individual and corporate objectives. Regardless of our
performance, the board retains the discretion to adjust the amount of our
executives' bonus based upon individual performance or
circumstances.
At the
beginning of 2007, the management and the board established performance
objectives for the payment of incentive awards to each of the named executive
officers and other senior management employees. Performance objectives were
based on corporate objectives established as part of the annual operating plan
process. Year end bonus awards were based on attainment of these performance
objectives as adjusted to reflect changes in our business and industry
throughout the year. The compensation committee recommended and the board
determined that bonuses in the amounts set forth in the total compensation chart
below were appropriate. Each individual's bonus was determined
based upon the individual's attainment of performance objectives pre-established
for that participant by the board, senior management, or the executive's
supervisor. The management and the board established the chief executive
officer's performance objectives.
In
general, each participant set for himself or herself (subject to his or her
supervisor's review and approval or modification) a number of objectives for
2007 and then received a performance evaluation against those objectives as a
part of the year-end compensation review process. The individual objectives
varied considerably in detail and subject matter depending on the executive's
position. By accounting for individual performance, we were able to
differentiate among executives and emphasize the link between individual
performance and compensation.
Stock options. Equity
participation is a key component of the Company's executive compensation
program. Under the incentive compensation plan, the Company is permitted to
grant stock options to officers, directors, employees and consultants. To date,
stock options have been the sole means of providing equity participation to
executive officers. Stock options are granted to executive officers primarily
based on the officer's actual and expected contribution to the Company's
development. Options are designed to retain executive officers and motivate them
to enhance stockholder value by aligning their financial interests with those of
the stockholders. Stock options are intended to enable the Company to attract
and retain key personnel and provide an effective incentive for management to
create stockholder value over the long term since the option value depends on
appreciation in the price of the Company's common stock.
Our
employees, including our executive officers, are eligible to participate in the
award of stock options under our 2007 Incentive Compensation Plan, as
amended. Option grant dates for newly hired or promoted officers and
other eligible employees have typically been the on the first board meeting date
following the date of employment or in the new position. Employees who have
demonstrated outstanding performance during the year may be awarded options
during or following the year. Such grants provide an incentive for
our executives and other employees to increase our market value, as represented
by our market price, as well as serving as a method for motivating and retaining
our executives.
In
determining to provide long-term incentive awards in the form of stock options,
the board considered cost and dilution impact, market trends relating to
long-term incentive compensation and other relevant factors. The board
determined that an award of stock options more closely aligns the interests of
the recipient with those of our stockholders because the recipient will only
realize a return on the option if our stock price increases over the term of the
option.
Perquisites and Other
Benefits. We also provide other benefits to our executive
officers that are not tied to any formal individual or Company performance
criteria and are intended to be part of a competitive overall compensation
program. For 2007, these benefits included payment of term life insurance
premiums, club dues, and automobile allowances. We also offer 401(k) retirement
plans, and medical plans, for which executives are generally charged the same
rates as all other employees.
Chief executive officer compensation
The
compensation committee, at least annually, reviews and recommends to the board
of directors the compensation of Terren S. Peizer, chief executive officer, in
accordance with the terms of his employment agreement, as well as any variations
in his compensation the committee feels are warranted. Mr. Peizer, as a
member of the board, does not participate in and abstains from all discussions
and decisions of the board with regard to his compensation. The board believes
that in the highly competitive healthcare industry in which the Company
operates, it is important that Mr. Peizer receive compensation consistent
with compensation received by chief executive officers of competitors and
companies in similar stages of development. Mr. Peizer received a base
salary of $450,000 in 2007. His base salary for 2008 is currently
$450,000. See "Executive employment agreements" for a description of the
material terms and conditions of Mr. Peizer's employment
agreement.
Severance and change of control arrangements
We have
entered into change of control employment agreements with certain of our named
executive officers, as described in "Executive employment agreements." These
agreements provide for severance payments to be made to the executive officers
if their employment is terminated under specified circumstances following a
change of control. We also provide benefits to these executive officers upon
qualifying terminations. The agreements are designed to retain our executive
officers and provide continuity of management in the event of an actual or
threatened change of control and to ensure that our executive officers'
compensation and benefits expectations would be satisfied in such
event.
Internal Revenue Code limits on deductibility of
compensation
Section 162(m)
of the Internal Revenue Code of 1986, as amended, generally disallows a federal
income tax deduction to public companies for certain compensation in excess of
$1 million paid to a corporation's chief executive officer or any of its
four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The board is of the opinion that the Company's
incentive compensation plan has been structured to qualify the compensation
income deemed to be received upon the exercise of stock options granted under
the plans as performance-based compensation. The board will review with
appropriate experts or consultants as necessary the potential effects of Section
162(m) periodically and in the future may decide to structure additional
portions of compensation programs in a manner designed to permit unlimited
deductibility for federal income tax purposes.
The
Company is not currently subject to the limitations of Section 162(m) because no
executive officers received cash payments during 2007 in excess of $1 million.
To the extent that the Company is subject to the Section 162(m) limitation in
the future, the effect of this limitation on earnings may be mitigated by net
operating losses, although the amount of any deduction disallowed under Section
162(m) could increase alternative minimum tax by a portion of such disallowed
amount. For information relating to the Company's net operating losses, see the
consolidated financial statements included in the 2006 Annual Report to
stockholders.
All
members of the compensation committee qualify as outside directors. The board
considers the anticipated tax treatment to the Company and our executive
officers when reviewing executive compensation and our compensation programs.
The deductibility of some types of compensation payments can depend upon the
timing of an executive's vesting or exercise of previously granted rights.
Interpretations of and changes in applicable tax laws and regulations, as well
as other factors beyond the board's control, also can affect the deductibility
of compensation.
While the
tax impact of any compensation arrangement is one factor to be considered, such
impact is evaluated in light of the Company's overall compensation philosophy.
The board will consider ways to maximize the deductibility of executive
compensation, while retaining the discretion it deems necessary to compensate
officers in a manner commensurate with performance and the competitive
environment for executive talent. From time to time, the board may award
compensation to our executive officers which is not fully deductible if it
determines that such award is consistent with its philosophy and is in our and
our stockholders' best interests, or as part of initial employment offers, such
as grants of nonqualified stock options.
