Exhibit 10.1
EXECUTION COPY
AMENDMENT AND EXCHANGE AGREEMENT
          AMENDMENT AND EXCHANGE AGREEMENT (this “Agreement”), dated as of
July 31, 2008, by and between Hythiam, Inc., a Delaware corporation with
headquarters located at 11150 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025 (the “Company”) and Highbridge International LLC (the
“Investor”).
          WHEREAS:
          A. The Company and the Investor are parties to that certain Securities
Purchase Agreement, dated as of January 17, 2007 (the “Existing Securities
Purchase Agreement”), pursuant to which, among other things, the Investor
purchased from the Company (i) senior secured notes (the “Existing Notes”) and
(ii) warrants (the “Existing Warrants”) which are exercisable to acquire shares
of the Company’s common stock, par value $0.0001 per share (the “Common Stock”)
(the “Existing Warrant Shares”).
          B. In connection with the execution and delivery of the Existing
Securities Purchase Agreement, the Company entered into that certain
Registration Rights Agreement, dated January 17, 2007 (the “Registration Rights
Agreement”), by and between the Company and the Investor, pursuant to which the
Company agreed to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the “1933 Act”), and the rules and
regulations promulgated thereunder, and applicable state securities laws.
          C. The Company and the Investor desire to enter into this Agreement,
pursuant to which, among other things, the Company and the Investor shall amend
and restate all of the Investor’s (i) Existing Notes for the senior secured
notes of the Company in the form attached hereto as Exhibit A (the “Notes”) in
the aggregate principal amount set forth opposite the Investor’s name in column
(3) on the Securities Schedule attached hereto and (ii) Existing Warrants for
the warrants in the form attached hereto as Exhibit B (the “Warrants”), to
acquire up to that number of shares of Common Stock set forth opposite the
Investor’s name in column (4) of the Securities Schedule attached hereto (as
exercised, collectively, the “Warrant Shares”).
          D. The amendment and restatement of the Existing Notes for the Notes
and the Existing Warrants for the Warrants is being made in reliance upon the
exemption from registration provided by Section 3(a)(9) of the 1933 Act.
          E. The Notes rank senior to all outstanding and future indebtedness of
the Company and are secured by a first priority, perfected security interest in
all of the assets of the Company and the stock of each of the Company’s
subsidiaries, as evidenced by the pledge agreement, dated as of January 17,
2007, by and among each entity listed as a pledgor on the signature pages
thereto, and the Collateral Agent (the “Pledge Agreement”) and the security
agreement, dated as of January 17, 2007, by and between the Company and the
Collateral Agent (the “Security Agreement” and together with the Pledge
Agreement and the Security Agreement, collectively the “Security Documents”).

 

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          F. The Investor delivered to the Company a Holder Optional Redemption
Notice (as defined in the Existing Notes), pursuant to which the Investor
exercised its Holder Optional Redemption Right (as defined in the Existing
Notes) as of July 19, 2008 (the “Notice”). Contemporaneously with the Closing
(as defined below) the holder wishes to rescind and withdraw the Notice.
     Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings ascribed to them in the Existing Securities Purchase
Agreement.
          NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the Company and the Investor hereby agree
as follows:

