EXHIBIT 10.6
MANAGEMENT AND SUPPORT SERVICES AGREEMENT
BETWEEN
HYTHIAM, INC.
AND
David E. Smith, M.D., Medical Group, Inc.

 

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TABLE OF CONTENTS

                      Page ARTICLE 1. DEFINITIONS AND INTERPRETATION     2  
 
           
1.1
  Definitions     2  
1.2
  Sections and Headings     4  
1.3
  Number and Gender     4  
1.4
  Currency     4  
1.5
  Time of Essence     4  
1.6
  Applicable Law     4  
1.7
  Severability     4  
1.8
  No Waiver     4  
1.9
  Date of any Action     5  
1.10
  Interpretation     5  
 
            ARTICLE 2. APPOINTMENT AND AUTHORITY OF THE MANAGER     5  
 
           
2.1
  Appointment     5  
2.2
  Authority     5  
 
  2.2.1  Authority of the Manager     5  
 
  2.2.2  The PC Retains Medical Authority     5  
2.3
  Patient Referrals     6  
2.4
  Practice of Medicine     6  
 
            ARTICLE 3. RESPONSIBILITIES OF THE MANAGER     6  
 
           
3.1
  Services Generally     6  
3.2
  Office Space     6  
 
  3.2.1  During the Term     6  
 
  3.2.2  Non-Exclusive Basis     7  
 
  3.2.3  Premise Use     7  
3.3
  Equipment and Supplies     7  
3.4
  Employees     7  
 
  3.4.1  Manager Employees     7  
 
  3.4.2  Medical Contractors     7  
3.5
  Quality Assurance and Risk Management     8  
3.6
  Third Party Contracts     8  
3.7
  Billing and Collection; Power of Attorney     8  
 
  3.7.1  Billing     8  
 
  3.7.2  Accounts Receivable     9  
 
  3.7.3  Deposits     9  
 
  3.7.4  Deposits     9  
 
  3.7.5  Governmental Third Party Payors     9  
 
  3.7.6  Government Payor Account     9  
 
  3.7.7  Other Actions     10  

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                      Page
3.8
  PC Determines Medical Fees     10  
3.9
  Payment of PC Expenses     10  
3.10
  Administrative Services     11  
 
  3.10.1  Scheduling     11  
 
  3.10.2  Records     11  
 
  3.10.3  Personnel Policies     11  
 
  3.10.4  Non-Medical Quality Assurance     11  
 
  3.10.5  Current Business Information     11  
 
  3.10.6  Consent Forms     11  
 
  3.10.7  Non-Clinical Training     11  
 
  3.10.8  Financing Programs     12  
 
  3.10.9  Aftercare Programs     12  
3.11
  Bank Account     12  
3.12
  Fiscal Matters     12  
3.13
  Medical Records     12  
3.14
  Business Reports     13  
3.15
  Other Reports and Records     13  
3.16
  Licensing of PROMETA™ Protocols     13  
 
  3.16.1  Grant of License Rights to PC     13  
 
  3.16.2  Term of License     13  
 
  3.16.3  License Restrictions     13  
 
  3.16.4  PC Obligations     14  
 
  3.16.5  Data Collection and Reporting     14  
 
  3.16.6  Aftercare Services     14  
 
  3.16.7  Use of Licensed Technology     14  
 
  3.16.8  Clinical Activities     14  
 
  3.16.9  Subject Data     15  
 
  3.16.10  Patient Consents; Regulatory Approvals     15  
 
  3.16.11  Reservation of Rights     15  
 
  3.16.12  Manager Ownership     15  
 
  3.16.13  Intellectual Property     16  
 
  3.16.14  Disclaimer Of Warranties     17  
 
  3.16.15  Limitation of Liability     17  
 
  3.16.16  Debarment or Exclusion     18  
 
  3.16.17  Government Access     18  
3.17
  Licensing of Name     18  
 
  3.17.1  Grant of License     18  
 
  3.17.2  Termination of License     19  
 
  3.17.3  Injunctive Relief     19  
3.18
  Advertising, Marketing and Promotional Services     19  
 
  3.18.1  Advertising Services     19  
3.19
  Non-Exclusivity     20  
 
            ARTICLE 4. COVENANTS AND RESPONSIBILITIES OF THE PC     20  
 
           
4.1
  Organization and Operation     20  
4.2
  Retention of Medical Contractors     20  

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                      Page
4.3
  Professional Standards     21  
4.4
  Medical Practice     21  
4.5
  Compliance with Laws     21  
4.6
  Premises and Equipment     22  
4.7
  Delegation by the Provider     22  
 
            ARTICLE 5. RELATIONSHIP OF THE PARTIES     22  
 
           
5.1
  Medical Practices     22  
 
  5.1.1  Delivery of Medical Services     22  
 
  5.1.2  Quality     23  
 
  5.1.3  Manager Not Practicing Medicine     23  
5.2
  Independent Contractors     23  
 
            ARTICLE 6. FINANCIAL TERMS     23  
 
           
6.1
  Manager Compensation     23  
6.2
  Payment of Management Fee     24  
6.3
  Invoices     24  
6.4
  Authorization to Pay Invoices     24  
6.5
  Records and Audit of Accounts     25  
6.6
  Physician Contractor Compensation     25  
 
  6.6.1  Medical Fee; Initial Term     25  
 
  6.6.2  Renewal Terms     25  
 
  6.6.3  Payment and Statements     25  
6.7
  Grant of Security Interest in Accounts     25  
 
  6.7.1  Grant of Security Interest     25  
 
  6.7.2  Exercising Remedies     26  
 
  6.7.3  Financial Statements     26  
6.8
  License Fee     26  
 
  6.8.1  License Fees     26  
 
  6.8.2  Payment Terms     26  
 
  6.8.3  Reconciliation     27  
 
            ARTICLE 7. REPRESENTATIONS AND WARRANTIES     27  
 
           
7.1
  Representations and Warranties of the PC     27  
 
  7.1.1  Organization     27  
 
  7.1.2  No Violation – Professional Services Agreement     27  
 
  7.1.3  No Violation – Medical Contractor Agreements     28  
 
  7.1.4  Covenant Regarding Trade Secrets     28  
 
  7.1.5  Licensed Medical Contractors     28  
 
  7.1.6  Insurance     28  
7.2
  Representations and Warranties of the Manager     28  
 
  7.2.1  Organization     29  
 
  7.2.2  No Violation     29  
 
  7.2.3  Trade Name     29  

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                      Page ARTICLE 8. INSURANCE     29  
 
           
8.1
  Insurance Obligations of the Manager     29  
8.2
  Insurance Obligations of the PC     29  
8.3
  Notices from Insurance Companies     30  
 
            ARTICLE 9.  TERM AND TERMINATION     30  
 
           
9.1
  Initial and Renewal Term     30  
9.2
  Termination     30  
 
  9.2.1  Without Cause     30  
 
  9.2.2  With Cause     30  
 
  9.2.3  Disciplinary Actions     31  
9.3
  Effect of Termination     31  
 
            ARTICLE 10. CONFIDENTIAL AND PROPRIETARY INFORMATION     31  
 
           
10.1
  Confidential Information     31  
10.2
  Confidentiality and Non-Disclosure     32  
10.3
  Patient Medical Records; HIPAA Compliance     32  
 
            ARTICLE 11. INDEMNIFICATION     33  
 
           
11.1
  Indemnification     33  
 
            ARTICLE 12.  MISCELLANEOUS     33  
 
           
12.1
  Access to Records     33  
12.2
  Amendment     34  
 
  12.2.1  Amendment     34  
 
  12.2.2  Contract Modification for Prospective Legal Event     34  
12.3
  Assignment     34  
12.4
  Rights and Remedies; Injunctive Relief     34  
12.5
  Status as Independent Contractor     35  
12.6
  Notices     35  
12.7
  Collateral Agreements     35  
12.8
  Survival     35  

EXHIBIT A            Trademarks
EXHIBIT B            Licensed Technology
EXHIBIT C            Professional Services Agreement
EXHIBIT D            Business Associate and Data Use Agreement
Schedule 7.1.6        Insurance Policies

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MANAGEMENT AND SUPPORT SERVICES AGREEMENT
THIS AGREEMENT made as of the 15th day of November, 2005.
Hythiam, Inc.
a corporation existing under the laws of the State of Delaware,
(hereinafter referred to as the “Manager”),
- and -
David E. Smith, M.D. Medical Group, Inc.
a professional corporation existing under the laws of the State of California,
(hereinafter referred to as “PC” ) (each a “Party” and collectively, the
“Parties”).
     WHEREAS PC is a professional corporation engaged in the private practice of
medicine that specializes in various methods of health care services, including
without limitation, the provision of addiction treatment services (the “Medical
Services”) in California;
     WHEREAS Manager is engaged in the business of licensing to providers its
proprietary PROMETA™ protocols for the treatment of addiction and providing
management and administrative services to professional practices and/or
facilities, to which it also may license the use of certain registered marks
(the “Company Business”); and
     WHEREAS PC recognizes that the intellectual property and services described
in the preceding recital are of great value and that PC can benefit from the
availability and use of that intellectual property and those services.
     NOW THEREFORE, in consideration of the mutual terms, covenants and
conditions contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which is confirmed, the Parties
agree as follows:

 

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ARTICLE 1.
DEFINITIONS AND INTERPRETATION
1.1 Definitions
     For the purposes of this Agreement (including the recitals and the
Schedules), the following terms shall have the respective meanings set out below
and grammatical variations of such terms shall have corresponding meanings:
“Accounts” has the meaning set out in Section 6.7.1.
“Advertising Materials” has the meaning set out in Section 3.18.1(a).
“Aftercare” has the meaning set out in Exhibit B.
“Aftercare Services” has the meaning set out in Section 3.16.6.
“Authorized Period” has the meaning set out in Exhibit B.
“Authorized User” has the meaning set out in Exhibit B.
“Bank Account” has the meaning set out in Section 3.11.
“Collateral” has the meaning set out in Section 6.7.1.
“Company” means Hythiam, Inc.
“Company Business” has the meaning set out in the recitals.
“Confidential Information” has the meaning set out in Section 10.1.
”Data Collection and Reporting” has the meaning set out in Section 3.16.5.
“Data Reports” has the meaning set out in Section 3.16.5.
“Effective Date” means November 15, 2005.
“Equipment” has the meaning set out in Section 3.3.
“HIPAA” has the meaning set out in Section 10.3.
“HIPAA Regulations” has the meaning set out in Section 10.3.
“Hythiam License” has the meaning set out in Section 3.16.1.
“Governmental Third Party Payors” has the meaning set forth in Section 3.7.5.
“Government Payor Account” has the meaning set forth in Section 3.7.6.

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“Intellectual Property” has the meaning set out in Section 3.16.13.
“Law” has the meaning set out in Section 4.5.
“License Fees” has the meaning set out in Section 6.8.1.
“Licensee Modifications” has the meaning set out in Section 3.16.12.
”Licensed Technology” has the meaning set out in Exhibit B.
“Management Fee” has the meaning set out in Section 6.1.
“Management Services” has the meaning set out in Section 2.1.
“Manager’s Costs” has the meaning set out in Section 6.1.
“Manager Employee” has the meaning set out in Section 3.2.2.
“Manager Statement” has the meaning set out in Section 6.3.
“Media” has the meaning set out in Section 3.18.1 (b).
“Medical Contractor Agreements” has the meaning set out in Section 7.1.3.
“Medical Contractors” has the meaning set out in Section 2.2.2.
“Medical Fees” has the meaning set out in Section 6.6.1.
“Medical Services” has the meaning set out in the recitals.
“Notice” has the meaning set out in Section 12.6.
“Obligations” has the meaning set out in Section 6.4.
“Payer Discount” has the meaning set out in Exhibit B.
“PHI” has the meaning set out in Section 10.3.
“Physician Contractors” has the meaning set out in Section 4.2.
“Physician Corporation” has the meaning set out in Section 4.2.
“Policies” has the meaning set out in Section 7.1.6.
“Power of Attorney” has the meaning set out in Section 3.7.
“Premises” has the meaning set out in Section 3.2.1.
“Private Pay Patient” has the meaning set out in Exhibit B.