Sections 280G
and 4999 of the Internal Revenue Code impose certain adverse tax consequences on
compensation treated as excess parachute payments. An executive is treated as
having received excess parachute payments for purposes of Sections 280G and
4999 of the Internal Revenue Code if he or she receives compensatory payments or
benefits that are contingent on a change in the ownership or control of a
corporation, and the aggregate amount of such contingent compensatory payments
and benefits equal or exceeds three times the executive's base amount. If the
executive's aggregate contingent compensatory payments and benefits equal or
exceed three times the executive's base amount, the portion of the payments and
benefits in excess of one times the base amount are treated as excess parachute
payments. Treasury Regulations define the events that constitute a change in
ownership or control of a corporation for purposes of Sections 280G and
4999 of the Internal Revenue Code and the executives subject to
Sections 280G and 4999 of the Internal Revenue Code.
An
executive's base amount generally is determined by averaging the executive's
Form W-2 taxable compensation from the corporation and its subsidiaries for
the five calendar years preceding the calendar year in which the change in
ownership or control occurs. An executive's excess parachute payments are
subject to a 20% excise tax under Section 4999 of the Internal Revenue
Code, in addition to any applicable federal income and employment taxes. Also,
the corporation's compensation deduction in respect of the executive's excess
parachute payments is disallowed under Section 280G of the Internal Revenue
Code. If we were to be subject to a change of control, certain amounts received
by our executives (for example, amounts attributable to the accelerated vesting
of stock options) could be excess parachute payments under Sections 280G
and 4999 of the Internal Revenue Code. We provide our chief executive
officer with tax gross up payments in event of a change of control.
Section 409A
of the Internal Revenue Code imposes distribution requirements on nonqualified
deferred compensation plans and arrangements. If a nonqualified deferred
compensation plan or arrangement fails to comply with Section 409A of the
Internal Revenue Code, an executive participating in such plan or arrangement
will be subject to adverse tax consequences (including an additional 20% income
tax on amounts deferred under the plan or arrangement). Our nonqualified
deferred compensation plans and arrangements for our executive officers are
intended to comply with Section 409A of the Internal Revenue Code, or to be
exempt from the requirements of Section 409A of the Internal Revenue
Code.
Compensation committee interlocks and insider
participation
No member
of the compensation committee was at any time during the past fiscal year an
officer or employee of the Company, was formerly an officer of the Company or
any of our subsidiaries, or had any employment relationship with
us.
During
the last fiscal year, none of our executive officers served as:
|
|
•
|
a
member of the compensation committee (or other committee of the board of
directors performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on our compensation
committee;
|
|
|
•
|
a
director of another entity one of whose executive officers served on our
compensation committee; or
|
|
|
•
|
a
member of the compensation committee (or other committee of the board of
directors performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served as a director of the
Company.
|
PROPOSAL 2: INCREASING SHARES UNDER 2007 STOCK INCENTIVE
PLAN
2007 Stock Incentive Plan
Our 2007
Stock Incentive Plan was adopted by our board of directors and approved by our
stockholders on June 17, 2007. A copy of the plan is included in our Revised
Definitive Proxy on Form DEFR 14A filed with the Securities and Exchange
Commission on May 11, 2007.
The
purpose of the plan is to attract and retain the services of key management,
employees, outside directors and consultants, and to align long-term
pay-for-performance incentive compensation with stockholders’ interests.
Fixed-price stock options align employees’ interests with those of our
stockholders, because an increase in stock price after the date of award is
necessary for employees to realize any value, thus rewarding employees only upon
improved stock price performance. Stock option grants under the 2007 plan may be
intended to qualify as incentive stock options under Section 422 of the Tax Code
or may be non-qualified stock options governed by Section 83 of the Tax Code.
Subject to earlier termination by our board of directors, the plan will remain
in effect until all awards have been satisfied or terminated under the terms of
the plan.
There are
currently 2,000,000 shares of common stock authorized for issuance under the
plan. Options to purchase approximately 1,952,000 shares were outstanding
as of May 2, 2008. Subject to approval of this Proposal 2, the board
of directors intends to grant options for an additional 2,474,000 shares
under the plan as set forth below.
|
Number
of
|
||||
|
Name
and Position
|
Options
to be granted
|
|||
|
Terren
S. Peizer, Chairman and Chief Executive Officer
|
540,000 | |||
|
Richard
A. Anderson, Senior Executive Vice President
|
344,500 | |||
|
Christopher
S. Hassan, Senior Executive Vice President
|
230,000 | |||
|
Chuck
Timpe, Chief Financial Officer
|
207,000 | |||
|
Executive
Officers as a Group
|
1,321,500 | |||
|
Non-Executive
Directors as a Group
|
595,000 | |||
|
Non-Executive
Employees as a Group
|
557,500 | |||
|
Total
|
2,474,000 | |||
Amendment to Increase Shares
Subject
to approval by our stockholders, our board has approved a 6,000,000 share
increase in the maximum number of shares of our common stock issuable under the
plan, from 2,000,000 to 8,000,000. We are requesting that the stockholders vote
in favor of increasing the number of shares available under the 2007 Stock
Incentive Plan.
We
believe that a broad-based stock option program is a powerful employee incentive
and retention tool that benefits all of our stockholders, and that an increase
in the number of available shares is necessary in order to provide appropriate
incentives for achievement of company performance objectives and to continue to
attract and retain the most qualified employees, directors and consultants in
light of our ongoing growth and expansion. Without sufficient stock options
available for grant, we may be forced to consider cash replacement alternatives
to provide a market-competitive total compensation package necessary to attract,
retain and motivate the employee talent critical to the future success of the
company. These cash replacement alternatives would then reduce the cash
available for investment in innovation and technology.
We intend
to continue to use stock options as our primary means of providing equity
compensation to our employees. Although we believe that employee stock ownership
is a significant contributing factor in achieving superior corporate
performance, we recognize that increasing the number of available shares under
the plan may lead to an increase in our stock overhang and potential
dilution.
We
strongly believe that our stock option plan will be integral to our ability to
achieve superior performance by attracting, retaining and motivating the
employee talent critical to attaining long-term improved company performance and
stockholder returns.
Recommendation of the Board
The board
of directors unanimously recommends that you vote “FOR” Proposal 2, increasing
by 6,000,000 shares the number of shares available for issuance under the 2007
Stock Incentive Plan.
PROPOSAL 3: INCREASING SHARES AVAILABLE FOR INCENTIVE STOCK
OPTIONS
UNDER
2007 STOCK INCENTIVE PLAN
Amendment to increase shares available for incentive stock
options
The 2007
Stock Incentive Plan is administered by our board of directors or by a committee
appointed from time to time by our board of directors and will be referred to in
this description as the "committee." Among other things, the
committee has the authority to select individuals to whom awards may be granted,
to determine the type of award, and to determine the terms and conditions of any
such awards.
