TECHNOLOGY LICENSE AND ADMINISTRATIVE SERVICES AGREEMENT

         The terms of this Technology License and Administrative Services
Agreement ("AGREEMENT") are agreed to by and between Lake Chelan Community
Hospital ("HOSPITAL") and Hythiam, Inc. ("HYTHIAM") (each a "PARTY" and
collectively "THE PARTIES").

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     AGREEMENT EFFECTIVE DATE:   5-10-04

     TERM OF AGREEMENT: The initial term of this Agreement shall commence on the
     Effective Date and continue until the fifth (5th) anniversary of the
     Effective Date, unless earlier terminated as set forth in Section 10
     ("INITIAL TERM"). The Agreement shall automatically renew for additional
     one year terms unless earlier terminated by either Party as set forth in
     Section 10 (each a "RENEWAL TERM"), unless either Party gives the other
     Party written notice of termination on or before ninety (90) days prior to
     the end of the Initial Term or any Renewal Term. The term of this Agreement
     shall be the Initial Term plus any Renewal Terms ("TERM").

  LAKE CHELAN COMMUNITY HOSPITAL                        HYTHIAM, INC.


By:      Larry Peterson                      By:      Chuck Timpe
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Title:   CEO/Adminstrator                    Title:   CFO
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Address: PO Box 908
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         Chelan, WA 98816
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Contact:                                     Contact:
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Phone:                                       Phone:
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E-mail:                                      E-mail:
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ATTACHMENTS: Schedule A; Schedule B: Authorized Users; Schedule C: Business
Associate/Data Use Agreement

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                                 AGREEMENT TERMS

1        PURPOSES

         Hythiam provides through its proprietary protocols for treatment of
substance abuse, its Data Collection and Data Reports (as defined in Section
4.2) and other associated Hythiam Intellectual Property (as defined in Section
7.5) and other Services (as defined in Section 4), a process for use by health
care providers and others in screening, diagnosing and/or treating patients with
or suspected of addiction to cocaine and/or alcohol and related conditions
(collectively "LICENSED TECHNOLOGY"). Hospital desires to be able to offer to
its patients and third party payers services that include use of the Licensed
Technology.

2        AUTHORITY AND RELATIONSHIP OF THE PARTIES

         Hospital and Hythiam are and shall remain independent contractors
throughout the Term. Nothing in this Agreement shall be construed to constitute
Hospital and Hythiam as partners, joint venturers, agents or anything other than
independent contractors.

3        HYTHIAM LICENSE

3.1      Grant of License Rights to Hospital

         Subject to the terms and conditions of this Agreement, Hythiam hereby
grants to and Hospital hereby accepts, a limited nontransferable, restricted,


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non-exclusive, revocable, commercial license to operate and use the Licensed
Technology identified generally in more detail on Schedule A at the Hospital
location(s) identified on Schedule A for the purposes set forth on Schedule A
without the right to sublicense the foregoing rights ("HYTHIAM LICENSE").
Hospital acknowledges that (i) this Agreement does not transfer any interest in
the ownership or title of any portion of the Licensed Technology; and (ii)
Hospital does not own any portion of the Licensed Technology.

3.2      Term of License

         The Hythiam License shall terminate simultaneously with the expiration
or termination for any reason of this Agreement.

3.3      License Restrictions

         Hospital may use all or any part of the Hythiam Licensed Technology
only for the purposes set forth in this Agreement. Without limiting the
generality of the foregoing, Hospital shall not, nor shall permit any third
party to, (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 patient care services and billing
third parties for reimbursement of those services; (b) make the Licensed
Technology or Services available to any Person, except Hospital Personnel or
Staff Physicians (as those terms are defined in Section 4.1) who have been
authorized by Hythiam in writing as set forth on Schedule A and who have been
informed of by Hospital, and are bound by, 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.

3.4      Hospital Obligations

         Hospital shall (a) keep the Licensed Technology free and clear of any
and all claims, liens and encumbrances incurred or caused by Hospital, (b)
notify Hythiam 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, and (c)
be responsible for all the cost and all liability or risk of loss associated
with the use by Hospital of the Licensed Technology as contemplated by and in
this Agreement. THE RIGHTS SET FORTH IN THIS SECTION 3 REPRESENT HOSPITAL'S ONLY
RIGHTS WITH RESPECT TO THE USE OF ALL OR ANY PORTION OF THE LICENSED TECHNOLOGY.
ANY USE OF ALL OR ANY PORTION OF THE LICENSED TECHNOLOGY OUTSIDE THE SCOPE OF
SUCH RIGHTS IS STRICTLY PROHIBITED.

4        HYTHIAM SERVICES

4.1      Provision of Licensed Technology

         Hythiam will deliver to Hospital the Licensed Technology as set forth
on Schedule A. Only Hospital employees and non-physician independent contractors
(collectively "HOSPITAL PERSONNEL") or physicians practicing at Hospital ("STAFF
PHYSICIANS") authorized by Hythiam as set forth on Schedule A shall have access
to or use the Licensed Technology, and only in accordance with this Agreement.

4.2      Data Collection and Reporting

         Hythiam has developed proprietary business processes that it uses to
process and report data generated from the use of the Licensed Technology ("DATA
REPORTS"). As part of the Services, Hythiam will collect encounter, treatment
and outcomes data on behalf of Hospital, including follow-up patient surveys,
and will provide, or arrange for the provision of, Data Reports to Hospital for
treatment performed by or on behalf of Hospital using the Licensed Technology,
all as set forth in more detail on Schedule A ("DATA COLLECTION AND Reports").

4.3      Marketing Services

         Hythiam will perform marketing services on behalf of Hospital to
promote Hospital's use of the Licensed Technology as set forth in more detail in
Schedule A ("MARKETING SERVICES").


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4.4      After Care Services

         On Hospital's behalf, Hythiam will arrange for Aftercare (as defined in
Schedule A) for Hospital patients treated using the Licensed Technology as set
forth in more detail on Schedule A ("AFTERCARE SERVICES").

4.5      Education Services

         As part of the Services, Hythiam will provide education and training to
Hospital Personnel and Staff Physicians who are Authorized Users as reasonably
necessary concerning the implementation and use of the Licensed Technology
("EDUCATION SERVICES"). These Education Services shall be informational only and
will not reduce or limit in any way Hospital's responsibility for clinical
services provided using the Licensed Technology as set forth in Section 6.2 and
elsewhere in this Agreement.

