Document:

exv10w10

 

Exhibit
10.10

SECOND AMENDMENT

TO

MANAGEMENT AND SUPPORT SERVICES AGREEMENT

This Second Amendment (this “Second Amendment”) to the Management and Support Services Agreement
between the Parties (as defined below) dated November 15, 2005 (“Agreement”) is dated and effective
November 15, 2006, (“Second Amendment Effective Date”) by and between Hythiam, Inc. (“Hythiam”) and
David E. Smith, M.D. Medical Group, Inc. (“PC”) (each a “Party” and collectively, the “Parties”).

WHEREAS, the Parties entered into that certain First Amendment to Management and Support Services
Agreement dated and effective December 1, 2005 (the “First Amendment”); and

WHEREAS, the Parties wish to further amend the Agreement as set forth in this Second Amendment.

NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set
forth in this Second Amendment, the Parties agree as follows:

1. All capitalized terms used and not otherwise defined in this Second Amendment shall have the
definitions set forth in the Agreement.

2. The Parties hereby amend the Agreement by adding the following definitions to Section
1.1:

     “Continuing Care” has the meaning set out in Exhibit B.

     “Continuing Care Services” has the meaning set out in Section 3.16.6.

     “San Francisco Premises” has the meaning set out in Section 3.2.1.

     “Santa Monica Premises” has the meaning set out in Section 3.2.1.

3. The Parties hereby amend the Agreement by:

     (a) deleting the definitions of “Aftercare” and “Aftercare Services” from
Section 1.1;

     (b) replacing the defined term “Aftercare” throughout the Agreement with the defined
term “Continuing Care”; and

     (c) replacing the defined term “Aftercare Services” throughout the Agreement with
the defined term “Continuing Care Services”.

 

 

4. The Parties hereby amend the Agreement by deleting the first sentence of Section 3.2.1
and replacing it with the following language:

          The Manager hereby agrees to provide, or cause an affiliate to provide, to the PC, on a
non-exclusive and non-assignable basis, office space at 1315 Lincoln Boulevard, Santa Monica, CA
90401 (the “Santa Monica Premises”), and at 1700 Montgomery Street, Suite 215, San Francisco, CA,
94111 (the “San Francisco Premises”) for the conduct of the practice of the PC (the Santa Monica
Premises and the San Francisco Premises are referred to herein collectively as the “Premises”).

5. The Parties hereby amend the Agreement by deleting Section 6.4 (as amended by the First
Amendment) in its entirety and replacing it with the following new Section 6.4:

     6.4 Authorization to Pay Invoices

          The PC hereby authorizes and directs the Manager to make the following payments on behalf
of the PC from any Bank Account, in the order specified: (1) the Medical Fee; (2) any obligations
of PC related to PC’s employees (e.g., salary, benefits and administrative expenses specifically
approved by PC); (3) all third party obligations, including but not limited to Continuing Care; and
(4) any invoice owed by the PC to the Manager and all other monetary obligations of the PC to the
Manager hereunder on the date such amount is due and payable (including, without limitation, the
Management Fee), (subparagraphs (1) through (4) above are referred to collectively as the
“Obligations”). In the event there are not sufficient monies in the Bank Account(s) to pay any of
the Obligations, Manager shall provide the PC a revolving line of credit to be available as a
working capital loan up to a maximum amount of two million five hundred thousand dollars
($2,500,000) (“Working Capital Loan”) to allow PC to pay such Obligations. PC shall execute and
deliver to Manager a promissory note, dated the Second Amendment Effective Date and payable to the
order of Manager (including as further amended, modified, restated or replaced from time to time),
evidencing PC’s unconditional obligation to repay Manager for the Working Capital Loan. The
Working Capital Loan shall be repaid by PC, with interest equal to prime plus two percent (2%), as
funds become available; provided, however, upon termination of this Agreement, the entire
principal balance and all other costs, fees and expenses, if any, shall be due and payable in full.
The Working Capital Loan shall be secured as provided in Section 6.7.1. The Manager
agrees that all third party obligations shall be paid prior to any payments of the Management Fee
each month.

6. The Parties hereby amend the Agreement by deleting Section 6.8.1 in its entirety and
replacing it with the following new Section 6.8.1:

          PC shall pay Manager the license fees set forth on Exhibit B-1 or Exhibit B-2,
as amended from time to time, as applicable to the locality of the Premises (“License Fees”).