The
committee is authorized to grant participants incentive stock options and
non-qualified stock options under the plan. Incentive stock options
are required to satisfy certain criteria established under the Internal Revenue
Code. Non-qualified options are not required to satisfy these
criteria. The type of option that the committee grants determines the
tax consequences to the participant. The exercise price of incentive
options may not be less than 100% of the fair market value of the stock
underlying the options on the date of grant and may not remain exercisable for
more than ten years from the date such options are
granted. Otherwise, the date of grant, vesting schedule, terms and
pricing of options under the plan is subject to the committee's
discretion.
The
following discussion is intended only as a brief summary of the material U.S.
federal income tax rules that are generally relevant to the options that will be
granted pursuant to the plan. The laws governing the tax aspects of awards are
complex and such laws are subject to change.
Upon the
grant of a nonqualified option, the participant will not recognize any taxable
income and we will not be entitled to a deduction. Upon the exercise of such an
option or related stock appreciation right ("SAR"), the excess of the fair
market value of the shares acquired upon the exercise of the option or SAR over
the exercise price of the option or the cash paid under an SAR will constitute
compensation taxable to the participant as ordinary income. In computing our
U.S. federal income tax, we will generally be entitled to a deduction in an
amount equal to the compensation taxable to the participant. Upon the sale of
common stock acquired upon exercise of an option or SAR, the participant will
recognize long or short term capital gain or loss, depending on whether the
participant has held the stock for more than one year from the date of
exercise.
The
participant will not recognize taxable income upon the grant or exercise of an
incentive stock option. However, the spread at exercise will be includible in
alternative minimum taxable income, and, thereby, may subject participants to
the alternative minimum tax. The participant will recognize long term capital
gain or loss, measured by the difference between the stock sale price and the
exercise price, when the shares are sold. In order to qualify for the incentive
option tax treatment described in the preceding paragraph, the participant must
be employed by the corporation continuously from the time of the option’s grant
until three months before the option’s exercise and the participant must not
sell the shares until more than one year after the option’s exercise date and
more than two years after its grant date. If the participant does not satisfy
these conditions, the participant will recognize taxable ordinary income when
the participant sells the shares in an amount equal to the difference between
the option exercise price and the fair market value of the stock on the exercise
date. If the sale price exceeds the fair market value on the exercise date, the
excess will be taxable to the participant as long term or short term capital
gain depending on whether the participant held the stock for more than one year.
We will have no tax consequences from the grant or exercise of an incentive
stock option. In the event the participant recognizes ordinary income on a sale
or other disposition of the shares acquired on the exercise of an incentive
stock option, we are generally entitled to a deduction equal to the amount of
such ordinary income reorganized by the participant.
Primarily
due to the favorable treatment incentive stock options are accorded under the
Internal Revenue Code, we believe that incentive stock options are more
attractive to employees eligible for grants than non-qualified
options. As a result, the majority of awards granted to date under
the plan have been inventive stock options. We believe that the
ability to continue to grant incentive stock options is important to achieve the
goals of the plan described above.
The plan
currently sets the maximum number of shares pursuant to which incentive stock
options may be granted to 1,750,000 shares. 851,000 incentive stock
options currently available under the plan have been granted and the board of
directors intends to grant an additional 1,880,000 incentive
stock options under the plan subject to stockholder approval of this Proposal
3.
Subject
to approval by our stockholders, our board has approved a 6,000,000 share
increase in the maximum number of shares available for incentive stock options
from 1,750,000 to 7,750,000. We are requesting that the stockholders vote in
favor of increasing the number of shares available for incentive stock options
under the 2007 Stock Incentive Plan.
Recommendation of the Board
The board
of directors unanimously recommends that you vote “FOR” Proposal 3, increasing
by 6,000,000 shares the number of shares available for incentive stock options
under the 2007 Stock Incentive Plan. Even if the
requisite stockholder approval is received, this Proposal 3 will not become
effective unless Proposal 2: Increasing Shares Under 2007 Stock
Incentive Plan is approved.
PROPOSAL 4: INCREASING SHARES AVAILABLE FOR AWARDS IN ANY
CALENDAR YEAR
UNDER
2007 STOCK INCENTIVE PLAN
Amendment to increase maximum number of shares available for
awards in any calendar year
The plan
currently sets the maximum number of shares with respect to which awards may be
granted in any calendar year at 1,000,000. We believe that in order
to best achieve the goals of the plan described above, such annual limit should
be increased.
Subject
to approval by our stockholders, our board has approved a 5,000,000 share
increase in the maximum number of shares with respect to which awards may be
granted in any calendar year, from 1,000,000 to 6,000,000. We are requesting
that the stockholders vote in favor of increasing the number of shares with
respect to which awards may be granted in any calendar year to
6,000,000.
Recommendation of the Board
The board
of directors unanimously recommends that you vote “FOR” Proposal 4, increasing
to 6,000,000 shares the maximum number of shares with respect to
which awards may be granted under the 2007 Stock Incentive Plan in any calendar
year. Even if the
requisite stockholder approval is received, this Proposal 4 will not become
effective unless Proposal 2: Increasing Shares Under 2007 Stock
Incentive Plan is approved.
PROPOSAL 5: INCREASING SHARES AVAILABLE FOR AWARDS TO ANY
PARTICIPANT
IN
ANY FISCAL YEAR
UNDER
2007 STOCK INCENTIVE PLAN
Amendment to increase maximum number of shares available for
awards to any participant in any fiscal year
The plan
currently sets the maximum number of shares with respect to which awards may be
granted for options or SAR's to any participant in any fiscal year at
500,000. We believe that in order to best achieve the goals of the
plan described above, such participant limit should be increased.
Subject
to approval by our stockholders, our board has approved a 2,000,000 share
increase in the maximum number of shares with respect to which awards may be
granted to any participant in any fiscal year, from 500,000 to 2,500,000. We are
requesting that the stockholders vote in favor of increasing the number of
shares with respect to which awards may be granted to any participant in any
fiscal year to 2,500,000.
Recommendation of the Board
The board
of directors unanimously recommends that you vote “FOR” Proposal 5, increasing
to 2,500,000 shares the maximum number of shares with respect to which awards
may be granted to any participant in any fiscal year under the 2007 Stock
Incentive Plan. Even if the
requisite stockholder approval is received, this Proposal 5 will not become
effective unless Proposal 2: Increasing Shares Under 2007 Stock
Incentive Plan is approved.
