U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

September 29, 2003

Date of Report (date of earliest event reported)

Hythiam, Inc.

Exact name of Registrant as Specified in its Charter

Delaware		333-58246		88-0464853
State or Other Jurisdiction of Incorporation		Commission File Number		IRS Employer Identification Number

11111 Santa Monica Boulevard, Suite 550 Los Angeles, California 90025

Address of Principal Executive Offices, Including Zip Code

(310) 268-0011

Registrant’s Telephone Number, Including Area Code

Alaska Freightways, Inc.

Former Name

300 East 54th Avenue, Suite 200, Anchorage, Alaska 99578

Former Address

ITEM 1. CHANGE IN CONTROL OF REGISTRANT.

On September 29, 2003, Alaska Freightways, Inc., a Nevada corporation (“Alaska”) entered into an Agreement and Plan of Merger with its newly-formed, wholly-owned subsidiary Hythiam Acquisition Corp., a New York corporation (“Merger Sub”) and Hythiam, Inc., a New York corporation (“Hythiam NY”), pursuant to which the Merger Sub merged with and into Hythiam NY (the “Merger”). On that same date, a Certificate of Merger was filed with the New York Secretary of State, thus effectuating the Merger.

As a result of the Merger, (i) Hythiam NY became a wholly-owned subsidiary of Alaska, (ii) Alaska issued to the stockholders of Hythiam NY an aggregate of approximately 22,963,000 shares of Alaska common stock, (iii) the stockholders of Hythiam NY now own approximately 95% of the shares of Alaska’s outstanding common stock, (iv) all directors of Alaska resigned and the seven members of Hythiam NY’s board of directors were appointed as directors of Alaska, and (v) the officers of Hythiam NY became the officers of Alaska.

The following persons were appointed directors of Alaska: Terren S. Peizer, 44, Chairman of the Board and Chief Executive Officer, Anthony M. LaMacchia, 49, Chief Operating Officer, Hervé de Kergrohen, M.D., 46, partner with venture capital firm CDC Ixis Innovation, Leslie F. Bell, Esq., 63, Co-Chairman and Co-Chief Executive Officer of Tractus Medical, Inc., Richard A. Anderson, 33, Chief Financial Officer of biotechnology company Clearant, Inc., Ivan M. Lieberburg, Ph.D., M.D., 54, Executive Vice President, Chief Scientific and Medical Officer at Elan Company, plc, and Juan José Legarda Ibañez, Ph.D., 45, principal of CITA S.L.

Hythiam NY is a development stage company incorporated on February 13, 2003. The company was formed to acquire, develop and market proprietary treatment protocols for alcohol, cocaine and other drug addictions.

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

On September 29, 2003, immediately prior to the Merger, Alaska entered into an Asset Purchase Agreement (“Purchase Agreement”) with three of its officers, directors and majority shareholders, pursuant to which Alaska sold substantially all of its assets in exchange for the purchasers’ assumption of all outstanding liabilities and cancellation of 3,010,000 shares of their Alaska common stock. As a result, prior to the Merger, Alaska had substantially no assets, liabilities or operations.

Since Hythiam NY was the sole operating company at the merger date, the Merger was accounted for as a reverse acquisition. Accordingly, Alaska’s financial statements now reflect the financial results and operations of Hythiam NY on a carry over basis.

ITEM 4. CHANGES IN INDEPENDENT ACCOUNTANTS.

On September 29, 2003, Alaska dismissed S. Hawkins Accounting and appointed BDO Seidman, LLP as its independent accountant for the year ended December 31, 2003. S. Hawkins Accounting had previously issued Independent Auditor’s Reports on Alaska. The former accountant’s reports for the two years ended December 31, 2002 have not been modified or qualified, and there

have been no disagreements with the former accountant during the past two most recent fiscal years or interim periods. The decision to change accountants was recommended and approved by Alaska’s Board to retain the independent accountant of Hythiam NY. There were no previous discussions with the newly engaged accountants regarding any certain matters or accounting issues.

ITEM 5. OTHER EVENTS.

A. Forward Stock Split.

Effective September 29, 2003, immediately prior to the Merger, Alaska’s outstanding shares were split 2.007 for one. As a result, the approximately 558,033 shares outstanding after consummation of the Purchase Agreement became approximately 1,119,973 outstanding shares post split.

B. 2003 Stock Incentive Plan.

On September 29, 2003, immediately following the Merger, Alaska’s board of directors adopted, and a majority of Alaska’s stockholders approved, a 2003 Stock Incentive Plan, with 5,000,000 shares of common stock reserved for issuance thereunder. Options to purchase approximately 3,970,000 shares have been granted pursuant to the plan.

