Document:

exv10w7

 

Exhibit 10.7

SENIOR SECURED NOTE

THE ISSUANCE AND SALE OF THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITY UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITY.

Hythiam, Inc.

Senior Secured Note

	 	 	 
	Issuance Date: January 18, 2007

	 	Original Principal Amount: U.S. $10,000,000.00

     FOR VALUE RECEIVED, Hythiam, Inc., a Delaware corporation (the “Company”), hereby promises to
pay to the order of HIGHBRIDGE INTERNATIONAL LLC or registered assigns (“Holder”) the amount set
out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof)
and to pay interest (“Interest”) on any outstanding Principal at a rate per annum equal to the
Interest Rate (as defined below), from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below),
the Maturity Date, acceleration, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Secured Note (including all Senior Secured Notes issued in exchange, transfer
or replacement hereof, this “Note” and, to the extent any principal amount of this Note is
transferred, such other Senior Secured Notes issued in connection with such transfer, the “Other
Notes” and collectively with this Note, the “Notes”) is the Senior Secured Note issued pursuant to
the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in
Section 24.

     (1) MATURITY. On the Maturity Date, the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid
Late Charges, if any. The “Maturity Date” shall be January 15, 2010.

     (2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 365-day year and actual days elapsed and
shall be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year
(each, an “Interest Date” and the period between successive

 

 

Interest Dates, an “Interest Period”) with the first Interest Date being April 15, 2007.
Interest shall be payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in cash.

     (b) From and after the occurrence of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15%). In the event that such Event of Default is subsequently
cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the
date of such cure; provided that the Interest as calculated at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of cure of such Event
of Default.

     (3) RIGHTS UPON EVENT OF DEFAULT.

     (a) Event of Default. Each of the following events shall constitute an “Event of
Default”:

          (i) the Company’s failure to pay to the Holder any amount of Principal (including,
without limitation, any redemption payments), Interest, Late Charges or other amounts when
and as due under this Note or any other Transaction Document (as defined in the Securities
Purchase Agreement), except, in the case of a failure to pay Interest and Late Charges when
and as due, in which case only if such failure continues for a period of at least three (3)
Business Days;

          (ii) any default under, redemption of or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries (as defined in Section 3(a) of the
Securities Purchase Agreement), in excess of $500,000, individually or in the aggregate,
other than with respect to any Other Notes;

          (iii) the Company or any of its Subsidiaries, pursuant to or within the meaning of
Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the entry
of an order for relief against it in an involuntary case, (C) consents to the appointment of
a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;

          (iv) a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an involuntary
case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;

          (v) a final judgment or judgments for the payment of money aggregating in excess of
$500,000 are rendered against the Company or any of its Subsidiaries and which judgments are
not, within seventy-five (75) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within seventy-five (75) days after the expiration of
such stay; provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall

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not be included in calculating the $500,000 amount set forth above so long as the
Company provides the Holder a written statement from such insurer or indemnity provider
(which written statement shall be reasonably satisfactory to the Holder) to the effect that
such judgment is covered by insurance or an indemnity and the Company will receive the
proceeds of such insurance or indemnity within thirty (30) days of the issuance of such
judgment or the Company is contending, reasonably and in good faith, that such judgment is
covered by insurance or indemnity, and is seeking a determination to such effect;

          (vi) the Company materially breaches any representation, warranty, covenant or other
term or condition of any Transaction Document, except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at least ten (10)
consecutive Business Days;

          (vii) any breach or failure in any respect to comply with Section 10 of this Note; or

          (viii) any Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     (b) Redemption Right. Upon the occurrence of an Event of Default with respect to
this Note or any Other Note, the Company shall within one (1) Business Day deliver written notice
thereof via facsimile and overnight courier (an “Event of Default Notice”) to the Holder. At any
time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the “Event of Default Redemption
Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of
this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by
the Company pursuant to this Section 3(b) shall be redeemed by the Company at a price equal to the
Outstanding Amount (the “Event of Default Redemption Price”). Redemptions required by this
Section 3(b) shall be made in accordance with the provisions of Section 8. To the extent
redemptions required by this Section 3(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments.

     (4) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     (a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless the Successor Entity assumes in writing all of the obligations of the Company
under this Note and the other Transaction Documents in accordance with the provisions of this
Section 4(a) pursuant to written agreements in form and substance satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the

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Notes held by such holder and having similar ranking to the Notes, and satisfactory to the
Required Holders. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Note with the same effect as if such Successor Entity
had been named as the Company herein. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions.

     (b) Redemption Right. No sooner than fifteen (15) days nor later than ten (10) days
prior to the consummation of a Change of Control, but not prior to the public announcement of such
Change of Control, the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after
the consummation of such Change of Control, the Holder may require the Company to redeem all or
any portion of this Note by delivering written notice thereof (“Change of Control Redemption
Notice”) to the Company, which Change of Control Redemption Notice shall indicate the Outstanding
Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant
to this Section 4 shall be redeemed by the Company in cash at a price equal to the product of (i)
the applicable Company Redemption Premium and (ii) the Outstanding Amount of this Note being
redeemed (the “Change of Control Redemption Price”). For the avoidance of doubt, the applicable
date of determination for purposes of determining the applicable Company Redemption Premium shall
be the date of consummation of the Change of Control. Redemptions required by this Section 4
shall be made in accordance with the provisions of Section 8 and shall have priority to payments
to shareholders in connection with a Change of Control. To the extent redemptions required by
this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments
of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

     (5) COMPANY’S RIGHT OF OPTIONAL REDEMPTION.

     (a) Company Optional Redemption. The Company shall have the right at any time to
redeem all or any portion of the Outstanding Amount of this Note (a “Company Optional
Redemption”). The portion of this Note subject to redemption pursuant to this Section 5 shall be
redeemed by the Company in cash at a price equal to the product of (i) the applicable Company
Redemption Premium and (ii) the Outstanding Amount of this Note being redeemed (the “Company
Optional Redemption Price”). The Company may exercise its redemption right under this Section 5
by delivering a written notice thereof by confirmed facsimile and overnight courier to all, but
not less than all, of the holders of the Notes (the “Company Optional Redemption Notice” and the
date such notice is delivered to all the holders is referred to as the “Company Optional
Redemption Notice Date”). A Company Optional Redemption Notice shall be irrevocable. Each
Company Optional Redemption Notice shall state (A) the date on which the Company Optional
Redemption shall occur (the “Company Optional Redemption Date”) which date shall be not less than
[five (5)] Business Days nor more than [ten (10)] Business Days after the Company Optional
Redemption Notice Date and (B) the aggregate Principal of the Notes which the Company has elected
to be subject

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to such Company Optional Redemption from all of the holders of the Notes pursuant to this
Section 5 (and analogous provisions under the Other Notes) on the Company Optional Redemption
Date. Redemptions made pursuant to this Section 5 shall be made in accordance with Section 8. To
the extent redemptions required by this Section 5(a) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be
deemed to be voluntary prepayments. The parties hereto agree that in the event of the Company’s
redemption of any portion of the Note under this Section 5(a), the Holder’s damages would be
uncertain and difficult to estimate because of the parties’ inability to predict future interest
rates and the uncertainty of the availability of a suitable substitute investment opportunity for
the Holder. Accordingly, any redemption premium due under this Section 5(a) is intended by the
parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

     (b) Pro Rata Redemption Requirement. If the Company elects to cause a Company
Optional Redemption pursuant to Section 5(a), then it must simultaneously take the same action
with respect to the Other Notes. If the Company elects to cause a Company Optional Redemption
pursuant to Section 5(a) (or similar provisions under the Other Notes) with respect to less than
all of the principal amount of the Notes then outstanding, then the Company shall require
redemption of a Principal amount from the Holder and each holder of the Other Notes equal to the
product of (i) the aggregate principal amount of Notes which the Company has elected to cause to
be redeemed pursuant to Section 5(a), multiplied by (ii) the fraction, the numerator of which is
the sum of the initial principal amount of Notes purchased by such holder and the denominator of
which is the initial principal amounts of Notes purchased by all holders holding outstanding Notes
(such fraction with respect to each holder is referred to as its “Redemption Allocation
Percentage”, and such amount with respect to each holder is referred to as its “Pro Rata
Redemption Amount”); provided that in the event that the initial holder of any Notes has sold or
otherwise transferred any of such holder’s Notes, the transferee shall be allocated a pro rata
portion of such holder’s Redemption Allocation Percentage and Pro Rata Redemption Amount.