COMPENSATION COMMITTEE REPORT
The
following report of the compensation committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any of
our other filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
The
compensation committee has reviewed and discussed the Compensation Discussion
and Analysis set forth in this proxy with management and based on such
discussions, the compensation committee recommended to the board of directors
that the Compensation Discussion and Analysis section be included
herein.
Submitted
by the compensation committee:
Ivan M.
Lieberburg, Ph.D., M.D., Chairman
Leslie F.
Bell
Dated:
May 28, 2008
MANAGEMENT
Executive officers
Our
executive officers are elected annually by the board of directors and serve at
the discretion of the board of directors. There are no family relationships
among any of our directors, executive officers or key employees. We consider
Terren S. Peizer, Richard A. Anderson, Christopher S. Hassan, and Chuck Timpe to
be our executive officers. Sanjay Sabnani was an executive officer
until December 2007, and Anthony M. LaMacchia was an executive officer until May
2008.
The
following sets forth certain information with respect to our executive officers
(other than such information regarding Terren S. Peizer, Richard A. Anderson and
Christopher S. Hassan which was disclosed under "Corporate Governance"
above):
|
Name
|
Age
|
Position
|
|
Chuck
Timpe
|
61
|
Chief
Financial Officer
|
Chuck Timpe is a senior
healthcare financial executive with over 35 years experience in the healthcare
industry. Since March 1998, he has served as a director and since June 2002 as
chairman of the audit committee for IPC-The Hospitalist Company, a $190 million
Nasdaq Global Market listed company. Prior to joining us in June 2003, Mr. Timpe
was chief financial officer, from its inception in February 1998, of Protocare,
Inc., a clinical research and pharmaceutical outsourcing company which merged
with Radiant Research, Inc. in March 2004, creating one of the country's largest
clinical research site management organizations. Previously, he was a principal
in private healthcare management consulting firms he co-founded, chief financial
officer of National Pain Institute, treasurer and corporate controller for
American Medical International (now Tenet Healthcare Corp.), and a member of
Arthur Andersen, LLP's healthcare practice, specializing in public company and
hospital system audits. Mr. Timpe received his B.S. from University of Missouri,
School of Business and Public Administration, and is a certified public
accountant.
EXECUTIVE COMPENSATION
The
following table sets forth the cash and non-cash compensation for our named
executive officers during the 2006 and 2007 fiscal years.
Summary Compensation Table
|
Name
& Principal Position
|
Fiscal
year
|
Salary
|
Bonus
|
Option
awards (1)
|
All
other compensation (2)
|
Total
|
|||||||||||||||
|
Terren
S. Peizer,
|
|||||||||||||||||||||
|
Chairman
& Chief
|
2007
|
$
|
450,000
|
$
|
-
|
$
|
2,018
|
$
|
52,401
|
(3)
|
$
|
504,419
|
|||||||||
|
Executive
Officer
|
2006
|
432,667
|
400,000
|
9,241
|
319,869
|
(3)(4)
|
1,161,777
|
||||||||||||||
|
Richard
A. Anderson,
|
|||||||||||||||||||||
|
Senior
Executive Vice
|
2007
|
288,000
|
65,000
|
203,694
|
2,157
|
558,851
|
|||||||||||||||
|
President
|
2006
|
278,800
|
80,000
|
469,937
|
1,986
|
830,723
|
|||||||||||||||
|
Christopher
S. Hassan,
|
|||||||||||||||||||||
|
Senior
Executive Vice
|
2007
|
278,800
|
5,000
|
179,920
|
243,119
|
(6)
|
706,839
|
||||||||||||||
|
President
|
2006
|
108,649
|
(5)
|
57,900
|
77,390
|
38,694
|
(6)
|
282,633
|
|||||||||||||
|
Anthony
M. LaMacchia,
|
|||||||||||||||||||||
|
Senior
Executive Vice
|
2007
|
288,000
|
5,000
|
28,212
|
414
|
321,626
|
|||||||||||||||
|
President
|
2006
|
278,800
|
58,000
|
129,183
|
549
|
466,532
|
|||||||||||||||
|
Chuck
Timpe,
|
|||||||||||||||||||||
|
Chief
Financial
|
2007
|
278,800
|
5,000
|
80,906
|
3,219
|
367,925
|
|||||||||||||||
|
Officer
|
2006
|
215,700
|
60,000
|
96,887
|
3,085
|
375,672
|
|||||||||||||||
|
Sanjay
Sabnani,
|
|||||||||||||||||||||
|
VP
- Strategic
|
2007
|
250,000
|
5,000
|
147,406
|
38,232
|
(7)
|
440,638
|
||||||||||||||
|
Development
|
2006
|
215,700
|
60,000
|
299,673
|
2,132
|
577,505
|
|||||||||||||||
Note
to Summary Compensation Table:
|
(1)
|
Amounts
reflect the compensation expense recognized in the Company's financial
statements in 2007 and 2006 for stock option awards granted in 2007 and in
previous years to the executive officers in accordance with SFAS
No. 123(R). The dollar value for Mr. Peizer's stock option award
relates to an award granted in 2003. Mr. Peizer was not awarded any
stock option grants during 2004, 2005, 2006 and 2007. The
grant-date fair values of stock options are calculated using the
Black-Scholes option pricing model, which incorporates various assumptions
including expected volatility, expected dividend yield, expected life and
applicable interest rates. See Note 11 — Share-Based Compensation
to the December 31, 2007 consolidated financial
statements in our Annual Report on Form 10-K for further information
on the assumptions used to value stock options granted to executive
officers.
|
|
(2)
|
Includes
group life insurance premiums and health club membership fees for each
officer.
|
|
(3)
|
Includes
$49,869 in 2007 and $51,864 in 2006 for automobile allowance, including
tax gross-ups.
|
|
(4)
|
On
April 27, 2006 the board of directors awarded Mr. Peizer a special bonus
of $265,000.
|
|
(5)
|
Mr.
Hassan’s employment commenced on July 27,
2006.
|
|
(6)
|
Includes
$240,492 for relocation expenses, including tax gross-ups, in 2007, and
$38,694 for relocation expenses, including tax gross-ups, in
2006.
|
|
(7)
|
Includes
$35,972 for vacation paid upon voluntary termination and conversion to a
consultant on December 31,
2007.
|
Executive employment agreements
Chief
executive officer
We
entered into a five-year employment agreement with our chairman and chief
executive Officer, Terren S. Peizer, effective as of September 29, 2003. Mr.
Peizer currently receives an annual base salary of $450,000, with annual bonuses
targeted at 100% of his base salary established by mutual agreement between Mr.
