exv10w3



 





Exhibit 10.3




ESCROW AGREEMENT




     AGREEMENT, dated as of January 11, 2007, among Hythiam, Inc. (“Buyer”), Woodcliff
Healthcare Investment Partners LLC (the “Company”), Mr. Nicholas Lewin (“Lewin”),
Thelen Reid Brown Raysman & Steiner LLP, a California limited liability partnership engaged in the
practice of law, as escrow agent (the “Escrow Agent”) and, for the limited purposes set
forth in Section 4 below, the remaining signatories to this Agreement.



WITNESSETH:




     WHEREAS, pursuant to that certain letter of intent dated as of the date first set forth above
(“LOI”), and the Purchase Agreement (“Purchase Agreement”) attached thereto, by and among
Buyer, Company, and the members of the Company (“Sellers”), the Buyer has agreed to pay to
the Sellers the sum of $9,000,000 in cash (“Escrowed Cash”) and 215,053 shares of the
Buyer’s common stock or cash in lieu thereof (determined as provided in the Purchase Agreement)
(“Escrowed Shares” and, together with the Escrowed Cash, the “Escrowed
Consideration”);



     WHEREAS, $3,600,000 of the Escrowed Cash will be paid to Escrow Agent on the date of the LoI
and the remaining Escrowed Cash will be paid at the Closing (as defined in the Purchase Agreement);



     WHEREAS, Pursuant to the Purchase Agreement Sellers have appointed Lewin to act as their agent
and sole representative in the execution of this Agreement and the disbursement of the Escrowed
Consideration; and



     WHEREAS, pursuant to the Purchase Agreement, Buyer, Company, Lewin and Escrow Agent have
agreed to enter into this Escrow Agreement pursuant to which the Escrowed Consideration will be
deposited with the Escrow Agent;



     NOW, THEREFORE, for and in consideration of the mutual premises herein contained, and other
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:




	1.	 	Appointment of Escrow Agent. Buyer and Lewin, as Sellers’ representative, hereby
each appoint Thelen Reid Brown Raysman & Steiner LLP as the Escrow Agent in accordance with
the terms and conditions set forth herein, and the Escrow Agent hereby accepts such
appointment.






	2.	 	Investment of Escrowed Cash. The Escrow Agent shall invest the Escrowed Cash in
accordance with its customary practices and procedures with respect to the holding of funds
deposited with it in escrow. Buyer and Lewin, as Sellers’ representative, acknowledge and
agree that the investment of the Escrowed Cash in overnight investments with the Escrow
Agent’s bank, or other similar short-term investment programs made available by the Escrow
Agent’s bank, shall be deemed to be satisfactory investment of the Escrowed Cash, and the
Escrow Agent shall have no liability to Buyer or Sellers by reason of its investment of the
Escrowed Cash in such manner.




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	3.	 	Disbursement of Escrowed Consideration.





       (i) Break-Up Fee. Upon the occurrence of the events specified in paragraph 6 the LOI
and notice from Lewin and Buyer that such events have occurred, the Escrow Agent will disburse the
amount of $3,600,000 of the Escrowed Cash to Lewin or Hythiam, as appropriate.



       (ii) At Closing. Upon receipt by the Escrow Agent of the full amount of the Escrowed
Cash and notice from Buyer and Lewin that the parties’ respective conditions to closing have been
satisfied or waived, Escrow Agent shall disburse the Escrowed Cash as follows:




	 	(a)	 	first, to Bessemer Trust Company (“Bessemer”) in the amount of
$1,000,000 plus the accrued but unpaid interest indicated on the pay-off notice sent by
Bessemer to the Escrow Agent, in full repayment of a loan from Bessemer to the Company
evidenced by that certain Secured Term Note (Variable Rate/Fixed Rate), dated October
25, 2006, made by the Company to the order of Bessemer (the “Bessemer Note”);
	 
	 	(b)	 	second, to the following individuals (the “Member Creditors”) in the
following amounts in full satisfaction of all loans by such individuals to the Company:





	 	 	 	 	 
	Lender	 	Full Repayment Amount
	Tanglewood Investment Partners
	 	$	28,750	 
	Richard Danzig
	 	$	28,750	 
	Tony Milone
	 	$	28,750	 
	Gavin Scotti
	 	$	28,750	 







	 	(c)	 	third, to (i) Escrow Agent in full payment of all legal fees and expenses owed
by the Company to Escrow Agent and (ii) to Lewin in payment of other transaction
expenses for which Lewin has provided notice to Escrow Agent, not to exceed $40,000;
and






	 	(d)	 	fourth, any remaining amount to Lewin for disbursement to the Sellers in
proportion to the Sellers’ respective percentage interests in the Company immediately
prior to Closing as set forth in Exhibit A to the Purchase Agreement.