     (6) HOLDER’S RIGHT OF OPTIONAL REDEMPTION. At any time and from time to time after
the eighteen (18) month anniversary of the Issuance Date, the Holder shall have the right, in its
sole discretion, to require that the Company redeem all or any portion of the Outstanding Amount of
this Note (a “Holder Redemption”) by delivering written notice thereof to the Company (a “Holder
Optional Redemption Notice”). The Holder Redemption Notice shall indicate the Outstanding Amount
the Holder is electing to have redeemed (the “Holder Optional Redemption Amount”) on the Holder
Optional Redemption Date (as defined in Section 8). The portion of this Note subject to redemption
pursuant to this Section 6 shall be redeemed by the Company in cash at a price equal to the
Outstanding Amount being redeemed (the “Holder Optional Redemption Price”). Redemptions required
by this Section 6 shall be made in accordance with the provisions of Section 8.

     (7) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or

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performance of any of the terms of this Note, and will at all times in good faith carry out
all of the provisions of this Note and take all action as may be required to protect the rights of
the Holder of this Note.

     (8) HOLDER’S REDEMPTIONS.

     (a) Mechanics. The Company shall deliver the applicable Event of Default Redemption
Price to the Holder within five (5) Business Days after the Company’s receipt of the Holder’s
Event of Default Redemption Notice. If the Holder has submitted a Change of Control Redemption
Notice in accordance with Section 4(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change of Control if
such notice is received prior to the consummation of such Change of Control and within five (5)
Business Days after the Company’s receipt of such notice otherwise. If the Company has delivered
a Company Optional Redemption Notice in accordance with Section 5, the Company shall deliver the
Company Optional Redemption Price to the Holder on the Company Optional Redemption Date. If the
Holder has submitted a Holder Optional Redemption Notice in accordance with Section 6, the Company
shall deliver the applicable Holder Optional Redemption Price to the Holder within fifteen (15)
Business Days (the “Holder Optional Redemption Date”) after the Company’s receipt of such notice.
In the event of a redemption of less than all of the Outstanding Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with
Section 14(d)) representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time period required,
at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder
shall have the option, in lieu of redemption, to require the Company to promptly return to the
Holder all or any portion of this Note representing the Outstanding Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late Charges thereon)
has not been paid. Upon the Company’s receipt of such notice, (x) the Redemption Notice shall be
null and void with respect to such Outstanding Amount, and (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 14(d)) to the Holder
representing such Outstanding Amount. The Holder’s delivery of a notice voiding a Redemption
Notice and exercise of its rights following such notice shall not affect the Company’s obligations
to make any payments of Late Charges which have accrued prior to the date of such notice with
respect to the Outstanding Amount subject to such notice.

     (b) Redemption by Other Holders. Upon the Company’s receipt of notice from any of
the holders of the Other Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 3(b), Section 4(b) or
Section 6 (each, an “Other Redemption Notice”), the Company shall immediately, but no later than
one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a copy of such
notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices,
during the period beginning on and including the date which is three (3) Business Days prior to
the Company’s receipt of the Holder’s Redemption Notice and ending on and including the date which
is three Business Days after the Company’s receipt of the Holder’s Redemption Notice and the
Company is unable to redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption

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Notices received during such seven (7) Business Day period, then the Company shall redeem a
pro rata amount from each holder of the Notes (including the Holder) based on the principal amount
of the Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.

     (9) SECURITY. This Note and the Other Notes are secured to the extent and the manner
set forth in the Security Documents (as defined in the Securities Purchase Agreement).

     (10) COVENANTS.

     (a) Rank. All payments due under this Note (a) shall rank pari passu with all Other
Notes and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries.

     (b) Incurrence of Indebtedness. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness
evidenced by this Note and the Other Notes and (ii) other Permitted Indebtedness.

     (c) Existence of Liens. So long as this Note is outstanding, the Company shall not,
and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract rights) owned by the Company or any of
its Subsidiaries (collectively, “Liens”) other than Permitted Liens.

     (d) Restricted Payments. The Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any
payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether
by way of open market purchases, tender offers, private transactions or otherwise), all or any
portion of any Permitted Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment is due or is
otherwise made or, after giving effect to such payment, an event constituting, or that with the
passage of time and without being cured would constitute, an Event of Default has occurred and is
continuing; provided that notwithstanding the foregoing, no principal (or any portion thereof) of
any Subordinated Indebtedness may be paid (whether upon maturity, redemption, acceleration or
otherwise) so long as this Note is outstanding. Notwithstanding the foregoing, the Company may,
during the occurrence of an Event of Default, continue to make regularly scheduled payments of
principal and interest (but not prepayments or payments upon acceleration) (i) on leases or other
financing of equipment acquired or held by the Company or any of its Subsidiaries, and (ii)
pursuant to clauses (B) and (G) of the definition of Permitted Indebtedness.

     (e) Restriction on Redemption and Cash Dividends. Until all of the Notes have been
redeemed or otherwise satisfied in accordance with their terms, the Company

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shall not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on its capital stock without the prior express written consent of the Required
Holders.

     (f) Post-Closing Collateral Matters.

          (i) Within twenty (20) Business Days following the Closing Date, the Company shall deliver to
the Collateral Agent an account control agreement for each account set forth in Schedule IV to the
Security Agreement, in form and substance reasonably satisfactory to the Collateral Agent,
including, without limitation, that the occurrence of any Event of Default set forth in Sections
3(a)(i), 3(a)(ii), 3(a)(iii) and 3(a)(iv) will provide the Collateral Agent with the right to
exercise control over such account in accordance with the terms of such account control agreement,
duly executed by the Company and the depositary bank in which such account is maintained.

          (ii) Prior to opening any other account that would have otherwise been required to disclosed
on Schedule IV to the Security Agreement, the Company shall deliver to the Collateral Agent an
account control agreement in form and substance reasonably satisfactory to the Collateral Agent,
including, without limitation, that the occurrence of any Event of Default set forth in Sections
3(a)(i), 3(a)(ii), 3(a)(iii) and 3(a)(iv) will provide the Collateral Agent with the right to
exercise control over such account in accordance with the terms of such account control agreement,
duly executed by the Company and the depositary bank in which such account is maintained.