Peizer and the board. His base salary and bonus target will be adjusted each
year to not be less than the median compensation of similarly positioned CEO’s
of similarly situated companies. Mr. Peizer receives executive benefits
including group medical and dental insurance, term life insurance equal to 150%
of his salary, accidental death and long-term disability insurance, and a car
allowance of $2,500 per month, grossed up for taxes. He was also granted options
to purchase 1,000,000 shares of our common stock at ten percent above the fair
market value on the date of grant, vesting 20% each year over five years. The
options vest immediately in the event of a change in control, termination
without good cause or resignation with good reason. In the event that Mr. Peizer
is terminated without good cause or resigns with good reason prior to the end of
the term, he will receive a lump sum equal to the remainder of his base salary
and targeted bonus for the year of termination, plus three years of additional
salary, bonuses and benefits. If any of the provisions above result in an excise
tax, we will make an additional “gross up” payment to eliminate the impact of
the tax on Mr. Peizer.
Senior
executive vice presidents
We
entered into a four-year employment agreement with our senior executive vice
presidents, Richard A. Anderson and Christopher S. Hassan effective
April 13, 2005 and July 27, 2006, respectively. Mr. Anderson
currently receives an annual base salary of $288,000, and Mr. Hassan receives an
annual base salary of $278,800, each with annual bonuses targeted at 50% of his
base salary based on achieving certain milestones. Their compensation will be
adjusted each year by an amount not less than the CPI. They each receive
executive benefits including group medical and dental insurance, term life
insurance, accidental death and long-term disability insurance.
Mr. Anderson was granted options to purchase 280,000 shares of our common
stock, in addition to the 120,000 options previously granted to him as a
non-employee member of our board of directors. Mr. Hassan was granted options to
purchase 400,000 shares of our common stock. Each of the options was granted at
the fair market value on the date of grant, vesting 20% each year over five
years. The options will vest immediately in the event of a change in control,
termination without cause or resignation with good reason. In the event of
termination without good cause or resignation with good reason prior to the end
of the term, upon execution of a mutual general release, Messrs. Anderson and
Hassan each will receive a lump sum equal to one year of salary and bonus, and
will receive continued medical benefits for one year unless he becomes eligible
for coverage under another employer's plan. If he is terminated without cause or
resigns with good reason within twelve months following a change in control,
upon execution of a general release he will receive a lump sum equal to eighteen
months salary, 150% of the targeted bonus, and will receive continued medical
benefits for eighteen months unless he becomes eligible for coverage under
another employer's plan.
Confidentiality
agreements
Each
employee is required to enter into a confidentiality agreement. These agreements
provide that for so long as the employee works for us, and after the employee's
termination for any reason, the employee may not disclose in any way any of our
proprietary confidential information.
Limitation
on liability and indemnification matters
Our
certificate of incorporation and bylaws limit the liability of directors and
executive officers to the maximum extent permitted by Delaware law. The
limitation on our directors' and executive officers' liability may not apply to
liabilities arising under the federal securities laws. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended, may be
permitted to our directors and executive officers pursuant to our certificate of
incorporation and bylaws, we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
At
present, there is no pending material litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such
indemnification.
GRANTS OF PLAN-BASED AWARDS IN 2007
The table
below sets forth the information with respect to options granted to our named
executive officers during 2007.
|
Name
|
Grant
date
|
Number
of securities underlying options granted (1)
|
Exercise
price ($/Sh) (2)
|
Grant Date
Fair Value of Option Awards (3)
|
|||||||||
|
Terren
S. Peizer
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
Richard
A. Anderson
|
-
|
-
|
-
|
||||||||||
|
Christopher
S. Hassan
|
-
|
-
|
-
|
||||||||||
|
Anthony
M. LaMacchia
|
-
|
-
|
-
|
||||||||||
|
Chuck
Timpe
|
03/09/07
|
100,000
|
8.00
|
516,071
|
|||||||||
|
Sanjay
Sabnani
|
03/09/07
|
50,000
|
8.00
|
258,036
|
|||||||||
Notes to Grants of Plan-based Awards
Table:
|
(1)
|
These
options vest annually over a five-year period from the date of
grant.
|
|
(2)
|
All
options to purchase our common stock are exercisable at a price equal to
the closing price of our common stock on the date of
grant.
|
|
(3)
|
The
grant date fair value of stock options is calculated using the
Black-Scholes option pricing model, which incorporates various assumptions
including expected volatility, expected life of the options and applicable
interest rates. See Note 11 — Share-Based Compensation
to the December 31, 2007 consolidated financial statements in
our Annual Report on Form 10-K for further information on the
assumptions used to value stock options granted to executive
officers.
|
OUTSTANDING EQUITY AWARDS AT LAST FISCAL YEAR-END
The
following table sets forth all outstanding equity awards held by our named
executive officers as of December 31, 2007.
|
Number
of shares underlying
|
|||||||||||||
|
unexercised
options
|
Option
|
Option
|
|||||||||||
|
Exercisable
|
Unexercisable
|
exercise
|
expiration
|
||||||||||
|
Name
|
(#)
|
(#)
|
price
|
date
|
|||||||||
|
Terren
S. Peizer
|
800,000
|
200,000
|
$
|
2.75
|
09/29/08
|
||||||||
|
Richard
A. Anderson
|
120,000
|
-
|
2.50
|
09/29/13
|
|||||||||
|
102,000
|
153,000
|
7.34
|
04/28/15
|
||||||||||
|
5,000
|
20,000
|
4.77
|
07/27/16
|
||||||||||
|
Christopher
S. Hassan
|
80,000
|
320,000
|
4.77
|
07/27/16
|
|||||||||
|
Anthony
M. LaMacchia
|
320,000
|
80,000
|
2.50
|
09/29/13
|
|||||||||
|
Chuck
Timpe
|
220,000
|
60,000
|
2.50
|
09/29/13
|
|||||||||
|
-
|
100,000
|
8.00
|
03/08/17
|
||||||||||
|
Sanjay
Sabnani
|
90,000
|
60,000
|
2.80
|
07/02/14
|
|||||||||
|
30,000
|
20,000
|
4.25
|
10/01/14
|
||||||||||
|
8,000
|
12,000
|
5.72
|
01/20/15
|
||||||||||
|
8,000
|
12,000
|
7.34
|
04/28/15
|
||||||||||
|
8,000
|
12,000
|
5.78
|
07/28/15
|
||||||||||
|
4,000
|
16,000
|
6.42
|
01/26/16
|
||||||||||
|
4,000
|
16,000
|
8.56
|
04/27/16
|
||||||||||
|
-
|
50,000
|
8.00
|
03/08/17
|
||||||||||
OPTIONS EXERCISED IN 2007
On
September 20, 2007, Mr. Timpe exercised options to purchase 20,000 shares of
common stock at a price $2.50 per share. The total value realized on the
exercise of stock options amounted to $81,200 and was calculated based on the
difference between the market price of the common stock on the date of exercise
and the exercise price of the underlying option. There were no other options
exercised by any of our named executive officers, and no restricted stock held
or vested, in 2007.
POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE-IN-CONTROL
Potential
payments upon termination
The
following summarizes the payments that the named executive officers would have
received if their employment had terminated on December 31,
2007.
If Mr.
Peizer's employment had terminated due to disability, he would have received
insurance and other fringe benefits for a period of one year thereafter, with a
value equal to $5,600. If Mr. Peizer had been terminated without good
cause or resigned for good reason, he would have received a lump sum payment of
$2,717,000, based upon: (i) three years of additional salary at $450,000 per
year; (ii) three years of additional bonus of $450,000 per year; and (iii) three
years of fringe benefits, with a value equal to $17,000. In addition,
his unvested stock options would have vested with a value of
$36,000.
If either
Mr. Hassan or Mr. Anderson had been terminated without good cause or resigned
for good reason, he would have received a lump sum of $432,000 for Mr. Anderson
and $418,200 for Mr. Hassan, based upon one year's salary plus the full targeted
bonus of 50% of base salary. In addition, medical benefits would
continue for up to one year, with a value equal to $17,000 each.
If either
Mr. LaMacchia or Mr. Timpe had been terminated without good cause or resigned
for good reason, unvested stock options would have vested with values of $34,400
for Mr. LaMacchia and $25,800 for Mr. Timpe.
Potential
payments upon change in control
Upon a
change in control, the unvested stock options of each of our named executive
officers would have vested, with the values set forth above.
If Mr.
Peizer had been terminated without good cause or resigned for good reason within
twelve months following a change in control, he would have received a lump sum
payment of $2,717,000, as described above, plus a tax gross up of
$713,000.
In
addition, had either Mr. Hassan or Mr. Anderson been terminated without good
cause or resigned for good reason within twelve months following a change in
control, he would have received a lump sum of $648,000 for Mr. Anderson and
$627,300 for Mr. Hassan, based upon one-and-a-half year's salary plus
one-and-a-half the full targeted bonus of 50% of base salary. In
addition, medical benefits would continue for up to one-and-a-half years, with a
value equal to $25,000 each.
DIRECTOR COMPENSATION
The
following table provides information regarding compensation that was paid to the
individuals who served as non-employee directors during the year ended December
31, 2007. Except as set forth in the table, during 2007, directors did not earn
nor receive cash compensation or compensation in the form of stock awards,
option awards or any other form.
DIRECTOR
COMPENSATION TABLE
|
Fees
Earned
or
Paid
in
Cash
|
Stock
Awards
|
Option
Awards
(1)(3)
|
Non-Equity
Incentive
Plan
Compensation
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total
|
||||||||||||||||||||||
|
Leslie
F. Bell
|
$ |
15,500
|
$
|
-
|
$
|
37,727
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
53,227
|
||||||||||||||
|
Herve
de Kergrohen, MD
|
-
|
-
|
13,687
|
-
|
-
|
-
|
13,687
|
|||||||||||||||||||||
|
Ivan
M. Lieberburg, PhD, MD
|
13,750
|
-
|
43,930
|
-
|
-
|
-
|
57,680
|
|||||||||||||||||||||
|
Marc
Cummins
|
8,750
|
-
|
67,168
|
-
|
-
|
-
|
75,918
|
|||||||||||||||||||||
|
Andrea
Grubb Barthwell, MD
|
7,500
|
-
|
72,335
|
-
|
-
|
-
|
79,835
|
|||||||||||||||||||||
|
Honorable
Karen Freeman-Wilson(2)
|
10,500
|
-
|
34,183
|
-
|
-
|
-
|
44,683
|
|||||||||||||||||||||
Notes
to Director Compensation Table:
|
(1)
|
Amounts
reflect the compensation expense recognized in the Company's financial
statements in 2007 for non-employee director stock options granted in 2007
and in previous years, in accordance with SFAS No. 123(R). As such,
these amounts do not correspond to the compensation actually realized by
each director for the period. See Note 11 — Share-Based Compensation
to the Company's December 31, 2007 consolidated financial
statements in its Annual Report on Form 10-K for further information
on the assumptions used to value stock options granted to non-employee
directors.
|
|
(2)
|
On
August 2, 2007 the board granted options to purchase 100,000 shares to
Judge Freeman-Wilson with a grant date fair value of $464,586. The
stock options were granted pursuant to the 2003 Stock Incentive Plan and
vest 25% per year over four years.
|
|
(3)
|
There
were a total of 750,000 stock options granted to non-employee directors
outstanding at December 31, 2007 with an aggregate grant date fair
value of $1,744,000, the last of which will vest in August 2011. The grant
date fair value of stock option awards is calculated based on the
Black-Scholes stock option valuation model utilizing the assumptions
discussed in Note 11 — Share-Based
Compensation to the December 31, 2007 consolidated financial
statements in our Annual Report on Form 10-K. Outstanding equity
awards, by non-employee director as of December 31, 2007 were as
follows:
|
|
Name
|
Options
Outstanding
(#)
|
Aggregate
Grant Date
Fair
Market
Value
Options
Outstanding
|
||||||
|
Leslie F. Bell
|
150,000
|
$
|
224,226
|
|||||
|
Ivan
M. Lieberburg, PhD, MD
|
250,000
|
271,200
|
||||||
|
Marc
Cummins
|
150,000
|
377,667
|
||||||
|
Andrea
Grubb Barthwell, MD
|
100,000
|
406,717
|
||||||
|
Honorable
Karen Freeman-Wilson
|
100,000
|
464,586
|
||||||
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Andrea
Grubb Barthwell, M.D., a director, is the founder and chief executive officer of
EMGlobal LLC, a healthcare and policy consulting firm providing consulting
services to us. In 2005, 2006 and 2007, we paid or accrued
approximately $83,000, $189,000 and $156,000, respectively, in fees to the
consulting firm.