4.6      Performance Standards

         Hythiam will provide the Licensed Technology as set forth in Section
4.1, the Data Collection and Reporting as set forth in Section 4.2, the
Marketing Services as set forth in Section 4.3, the Aftercare Services as set
forth in Section 4.4, and the Education Services as set forth in Section 4.5
(collectively "SERVICES") in a competent and timely manner, and in compliance
with all applicable Laws (as defined in Section 15.12).

4.7      Hythiam Services Director

         Hythiam will reimburse Hospital for one-half (1/2) the cost of an
agreed-upon salary and benefits for a Hospital employee approved by Hythiam to
oversee the delivery of the Services to Hospital and perform all tasks as
requested by Hythiam that are reasonably related to delivery of the Services
("HYTHIAM SERVICES DIRECTOR"). Notwithstanding the foregoing, Hythiam shall in
its sole discretion have the right at any time during the Term upon thirty (30)
days advance written notice to Hospital to provide and fully fund a Hythiam
employee to be the Hythiam Services Director and, in that event, shall have no
obligation or liability to Hospital or the Hospital employee that was the
Hythiam Services Director with respect to termination of that employee's role
and duties. Hospital acknowledges and agrees that in order to provide the Data
Collection and Reporting and the Educational Services, the Hythiam Services
Director and other Hythiam personnel will require access to patient treatment
sessions. Hospital agrees to allow and facilitate this access, including the
obtaining of any and all necessary patient authorizations or consents. Hospital
shall require all Hospital Personnel to cooperate with the Hythiam Services
Director with respect to the delivery of the Services.

4.8      Space; Ancillary and Support Services

         Hospital agrees that it will provide treatment using the Licensed
Technology to patients in a non-discriminatory manner, available seven (7) days
a week, in space at least comparable to that in which it generally provides
patient care services, and with the provision of ancillary (e.g., laboratory,
radiology, blood banking) and support (e.g., housekeeping, pharmacy, dietary,
security) services as reasonably necessary and in accordance with standards of
timeliness and quality consistent with its provision of other patient care
services. In addition, Hospital shall make available appropriate office space
on-site for Hythiam personnel who are involved in providing the Services.

4.9      Billing and Collection Services

         Hospital agrees to provide or arrange for the provision of billing and
collection services for treatment provided by Hospital using the Licensed
Technology and to provide those services in a non-discriminatory manner with the
timeliness and quality of those services consistent with Hospital's billing and
collection provided for its other patient care services.

4.10     Hospital Liaison

         Hospital shall appoint a Hospital representative who will be reasonably
available to, and coordinate and consult with, the Hythiam Services Director to
facilitate the provision of the Services.


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5        FINANCIAL TERMS

5.1      License and Services Fees; Aftercare Fees

         During the Term of this Agreement, Hospital shall pay Hythiam the
License and Services Fees and Aftercare Fees (collectively, "FEES") as set forth
on Schedule A. During the Term the Fees may be modified only by mutual agreement
of the Parties. Any and all services requested by Hospital and provided by
Hythiam other than those set forth in Section 4 shall be subject to additional
fees to be agreed upon by the Parties.

5.2      Payment Terms

         Hythiam will provide Hospital with reports and invoices no more
frequently than every two weeks and no less frequently than monthly ("INVOICES")
for the Fees due Hythiam by mailing or delivering them to the Hospital address
and person identified on the first page of this Agreement. Hospital will pay
Hythiam within [HC-01 TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM,
INC.] ([HC-02 TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM, INC.])
days after receipt by Hospital of each undisputed Hythiam Invoice.
Notwithstanding any other provision of this Agreement and subject to the terms
of the Aftercare Services set forth in Schedule A, Hythiam in no event or
circumstance is or shall be responsible for any costs of, or related to, patient
care provided by Hospital, or extended or unanticipated care required for
patients treated using the Licensed Technology.

5.3      Monthly Reconciliation

         To facilitate payment and compliance with the terms of this Agreement,
the Parties will meet no less frequently than monthly and no more frequently
than every two weeks for purposes of reconciling payments and fees. In
preparation for this meeting, Hospital shall provide Hythiam with a list of all
patients receiving treatment during the prior month utilizing the Licensed
Technology and shall pay to Hythiam any additional Fees resulting from the
reconciliation within thirty (30) days following the date of the reconciliation
meeting. Each Party will provide reasonable access to its books and records
regarding any and all detail reasonably necessary to reconcile payments and
ensure Hythiam receives the Fees in compliance with this Agreement. In addition,
Hospital will investigate and resolve promptly and thoroughly any evidence that
all or any part of the Licensed Technology is being used at Hospital in cases
that are not reported for purposes of this Section 5. Any such unreported uses
of the Licensed Technology shall be promptly included by Hospital in a revised
accounting and additional Fees, if any, that are owed in accordance with this
Agreement, shall be paid by Hospital to Hythiam within thirty (30) days.

5.4      Payer Contracts

         Hospital and Hythiam each will use best efforts to identify
opportunities to include reimbursement for treatment utilizing the Licensed
Technology in, and will use commercially reasonable efforts to negotiate
amendments to, Hospital's existing payer contracts (and to identify prospects
and negotiate all future payer contracts) to arrange for inclusion of coverage
for treatment utilizing the Licensed Technology, including contracts with HMOs,
PPOs, other managed care companies, insurers, employers, unions, employee
assistance programs or vendors, behavioral health programs or vendors, or other
third-party payers.

6        GOVERNING TERMS AND OBLIGATIONS

6.1      Use of Licensed Technology

         Hospital agrees that its use of the Licensed Technology will be in
strict accordance with the procedures provided by Hythiam and will comply with
all applicable Laws and third party payer requirements. Only Hospital Personnel
or Staff Physicians who have received education and training on the use of the
Licensed Technology may use it and Hospital will ensure (and provide Hythiam
with evidence satisfactory to Hythiam) that all Hospital Personnel or Staff
Physicians who use any or all of the Licensed Technology on its behalf are bound
by the applicable terms of this Agreement and will have and maintain, all
training, licenses, approvals, certification, equipment and information
necessary for them to safely and properly use the Licensed Technology. Hospital
will report promptly to Hythiam any knowledge it acquires that the Licensed


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Technology is being used in a manner not in strict accordance with this Section
6.1, or otherwise with this Agreement. Notwithstanding the foregoing, this
Section 6.1 is not intended to restrict or limit in any way each Staff
Physician's responsibility to exercise his or her clinical judgment in treating
patients, but instead to protect Hythiam's interest in and to its Licensed
Technology and the integrity of that Licensed Technology.