          (iii) Nothwithstanding anything to the contrary in this Section 10(f), if an Event of Default
occurs under Section 3(a)(i) due to the failure of the Company to either (A) pay Interest by the
end of the applicable cure period in Section 3(a)(i) or (B) pay the Holder Optional Redemption
Price on the Holder Optional Redemption Date, the Collateral Agent shall only have the right to
exercise control over any accounts subject to an account control agreement after such time as the
Company receives notice of the Company’s failure to make any such payment and such failure to make
payment continues for a period of at least two (2) Business Days after such notice.

     (11) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the Required Holders shall
be required for any change or amendment to this Note or the Other Notes.

     (12) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder
without the consent of the Company.

     (13) REGISTRATION. The Company shall maintain a register (the “Register”) for the
recordation of the names and addresses of the holders of each Note and the principal amount of the
Notes held by such holders (the “Registered Notes”). The entries in the Register shall be
conclusive and binding for all purposes absent manifest error. The Company and the holders of the
Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all
purposes, including, without limitation, the right to receive payments of

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principal and interest hereunder, notwithstanding notice to the contrary. A Registered Note
may be assigned or sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a request to assign or sell all or part of any Registered Note by a
Holder, the Company shall record the information contained therein in the Register and issue one or
more new Registered Notes in the same aggregate principal amount as the principal amount of the
surrendered Registered Note to the designated assignee or transferee pursuant to Section 14.

     (14) REISSUANCE OF THIS NOTE.

     (a) Transfer. If this Note is to be transferred, the Holder shall surrender this
Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 14(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance with Section 14(d))
to the Holder representing the outstanding Principal not being transferred. The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of
this Section 14(a), following redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of this Note.

     (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note,
and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder
to the Company in customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with
Section 14(d)) representing the outstanding Principal.

     (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes
(in accordance with Section 14(d) and in principal amounts of at least $100,000) representing in
the aggregate the outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time of such
surrender.

     (d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii)
shall represent, as indicated on the face of such new Note, the Principal remaining outstanding
(or in the case of a new Note being issued pursuant to Section 14(a) or Section 14(c), the
Principal designated by the Holder which, when added to the principal represented by the other new
Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding
under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued
Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date.

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     (15) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing herein shall limit
the Holder’s right to pursue actual and consequential damages for any failure by the Company to
comply with the terms of this Note. Amounts set forth or provided for herein with respect to
payments, redemption and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of showing economic loss
and without any bond or other security being required.

     (16) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed
in the hands of an attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving
a claim under this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

     (17) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the
Company and all the Holders and shall not be construed against any person as the drafter hereof.
The headings of this Note are for convenience of reference and shall not form part of, or affect
the interpretation of, this Note.

     (18) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

     (19) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
arithmetic calculation of any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one (1) Business Day of receipt of
the Redemption Notice or other event giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such determination or calculation
within one (1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile
the disputed arithmetic calculation of any Redemption Price to the Company’s independent, outside
accountant. The Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five (5) Business

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Days from the time it receives the disputed determinations or calculations. Such investment
bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

     (20) NOTICES; PAYMENTS.

     (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore.

     (b) Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, such payment shall be made in lawful money of the United States of
America by a check drawn on the account of the Company and sent via overnight courier service to
such Person at such address as previously provided to the Company in writing (which address, in
the case of each of the Holders, shall initially be as set forth on the Schedule of Buyers
attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing the Company with
prior written notice setting out such request and the Holder’s wire transfer instructions.
Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Interest Date which is not the date on which this Note is paid in full,
the extension of the due date thereof shall not be taken into account for purposes of determining
the amount of Interest due on such date. Any amount of Principal or other amounts due under the
Transaction Documents, which is not paid when due shall result in a late charge being incurred and
payable by the Company in an amount equal to interest on such amount at the rate of fifteen
percent (15%) per annum from the date such amount was due until the same is paid in full (“Late
Charge”).

     (21) CANCELLATION. After all Principal, accrued Interest and other amounts at any
time owed on this Note has been paid in full, this Note shall automatically be deemed canceled,
shall be surrendered to the Company for cancellation and shall not be reissued.

     (22) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.

     (23) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and
enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note 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. The Company 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

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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. The Company 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 it set forth on the signature page hereto 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. In
the event that any provision of this Note is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any
collateral or any other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

     (24) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have
the following meanings:

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

     (b) “Change of Control” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of the Company’s voting
power immediately prior to such reorganization, recapitalization or reclassification continue
after such reorganization, recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company.

     (c) “Company Redemption Premium” means, for any date of determination, the applicable
percentage set out below:

	 	 	 	 	 
	                  Date	 	Percentage
	Issuance Date — July 15, 2007

	 	 	110	%
	July 16, 2007 — January 15, 2008

	 	 	107	%
	January 16, 2008 — July 15, 2008

	 	 	103	%
	On and after July 16, 2008

	 	 	100	%

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     (d) “Contingent Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.

     (e) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is
the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person or Persons to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the Person or Persons making or party to, or
associated or affiliated with the Person or Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than the 50% of either
the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock, (vi) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 50% of the issued and outstanding Common Stock or the aggregate ordinary voting power
represented by issued and outstanding Common Stock.

     (f) “GAAP” means United States generally accepted accounting principles, consistently
applied.

     (g) “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in accordance with generally
accepted accounting principles (other than trade payables entered into in the ordinary course of
business), (iii) all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under

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such agreement in the event of default are limited to repossession or sale of such property),
(vi) all monetary obligations under any leasing or similar arrangement which, in connection with
generally accepted accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi)
above secured by (or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

     (h) “Interest Rate” means the Prime Rate as of the first (1st) Business Day of
each Interest Period plus two and one-half percent (2.5%).

     (i) “Outstanding Amount” means the sum of (A) the portion of the Principal to be redeemed or
otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest
with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such
Principal and Interest.

     (j) “Permitted Indebtedness” means (A) Indebtedness of the Company set forth on Schedule 3(s)
to the Securities Purchase Agreement, (B) Indebtedness incurred by the Company in connection with
installment commitments of the Company to fund unrestricted research grants and pilot studies,
substantially consistent with the Company’s current practices over a specific period of time, (C)
Indebtedness incurred by the Company in connection with letters of credit now or hereinafter
provided by the Company in the ordinary course of its business to unaffiliated third-party
landlords as security deposits pursuant to real property leases, (D) guarantees by the Company of
any Indebtedness incurred by a Subsidiary in connection with real property lease obligations with
unaffiliated third-party landlords which do not in an aggregate exceed $500,000, (E) Indebtedness
incurred by any individual Subsidiary in the form of a line of credit with a nationally recognized
commercial bank, which Indebtedness shall not provide at any time for (1) a guarantee by, or any
other recourse to, the Company or any other Subsidiary and (2) the issuance of any equity or
equity equivalent securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any circumstances,
convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (as defined in the Securities Purchase Agreement) of the Company to such bank in
connection therewith, (F) unsecured Indebtedness incurred by the Company that is made expressly
subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Holder and approved by the Holder in writing, and which
Indebtedness does not provide at any time for (1) the payment, prepayment, repayment, repurchase
or defeasance, directly or indirectly, of any principal or premium, if any, thereon until
ninety-one (91) days after the Maturity Date or later and (2) total interest and fees at a rate in
excess of the Interest Rate hereunder (the “Subordinated Indebtedness”), (G) financing of
insurance premiums, (H) Indebtedness secured by Permitted Liens, (I) extensions, refinancings and
renewals of any items of Permitted Indebtedness, provided that the principal amount is not
increased or the terms modified to impose more burdensome terms upon the Company or its

- 14 -

 

Subsidiary, as the case may be and (J) Indebtedness evidenced by this Note and the Other
Notes.

