exv10w5



 





Exhibit 10.5




REGISTRATION RIGHTS AGREEMENT




          REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of January 17, 2007, by and among
Hythiam, Inc., a Delaware corporation, with headquarters located at 11150 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025, (the “Company”), and the undersigned buyers (each, a
“Buyer”, and collectively, the “Buyers”).




          WHEREAS:




          A. In connection with the Securities Purchase Agreement, by and among the parties hereto of
even date herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the terms
and subject to the conditions set forth in the Securities Purchase Agreement, to issue and sell to
each Buyer (i) senior secured notes of the Company (the “Notes”) and (ii) warrants (the
"Warrants”), which will be exercisable to purchase shares of the Company’s common stock, $0.0001
par value per share (the “Common Stock”, as exercised collectively, the “Warrant Shares”).




          B. In accordance with the terms of the Securities Purchase Agreement, the Company has agreed
to provide certain registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and
applicable state securities laws.




          NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each of the Buyers hereby agree as follows:




          1. Definitions.




          Capitalized terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:




               a. "Business Day” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York are authorized or required by law to remain closed.



               b. "Closing Date” shall have the meaning set forth in the Securities Purchase Agreement.



               c. "Effective Date” means the date the Registration Statement has been declared effective by
the SEC.



               d. "Effectiveness Deadline” means the date which is (i) in the event that the Registration
Statement is not subject to a full review by the SEC, ninety (90) calendar days after the Closing
Date or (ii) in the event that the Registration Statement is subject to a full review by the SEC,
one hundred and twenty (120) calendar days after the Closing Date.



 









 





               e. “Filing Deadline” means the date which is thirty (30) calendar days after the Closing Date.



               f. “Investor” means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.



               g. “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.



               h. “register,” “registered,” and “registration” refer to a registration effected by preparing
and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act
and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.



               i. “Registrable Securities” means (i) the Warrant Shares issued or issuable upon exercise of
the Warrants and (ii) any capital stock of the Company issued or issuable with respect to the
Warrant Shares, or the Warrants as a result of any split, dividend, recapitalization, exchange or
similar event or otherwise, without regard to any limitations on exercise of the Warrants.



               j. “Registration Statement” means a registration statement or registration statements of the
Company filed under the 1933 Act covering the Registrable Securities.



               k. “Required Holders” means the holders of at least a majority of the Registrable Securities.



               l. “Required Registration Amount” means 110% of the maximum number of Warrant Shares issued
and issuable pursuant to the Warrants as of the trading day immediately preceding the applicable
date of determination, all subject to adjustment as provided in Section 2(e) (without regard to any
limitations on exercise of the Warrants).



               m. “Rule 415” means Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.



               n. “SEC” means the United States Securities and Exchange Commission.



          2. Registration.




               a. Mandatory Registration. The Company shall prepare, and, as soon as practicable but
in no event later than the Filing Deadline, file with the SEC the Registration Statement on Form
S-3 covering the resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is



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available for such a registration on another appropriate form reasonably acceptable to the
Required Holders, subject to the provisions of Section 2(d). The Registration Statement prepared
pursuant hereto shall register for resale at least the number of shares of Common Stock equal to
the Required Registration Amount determined as of the date the Registration Statement is initially
filed with the SEC. The Registration Statement shall contain (except if otherwise directed by the
Required Holders) the “Selling Stockholders” and “Plan of Distribution” sections in
substantially the form attached hereto as Exhibit B. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC as soon as practicable,
but in no event later than the Effectiveness Deadline. By 9:30 a.m. New York time on the Business
Day following the Effective Date, the Company shall file with the SEC in accordance with Rule 424
under the 1933 Act the final prospectus to be used in connection with sales pursuant to such
Registration Statement.