  1.    AMENDMENT AND RESTATEMENT OF EXISTING NOTES AND EXISTING WARRANTS.

               (a) Amendment and Restatement of Existing Notes and Existing
Warrants. Subject to satisfaction (or waiver) of the conditions set forth in
Sections 5 and 6 below, at the closing contemplated by this Agreement (the
“Closing”), the Investor shall surrender to the Company its Existing Notes and
Existing Warrants and the Company shall issue and deliver to the Investor (or as
directed by the Investor) Notes in the principal amount set forth opposite the
Investor’s name in column (3) of the Securities Schedule attached hereto and
Warrants to acquire up to that number of shares of Common Stock set forth
opposite the Investor’s name in column (4) of the Securities Schedule attached
hereto.
               (b) Closing Date. The date of the Closing (the “Closing Date”)
shall be the date hereof, subject to notification of satisfaction (or waiver) of
the conditions to the Closing set forth in Sections 5 and 6 below (or such other
time and date as is mutually agreed to by the Company and the Investor). The
Closing shall occur on the Closing Date at the offices of Schulte Roth & Zabel
LLP, 919 Third Avenue, New York, New York 10022.
               (c) Delivery. On the Closing Date, the Company shall deliver to
the Investor (i) the Notes in the principal amount set forth opposite the
Investor’s name in column (3) of the Securities Schedule attached hereto and
(ii) the Warrants to acquire up to that number of shares of Common Stock set
forth opposite the Investor’s name in column (4) of the Securities Schedule
attached hereto. The foregoing securities shall be delivered in each case duly
executed on behalf of the Company and registered in the name of the Investor or
its designee.

  2.    AMENDMENTS TO TRANSACTION DOCUMENTS.

               (a) Ratifications. The Company hereby confirms and agrees that,
except as otherwise expressly provided in this Agreement:
               (i) the Existing Securities Purchase Agreement and each other
Transaction Document is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects, except that on and after the
Closing Date (i) all references in the Existing Securities Purchase Agreement to
“this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import
referring to the Securities Purchase Agreement shall mean the Existing
Securities Purchase Agreement as amended by this

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Agreement, (ii) all references in the other Transaction Documents to the
“Securities Purchase Agreement”, “thereto”, “thereof”, “thereunder” or words of
like import referring to the Securities Purchase Agreement shall mean the
Existing Securities Purchase Agreement as amended by this Agreement; (iii) all
references in the other Transaction Documents to the “Registration Rights
Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring
to the Registration Rights Agreement shall mean the Registration Rights
Agreement as amended by this Agreement; (iv) all references in the other
Transaction Documents to the “Security Agreement”, “thereto”, “thereof”,
“thereunder” or words of like import referring to the Security Agreement shall
mean the Security Agreement as amended by this Agreement; (v) all references in
the other Transaction Documents to the “Pledge Agreement”, “thereto”, “thereof”,
“thereunder” or words of like import referring to the Pledge Agreement shall
mean the Pledge Agreement as amended by this Agreement; and (vi) all references
in the other Transaction Documents to the “Security Documents”, “thereto”,
“thereof”, “thereunder” or words of like import referring to the Security
Documents shall mean the Security Documents as amended by this Agreement.
               (ii) to the extent that the Securities Purchase Agreement or any
other Transaction Document purports to assign or pledge to the Collateral Agent
for the Investor and the holders of the Securities, or to grant to the
Collateral Agent a security interest in or lien on, any collateral as security
for the obligations of the Company from time to time existing in respect of the
Existing Notes and any other existing Transaction Document, such pledge,
assignment and/or grant of the security interest or lien is hereby ratified and
confirmed in all respects, and shall apply with respect to the obligations under
the Notes and no additional filing is required to be made in order to maintain
the perfection of the security interest in, or lien, on such collateral; and
               (iii) the execution, delivery and effectiveness of this Agreement
shall not operate as an amendment of any right, power or remedy of the
Collateral Agent or the Investor under any Transaction Document, nor constitute
an amendment of any provision of any Transaction Document.
               (b) Amendment to Transaction Documents. Each of the Transaction
Documents are hereby amended as follows:
               (i) All references to “Notes” shall be amended to include
additionally the Notes as defined in this Agreement.
               (ii) All references to “Warrants” shall be amended to include
additionally the Warrants as defined in this Agreement.
               (iii) All references to “Warrant Shares” shall be amended to
include additionally the Warrant Shares as defined in this Agreement.
               (iv) The defined term “Transaction Documents” is hereby amended
to include this Agreement.