     (k) “Permitted Liens” means (i) Liens set forth on Schedule 3(w) to the Securities Purchase
Agreement, (ii) any Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in accordance with GAAP,
(iii) any statutory Lien arising in the ordinary course of business by operation of law with
respect to a liability that is not yet due or delinquent, (iv) any Lien created by operation of
law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or delinquent or that
are being contested in good faith by appropriate proceedings, (v) Liens securing the Company’s
obligations under the Notes, (vi) Liens (A) upon or in any equipment acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of such equipment,
(vii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (vi) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and
the principal amount of the Indebtedness being extended, renewed or refinanced does not increase,
(viii) Liens securing the Company’s obligations under this Note and the Other Notes; (ix) leases
or subleases and licenses and sublicenses granted to others in the ordinary course of the
Company’s business, not interfering in any material respect with the business of the Company and
its Subsidiaries taken as a whole, (x) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payments of custom duties in connection with the importation of goods
and (xi) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 3(a)(v).

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

     (m) “Prime Rate” shall mean as of a particular date, the prime rate of interest as published
on that date in The Wall Street Journal (Eastern Edition), and generally defined therein
as “the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks.” If
The Wall Street Journal is not published on a date for which the Prime Rate must be
determined, the Prime Rate shall be the prime rate published in The Wall Street Journal on
the nearest-preceding date on which The Wall Street Journal was published.

     (n) “Principal Market” means The NASDAQ Global Market.

     (o) “Redemption Notices” means, collectively, the Event of Default Redemption Notices, the
Change of Control Redemption Notices, the Company Optional Redemption Notices and the Holder
Optional Redemption Notices and, each of the foregoing, individually, a Redemption Notice.

- 15 -

 

     (p) “Redemption Prices” means, collectively, the Event of Default Redemption Price, the
Change of Control Redemption Price, the Company Optional Redemption Price and the Holder Optional
Redemption Price and, each of the foregoing, individually, a Redemption Price.

     (q) “Required Holders” means the holders of Notes representing at least a majority of the
aggregate principal amount of the Notes then outstanding.

     (r) “SEC” means the United States Securities and Exchange Commission.

     (s) “Securities Purchase Agreement” means that certain securities purchase agreement dated
January 17, 2007 by and among the Company and the initial holders of the Notes pursuant to which
the Company issued the Notes.

     (t) “Security Agreement” shall have the meaning ascribed to it in the Securities Purchase
Agreement.

     (u) “Successor Entity” means the Person, which may be the Company, formed by, resulting from
or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made.

     (v) “Voting Stock” of a Person means capital stock of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect, or the general power
to appoint, at least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or classes shall have
or might have voting power by reason of the happening of any contingency).

     (25) DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or
delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, nonpublic
information, relating to the Company or its Subsidiaries, the Company shall indicate to the Holder
contemporaneously with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]

- 16 -

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance
Date set out above.

	 	 	 	 	 
	 	HYTHIAM, INC.

 	 
	 	By:  	/s/ Chuck Timpe
 	 
	 	 	Name:  	Chuck Timpe 	 
	 	 	Title:  	Chief Financial Officerexv10w8

 

Exhibit 10.8

EXECUTION COPY

PLEDGE AGREEMENT

     PLEDGE AGREEMENT (this “Agreement”), dated as of January 17, 2007, made by each entity listed
as a pledgor on the signature pages hereto (each a “Pledgor” and collectively, the “Pledgors”), in
favor of HIGHBRIDGE INTERNATIONAL LLC, a limited liability company organized under the laws of the
Cayman Islands, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for
the “Buyers” (as defined below) party to the Securities Purchase Agreement, dated as of even date
herewith (as amended, restated or otherwise modified from time to time, the “Securities Purchase
Agreement”).

W I T N E S S E T H:

     WHEREAS, Hythiam, Inc., a Delaware corporation (the “Company”) and each party listed as a
“Buyer” on the Schedule of Buyers attached thereto (collectively, the “Buyers”) are parties to the
Securities Purchase Agreement, pursuant to which the Company shall be required to sell, and the
Buyers shall purchase or have the right to purchase, the “Notes” (as defined therein);

     WHEREAS, it is a condition precedent to the Buyers purchasing the Notes that the Pledgors
shall have executed and delivered to the Collateral Agent for the benefit of itself and the Buyers
this Agreement to secure all of the Company’s obligations under the Securities Purchase Agreement,
the Notes issued pursuant thereto (as such Notes may be amended, restated, replaced or otherwise
modified from time to time in accordance with the terms thereof, collectively, the “Notes”) and the
other “Transaction Documents” (as defined in the Securities Purchase Agreement, the “Transaction
Documents”), on such terms and conditions as are set forth herein;

     WHEREAS, the Company shall have executed a Security Agreement granting the Collateral Agent a
first priority perfected lien in all of its personal property (the “Security Agreement”) on such
terms and conditions as are set forth therein;

     WHEREAS, the Pledgors are mutually dependent on each other in the conduct of their respective
businesses as an integrated operation, with the credit needed from time to time by each Pledgor
often being provided through financing obtained by the other Pledgors and the ability to obtain
such financing being dependent on the successful operations of all of the Pledgors as a whole; and

     WHEREAS, each Pledgor has determined that the execution, delivery and performance of this
Agreement directly benefits, and is in the best interest of, such Pledgor.

     NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to
induce the Buyers to perform under the Securities Purchase Agreement, each Pledgor agrees with the
Collateral Agent as follows:

     SECTION 1. Definitions and Rules of Interpretation.

          (a) Definitions. Reference is made to the Securities Purchase Agreement and the Notes
for a statement of terms thereof. All terms used in this Agreement

 

 

which are defined in the Securities Purchase Agreement or the Notes or in Article 8 or Article
9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the
“Code”), and which are not otherwise defined herein shall have the same meanings herein as set
forth therein; provided, that terms used herein which are defined in the Code as in effect
in the State of New York on the date hereof shall continue to have the same meaning notwithstanding
any replacement or amendment of such statute except as the Collateral Agent may otherwise
determine. In the event that any such term is defined in both the Securities Purchase Agreement or
the Notes and the Code, the definition of such term in the Securities Purchase Agreement or the
Notes shall control.

          (b) Rules of Interpretation. Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this Agreement: (i) the singular includes
the plural and the plural includes the singular; (ii) “or” and “any” are not exclusive and
“include” and “including” are not limiting; (iii) a reference to any agreement or other contract
includes permitted supplements and amendments; (iv) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; and (vi) a reference in this Agreement to an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex, Exhibit or Schedule
of this Agreement.