               b. Allocation of Registrable Securities. The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by the SEC. In the
event that an Investor sells or otherwise transfers any of such Investor’s Registrable Securities,
each transferee shall be allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any shares of Common Stock
included in a Registration Statement and which remain allocated to any Person which ceases to hold
any Registrable Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. In no event shall the Company include
any securities other than Registrable Securities on any Registration Statement without the prior
written consent of the Required Holders.



               c. Legal Counsel. Subject to Section 5 hereof, the Required Holders shall have the
right to select one legal counsel to review and oversee any registration pursuant to this Section 2
(“Legal Counsel”), which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company’s obligations under this Agreement.



               d. Ineligibility for Form S-3. In the event that Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the Company shall (i) register the
resale of the Registrable Securities on another appropriate form reasonably acceptable to the
Required Holders and (ii) undertake to register the Registrable Securities on Form S-3 as soon as
such form is available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.



               e. Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a) is insufficient to



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cover all of the Registrable Securities required to be covered by such Registration Statement
or an Investor’s allocated portion of the Registrable Securities pursuant to Section 2(b), the
Company shall amend the applicable Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the trading day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable, but in any event not
later than fifteen (15) days after the necessity therefor arises. The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed “insufficient to cover all of the
Registrable Securities” if at any time the number of shares of Common Stock available for resale
under the Registration Statement is less than the product determined by multiplying (i) the
Required Registration Amount as of such time by (ii) 0.90. The calculation set forth in the
foregoing sentence shall be made without regard to any limitations on the exercise of the Warrants
and such calculation shall assume that the Warrants are then exercisable for shares of Common Stock
at the then prevailing Exercise Price (as defined in the Warrants).



               f. Effect of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement. If (i) a Registration Statement covering all of the Registrable Securities required
to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not
filed with the SEC on or before the respective Filing Deadline (a “Filing Failure”) or (B) not
declared effective by the SEC on or before the respective Effectiveness Deadline (an “Effectiveness
Failure”) or (ii) on any day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(r)) pursuant to such Registration Statement or
otherwise (including, without limitation, because of a failure to keep such Registration Statement
effective, to disclose such information as is necessary for sales to be made pursuant to such
Registration Statement, to register a sufficient number of shares of Common Stock or to maintain
the listing of the Common Stock) (a “Maintenance Failure”) then, as partial relief for the damages
to any holder by reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law
or in equity), the Company shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to one quarter of one percent (0.25%) of the
aggregate Purchase Price (as such term is defined in the Securities Purchase Agreement) on each of
the following dates: (i) the day of a Filing Failure; (ii) the day of an Effectiveness Failure;
(iii) the initial day of a Maintenance Failure; (iv) on every thirtieth day after the day of a
Filing Failure and thereafter (pro rated for periods totaling less than thirty days) until such
Filing Failure is cured; (v) on every thirtieth day after the day of an Effectiveness Failure and
thereafter (pro rated for periods totaling less than thirty days) until such Effectiveness Failure
is cured; and (vi) on every thirtieth day after the initial day of a Maintenance Failure and
thereafter (pro rated for periods totaling less than thirty days) until such Maintenance Failure is
cured. The payments to which a holder shall be entitled pursuant to this Section 2(f) are referred
to herein as “Registration Delay Payments.” Registration Delay Payments shall be paid on the
earlier of (I) the dates set forth above and (II) the third Business Day after the event or failure
giving rise to the Registration Delay Payments is cured. In the event the Company fails to make
Registration Delay Payments in a timely manner, such



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Registration Delay Payments shall bear interest at the rate of one percent (1.0%) per month
(prorated for partial months) until paid in full. Notwithstanding anything herein or in the
Securities Purchase Agreement to the contrary, in no event shall the aggregate amount of
Registration Delay Payments (other than Registration Delay Payments payable pursuant to events that
are within the control of the Company) exceed, in the aggregate, 2.25% of the aggregate Purchase
Price.