 

 

7. The Parties hereby amend the Agreement by deleting Section 6.8.2 in its entirety and
replacing it with the following new Section 6.8.2:

     6.8.2 Payment Terms

          PC will deliver within three business days following the end of every calendar month during the Term to Manager a report
identifying the number and type of patients treated using the Licensed Technology during the monthly period covered by the report, the total fees charged to those patients, the amounts collected to date with respect to those patients, and License
Fees payable to Manager based on those treatments. Within ten days after receipt of each report, Manager will invoice PC for the License Fees (computed as provided in this Section 6.8.2 and
Exhibit B) that may have accrued since the cutoff date for the previous report (or from the
Effective Date in the case of the first report), and PC will pay any undisputed invoices within ten
days after receipt by PC by mailing or delivering a check or other readily available funds payable
to Manager in the amount of the License Fees to the Manager’s address and person identified on the
first page of this Agreement (unless and until otherwise directed by Manager). Within ten (10)
days following each reconciliation meeting (as defined in Section 6.8.3), Manager will
invoice PC for any additional License Fees due under this Agreement, and PC will pay any undisputed
invoices within thirty (30) days after receipt by PC. Notwithstanding any other provision of this
Agreement and subject to the terms of the Continuing Care Services set forth in Exhibit B,
Manager in no event or circumstance is or shall be responsible for any costs of, or related to,
patient care provided by PC, or extended or unanticipated care required for patients treated using
the Licensed Technology.

8. The Parties hereby amend the Agreement by deleting the third sentence of Section 6.8.3
and replacing it with the following language:

          Any such unreported uses of the Licensed Technology shall be included by PC in the next
monthly report (as defined in Section 6.8.2).

9. The Parties hereby amend Exhibit B by deleting paragraph 6 in its entirety and replacing
it with the following language:

          The term 
“Continuing Care”
, as used in this 
Exhibit B
and otherwise in the Agreement, refers to a program of follow-up care provided to a patient treated using the Licensed Technology where services are provided by a certified or licensed health care provider (which may be PC). All on behalf of PC,
Manager shall arrange, and pay up to $1,500 from a PC Bank Account for, Continuing Care for each patient treated using the Licensed Technology, provided that within thirty (30) days after receiving that treatment, the patient enrolls in an
appropriate Continuing Care program.  Manager shall provide PC and treating Medical Contractors with options for Continuing Care  providers for their patients from a list maintained by Manager. Notwithstanding the foregoing, Manager does not and shall not endorse or
recommend any specific provider and is not and shall not be responsible or accountable in any way for the care provided by any Continuing Care provider.  Manager, at its discretion and for its own behalf, with

 

 

appropriate patient authorization, may
collect data (for a period of up to two years following treatment) concerning the recovery
follow-up treatment for PC patients provided treatment using the Licensed Technology. Nothing in
this Agreement shall limit a patient’s ability to choose a provider other than PC for Continuing
Care, nor shall this Agreement require any Party to refer patients or otherwise generate business
for the other Party.

10. The Parties hereby amend Exhibit B to the Agreement to delete in its entirety paragraph
7 and replace it with the following:

     7. License Fees

     License Fees: PC shall pay Manager the License Fees set forth on Exhibit B-1
or Exhibit B-2, as applicable to the locality of the Premises.

11. The Parties hereby amend Exhibit B to the Agreement to add Exhibit B-1 as set
forth on Schedule 1 to this Second Amendment.

12. The Parties hereby amend Exhibit B to the Agreement to add Exhibit B-2 as set
forth on Schedule 2 to this Second Amendment.

13. Except as amended by this Second Amendment, all other terms and conditions of the Agreement
shall remain unchanged and in full force and effect. In the event that any terms or conditions of
the Agreement are inconsistent with the terms of this Second Amendment, the provisions of this
Second Amendment shall control. Any reference to the Agreement from and after the Second Amendment
Effective Date shall mean the Agreement as amended by this Second Amendment.

 

 

The Parties have executed this Second Amendment by their duly authorized representatives whose
signatures appear below.

	 	 	 	 	 
	 

	 	Hythiam, Inc.	 	 
	 
	 	 	 	 
	 

	 	BY: /s/ ANTHONY M. LAMACCHIA
 

	 	 
	 
	 	 
	 	 
	 

	 	Printed Name: Anthony M. LaMacchia	 	 
	 
	 	 	 	 
	 

	 	Title: Senior Executive Vice President	 	 
	 
	 	 	 	 
	 

	 	David E. Smith, M.D. Medical Group, Inc.	 	 
	 
	 	 	 	 
	 

	 	BY: /s/ DAVID E. SMITH
 

	 	 
	 
	 	 
	 	 
	 

	 	Printed Name: David E. Smith, M.D.	 	 
	 
	 	 	 	 
	 

	 	Title: President	 	 

 

 

Schedule 1

EXHIBIT B-1

License Fees

Santa Monica Premises

     The following License Fees shall apply with respect to patients treated at the Santa Monica
Premises using the Licensed Technology:

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

	 	 	 	 	 
	Self Pay Patients	 	Manager	 
	Treated Using Licensed Technology	 	Fee	 
	Each episode of treatment for alcohol dependency (2 day) 
	 	$	4,500	 
	Each episode of treatment for severe alcohol dependency (3 day)
	 	$	5,000	 
	(applicable when 3 infusions prescribed in advance)
	 	 	 	 
	Each episode of treatment for psycho-stimulant dependency
	 	$	6,000	 
	Each additional “booster” infusion provided within twelve (12) months
	 	$	1,000	 
	(applicable to treatment for alcohol or psycho-stimulant dependency)
	 	 	 	 

          The License Fees set forth in this Exhibit B-1 are for treatment of Self Pay Patients
only and not for treatment of commercially insured patients or patients reimbursed, on a primary or
secondary basis, by Medicare or Medicaid or any other governmental payer or funding source. Before
treating any such excluded patient, PC will advise Manager of its desire so to do, whereupon the
Parties will meet and attempt in good faith to negotiate appropriate fees for such treatments, and
will advise the patient in advance of the non-covered status of the treatment and obtain an
appropriate waiver therefrom.