6.2      Clinical Activities

         The Licensed Technology is provided by Hythiam to Hospital and/or to
any Hospital Personnel or Staff Physicians 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 Hythiam in performing
its obligations under this Agreement is providing access to technology and
technology services only and will not be delivering patient care and will not be
sponsoring or performing human subjects research. Hospital, as between the
Parties, and/or Staff Physicians, as appropriate consistent with applicable Law,
control and are fully responsible for any and all patient care, Aftercare and/or
research activity delivered by Hospital, Hospital Personnel, or Staff Physicians
using the Licensed Technology. Hospital Personnel and Staff Physicians 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.

6.3      Hospital Charges

         Hospital charges for provision of care using the Licensed Technology
are set forth on Schedule A. Hospital agrees that its intent is to provide
clinical services utilizing the Licensed Technology at commercially reasonable
market rates. Accordingly, if and when Hospital revises its charges for clinical
care utilizing the Licensed Technology, Hospital will provide advance notice to
Hythiam and will consider in good faith any recommendations provided by Hythiam
with respect to the relationship of those changes to market rates.
Notwithstanding the foregoing, Hospital is solely responsible for setting its
charges for clinical services or research activities performed using the
Licensed Technology or Services and for the compliance of those charges with
applicable Laws.

6.4      Billing and Collections

         In billing any charges to patients or third-party payers that include
clinical services or research activities performed using the Licensed Technology
or Services, Hospital shall comply with the provisions of 18 U.S.C. ss. 1347,
with Medicare/Medicaid and other Federal Health Care Program billing
requirements, and with the False Claims Act, 31 U.S.C. ss. 3729, et seq., and
any and all other applicable Laws.

6.5      Subject Data

         Hythiam acknowledges and agrees that, as between the Parties, all
patient medical records shall be the property of Hospital. Hospital agrees that
Hythiam shall have access at all times to all patient records for patients
provided care using the Licensed Technology. In addition, Hospital shall provide
to Hythiam for prompt downloading and/or processing in an agreed upon format all
patient data collected or maintained by Hospital, Hospital Personnel or Staff
Physicians with respect to each individual provided care using all or part of
the Licensed Technology ("SUBJECT DATA"). The Business Associate/Data Use
Agreement attached to this Agreement as Schedule C shall govern the use and
disclosure by Hythiam of the Subject Data.

6.6      Patient Data Consents

         Hospital shall be solely responsible for obtaining any and all
necessary patient consents, authorizations and approvals required by applicable
Laws or Hospital policy for Hythiam's delivery of the Services, Hospital's use
of the Licensed Technology and the provision of the Subject Data to Hythiam, all
in accordance with this Agreement, including but not limited to any
authorizations or consents necessary for disclosure of data to Hythiam by
Aftercare providers.

6.7      Government Submissions

         Hythiam shall assist Hospital in the preparation of, and Hospital shall
consult Hythiam far enough in advance to allow for Hythiam's substantive input


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concerning, all reports, statements, declarations, and the like required to be
made to governmental entities (including but not limited to cost, payment and
reimbursement requests and reports) with respect to patient care provided by
Hospital or Staff Physicians using the Licensed Technology. Hospital shall
cooperate in making any such submissions, which will not be prepared according
to any policies or methodologies that discriminate against care provided using
the Licensed Technology, and shall file the same. Notwithstanding the foregoing,
Hospital shall notify Hythiam prior to submission of any reimbursement requests
to governmental payers for care using the Licensed Technology. This Section 6.7
does not limit Hospital's sole responsibility for the content of these
submissions for reimbursement, nor does it create any responsibility on the part
of Hythiam for that content, but instead is intended only as protection against
Hospital's discretionary discrimination against care provided using the Licensed
Technology.

6.8      Payor Submissions

         Hythiam shall assist Hospital in the preparation of, and Hospital shall
consult Hythiam far enough in advance to allow for Hythiam's substantive input
concerning, any reports or submissions, which will not be prepared according to
any policies or methodologies that discriminate against use of the Licensed
Technology, regarding care provided using the Licensed Technology that are
required to be made to all non-governmental third-party payors, and Hospital
shall cooperate in making any such submissions and shall file the same. This
Section 6.8 does not limit Hospital's sole responsibility for the content of
these submissions for reimbursement, nor does it create any responsibility on
the part of Hythiam for that content, but instead is intended only as protection
against Hospital's discretionary discrimination against care provided using the
Licensed Technology.

6.9      Cooperation in Connection With Audits

         Hospital and Hythiam agree to reasonably cooperate with each other in
any mandated or required external audits of the Hospital's or Hythiam's
operations by governmental entities and other unrelated third parties. Such
cooperation shall include notifying the other Party within one week of receipt
of any such audit notice and making available to the other Party reasonably
relevant books and records.

6.10     Environmental Compliance

         Hospital shall be responsible for obtaining and maintaining all
material permits, licenses and authorizations under, and shall comply in all
material respects with, all environmental laws and regulations with respect to
Hospital property. As between the Parties, Hospital will be the generator of all
hazardous materials (including but not limited to chemical and radioactive
substances and waste) used at Hospital and shall handle all hazardous materials,
if any, in compliance with all legal requirements and Hospital's policies and
procedures.

6.11     Compensation of Staff Employed by Hythiam.

         Hythiam shall be solely responsible for compensating all personnel
employed by Hythiam. Hospital shall have no liability for the payment of wages,
fees, payroll taxes, employee benefits and other expenses of Hythiam staff,
except or unless as provided in this Agreement.

6.12     Compensation of Personnel Employed by Hospital.

         Hospital shall be solely responsible for compensating all Hospital
Personnel and Staff Physicians. Hythiam shall have no liability for the payment
of wages, fees, payroll taxes and other expenses of such staff, except or unless
as provided in this Agreement.

7        INTELLECTUAL PROPERTY RIGHTS

7.1      Reservation of Rights

         All rights and licenses of any kind in the Licensed Technology and
Services not expressly granted in this Agreement are reserved exclusively to
Hythiam. There shall be no licenses by implication to the Hospital, any Hospital
Personnel, or any Staff Physician under this Agreement, and Hospital agrees not
to attack or contest, in any way or in any forum, the validity, enforceability,
or Hythiam's ownership of, or rights in, the Licensed Technology and Services,
to the maximum extent permitted by Law.


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7.2      Preexisting Intellectual Property

         Except as expressly provided for in this Agreement, Hythiam and
Hospital shall each retain all Intellectual Property that they owned prior to
the Effective Date, and this Agreement shall not be interpreted or construed to
grant a Party any rights, title, interest or license in the other Party's
preexisting Intellectual Property.