          3. Related Obligations.




          At such time as the Company is obligated to file a Registration Statement with the SEC
pursuant to Section 2(a), 2(d) or 2(e), the Company will use its best efforts to effect the
registration of the Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:




               a. The Company shall submit to the SEC, within two (2) Business Days after the Company learns
that no review of a particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on a particular Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a time and date not
later than two (2) Business Days after the submission of such request. The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the
date as of which the Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) (or any successor thereto)
promulgated under the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration Period”). The
Company shall ensure that each Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein, or necessary to make the
statements therein (in the case of prospectuses, in the light of the circumstances in which they
were made) not misleading.



               b. The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used in connection with
such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under
the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the seller or sellers thereof
as set forth in such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K or
any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the
Company shall have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend or supplement such
Registration Statement.



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               c. The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration
Statement at least five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on Form 10-K, and Reports
on Form 10-Q and any similar or successor reports) within a reasonable number of days prior to
their filing with the SEC, and (B) not file any Registration Statement or amendment or supplement
thereto in a form to which Legal Counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or any amendment or
supplement thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) copies of
any correspondence from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the
SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if requested by an
Investor, and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy
of the prospectus included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in performing the Company’s
obligations pursuant to this Section 3.



               d. The Company shall furnish to each Investor whose Registrable Securities are included in any
Registration Statement, without charge, (i) promptly after the same is prepared and filed with the
SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by reference, if requested
by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.



               e. The Company shall use its best efforts to (i) register and qualify, unless an exemption
from registration and qualification applies, the resale by Investors of the Registrable Securities
covered by a Registration Statement under such other securities or “blue sky” laws of all
applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in connection therewith or
as a condition thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation
in any such jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable Securities for sale under



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the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of
notice of the initiation or threatening of any proceeding for such purpose.



               f. The Company shall notify Legal Counsel and each Investor in writing of the happening of any
event, as promptly as practicable after becoming aware of such event, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile or e-mail on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the Company’s reasonable
determination that a post-effective amendment to a Registration Statement would be appropriate.



               g. The Company shall use its best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of a Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension
is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and
to notify Legal Counsel and each Investor who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of notice of the initiation or
threat of any proceeding for such purpose.



               h. If any Investor is required under applicable securities laws to be described in the
Registration Statement as an underwriter, at the reasonable request of any Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request (i) a letter,
dated such date, from the Company’s independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the Investors, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering, addressed to the
Investors.



               i. If any Investor is required under applicable securities laws to be described in the
Registration Statement as an underwriter, the Company shall make available for inspection by (i)
such Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents retained by the
Investors (collectively, the “Inspectors”), all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall
be reasonably deemed necessary by each Inspector, and cause the



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Company’s officers, directors and employees to supply all information which any Inspector may
reasonably request; provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise required under the
1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure in violation of
this Agreement or any other Transaction Document. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed to limit the
Investors’ ability to sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.



               j. The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any
other agreement. The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.



               k. The Company shall use its best efforts either to (i) cause all of the Registrable
Securities covered by a Registration Statement to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such exchange or (ii)
secure designation and quotation of all of the Registrable Securities covered by a Registration
Statement on The NASDAQ Global Select Market or (iii) if, despite the Company’s commercially
reasonable efforts to satisfy, the preceding clauses (i) and (ii) the Company is unsuccessful in
satisfying the preceding clauses (i) and (ii), to secure the inclusion for quotation on the The
NASDAQ Capital Market, The New York Stock Exchange or the American Stock Exchange for such
Registrable Securities and, without limiting the generality of the foregoing, to use its best
efforts to arrange for at least two market makers to register with the National Association of
Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation under this Section
3(k).