     SECTION 2. Pledge and Grant of Security Interest. As collateral security for all of
the Obligations (as defined in Section 3 hereof), each of the Pledgors hereby pledges and
assigns and grants to the Collateral Agent a continuing security interest in, and Lien on, all of
such Pledgor’s right, title and interest in and to the following (collectively, the “Collateral”):

          (a) all present, as set forth in Schedule I, and all future, issued and outstanding
shares of capital stock, or other equity or investment securities of, or partnership, membership,
or joint venture interests in, each Subsidiary (as defined in the Securities Purchase Agreement),
whether now owned or hereafter acquired by such Pledgor and whether or not evidenced or represented
by any stock certificate, certificated security or other instrument, together with the certificates
representing such equity interests, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, distributions, cash, instruments, investment property and any
other property (including, but not limited to, any stock dividend and any distribution in
connection with a stock split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing and all cash and noncash proceeds thereof
(collectively, the “Pledged Shares”);

          (b) all present and future increases, profits, combinations, reclassifications, and
substitutes and replacements for all or part of the foregoing Collateral heretofore described;

          (c) all investment property, financial assets, securities, capital stock, other equity
interests, stock options and commodity contracts of such Pledgor, all notes, debentures, bonds,
promissory notes or other evidences of indebtedness payable or owing to such Pledgor, and all other
assets now or hereafter received or receivable with respect to the foregoing;

-2-

 

          (d) all securities entitlements of such Pledgor in any and all of the foregoing; and

          (e) all proceeds (including proceeds of proceeds) of any and all of the foregoing;

in each case, whether now owned or hereafter acquired by such Pledgor and howsoever its interest
therein may arise or appear (whether by ownership, security interest, Lien, claim or otherwise).

Notwithstanding anything herein to the contrary, the term “Collateral” shall not include in the
case of a Subsidiary of such Pledgor organized under the laws of a jurisdiction other than the
United States, any of the states thereof or the District of Columbia (a “Foreign Subsidiary”), more
than 65% (or such greater percentage that, due to a change in applicable law after the date hereof,
(i) would not reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary
as determined for United States federal income tax purposes to be treated as a deemed dividend to
such Foreign Subsidiary’s United States parent and (ii) would not reasonably be expected to cause
any material adverse tax consequences) of the issued and outstanding shares of Capital Stock
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (it being understood and
agreed that the Collateral shall include 100% of the issued and outstanding shares of Capital Stock
not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) or other equity
interest of such Foreign Subsidiary). “Capital Stock” means (i) with respect to any Person that is
a corporation, any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that
is not a corporation, any and all partnership, membership or other equity interests of such Person.
“Governmental Authority” means any nation or government, any Federal, state, city, town,
municipality, county, local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.

The Pledgors agree that the pledge of the shares of Capital Stock acquired by a Pledgor of any and
all Persons now or hereafter existing who is a Foreign Subsidiary may be supplemented by one or
more separate pledge agreements, deeds of pledge, share charges, or other similar agreements or
instruments, executed and delivered by the relevant Pledgors in favor of the Collateral Agent,
which pledge agreements will provide for the pledge of such shares of Capital Stock in accordance
with the laws of the applicable foreign jurisdiction. With respect to such shares of Capital
Stock, the Collateral Agent may, at any time and from time to time, in its sole discretion, take
actions in such foreign jurisdictions that will result in the perfection of the Lien created in
such shares of Capital Stock.

     SECTION 3. Security for Obligations. The security interest created hereby in the
Collateral constitutes continuing collateral security for all of the following obligations, whether
now existing or hereafter incurred (the “Obligations”):

          (a) the payment by the Pledgors, as and when due and payable (by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of all amounts

-3-

 

from time to time owing by it in
respect of the Securities Purchase Agreement, the Notes and the
other Transaction Documents, (A) all principal of and interest on the Notes (including,
without limitation, all interest that accrues after the commencement of any bankruptcy proceeding
of the Pledgors, whether or not the payment of such interest is unenforceable or is not allowable
due to the existence of such bankruptcy proceeding), and (B) all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due under any of the
Transaction Documents; and

          (b) the due performance and observance by each Pledgor of all of its other obligations from
time to time existing in respect of any of the Transaction Documents for so long as the Notes are
outstanding.

     SECTION 4. Delivery of the Collateral.

          (a) All certificates currently representing the Pledged Shares shall be delivered to the
Collateral Agent on or prior to the execution and delivery of this Agreement. All other promissory
notes, certificates and instruments constituting Collateral from time to time or required to be
pledged to the Collateral Agent pursuant to the terms of this Agreement (the “Additional
Collateral”) shall be delivered to the Collateral Agent promptly upon receipt thereof by or on
behalf of any of the Pledgors. All such promissory notes, certificates and instruments shall be
held by the Collateral Agent pursuant hereto and shall be delivered in suitable form for transfer
by delivery or shall be accompanied by duly executed instruments of transfer or assignment or
undated stock powers executed in blank, all in form and substance reasonably satisfactory to the
Collateral Agent. If any Collateral consists of uncertificated securities, unless the immediately
following sentence is applicable thereto, the Pledgors shall cause the Collateral Agent (or its
designated custodian, nominee or other designee) to become the registered holder thereof, or cause
each issuer of such securities to agree that it will comply with instructions originated by the
Collateral Agent (or its designated custodian, nominee or other designee) with respect to such
securities without further consent by the Pledgors. If any Collateral consists of securities
entitlements, the Pledgors shall transfer such securities entitlements to the Collateral Agent (or
its designated custodian, nominee or other designee) or cause the applicable securities
intermediary to agree that it will comply with entitlement orders by the Collateral Agent (or its
designated custodian, nominee or other designee) without further consent by the Pledgors.

          (b) Promptly upon the receipt by any Pledgor of any Additional Collateral, a Pledge Amendment,
duly executed by such Pledgor, in substantially the form of Annex I hereto (a “Pledge
Amendment”), shall be delivered to the Collateral Agent, in respect of the Additional Collateral
which is or are to be pledged pursuant to this Agreement, which Pledge Amendment shall from and
after delivery thereof constitute part of Schedule I hereto. Each Pledgor hereby
authorizes the Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that
all promissory notes, certificates or instruments listed on any Pledge Amendment shall for all
purposes hereunder constitute Collateral and such Pledgor shall be deemed upon delivery thereof to
have made the representations and warranties set forth in Section 5 with respect to such
Additional Collateral as of the date of the Pledge Amendment.

-4-

 

          (c) If any Pledgor shall receive, by virtue of such Pledgor’s being or having been an owner of
any Collateral, any (i) stock certificate (including, without limitation, any certificate
representing a stock dividend or distribution in connection with any increase or
reduction of capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or
right, whether as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to be retained by such
Pledgor pursuant to Section 7 hereof) or in securities or other property or (iv) dividends,
distributions, cash, instruments, investment property and other property in connection with a
partial or total liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, such Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of the Collateral
Agent, shall segregate it from such Pledgor’s other property and shall deliver it forthwith to the
Collateral Agent in the exact form received, with any necessary endorsement and/or appropriate
stock powers duly executed in blank, to be held by the Collateral Agent as Collateral and as
further collateral security for the Obligations.

     SECTION 5. Representations and Warranties. Each Pledgor jointly and severally
represents and warrants as of the date of this Agreement as follows:

          (a) Each Pledgor (i) is a corporation, limited liability company or limited partnership duly
organized, validly existing and in good standing under the laws of the state or jurisdiction of its
organization, and (ii) has all corporate, limited liability company or limited partnership power
and authority to execute, deliver and perform this Agreement.

          (b) The execution, delivery and performance by each Pledgor of this Agreement (i) have been
duly authorized by all necessary corporate, limited liability company or limited partnership
action, (ii) do not and will not contravene its charter or bylaws, its limited liability company or
operating agreement or its certificate of partnership or partnership agreement, as applicable, or
any applicable law or any contractual restriction binding on or affecting it or any of its
properties, and (iii) do not and will not result in or require the creation of any Lien upon or
with respect to any of its properties other than pursuant to this Agreement.