          For purposes of this Exhibit B-1, any treatment provided to any patient by, at or on
behalf of the PC using all or any part of the Licensed Technology shall be included in the
calculation of the License Fees with respect to such patient.

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

	 	•	 	Alcohol dependency- two or three administrations of the PROMETATM for alcohol
protocol provided during a consecutive two-day or three-day treatment period.
	 
	 	•	 	Psycho-stimulant dependency or poly-addictions — Five administrations of the
PROMETATM for cocaine, crack cocaine or methamphetamines

 

 

	 	 	 	protocol provided during a consecutive three-day initial treatment period plus a
follow-up treatment three weeks later for two consecutive days.

 

 

Schedule 2

EXHIBIT B-2

License Fees

San Francisco Premises

     The following License Fees shall apply with respect to patients treated at the San Francisco
Premises using the Licensed Technology:

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

	 	 	 	 	 
	Self Pay Patients	 	Manager	 
	Treated Using Licensed Technology	 	Fee	 
	Each episode of treatment for alcohol dependency (2 day)
	 	$	4,500	 
	Each episode of treatment for severe alcohol dependency (3 day)
	 	$	5,000	 
	(applicable when 3 infusions prescribed in advance)
	 	 	 	 
	Each episode of treatment for psycho-stimulant dependency
	 	$	6,000	 
	Each additional “booster” infusion provided within twelve (12) months
	 	$	1,000	 
	(applicable to treatment for alcohol or psycho-stimulant dependency)
	 	 	 	 

          The License Fees set forth in this Exhibit B-2 are for treatment of Self Pay Patients
only and not for treatment of commercially insured patients or patients reimbursed, on a primary or
secondary basis, by Medicare or Medicaid or any other governmental payer or funding source. Before
treating any such excluded patient, PC will advise Manager of its desire so to do, whereupon the
Parties will meet and attempt in good faith to negotiate appropriate fees for such treatments, and
will advise the patient in advance of the non-covered status of the treatment and obtain an
appropriate waiver therefrom.

          For purposes of this Exhibit B-2, any treatment provided to any patient by, at or on
behalf of the PC using all or any part of the Licensed Technology shall be included in the
calculation of the License Fees with respect to such patient.

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

	 	•	 	Alcohol dependency- two or three administrations of the PROMETATM for alcohol
protocol provided during a consecutive two-day or three-day treatment period.
	 
	 	•	 	Psycho-stimulant dependency or poly-addictions — Five administrations of the
PROMETATM for cocaine, crack cocaine or methamphetamines

 

 

	 	 	 	protocol provided during a consecutive three-day initial treatment period plus a
follow-up treatment three weeks later for two consecutive days.exv10w11

 

Exhibit 10.11

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of July 26, 2006, by and
between Hythiam, Inc., a Delaware corporation (“Employer”), and Christopher Hassan, an individual
(“Employee”).

RECITALS

          A. WHEREAS, Employee has commercial sales and marketing experience and expertise applicable to
employment with Employer to perform as the Senior Executive Vice President of Marketing and
Business Development (“SEVP”) of Employer, Employer has agreed to employ Employee and Employee has
agreed to enter into such employment, on the terms set forth in this Agreement.

          B. WHEREAS, Employee acknowledges that this Agreement is necessary for the protection of
Employer’s investment in its business, good will, products, methods of operation, information, and
relationships with its customers and other employees.

          C. WHEREAS, Employer acknowledges that Employee desires definition of his compensation and
benefits, and other terms of his employment.

          NOW, THEREFORE, in consideration thereof and of the covenants and conditions contained herein,
the parties agree as follows:

AGREEMENT

     1. TERM OF AGREEMENT

          1.1 Initial Term. The initial term of this Agreement shall begin on the date first
set forth above, or as soon thereafter as Employee commences services hereunder (“Commencement
Date”) and shall continue until the earlier of: (a) the date on which it is terminated pursuant to
Section 5; or (b) four (4) years following the Commencement Date (“Initial Term”). At the
conclusion of the Initial Term, Employee shall be employed on an at-will basis, with either party
able to terminate the employment, with or without cause and with or without notice.

     2. EMPLOYMENT

          2.1 Employment of Employee. Employer agrees to employ Employee to render services on
the terms set forth herein. Employee hereby accepts such employment on the terms and conditions of
this Agreement.