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               l. The Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.



               m. If requested by an Investor, the Company shall as soon as practicable (i) incorporate in a
prospectus supplement or post-effective amendment such information as an Investor reasonably
requests to be included therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other terms of the offering
of the Registrable Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or
make amendments to any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.



               n. The Company shall use its best efforts to cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such Registrable Securities.



               o. The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first day of the
Company’s fiscal quarter next following the Effective Date of a Registration Statement.



               p. The Company shall otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.



               q. Within two (2) Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.



               r. Notwithstanding anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning the Company the
disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the
Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the
Company otherwise required (a “Grace Period”); provided, that the Company shall promptly (i) notify
the Investors in writing of the existence of material, non-public information giving rise to a
Grace Period (provided that in each notice the Company will



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not disclose the content of such material, non-public information to the Investors) and the
date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on
which the Grace Period ends; and, provided further, that there be no more than three (3) Grace
Periods in any three hundred sixty five (365) day period and the first day of any Grace Period must
be at least five (5) trading days after the last day of any prior Grace Period (each, an “Allowable
Grace Period”). For purposes of determining the length of a Grace Period above, the Grace Period
shall begin on and include the date the Investors receive the notice referred to in clause (i) and
shall end on and include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice. The provisions of Section 3(g) hereof shall
not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace
Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is no longer
applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent
to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities
with respect to which an Investor has entered into a contract for sale prior to the Investor’s
receipt of the notice of a Grace Period and for which the Investor has not yet settled.



          4. Obligations of the Investors.




               a. At least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of such Investor’s
Registrable Securities included in such Registration Statement. It shall be a condition precedent
to the obligations of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such Investor shall furnish to
the Company such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall be reasonably
required to effect and maintain the effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such registration as the Company may
reasonably request.



               b. Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such Investor has notified
the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.



               c. Each Investor agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f)
or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the
contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock
to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities



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with respect to which an Investor has entered into a contract for sale prior to the Investor’s
receipt of a notice from the Company of the happening of any event of the kind described in Section
3(g) or the first sentence of 3(f) and for which the Investor has not yet settled.



               d. Each Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it or an exemption therefrom in connection with sales
of Registrable Securities pursuant to the Registration Statement.



          5. Expenses of Registration.




          All reasonable expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including,
without limitation, all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company shall be paid by the Company. The
Company shall also reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $20,000.




          6. Indemnification.




          In the event any Registrable Securities are included in a Registration Statement under this
Agreement:




               a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend each Investor, the directors, officers, members, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid
in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact
in a Registration Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission
or alleged omission to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements made therein, in the
light of the circumstances under which the statements therein were made, not misleading, (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,



11









 







including, without limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, “Violations”). Subject to Section 6(c), the Company shall reimburse the Indemnified
Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such Indemnified Person
expressly for use in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(d); and (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.



               b. In connection with any Registration Statement in which an Investor is participating, each
such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against
any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the
1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject to Section 6(c),
such Investor will reimburse any legal or other expenses reasonably incurred by an Indemnified
Party in connection with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which consent shall not
be unreasonably withheld or delayed; provided, further, however, that the Investor shall be liable
under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed
the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.



               c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the



12









 







commencement thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person
or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. In the case of an Indemnified Person, legal
counsel referred to in the immediately preceding sentence shall be selected by the Investors
holding at least a majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate
with the indemnifying party in connection with any negotiation or defense of any such action or
Claim by the indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully
apprised at all times as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the Indemnified Party.
Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to
all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party
is prejudiced in its ability to defend such action.



               d. The indemnification required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.



               e. The indemnity agreements contained herein shall be in addition to (i) any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.



13









 





          7. Contribution.




          To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person
is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to contribution from any Person involved in such sale
of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution
by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to such Registration
Statement.




          8. Reports Under the 1934 Act.




          With a view to making available to the Investors the benefits of Rule 144 promulgated under
the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration (“Rule 144”), the
Company agrees to:




               a. make and keep public information available, as those terms are understood and defined in
Rule 144;



               b. file with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for the applicable
provisions of Rule 144; and



               c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.



          9. Assignment of Registration Rights.




          The rights under this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of such Investor’s Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such assignment; (ii) the
Company is, within a reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities by the transferee
or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before
the time the Company receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of the provisions




14









 







contained herein; and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.