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“Professional Services Agreement” has the meaning set out in Section 4.2.
“Subject Data” has the meaning set out in Section 3.16.9.
“Term” has the meaning set out in Section 9.1.
“Third Party Contracts” has the meaning set out in Section 3.6.
“Trademarks” has the meaning set out in Section 3.17.1.
“Trade Name” has the meaning set out in Section 3.17.1.
1.2 Sections and Headings
     The division of this Agreement into sections and the insertion of headings
are for reference purposes only and shall not affect the interpretation of this
Agreement.
1.3 Number and Gender
     In this Agreement, words importing the singular number only shall include
the plural and vice versa and words importing any gender shall include all
genders.
1.4 Currency
     Unless otherwise indicated, all dollar amounts referred to in this
Agreement are expressed in U.S. funds.
1.5 Time of Essence
     Time shall be of the essence of this Agreement.
1.6 Applicable Law
     This Agreement shall be construed, interpreted and enforced in accordance
with, and the respective rights and obligations of the Parties shall be governed
by, the laws of the State of California.
1.7 Severability
     If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof and each provision is hereby
declared to be separate, severable and distinct.
1.8 No Waiver
     The failure of any Party to insist upon strict adherence to any provision
of this Agreement on any occasion shall not be considered a waiver or deprive
that Party of the right thereafter to insist upon strict adherence to such
provision or any other

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provision of this Agreement. No purported waiver shall be effective as against
any Party unless consented to in writing by such Party. The waiver by any Party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent or other breach.
1.9 Date of any Action
     If any date on which any action is required to be taken under this
Agreement is not a Business Day, that action shall be required to be taken on
the next following Business Day.
1.10 Interpretation
     Should any provision of this Agreement require judicial interpretation, it
is agreed that the court interpreting or construing this Agreement shall not
construe it against one Party more strictly by reason of the rule of
construction that a document is to be construed more strictly against the Party
who itself or through its agent or counsel prepared such document, it being
agreed that all Parties were afforded adequate opportunity to consult legal
counsel prior to execution of this Agreement.
ARTICLE 2.
APPOINTMENT AND AUTHORITY OF THE MANAGER
2.1 Appointment
     The PC hereby appoints the Manager as its sole and exclusive agent for the
provision of services related to the management and administration of the PC’s
business functions and affairs in California (the “Management Services”), and
the Manager hereby accepts that appointment.
2.2 Authority
2.2.1 Authority of the Manager. Subject to the terms of this Agreement, the PC
expressly authorizes the Manager to provide the Management Services in any
reasonable manner the Manager deems appropriate to meet the PC’s day-to-day
requirements. The PC also expressly authorizes the Manager to negotiate on the
PC’s behalf all Third Party Contracts related to the provision of Management
Services by the Manager and the business components of the Medical Services
provided by the PC as set forth in Section 3.6.
2.2.2 The PC Retains Medical Authority. The Parties acknowledge that the PC,
through physicians and through non-physician medical assistants employed by or
provided by the PC (collectively, the “Medical Contractors”), shall be
responsible for, and shall have authority, responsibility, supervision and
control over, the provision of all Medical Services, and that all diagnoses,
treatments, procedures and other professional Medical Services shall be provided
and performed exclusively by the PC, through Medical Contractors acting within
the scope of their respective licensure and

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exercising their independent medical judgment. The PC agrees that the Medical
Services performed at the Premises shall be defined and limited as set forth in
the Professional Services Agreement.
2.3 Patient Referrals
     The Manager and the PC agree that the benefits afforded either Party under
this Agreement are not payment for, and are not in any way contingent upon, the
volume or value of referrals for Medical Services or other items or services.
2.4 Practice of Medicine
     The Parties acknowledge that the Manager is not authorized or qualified to
engage in any activity that may be construed or deemed to constitute the
practice of medicine. To the extent that any act or service required to be
performed by the Manager under this Agreement should be construed by a court of
competent jurisdiction or by the Medical Board of California to constitute the
practice of medicine, the Manager’s obligation to perform that act or service
shall be deemed waived and unenforceable.
ARTICLE 3.
RESPONSIBILITIES OF THE MANAGER
3.1 Services Generally
     The Manager shall, and shall cause its employees, independent contractors
and agents to, provide all Management Services in accordance with all applicable
laws, rules, regulations and guidelines and generally recognized standards
within the industry. Management Services shall include, among other things,
(a) general administrative support services including secretarial, telephone,
fax, office equipment, information systems, recordkeeping, scheduling, billing
and collection; (b) establishing budgets and business planning; (c) marketing
Medical Services and local business development; (d) arranging for financing of
capital requirements; and (e) assisting the PC in obtaining and maintaining all
federal, state and local licenses, certifications and regulatory permits
required for, or in connection with, the PC’s operation and equipment located at
any office of the PC.
3.2 Office Space
3.2.1 During the Term. The Manager hereby agrees to provide, or cause an
affiliate to provide, to the PC, on a non-exclusive and non-assignable basis,
office space at 1315 Lincoln Boulevard, Santa Monica, CA 90401 (the “Premises”)
for the conduct of the practice of the PC. The Manager shall be responsible for
all costs in connection with the rent, maintenance, utilities, repairs and real
estate taxes included in connection with, and all such other expenses associated
with, the operation of the Premises and such costs shall be included in the
Manager’s Costs (as defined in Section 6.1); provided, however, the PC shall be
responsible for the repair of all

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damages to the Premises caused by the PC’s negligence or intentional misconduct,
or which is beyond normal wear and tear. This Agreement shall not constitute an
assignment to the PC of any rights of the Manager or any of its affiliates to
the use of the Premises, nor does it constitute a requirement that the PC
practice at any specific location not of the PC’s choosing.
3.2.2 Non-Exclusive Basis. The term “non-exclusive basis” shall mean that the
Premises shall also be occupied by Manager employees who shall provide the
Management Services to the PC (as more fully described in this Agreement)
(“Manager Employees”). In addition, the Manager Employees or Manager’s
affiliates may also perform the Company Business at the Premises.
3.2.3 Premise Use. The PC shall use the Premises exclusively for the provision
of the Medical Services. The PC shall comply with all applicable rules and
regulations of governmental bodies having jurisdiction over the PC with respect
to the provision of the Medical Services at the Premises.
3.3 Equipment and Supplies
     The Manager shall be responsible for providing, or arranging for the
provision to the PC, for use in providing Medical Services, office equipment,
computer equipment, medical equipment, telephone lines, furniture, fixtures,
leasehold improvements, information systems and office supplies (the
“Equipment”) as reasonably necessary for the conduct of the practice of the PC.
The costs of purchasing, leasing, providing, maintaining, repairing and
replacing such items shall be included in the Manager’s Costs. The Manager (or
lessor thereof if any such item is leased rather then owned) shall retain title
to all such items. The Manager will consult from time to time with the PC
concerning the Equipment to be provided by the Manager and may make
recommendations to the PC; provided, however, that the final decision with
respect to the Equipment to be provided by the Manager that is medical shall be
made by the PC. Without limiting the generality of the foregoing, the PC and not
the Manager shall be solely responsible for the selection of any and all
pharmaceutical products and ancillary medical services (e.g., lab) ordered by or
on behalf of the PC.
3.4 Employees
3.4.1 Manager Employees. The Manager shall employ or otherwise retain, and shall
be responsible for selecting, hiring or arranging for, training, supervising and
terminating, all non-medical personnel (“Manager Employees”) as the Manager
deems necessary and appropriate for the Manager’s performance of the Management
Services under this Agreement. The Manager shall determine the salaries or
contract payments, provide employee benefits (if appropriate), and administer
payroll withholding for all Manager Employees as required by applicable laws or
regulations.
3.4.2 Medical Contractors. The Manager shall also assist the PC in the
recruitment of new Medical Contractors and other medical professionals to become
employees of, or otherwise be retained by, the PC, individually or through a
Physician

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Corporation (as defined in Section 4.2). The Manager shall provide the PC with
model agreements to document the PC’s employment, retention or other service
arrangements with such individuals. Notwithstanding the foregoing, the PC shall
employ or otherwise retain, and shall be solely responsible for training,
directing, supervising, credentialing, controlling and terminating, any and all
Medical Contractors and other medical professionals performing Medical Services
or other professional services for or on behalf of the PC.
3.5 Quality Assurance and Risk Management
     The Manager shall assist the PC in the PC’s establishment and
implementation of procedures to ensure the consistency, quality and
appropriateness of Medical Services that the PC’s Medical Contractors provide.
The Manager shall also provide administrative support for the PC’s overall
quality assurance and risk management programs. The Manager shall use
commercially reasonable efforts to perform these tasks so as to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
3.6 Third Party Contracts
     The Manager shall assist the PC with and negotiate, either directly or on
the PC’s behalf, as appropriate, all contractual arrangements with third parties
as are reasonably necessary and appropriate for the business operation of the
PC, including, without limitation, agreements with equipment and supply vendors
and, after and only after approval of the terms by PC, third party payors
(“Third Party Contracts”). The Manager shall provide oversight and management of
all such Third Party Contracts. As provided in Section 2.2.1, the PC authorizes
the Manager to execute on the PC’s behalf all Third Party Contracts that the
Manager determines are necessary and appropriate for the conduct of the PC’s
practice.
3.7 Billing and Collection; Power of Attorney
     In the name of and on behalf of the PC, the Manager shall establish and
maintain billing and collection policies and procedures, and shall timely bill
and collect all professional and other fees of the PC for its provision of
Medical Services to patients. The PC hereby grants to the Manager an exclusive
special power of attorney (the “Power of Attorney”) and appoints the Manager as
the PC’s exclusive true and lawful agent and attorney-in-fact, and the Manager
hereby accepts such special power of attorney and appointment, for the following
purposes:
3.7.1 Billing. To bill, on behalf of the PC, patients to whom the PC has
contracted to provide the Medical Services, and, where not prohibited by
applicable law or regulatory requirements or the rules and regulations or a
particular third party payor, to bill patients in advance of the provision of
the Medical Services, subject to a reconciliation of the amounts so billed with
the charges for the Medical Services actually provided. The Manager, in billing
third party payors, shall render such bills in accordance with all applicable
rules, regulations and policies of such payors;

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3.7.2 Accounts Receivable. Except for Governmental Third Party Payors as defined
in Section 3.7.5, to collect on behalf of the PC accounts receivable generated
by billings done in the name of the PC relating to the Medical Services provided
or to be provided by the PC, whether from patients or from third party payors on
behalf of patients; provided, however, that such obligation does not encompass
the institution of collection proceedings by the Manager;
3.7.3 Deposits. Except for payments from Governmental Third Party Payors, to
receive on behalf of the PC payments from whatever source for the provision of
the Medical Services by the PC, including, but not limited to, payments, where
not prohibited, in the form of advances or deposits from patients in
anticipation of receipt of the Medical Services and payments from insurance
companies and any other third party payors, and the PC hereby covenants to turn
over to the Manager, for deposit in a Bank Account (as defined in Section 3.11),
all payments that it receives or collects from patients or from third party
payors (other than Governmental Third Party Payors) on behalf of patients
receiving Medical Services at the Premises;
3.7.4 Deposits. Except for payments from Governmental Third Party Payors, to
take possession of, and endorse in the name of the PC, and cause to be deposited
any notes, checks, money orders, insurance payments, and any other instruments
received in payment of Medical Services performed, or to be performed, payable
to the PC or to any of the Medical Contractors engaged by the PC to provide the
Medical Services, and to deposit the same as provided in Section 3.11;
3.7.5 Governmental Third Party Payors. For all accounts receivable generated by
billings and claims to Governmental Third Party Payors, PC shall instruct such
Governmental Third Party Payor to deposit all claims payments directly into the
account described in Section 3.7.6 below. The term “Governmental Third Party
Payor” means third party payors providing reimbursement for eligible
beneficiaries under a federal, state or local governmental health insurance
program, including Medicare and Medicaid, under which direct payment to Manager
is not permitted under applicable law or regulation.
3.7.6 Government Payor Account. PC shall open, and at all times during the Term
of this Agreement maintain, an account at a bank that does not provide financing
to PC or the Physician Contractors, either directly or on behalf of another
party, including Manager (the “Government Payor Account”). All payments from
Governmental Third Party Payors shall be deposited in the Government Payor
Account. PC covenants that : (i) at all times during the Term of this Agreement,
PC shall maintain sole and exclusive control over the Government Payor Account;
and (ii) the terms on which the Government Payor Account are established shall
provide that the bank at which such account is maintained shall be subject only
to the instructions of PC with respect to such account. Subject to the
requirements of this Section 3.7.6, PC shall instruct the bank at which the
Government Payor Account is maintained to transfer on a daily basis all of the
funds deposited in the Government Payor Account on such day to a Bank Account
(as defined in Section 3.11). Upon Manager’s reasonable request, PC shall
execute and deliver to the financial institution where the Government

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Payor Account is maintained, such additional documents or instruments as may be
necessary to effect the provisions of this Agreement.
3.7.7 Other Actions. To take such other actions relative to billing, collection
of fees, and financial matters, including the review and revision, as necessary,
of the PC’s credit and collection policies, in connection with the PC provision
of the Medical Services as are appropriate and consistent with sound business
practice and the purposes of this Agreement.
     The Power of Attorney shall be coupled with an interest and shall be
irrevocable during the Term. The Power of Attorney shall expire on the later of
the (i) termination of this Agreement, or (ii) the collection, sale or release
of all accounts receivable generated by the PC’s practice prior to the effective
date of such termination, and the payment of all amounts due to the Manager as
of such effective date. The Parties agree to revise the terms of this
Section 3.7 as necessary to comply with applicable law.
3.8 PC Determines Medical Fees
     In no event shall the Manager have any control over or responsibility for
the establishment or determination of the professional fees charged by the PC
for the Medical Services. Subject to the foregoing, the Manager shall provide to
the PC such information and materials as are appropriate to assist the PC in
maintaining a competitive fee schedule, and shall have the right to review and
comment on the professional fee schedule proposed to be charged by the PC for
the Medical Services prior to the implementation of such fee schedule; provided,
however, that the final decision regarding all fees charged by the PC for
Medical Services shall be made by the PC in its sole and absolute discretion.
The PC hereby agrees that all fees charged for the Medical Services shall be
reasonable and customary for the locality of its medical practice at the
Premises. The PC further agrees to consult with the Manager prior to the
implementation of any discounts or discounted fee schedules so that the Manager
may assist in making recommendations based on standards that are reasonable and
customary for the locality of the PC’s medical practice at the Premises.
3.9 Payment of PC Expenses
     Except as provided otherwise in this Agreement, (i) the Manager shall pay,
in the name of and on behalf of the PC, all bills, costs and expenses incurred
by the Manager on behalf of the PC, or otherwise incurred by the PC, in
accordance with this Agreement, including the payment of the Medical Fee as set
forth in Section 6.6.1; and (ii) bills, costs and expenses incurred by the
Manager on behalf of the PC, or otherwise incurred by the PC, in accordance with
this Agreement, and paid by the Manager, other than the Medical Fee, shall
constitute Manager Costs. Any and all payment of salaries and benefits for PC
employees or independent contractors, purchases of pharmaceutical products or
ancillary medical services (e.g., lab), and medical malpractice insurance shall
be paid in the name of and on behalf of the PC.