          2.2 Position and Duties. Employee shall serve as Employer’s SEVP, reporting directly
to Employer’s Chief Executive Officer (“CEO”), and shall have the general powers, duties and
responsibilities of management usually vested in that office in a corporation, including without
limitation responsibility for commercial sales and marketing, and such other powers and

 

 

duties as may be prescribed from time to time by the CEO or Employer’s Board of Directors
(“Board”).

          2.3 Standard of Performance. Employee agrees that he will at all times faithfully and
industriously and to the best of Employee’s ability, experience and talents perform all of the
duties that may be required of and from him pursuant to the terms of this Agreement. Such duties
shall be performed at such place or places as the interests, needs, business and opportunities of
Employer shall require or render advisable.

          2.4 Exclusive Service. Employee shall devote all of his business energies and
abilities and all of his productive time to the performance of his duties under this Agreement
(reasonable absences during holidays and vacations excepted), and shall not, without the prior
written consent of Employer, render to others any service of any kind (whether or not for
compensation) that, in the opinion of Employer, would materially interfere with the performance of
his duties under this Agreement, and (b) Employee shall not, without the prior written consent of
Employer, maintain any affiliation with, whether as an agent, consultant, employee, officer,
director, trustee or otherwise, nor shall he directly or indirectly render any services of an
advisory nature or otherwise to, or participate or engage in, any other business activity.
Employer acknowledges that Employee may do charity work and conduct personal business as long as
such activities do not materially interfere with the Employee’s duties hereunder.

          2.5 Relocation. Employer shall not, without Employee’s consent, require Employee to
permanently relocate outside of Los Angeles, California. If Employer relocates more than thirty
(30) miles outside of Los Angeles, and Employee elects not to relocate, such action shall be
considered a resignation with Good Reason under Section 5.4. If Employer requests and
Employee agrees to relocate, Employer will pay for reasonable and standard relocation costs of
Employee and Employee’s family, from Los Angeles, California to another location in the same manner
as the relocation to Los Angeles, California covered by Paragraph 3.4 without regard to the final
sentence of such paragraph.

     3. COMPENSATION

          3.1 Compensation. During the term of this Agreement, Employer shall pay the amounts
and provide the benefits described in this Section 3, and Employee agrees to accept such
amounts and benefits in full payment for Employee’s services under this Agreement.

          3.2 Base Salary. Employer shall pay to Employee a base annual salary of two hundred
seventy-eight thousand eight hundred dollars ($278,800.00) annually, payable in accordance with
Employer’s standard payroll practices, less applicable withholding. At Employer’s sole discretion,
Employee’s base salary may be increased, but not decreased. Notwithstanding the foregoing,
beginning on the first anniversary of the Commencement Date and annually thereafter, the Employee’s
annual salary then in effect shall be increased by at least the Consumer Price Index for Los
Angeles, CA (or a reasonable proxy thereof).

          3.3 Discretionary Bonus. Except as described in Section 5.1 below, Employee is
eligible to receive an annual bonus in the sole discretion of Employer. This discretionary bonus
will be targeted at fifty percent (50.0%) of Employee’s base salary, based on achieving

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designated individual goals and milestones and the overall performance and profitability of
Employer. The goals and milestones will be established and reevaluated on an annual basis by
mutual agreement of Employee and the CEO, subject to review and approval by the Board or its
Compensation Committee. In the first year of this Agreement, the goals and objectives related to
the 2006 target bonus shall be established within 45 days of the Commencement Date. The bonus will
be based on a calendar year and shall be paid no later than April 30th of the following
year. The annual bonus for 2006, which shall be prorated for the portion of the year from
Commencement Date, is guaranteed.

          3.4 Relocation Expenses. The Employee is eligible to receive reimbursement of his
reasonable and customary expenses incurred pertaining to his relocation to Los Angeles which shall
include transportation of household contents and vehicles, commissions and fees associated with the
sale of his current home, normal fees associated with the purchase of a new home, up to 2 points on
a new home loan (of which up to one point shall be loan origination and the total points shall not
exceed $35,000 without mutual agreement), a house hunting trip and up to 2 months of temporary
living expenses. Employer shall reimburse the relocation expenses to Employee in accordance with
all applicable federal and state reporting requirements. Qualified relocation expenses, which are
not taxable to Employee, shall be reimbursed to Employee without any deduction for applicable tax.
Non-qualified relocation expenses which are taxable to Employee, shall be reimbursed to Employee
with an additional amount reimbursed so that the net reimbursement after the deduction for all
applicable taxes shall equal the amount of the non-qualified, taxable relocation expense. HR
professionals commonly refer to this process as “grossing up” the reimbursement. It is the
intention of this reimbursement provision that 1) Employer will reimburse Employee for all
reasonable relocation expenses incurred by Employee including the imposition of applicable taxes;
and 2) Employee shall not personally incur any reasonable relocation expense. Failure to remain at
the Employer, other than termination by the Employer, for a period of one (1) year from receipt of
a relocation or temporary housing reimbursement shall result in the Employee refunding the amount
paid to the Employer within thirty (30) days.