          10. Amendment of Registration Rights.




          Provisions of this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Required Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.




          11. Miscellaneous.




               a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is
deemed to own of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or election received from
the such record owner of such Registrable Securities.



               b. Any notices, consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered:
(i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:



	 	 	 	 	 	 	 
	 	 	If to the Company:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	Hythiam, Inc.
	 	 	 	 	11150 Santa Monica Boulevard, Suite 1500
	 	 	 	 	Los Angeles, California 90025
	 

	 	 	 	Telephone:
	 	(310) 444-4300
	 

	 	 	 	Facsimile:
	 	(310) 444-5300
	 

	 	 	 	Attention:
	 	Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	Dreier Stein & Kahan LLP
	 	 	 	 	The Water Garden
	 	 	 	 	1620 26th Street
	 	 	 	 	6th Floor, North Tower
	 	 	 	 	Santa Monica, CA 90404






15









 






	 	 	 	 	 	 	 
	 

	 	 	 	Telephone:
	 	(424) 202-6050
	 

	 	 	 	Facsimile:
	 	(424) 202-6250
	 

	 	 	 	Attention:
	 	John C. Kirkland
	 
	 	 	 	 	 	 
	 	 	If to Legal Counsel:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	Schulte Roth & Zabel LLP
	 	 	 	 	919 Third Avenue
	 	 	 	 	New York, New York 10022
	 

	 	 	 	Telephone:
	 	(212) 756-2000
	 

	 	 	 	Facsimile:
	 	(212) 593-5955
	 

	 	 	 	Attention:
	 	Eleazer N. Klein, Esq.





If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers, or to
such other address and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii)
above, respectively.




               c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.



               d. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or



16









 







unenforceability shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement
in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.



               e. This Agreement, the other Transaction Documents (as defined in the Securities Purchase
Agreement) and the instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents and the instruments referenced
herein and therein supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.



               f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and
be binding upon the permitted successors and assigns of each of the parties hereto.



               g. The headings in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.



               h. This Agreement may be executed in identical counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this Agreement.



               i. Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.



               j. All consents and other determinations required to be made by the Investors pursuant to this
Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.



               k. The language used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent and no rules of strict construction will be applied against any
party.



               l. This Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.



17









 





               m. The obligations of each Investor hereunder are several and not joint with the obligations
of any other Investor, and no provision of this Agreement is intended to confer any obligations on
any Investor vis-à-vis any other Investor. Nothing contained herein, and no action taken by any
Investor pursuant hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated herein.



[Signature Page Follows]




18









 





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




	 	 	 	 	 
	 	COMPANY:



HYTHIAM, INC.

 	 
	 	By:  	/s/ Chuck Timpe
 	 
	 	 	Name:  	Chuck Timpe 	 
	 	 	Title:  	Chief Financial Officer 	 
	 




 









 





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




	 	 	 	 	 
	 	BUYERS:



HIGHBRIDGE INTERNATIONAL LLC

 	 
	 	By:  	HIGHBRIDGE CAPITAL MANAGEMENT, LLC
 	 
	 	 	 	 
	 	 	 
	 	By:  	/s/ Adam J. Chill
 	 
	 	 	Name:  	Adam J. Chill 	 
	 	 	Title:  	Managing Director 	 
	 




 









 








SCHEDULE OF BUYERS




	 	 	 	 	 
	 	 	Buyer’s Address	 	Buyer’s Representative’s Address
	Buyer	 	and Facsimile Number	 	and Facsimile Number
	Highbridge International LLC

	 	c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, New York 10019

Attention: Ari J. Storch

                   Adam J. Chill

Facsimile: (212) 751-0755

Telephone: (212) 287-4720
	 	Schulte Roth & Zabel LLP
919 Third Avenue

New York, New York 10022

Attn: Eleazer Klein, Esq.