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               (c) Amendment to Security Agreement. The Security Agreement is
hereby amended by inserting the following Section 11:
“SECTION 11 Auction Rate Securities. Notwithstanding anything in this Agreement
to the contrary, the Collateral Agent and the Buyers shall permit the Company to
obtain a loan (“Margin Loan”) against ARS held by the Company. The Company shall
use its reasonable best efforts to cause the lender for the Margin Loan to agree
to a standard form of intercreditor agreement reasonably satisfactory to the
Buyers. The Collateral Agent, for the benefit of the Buyers, shall continue to
have a first priority security interest in the ARS prior to the consummation of
a Margin Loan. After the consummation of a Margin Loan and after the execution
of an intercreditor agreement between the Collateral Agent, for the benefit of
the Buyers, and the creditor making the Margin Loan, the Collateral Agent, for
the benefit of the Buyers, shall have a second priority security interest in the
ARS, and hereby agrees to subordinate its security interest in the ARS to second
position behind the lender of the Margin Loan, it being understood that such the
collateral supporting the Margin Loan shall only include ARS deposited into the
applicable account on or prior to the date of the making or drawing down of the
Margin Loan and shall not include any other assets of the Company or any of its
subsidiaries or affiliates unless otherwise agreed to by the Collateral Agent.”
               (d) Amendment to the Pledge Agreement. The Pledge Agreement is
hereby amended by inserting the following Section 14:
“SECTION 14 Auction Rate Securities. Notwithstanding anything in this Agreement
to the contrary, the Collateral Agent and the Buyers shall permit the Company to
obtain a loan (“Margin Loan”) against ARS held by the Company. The Company shall
use its commercially reasonable best efforts to cause the lender for the Margin
Loan to agree to a standard form of intercreditor agreement reasonably
satisfactory to the Buyers. The Collateral Agent, for the benefit of the Buyers,
shall continue to have a first priority security interest in the ARS prior to
the consummation of a Margin Loan. After the consummation of a Margin Loan and
after the execution of an intercreditor agreement between the Collateral Agent,
for the benefit of the Buyers, and the creditor making the Margin Loan, the
Collateral Agent, for the benefit of the Buyers, shall have a second priority
security interest in the ARS, and hereby agrees to subordinate its security
interest in the ARS to second position behind the lender of the Margin Loan, it
being understood that such the collateral supporting the Margin Loan shall only
include ARS deposited into the applicable account on or prior to the date of the
making or drawing down of the Margin Loan and shall not include any other assets
of the Company or any of its subsidiaries or affiliates unless otherwise agreed
to by the Collateral Agent.”

  3.   REPRESENTATIONS AND WARRANTIES

               (a) Investor Bring Down. The Investor hereby represents and
warrants to the Company with respect to itself only as set forth in Section 2 of
the Existing Securities Purchase Agreement (other than Sections 2(f) and 2(g))
as to this Agreement as if such representations and warranties were made as of
the date hereof and set forth in their entirety in this Agreement, except to the
extent such representation or warranty by nature speaks only as of a date
certain. Such representations and warranties to the transactions thereunder and
the

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securities issued thereby are hereby deemed for purposes of this Agreement to be
references to the transactions hereunder and the issuance of the securities
hereby.
               (b) Notice. Effective as of the Closing, the Investor hereby
withdraws and rescinds the Notice.
               (c) Company Bring Down. Except as set forth on the Amended and
Restated Disclosure Schedules attached hereto and the public reports on
Schedule 14A and Forms 10-K, 10-Q and 8-K filed by the Company since the date of
the Existing Securities Purchase Agreement, which shall amend and restate the
Disclosure Schedules attached to the Existing Securities Purchase Agreement, the
Company represents and warrants to the Investor as set forth in Section 3 of the
Securities Purchase Agreement as if such representations and warranties were
made as of the date hereof and set forth in their entirety in this Agreement,
except to the extent such representation or warranty by nature speaks only as of
a date certain. Such representations and warranties to the transactions
thereunder and the securities issued thereby are hereby deemed for purposes of
this Agreement to be references to the transactions hereunder and the issuance
of the securities hereby, references therein to “Closing Date” being deemed
references to the Closing Date as defined in Section 1(b) above, and references
to “the date hereof” being deemed references to the date of this Agreement.
               (d) No Event of Default. The Company represents and warrants to
the Investor that after giving effect to the terms of this Agreement, no Event
of Default (as defined in the Notes) shall have occurred and be continuing as of
the date hereof.
               (e) Shell Company Status. The Company has complied with all of
the requirements set forth in Rule 144(i)(2).