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3.10 Administrative Services
     The Manager, subject to the ongoing supervision and control of the PC,
shall conduct, or arrange for, manage, and coordinate all business and
administrative aspects of the PC’s provision of the Medical Services to patients
at the Premises. In connection therewith, the Manager shall supply, or arrange
for the supply of, to the PC the ordinary, necessary, or appropriate services
for the efficient provision of the Medical Services at the Premises, including,
without limitation, necessary clerical, accounting, purchasing, payroll, legal,
bookkeeping, banking and computer services, information management, printing,
postage and duplication services and medical transcribing services, unless
expressly provided otherwise in this Agreement. Without limiting the generality
of the foregoing, the Manager shall:
3.10.1 Scheduling. Handle the clerical aspects of patient intake registration
procedures and perform the clerical tasks necessary to schedule patient
appointments for the Medical Services, including follow-up services;
3.10.2 Records. Subject to applicable bookkeeping requirements, and the
provisions of this Agreement, provide administrative assistance to the PC in
connection with the maintenance and retention of the PC patient records
developed in connection with the provision of the Medical Services (but shall
have no responsibility for the creation or the contents of any such medical
records);
3.10.3 Personnel Policies. Assist and consult with the PC in developing,
reviewing and revising, as appropriate, non-medical personnel policies and
procedures if and when requested by the PC;
3.10.4 Non-Medical Quality Assurance. Assist in non-medical quality assurance
functions and provide all administrative support services, such as
administrative and secretarial services needed for the PC to undertake quality
assurance activities and to enhance the provision of the Medical Services;
3.10.5 Current Business Information. Keep current on medical, technical,
scientific and business information regarding the provision of Medical Services,
and provide such information to the PC for use in its clinical practice, if the
PC so desires, subject to confidentiality and non-disclosure covenants;
3.10.6 Consent Forms. As directed by the PC, complete the clerical aspects
necessary for preparing patient consent forms; provided, however, that the
content of such forms shall be determined by the PC and provided further that
the communication of medical information to patients shall solely be the
responsibility of the PC and the Medical Contractors;
3.10.7 Non-Clinical Training. Assist in providing non-clinical educational
programs for, and supervise non-clinical aspects of the training of the Medical
Contractors at the Premises;

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3.10.8 Financing Programs. Research, recommend and arrange for financing
programs for prospective patients who wish to have the Medical Services
performed; and
3.10.9 Aftercare Programs. Arrange for the provision of certain Aftercare
programs and services, such as researching area Aftercare providers for the PC
and handling any administrative functions of payment, if and when applicable;
provided that the referral to, or selection of, any particular Aftercare
provider for a patient shall be solely within PC’s discretion and medical
judgment.
3.11 Bank Account
     Following execution of this Agreement, the Manager shall establish one or
more bank accounts as agent for the PC (each a “Bank Account”). Subject to
Sections 3.7.5 and 3.7.6, on behalf of the PC, all funds collected from patients
receiving Medical Services at the Premises, whether collected by the PC, the
Physician Corporation or the Medical Contractors or by the Manager on behalf of
the PC, which relate to the provision of the Medical Services at the Premises,
shall be deposited in one or more Bank Accounts. To the extent permitted by law,
the Manager’s administrative functions hereunder shall include maintenance of
the Bank Account(s). The Manager may establish one or more deposit Bank Accounts
(each a “Deposit Account”) and one or more operating Bank Accounts (each an
“Operating Account”) and arrange for funds in any Deposit Account to be
automatically swept by the depository bank on a daily or other periodic basis
into any Operating Account. The Manager shall be the sole signatory on the
Operating Account(s).
3.12 Fiscal Matters
     The Manager shall establish and administer, or arrange for the
establishment and administration of, adequate accounting procedures, controls
and systems for the development, preparation and safekeeping of administrative
and financial records in connection with its duties and responsibilities, all of
which shall be prepared and maintained in accordance with applicable laws and
regulations. The Manager shall prepare or assist in the preparation of any other
financial statements or records that the PC may reasonably request. In addition,
the Manager shall prepare, or arrange for the preparation of, the PC’s tax
returns.
3.13 Medical Records
     The Manager shall advise and assist the PC in establishing, monitoring and
maintaining procedures and policies for the timely creation, preparation, filing
and retrieval of all medical records. All such medical records shall be retained
and maintained in accordance with all applicable state and federal laws,
provided that neither the Manager nor the PC will limit the rights of patients
to access their medical records. The PC shall obtain all patient consents,
authorizations or acknowledgements necessary or required by law to permit the
Manager access to such medical records for purposes of providing the Management
Services.

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3.14 Business Reports
     The Manager shall prepare management and decision support reports with
respect to PC efficiency and research on cost of labor and competitor pricing
relative to comparable markets.
3.15 Other Reports and Records
     The Manager shall timely create, prepare, file, review, analyze, and
interpret such additional reports and records as are reasonably necessary or
appropriate for the PC’s provision of high quality, cost-effective Medical
Services, and as reasonably requested by the PC.
3.16 Licensing of PROMETA™ Protocols
3.16.1 Grant of License Rights to PC. Subject to the terms and conditions of
this Agreement, Manager hereby grants to and PC hereby accepts, a limited
nontransferable (except as set forth in this Section 3.16), non-exclusive,
commercial license to operate and use the Licensed Technology identified
generally in more detail on Exhibit B in the provision of the Medical Services
at the Premises for the purposes set forth on Exhibit B without the right to
sublicense the foregoing rights (“Hythiam License”). PC acknowledges that
(i) this Agreement does not transfer any interest in the ownership or title of
any portion of the Licensed Technology; and (ii) PC shall not own any portion of
the Licensed Technology.
3.16.2 Term of License. The Hythiam License shall terminate in total
simultaneously with the expiration or termination for any reason of this
Agreement and shall terminate with respect to any Medical Contractor
simultaneously with the termination for any reason of the Professional Services
Agreement with that Medical Contractor.
3.16.3 License Restrictions. PC may use all or any part of the Hythiam Licensed
Technology only for the purposes set forth in this Agreement and only at the
Premises. Without limiting the generality of the foregoing, PC shall not, nor
shall authorize any third party to (and shall take reasonable measures designed
to prevent any third party from doing the same without authorization), (a) copy,
modify, market, reproduce, sell or distribute the Hythiam Licensed Technology
other than as actually necessary and then only in strict accordance with this
Agreement for delivery of Medical Services; (b) make the Licensed Technology or
services available to any Person, except the Medical Contractors who have been
authorized by Manager in writing as set forth on Exhibit B and who have been
informed by PC of the terms and conditions of this Agreement; (c) modify or
create derivative works based upon the Licensed Technology; (d) rent, lease,
grant a security interest in, or otherwise transfer or attempt to transfer any
rights in or to the Licensed Technology; or (e) remove, alter or deface any
legends, restrictions, product identification, copyright, trademark or other
proprietary notices from the Licensed Technology.

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3.16.4 PC Obligations. PC shall (a) keep the Licensed Technology free and clear
of any and all claims, liens and encumbrances incurred or caused by PC,
(b) ensure that the Professional Services Agreements it enters into with
Physician Contractors or any Physician Corporation obligate the Physician
Contractors and the Physician Corporation to comply with the terms and
conditions of this Section 3.16, and (c) notify Manager promptly if and when it
becomes aware of any use or disclosure of all or part of the Licensed Technology
not authorized by this Agreement. ANY USE OF ALL OR ANY PORTION OF THE LICENSED
TECHNOLOGY OUTSIDE THE SCOPE OF THE RIGHTS GRANTED IN THIS SECTION 3.16 IS
STRICTLY PROHIBITED.
3.16.5 Data Collection and Reporting. Manager has developed proprietary business
processes that it uses to process and report data generated from the use of the
Licensed Technology (“Data Reports”) on behalf of PC. As part of the Management
Services, Manager or its designated contractor may collect encounter, treatment
and outcomes data on behalf of PC, including follow-up patient surveys, in which
event it will provide, or arrange for the provision of, Data Reports to PC for
treatment performed by or on behalf of PC using the Licensed Technology, all as
set forth in more detail on Exhibit B (“Data Collection and Reporting”).
3.16.6 Aftercare Services. On PC’s behalf, Manager will arrange for Aftercare
(as defined in Exhibit B) for PC patients treated using the Licensed Technology
(“Aftercare Services”).
3.16.7 Use of Licensed Technology. PC agrees that its use of the Licensed
Technology will be in accordance with the terms of this Agreement and will
comply with all applicable Laws and third party payer requirements. Only PC
Medical Contractors who have received education and training on the use of the
Licensed Technology may use it and will have and maintain all training,
licenses, approvals, certification, equipment and information necessary for them
to safely and properly use the Licensed Technology. PC will report promptly to
Manager any knowledge it acquires that the Licensed Technology is being used in
a manner not in accordance with this Section 3.16, or otherwise with this
Agreement. Notwithstanding the foregoing, this Section 3.16.7 is not intended to
restrict or limit in any way each Medical Contractor’s responsibility to
exercise his or her clinical judgment in treating patients, but instead to
protect Manager’s interest in and to its Licensed Technology and the integrity
of that Licensed Technology. For the avoidance of doubt, PC has no obligation to
treat any patient using the Licensed Technology and the decision about how to
treat any patient and whether or not to use the Licensed Technology or any other
treatment protocol or regimen is solely within PC’s discretion.
3.16.8 Clinical Activities. The Licensed Technology is provided by Manager to PC
and/or to any Medical Contractor as additional points of information and not, in
whole or in part, as medical advice, diagnosis or treatment recommendations. The
Parties acknowledge and agree that Manager in performing its obligations under
this Agreement is providing access to technology and management and support
services only and will not be delivering patient care and will not be sponsoring
or performing human subjects research. PC , as between the Parties, and/or
Medical Contractors, as

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appropriate consistent with applicable Law, control and are fully responsible
for any and all patient care, Aftercare and/or research activity delivered by PC
or Medical Contractors using the Licensed Technology. PC and Medical Contractors
shall at all times exercise their independent medical judgments when treating
patients, providing Aftercare, referring to other providers, or performing
research using the Licensed Technology.
3.16.9 Subject Data. Manager acknowledges and agrees that, as between the
Parties, all patient medical records shall be the property of PC. PC agrees that
to the extent necessary for Manager to perform its obligations under this
Agreement and to the extent permitted by Law, including but not limited to in
accordance with any patient authorizations that meet the requirements of
applicable Law, Manager shall have access at all times to all patient records
for patients provided care using the Licensed Technology (“Subject Data”). In
addition, PC shall provide the Subject Data to Manager for prompt downloading
and/or processing in an agreed-upon format to the extent maintained by PC, PC
personnel or PC staff physicians, to the extent permitted by Law. The Business
Associate/Data Use Agreement attached to this Agreement as Exhibit D shall
govern the use and disclosure by Manager of the Subject Data.
3.16.10 Patient Consents; Regulatory Approvals. PC shall be solely responsible
for seeking any and all necessary patient consents or authorizations, and
obtaining any and all approvals or licenses from regulatory bodies or other
authorities that are required by applicable Laws or PC policy for Manager’s
delivery of the Management Services, PC’s use of the Licensed Technology, and
the provision of the Subject Data to Manager, all in accordance with this
Agreement, including but not limited to, seeking any authorizations or consents
necessary for disclosure of data to Manager by Aftercare providers to the extent
Manager requires such data to perform its obligations under this Agreement.
Without limiting PC’s obligations in the foregoing sentence, PC shall provide
Manager advance written notice if it determines it needs any regulatory
approvals or licenses for its use of the Licensed Technology. PC acknowledges
Manager may conduct or sponsor research that is not part of Manager’s
obligations under this Agreement and PC shall seek patient authorizations or
consents as required by Law and in accordance with Law for provision of the
Subject Data to Manager for its own research purposes.
3.16.11 Reservation of Rights. All rights and licenses of any kind in the
Licensed Technology not expressly granted in this Agreement are reserved
exclusively to Manager. There shall be no licenses by implication to the PC or
any Medical Contractor under this Agreement, and PC agrees not to attack or
contest Manager’s ownership and rights to the Licensed Technology in connection
with this Agreement.
3.16.12 Manager Ownership. PC acknowledges and agrees that all right, title and
interest in and to the Licensed Technology shall be solely and exclusively owned
by Manager. If PC creates, conceives, develops, invents or reduces to practice
any inventions (whether or not patentable), documented records of invention or
patent disclosures, derivative works, continuations, continuations-in-part,
enhancements, trade secrets, know-how, show-how, discoveries, improvements,
innovations, ideas, industrial