	4.	 	Release of Obligations.






	 	(a)	 	Bessemer. By signing this Agreement, Bessemer agrees that, upon
payment to Bessemer of the full amount set forth in Section 3(ii)(a), without further
action by or notice to Bessemer, the Company’s obligations to Bessemer under the
Bessemer Note shall have been satisfied in full.
	 
	 	(b)	 	Guarantor. Ann Lewin, as guarantor of the Company’s obligation under
the Bessemer Note, pursuant to a Securities Pledge Agreement between the Company and
Ann Lewin (the “Pledge Agreement”), received a pledge of certain of the




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	 	 	 	Company’s stock in Comprehensive Care Corporation as security for such guaranty.
By signing this Agreement, Ann Lewin agrees that, upon payment to Bessemer of the
full amount set forth in Section 3(ii)(a), and without further action by or notice
to the Company or Ann Lewin, the Pledge Agreement and Ann Lewin’s security interest
created thereby shall be terminated.
	 
	 	(c)	 	Member Creditors. By signing this Agreement, the Member Creditors
agree that, upon payment to the Member Creditors of the full amounts set forth in
Section 3(ii)(b), without further action by or notice to any of the Member Creditors,
all claims that such Member Creditors shall have against the Company for borrowed money
or any interest, penalties or damages arising therefrom, shall have been satisfied in
full; and all of the Company’s assets shall be free and clear of any lien from the
Member Creditors or any successor in interest.






	5.	 	Escrowed Shares. Upon receipt of the Escrowed Shares, the Escrow Agent shall release
the Escrowed Shares to Lewin, the net proceeds from the sale of which Lewin will disburse to
the Sellers in proportion to the Sellers’ respective percentage interests in the Company
immediately prior to Closing as set forth in Exhibit A to the Purchase Agreement.
	 
	6.	 	Additional Escrowed Cash.






	 	(a)	 	Cash in Lieu of Escrowed Shares. If cash is paid by Buyer to Escrow
Agent in lieu of the Escrowed Shares as provided in Section 2(b)(ii) of the Purchase
Agreement, such cash shall be deemed additional Escrowed Cash and distributed as
provided in Section 3 above.
	 
	 	(b)	 	Cash on Hand at Closing. The parties acknowledge that Company is being
sold to Buyer with no cash in the Company’s bank accounts. Lewin intends to transfer
to the Escrow Agent any funds remaining in the Company’s bank accounts immediately
prior to the Closing, which funds, if any, shall be added to the Escrowed Cash and
distributed as provided in Section 3 above.






	7.	 	Responsibilities of the Escrow Agent. The Escrow Agent shall have the following
responsibilities hereunder:






	 	(a)	 	The obligations and duties of the Escrow Agent are confined to those
specifically enumerated herein and the Escrow Agent shall not be liable or responsible
for any act or failure to act on its part except for its own willful misconduct or
gross negligence.
	 
	 	(b)	 	The duties of the Escrow Agent hereunder shall be limited to the safekeeping of
the Escrow Consideration and the disposition of the same in accordance with the terms
and conditions contained herein, and no implied duties or obligations shall be read
herein against the Escrow Agent.
	 
	 	(c)	 	The Escrow Agent may rely or act upon any order or direction, instruments or
signatures believed by it to be genuine and may assume that any person purporting to
give any written notice, advice or instruction in connection therewith has been duly
authorized to do so; provided, however, that Escrow




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	 	 	 	Agent shall confirm any such instructions purporting to be from or on behalf of
Buyer with Buyer’s counsel.
	 
	 	(d)	 	The Escrow Agent shall not be required to institute or defend any action or
legal proceeding involving the terms and conditions contained herein. For all
deliveries made by the Escrow Agent in accordance with the provisions hereof, the
Escrow Agent shall have full release, discharge and acquittance and shall not be
subject to any claim on the part of any person beneficially interested hereunder.
	 
	 	(e)	 	In the event that the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions with respect to the Escrow Consideration
which, in its sole opinion, are in conflict with either other instructions received by
it or any provision of this Agreement, it shall be entitled to hold the Escrow
Consideration pending the resolution of such uncertainty to the Escrow Agent’s sole
satisfaction, final judgment of a court or courts of competent jurisdiction, or
otherwise.






	8.	 	Amendment and Cancellation. The Escrow Agent shall not be bound by any cancellation,
waiver, modification or amendment of these instructions, including the transfer of any
interest hereunder, unless such cancellation, waiver, modification or amendment is in writing
and signed by Buyer and Lewin, as Sellers’ representative, and, if the duties of the Escrow
Agent hereunder are affected, unless the Escrow Agent also shall have given its written
consent thereto.
	 