The purpose of the 2003 Stock Incentive Plan is to provide a means whereby selected employees, officers, directors and consultants of Alaska may be granted incentive stock options or nonqualified stock options to purchase shares of common stock, in order to attract and retain the services or advice of such persons and to provide additional incentive for such persons to exert maximum efforts for the success of Alaska by encouraging stock ownership in the company.

C. Reincorporation in Delaware.

On September 29, 2003, following the Merger, Alaska’s board of directors and a majority of its stockholders by written consent approved Alaska’s reincorporation as a Delaware corporation, changing the name of Alaska to “Hythiam, Inc.,” and changing the authorized number and par value of shares of stock to 200,000,000 shares of common stock, par value $.0001, and 50,000,000 shares of preferred stock, par value $.0001 (collectively, the “Reincorporation”). The Reincorporation became effective on September 29, 2003, by merging Alaska (as formerly incorporated in Nevada) with and into the newly-formed Delaware corporation, Hythiam, Inc. (“Hythiam DE”), and the filing of Certificates of Merger with the Secretaries of State of Delaware and Nevada. Upon completion of the Merger, Alaska ceased to exist as a corporate entity and Hythiam DE succeeded to the assets and liabilities of Alaska and will continue to operate under the name “Hythiam, Inc.”

As provided by the Agreement and Plan of Merger between Alaska and Hythiam DE, by virtue of the Merger and without any action on the part of any stockholders each outstanding share of Alaska common stock, $0.001 par value per share, was automatically converted into one share of Hythiam DE common stock, $0.0001 par value per share, at the time the Merger became effective. Each stock certificate representing issued and outstanding shares of Alaska common stock continues to represent the same number of shares of Hythiam DE common stock. All outstanding and unexercised warrants, options and other rights to purchase Alaska common stock became option or rights to purchase Hythiam DE common stock on one-for-one basis, on the same terms, conditions and exercise price per share.

Alaska common stock was listed for trading on the OTC Bulletin Board under the symbol “AKFW”. As a result of the Reincorporation, Hythiam DE’s common stock will be deemed registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, by operation of Rule 12g-3 thereunder. Following the Reincorporation, the company anticipates that Hythiam DE common stock will be

listed for trading on the OTC Bulletin Board under CUSIP number 44919F 10 4 and a new trading symbol that has not yet been assigned.

The rights of stockholders and the corporate affairs of Hythiam DE will be governed by the Delaware General Corporation Law and the certificate of incorporation and by-laws of Hythiam DE, instead of the Nevada Revised Statutes (which will apply only to stockholders who duly exercise their dissenter’s rights) and the articles of incorporation and by-laws of Alaska.

As a result of the Reincorporation, the new directors of Alaska became the directors of Hythiam DE. No change in the corporate board members, business, management, fiscal year, assets, liabilities, stock option plan or location of principal facilities occurred as a result of the Reincorporation.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(a) FINANCIAL INFORMATION OF REGISTRANT. The following financial statements for Hythiam NY (Hythiam DE, following the Merger and the Reincorporation) as of June 30, 2003, and for the period from inception, February 13, 2003 to June 30, 2003 are filed herewith:

INDEX


Independent Auditors’ Report

Balance Sheet—June 30, 2003

Statement of Operations for the period from February 13, 2003 (inception) through June 30, 2003

Statements of Stockholders’ Deficit for the period from February 13, 2003 (inception) through June 30, 2003

Statements of Cash Flows for period from February 13, 2003 (inception) through June 30, 2003

Notes to Financial Statements

Independent Auditors’ Report

The Board of Directors

Hythiam, Inc. (A Development Stage Company)

We have audited the accompanying balance sheet of Hythiam, Inc. (A Development Stage Company) as of June 30, 2003 and the related statement of operations, stockholders’ deficit and cash flows for the period from February 13, 2003 (inception) through June 30, 2003. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hythiam, Inc. (A Development Stage Company) as of June 30, 2003 and the results of its operations and their cash flows for the period from February 13, 2003 (inception) through June 30, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP

September 26, 2003

Los Angeles, California

Hythiam, Inc.