          (c) The issuers of the Pledged Shares set forth in Schedule I hereto are the Pledgors’
only Subsidiaries existing on the date hereof. The Pledged Shares have been duly authorized and
validly issued, are fully paid and nonassessable and the holders thereof are not entitled to any
preemptive first refusal or other similar rights. Except as noted in Schedule I hereto,
the Pledged Shares constitute 100% of the issued shares of capital stock, partnership interests or
membership or other equity interests, as applicable, of the Subsidiaries. All other shares of
stock constituting Collateral will be, when issued, duly authorized and validly issued, fully paid
and nonassessable.

          (d) The Pledgors are and will be at all times the legal and beneficial owners of the
Collateral free and clear of any Lien, other than Permitted Liens.

          (e) The exercise by the Collateral Agent of any of its rights and remedies hereunder will not
contravene any law or any contractual restriction binding on or

-5-

 

affecting any Pledgor or any of the
properties of any Pledgor and will not result in or require the creation of any Lien upon or with
respect to any of the properties of any Pledgor other than pursuant to this Agreement and the other
Transaction Documents.

          (f) No authorization or approval or other action by, and no notice to or filing with, any
governmental authority is required to be obtained by any Pledgor for (i) the due execution,
delivery and performance by any Pledgor of this Agreement, (ii) the grant by any Pledgor, or the
perfection of the security interest and Lien purported to be created hereby in the Collateral or
(iii) the exercise by the Collateral Agent of any of its rights and remedies hereunder, except as
may be required in connection with any sale of any Collateral by laws affecting the offering and
sale of securities generally.

          (g) This Agreement creates a valid security interest and Lien in favor of the Collateral Agent
in the Collateral, as security for the Obligations. The Collateral Agent’s having possession of
the promissory notes evidencing the Collateral, the certificates representing the Pledged Shares
and all other certificates, instruments and cash constituting Collateral from time to time results
in the perfection of the security interest in such Collateral. Such security interest and Lien is,
or in the case of Collateral in which any of the Pledgors obtains rights after the date hereof,
will be, a perfected Lien. All action necessary to perfect and protect such security interest and
Lien has been duly taken, except for the Collateral Agent’s having possession of certificates,
instruments, securities entitlements and cash constituting Collateral after the date hereof.

     SECTION 6. Covenants as to the Collateral. So long as any Obligations shall remain
outstanding and the Securities Purchase Agreement and the other Transaction Documents shall not
have been terminated, each Pledgor will, unless the Collateral Agent shall otherwise consent in
writing:

          (a) keep adequate records concerning the Collateral owned or purported to be owned by it, and
permit the Collateral Agent, or any designees or representatives thereof at any time or from time
to time to examine and make copies of and abstracts from such records;

          (b) at the Pledgors’ joint and several expense, promptly deliver to the Collateral Agent a
copy of each material notice or other material communication received by any Pledgor in respect of
the Collateral;

          (c) at the Pledgors’ joint and several expense, defend the Collateral Agent’s right, title and
security interest in and to the Collateral against the claims of any Person (other than the holders
of Permitted Liens);

          (d) at the Pledgors’ joint and several expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further action that may be
necessary or that the Collateral Agent may reasonably request in order to (i) perfect and protect,
or maintain the perfection of, the security interest and Lien purported to be created hereby, (ii)
enable the Collateral Agent to exercise and enforce its rights and remedies hereunder in respect of
the Collateral or (iii) otherwise effect the purposes of this Agreement,

-6-

 

including, without
limitation, delivering to the Collateral Agent irrevocable proxies in respect of the Collateral;

          (e) not sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any
Collateral or any interest therein except in the ordinary course of business or as expressly
permitted by the Securities Purchase Agreement or the Notes;

          (f) not create or suffer to exist any Lien, upon or with respect to any Collateral except for
Permitted Liens;

          (g) not make or consent to any amendment or other modification or waiver with respect to any
Collateral or enter into any agreement or permit to exist any restriction with respect to any
Collateral other than pursuant to the Transaction Documents;

          (h) except as expressly permitted by the Securities Purchase Agreement, not permit the
issuance of (i) any additional shares of any class of capital stock, partnership interests, member
interests or other equity of any Subsidiary, (ii) any securities convertible voluntarily by the
holder thereof or automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock or (iii) any warrants, options,
contracts or other commitments entitling any Person to purchase or otherwise acquire any such
shares of capital stock;

          (i) not issue any stock certificate, certificated security or other instrument to evidence or
represent any shares of capital stock, any partnership interest or membership interest described in
Schedule I hereto; and

          (j) not take or fail to take any action which would in any manner impair the validity or
enforceability of the Collateral Agent’s security interest in and Lien on any Collateral.

     SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Collateral.

          (a) So long as no Event of Default (as defined in the Notes) (an “Event of Default”) shall
have occurred and be continuing:

               (i) each Pledgor may exercise any and all voting and other consensual rights pertaining to any
Collateral for any purpose not inconsistent with the terms of this Agreement, the Securities
Purchase Agreement or the other Transaction Documents; provided, however, that (A)
no Pledgor will exercise or refrain from exercising any such right, as the case may be, if the
Collateral Agent gives it notice that, in the Collateral Agent’s judgment, such action (or
inaction) is reasonably likely to have a Material Adverse Effect and (B) each Pledgor will give the
Collateral Agent at least five (5) Business Days’ notice of the manner in which it intends to
exercise, or the reasons for refraining from exercising, any such right which is reasonably likely
to have a Material Adverse Effect;

               (ii) the Pledgors may receive and retain any and all dividends, interest or other
distributions paid in respect of the Collateral to the extent permitted by the Securities Purchase
Agreement; provided, however, that any and all (A) dividends and interest

-7-

 

paid or
payable other than in cash in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of or in exchange for, any Collateral, (B) dividends and other
distributions paid or payable in cash in respect of any Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Collateral, together with any dividend, distribution, interest or other payment
which at the time of such dividend, distribution, interest or other payment was not permitted by
the Securities Purchase Agreement, shall be, and shall forthwith be delivered to the
Collateral Agent to hold as, Collateral and shall, if received by any of the Pledgors, be
received in trust for the benefit of the Collateral Agent, shall be segregated from the other
property or funds of the Pledgors, and shall be forthwith delivered to the Collateral Agent in the
exact form received with any necessary indorsement and/or appropriate stock powers duly executed in
blank, to be held by the Collateral Agent as Collateral and as further collateral security for the
Obligations; and

               (iii) the Collateral Agent will execute and deliver (or cause to be executed and delivered) to
a Pledgor all such proxies and other instruments as such Pledgor may reasonably request for the
purpose of enabling such Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) of this Section 7(a) and to receive the dividends,
distributions, interest and other payments which it is authorized to receive and retain pursuant to
paragraph (ii) of this Section 7(a), in each case, to the extent that the Collateral Agent
has possession of such Collateral.

          (b) Upon the occurrence and during the continuance of an Event of Default:

               (i) all rights of each Pledgor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to paragraph (i) of subsection (a) of this
Section 7, and to receive the dividends, distributions, interest and other payments which
it would otherwise be authorized to receive and retain pursuant to paragraph (ii) of subsection (a)
of this Section 7, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Collateral such dividends, distributions, interest and
other payments;

               (ii) without limiting the generality of the foregoing, the Collateral Agent may at its option
exercise any and all rights of conversion, exchange, subscription or any other rights, privileges
or options pertaining to any of the Collateral as if it were the absolute owner thereof, including,
without limitation, the right to exchange, in its discretion, any and all of the Collateral upon
the merger, consolidation, reorganization, recapitalization or other adjustment of any issuer of
the Collateral or upon the exercise by any issuer of the Collateral of any right, privilege or
option pertaining to any Collateral, and, in connection therewith, to deposit and deliver any and
all of the Collateral with any committee, depository, transfer collateral agent, registrar or other
designated collateral agent upon such terms and conditions as it may determine; and

-8-

 

               (iii) all dividends, distributions, interest and other payments which are received by any
Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall be received
in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such
Pledgor, and shall be forthwith paid over to the Collateral Agent as Collateral in the exact form
received with any necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Collateral Agent as Collateral and as further collateral security for the
Obligations.