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models, processes, methods, formulae, compositions, findings, research and
development information, data, databases, content, electronic data files,
training manuals, user guides, manufacturing, engineering and technical
drawings, manufacturing and production processes and techniques, software and
computer programs (in object code and source code), business information and
plans, technical knowledge and information, maintenance information, mask works,
integrated circuit topographies, confidential information, and all other items
with similar characteristics, arising out of or related to the Licensed
Technology (collectively, the “Licensee Modifications”), PC agrees to assign,
and hereby irrevocably assigns, all of PC’s right, title and interest in and to
the Licensee Modifications to Manager, including any Intellectual Property
rights. PC agrees to take or cause to be taken such further actions, to execute,
deliver and file or cause to be executed, delivered and filed such further
instruments, documents and agreements, and will obtain such consents or waivers,
as may be necessary or as may be reasonably requested in order to fully
effectuate the purposes, terms and conditions of this Agreement at Manager’s
cost. PC further agrees to ensure that all PC and Medical Contractors who are
involved in any way with the Licensee Modifications agree (i) to assign and do
assign all of their right, title and interest in the Licensee Modifications,
including, without limitation, all Intellectual Property, to PC (who in turn
shall assign and hereby assigns the same to Manager as set forth in this
Section 3.16.12) and/or to assign all such rights directly to Manager; and
(ii) to waive all moral rights and agree to never assert any moral rights in the
Licensee Modifications. PC agrees that for purposes of this Agreement the term
“moral rights” means any rights of paternity or integrity, including any right
to claim authorship of a copyrightable work, to object to a modification of such
copyrightable work, and any similar right existing under the judicial or
statutory law of any country in the world or under any treaty, regardless of
whether or not such right is denominated or generally referred to as a “moral
right.” PC hereby waives and agrees never to assert any moral rights that PC may
have in any Licensee Modifications, and PC hereby further agrees to obtain
waivers from PC and Medical Contractors to any moral rights that they may have
in any Licensee Modifications. Manager shall be solely entitled to and shall be
solely responsible for, at its sole expense, filing, having filed, prosecuting,
having prosecuted, maintaining and having maintained all patents and patent
applications, as applicable, relating to the Licensee Modifications.
Notwithstanding the foregoing, PC shall be solely responsible for, at its sole
expense, compliance with any and all applicable laws, regulations, policies,
procedures and guidelines relating to the use of the Licensed Technology as set
forth in this Agreement. The Parties acknowledge and agree that upon creation
and assignment to Manager, the Licensee Modifications shall automatically
without further action by either Party become part of the Licensed Technology.
PC will promptly disclose and deliver to Manager all Licensee Modifications.
3.16.13 Intellectual Property. For purposes of this Agreement, “Intellectual
Property” shall mean all intellectual property and proprietary rights worldwide
(whether or not registered or registrable, patented or patentable) including,
without limitation, patents, patent applications or filings, copyrights,
trademark rights, trade secret rights, discoveries, improvements, moral rights,
semiconductor chip rights, and rights in ideas,

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inventions, innovations, industrial models, processes, methods, formulae,
compositions, findings, research and development information, databases,
industrial designs, content, electronic data files, training manuals, user
guides, drawings, techniques, software, computer programs (in object code and
source code), business information, business plans, technical knowledge,
technical information, maintenance information, brochures, labels, mask works,
integrated circuit topographies, and all other items with similar
characteristics, along with all other similar rights and all applications,
registrations, divisionals, continuations, continuations-in-part,
re-examinations, extensions, reissues and foreign counterparts and documented
records of invention or patent disclosures or the like in and to any and all of
the foregoing. Intellectual Property shall not include the Subject Data, but
will include (i) any de-identified information or database created using the
Subject Data, (ii) the underlying formats and designs of any reports or other
materials containing all or any part of the Subject Data and capable of
intellectual property protection, and (iii) other information or other materials
created, derived, developed, improved or otherwise obtained by or on behalf of a
party directly or indirectly using the Subject Data.
3.16.14 Disclaimer Of Warranties. PC ACKNOWLEDGES AND AGREES THAT THE LICENSED
TECHNOLOGY AND SERVICES PROVIDED, BEING LOANED, AND/OR LICENSED TO PC ARE
PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS WITH NO WARRANTY OF ANY KIND.
WITH RESPECT TO THIS AGREEMENT HYTHIAM MAKES NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE REGARDING THE LICENSED TECHNOLOGY OR ANY OTHER
MATERIALS OR INFORMATION PROVIDED UNDER THIS AGREEMENT. ADDITIONALLY, WITH
RESPECT TO THIS AGREEMENT HYTHIAM MAKES NO REPRESENTATIONS OF ANY KIND, EXPRESS
OR IMPLIED, REGARDING THE SAFETY OR EFFICACY OF THE LICENSED TECHNOLOGY, THAT
THE LICENSED TECHNOLOGY WILL OPERATE IN A MANNER THAT IS UNINTERRUPTED OR
ERROR-FREE, OR REGARDING ANY OTHER SUBJECT MATTER OF THE AGREEMENT.
3.16.15 Limitation of Liability. HYTHIAM ASSUMES NO LIABILITY OR RESPON-SIBILITY
FOR HOW PC OR ANY MEDICAL CONTRACTOR USES THE LICENSED TECHNOLOGY FOR OR IN
CONNECTION WITH ANY DIAGNOSIS OR TREATMENT MADE OR PROVIDED IN CONNECTION WITH
OR RELIANCE ON THE LICENSED TECHNOLOGY, OR FOR INJURY TO PERSONS OR PROPERTY
ARISING FROM THE USE OF THE LICENSED TECHNOLOGY. NOT WITHSTANDING ANY OTHER
PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY
FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY
KIND, INCLUDING BUT NOT LIMITED TO LOST REVENUES OR LOST PROFITS, LOSS OF
BUSINESS OR GOODWILL OR LOSS OF DATA, IN ANY WAY ARISING OUT OF, RELATED TO OR
IN CONNECTION WITH THIS AGREEMENT, EVEN IF ADVISED OR OTHERWISE HAS REASON TO
KNOW OR KNOWS OF THE POSSIBILITY OF SUCH DAMAGES.

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3.16.16 Debarment or Exclusion. Each Party hereby represents and warrants that
neither it, nor any of its principals, officers, employees or agents providing
services under this Agreement, is and at no time has been excluded from
participation in any federally funded health care program, including Medicare
and Medicaid. Each Party hereby agrees to immediately notify the other Party of
any threatened, proposed, or actual exclusion from any federally funded health
care program, including Medicare and Medicaid. In the event that either Party is
excluded from participation in any federally funded health care program during
the Term of this Agreement, or if at any time after the Effective Date of this
Agreement it is determined that the excluded Party is in breach of this Section,
this Agreement shall, as of the effective date of such exclusion or breach,
automatically terminate.
3.16.17 Government Access. If applicable, the Parties shall comply with the
provisions of Section 1861(v)(1)(l) of the Social Security Act and shall make
available, upon written request of the Comptroller General of the United States
or the Secretary of the United States Department of Health and Human Services or
any of their duly authorized representatives, any books, documents and records
that are necessary to verify the nature and extent of the costs incurred by
either Party under this Agreement. In addition, each Party shall cooperate with
the other Party and provide reasonable access to books and records pertaining to
this Agreement and the performance of its obligations to the extent reasonably
necessary for compliance with any governmental agency review or audit of the
other Party.
3.17 Licensing of Name
3.17.1 Grant of License. In conjunction with the provision of the Medical
Services at the Premises, the Manager hereby grants to the PC a non-exclusive
and non-assignable license, during the Term to use the Trademarks set forth on
Exhibit A (“Trademarks”), and such other trade name as may be chosen by the PC
with the prior consent of the Manager in the future, subject to the PC’s
compliance with applicable legal and regulatory requirements including, without
limitation, fictitious name statutes (collectively referred to as the “Trade
Name”). The PC shall use the Trade Name only in connection with the provision of
the Medical Services at the Premises in accordance with this Agreement. All
intellectual property rights in and to the Trade Name, and any additions
thereto, shall be and remain the property of the Manager. Any application for
registration by the PC for such Trade Name which may be permitted or required by
the statutes or laws of any governing body, except for any applicable fictitious
name statutes in the State of California, shall specify that the PC’s use of the
Trade Name is pursuant to a license from Manager and is limited to the Premises
at which the Medical Services are provided and further limited by the terms of
this Agreement. Except as provided in Section 3.17.2, no property right in or
privilege to use the Trade Name is created hereby which will extend beyond the
expiration or termination of this Agreement. The PC agrees to assist the
Manager, at the expense of the Manager, to the extent necessary in the
procurement of any protection of the Manager’s right to the Trade Name
including, without limitation, the filing of a trademark application with the
U.S. Patent and Trademark Office. Recognizing the special and unique value of
the Trade Name to the Manager, the PC agrees that it shall take no action nor
permit any

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action to be taken that shall materially detract from the high level of quality
and value associated with the Trade Name and the ownership and enjoyment of same
by the Manager, except for action which has been approved by the Manager
pursuant to the terms of this Agreement.
3.17.2 Termination of License. After the expiration or termination of this
Agreement for any reason, the PC shall (a) cease using the Trade Name in all
respects and refrain from making any reference on its letterhead or other
publicly disseminated information and materials to its former relationship with
the Manager; (b) take any and all action required, including execution of
appropriate documents, to make the Trade Name available for use by another
person or entity designated by the Manager; and (c) not use or otherwise seek
the benefits of the Trade Name so as to derogate from the full and complete
ownership and enjoyment of the same by and for the benefit of the Manager.
3.17.3 Injunctive Relief. The PC acknowledges that the PC’s failure to comply
with this Section 3.17 will result in immediate and irreparable damage to the
Manager and its affiliates. The PC acknowledges and agrees that in the event of
such failure, the Manager shall be entitled to seek injunctive or other
equitable relief without posting bond or other security, in addition to any
other remedies which may be available in accordance with this Agreement.
3.18 Advertising, Marketing and Promotional Services
3.18.1 Advertising Services. The Manager shall conduct, manage, and coordinate
all advertising, marketing and promotional services in connection with the PC’s
provision of the Medical Services at the Premises. The PC shall cooperate with
the Manager in the performance of such services including, without limitation,
consulting with the Manager concerning the content of proposed Advertising
Materials (as defined in Section 3.18.1(a)). It is hereby understood and agreed
between the Parties that, subject to applicable legal and regulatory
requirements, the Manager may advertise, market and promote the Medical Services
and the Company Business jointly in the same programs and through the same
Media. Without limiting the generality of the foregoing and subject to
applicable standards of medical ethics, laws, and regulations, the Manager may:

  (a)   Develop, create, implement and produce, or arrange for the production
of, all forms of advertising, marketing and promotional programs and materials,
including, without limitation, network television and cable television
commercials and infomercials, radio commercials, brochures, pamphlets and other
materials of a similar nature (collectively, “Advertising Materials”) promoting
the Medical Services at the Premises;     (b)   Purchase media for the
broadcast, cablecast, radiocast, publication, non-active electronic (excluding
interactive media) or other distribution of commercial advertisements
(collectively, “Media”) produced by or on

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      behalf of the Manager to promote the Medical Services and the Company
Business;     (c)   Provide and/or arrange for the provision and maintenance of
one or more Web sites to provide information about and/or promote the Medical
Services; and     (c)   Conduct public information programs concerning the
Medical Services offered at the Premises.