          3.5 Equity Incentive Plan. Employee shall be granted options to purchase four
hundred thousand (400,000) shares of Employer’s common stock under the provisions of Employer’s
2003 Stock Incentive Plan (“Plan”), upon approval by the Board or its Compensation Committee. To
the extent permissible such options shall be incentive stock options. The options will vest as
follows: twenty percent (20.0%) on the first, second, third, fourth and fifth anniversaries of the
Commencement Date.

          3.6 Fringe Benefits. Upon satisfaction of the applicable eligibility requirements,
Employee shall be provided with group medical and dental insurance through Employer’s plans, as
well as any fringe benefit plan(s) as Employer may offer from time to time to its personnel.
Employee’s spouse and any dependent children of Employee shall be covered under the Employer’s
health care and dental plans at Employer’s cost. Employer will pay for four hundred thousand
dollars ($400,000.00) of term life insurance for the benefit of Employee, subject to the standard
physical examination that is required by the issuing insurance company. In addition, Employee will
be provided with accidental death and disability and long-term disability insurance. Employee will
also be eligible to participate in Employer’s 401K plan.

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          3.7 Paid Time Off. Employee shall accrue, on a daily basis, a total of four (4)
workweeks of paid time off (“PTO”) per year following the date of this Agreement; provided,
however, that Employee’s total accrued PTO may not exceed a total of seven (7) workweeks. This PTO
shall not lapse at the end of any calendar year and shall continue to accrue from year to year.
This PTO shall be in addition to normal Employer holidays, which shall be determined at the
discretion of the Employer from time to time. Any accrued but unused PTO will be paid to Employee,
on a pro rata basis, at the time that his employment is terminated.

          3.8 Deduction from Compensation. Employer shall deduct and withhold from all
compensation payable to Employee all amounts required to be deducted or withheld pursuant to any
present or future law, ordinance, regulation, order, writ, judgment, or decree requiring such
deduction and withholding.

     4. REIMBURSEMENT OF EXPENSES

          4.1 Travel and Other Expenses. Employer shall pay to or reimburse Employee for
business, travel, promotional, professional continuing education and licensing costs (to the extent
required), professional society membership fees, seminars and similar expenditures incurred by
Employee which Employer determines are reasonably necessary for the proper discharge of Employee’s
duties under this Agreement and for which Employee submits appropriate receipts and indicates the
amount, date, location and business character in a timely manner.

          4.2 Liability Insurance. Employer shall provide Employee with officers and directors’
insurance or other liability insurance, consistent with usual and reasonable business practices to
cover Employee against all insurable events related to his employment with Employer.

          4.3 Indemnification. Promptly upon written request from Employee, Employer shall
indemnify, defend and hold harmless Employee, to the fullest extent under applicable law, for all
defense costs, judgments, fines, settlements, losses, costs or expenses (including attorney’s fees,
including fees representing Employee), arising out of Employee’s activities as an agent, employee,
officer or director of Employer, or in any other capacity on behalf of or at the request of
Employer. Such agreement by Employer shall not be deemed to impair any other obligation of
Employer respecting indemnification of Employee otherwise arising out of this or any other
agreement or promise of Employer or under any statute.

     5. TERMINATION

          5.1 Termination With Good Cause; Resignation Without Good Reason. Employer may
terminate Employee’s employment at any time, with or without notice or Good Cause (as defined
below). If Employer terminates Employee’s employment with Good Cause, or if Employee resigns
without Good Reason (as defined below), Employer shall pay Employee his salary prorated through the
date of termination, at the rate in effect at the time notice of termination is given, together
with any benefits accrued through the date of termination. Employer shall have no further
obligations to Employee under this Agreement or any other agreement, and all unvested options will
terminate.

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          5.2 Termination Without Good Cause; Resignation with Good Reason. Employer shall have
the right to terminate Employee’s employment under this Agreement without Good Cause at any time.
Employee shall have the right to terminate his employment with notice and Good Reason. If Employer
terminates Employee’s employment without Good Cause, or Employee resigns for Good Reason:

       (a) Employer shall pay Employee his salary prorated through the date of termination, at
the rate in effect at the time notice of termination is given, together with any benefits
accrued through the date of termination;

       (b) Employer shall pay Employee in a lump sum an amount equal to one (1) year’s salary
(at the rate in effect at the time of termination) plus a bonus equal to one hundred percent
(100.0%) of the targeted bonus;

       (c) All of Employee’s unvested stock options will vest immediately, and remain
exercisable for a period of three (3) years thereafter; and

       (d) In addition to any rights under COBRA, medical benefits shall continue for a period
of one (1) year from the date of termination, provided that coverage will terminate sooner
if Employee becomes eligible for coverage under another employer’s plan.

          To be eligible for the compensation provided for in Section 5.2(b), (c) and (d) above,
Employee must execute a full and complete mutual release of any and all claims in the standard form
then used by Employer (“Release”). Employer shall have no further obligations to Employee under
this Agreement or any other agreement.