7.3      Hythiam Ownership

         Hospital acknowledges and agrees that all right, title and interest in
and to the Licensed Technology shall be solely and exclusively owned by Hythiam.
If Hospital 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 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"),
Hospital agrees to assign, and hereby irrevocably assigns, all of Hospital's
right, title and interest in and to the Licensee Modifications to Hythiam,
including any Intellectual Property rights. Hospital 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 Hythiam's cost. Hospital further agrees to
ensure that all Hospital Personnel and/or Staff Physicians 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 Hospital (who in turn shall
assign and hereby assigns the same to Hythiam as set forth in this Section 7.3)
and/or to assign all such rights directly to Hythiam; and (ii) to waive all
moral rights and agree to never assert any moral rights in the Licensee
Modifications. Hospital 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." Hospital hereby waives and agrees never to assert any moral rights that
Hospital may have in any Licensee Modifications, and Hospital hereby further
agrees to obtain waivers from Hospital Personnel and/or Staff Physicians to any
moral rights that they may have in any Licensee Modifications. Hythiam 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, Hospital 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 Hythiam, the Licensee
Modifications shall automatically without further action by either Party become
part of the Licensed Technology. Hospital will promptly disclose and deliver to
Hythiam all Licensee Modifications.

7.4      Use of Trademarks

         Each Party recognizes that the name, logo and trademarks of the other
Party represent valuable assets of such entity and that substantial recognition
and goodwill are associated with such assets. Each Party hereby agrees that


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neither it nor any of its affiliates shall use the name, logo or any other
trademarks of the other Party without the prior written consent of the other
party, which will not be unreasonably withheld or delayed. No Party will acquire
any right, interest or license in any trademark or service mark of the other
Party by virtue of this Agreement. Where possible, Hospital will approve the use
of its name in documents for broad dissemination such that Hythiam, once
securing approval for use in a brochure or other document, will not need to
secure approval for each use of the brochure or document.

7.5      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 (including, without limitation, U.S. Patent No. 6,103,734
and published patents PCT/ES02/00008 and PCT/ES02/00061), copyrights, trademark
rights, trade secret rights, know-how, show-how, discoveries, improvements,
moral rights, semiconductor chip rights, and rights in ideas, inventions,
innovations, Confidential Information, 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 (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.

8        INDEMNIFICATION

8.1      Hythiam Indemnification of Hospital

         Hospital shall not be liable to Hythiam or its affiliates or any of
their respective officers, directors, employees or other agents for, and Hythiam
shall indemnify, defend and hold harmless Hospital and its directors, officers,
employees and agents (collectively, the "HOSPITAL INDEMNITEES") from and
against, any and all liabilities, losses, suits, claims, costs, expenses
(including reasonable attorneys fees and disbursements), interest, penalties,
fines, judgments and actual or direct damages of any kind whatsoever
(collectively "Losses") to the extent and proportion that such Losses relate to
or arise from (i) negligent acts or omission or willful misconduct of Hythiam or
any of the Hythiam Indemnitees (as that term is defined in Section 8.2); or (ii)
breach of this Agreement by the Hythiam Indemnitees. Notwithstanding other
provisions of this Section 8.1, Hospital Indemnitees shall not include Staff
Physicians who are not Hospital employees to the extent those physicians are
providing patient care, but shall include Staff Physicians who are not Hospital
employees to the extent those physicians are providing medical director or other
administrative services to or on behalf of Hospital.

8.2      Hospital Indemnification of Hythiam

         Hythiam shall not be liable to Hospital or its affiliates or any of
their respective officers, directors, employees or other agents for, and
Hospital shall indemnify, defend and hold harmless Hythiam and its directors,
officers, employees and agents (collectively, the "HYTHIAM INDEMNITEES") from
and against any and all Losses to the extent and proportion that such Losses
relate to or arise from (i) negligent acts or omissions or willful misconduct of
Hospital or any of the Hospital Indemnitees; or (ii) breach of this Agreement by
Hospital or any of the Hospital Indemnitees.

8.3      Procedures for Indemnification

         Each Party shall provide prompt written notice to the other Party upon
learning of any occurrence or event that may result in an obligation of the


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other Party under this Section 8; provided that the omission by a Party to give
notice of a claim as provided in this Section 8.3 shall not relieve the other
Party of its obligations under this Section 8 except to the extent that (i) the
omission results in a failure of actual notice to the other Party and (ii) the
other Party suffers damages as a result of the failure to give notice of the
claim. The other Party shall have the right to maintain control of the defense
and all negotiations for settlement of any claims or demands under this Section
8; provided, however, the other Party shall not settle any claims or demands
without the prior written consent of the Party giving notice (which shall not be
unreasonably withheld). The Party giving notice shall have the right to monitor
and participate in any resolution or litigation of any such claim at its own
expense, and, if requested, the Party giving notice shall provide to the other
Party all reasonable documents and assistance relating to such claim.
Notwithstanding the foregoing, neither Party shall be required to take any
action under this Section 8.3 (except for the initial giving of notice) that
materially prejudices its rights.

9        CONFIDENTIALITY AND NON-DISCLOSURE

9.1      Confidential Information

         Hospital acknowledges and agrees that the Licensed Technology
constitutes valuable trade secrets and confidential information of Hythiam.
Hospital agrees that it shall take, and shall ensure that Hospital Personnel and
Staff Physicians shall take, all reasonable steps to preserve and protect the
confidentiality of such trade secrets and confidential information. Such trade
secrets and information shall be deemed "CONFIDENTIAL INFORMATION." In addition,
Confidential Information shall include the terms of this Agreement and all other
proprietary business information Hospital, Hospital Personnel or Staff
Physicians have received or receive from Hythiam or obtain as a result of use of
the Confidential Information.