3.19 Non-Exclusivity
     The PC acknowledges that the Manager will be performing the Company
Business at the Premises and at other locations during the Term. This Agreement
shall not prevent the Manager from performing the Management Services or other
services for any of its affiliates or other independent contractors, or restrict
the Manager from using for the benefit of any of its affiliates or other
independent contractors, the Trade Name, or any of the Manager Employees or
other persons who are performing Management Services pursuant to this Agreement.
The decision as to which Manager Employees are to be employed at what time and
for what purposes shall be solely within the Manager’s discretion.
ARTICLE 4.
COVENANTS AND RESPONSIBILITIES OF THE PC
4.1 Organization and Operation
     The PC shall at all times during the Term be, and remain, legally organized
and operated to provide the Medical Services in a manner consistent with all
state and federal laws. The PC represents and warrants that it shall not provide
any patient care services in the Premises other than professional services
related to the Medical Services, and shall not use any facilities, equipment,
supplies or services in the Premises other than in connection with the Medical
Services, all in accordance with this Agreement.
4.2 Retention of Medical Contractors
     The PC shall have complete control and responsibility for the hiring,
compensation, supervision, training, evolution and terminations of its Medical
Contractors, although at the request of the PC, the Manager may consult with the
PC with respect to such matters. The Manager acknowledges and agrees that the PC
shall be retaining the services of its Medical Contractors who are physicians
(the “Physician Contractors”) through a medical services agreement
(“Professional Services Agreement”), a current copy of which is attached to this
Agreement as Exhibit C. PC may retain Physician Contractors by entering into a
Professional Services Agreement with a third party professional corporation that
employs or retains those Medical Contractors (“Physician Corporation”). Any
reference in this Agreement to Medical

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Contractors or Physician Contractors shall include any Physician Corporation. If
at any time PC and any Physician Contractor materially amend the Professional
Services Agreement, PC promptly shall provide Manager with a copy of the amended
agreement. Pursuant to the Professional Services Agreement, the Physician
Contractor will provide to the PC the Medical Services as described in the
Professional Services Agreement. None of the PC, any Physician Corporation or
the Medical Contractors shall have any claim under this Agreement or otherwise
against the Manager for workers compensation, unemployment compensation or
social security benefits, all of which shall be the responsibility of the PC
and/or the Physician Corporation. It shall be the PC’s sole responsibility to
ensure that the Physician Corporation and its Physician Contractors and other
employees who may have malpractice exposure or liability, are insurable and have
maintained appropriate amounts of professional liability insurance.
4.3 Professional Standards
     The PC shall provide Medical Services to patients at the Premises in
compliance at all times with ethical standards, laws, rules and regulations
applicable to the operations of the PC and Medical Contractors. The PC shall
ensure that each Medical Contractor has all required licenses, credentials,
approvals or other certifications to perform his or her duties and services for
the PC at the Premises. In the event that any disciplinary action or medical
malpractice action is initiated against any Medical Contractor, the PC shall
promptly inform the Manager of such action and the underlying facts and
circumstances. The PC shall develop and carry out a program to monitor the
quality of medical care practices at the Premises to ensure that it meets the
standard of care that is customary for the locality of the medical practice at
the Premises. The PC shall retain a sufficient number of properly trained and
experienced Medical Contractors as are necessary to provide the Medical Services
to the average number of patients of the PC at the Premises as reasonably
estimated by the Parties on a monthly basis consistent with the volume of
patients that received Medical Services in the previous month.
4.4 Medical Practice
     The PC shall use and occupy the Premises exclusively for providing Medical
Services. It is expressly acknowledged by the Parties that the medical practice
shall be conducted solely by Medical Contractors and no other physician or
medical practitioner shall be permitted to occupy the Premises without the
Manager’s written consent.
4.5 Compliance with Laws
     The PC shall, and it shall use its best efforts to cause the Medical
Contractors to, comply with all applicable federal, state and local laws, rules,
regulations and restrictions (“Law”) in the provision of the Medical Services.
Without limiting the generality of the foregoing, the PC shall comply, and shall
use its best efforts to cause each Medical Contractor to comply, with all
Medical Waste Laws applicable to the operation of the Premises in the
generation, transportation, treatment, storage, disposal

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or other handling of Medical Waste (to the extent that the PC or the Medical
Contractors engage in such activities), and the PC shall not, and shall use its
best efforts to forbid any Medical Contractor, to enter into any contract,
lease, agreement or arrangement, including, but not limited to, any joint
venture or consulting agreement, to provide services, lease space, lease
equipment or engage in any other venture or activity with any physician,
hospital, pharmacy, home health agency or other person or entity which is in a
position to make or influence referrals to, or otherwise generate business for,
the PC, if such transaction is in violation of any applicable law, rule or
regulation.
4.6 Premises and Equipment
     The PC shall use commercially reasonable efforts to prevent damage,
excessive wear and tear, and malfunction or other breakdown of the Premises and
Equipment or any part thereof by the Medical Contractors. The PC shall promptly
inform the Manager of any and all necessary replacements, repairs or maintenance
to any of the Premises or Equipment and any failures of Equipment of which the
PC becomes aware. Once provided to the PC, the PC shall comply with all of the
covenants and provisions regarding the use of the Premises as set forth in the
subleases for the Premises and all covenants and provisions regarding actual use
of the Equipment as set forth in any applicable Equipment leases, but only to
the extent that any such Equipment leases have been delivered to the PC.
4.7 Delegation by the Provider
     Except as otherwise allowed under this Agreement, the PC shall not delegate
any of its obligations under this Agreement to any other person or entity, hire
any non-medical employees or engage any non-medical independent contractors or
consultants in connection with the provision of the Medical Services, without
the consent of the Manager.
ARTICLE 5.
RELATIONSHIP OF THE PARTIES
5.1 Medical Practices
5.1.1 Delivery of Medical Services. The PC shall be solely and exclusively in
control of all aspects of the practice of medicine and the delivery of Medical
Services at the Premises. The provision of all medical professional services,
including, but not limited to, medical consultation with patients, both
prospective and actual, diagnosis, treatment, surgery, therapy, the prescription
of medicine and drugs, and the supervision and preparation of medical reports
and records shall be the sole responsibility of the PC.

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5.1.2 Quality. The PC shall at all times be solely responsible for the quality
of the Medical Services it provides, it being agreed that the Manager shall have
no responsibility or liability for such services.
5.1.3 Manager Not Practicing Medicine. It is acknowledged that the Manager is
not competent or authorized to engage in any activity that constitutes the
practice of medicine and that nothing contained in this Agreement is intended to
authorize the Manager or the Manager Employees to engage in the practice of
medicine. To the extent that any act or service required of the Manager under
the terms of this Agreement is construed or considered to constitute the
practice of medicine, this Agreement shall be immediately and automatically
amended so as not to require the performance of such act or service by the
Manager.
5.2 Independent Contractors
     The PC and the Manager intend to act and perform as independent
contractors, and the provisions of this Agreement are not intended to create any
partnership, joint venture, agency (other than as provided herein) or employment
relationship between the Parties. The PC and the Manager agree that the PC shall
retain the exclusive authority to direct the medical, professional and ethical
aspects of its medical practice. The Manager shall neither exercise control over
nor interfere with the physician-patient relationships of the PC, which shall be
maintained strictly between the Medical Contractors and the PC’s patients. The
Management Fee has been determined by the Parties through good faith and
arm’s-length bargaining to be the fair market value of the Management Services.
No amount paid or advanced hereunder is intended to be, nor shall it be
construed to be, an inducement or payment for referral of patients by the
Manager to the PC and any such inducement or payment for referral of patients is
expressly prohibited under this Agreement.
ARTICLE 6.
FINANCIAL TERMS
6.1 Manager Compensation
     In consideration for the Management Services that the Manager provides to
the PC in accordance with this Agreement, the PC agrees to pay the Manager on a
monthly basis, and the Manager shall accept as payment in full, a fee equal to
the aggregate amount of (a) the Manager’s costs of providing the Management
Services (including reasonable overhead costs of the Manager allocable to the
delivery of Management Services and including start-up costs such as
pre-operating salaries, rent, equipment, and tenant improvements incurred for
the benefit of the PC; provided that any capitalized expenses (including, for
purposes of this paragraph, all start-up expense) shall be amortized over a five
year period of time for purposes of inclusion) (the “Manager’s Costs”), (b) ten
percent (10%) of the Manager’s Costs and (c) any performance bonus amount, as
determined by the PC, in its sole discretion (collectively, the “Management
Fee”). For greater certainty, any performance bonus paid by the PC

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to the Manager shall be based solely on the Manager’s performance of the
Management Services and shall in no way be based on the provision of Medical
Services by the PC. Notwithstanding the foregoing, (i) third party medical care
expenses (e.g., the cost for any blood work, pharmaceutical products, or lab
work ordered by the PC) shall be included in Manager’s Costs at the Manager’s
actual cost for the payment for the service or supply for or on behalf of the
PC, without the application of any overhead costs of the Manager, and the cost
of these items will be deducted from Manager’s Costs prior to calculation of the
ten percent (10%) of Manager’s Costs set forth in (b) above; and (ii) any sales
commissions paid to Manager Employees or independent sales agents retained by
the Manager shall be excluded from Manager’s Costs.
6.2 Payment of Management Fee
     On or before the thirtieth (30th) day of each month during the Term of this
Agreement, beginning with the second such month, and continuing through the
month following the expiration or termination of this Agreement, the PC shall
pay the Manager the Management Fee, which payment shall relate to Management
Services furnished by the Manager for the preceding month.
6.3 Invoices
     In order to facilitate the payment by the PC for the Management Services,
the Parties agree that the Manager will prepare an invoice, in a format agreed
upon by the Parties (the “Manager Statement”) setting forth the Manager’s Costs
for the preceding month on an accrual basis and the monthly Management Fee
payment due to the Manager. The invoice shall be submitted to the PC on or
before the twentieth (20th) business day of the month following the month during
which the Management Services were provided.
6.4 Authorization to Pay Invoices
     The PC hereby authorizes and directs the Manager to make the following
payments on behalf of the PC from any Bank Account, in the order specified:
(1) the Medical Fee; (2) any obligations of PC related to PC’s employees (e.g.,
salary, benefits and administrative expenses specifically approved by PC);
(3) all third party obligations; and (4) any invoice owed by the PC to the
Manager and all other monetary obligations of the PC to the Manager hereunder on
the date such amount is due and payable (including, without limitation, the
Management Fee), (subparagraphs (1) through (4) above are referred to
collectively as the “Obligations”). In the event there are not sufficient monies
in the Bank Account(s) to pay any of the Obligations, Manager shall provide the
PC a revolving line of credit to be available as a working capital loan up to a
maximum amount of five hundred thousand dollars ($500,000) (“Working Capital
Loan”) to allow PC to pay such Obligations. PC shall execute and deliver to
Manager a promissory note, dated the Effective Date and payable to the order of
Manager, evidencing PC’s unconditional obligation to repay Manager for the
Working Capital Loan. The Working Capital Loan shall be repaid by PC, with
interest equal to prime

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plus two percent (2%), as funds become available; provided, however, upon
termination of this Agreement, the entire principal balance and all other costs,
fees and expenses, if any, shall be due and payable in full. The Working Capital
Loan shall be secured as provided in Section 6.7.1. The Manager agrees that all
third party obligations shall be paid prior to any payments of the Management
Fee each month.
6.5 Records and Audit of Accounts
     The Manager shall keep records of the Manager Costs for each month during
the Term of this Agreement. The Manager shall provide the PC with all data that
the PC deems necessary to verify the Management Services performed and the
Manager Costs during each calendar month. Either Party shall have the right, at
its sole expense, through an auditor mutually acceptable to the Parties, to
audit the other Party’s books and records to confirm the accuracy of the Manager
Costs, the Management Fee, and/or any other financial information relating to
this Agreement. Such audits may be conducted at any time upon reasonable notice,
and such audits shall be conducted at such times and locations as are reasonably
acceptable to the Parties.
6.6 Physician Contractor Compensation
6.6.1 Medical Fee; Initial Term. As full and complete compensation for the
Medical Services that any Physician Contractor will provide to the PC, the PC
shall pay, and the Physician Contractor shall receive, the medical fees set
forth in the applicable Professional Services Agreement (the “Medical Fees”).
6.6.2 Renewal Terms. Payment of the Medical Fees for any Renewal Term shall be
determined as set forth in the Professional Services Agreement.
6.6.3 Payment and Statements. The Manager shall pay, in the name of and on
behalf of the PC, payments of the Medical Fees from the Bank Account. The
payment of the Medical Fees shall have priority over the payment of the
Management Fee. Each payment of the Medical Fees shall be accompanied by a
statement prepared by the Manager setting forth the manner in which the Medical
Fees for the preceding calendar month was calculated. Upon written request by
PC, Manager will provide PC with a copy of the bank statement for the Bank
Account for the month at issue.
6.7 Grant of Security Interest in Accounts
6.7.1 Grant of Security Interest. The PC hereby grants, pledges and assigns to
the Manager a security interest in all of the PC’s assets, including, but not
limited to, accounts receivable (including all rights to payment by any
insurance company or prepaid managed care organization to the extent permitted
by law), whether now existing or hereafter acquired and in and to all products
and proceeds thereof, substitutions therefore and additions thereto
(collectively, the “Collateral”), to secure the payment of the Working Capital
Loan. Collateral shall not include any assets separately (personally) owned by
Physician Contractors.