          5.3 Good Cause. For purposes of this Agreement, a termination shall be for “Good
Cause” if Employee, in the subjective good faith opinion of Employer, shall:

       (a) Commit an act of fraud, moral turpitude, misappropriation of funds or embezzlement in
connection with his duties;

       (b) Breach Employee’s fiduciary duty to Employer, including, but not limited to, acts of
self-dealing (whether or not for personal profit);

       (c) Materially breach this Agreement, the Confidentiality Agreement (defined below), or
Employer’s written Codes of Ethics as adopted by the Board;

       (d) Willful, reckless or grossly negligent violation of any material provision of Employer’s
written Employee Handbook, or any applicable state or federal law or regulation;

       (e) Fail or refuse (whether willful, reckless or negligent) to comply with all relevant and
material obligations, assumable and chargeable to an executive of his corporate rank and
responsibilities, under the Sarbanes-Oxley Act and the regulations of the Securities and Exchange
Commission promulgated thereunder;

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       (f) Fail to or refuse (whether willful, reckless or negligent) to substantially perform the
responsibilities and duties specified herein (other than a failure caused by temporary disability);
provided, however, that no termination shall occur on that basis unless the Employer first provides
the Employee with written notice to cure; the notice to cure shall reasonably specify the acts or
omissions that constitute the Employee’s failure or refusal to perform his duties, and the Employee
shall have a reasonable opportunity (not to exceed 10 days after the date of notice to cure) to
correct his failure or refusal to perform his duties; termination shall be effective as of the date
of written notice to cure; or

       (g) Be convicted of, or enter a plea of guilty or no contest to, a felony or misdemeanor under
state or federal law, other than a traffic violation or misdemeanor not involving dishonesty or
moral turpitude.

          5.4 Good Reason. For purposes of this Agreement, a resignation shall be with “Good
Reason” if tendered with ninety (90) days of any of the following actions by Employer:

       (a) Assignment to Employee of duties materially inconsistent with Employee’s status as
a senior officer of Employer, removal of Employee as a senior officer, or a substantial
reduction in the nature or status of Employee’s responsibilities;

       (b) Relocation of Employer’s principle executive offices outside of a 30 mile radius of
Los Angeles (unless closer to Employee’s residence) without Employee’s consent, except for
reasonably required travel on Employer’s business;

       (c) Employer’s failure to cause any acquiring or successor entity following a Change in
Control to assume Employer’s obligations under this Agreement, unless such assumption occurs
by operation of law; or

       (d) Material breach of this Agreement by Employer, or failure to timely pay to Employee
any amount due under Section 3 which continues after written notice and reasonable
opportunity to cure (not to exceed ten (10) days after the date of notice).

          5.5 Effects of Change in Control. Immediately upon a Change in Control (as defined
below) all of Employee’s unvested options shall vest immediately, and remain exercisable for a
period of three (3) years thereafter. Further if Employee is terminated without Good Cause or
resigns for Good Reason during the first twelve (12) months following a Change in Control, Employee
shall be entitled to receive a lump sum in an amount equal to (i) one and one-half years of salary
(at the rate in effect at the time of termination); and (ii) one and one-half times the Employee’s
full targeted bonus for that year. In addition to any rights under COBRA, the term for continued
fringe benefits under Section 3.6 shall continue for a period of eighteen (18) months from
the date of termination, provided that Medical and Dental coverage will terminate sooner if
Employee becomes eligible for coverage under another employer’s plan. To be eligible for the
compensation provided for in this Section 5.5, Employee must execute a Release. Employer
shall have no further obligations to Employee under this Agreement.

          5.6 Change in Control. For purposes of this Agreement, a “Change in Control” shall be
defined as:

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       (a) The acquisition of Employer by another entity by means of a transaction or series
of related transactions (including, without limitation, any reorganization, merger, stock
purchase or consolidation); or

       (b) The sale, transfer or other disposition of all or substantially all of the
Employer’s assets.

          5.7 No Change in Control. Notwithstanding the provisions of Section 5.6, the
following shall not constitute a Change in Control:

       (a) If the sole purpose of the transaction is to change the state of the Employer’s
incorporation or to create or eliminate a holding company that will be owned in
substantially the same proportions by the same beneficial owners as before the transaction;

       (b) If Employer’s stockholders of record as constituted immediately prior to the
transaction will, immediately after the transaction (by virtue of securities issued as a
consideration for Employer’s capital stock or assets or otherwise), hold more than fifty
percent (50.0%) of the combined voting power of the surviving or acquiring entity’s
outstanding securities;

       (c) An underwritten public offering of Employer’s common stock, if Employer’s
stockholders of record as constituted immediately prior to the offering will, immediately
after the offering, continue to hold more than fifty percent (50.0%) of the combined voting
power of Employer’s outstanding securities;

       (d) The private placement of preferred or common stock, or the issuance of debt
instruments convertible into preferred or common stock, for fair market value as determined
by the Board, provided the acquiring person does not as a result of the transaction own more
than fifty percent (50.0%) of the outstanding capital stock of Employer, have the right to
vote more than fifty percent (50.0%) of the outstanding voting stock of Employer, or have
the right to elect a majority of the Board; or

       (e) If Employee is a member of a group that acquires control of Employer in an event
that would otherwise be a Change in Control, such event shall not be deemed a Change in
Control and Employee shall have no right to benefits hereunder as a result of such event;
provided, however, that Employee shall not be deemed a member of any acquiring group solely
by virtue of his continued employment or ownership of stock or stock options following a
Change in Control.