	9.	 	Legal Counsel.






	 	(a)	 	The Escrow Agent may consult with, and obtain advice from, legal counsel in the
event of any question as to any of the provisions hereof or its duties hereunder, and
the Escrow Agent shall be fully protected in acting in good faith in accordance with
the opinion and instructions of such counsel.
	 
	 	(b)	 	Buyer acknowledges that Escrow Agent acts from time to time as counsel to the
Company, and Buyer agrees that the Escrow Agent’s acting as the Escrow Agent shall not
impair the ability of Thelen Reid Brown Raysman & Steiner LLP to represent Company in
any dispute arising hereunder, under the Purchase Agreement or under any related
agreement.






	10.	 	Resignation. The Escrow Agent shall have the right, in its discretion, to resign
hereunder at any time, by giving at least ten (10) days’ prior written notice of such
resignation to Buyer and Lewin, as Sellers’ representative. In such event, Buyer and Lewin,
as Sellers’ representative, will promptly select a successor escrow agent. The Escrow Agent,
subject to the terms hereof, shall be bound hereby until a successor agent shall be appointed.
The Escrow Agent shall be discharged from all further duties hereunder upon acceptance by the
substitute escrow agent of the Escrow Agent’s duties hereunder or upon transfer and delivery
of the Escrow Consideration or upon the order of any court.






	11.	 	Indemnification. Buyer and Lewin, as Sellers’ representative, jointly shall
indemnify the Escrow Agent and each partner, employee, attorney and agent of the Escrow Agent
(collectively, the “Indemnified Parties”) for, and hold it harmless against, any and
all losses, liabilities, costs or expenses, in connection herewith, including reasonable




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	 	 	attorneys’ fees, incurred on the part of the Indemnified Parties in connection with the
Escrow Agent’s acceptance of, or the performance of its duties and obligations under, these
instructions, as well as the reasonable costs and expenses of defending against any claim or
liability arising out of or relating to these instructions, except as the same may arise as
the result of any Indemnified Party’s own gross negligence or willful misconduct.
	 
	12.	 	Disbursement into Court. If, at any time, there shall exist any dispute between
Buyer and Lewin, as Sellers’ representative, with respect to the holding or disposition of any
portion of the Escrow Funds or any other obligations of the Escrow Agent hereunder, or if at
any time the Escrow Agent is unable to determine, to the Escrow Agent’s sole satisfaction, the
proper disposition of any portion of the Escrow Funds or the Escrow Agent’s proper actions
with respect to its obligations hereunder, or if Buyer and Lewin, as Sellers’ representative,
have not within thirty (30) days of the furnishing by the Escrow Agent of a notice of
resignation pursuant to Section 8 hereof, appointed a successor Escrow Agent to act hereunder,
then the Escrow Agent may petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in New York, New York, for
instructions with respect to such dispute or uncertainty, and pay into such court all assets
held by it in the Escrow Consideration for holding and disposition in accordance with the
instructions of such court.
	 
	13.	 	Fees. The Escrow Agent shall not be entitled to collect any fee for its services
under this Agreement. Lewin, as Sellers’ Representative, shall pay, or reimburse the Escrow
Agent for, promptly following the receipt of a written demand therefor (which demand shall
include an accounting for such costs and expenses in specific detail), all of the expenses
incurred by the Escrow Agent in connection with this Agreement, including, but not limited to,
reasonable attorneys’ fees and expenses.
	 
	14.	 	Notices and Communications. All notices and other communications required or
provided under this Agreement shall be given in the manner required, and deemed delivered and
effective as prescribed, by facsimile transmission with receipt confirmed, or in writing by
transmission by Federal Express or other overnight delivery service, as follows:




If to Buyer:



Hythiam, Inc.

11150 Santa Monica Blvd., Suite 1500

Los Angeles, CA 90025

Attn: Chief Executive Officer

Fax: (310) 444-5300



With a copy to:



John C. Kirkland, Esq.

Dreier Stein & Kahan LLP

1620 26th Street

6th Floor, North Tower

Santa Monica, CA 90404

Fax: (424) 202-5250




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If to Sellers:



Mr. Nicholas Lewin

535 Madison Avenue, 35th Floor

New York, NY 10022

Fax: (212) 898-1161



If to Company:



Woodcliff Healthcare Investment Partners LLC

Mr. Nicholas Lewin

535 Madison Avenue, 35th Floor

New York, NY 10022

Fax: (212) 898-1161



If to Escrow Agent:



Thelen Reid Brown Raysman & Steiner LLP

875 Third Avenue

New York, NY 10022-6225

Telephone: (212) 603-2412

Telecopier: (212) 603-2001

Attention: E. Ann Gill, Esq.