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          In furtherance of the grant of the security interest, the PC hereby
agrees (i) to deliver to the Administrative Agent any and all instruments
constituting part of the Collateral, each endorsed and/or accompanied by any
instrument of assignment and (ii) to authorize, execute and deliver, and
consents to the filing of, all financing statements, notices, instruments,
documents or other papers, each as may be necessary or desirable, or as the
Manager may direct, to create, preserve, perfect or validate the security
interest granted above or to enable the Manager to exercise and enforce its
rights hereunder.
6.7.2 Exercising Remedies. In the event any of the Obligations are not paid when
due or upon any default by the PC of any term or condition hereunder with
respect to the Obligations, the Manager may, with or without terminating this
Agreement, exercise all rights and remedies afforded a secured party under the
Uniform Commercial Code in the State of California.
6.7.3 Financial Statements. The PC agrees to execute all financing or
continuation statements or other documents which may be necessary or desirable,
or as the Manager may request, in order to perfect and preserve the security
interest(s) granted or purported to be granted under this Agreement. The PC
authorizes the Manager to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the collateral without
the signature of the PC where permitted by law. The PC hereby appoints the
Manager as the PC’s true and lawful attorney-in-fact, with full power of
assignment and substitution, to take possession of the Accounts of the PC and
endorse in the name of the PC any notes, checks, money orders, insurance
payments or other instruments received in payment of such Accounts, or any part
thereof; to collect, sue on and satisfy the obligation of monies due on such
Accounts; and to initiate or withdraw claims, lawsuits or proceedings pertaining
to, arising out of, or relating to the Manager’s right to such Accounts or any
collections therefrom.
6.8 License Fee
6.8.1 License Fees. PC shall pay Manager the license fees set forth on Exhibit B
(“License Fees”).
6.8.2 Payment Terms. PC will deliver every two (2) weeks during the Term to
Manager (i) a report identifying the number and type of patients treated using
the Licensed Technology during the two-week period covered by the report, the
total fees charged to those patients, the amounts collected to date with respect
to those patients, and License Fees payable to Manager based on those
treatments; and (ii) a check or other readily available funds payable to Manager
in the amount of the License Fees (computed as provided in this Section 6.8.2
and Exhibit B), and including any Aftercare Service Fees that may have accrued
since the cutoff date for the previous report (or from the Effective Date in the
case of the first report), by mailing or delivering them to the Manager’s
address and person identified on the first page of this Agreement (unless and
until otherwise directed by Manager). Within ten (10) days after receipt of each
report and/or following each reconciliation meeting (as defined in
Section 6.8.3),

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Manager will invoice PC for any additional License Fees due under this
Agreement, and PC will pay any undisputed invoices within thirty (30) days after
receipt by PC. Notwithstanding any other provision of this Agreement and subject
to the terms of the Aftercare Services set forth in Exhibit B, Manager in no
event or circumstance is or shall be responsible for any costs of, or related
to, patient care provided by PC, or extended or unanticipated care required for
patients treated using the Licensed Technology.
6.8.3 Reconciliation. To facilitate payment and compliance with the terms of
this Agreement, at Manager’s request, the Parties will meet no less frequently
than monthly and no more frequently than every two weeks for purposes of
reconciling License Fees. In addition, PC will investigate and resolve promptly
and thoroughly any evidence that all or any part of the Licensed Technology is
being used at PC in cases that are not reported for purposes of this
Section 6.8. Any such unreported uses of the Licensed Technology shall be
included by PC in the next two-week report (as defined in Section 6.8.2).
Manager shall have the right at least once during any 12-month period during the
Term and upon at least fifteen (15) days advance notice to engage a third party
accounting firm to review and audit PC books and records during normal business
hours to the extent reasonably necessary to reconcile License Fees and ensure
Manager receives the License Fees in compliance with this Agreement
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of the PC
     The PC hereby makes the following representations and warranties to the
Manager:
7.1.1 Organization. The PC is a professional corporation duly organized, validly
existing and in good standing under the laws of the State of California, has
full power and authority to own or lease its property and to carry on its
business as now being conducted.
7.1.2 No Violation – Professional Services Agreement. To the best of its
knowledge, neither the execution and delivery of this Agreement or any
Professional Services Agreement, nor the consummation of any transactions
contemplated hereby or thereby, nor the performance of the PC’s obligations
hereunder or thereunder, will (a) violate any constitution, law, statute,
regulation, or rule, (b) violate any injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency, or
court to which the PC is subject, (c) violate any provision of the Certificate
of Incorporation or bylaws of the PC or any Physician Corporation, or (d)(i)
conflict with, (ii) result in a breach of, (iii) constitute a default under,
(iv) result in the acceleration of, (v) create in any Party the right to
accelerate, terminate, modify, or cancel, or (vi) require any notice under, any
other agreement, contract, lease, license, instrument, franchise, permit or
other arrangement to which the PC or Medical Contractor is a party or by which
the PC or Medical Contractor is bound.

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7.1.3 No Violation – Medical Contractor Agreements. PC represents and warrants,
and has required each Medical Contractor to represent and warrant, to the best
of its knowledge that neither the execution and delivery of this Agreement or
the Professional Services Agreements entered into with the Medical Contractors
(the “Medical Contractor Agreements”), nor the consummation of the transactions
contemplated under any of the foregoing agreements, nor the performance of the
PC’s or Medical Contractors’ obligations under any of the foregoing agreements,
will (a) violate any constitution, law, statute, regulation or rule, (b) violate
any injunction, judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency, or court to which such parties are subject,
(c) violate any provision of the Certificate of Incorporation or bylaws of PC or
any Physician Corporation, or (d)(i) conflict with, (ii) result in a breach of,
(iii) constitute a default under, (iv) result in the acceleration of, (v) create
in any party the right to accelerate, terminate, modify, or cancel, or
(vi) require any notice under, any agreement, contract, lease, license,
instrument, franchise, permit or other arrangement to which the PC or Medical
Contractor is a party or by which the PC or the Medical Contractor is bound.
7.1.4 Covenant Regarding Trade Secrets. That it has required any Physician
Corporation to represent and warrant that the Physician Corporation has entered
into a Medical Contractor Agreement with each of the Physician Contractors and
that each of such Medical Contractor Agreements contains a covenant prohibiting
the Physician Contractor’s unauthorized use or disclosure of the PC’s or
Manager’s trade secrets.
7.1.5 Licensed Medical Contractors. Each of the Medical Contractors are (or will
be prior to providing any services hereunder or under the Professional Services
Agreement) duly licensed, as applicable, within their respective professions in
the State of California and hold (or will hold prior to providing any services
hereunder or under the Professional Services Agreement) all necessary licenses
and rights to enable the PC to perform its obligations hereunder. The PC has all
permits, license, orders and approvals of all federal, state and local
government or regulatory bodies required of it to carry out its obligations
hereunder. To the best of its knowledge, the PC is in compliance with all
applicable laws and regulations.
7.1.6 Insurance. The PC has (or will have prior to the commencement of the
Medical Services) all the professional liability insurance described in
Section 8.2 (collectively, the "Policies”). Schedule 7.1.6 sets forth a true and
correct list of all Policies (including binders, declaration pages and
endorsements) that the PC has or will have prior to the commencement of the
Medical Services. The PC shall deliver true and complete copies of all Policies
to the Manager prior to the commencement of the Medical Services.
7.2 Representations and Warranties of the Manager
     The Manager hereby makes the following representations and warranties to
the PC:

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7.2.1 Organization. The Manager is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, is duly
qualified as a foreign corporation in the State of California and has full power
and authority to own or lease its property and to carry on its business as now
being conducted.
7.2.2 No Violation. To the best of its knowledge, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the performance of the Manager’s obligations hereunder,
will (a) violate any constitution, law, statute, regulation or rule, (b) violate
any injunction, judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency, or court to which the Manager is subject,
(c) violate any provision of the Certificate of Formation or Operating Agreement
of the Manager, or (d)(i) conflict with, (ii) result in a breach of,
(iii) constitute a default under, (iv) result in the acceleration of, (v) create
in any party the right to accelerate, terminate, modify, or cancel, or
(vi) require any notice under, any agreement, contract, lease, license,
instrument, franchise, permit or other arrangement to which the Manager is a
party or by which the Manager is bound. The Manager has all permits, licenses,
orders and approvals of all federal, state and local government or regulatory
bodies required of it to carry out its obligations hereunder. To the best of its
knowledge the Manager is in compliance with all applicable laws and regulations.
7.2.3 Trade Name. The Manager is duly authorized to license the Trade Name to PC
and, to the knowledge of the Manager, neither the Trade Name nor the license
granted to the PC, infringe upon the intellectual property rights of any third
party.
ARTICLE 8.
INSURANCE
8.1 Insurance Obligations of the Manager
     During the Term, the Manager will provide and maintain comprehensive
general liability and property insurance covering the Premises with such limits
and coverages as may reasonably be determined to be appropriate by the Manager.
The Manager shall use reasonable commercial efforts to have the PC named as an
additional insured on its comprehensive general liability and property insurance
policies. Certificates of insurance evidencing such policies shall be presented
to the PC within thirty (30) days after the execution of this Agreement
8.2 Insurance Obligations of the PC
     The PC shall obtain or require any Physician Corporation and each of its
Physician Contractors to obtain continuing liability insurance coverage under
either a “tail policy,” “prior acts policy” or other policy covering malpractice
actions asserted against the PC for a period of not less than two (2) years from
the termination of such Physician Contractor’s relationship with the PC, in the
minimum amounts of $1,000,000

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per incident, $3,000,000 in the aggregate, upon the termination of such
Physician Contractor’s relationship with the PC for any reason.
8.3 Notices from Insurance Companies
     Each of the parities shall arrange for its insurance carriers to agree to
provide the other Party with written notice, at least ten (10) days in advance
of the effective date, of any reduction, amendment, cancellation or termination
of any insurance required to be carried by such Party under this Agreement.
ARTICLE 9.
TERM AND TERMINATION
9.1 Initial and Renewal Term
     This Agreement shall commence on the Effective Date and shall continue
until terminated as provided in Section 9.2 (the “Term”).
9.2 Termination
     The Agreement shall terminate upon the occurrence of any of the following
events:
9.2.1 Without Cause. After the first year of the Term, at any time upon thirty
(30) days written notice by Manager to PC;
9.2.2 With Cause. Upon ten (10) days written notice by either Party to the
other:

  (a)   in the event that the other Party shall admit in writing its inability
to generally pay its debts when due, apply for or consent to the appointment of
a receiver, trustee or liquidator of all or substantially all of its assets,
file a petition in bankruptcy or make an assignment for the benefit of
creditors, or upon other action taken or suffered by such Party, voluntarily or
involuntarily, under any federal or state law for the benefit or creditors,
except for the filing of a petition in involuntary bankruptcy against such Party
which is dismissed within sixty (60) days thereafter; or     (b)   in the event
of a breach by the other Party of any of the material terms or conditions of
this Agreement, which is not remedied within thirty (30) days prior notice to
such Party, if capable of being remedied or, if capable of being remedied but
not within such period, such remedy has not been commenced in good faith within
such period; or     (c)   in the event of a breach by the other Party of any
material representation or warranty contained in this Agreement; or     (d)   as
provided in Section 12.2.2.

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9.2.3 Disciplinary Actions. By the Manager at any time, upon ten (10) days prior
notice to the PC, if (a) the PC or any Physician Contractor is convicted of or
disciplined for violating any federal, state or local law, rule or regulation
applicable to the PC or such Medical Contractor; or (b) the PC or any Medical
Contractor is otherwise disciplined by any licensing or regulatory authority,
the result of any of which events described in clause (a) or (b) does or
reasonably would be expected to materially adversely affect the PC.
9.3 Effect of Termination
     Upon termination of this Agreement, neither Party shall have any further
obligations hereunder except for obligations accruing prior to the date of
termination of this Agreement. Without limiting the foregoing, the PC and the
Manager specifically acknowledge and agree that the Manager shall continue to
bill and collect and receive on the PC’s behalf, in accordance with Section 3.7,
all charges and cash collections for accounts receivable with respect to all
items and services provided by or through the PC or the Medical Contractors
prior to the time of termination, it being understood that such cash collections
will be applied in accordance with Section 3.7, and will represent, in part, the
Manager’s compensation for Management Services already rendered. The PC shall
pay the Manager fair market value for any services provided by the Manager
pursuant to this Section 9.3 after termination of this Agreement.
     Upon the expiration or termination of this Agreement, the PC shall promptly
relinquish to the Manager all files, data or materials in its possession that
are Confidential Information (as defined in Section 10), except that the PC may
keep a copy of patient records to the extent permitted by and in compliance with
applicable law.
ARTICLE 10.
CONFIDENTIAL AND PROPRIETARY INFORMATION
10.1 Confidential Information
     In the operation and development of the Manager’s business, the Manager
generates technology, other intellectual property, information and data, which
is and will be proprietary and confidential (the “Confidential Information”),
the disclosure of which would be extremely detrimental to its business and of
assistance to its competitors. The Confidential Information includes, but is not
limited to:

  (i)   Statistical, financial, cost and accounting data;     (ii)   Data, plans
and projections regarding the location, development and expansion of existing
and proposed facilities;     (iii)   The Licensed Technology and any other
technology, software and other intellectual property;     (iv)   Administrative,
accounting, operations and policy and procedure manuals;

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  (v)   Market surveys, studies and analyses;     (vi)   Personnel and other the
Manager business records;     (vii)   Information concerning legislative,
administrative, regulatory and zoning requirements, bodies and officials;    
(viii)   Private or secret processes, methods and ideas;     (ix)   Training
methods;     (x)   Information concerning the identities, locations and
qualifications of professionals and other persons presently, or prospectively to
be, employed by the Manager; and     (xi)   Information concerning the
identities, locations, prices, costs, and other terms of dealings with referral
and reimbursement sources, suppliers, providers and supplier and provider
organizations and entities.