Facsimile: (212) 593-5955

Telephone: (212) 756-2000






 









 





EXHIBIT A




FORM OF NOTICE OF EFFECTIVENESS



OF REGISTRATION STATEMENT




American Stock Transfer & Trust Company

6501 15th Avenue, 2nd Floor

Brooklyn, New York 11219

Attention: [          ]





                    Re: HYTHIAM, INC.


Ladies and Gentlemen:




          [We are][I am] counsel to Hythiam Inc., a Delaware corporation (the “Company”), and have
represented the Company in connection with that certain Securities Purchase Agreement (the
"Securities Purchase Agreement”) entered into by and among the Company and the buyers named therein
(collectively, the “Holders”) pursuant to which the Company issued to the Holders senior secured
notes (the “Notes”) and warrants (the “Warrants”), exercisable for shares of the Company’s common
stock, $0.0001 par value per share (the “Common Stock”). Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights Agreement), including
the shares of Common Stock issuable upon exercise of the Warrants, under the Securities Act of
1933, as amended (the “1933 Act”). In connection with the Company’s obligations under the
Registration Rights Agreement, on                      ___, 200_, the Company filed a Registration
Statement on Form S-3 (File No. 333-                    ) (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names
each of the Holders as a selling stockholder thereunder.




          In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has
advised [us][me] by telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that any proceedings for
that purpose are pending before, or threatened by, the SEC and the Registrable Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.




          This letter shall serve as our standing instruction to you that the shares of Common Stock are
freely transferable by the Holders pursuant to the Registration Statement. You need not require
further letters from us to effect any future legend-free issuance or


 









 







           reissuance of shares of Common Stock to the Holders as contemplated by the Company’s
Irrevocable Transfer Agent Instructions dated                      ___, 2007.




Very truly yours,




[ISSUER’S COUNSEL]




By:                                        




CC:      [LIST NAMES OF HOLDERS]




 









 





EXHIBIT B




SELLING STOCKHOLDERS




     The shares of Common Stock being offered by the selling stockholders are issuable upon
exercise of the warrants. For additional information regarding the issuance of those warrants, see
“Private Placement of Warrants” above. We are registering the shares of Common Stock in order to
permit the selling stockholders to offer the shares for resale from time to time. Except for the
ownership of the Warrants issued pursuant to the Securities Purchase Agreement, the selling
stockholders have not had any material relationship with us within the past three years.



     The table below lists the selling stockholders and other information regarding the beneficial
ownership of the shares of Common Stock by each of the selling stockholders. The second column
lists the number of shares of Common Stock beneficially owned by each selling stockholder, based on
its ownership of the warrants, as of                     , 200_, assuming exercise of all warrants held by the
selling stockholders on that date, without regard to any limitations on exercise.



     The third column lists the shares of Common Stock being offered by this prospectus by the
selling stockholders.



     In accordance with the terms of registration rights agreement with the selling stockholders,
this prospectus generally covers the resale of at least 110% of the number of shares of Common
Stock issuable upon exercise of the related warrants as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC. Because the exercise price of
the warrants may be adjusted, the number of shares that will actually be issued may be more or less
than the number of shares being offered by this prospectus. The fourth column assumes the sale of
all of the shares offered by the selling stockholders pursuant to this prospectus.



     Under the terms of the warrants, a selling stockholder may not exercise the warrants to the
extent such exercise would cause such selling stockholder, together with its affiliates, to
beneficially own a number of shares of Common Stock which would exceed 4.99% of our then
outstanding shares of Common Stock following such exercise, excluding for purposes of such
determination shares of Common Stock issuable upon exercise of the warrants which have not been
exercised. The number of shares in the second column does not reflect this limitation. The
selling stockholders may sell all, some or none of their shares in this offering. See “Plan of
Distribution.”