9.2      Non-Disclosure

         Hospital agrees to maintain as confidential the Confidential
Information and further agrees not to disclose the Confidential Information
other than as specifically permitted by this Agreement. At no time shall
Hospital use, or allow others to use or have access to, the Confidential
Information for any purpose other than performance of Hospital's obligations or
exercise of Hospital's rights under and in accordance with this Agreement or
disclose the Confidential Information to any third party without the prior
written consent of Hythiam, which may be withheld in its sole discretion, and
then only after the party to whom such disclosure will be made has agreed in
writing to comply with and be bound by the applicable terms of this Agreement,
including but not limited to this Section 9. In the event of any legal action or
proceeding or asserted requirement under applicable Law requesting or demanding
disclosure by Hospital of all or any part of the Confidential Information,
Hospital shall immediately notify Hythiam in writing of such request or demand,
the terms and circumstances surrounding such request or demand, and the
documents requested or demanded so that Hythiam may seek an appropriate
protective order or take other protective measures and/or waive Hospital's
compliance with the provisions of this Section 9. If in the absence of a
protective order or a waiver under this Section 9 from Hythiam, if Hospital, in
the reasonable opinion of Hospital's legal counsel, is compelled to disclose any
such Confidential Information or otherwise stand liable for contempt or suffer
other substantial penalty, Hospital may disclose such Confidential Information
as so required without liability under this Section 9; provided, however, that
Hospital: (a) shall give Hythiam written notice of the Confidential Information
to be so disclosed as far in advance of its disclosure as is practicable; (b)
shall furnish only that portion of the Confidential Information which in the
reasonable opinion of Hospital's counsel is legally required; and (c) shall
cooperate with Hythiam (at Hythiam's expense) to obtain an order or other
reliable assurance that confidential treatment will be accorded to such
Confidential Information.

10       TERMINATION

         This Agreement may be terminated prior to the expiration of the Term
only for Cause (as defined in this Section 10), which cause shall constitute an
"EVENT OF DEFAULT." A termination for Cause must be effected by giving written
notice to the defaulting Party describing the Event of Default with reasonable
specificity and shall be subject to the cure periods set forth in this Section
10. In the event of termination of this Agreement for any reason, each Party
shall take all reasonable action and refrain from taking any action to the
extent necessary to mitigate that Party's damages arising from or related to the
termination.


                                       9
<PAGE>

10.1     Termination by Hospital

         Hospital shall have Cause for termination of this Agreement under the
following circumstances:

         10.1.1 If Hythiam shall apply for or consent to the appointment of a
receiver, trustee or liquidator of all or substantially all of its assets, file
a voluntary petition in bankruptcy or admit in writing the inability to pay its
debts as they become due, make a general assignment for the benefit of creditors
or take advantage of any insolvency Law, subject to a thirty (30) day cure
period after written notice of termination by Hospital;

         10.1.2 If Hospital presents reasonable evidence that continuation of
the Agreement will result directly in a sustained lack of profitability to
Hospital, subject to a 180 day advance written notice to Hythiam and no cure
period; or

         10.1.3 If Hythiam materially defaults in its performance of any of its
material obligations under this Agreement, subject to a thirty (30) day cure
period.

10.2     Termination by Hythiam

         Hythiam shall have Cause for termination of this Agreement under the
following circumstances:

         10.2.1 If Hospital shall apply for or consent to the appointment of a
receiver, trustee or liquidator of all or substantially all of its assets, file
a voluntary petition in bankruptcy or admit in writing the inability to pay its
debts as they become due, make a general assignment for the benefit of creditors
or take advantage of any insolvency Law, subject to a thirty (30) day cure
period after written notice of termination by Hythiam;

         10.2.2 If hospital loses its license to provide chemical dependency
services, subject to a ten (10) day cure period after written notice of
termination by Hythiam;

         10.2.3 If Hythiam presents reasonable evidence that continuation of the
Agreement will result directly in a sustained lack of profitability to Hythiam
subject to 180 days advance written notice to Hospital and no cure period;

         10.2.4 If Hospital materially defaults in its performance of any of its
material obligations under this Agreement, subject to a thirty (30) day cure
period.

10.3     Opportunity to Cure

         Following the occurrence of an Event of Default (other than (i) the
payment of money for which a 10 calendar day period following notice is the only
cure period, or (ii) a default, the effects of which are not susceptible to
being cured, and for which no cure period shall be available), after receipt of
written notice with respect to such default, the defaulting Party shall have the
applicable cure period set forth in Section 10.1 or Section 10.2 to cure such
Event of Default prior to termination of this Agreement pursuant to the
provisions of this Section 10.3. If the default is not cured within the period
provided for under this Section 10.3, the Party giving notice of default, may,
at its option, terminate this Agreement or exercise any other remedy at Law or
equity consistent with this Agreement.

10.4     Force Majeure

         Notwithstanding anything in other sections of this Agreement to the
contrary, the time for performance by Hythiam or Hospital of its obligations
under this Agreement (including any cure period under Section 10.3) shall be
extended, at the performing Party's option, by a period equal to any period of
delay for which performance in the customary manner shall be prevented,
hindered, or delayed by any extraordinary event not within the control or caused
by the fault of that Party including, but not limited to, court orders;
governmental requirements; acts or failure to act of the other Party; unknown,
undisclosed or concealed conditions; strikes; lockouts; fire; explosions; theft;
floods; riot; civil commotions; war; acts of terrorism; malicious mischief;
earthquake; materials shortages (on commercially reasonable terms) and/or acts
of God; and/or other conditions generally constituting an event of "Force
Majeure." Notwithstanding anything in this Agreement to the contrary, neither
Hospital nor Hythiam shall be deemed to be in default of this Agreement to the
extent it is prevented, hindered or delayed from performing any of its
obligations under this Agreement by an event of Force Majeure.


                                       10
<PAGE>

10.5     Notice Obligation

         Each party shall notify the other party at least seventy-two (72) hours
in advance of taking any action or filing any documents whatsoever that
reasonably could trigger the Event of Default set forth in Section 10.1.1 or
Section 10.2.1.

11       DISCLAIMER OF WARRANTIES

         HOSPITAL ACKNOWLEDGES AND AGREES THAT THE LICENSED TECHNOLOGY AND
SERVICES PROVIDED, BEING LOANED, AND/OR LICENSED TO HOSPITAL 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, FITNESS FOR A
PARTICULAR PURPOSE, DATA ACCURACY, SYSTEM INTEGRATION, OR NON-INFRINGEMENT,
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.

12       LIMITATION OF LIABILITY

         SUBJECT TO SECTION 8, HYTHIAM ASSUMES NO LIABILITY OR RESPON-SIBILITY
FOR HOW HOSPITAL, ANY HOSPITAL PERSONNEL OR ANY STAFF PHYSICIAN 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
HYTHIAM 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 HYTHIAM HAS
BEEN ADVISED OR OTHERWISE HAS REASON TO KNOW OR KNOWS OF THE POSSIBILITY OF SUCH
DAMAGES. HOSPITAL FURTHER AGREES THAT IN NO EVENT WILL THE TOTAL AGGREGATE
LIABILITY OF HYTHIAM FOR ANY CLAIMS, LOSSES, OR DAMAGES ARISING UNDER THIS
AGREEMENT, WHETHER IN CONTRACT, TORT, PRODUCT LIABILITY, OR OTHERWISE, EXCEED
$10,000.