10.2 Confidentiality and Non-Disclosure
     Due to the highly competitive nature of the health care industry and the
business of the Manager, unauthorized use or disclosure of any of the
Confidential Information would be extremely damaging to the Manager. The PC
shall not (i) use any Confidential Information except as necessary to deliver
the Medical Services in the Premises in accordance with this Agreement; or
(ii) copy or divulge to any third party any Confidential Information without the
prior written consent of the Manager. The obligations set forth in this
Section 10.2 restraining use and disclosure of Confidential Information shall
survive the expiration or termination of this Agreement for any reason.
Confidential Information shall not include protected health information as
defined under HIPAA (“PHI”), but shall include (i) any de-identified information
or database created using PHI, (ii) the underlying formats and designs of any
reports or other materials containing all or any part of the PHI, and
(iii) other information or materials created, derived, developed, improved, or
otherwise obtained by or on behalf of a Party directly or indirectly using the
PHI. Any unauthorized use of Confidential Information or disclosure to the
extent, but only to the extent, required by Law to be made as the result of
legal process or proceedings is not a violation of this Section 10.
10.3 Patient Medical Records; HIPAA Compliance
     The PC agrees that it shall, and in the Professional Services Agreements
shall require the Physician Corporation and the Medical Contractors to, comply
at all times with all federal, state and local statutes, regulations and rules
relating to the use, disclosure and confidentiality of patient medical
information, including, without limitation, the privacy, security or
transactions and code sets regulations (“HIPAA Regulations”) promulgated
pursuant to the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”). The Parties acknowledge and agree that data or other information
disclosed to or obtained by Manager in performance of its obligations

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under this Agreement may be “protected health information” (“PHI”) as defined in
HIPAA or the HIPAA regulations, and agree to comply with the terms and
conditions of the Business Associate and Data Use Agreement attached at
Exhibit D.
ARTICLE 11.
INDEMNIFICATION

11.1   Indemnification

          Each Party shall indemnify and hold harmless the other Party, its
directors, officers, employees and agents from and against any and all
liabilities, losses, damages, claims, causes of action, judgments, liens and
expenses (including reasonable attorney’s fees and court costs), whether or not
covered by insurance (collectively “Claims”), resulting from or related to
(a) the acts or omissions of such Party, or such Party’s officers, directors,
employees, agents or subcontractors in connection with the performance of this
Agreement, or (b) the breach by such Party of any provision of this Agreement.
          PC shall indemnify and hold harmless Manager, its directors, officers,
employees and agents from and against any and all Claims resulting from or
related to any claims made by a third party alleging malpractice by the PC or
any of the Medical Contractors with respect to the provision of the Medical
Services.
          The Parties’ indemnification obligations set forth in this
Section 11.1 shall survive the expiration or termination of this Agreement for
any reason.
ARTICLE 12.
MISCELLANEOUS

12.1   Access to Records

          For a period of six (6) years after Management Services are furnished
under this Agreement, the PC shall make available to the Secretary of the U.S.
Department of Health and Human Services (the “Secretary”), the U.S. Comptroller
General (the “Comptroller General”) and their representatives, this Agreement
and all books, documents and records necessary to certify the nature and extent
of the costs of those Management Services and will provide such documentation as
they may reasonably require pursuant to Section 1861(v)1(l) of the U.S. Social
Security Act (42 U.S.C. § 1395(x)(v)(1)(l)) as amended and regulations
thereunder or any successor provisions. If the PC carries out any of the duties
of this Agreement through a subcontract worth Ten Thousand Dollars ($10,000) or
more over a twelve-month period with a related organization, the subcontract
will also contain a clause to permit access by the Secretary, Comptroller
General and their representatives to the related organization books and records
pursuant to such statute.

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12.2   Amendment

12.2.1 Amendment. No amendment of this Agreement shall be effective unless set
forth in writing and signed by the PC and the Manager.
12.2.2 Contract Modification for Prospective Legal Event. If both Parties to
this Agreement determine that any state or federal laws or regulations, now
existing or enacted or promulgated after the date of execution of this Agreement
are interpreted by judicial decision, a regulatory agency, or legal counsel in
such a manner as to indicate that this Agreement or any provision hereof may be
in violation of such laws or regulations, then the Parties shall immediately
enter into good faith negotiations regarding a new service arrangement or basis
for compensation for the Management Services furnished pursuant to this
Agreement that complies with the changed conditions and that approximates as
closely as possible the economic position of the Parties prior to the change. If
a court of competent jurisdiction compels or requires a Party hereto to refrain
from performing its duties and obligations hereunder, or a Party’s performance
hereunder shall be directly violative of a court order directed at such Party,
then, to the extent necessary to comply with such court order, this Agreement
shall be deemed suspended. In no event shall such suspension be construed to
relieve either Party’s obligation under this Section 12.2.2 and the Parties will
immediately commence good faith negotiations regarding a new service arrangement
or compensation structure that is in compliance with any such court order, which
arrangement or structure will allocate the economic aspects of the relationship
between the Parties in a manner as nearly as possible to that intended by this
Agreement.

12.3   Assignment

          The PC may not assign this Agreement without the Manager’s prior
written consent. This Agreement may be assigned by the Manager to any parent,
subsidiary, affiliate or successor entity without the prior written consent of
the PC, with all other assignments requiring the written consent of the PC,
which consent shall not be unreasonably withheld. Except as may be specifically
provided in this Agreement to the contrary, this Agreement shall inure to the
benefit of and be binding upon the Parties and their respective legal
representatives, successors and permitted assigns. Whenever a reference is made
in this Agreement to the PC or the Manager, such reference shall be deemed to
include a reference to the heirs, executors, legal representatives, successors
and permitted assigns of such Party.

12.4   Rights and Remedies; Injunctive Relief

          Either Party may, at its option, elect to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or equity, to
enforce specific performance of any Party to this Agreement, to enjoin any
threatened or actual breach of this Agreement by the other Party as appropriate
and/or to recover any damages resulting from the breach of this Agreement.

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12.5   Status as Independent Contractor

          In the performance of this Agreement, the Manager shall at all times
be and shall act as an independent contractor.

12.6   Notices

          Any notice provided for in this Agreement and any other notice, demand
or communication required or permitted to be given under this Agreement or which
any Party may wish to send to another (“Notice”) shall be in writing and shall
be served by (i) personal delivery; (ii) registered or certified U.S. Mail, or
by comparable private carrier, First Class, return receipt requested in a sealed
envelope, postage or other charges prepaid; or (iii) telegram, telecopy,
facsimile, telex or other similar form of communication, addressed to the Party
for whom the Notice is intended as follows:

             
 
           
 
  PC:   David E. Smith, MD, Medical Group, Inc.    
 
      1315 Lincoln Boulevard    
 
      Santa Monica, CA 90401    
 
      Attn: David E. Smith, MD    
 
           
 
  The Manager:   Hythiam, Inc.    
 
      11150 Santa Monica Blvd.    
 
      Suite 1500    
 
      Los Angeles, CA 90025    
 
      Attn: Chief Operating Officer    

          All Notices given pursuant to this Section 12.6 shall be deemed given
and effective when received if personally delivered or sent by telegram,
telecopy, telex or similar form of communication, or, if mailed, on the date
shown on the return receipt, or, if a receipt has not then been received, five
(5) days after mailing, or, if sent by overnight courier, on the date shown for
receipt on the courier’s records. Either Party may change to whom or where
Notice is to be given by providing Notice to the other Party of such change at
such other Party’s last address provided pursuant to this Agreement.

12.7   Collateral Agreements

          This Agreement constitutes the final and entire agreement between the
Parties respecting the Management Services of the Manager, and there are no
representations, warranties or commitments concerning those Management Services,
except as set forth in this Agreement.

12.8   Survival

          The provisions of Sections 1.6, 1.7, 1.8, 1.10, 2.4, 3.7, 3.16.12,
3.16.14, 3.16.15, 3.16.17, 3.17.3, 6.7.2, 6.7.3, 8.2, 9.3, 10, 11, 12.1, 12.4
and this 12.8 of this Agreement shall survive the termination of this Agreement
in accordance with their terms.

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          IN WITNESS WHEREOF, the PC and the Manager have caused this Management
and Support Services Agreement to be executed by their duly authorized
representatives, as of the day and year first above written.

                          David E. Smith, MD Medical Group, Inc.       HYTHIAM,
INC.
 
                   
 
  By:           By:    
 
                   
 
                        Print Name:         Print Name:  
 
                   
 
                        Print Title:         Print Title:  
 
                   

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EXHIBIT A
Trademarks
PROMETA™
The PROMETA™ Center

 

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EXHIBIT B
Licensed Technology

1.   Description of Licensed Technology to be Provided to PC:

          Any and all Manager treatment protocols provided by Manager during the
Term to PC for, or related to, a medically supervised treatment protocol for
neurostabilization and detoxification from alcohol or addictive
psycho-stimulants, including but not limited to: Manager’s PROMETA™ treatment
Protocol; PROMETA™ for Addictions; PROMETA™ for Alcohol; PROMETA™ for Cocaine;
PROMETA™ for Crack Cocaine; PROMETA™ for Methamphetamines; PROMETA™ for
Poly-Drug; PROMETA™ for Alcohol and Cocaine; along with all related Intellectual
Property, Confidential Information, Services and other materials and information
provided by Manager to PC, including without limitation all Licensee
Modifications.

2.   Authorized Purposes for Use of Licensed Technology:

          For provision of substance abuse and/or addiction treatment related to
alcohol and/or psycho-stimulants in accordance with the terms of this Agreement.

3.   Authorization to be Provided by Manager:

          Manager will designate each individual authorized to use the Licensed
Technology upon the execution by qualified individuals of confidentiality and
proprietary information agreements with Manager (each an “Authorized User”).
Notwithstanding the foregoing, execution by Authorized Users of confidentiality
agreements with Manager shall not eliminate or limit in any way PC’s obligations
as set forth in this Agreement with respect to disclosure and use to and by PC
and each Medical Contractor of the Licensed Technology. The list of Authorized
Users is set forth on Schedule B, as amended from time to time. Unless a shorter
period is specified in writing by Manager, during the Term each Authorized User
must undergo reauthorization at least every twenty-four (24) months (“Authorized
Period”) after notification thereof by Manager to PC. Any Medical Contractors
who are not reauthorized within the specified time frame must immediately cease
any and all use of the Licensed Technology at the end of the Authorized Period.
Notwithstanding the foregoing, all Medical Contractors must immediately cease
any and all use of the Licensed Technology upon termination of this Agreement
for any reason. Designation of an individual by Manager as an Authorized User is
in no way an evaluation or certification by Manager of that individual’s ability
or fitness to deliver patient care services, but instead is only a mechanism for
protection of Manager’s Intellectual Property and other rights in and to the
Licensed Technology.

 

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4.   Terms for Provision by PC of PC Data to Manager:

          PC will provide Manager access to its files and records to the extent
reasonably necessary for Manager to access and make use of the Subject Data,
including but not limited to seeking all necessary patient authorizations and
consents for Manager to be able to collect from Aftercare providers, and to
authorize Aftercare providers to disclose to Manager, patient data with respect
to PC patients treated using the Licensed Technology for a period of up to two
years following that PC treatment, all in compliance with all applicable Laws
and this Agreement. In addition, at Manager’s request and expense, PC shall
cooperate with Manager in enabling the interface of the PC information system
with Manager’s information system to the extent reasonably necessary to
facilitate Manager’s access to the Subject Data, subject to compliance of the
interface with applicable Laws.

5.   Terms for Provision by Manager of Data Collection and Reporting to PC:

          Any data collection and reporting services or data aggregation
services provided to PC will be provided in accordance with the HIPAA Privacy
Rule. Manager’s data collection services may include interviews with patients
and administration of certain questionnaires. Manager will provide any of the
data collection services that involve direct patient contact only in strict
accordance with protocols, procedures and questionnaires provided by or approved
by PC in writing and in advance. Manager shall not provide under any
circumstances any medical advice, diagnosis or treatment services to patients.
Nothing in this paragraph 5 or elsewhere in this Agreement shall limit in any
way PC’s obligations under Section 6.6 to seek all patient consents or
authorizations required for Manager to collect Subject Data, including from
Aftercare (as defined in paragraph 6 of this Exhibit B) providers.

6.   Terms for Administration by Manager of Aftercare Services to PC:

          The term “Aftercare”, as used in this Exhibit B and otherwise in the
Agreement, refers to a program of follow-up care provided to a patient treated
using the Licensed Technology where services are provided by a certified or
licensed health care provider (which may be PC). All on behalf of PC, and in
consideration for PC’s payment to Manager (as provided in Section 5.2) of the
applicable Aftercare Service Fee (as defined in paragraph 7 of this Exhibit B),
Manager shall arrange and pay up to an amount equal to the Aftercare Service Fee
for Aftercare for each patient treated using the Licensed Technology, provided
that within thirty (30) days after receiving that treatment, the patient enrolls
in an appropriate Aftercare program. Manager shall provide PC and treating
Medical Contractors with options for Aftercare providers for their patients from
a list maintained by Manager. Notwithstanding the foregoing, Manager does not
and shall not endorse or recommend any specific provider and is not and shall
not be responsible or accountable in any way for the care provided by any
Aftercare provider. Manager, at its discretion and for its own behalf, with
appropriate patient authorization, may collect data (for a period of up to two
years following treatment) concerning the recovery follow-up treatment for PC
patients provided treatment using the Licensed Technology. Nothing in this
Agreement shall limit a

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patient’s ability to choose a provider other than PC for Aftercare, nor shall
this Agreement require any Party to refer patients or otherwise generate
business for the other Party.