  4.    CERTAIN COVENANTS AND AGREEMENTS; WAIVER

               (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 5
and 6 of this Agreement.
               (b) Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the first Business Day following the
date of this Agreement, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by this Agreement in the form required by the 1934 Act and attaching the
material Transaction Documents not previously filed (including, without
limitation, this Agreement, the Security Documents, the form of the Notes and
the form of the Warrants) (including all attachments, the “8-K Filing”). From
and after the filing of the 8-K Filing with the SEC, the Investor shall not be
in possession of any material, nonpublic information received from the Company,
any of its Subsidiaries or any of their respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide the
Investor with any material, nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of the Investor. Subject to the foregoing,
neither the Company, its Subsidiaries nor the Investor shall issue any press
releases or

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any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Investor, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable law
and regulations (provided that in the case of clause (i) the Investor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
               (c) Fees and Expenses. The Company shall reimburse the Investor
for its legal and due diligence fees and expenses in connection with the
preparation and negotiation of this Agreement and transactions contemplated
thereby by paying any such amount to Schulte Roth & Zabel LLP (the “Investor
Counsel Expense”). The Investor Counsel Expense shall be paid by the Company
whether or not the transactions contemplated by this Agreement are consummated.
Except as otherwise set forth in this Agreement, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
               (d) Holding Period. For the purposes of Rule 144, the Company
acknowledges that the holding period of (i) the Notes may be tacked onto the
holding period of the Existing Notes and (ii) the Warrants (including the
corresponding Warrant Shares) may be tacked onto the holding period of the
Existing Warrants (in the case of Cashless Exercise (as defined in the
Warrants)), and the Company agrees not to take a position contrary to this
Section 4(d). The Company agrees to take all actions, including, without
limitation, the issuance by its legal counsel of any necessary legal opinions,
necessary to issue Warrant Shares (so long as such Warrants are exercised by way
of a Cashless Exercise) that are freely tradable on an Eligible Market (as
defined in the Warrants) without restriction and not containing any restrictive
legend without the need for any action by the Investor.
               (e) Right of First Refusal. From the date hereof until the date
that no Notes remain outstanding, the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any
ARS (as defined in the Notes) (any such offer, sale, grant, disposition or
announcement being referred to as an “ARS Disposition”) unless the Company shall
have first complied with this Section 4(e).
               (i) The Company shall deliver to the Investor an irrevocable
written notice (the “Offer Notice”) of any proposed ARS Disposition
(the “Offer”) of the ARS subject to the proposed ARS Disposition (the “Offered
Securities”), which Offer Notice shall (w) state the CUSIP number or other
identifying information) and the face amount of the Offered Securities, (x)
identify and describe the price and other terms upon which the Offered
Securities are to be sold or exchanged, and the number or amount of the Offered
Securities to be sold or exchanged, (y) identify the persons or entities (if
known) to which or with which the Offered Securities are to be offered, sold or
exchanged and (z) offer to issue and sell to or exchange with the Investor all
of the Offered Securities. To accept an Offer, in whole or in part, the Investor
must deliver a written notice to the Company prior to the end of the fifth (5th)
Business Day after the