13       DEBARMENT OR EXCLUSION

         Each Party hereby represents and warrants that neither it, nor 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 Medi-Cal. 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 Medi-Cal. 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.

14       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


                                       11
<PAGE>

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.

15       MISCELLANEOUS

15.1     Assignment

         Except as expressly provided in this Agreement, neither this Agreement
nor any right under this Agreement is assignable in whole or in part by either
Party without the prior written consent of the other Party, and any attempted
assignment without such consent shall be null and void, except that either Party
may assign its rights and obligations under this Agreement to its parent, a
subsidiary or other controlled affiliate, or to any successor entity without the
consent of the other Party by providing the other Party with notice of such
permitted assignment.

15.2     Complete Agreement

         This Agreement, including any and all Schedules and attachments listed
on the first page of this Agreement, which are hereby incorporated by reference
into this Agreement, constitutes the complete and integrated understanding of
the Parties with respect to the subject matter of this Agreement and supersedes
all prior understandings and agreements, whether written or oral, with respect
to the same subject matter.

15.3     Amendment

         This Agreement may only be amended by a written agreement duly signed
by persons authorized to sign agreements on behalf of each Party.

15.4     Notices

         All notices, demands, requests, or other communications which may be or
are required to be given or made by any Party to the other Party pursuant to
this Agreement shall be in writing and shall be hand delivered, mailed by
first-class registered or certified mail, return receipt requested, postage
prepaid, or delivered by overnight air courier addressed as provided on the
first page of this Agreement. Each notice, demand, request, or communication
which shall be given or made in the manner described in this Section 15.4 shall
be deemed sufficiently given or made for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt, or
the affidavit of messenger being deemed conclusive but not exclusive evidence of
such delivery) or at such time as delivery is refused by the addressee upon
presentation.

15.5     Governing Law and Jurisdiction

         The interpretation and construction of this Agreement, to the extent
the particular issue is controlled by state Law, shall be governed by and
construed in accordance with the Laws of the State of California (but not
including its choice of law provisions), and subject to Section 15.10, exclusive
jurisdiction for disputes related to or arising from this Agreement shall be in
the state or federal courts of California.

15.6     Waivers and Remedies

         The failure by a Party to insist on strict adherence by the other Party
to any term of this Agreement shall not operate or be construed as a waiver by
that Party of the right to exercise any right or remedy that it may possess
under this Agreement, nor be construed as a bar to the exercise of such right or
remedy by such Party with respect to such failure or upon the occurrence of any
subsequent breach or violation. Any waiver must be in writing and signed by the
Party to be charged.

15.7     Headings; Certain Rules of Construction

         The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement. The terms "including" or "include" shall mean "including,
without limitation," or "include, without limitation," as the case may be.
References to "SECTIONS" shall be to Sections of this Agreement unless otherwise
specifically provided. Any of the terms defined in this Agreement may, unless
the context otherwise requires, be used in the singular or the plural, depending
on the reference.


                                       12
<PAGE>

15.8     Counterparts

         To facilitate execution, this Agreement may be executed in as many
counterparts as may be required. It shall not be necessary that the signature of
or on behalf of each Party appears on each counterpart, but it shall be
sufficient that the signature of or on behalf of each Party appears on one or
more of the counterparts. All counterparts shall collectively constitute a
single agreement. A facsimile copy or other reliable reproduction of this
Agreement shall be deemed an original.

15.9     Benefits, Binding Effect

         This Agreement shall be binding upon and inure to the benefit of the
respective Parties and their permitted assigns and successors in interest.

15.10    Dispute Resolution

         Any claim or controversy arising out of or in connection with this
Agreement shall be subject to binding arbitration by a single arbitrator in
accordance with the existing Commercial Arbitration Rules of Practice and
Procedures of the American Arbitration Association. Any arbitration shall occur
in Los Angeles County, California, and any judgment on the award rendered in
such arbitration shall be entered in the state or federal courts located in Los
Angeles County, California. The prevailing Party in any arbitration proceeding
under this Agreement as determined by the arbitrator or in any legal proceedings
or actions arising from or in connection with this Agreement shall be entitled
to recover reasonable attorneys' fees and costs. Nothing shall prohibit a Party
from seeking equitable relief in a court of law to maintain the status quo while
an arbitration is pending. The Parties agree that the arbitrator shall not have
the right to award punitive damages. In the event of a breach of any Party's
obligation to consummate this Agreement or breach of any covenant by any Party
to this Agreement, the non-breaching Party shall be entitled to enforce this
Agreement as to such matters by injunctive relief and by specific performance,
such relief to be without the necessity of posting a bond, cash or otherwise
(unless required by applicable Law).

15.11    Expenses

         Except as otherwise expressly provided in this Agreement, each Party
shall bear its own expenses (including those of its accountants, advisers or
other agents or representatives) incident to the preparation, negotiation,
execution and delivery of this Agreement and the performance of its obligations.

15.12    Severability

         The Parties to this Agreement acknowledge and agree that it is their
intent and understanding that this Agreement complies with all applicable
federal, state and local laws, rules, regulations, court decisions and
governmental restrictions (collectively "LAWS"), and that at all times they
intend to be in compliance with such Laws. Should any term or provision of this
Agreement be deemed invalid or void or unenforceable either in its entirety or
in a particular application because it is in conflict with or violates any Law,
the remainder of this Agreement shall nonetheless remain in full force and
effect and, if the subject term or provision is deemed to be invalid, void or
unenforceable only with respect to a particular application, such term or
provision shall remain in full force and effect with respect to all other
applications. In addition, the Parties agree to amend this Agreement to bring
this Agreement in compliance with said Law. Notwithstanding the foregoing, if
the Law is deemed by either Party to be so materially adverse that, in either
Party's reasonable judgment, the Agreement cannot or should not be so modified;
then after discussion and determination by the Parties that it is so materially
adverse, the Parties agree that, as a part of the consideration of this
Agreement, they will declare this Agreement null and void and, except for the
sections specifically surviving termination, of no further force and effect;
provided, however, if either Party intends to enforce such declaration of
termination but the other Party opposes termination (the "OPPOSING PARTY"), then
the Opposing Party may veto such termination so long as the Opposing Party pays
for the cost to comply with the Law at issue (if compliance may be achieved by
the payment of money alone), in which event this Agreement shall continue in
full force and effect; and provided further that this Section 15.12 shall not be


                                       13
<PAGE>

construed as providing either Party a basis for terminating this Agreement if
the material adverse effect results solely from a change in reimbursement levels
as a result of a change in Law.