	15.	 	General Provisions.






	 	(a)	 	This Agreement constitutes the entire agreement between the parties relating to
the deposit and disbursement of the Escrowed Consideration and merges, supersedes and
terminates all prior written and oral agreements and all contemporaneous oral
agreements between the parties relating to such escrow. This Agreement may not be
amended or modified in any respect except by a writing duly executed by all of the
parties hereto.
	 
	 	(b)	 	The laws of the State of Delaware (without giving effect to its conflicts of
laws principles) govern all matters arising out of or relating to this Agreement and
the transactions it contemplates, including, without limitation, its interpretation,
construction, performance and enforcement.
	 
	 	(c)	 	This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the foregoing,
however, the rights and obligations of Buyer and Sellers under this Agreement may not
be assigned or delegated without the prior written consent of the other party (other
than the Escrow Agent). The rights and obligations of the Escrow Agent under this
Agreement may be assigned or delegated only in accordance with Section 10.
	 
	 	(d)	 	The headings of the Paragraphs of this Agreement are for convenience of
reference only, are not part of this Agreement and shall not be used in its
interpretation.




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	 	(e)	 	The failure of any party at any time to require performance by any other party
of a provision of this Agreement or to resort to a remedy at law, in equity or
otherwise shall in no way affect the right of such party to require full performance or
to resort to such remedy at any time thereafter nor shall a waiver by any party of the
breach of any provision of this Agreement be taken or held to be a waiver of any
subsequent breach unless expressly so stated in writing. No waiver of any of the
provisions of this Agreement shall be effective unless in a writing signed by the party
to be charged.
	 
	 	(f)	 	No provision of this Agreement that is held to be illegal, invalid or
unenforceable by a court of competent jurisdiction shall in any way affect the
legality, validity or enforceability of any other provision of this Agreement, all of
which shall remain in full force and effect.
	 
	 	(g)	 	From time to time from and after the date hereof, the other parties shall
deliver or cause to be delivered to the Escrow Agent such further documents and
instruments and shall do and cause to be done such further acts as the Escrow Agent
shall reasonably request (it being understood that the Escrow Agent shall have no
obligation to make any such request) to carry out more effectively the provisions and
purposes of this Agreement, to evidence compliance herewith or to assure itself that is
protected in acting hereunder.
	 
	 	(h)	 	This Agreement shall terminate on the final disposition of the Escrowed
Consideration in accordance with Sections 4 through 6, provided that the rights of the
Escrow Agent and the obligations of the other parties under Sections 9 and 11 shall
survive the termination of this Agreement and the resignation or removal of the Escrow
Agent.
	 
	 	(i)	 	This Agreement may be executed in counterparts, each of which shall constitute
an original document and all of which together shall constitute one and the same
document.





[signature page follows]




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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of the day and year
first above written.




	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 	 	 
	BUYER:	 	 	 	 	 	COMPANY:	 	 
	Hythiam,	 	Inc.	 	 	 	Woodcliff Healthcare Investment Partners LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Chuck Timpe
	 	 	 	By:
	 	/s/ Nicholas Lewin	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name: 

Title:

	 	Chuck Timpe

CFO
	 	 	 	Name:

Title:
	 	Nicholas Lewin

 Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	LEWIN:	 	 	 	 	 	ESCROW AGENT:	 	 
	 	 	 	 	 	 	Thelen Reid Brown Raysman & Steiner LLP	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ Nicholas Lewin	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Nicholas Lewin, as Sellers’ representative	 	 	 	By:	 	/s/ E. Ann Gill	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name: E. Ann Gill	 	 
	 

	 	 	 	 	 	 	 	     Title: Partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	SOLELY FOR PURPOSES OF AGREEING	 	 	 	SOLELY FOR PURPOSES OF AGREEING	 	 
	TO THE PROVISIONS OF SECTION 4(a):	 	 	 	TO THE PROVISIONS OF SECTION 4(b):	 	 
	BESSEMER:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/s/ Richard Danzig	 	 
	 	 	 	 	 	 	 	 	 
	/s/ Stephanie Samuells	 	 	 	Richard Danzig	 	 
	 	 	 	 	 	 	 	 	 
	Name: Stephanie Samuells	 	 	 	 	 	 	 	 
	Title: Senior Vice President	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/s/ Tony Milone	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Tony Milone	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ Ann Lewin	 	 	 	/s/ Gavin Scotti	 	 
	 	 	 	 	 	 	 
	Ann Lewin	 	 	 	Gavin Scotti	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Tanglewood Investment Partners	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/s/ Nicholas Lewin	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Nicholas Lewin, Manager	 	 







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