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Investor’s receipt of the Offer Notice (the “Offer Period”), setting forth the
portion of the Offered Securities that the Investor elects to purchase (the
“Notice of Acceptance”).
               (ii) The Company shall have twenty (20) Business Days from the
expiration of the Offer Period above (i) to offer, issue, sell or exchange all
or any part of such Offered Securities as to which a Notice of Acceptance has
not been given by the Investor (the “Refused Securities”) pursuant to a
definitive agreement(s) (the “ARS Disposition Agreement”), but only upon terms
and conditions (including, without limitation, unit prices and interest rates)
that are not more favorable to the acquiring person or persons or less favorable
to the Company than those set forth in the Offer Notice and (ii) to publicly
announce, if required, (a) the execution of such ARS Disposition Agreement, and
(b) either (x) the consummation of the transactions contemplated by such ARS
Disposition Agreement or (y) the termination of such ARS Disposition Agreement
(unless the Company determines that the termination of such ARS Disposition
Agreement is not material and the Investor is no longer in possession of
material non-public information upon such termination), which shall be filed
with the SEC on a Current Report on Form 8-K with such ARS Disposition Agreement
and any documents contemplated therein filed as exhibits thereto. The purchase
by the Investor of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Investor of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Investor and its legal counsel.
               (iii) The Company and the Investor agree that if the Investor
elects to participate in the Offer neither the ARS Disposition Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the “ARS Disposition Documents”) shall include any term or
provisions whereby the Investor shall be required to agree to any restrictions
in trading as to any securities of the Company owned by the Investor prior to
such ARS Disposition.
               (iv) Notwithstanding anything to the contrary in this Section
4(e) and unless otherwise agreed to by the Investor, the Company shall either
confirm in writing to the Investor that the transaction with respect to the ARS
Disposition has been abandoned or shall publicly disclose its intention to issue
the Offered Securities, in either case in such a manner such that the Investor
will not be in possession of material non-public information, by the twentieth
(20th) Business Day following delivery of the Offer Notice. If by the twentieth
(20th) Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Investor, such transaction shall be deemed to have been abandoned and the
Investor shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide the Investor with another Offer Notice and the Investor will again have
the right of participation set forth in this Section 4(e). The Company shall not
be permitted to deliver more than one such Offer Notice with respect to any
particular ARS to the Investor in any 60 day period.

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               (f) On or prior to August 15, 2008, the Company shall, with
respect to each of its securities accounts, use its reasonable best efforts to
deliver a standard form of control agreement, in form and substance reasonably
satisfactory to the Collateral Agent, executed and delivered by the Company, the
Collateral Agent, for the benefit of the Buyers, and the applicable securities
intermediary, which securities intermediary shall be acceptable to the
Collateral Agent in its sole discretion.

  5.    CONDITIONS TO COMPANY’S OBLIGATIONS HEREUNDER.

               The obligations of the Company to the Investor hereunder are
subject to the satisfaction of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Investor with prior
written notice thereof:
               (a) The Investor shall have executed this Agreement and the
Security Documents to which it is a party and delivered the same to the Company.
               (b) The Investor shall have delivered to the Company the
Investor’s Existing Note and Existing Warrants for cancellation.
               (c) The representations and warranties of the Investor shall be
true and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date) and the Investor shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Investor at or prior to the Closing Date.

  6.    CONDITIONS TO INVESTOR’S OBLIGATIONS HEREUNDER.

               The obligations of the Investor hereunder are subject to the
satisfaction of each of the following conditions, provided that these conditions
are for the Investor’s sole benefit and may be waived by the Investor at any
time in its sole discretion by providing the Company with prior written notice
thereof:
               (a) The Company shall have executed this Agreement and each of
the Security Documents to which it is a party and delivered the same to the
Investor.
               (b) The Company shall have executed and delivered to the Investor
the Notes and the Warrants being issued to the Investor at the Closing.
               (c) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.

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               (d) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale of the
Securities.
               (e) The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by this Agreement as the
Investor or its counsel may reasonably request.