15.13    Survivability

         Notwithstanding anything to the contrary set forth in this Agreement,
Sections 3, 5.2, 5.3, 6, 7, 8, 9, 11, 12 and 15 shall survive the termination of
this Agreement.



                                       14
<PAGE>


                                   SCHEDULE A


1.       DESCRIPTION OF LICENSED TECHNOLOGY TO BE PROVIDED TO HOSPITAL:

         Any and all Hythiam treatment protocols provided by Hythiam during the
Term to Hospital for, or related to, rapidly administered neurological addiction
recovery and related conditions, including but not limited to: Hythiam's
Addiction Neuro-Restoration Detox System ("HANDS(TM)") for Addictions; HANDS(TM)
for Alcohol; HANDS(TM) for Cocaine; HANDS(TM) for Crack Cocaine; HANDS(TM) for
Poly-Drug; HANDS(TM) for Alcohol and Cocaine; along with all related
Intellectual Property, Confidential Information, Services and other materials
and information provided by Hythiam to Hospital, including without limitation
all Licensee Modifications.

2.       LOCATION FOR USE OF LICENSED TECHNOLOGY:

         Lake Chelan Community Hospital
         503 East Highland Avenue
         P.O. Box 908 Chelan, WA 98816

3.       AUTHORIZED PURPOSES FOR USE OF LICENSED TECHNOLOGY:

         For provision of substance abuse and/or addiction treatment only in
accordance with the terms of this Agreement.

4.       AUTHORIZATION TO BE PROVIDED BY HYTHIAM:

         Hythiam will designate each individual authorized to use the Licensed
Technology upon the execution by qualified individuals of confidentiality and
proprietary information agreements with Hythiam (each an "AUTHORIZED USER").
Notwithstanding the foregoing, execution by Authorized Personnel of
confidentiality agreements with Hythiam shall not eliminate or limit in any way
Hospital's obligations as set forth in this Agreement with respect to disclosure
and use to and by Hospital Personnel or Staff Physicians 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 Hythiam,
during the Term each Authorized User must undergo reauthorization at least every
twenty-four (24) months ("AUTHORIZED PERIOD"). Any Hospital Personnel or Staff
Physicians 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 Hospital Personnel and
Staff Physicians must immediately cease any and all use of the Licensed
Technology upon termination of this Agreement for any reason. Designation of an
individual by Hythiam as an Authorized User is in no way an evaluation or
certification by Hythiam of that individual's ability or fitness to deliver
patient care services, but instead is only a mechanism for protection of
Hythiam's Intellectual Property and other rights in and to the Licensed
Technology.

5.       TERMS FOR PROVISION BY HOSPITAL OF SUBJECT DATA TO HYTHIAM:

         Hospital will provide Hythiam access to its files and records to the
extent reasonably necessary for Hythiam to access and make use of the Subject
Data in compliance with all applicable Laws and this Agreement. Hospital also,
in accordance with Section 6.6, shall, to the fullest extent allowed by Laws,
obtain all consents or authorizations necessary for Hythiam to be able to
collect from Aftercare providers, and to authorize Aftercare providers to
disclose to Hythiam, patient data with respect to Hospital patients treated
using the Licensed Technology for a period of up to two (2) years following that
Hospital treatment. In addition, at Hythiam's request and expense, Hospital
shall cooperate with Hythiam in enabling the interface of the Hospital


                                       15
<PAGE>

information system with Hythiam's information system to the extent reasonably
necessary to facilitate Hythiam's access to the Subject Data, subject to
compliance of the interface with applicable Laws.

6.       TERMS FOR PROVISION BY HYTHIAM OF DATA COLLECTION AND REPORTING TO
         HOSPITAL:

         Hythiam will provide data collection and reporting services to
Hospital, and data aggregation services to Hospital in accordance with the HIPAA
Privacy Rule, including provision of the following reports: Pre-registration
intake of demographic and financial information; Addiction severity index; Brief
clinical screening data; Predictive index modeling using treatment and Aftercare
follow-up information; Patient and Hospital satisfaction surveys; Identification
and assessment of counseling services outside the Hospital service area. The
list of data aggregation reports may be modified or expanded upon agreement of
the Parties, including for additional fees. Notwithstanding any other provision
of this Agreement, Hospital may share the Data Reports internally for its own
internal business purposes.

         Hythiam's data collection services will include, but are not limited
to, pre- and post-treatment interviews with patients, administration of certain
questionnaires, follow-up interviews with patients for up to two years after
treatment, and collection of patient data from Aftercare providers. Hythiam will
provide any of the data collection services that involve direct patient contact
only on behalf of Hospital and only in strict accordance with protocols,
procedures and questionnaires provided by or approved by Hospital in advance.
Hythiam shall not provide any medical advice, diagnosis or treatment services to
patients.

7.       TERMS FOR PROVISION BY HYTHIAM OF MARKETING SERVICES TO HOSPITAL:

         Hythiam will assist with speakers' bureau and local seminars, provide
awareness presentations to the community and to Hospital staff, and make
available its national Web site listing Hospital as a provider that has licensed
the Hythiam Technology. Hythiam also will provide marketing collateral for
private labeling and use by Hospital. Upon Hythiam's execution of a Technology
License and Administrative Services Agreement, or similar agreement, with a
hospital in the Seattle market that has more than 300 beds, Hythiam will provide
a community marketing representative to collaborate with Hospital marketing
staff, provide consulting advice, and make direct sales calls on third-party
payers.

8.       TERMS FOR PROVISION BY HYTHIAM OF AFTERCARE SERVICES TO HOSPITAL:

         All on behalf of Hospital and in return for the Aftercare Service Fees
set forth in paragraph 10 of this Attachment A, Hythiam shall arrange for and
pay for (up to $[HC-03 TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY
HYTHIAM, INC.] for each patient) and collect data (for a period of up to two
years following treatment) concerning the recovery follow-up treatment for
Hospital patients provided treatment using the Licensed Technology, provided
that within thirty (30) days after receiving that treatment the patient enrolls
in an aftercare program where services are provided by a certified or licensed
health care provider ("AFTERCARE"). Hythiam shall provide Hospital and treating
physicians with options for Aftercare providers for their patients from a list
maintained by Hythiam. Notwithstanding the foregoing, Hythiam 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.

9.       LICENSE AND SERVICES FEES; AFTERCARE FEES:

         License and Services Fees: Hospital shall pay Hythiam a License and
Services Fee for each patient treated at or by Hospital using the Licensed
Technology as follows:


                                       16
<PAGE>

         Each episode of Treatment for alcohol dependency-- $[HC-04 TEXT
DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM, INC.].