          5.8 Death or Disability. To the extent consistent with federal and state law,
Employee’s employment, salary shall terminate on his death or Disability. “Disability” means any
health condition, physical or mental, or other cause beyond Employee’s control, that prevents him
from performing his duties, even after reasonable accommodation is made by Employer, for a period
of one hundred eighty (180) consecutive days within any three hundred sixty (360) day period. In
the event of termination due to death or Disability, Employer shall pay Employee (or his legal
representative) his salary prorated through the date of termination, at the rate in effect at the
time of termination, together with any benefits accrued through the date of

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termination. Employer shall have no further obligations to Employee (or Employee’s legal
representative) under this Agreement.

          5.9 Return of Employer Property. Within five (5) days after the Termination Date,
Employee shall return to Employer all products, books, records, forms, specifications, formulae,
data processes, designs, papers and writings relating to the business of Employer including without
limitation proprietary or licensed computer programs, customer lists and customer data, and/or
copies or duplicates thereof in Employee’s possession or under Employee’s control. Employee shall
not retain any copies or duplicates of such property and all licenses granted to him by Employer to
use computer programs or software shall be revoked on the Termination Date.

     6. DUTY OF LOYALTY

          6.1 During the term of this Agreement, Employee shall not, without the prior written consent
of Employer, directly or indirectly render services of a business, professional, or commercial
nature to any person or firm, whether for compensation or otherwise, or engage in any activity
directly or indirectly competitive with or adverse to the business or welfare of Employer, whether
alone, as a partner, or as an officer, director, employee, consultant, or holder of more than one
percent (1.0%) of the capital stock of any other corporation. Otherwise, Employee may make
personal investments in any other business so long as these investments do not require Employee to
participate in the operation of the companies in which Employee invests.

     7. CONFIDENTIAL INFORMATION

          7.1 Trade Secrets of Employer. Employee, during the term of this Agreement, will
develop, have access to and become acquainted with various trade secrets which are owned by
Employer and/or its affiliates and which are regularly used in the operation of the businesses of
such entities. Employee shall not disclose such trade secrets, directly or indirectly, or use them
in any way, either during the term of this Agreement or at any time thereafter, except as required
in the course of his employment by Employer. All files, contracts, manuals, reports, letters,
forms, documents, notes, notebooks, lists, records, documents, customer lists, vendor lists,
purchase information, designs, computer programs and similar items and information, relating to the
businesses of such entities, whether prepared by Employee or otherwise and whether now existing or
prepared at a future time, coming into his possession shall remain the exclusive property of such
entities, and shall not be removed for purposes other than work-related from the premises where the
work of Employer is conducted, except with the prior written authorization by Employer.

          7.2 Confidential Data of Customers of Employer. Employee, in the course of his
duties, will have access to and become acquainted with financial, accounting, statistical and
personal data of customers of Employer and of their affiliates. All such data is confidential and
shall not be disclosed, directly or indirectly, or used by Employee in any way, either during the
term of this Agreement (except as required in the course of employment by Employer) or at any time
thereafter.

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               7.3 Inevitable Disclosure. After Employee’s employment has terminated, Employee shall
not accept employment with any addiction treatment service provider or company providing protocols
for the treatment of alcohol or stimulant addiction (“Direct Competitor”) for a period of one (1)
year, where the new employment is likely to result in the inevitable disclosure of Employer’s trade
secrets or confidential information, or it would be impossible for Employee to perform his new job
without using or disclosing trade secrets or confidential information.

               7.4 Continuing Effect. The provisions of this Section 7 shall remain in
effect after the Termination Date.

          8. NO SOLICITATION

               8.1 No Solicitation of Employees. Employee agrees that Employee will not, during
Employee’s employment with Employer, and for two (2) years thereafter, encourage or solicit any
other employee of Employer to terminate his or her employment for any reason, nor will Employee
assist others to do so.

               8.2 No Solicitation of Customer. Employee agrees that Employee will not, during
Employee’s employment with Employer, and for two (2) years thereafter, directly or indirectly call
on, or otherwise solicit, business for a Direct Competitor from any actual customer or potential
customer known by Employee to be targeted by Employer, nor will Employee assist others in doing so.