7.   License Fees; Aftercare Service Fees:

          License Fees: PC shall pay Manager the following License Fees for any
patient who is not covered by, eligible for coverage by, or reimbursed by, on a
primary or secondary basis, Medicare, Medicaid, or any other federal healthcare
payer or funding source (“Private Pay Patient”):

                              Private Pay Patients    
                    Treated Using Licensed Technology   Manager Fee        
                    Each episode of treatment for alcohol dependency
  $ 4,500  
                    Each episode of treatment for psycho-stimulant dependency
  $ 6,000  

          The License Fees set forth in this paragraph 7 are for treatment of
private pay patients only and not for treatment of commercially insured patients
or patients reimbursed, on a primary or secondary basis, by Medicare or Medicaid
or any other governmental payer or funding source. Before treating any such
excluded patient, PC will advise Manager of its desire so to do, whereupon the
Parties will meet and attempt in good faith to negotiate appropriate fees for
such treatments, and will advise the patient in advance of the non-covered
status of the treatment and obtain an appropriate waiver therefrom.
          Aftercare Service Fees: PC shall pay Manager an Aftercare Service Fee
(“Aftercare Service Fee”) of $1,500 for each patient treated at or by PC using
the Licensed Technology, provided such patient timely initiates a qualifying
Aftercare program (see paragraph 6 of this Exhibit B).
          For purposes of this paragraph 7, except as set forth in paragraph 8
of this Exhibit B, any treatment provided to any patient by, at or on behalf of
the PC using all or any part of the Licensed Technology shall be included in the
calculation of the License Fees with respect to such patient.
          For purposes of this Agreement, an Episode of Treatment shall include:

  •   Alcohol dependency- two administrations of the PROMETA™ for alcohol
protocol provided during a consecutive two-day treatment period.     •  
Psycho-stimulant dependency or poly-addictions — Five administrations of the
PROMETA™ for cocaine, crack cocaine or methamphetamines protocol provided during
a consecutive three-day initial treatment period plus a follow-up treatment
three weeks later for two consecutive days.

3

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EXHIBIT C
Professional Services Agreement

 

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EXHIBIT D
BUSINESS ASSOCIATE AND DATA USE AGREEMENT
PC
AND
HYTHIAM, INC.
          This Business Associate Agreement (“B.A. Agreement”), effective as of
November 15, 2005 (“Effective Date”), is entered into by and between David E.
Smith, MD Medical Group, Inc. (“Covered Entity”) and Hythiam, Inc. (“Hythiam”)
(each a “Party” and collectively the “Parties”).
1. BACKGROUND AND PURPOSE. The Parties have entered or are entering into an
agreement for the provision by Hythiam of technology and services to Covered
Entity (“Agreement”). Performance of the Agreement may involve Protected Health
Information (as defined in 45 C.F.R. §160.103) (“PHI”) subject to the federal
privacy and security regulations issued pursuant to the Health Insurance
Portability and Accountability Act (“HIPAA”) and codified at 45 C.F.R. parts 160
and 164 (“Privacy and Security Rule”). The purpose of this B.A. Agreement is to
amend the Agreement to the extent and only to the extent necessary to allow for
Covered Entity’s compliance with the Privacy and Security Rule.
2. DEFINITIONS. Unless otherwise defined in this B.A. Agreement, all capitalized
terms used in this B.A. Agreement have the meanings ascribed in HIPAA and/or the
Privacy and Security Rule.

3.   OBLIGATIONS OF THE PARTIES WITH RESPECT TO PHI.

3.1   Uses and Disclosures of PHI by Hythiam. Except as otherwise specified in
this B.A. Agreement, Hythiam may make any and all uses and disclosures of PHI
necessary to perform its obligations under the Agreement. In addition, unless
otherwise limited in this B.A. Agreement, Hythiam may (a) use the PHI in its
possession for its proper management and administration and to carry out the
legal responsibilities of Hythiam; (b) disclose the Minimum Necessary
information in its possession to a third party for the purpose of Hythiam’s
proper management and administration or to carry out the legal responsibilities
of Hythiam, provided, that such disclosure is required by law or Hythiam obtains
reasonable assurances in writing from the third party regarding the confidential
handling of such PHI as required under the Privacy and Security Rule; (c)
provide Data Aggregation services relating to the health care operations of the

 

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    Covered Entity; (d) use the PHI to create a Limited Data Set (“LDS”), the
use and disclosure of which shall be governed by the Data Use Agreement set
forth in 5 of this B.A. Agreement and by the Privacy and Security Rule; and
(e) de-identify any and all PHI obtained by Hythiam under this B.A. Agreement,
and use such de-identified data, all in accordance with the de-identification
requirements of the Privacy and Security Rule.

3.2   Obligations of Hythiam. With regard to its use and/or disclosure of PHI
that is not in an LDS, Hythiam agrees to:

  a.   not use or further disclose the PHI other than as permitted or required
by this B.A. Agreement or as Required By Law;     b.   use appropriate
safeguards to prevent use or disclosure of PHI other than as permitted in
Section 3.2(a);     c.   report to Covered Entity in writing any use or
disclosure of PHI not permitted in Section 3.2(a) and any Security Incident
involving electronic PHI of which Hythiam becomes aware and, to the extent
practicable, minimize harmful effects of that use or disclosure or Security
Incident;     d.   ensure that any agents and subcontractors to which Hythiam
provides PHI agree in writing to the same restrictions and conditions that apply
to Hythiam with respect to such PHI;     e.   make available within fifteen
(15) days after request by the Covered Entity PHI necessary for Covered Entity
to respond to an Individuals’ request for access to PHI about them in the event
that the PHI in Hythiam’s possession constitutes a Designated Record Set;     f.
  make available PHI for amendment and incorporate within ten (10) days after
request by Covered Entity any amendments to the PHI in accordance with the
Privacy Rule in the event that the PHI in Hythiam’s possession constitutes a
Designated Record Set;     g.   document such disclosures of PHI as would be
required for Covered Entity to respond to a request by an Individual for an
accounting of disclosures in accordance with 45 CFR § 164.528 and provide,
within 20 days after Covered Entity requests the information in writing, an
accounting of any disclosures of PHI for up to the six-year period preceding the
date of the request for an accounting that includes the date of the disclosure,
the name and address of the person or entity to whom the PHI was disclosed, a
brief description of the PHI disclosed and a brief statement of the purpose of
the disclosure and an explanation of the basis for the disclosure;

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  h.   make its internal practices, books and records relating to the use and
disclosure of PHI available to the Secretary of HHS within a reasonable
timeframe as required by the Secretary for purposes Section of determining
Covered Entity’s compliance with the Privacy Rule; and     i.   return to
Covered Entity or destroy, within ninety (90) days of the termination of this
B.A. Agreement, the PHI in its possession as a result of the Agreement and
retain no copies, if it is feasible to do so. If Hythiam in its reasonable
discretion determines that return or destruction is infeasible, Hythiam agrees
to extend all protections contained in this B.A. Agreement to Hythiam’s use
and/or disclosure of any retained PHI, and to limit any further uses and/or
disclosures to the purposes that make the return or destruction of the PHI
infeasible. Notwithstanding the foregoing, this 3.2(i) shall not apply to any
PHI in an LDS, the use and disclosure of which shall be governed by Section 5 of
this B.A. Agreement.     j.   Hythiam agrees to implement administrative,
physical and technical safeguards that reasonably and appropriately protect the
confidentiality, integrity and availability of any electronic PHI that it
creates, receives, maintains or transmits to or on behalf of Covered Entity, as
required by the Security Regulations as set forth at 45 C.F.R. Parts 160 and
164. Hythiam further agrees to ensure that any agent, including a subcontractor
to whom it provides such information, will implement reasonable and appropriate
safeguards to protect it.

3.3   Obligations of Covered Entity. Covered Entity agrees to timely notify
Hythiam in writing of any arrangements between Covered Entity and the individual
that is the subject of PHI that may impact in any manner the use and/or
disclosure of that PHI by Hythiam under this B.A. Agreement.   3.4   Effect of
Changes to the Privacy and Security Rule. To the extent that any relevant
provision of the Privacy and Security Rule is materially amended in a manner
that changes the obligations of Business Associates or Covered Entities that are
embodied in the terms of this B.A. Agreement, the Parties agree to negotiate in
good faith appropriate amendment(s) to this B.A. Agreement to give effect to
these revised obligations. If the Parties in good faith are unable to agree to
appropriate amendment(s) satisfactory to both Parties by the required compliance
date, either Party may terminate this B.A. Agreement and the Agreement upon
fifteen (15) days prior written notice to the other Party.

4. TERMINATION BY COVERED ENTITY. With respect to the Agreement, upon Covered
Entity’s knowledge of a material breach of the terms of this B.A. Agreement by
Hythiam, Covered Entity shall provide Hythiam written notice of that breach in
sufficient detail to enable Hythiam to understand the specific nature of that
breach and afford Hythiam an opportunity to cure the breach to the extent cure
is possible in Covered Entity’s reasonable discretion. If Hythiam fails to cure
the breach within a reasonable time specified by Covered Entity (in any event
not less than ten (10) days and if

3

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Hythiam is making reasonable efforts to cure, Covered Entity may extend the cure
period to allow for that cure), or if cure is not possible, Covered Entity may
terminate this B.A. Agreement as well as terminate those portions, but only
those portions, of the Agreement that, by their express terms or in practice,
require or permit Hythiam access to PHI and only to the extent of that
requirement or permission. In such instance, the remaining provisions of the
Agreement that do not, by their express terms or in practice, require or permit
Hythiam access to PHI shall remain in full force and effect, including any and
all of Covered Entity’s payment and performance obligations (to the extent any
such performance obligations do not require Hythiam access to PHI); provided
that, notwithstanding the foregoing, Covered Entity shall be entitled to
terminate the Agreement in its entirety if and to the extent that the overall
intent and purpose of the Agreement (i) is directly and materially related to
and dependent upon Hythiam access to PHI, and (ii) would be frustrated if
Covered Entity were not permitted to terminate the Agreement. In addition, if
Covered Entity, in its sole discretion, determines that Hythiam can perform the
Agreement with information that has been de-identified under the Privacy Rule or
with an LDS, the Agreement will remain in full force and effect, except with
respect to, and only with respect to, those provisions that require or permit
Hythiam access to PHI that is not in an LDS, which provisions shall be deemed
modified to provide Hythiam access to PHI that has been de-identified under the
Privacy and Security Rule and access to PHI in an LDS.

5.   DATA USE AGREEMENT.   5.1   Preparation of the LDS. Hythiam may prepare an
LDS in accordance with the Privacy and Security Rule and specifically the
standards set forth at 45 C.F.R § 164.513(e)(2)   5.2   Minimum Necessary Data.
In preparing the LDS, Hythiam will include only those data fields which are the
minimum necessary to accomplish the purposes set forth in Section 5.3 of this
B.A. Agreement.   5.3   Permitted Uses and Disclosures of the LDS. Hythiam may
only use the LDS for its Research and Public Health activities, for the Health
Care Operations of Covered Entity, and as Required By Law. Hythiam may only
disclose the LDS for the same purposes in accordance with the Privacy and
Security Rule.   5.4   Responsibilities of Hythiam. With regard to its use
and/or disclosure of the LDS, Hythiam agrees to:

  a.   not use or further disclose the LDS other than as permitted by Section
5.3 of this B.A. Agreement;     b.   use appropriate safeguards to prevent use
or disclosure of the LDS other than as permitted by Section 5.3 of this B.A.
Agreement;     c.   report to Covered Entity in writing any use or disclosure of
the LDS that is not permitted by Section 5.3 of this B.A. Agreement of which
Hythiam’s

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      management becomes aware and, to the extent practicable, minimize harmful
effects of that use or disclosure;     d.   ensure that any agents,
subcontractors, or other third parties to which Hythiam provides the LDS agree
in writing to the same restrictions and conditions that apply to Hythiam with
respect to such LDS; and     e.   not use the information in the LDS to identify
or contact individuals who are the data subjects.

6.   MISCELLANEOUS.   6.1   Agreement. The Agreement is hereby amended to
incorporate the terms of this B.A. Agreement. The terms of this B.A. Agreement
shall prevail in the case of any conflict with the terms of the Agreement to the
extent and only to the extent necessary to allow Covered Entity to comply with
the Privacy and Security Rule.   6.2   Survival. With respect to the Agreement,
Sections 1, 2, 3.2, 3.3, 3.4, 4. and 6 of this B.A. Agreement shall survive
termination of this B.A. Agreement and continue indefinitely solely with respect
to PHI Hythiam retains in accordance with Section 3.2.i. With respect to the
Agreement, Section 5 of this B.A. Agreement shall survive termination of this
B.A. Agreement and continue indefinitely solely with respect to any LDS that
Hythiam possesses.   6.3   No Third Party Beneficiaries. Nothing in this B.A.
Agreement shall confer upon any person other than the Parties and their
respective successors or assigns, any rights, remedies, obligations, or
liabilities whatsoever.

IN WITNESS WHEREOF, each of the undersigned has caused this B.A. Agreement to be
duly executed in its name and on its behalf.

                          David E. Smith, MD Medical Group, Inc.       HYTHIAM,
INC.
 
                   
 
  By:           By:    
 
                   
 
                   
 
  Print Name:         Print Name:  
 
                   
 
                   
 
  Print Title:           Print Title:    
 
                   

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Schedule 7.1.6
Insurance Policies