     SECTION 8. Additional Provisions Concerning the Collateral.

          (a) Each Pledgor hereby (i) authorizes the Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relating to the Collateral, without the signature
of such Pledgor where permitted by law, (ii) ratifies such authorization to the extent that the
Collateral Agent has filed any such financing or continuation statements, or amendments thereto,
without the signature of such Pledgor prior to the date hereof and (iii) authorizes the Collateral
Agent to execute any agreements, instruments or other documents in such Pledgor’s name and to file
such agreements, instruments or other documents to perfect, protect or enforce the security
interest and Lien of the Collateral Agent in the Collateral or as provided under Article 8 or
Article 9 of the Uniform Commercial Code in any appropriate filing office.

          (b) Each Pledgor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact and
proxy, with full authority in the place and stead and in its name or otherwise, from time to time
in the Collateral Agent’s discretion to take any action and to execute any instrument which the
Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of such Pledgor under Section 7(a) hereof), including, without
limitation, to receive, indorse and collect all instruments made payable to such Pledgor
representing any dividend, interest payment or other distribution in respect of any Collateral and
to give full discharge for the same. This power is coupled with an interest and is irrevocable
until the termination of this Agreement in accordance with Section 13(e) hereof.

          (c) If any Pledgor fails to perform any agreement or obligation contained herein, the
Collateral Agent itself may perform, or cause performance of, such agreement or obligation, and the
expenses of the Collateral Agent incurred in connection therewith shall be jointly and severally
payable by the Pledgors pursuant to Section 10 hereof and shall be secured by the
Collateral.

          (d) Other than the exercise of reasonable care to assure the safe custody of the Collateral
while held hereunder, the Collateral Agent shall have no duty or liability to preserve rights
pertaining thereto and shall be relieved of all responsibility for the Collateral upon surrendering
it or tendering surrender of it to any of the Pledgors. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral in its possession
if the Collateral is accorded treatment substantially equal to that which the Collateral Agent
accords its own property, it being understood that the Collateral Agent shall not have
responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Collateral, whether or

-9-

 

not the Collateral
Agent has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Collateral.

          (e) The powers conferred on the Collateral Agent hereunder are solely to protect its interest
in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for monies actually
received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.

          (f) Upon the occurrence and during the continuation of any Default or Event of Default, the
Collateral Agent may at any time in its discretion (i) without notice to the Pledgors, transfer or
register in the name of the Collateral Agent or any of its nominees any or all of the Collateral,
subject only to the revocable rights of the Pledgors under Section 7(a) hereof, and (ii)
exchange certificates or instruments constituting Collateral for certificates or instruments of
smaller or larger denominations.

     SECTION 9. Remedies Upon Default. If any Event of Default shall have occurred and be
continuing:

          (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all of the rights and
remedies of a secured party on default under the Code then in effect in the State of New York; and
without limiting the generality of the foregoing and without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private sale, at any
exchange or broker’s board or elsewhere, at such price or prices and on such other terms as the
Collateral Agent may deem commercially reasonable. The Pledgors agree that, to the extent notice
of sale shall be required by law, at least ten (10) days’ notice to any of the Pledgors of the time
and place of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it was so adjourned.

          (b) Each Pledgor recognizes that it may be impracticable to effect a public sale of all or any
part of the Pledged Shares or any other securities constituting Collateral and that the Collateral
Agent may, therefore, determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other things, to acquire such
securities for its own account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges that any such private sale may be at prices and on terms less
favorable to the seller than the prices and other terms which might have been obtained at a public
sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have
been made in a commercially reasonable manner and that the Collateral Agent shall have no
obligation to delay sale of any such securities for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the Securities Act of
1933, as amended (the “Securities Act”). Each Pledgor further

-10-

 

acknowledges and agrees that any
offer to sell such securities which has been (i) publicly advertised on a bona fide basis in a
newspaper or other publication of general circulation in the financial community of New York, New
York (to the extent that such an offer may be so advertised without prior registration under the
Securities Act) or (ii) made privately in the manner described above to not less than fifteen (15)
bona fide offerees shall be deemed to involve a “public disposition” for the
purposes of Section 9-610 of the Code (or any successor or similar, applicable statutory provision)
as then in effect in the State of New York, notwithstanding that such sale may not constitute a
“public offering” under the Securities Act, and that the Collateral Agent may, in such event, bid
for the purchase of such securities.

          (c) Any cash held by the Collateral Agent as Collateral and all cash proceeds received by the
Collateral Agent in respect of any sale of, collection from, or other realization upon, all or any
part of the Collateral shall be applied (after payment of any amounts payable to the Collateral
Agent pursuant to Section 10 hereof) by the Collateral Agent against, all or any part of
the Obligations in such order as the Collateral Agent shall elect consistent with the provisions of
the Securities Purchase Agreement.

          (d) In the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent is legally entitled, the Pledgors
shall be jointly and severally liable for the deficiency, together with interest thereon at the
highest rate specified in the Notes for interest on overdue principal thereof or such other rate as
shall be fixed by applicable law, together with the costs of collection and the reasonable fees,
costs and expenses of any attorneys employed by the Collateral Agent to collect such deficiency.

     SECTION 10. Indemnity and Expenses.

          (a) Each of the Pledgors, jointly and severally, hereby agrees to indemnify and hold the
Collateral Agent (and all of its officers, directors, employees, attorneys, and consultants)
harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties,
fees, costs and expenses (including, without limitation, reasonable legal fees and disbursements of
counsel) to the extent that they arise out of or otherwise result from this Agreement (including,
without limitation, enforcement of this Agreement), except such claims, losses or liabilities
arising or resulting directly from such Person’s gross negligence or willful misconduct as
determined by a court of competent jurisdiction.

          (b) Each Pledgor shall be jointly and severally obligated for, and will upon demand pay to the
Collateral Agent the reasonable amount of any and all out-of-pocket costs and expenses, including
the reasonable fees and disbursements of the Collateral Agent’s counsel and of any experts which
the Collateral Agent may incur in connection with (i) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other modification or termination of
this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the
rights of the Collateral Agent hereunder, or (iv) the failure by any Pledgor to perform or observe
any of the provisions hereof.

-11-

 

     SECTION 11. Notices, Etc. All notices and other communications provided for hereunder
shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt
requested), sent by Federal Express or other recognized courier service (return receipt requested),
telecopied or delivered, if to any Pledgor, to it at the address specified for the Company in the
Securities Purchase Agreement or if to the Collateral Agent, to it at the address specified in the
Securities Purchase Agreement; or as to either such Person at such other address as shall be
designated by such Person in a written notice to such other Person complying as to delivery with
the terms of this Section 11. All such notices and other communications shall be effective
(i) if sent by certified mail, postage prepaid, return receipt requested, when received or three
(3) Business Days after mailing, whichever first occurs, (ii) if telecopied, when transmitted and
confirmation is received, provided same is on a Business Day and, if not, on the next
Business Day or (iii) if delivered or sent by Federal Express or other recognized courier service
(return receipt requested), upon delivery, provided same is on a Business Day and, if
not, on the next Business Day.