 









 





	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Maximum Number of Shares	 	 
	 	 	Number of Shares Owned	 	to be Sold Pursuant to this	 	Number of Shares Owned
	Name of Selling Stockholder	 	Prior to Offering	 	Prospectus	 	After Offering
	Highbridge International
LLC (1)
	 	 	 	 	 	 	 	 	 	 	0	 






     (1) Highbridge Capital Management, LLC is the trading manager of Highbridge International
LLC and has voting control and investment discretion over the securities held by Highbridge
International LLC. Glenn Dubin and Henry Swieca control Highbridge Capital Management, LLC and
have voting control and investment discretion over the securities held by Highbridge International
LLC. Each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims beneficial
ownership of the securities held by Highbridge International LLC.



 









 





PLAN OF DISTRIBUTION




     We are registering the shares of Common Stock issuable upon exercise of the warrants to permit
the resale of these shares of Common Stock by the holders of the warrants from time to time after
the date of this prospectus. We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of Common Stock. We will bear all fees and expenses incident to our
obligation to register the shares of Common Stock.



     The selling stockholders may sell all or a portion of the shares of Common Stock beneficially
owned by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of Common Stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for underwriting discounts or
commissions or agent’s commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,




	 	•	 	on any national securities exchange or quotation service on which the securities may
be listed or quoted at the time of sale;
	 
	 	•	 	in the over-the-counter market;
	 
	 	•	 	in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
	 
	 	•	 	through the writing of options, whether such options are listed on an options
exchange or otherwise;
	 
	 	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
	 
	 	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;
	 
	 	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for its
account;
	 
	 	•	 	an exchange distribution in accordance with the rules of the applicable exchange;
	 
	 	•	 	privately negotiated transactions;
	 
	 	•	 	short sales;
	 
	 	•	 	sales pursuant to Rule 144;
	 
	 	•	 	broker-dealers may agree with the selling securityholders to sell a specified number
of such shares at a stipulated price per share;




 









 












	 	•	 	a combination of any such methods of sale; and
	 
	 	•	 	any other method permitted pursuant to applicable law.





     If the selling stockholders effect such transactions by selling shares of Common Stock to or
through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of Common Stock for whom they may act as
agent or to whom they may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those customary in the types
of transactions involved). In connection with sales of the shares of Common Stock or otherwise,
the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of Common Stock short and deliver shares of
Common Stock covered by this prospectus to close out short positions and to return borrowed shares
in connection with such short sales. The selling stockholders may also loan or pledge shares of
Common Stock to broker-dealers that in turn may sell such shares.



     The selling stockholders may pledge or grant a security interest in some or all of the
warrants or shares of Common Stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock
from time to time pursuant to this prospectus or any amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholders to include the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.



     The selling stockholders and any broker-dealer participating in the distribution of the shares
of Common Stock may be deemed to be “underwriters” within the meaning of the Securities Act, and
any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be
deemed to be underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of shares of Common Stock being
offered and the terms of the offering, including the name or names of any broker-dealers or agents,
any discounts, commissions and other terms constituting compensation from the selling stockholders
and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.



     Under the securities laws of some states, the shares of Common Stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states the
shares of Common Stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied
with.



 









 





     There can be no assurance that any selling stockholder will sell any or all of the shares of
Common Stock registered pursuant to the shelf registration statement, of which this prospectus
forms a part.



     The selling stockholders and any other person participating in such distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of Common Stock to engage in market-making
activities with respect to the shares of Common Stock. All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or entity to engage in
market-making activities with respect to the shares of Common Stock.



     We will pay all expenses of the registration of the shares of Common Stock pursuant to the
registration rights agreement, estimated to be $[ ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, that a selling stockholder will pay all underwriting discounts
and selling commissions, if any. We will indemnify the selling stockholders against liabilities,
including some liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under the Securities Act,
that may arise from any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights agreement, or we may
be entitled to contribution.



     Once sold under the shelf registration statement, of which this prospectus forms a part, the
shares of Common Stock will be freely tradable in the hands of persons other than our affiliates.