  7.    TERMINATION.

               In the event that the Closing does not occur on or before five
(5) Business Days from the date hereof, due to the Company’s or the Investor’s
failure to satisfy the conditions set forth in Sections 5 and 6 hereof (and the
nonbreaching party’s failure to waive such unsatisfied conditions(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, if this Agreement
is terminated pursuant to this Section 7, the Company shall remain obligated to
reimburse the Investor for the expenses described in Section 4(c) above. Upon
such termination, the terms hereof shall be null and void and the parties shall
continue to comply with all terms and conditions of the Transaction Documents,
as in effect prior to the execution of this Agreement.

  8.    MISCELLANEOUS.

               (a) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
               (b) Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
               (c) Severability. If any provision of this Agreement is
prohibited by law or otherwise determined to be invalid or unenforceable by a
court of competent jurisdiction, the provision that would otherwise be
prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the
remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair
the respective expectations or reciprocal obligations of the parties or the
practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the
prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

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               (d) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
               (e) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
               (f) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
               (g) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
               (h) Entire Agreement; Effect on Prior Agreements; Amendments.
Except for the Transaction Documents in effect prior to this Agreement (to the
extent any such Transaction Document is not amended by this Agreement), this
Agreement supersedes all other prior oral or written agreements between the
Investor, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company. No provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is sought.
No

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consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, holders of Notes or holders of the Warrants, as the case
may be. The Company has not, directly or indirectly, made any agreements with
the Investor relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction
Documents.
              (i) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with an overnight courier service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:
if to the Company:
Hythiam, Inc.
11150 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Telephone: (310) 444-4300
Facsimile: (310) 444-5300
Attention: Chief Executive Officer
with a copy to:
Dreier Stein Kahan Browne Woods George LLP
The Water Garden
1620 26th Street
6th Floor, North Tower
Santa Monica, CA 90404
Telephone: (424) 202-6050
Facsimile: (424) 202-6250
Attention: John C. Kirkland, Esq.
if to the Investor, to its address and facsimile number set forth in the
Securities Schedule attached hereto, or, in each case, to such other address
and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five
(5) days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight
courier service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from an overnight courier service in accordance with clause
(i), (ii) or (iii) above, respectively.

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               (j) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns in accordance with the terms of the Existing Securities Purchase
Agreement.
               (k) Survival. Unless this Agreement is terminated under
Section 7, the representations and warranties of the Company and the Investor
contained herein and the agreements and covenants set forth herein shall survive
the Closing.
               (l) Remedies. The Investor and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Investor. The Company
therefore agrees that the Investor shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
[Signature Page Follows]

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          IN WITNESS WHEREOF, the Investor and the Company have caused their
respective signature page to this Agreement to be duly executed as of the date
first written above.

            COMPANY:

HYTHIAM, INC.
      By:           Name:           Title:        

[Signature Page to Amendment and Exchange Agreement]

 

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          IN WITNESS WHEREOF, the Investor and the Company have caused their
respective signature page to this Agreement to be duly executed as of the date
first written above.

            INVESTOR:

HIGHBRIDGE INTERNATIONAL LLC
      By:  HIGHBRIDGE CAPITAL
MANAGEMENT, LLC, its Trading
Manager                               By:           Name:   Adam J. Chill       
Title:   Managing Director     

[Signature Page to Amendment and Exchange Agreement]

 

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SECURITIES SCHEDULE

                          (1)   (2)   (3)   (4)   (5)         Aggregate        
        Principal             Address and   Amount of   Number of   Legal
Representative’s             Investor   Facsimile Number   Notes   Warrant
Shares   Address and Facsimile Number  
Highbridge
International LLC
  c/o Highbridge Capital Management, LLC
9 West 57th Street, 27th Floor
New York, New York 10019   $ 5,000,000       1,300,000     Schulte Roth & Zabel
LLP
919 Third Avenue
New York, New York 10022
 
  Attention: Ari J. Storch
                 Adam J. Chill
Facsimile: (212) 751-0755
Telephone: (212) 287-4720
Residence: Cayman Islands                   Attention: Eleazer Klein, Esq.
Facsimile: (212) 593-5955 Telephone: (212) 756-2376