Lawrence
Weinstein, M.D. is the sole shareholder of The PROMETA Center, Inc., a
California professional corporation. Under the terms of a management services
agreement with the PROMETA Center, we provide and perform all non-medical
management and administrative services for the medical group. We also agreed to
provide a working capital loan to the PROMETA Center to allow for the medical
group to pay for its obligations, including our management fees, equipment,
leasehold build-out and start-up costs. As of March 31, 2008, the amount of loan
outstanding was approximately $6.2 million, with interest at the prime rate plus
2%. Payment of our management fee is subordinate to payments of the obligations
of the medical group, and repayment of the working capital loan is not
guaranteed by the stockholder or other third party.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The firm
of BDO Seidman, LLP served as our independent registered public accounting firm
since the 2003 fiscal year, and will continue to serve as our independent
registered public accounting firm for the 2008 fiscal year unless the audit
committee deems it advisable to make a substitution. We anticipate that
representatives of BDO Seidman will attend the annual meeting, will have the
opportunity to make a statement if they desire, and will be available to respond
to appropriate questions.
Aggregate
fees billed to us for the fiscal years ended December 31, 2006 and 2007 by
BDO Seidman and its affiliates are as follows:
|
2006
|
2007
|
|||||||
|
Audit
fees (1)
|
$
|
547,000
|
$
|
745,000
|
||||
|
Audit-related
fees (2)
|
$
|
39,000
|
$
|
126,000
|
||||
|
Tax
fees (3)
|
$
|
65,000
|
$
|
72,000
|
||||
|
All
other fees
|
$
|
—
|
$
|
—
|
||||
|
(1)
|
This
amount includes fees paid by us in connection with the annual audit of our
consolidated financial statements, the review of our quarterly financial
statements, registration statements and other filings with the SEC and
approximately $235,000 in 2006 and $305,000 in 2007 in fees related to the
audit of internal control over financial reporting performed in relation
to Section 404 of the Sarbanes-Oxley Act of
2002.
|
|
(2)
|
This
amount relates to consulting on financial accounting and reporting
standards, consultation on accounting transactions and fees related to our
stock offering.
|
|
(3)
|
Amounts
are for tax return preparation.
|
The audit
committee has considered whether the provision of non-audit services by BDO
Seidman is compatible with maintaining BDO Seidman's independence.
Audit
committee pre-approvals
All
auditing and non-auditing services provided to us by the independent auditors
are pre-approved by the audit committee or in certain instances by the chair of
the audit committee pursuant to delegated authority. Each year the audit
committee discusses and outlines the scope and plan for the audit and reviews
and approves all known audit and non-audit services and fees to be provided by
and paid to the independent auditors. During the year, the specific audit and
non-audit services or fees not previously negotiated or approved by the audit
committee are negotiated or approved in advance by the audit committee or by the
chair of the audit committee pursuant to delegated authority. In addition,
during the year the chief financial officer and the audit committee monitor
actual fees to the independent auditors for audit and non-audit
services.
All of
the services provided by BDO Seidman described above under the captions
"Audit-related fees", "Tax fees", and "All other fees" were approved by our
audit committee pursuant to our audit committee's pre-approval
policies.
2007 ANNUAL REPORT ON FORM 10-K
We will
mail with this proxy statement a copy of our Annual Report on Form 10-K to
each stockholder of record as of May 2, 2008. If a stockholder requires an
additional copy of our annual report, we will provide one, without charge, on
the written request of any such stockholder addressed to us at 11150 Santa
Monica Blvd., Suite 1500, Los Angeles, California 90025, Attn: Investor
Relations.
OTHER BUSINESS
We know
of no other business to be brought before the annual meeting. If, however, any
other business should properly come before the annual meeting, the persons named
in the accompanying proxy will vote proxies as in their discretion they may deem
appropriate, unless they are directed by a proxy to do otherwise.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders
interested in presenting a proposal for consideration at our 2009 annual meeting
of stockholders may do so by following the procedures prescribed in
Rule 14a-8 under the Securities Exchange Act of 1934, as amended. To be
eligible for inclusion in our proxy statement and form of proxy relating to the
meeting, stockholder proposals must be received in writing by our corporate
secretary, Hythiam, Inc., 11150 Santa Monica Blvd., Suite 1500, Los
Angeles, California 90025, no later than January 28, 2009.
In order
for a stockholder proposal not intended to be subject to Rule 14a-8 (and
thus not subject to inclusion in our proxy statement) to be considered "timely"
within the meaning of Rule 14a-4 under the Securities Exchange Act of 1934, as
amended, notice of any such stockholder proposals must be given to us in writing
not less than 120 calendar days prior to the date on which we first
mailed our proxy materials for the 2008 meeting, which is set forth on page 1 of
this proxy statement (or within a reasonable time prior to the date on which we
mail our proxy materials for the 2009 annual meeting if the date of that meeting
is changed more than 30 days from the prior year).
A
stockholder's notice to us must set forth for each matter proposed to be brought
before the annual meeting (a) a brief description of the matter the
stockholder proposes to bring before the meeting and the reasons for conducting
such business at the meeting, (b) the name and recent address of the
stockholder proposing such business, (c) the class and number of shares of
our stock which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business.
If a
stockholder proposal is received after January 28, 2009, we may vote in our
discretion as to the proposal all of the shares for which we have received
proxies for the meeting.
Our 2009
annual meeting of stockholders is expected to be held on Friday, June 26,
2009. If the date of next year's annual meeting is changed by more than
30 days, then any proposal must be received not later than ten days after
the new date is disclosed in order to be included in our proxy
materials.
|
/s/
TERREN S. PEIZER
|
|
|
Terren
S. Peizer
|
|
|
Chairman of the Board
and Chief
Executive Officer
|
Los
Angeles, California
May 28,
2008
|
HYTHIAM,
INC.
11150 SANTA
MONICA BLVD.
SUITE
1500
LOS
ANGELES, CA 90025
|
VOTE
BY INTERNET - www.proxyvote.com
Use
the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before
the cut-off date or meeting date. Have your proxy card in hand when you
access the web site and follow the instructions to obtain your records and
to create an electronic voting instruction form.
ELECTRONIC
DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If
you would like to reduce the costs incurred by Hythiam, Inc. in mailing
proxy materials, you can consent to receiving all future proxy statements,
proxy cards and annual reports electronically via e-mail or the Internet.
To sign up for electronic delivery, please follow the instructions above
to vote using the Internet and, when prompted, indicate that you agree to
receive or access stockholder communications electronically in future
years.
VOTE
BY PHONE -1-800-690-6903
Use
any touch-tone telephone to transmit your voting instructions up until
11:59 P.M. Eastern Time the day before the cut-off date or meeting date.
Have your proxy card in hand when you call and then follow the
instructions.