     SECTION 12. Security Interest Absolute. All rights of the Collateral Agent, all Liens
and all obligations of each of the Pledgors hereunder shall be absolute and unconditional
irrespective of: (i) any lack of validity or enforceability of the Securities Purchase Agreement
or any other Transaction Document, (ii) any change in the time, manner or place of payment of, or
in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of
or consent to any departure from the Securities Purchase Agreement or any other Transaction
Document, (iii) any exchange or release of, or non-perfection of any Lien on any Collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for all or any of the
Obligations, or (iv) any other circumstance which might otherwise constitute a defense available
to, or a discharge of, any of the Pledgors in respect of the Obligations (other than the payment in
full of the Obligations). All authorizations and agencies contained herein with respect to any of
the Collateral are irrevocable and powers coupled with an interest.

     SECTION 13. Miscellaneous.

          (a) No amendment of any provision of this Agreement shall be effective unless it is in writing
and signed by each Pledgor and the Collateral Agent, and no waiver of any provision of this
Agreement, and no consent to any departure by the Pledgors therefrom, shall be effective unless it
is in writing and signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given.

          (b) No failure on the part of the Collateral Agent to exercise, and no delay in exercising,
any right hereunder or under any other Transaction Document shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any such right preclude any other or further
exercise hereof or thereof or the exercise of any other right. The rights and remedies of the
Collateral Agent provided herein and in the other Transaction Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any Transaction Document against any party thereto are not conditional or
contingent on any attempt by the Collateral Agent to exercise any of its rights under any other
Transaction Document against such party or against any other Person.

-12-

 

          (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

          (d) This Agreement shall create a continuing security interest in and Lien on the Collateral
and shall (i) remain in full force and effect until the termination of this Agreement in accordance
with Section 13 (e) hereof and (ii) be binding on the Pledgors and their respective successors and
assigns and shall inure, together with all rights and remedies of the Collateral Agent, to the
benefit of the Collateral Agent and its successors, transferees and assigns. Without limiting the
generality of clause (ii) of the immediately preceding sentence, the Collateral Agent may assign or
otherwise transfer its rights and obligations under this Agreement and any other Transaction
Document to any other Person pursuant to the terms of the Securities Purchase Agreement, and such
other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Collateral Agent herein or otherwise. Upon any
such assignment or transfer, all references in this Agreement to the Collateral Agent shall mean
the assignee of the Collateral Agent. None of the rights or obligations of any of the Pledgors
hereunder may be assigned or otherwise transferred without the prior written consent of the
Collateral Agent, and any such assignment or transfer shall be null and void.

          (e) Notwithstanding anything to the contrary in this Agreement, (i) this Agreement (along with
all powers of attorney granted hereunder) and the security interests and Lien created hereby shall
terminate and all rights to the Collateral shall revert to the Pledgors upon the repayment in full
and/or complete conversion to equity securities of the Company of all indebtedness obligations owed
by the Company to the Buyers under the Notes (including, without limitation, all principal,
interest and fees related to the Notes), and (ii) the Collateral Agent will, upon each Pledgor’s
request and at each such Pledgor’s expense, (A) return to such Pledgor such of the Collateral (to
the extent delivered to the Collateral Agent) as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof, and (B) execute and deliver to such Pledgor, without
recourse, representation or warranty, such documents as such Pledgor shall reasonably request to
evidence such termination.

          (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

          (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR HEREBY ACCEPTS FOR ITSELF

-13-

 

AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT.

          (h) EACH PLEDGOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL
AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR
ANY COURSE OF CONDUCT, COURSE
OF DEALING, ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

          (i) Each Pledgor irrevocably consents to the service of process of any of the aforesaid courts
in any such action, suit or proceeding by the mailing of copies thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to any Pledgor at its address
provided herein, such service to become effective 10 days after such mailing.

          (j) Nothing contained herein shall affect the right of the Collateral Agent to serve process
in any other manner permitted by law or commence legal proceedings or otherwise proceed against any
Pledgor or any property of any Pledgor in any other jurisdiction.

          (k) Each Pledgor irrevocably and unconditionally waives any right it may have to claim or
recover in any legal action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.

          (l) Section headings herein are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.

          (m) This Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an original, but all of which
taken together constitute one in the same Agreement.

[Signature Page Follows]

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          In Witness Whereof, each Pledgor has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above written.

	 	 	 	 	 	 	 
	 	 	HYTHIAM, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Chuck Timpe	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Chuck Timpe	 	 
	 

	 	 	 	Title: Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address: 11150 Santa Monica Boulevard	 	 
	 

	 	 	 	                 Suite 1500	 	 
	 

	 	 	 	                 Los Angeles, California 90025	 	 
	 
	 

	 	 	 	Facsimile: (310) 444-5300	 	 

ACCEPTED BY:

HIGHBRIDGE INTERNATIONAL LLC,

as Collateral Agent

	 	 	 	 	 	 	 
	By:

	 	Highbridge Capital Management, LLC
	 	 
	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Adam J. Chill	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name: Adam J. Chill	 	 	 	 
	 

	 	Title: Managing Director	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address: c/o Highbridge Capital Management, LLC	 	 	 	 
	 

	 	               9 West 57th Street, 27th Floor	 	 	 	 
	 

	 	               New York, New York 10019	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Facsimile: (212) 751-0755	 	 	 	 

Pledge Agreement

 

 

SCHEDULE I TO PLEDGE AGREEMENT

Pledged Shares

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Number of	 	% of Issuer’s	 	 	 	Certificate
	       Pledgor	 	Name of Issuer	 	Shares	 	Issued Shares	 	Class	 	No.(s)
	Hythiam, Inc.

	 	Hythiam International
(Cayman) Ltd.
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     
	 
	Hythiam, Inc.

	 	Hythiam International Sarl
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     
	 
	Hythiam, Inc.

	 	Quit System Sarl
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     
	 
	Hythiam, Inc.

	 	Hythiam Switzerland Sarl
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     
	 
	Hythiam, Inc.

	 	Quit System Italy Srl
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     
	 
	Hythiam, Inc.

	 	Quit Systems Spain Trading S1
	 	                    
	 	 	65	%	 	[Common] [Ordinary] [Stock]
	 	                     

 

 

ANNEX I

TO

PLEDGE AGREEMENT

PLEDGE AMENDMENT

          This Pledge Amendment, dated as of                                                    
         , 20___, is delivered pursuant to Section
4 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge
Amendment may be attached to the Pledge Agreement, dated as of January                     , 2007, made by [Pledgor]
and certain of its affiliates in favor of HIGHBRIDGE INTERNATIONAL LLC, as Collateral Agent for the
Buyers (the “Collateral Agent”), as it may heretofore have been or hereafter may be amended or
otherwise modified or supplemented from time to time and that the promissory notes [and/or] shares
or other equity interests listed on this Pledge Amendment shall be hereby pledged and assigned to
the Collateral Agent and become part of the Collateral referred to in such Pledge Agreement and
shall secure all of the Obligations referred to in such Pledge Agreement.

Pledged Shares

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of Shares	 	 	 	 	 	 	Certificate	 
	Pledgor	 	Name of Issuer	 	 	or Other Equity Interests	 	 	Class	 	 	No.(s)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 
	 

	 	[PLEDGOR]
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}]]