          9. INTELLECTUAL PROPERTIES.

               9.1 To the extent permissible under applicable law, all intellectual properties made or
conceived by Employee during the term of this employment by Employer shall be the right and
property solely of Employer, whether developed independently by Employee or jointly with others.
Employee will sign the Employer’s standard Employee Innovation, Proprietary Information and
Confidentiality Agreement (“Confidentiality Agreement”) prior to or on the Commencement Date.

          10. OTHER PROVISIONS

               10.1 Compliance With Other Agreements. Employee represents and warrants to Employer
that the execution, delivery and performance of this Agreement will not conflict with or result in
the violation or breach of any term or provision of any order, judgment, injunction, contract,
agreement, commitment or other arrangement to which Employee is a party or by which he is bound.

               10.2 Injunctive Relief. Employee acknowledges that the services to be rendered under
this Agreement and the items described in Sections 6, 7, 8 and 9 are of a special, unique
and extraordinary character, that it would be difficult or impossible to replace such services or
to compensate Employer in money damages for a breach of this Agreement. Accordingly, Employee
agrees and consents that if he violates any of the provisions of this Agreement, Employer, in
addition to any other rights and remedies available under this Agreement or otherwise, shall be
entitled to temporary and permanent injunctive relief, without

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the necessity of proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith.

               10.3 Attorneys’ Fees. The prevailing party in any suit or other proceeding brought to
enforce, interpret or apply any provisions of this Agreement, shall be entitled to recover all
costs and expenses of the proceeding and investigation (not limited to court costs), including all
attorneys’ fees.

               10.4 Counsel. The parties acknowledge and represent that, prior to the execution of
this Agreement, they have had an opportunity to consult with their respective counsel concerning
the terms and conditions set forth herein. Additionally, Employee represents that he has had an
opportunity to receive independent legal advice concerning the taxability of any consideration
received under this Agreement. Employee has not relied upon any advice from Employer and/or its
attorneys with respect to the taxability of any consideration received under this Agreement.
Employee further acknowledges that Employer has not made any representations to him with respect to
tax issues.

               10.5 Nondelegable Duties. This is a contract for Employee’s personal services. The
duties of Employee under this Agreement are personal and may not be delegated or transferred in any
manner whatsoever, and shall not be subject to involuntary alienation, assignment or transfer by
Employee during his life.

               10.6 Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws, without regard to the laws as to choice or conflict of laws, of the
State of California.

               10.7 Venue. If any dispute arises regarding the application, interpretation or
enforcement of any provision of this Agreement, including fraud in the inducement, such dispute
shall be resolved either in federal or state court in Los Angeles, California.

               10.8 No Jury. If any dispute arises regarding the application, interpretation or
enforcement of any provision of this Agreement, including fraud in the inducement, the parties
hereby waive their right to a jury trial.

               10.9 No Punitive Damages. If any dispute arises regarding the application,
interpretation or enforcement of any provision of this Agreement, including fraud in the
inducement, the parties hereby waive their right to seek punitive damages in connection with said
dispute.

               10.10 Severability. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions, and this Agreement shall be construed in all
respects as if any invalid or unenforceable provision were omitted.

               10.11 Binding Effect. The provisions of this Agreement shall bind and inure to the
benefit of the parties and their respective successors and permitted assigns.

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               10.12 Notice. Any notices or communications required or permitted by this Agreement
shall be deemed sufficiently given if in writing and when delivered personally or 48 hours after
deposit with the United States Postal Service as registered or certified mail, postage prepaid and
addressed as follows:

                         (a) If to Employer, to the
principal office of Employer in the State of California, marked
“Attention: Chief Executive Officer,” with a copy to John C. Kirkland, Esq., Greenberg Traurig
LLP, 2450 Colorado Avenue, Suite 400E, Santa Monica, California 90404; or

                         (b) If to Employee, to the most
recent address for Employee appearing in Employer’s records.

               10.13 Headings. The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.

               10.14 Amendment and Waiver. This Agreement may be amended, modified or supplemented
only by a writing executed by each of the parties. Either party may in writing waive any provision
of this Agreement to the extent such provision is for the benefit of the waiving party. No waiver
by either party of a breach of any provision of this Agreement shall be construed as a waiver of
any subsequent or different breach, and no forbearance by a party to seek a remedy for
noncompliance or breach by the other party shall be construed as a waiver of any right or remedy
with respect to such noncompliance or breach.

               10.15 Entire Agreement. This Agreement is the only agreement and understanding
between the parties pertaining to the subject matter of this Agreement, and supersedes all prior
agreements, summaries of agreements, descriptions of compensation packages, discussions,
negotiations, understandings, representations or warranties, whether verbal or written, between the
parties pertaining to such subject matter.

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

	 	 	 	 	 	 	 	 	 
	EMPLOYEE:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	    /s/ CHRISTOPHER HASSAN
 

   Christopher Hassan
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	EMPLOYER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	HYTHIAM, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By
	 	   /s/ TERREN S. PEIZER
 

    Terren S. Peizer
	 	 
	 

	 	 	 	 	 	    Chief Executive Officer	 	 

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