VOTE
BY MAIL
Mark,
sign and date your proxy card and return it in the postage-paid envelope
we have provided and return it to Hythiam, Inc., c/o Broadridge, 51
Mercedes Way. Edgewood, NY 11717.
|
|
TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
|
HYTHM1
|
KEEP
THIS PORTION FOR YOUR RECORDS
|
|
DETACH
AND RETURN THIS PORTION ONLY
|
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
|
HYTHIAM,
INC.
|
For
All
|
Withhold
All
|
For
All
Except
|
To
withhold authority to vote for any individual nominee(s), mark "For All
Except" and write the number(s) of the nominee(s) on the line
below.
|
 |
|||||||||||||
|
Vote
on Directors
|
||||||||||||||||||
|
1.
|
ELECTION
OF DIRECTORS
|
|||||||||||||||||
|
£
|
£
|
|
£
|
|||||||||||||||
|
Nominees:
|
||||||||||||||||||
|
01)
|
Terren
S. Peizer
|
05)
|
Christopher
S. Hassan
|
|||||||||||||||
|
02)
|
Richard
A. Anderson
|
06)
|
Steven
A. Kriegsman
|
|||||||||||||||
|
03)
|
Andrea
Grubb Barthwell, M D
|
07)
|
Jay
A. Wolf
|
|||||||||||||||
|
04)
|
Marc
G. Cummins
|
|
|
|||||||||||||||
|
Vote
on Proposals
|
For
|
Against
|
Abstain |
|
||||||||||||||
|
2.
|
INCREASING
SHARES UNDER THE 2007 STOCK INCENTIVE PLAN:
|
£
|
£
|
£
|
|
|||||||||||||
|
|
||||||||||||||||||
|
3
|
INCREASING
SHARES AVAILABLE FOR INCENTIVE STOCK OPTIONS UNDER THE 2007 STOCK
INCENTIVE PLAN:
|
£
|
£
|
£
|
|
|||||||||||||
|
4.
|
INCREASING
MAXIMUM NUMBER OF SHARES AVAILABLE FOR AWARDS IN ANY CALENDAR YEAR UNDER
THE 2007 STOCK INCENTIVE PLAN:
|
£
|
£
|
£
|
|
|||||||||||||
|
5.
|
INCREASING
MAXIMUM NUMBER OF SHARES AVAILABLE FOR AWARDS TO ANY PARTICIPANT IN ANY
FISCAL YEAR UNDER THE 2007 STOCK INCENTIVE PLAN:
|
£
|
£
|
£
|
|
|||||||||||||
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL DIRECTORS,
APPROVAL OF INCREASE IN SHARES UNDER THE 2007 STOCK INCENTIVE PLAN,
APPROVAL OF INCREASE IN SHARES AVAILABLE FOR INCENTIVE STOCK OPTIONS UNDER
THE 2007 STOCK INCENTIVE PLAN, APPROVAL OF INCREASE IN SHARES AVAILABLE
FOR AWARDS IN ANY CALENDAR YEAR UNDER THE 2007 STOCK INCENTIVE PLAN AND
APPROVAL OF INCREASE IN SHARES AVAILABLE FOR ANY PARTICIPANT IN ANY FISCAL
YEAR UNDER THE 2007 STOCK INCENTIVE PLAN.
|
|
|||||||||||||||||
|
And
upon such matters which may properly come before the meeting or any
adjournment or adjournments thereof.
|
||||||||||||||||||
|
For
address changes and/or comments, please check this box and write them on
the back where indicated. Please note that changes to the registered
name(s) on the account may not be submitted via this
method.
|
|
£
|
||||||||||||||||
|
This
Proxy will be voted as directed or, if no contrary direction is indicated,
will be voted FOR the election of all directors, FOR Proposal
2: Increasing shares under the 2007 Stock Incentive Plan, FOR
Proposal 3: Increasing shares available for incentive stock
options under the 2007 Stock Incentive Plan, FOR Proposal
4: Increasing maximum number of shares available for
awards in any calendar year under the 2007 Stock Incentive Plan, FOR
Proposal 5: Increasing maximum number of shares available
for awards to any participant in any fiscal year under the 2007 Stock
Incentive Plan, and as said proxies deem advisable on such other matters
as may come before the meeting.
|
|
|||||||||||||||||
| PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. |
|
|||||||||||||||||
|
(NOTE: Please sign exactly as
your name(s) appear(s) hereon. All holders must sign. When signing as
attorney, executor, administrator, or other fiduciary, please give full
title as such. Joint owners should each sign personally. If a corporation,
please sign in full corporate name, by authorized officer. If a
partnership, please sign in partnership name by authorized
person.)
|
|
|||||||||||||||||
|
Signature
(PLEASE SIGN WITHIN BOX)
|
Date
|
Signature (Joint Owners) |
Date
|
|
||||||||||||||
ANNUAL
MEETING OF STOCKHOLDERS
OF
HYTHIAM, INC.
JUNE
20, 2008
|
Please Sign, Date and Mail the
Proxy Card in the Envelope Provided as Soon As Possible. Please detach
along perforated line and mail in the envelope
provided.
|
|
HYTHIAM,
INC.
2008
ANNUAL MEETING OF STOCKHOLDERS
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned stockholder of HYTHIAM, INC., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the notice of annual meeting of
stockholders and proxy statement of the Company, each dated May 28, 2008,
and hereby appoints Terren S. Peizer and Chuck Timpe, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at
the 2008 annual meeting of stockholders of the Company, to be held on
Friday, June 20, 2008, at 10:00 a.m., local time, at 11150 Santa
Monica Blvd., Los Angeles, California 90025, and at any adjournment or
adjournments thereof, and to vote all shares of the Company's common stock
that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse
side.
This
Proxy will be voted as directed or, if no contrary direction is indicated,
will be voted FOR the election of all directors, FOR Proposal
2: Increasing shares under the 2007 Stock Incentive Plan, FOR
Proposal 3: Increasing shares available for incentive stock
options under the 2007 Stock Incentive Plan, FOR Proposal
4: Increasing maximum number of shares available for
awards in any calendar year under the 2007 Stock Incentive Plan, FOR
Proposal 5: Increasing maximum number of shares available
for awards to any participant in any fiscal year under the 2007 Stock
Incentive Plan, and as said proxies deem advisable on such other matters
as may come before the meeting.
A
majority of such proxies or substitutes as shall be present and shall act
at the meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all
of the powers of said proxies hereunder.
|
|||||
|
Address
Changes/ Comments
|
|||||
|
(If
you noted any Change/Comments above, please mark corresponding box on the
reverse side)
|
|||||
|
(Continued
and to be signed and dated on the other side.)
|
|||||