         Each episode of Treatment for psycho stimulant dependency-- $[HC-05
TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM, INC.].

         The License and Services Fees set forth in this paragraph 9 do not
include costs for any services other than those set forth in Section 4 and do
not include any Aftercare or other services required or requested as a result of
any extended stays, complications or subsequent episodes of treatment, the total
cost for which as between the Parties is the responsibility of Hospital. For
purposes of this Agreement, Aftercare shall mean any and all related follow-up
care, recovery care, services, referrals or consultations.

         For purposes of this paragraph 9, a patient's admission date will
determine the month in which that patient was treated. Except as set forth in
paragraph 11 of this Schedule A, any treatment provided to any patient by, at or
on behalf of Hospital using all or any part of the Licensed Technology shall be
included in the calculation of the Services Fees. At least monthly, Hospital
shall pay Hythiam the License and Services Fee in accordance with Section 5.2,
with any additional License and Service Fees due under this paragraph 9 paid by
Hospital upon reconciliation as set forth in Section 5.3.

         Aftercare Services Fees: Hospital shall pay Hythiam up to $[HC-06 TEXT
DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM, INC.] per patient for the
provision of the Aftercare Services, as set forth in paragraph 8 of this
Schedule A, which shall include payments to be made by Hythiam on behalf of
Hospital to the Aftercare provider for providing its care.

10.      HOSPITAL CHARGES

         Each Episode of Treatment for alcohol dependency, with
Aftercare-$[HC-07 TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM,
INC.].

         Each Episode of Treatment for psycho stimulant dependency, with
Aftercare-$[HC-08 TEXT DELETED--CONFIDENTIAL TREATMENT REQUESTED BY HYTHIAM,
INC.].

         These charges include both technical and professional fee components,
as well as the cost of Aftercare, and Hospital shall be responsible for
allocation of the charges between those components. Hospital shall ensure that
Staff Physicians do not bill any additional fees or charges for professional
services that are included in each Episode of Treatment.

         Any Hospital charges for extended stays, complications or follow-on
care or treatment shall be in accordance with Hospital's normal and customary
charges. Hythiam shall have no responsibility for payment of any Hospital costs
or charges for any reason.

         For purposes of this Agreement, an Episode of Treatment shall include:

         o        Alcohol dependency- two administrations of the Hythiam
                  HANDS(TM)for alcohol protocol provided during a two night
                  stay.

         o        Psycho-stimulant dependency or poly-addictions - Five
                  administrations of the Hythiam HANDS(TM) for cocaine or crack
                  cocaine protocol provided during an aggregate of five nights
                  (three nights for the initial treatment plus a follow-up
                  treatment three weeks later requiring a two night stay).

11.      PAYER DISCOUNTS

         Hospital agrees for up to [HC-09 TEXT DELETED--CONFIDENTIAL TREATMENT
REQUESTED BY HYTHIAM, INC.] ([HC-10 TEXT DELETED--CONFIDENTIAL TREATMENT
REQUESTED BY HYTHIAM, INC.]) patients per year during the Term that if (i) the
treating physician determines that treatment using the Licensed Technology is in
the best interest of the patient and the patient desires that treatment, and
(ii) a third-party payer that does not at the time have an agreement with
Hospital to reimburse Hospital for treatment using the Licensed Technology is
willing to agree in writing to reimburse Hospital for that treatment for the
patient at issue as a way of trying out a reimbursement arrangement, then (i)


                                       17
<PAGE>

Hospital shall agree in writing with the payer to provide treatment using the
Licensed Technology to that patient for a [HC-11 TEXT DELETED--CONFIDENTIAL
TREATMENT REQUESTED BY HYTHIAM, INC.]% discount off the then-current Hospital
charges (PAYER DISCOUNT"). With respect to each Payer Discount, Hospital agrees
that it will not reduce or discount the amount of professional fees paid to the
treating physician from its customary practice, and Hythiam agrees that the
patient will not be counted in the patient totals used to determine its License
and Services Fees.

                                   SCHEDULE B

                                AUTHORIZED USERS




                                       18
<PAGE>


                                   SCHEDULE C


                    BUSINESS ASSOCIATE AND DATA USE AGREEMENT

--------------------------------------------------------------------------------

                         LAKE CHELAN COMMUNITY HOSPITAL
                                       AND
                                  HYTHIAM, INC.

--------------------------------------------------------------------------------

This Business Associate  Agreement ("B.A.  AGREEMENT"),  effective as of 5-10-04
("EFFECTIVE  DATE"),  is  entered  into by and Lake  Chelan  Community  Hospital
("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.  ss.164.501) ("PHI")
      subject to the federal privacy  regulations  issued pursuant to the Health
      Insurance  Portability and Accountability Act ("HIPAA") and codified at 45
      C.F.R.  parts  160 and 164  ("PRIVACY  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 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 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  Section  make  any and all  uses and
      disclosures  of PHI  necessary  to perform and enforce 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 from the third
      party  regarding the  confidential  handling of such PHI as required under
      the Privacy Rule; (c) provide Data  Aggregation  services  relating to the
      health care operations of the 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 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 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);


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<PAGE>

      c.    report to Covered Entity in writing any use or disclosure of PHI not
            permitted in Section 3.2(a) of which  Hythiam's  management  becomes
            aware and, to the extent  practicable,  minimize  harmful effects of
            that use or disclosure;

      d.    ensure that any agents and  subcontractors to which Hythiam provides
            PHI agree to the same  restrictions  and  conditions  that  apply to
            Hythiam with respect to such PHI;

      e.    make available  within twenty (20) 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 ss.  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;

      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  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.

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  Rule.  To the extent  that any  relevant
      provision  of the  Privacy  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.


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<PAGE>

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.  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 Hythiam is making reasonable efforts to cure, Covered Entity may extend
      the cure period to allow for that cure), 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, 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,  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 Hythiam, in its sole discretion,  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 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 Rule and Section 3.1(d) of this B.A. Agreement.

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 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 disclose the LDS for
      the same purposes in accordance with the Privacy 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  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 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.


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<PAGE>

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 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.

LAKE CHELAN COMMUNITY HOSPITAL            HYTHIAM, INC.


By:  /s/ Larry Peterson                   By: /s/ Chuck Timpe
     ---------------------------              ----------------------------------

Print Name: Larry Peterson                Print Name: Chuck Timpe
            --------------------                      --------------------------

Print Title: CEO                          Print Title: CFO
             -------------------                       -------------------------



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