(A Development Stage Company)

Balance Sheet

June 30,	2003

Assets

Long-term assets
Intellectual property	$	69,196
Other assets	10,300

Total assets	$	79,496

Liabilities and Stockholders’ Deficit

Current liabilities
Accounts payable	$	224,134
Accrued liabilities	56,512

Total current liabilities	280,646

Stockholders’ deficit
Common shares, $.001 par value; 30,000,000 shares authorized, and 13,740,000 outstanding	1,374
Stock subscription receivable	(1,374		)
Deficit accumulated during the development stage	(201,150		)

Total stockholders’ deficit	(201,150		)

Total liabilities and stockholders’ deficit	$	79,496

See accompanying notes to financial statements.

Statement of Operations

	Period from February 13, 2003 (Inception) through June 30, 2003

Revenues	$	—

Operating expenses
Employee costs and benefits	63,212
Professional fees	107,972
Other general and administrative	29,966

Total operating expenses	201,150

Loss before provision for income taxes	(201,150		)

Provision for income taxes	—

Net loss	$	(201,150	)

Basic and diluted loss per share	$	(.01	)

Weighted average shares outstanding	13,740,000

See accompanying notes to financial statements.

Statement of Stockholders’ Deficit
Period from February 13, 2003 (Inception) through June 30, 2003

				Deficit Accumulated During the Development Stage			Subscription Receivable			Total Deficit
	Common Stock
	Shares	Amount $(.001 Par Value)

Opening balance, February 13, 2002	—	$	—	$	—		$	—		$	—

Issuance of common stock	13,740,000	1,374		—			(1,374		)	—

Net loss	—	—		(201,150		)	—			(201,150		)

Balance, June 30, 2003	13,740,000	$	1,374	$	(201,150	)	$	(1,374	)	$	(201,150	)

See accompanying notes to financial statements.

Statement of Cash Flows

	Period from February 13, 2003 (Inception) through June 30, 2003

Cash flows from operating activities
Net loss	$	(201,150	)
Adjustments to reconcile net loss to net cash used in operating activities:
Increase in accounts payable and accrued liabilities	280,646

Net cash provided by operating activities	79,496

Cash flows from investing activities
Deferred intellectual property costs	(69,196		)
Other assets	(10,300		)

Net cash used in investing activities	(79,496		)

Net increase in cash	—

Cash, at beginning of period	—

Cash, at end of period	$	—

Supplemental disclosure of non-cash activity
Issuance of common stock for stock subscription receivable	$	1,374

See accompanying notes to financial statements.

Hythiam, Inc.
(A Development Stage Company)

Notes to Financial Statements

1.	Company History	Hythiam, Inc. (“Hythiam” or the “Company”), a development stage company, was formed and incorporated in New York on February 13, 2003, by Reserva, LLC, a non operating company wholly owned by the Company’s chief executive officer. The Company was formed to research, develop and commercialize innovative treatment regimens for alcohol and drug addiction and other neurological disorders. The Company is considered a development stage company since planned principal operations have not yet commenced. The Company is directing most of its efforts to establishing the new business, including capital raising activities and development of markets for its treatment regimens.

		In March 2003, the Company entered into a Technology Purchase and Royalty Agreement (the “Technology Agreement”) with CITA S.L., a Spanish corporation (“CITA SL”) owned and controlled by a member of the Company’s Board of Directors, to acquire, on an exclusive basis, all of CITA SL’s rights, title and interest to use and or sell the products and services and license the intellectual property owned by CITA SL with respect to an alcohol and cocaine addiction and neuro-restoration detoxification process on a worldwide basis except for countries that are members of the European Patent Association (subsequently amended to include all countries except Spain. See “Subsequent Events”). The Company has granted CITA SL a security interest in the intellectual property to secure the payments and performance obligations under the Technology Agreement. As consideration for the intellectual property acquired, the Company agreed to issue to CITA SL shares of its common stock plus stock options, the number of each to be determined at the completion of the Company’s first equity financing. Based on the Company’s first equity financing in excess of a minimum of $10,000,000, CITA SL will receive approximately 836,000 shares of restricted common stock valued at $2,090,000 plus stock options to purchase an additional 372,000 shares at an exercise price of $2.50 per share, valued at approximately $134,000 based on the Black Scholes valuation model.

		CITA SL also has the right to require the Company to repurchase the common shares at a price equal to fair market value if the Company has not completed an initial public offering or a reverse merger with a public company (“Merger”) within three years.

		The total cost of the assets acquired will be reflected in long-term assets as intellectual property when the equity transaction is completed. Amortization will be on a straight-line basis over the remaining 18 year life of the patents acquired, commencing once the Company begins providing services to patients. In addition to the purchase price for the above intellectual property, Hythiam agreed to pay a royalty fee to CITA SL equal to three percent (3%) of gross sales of the alcohol and cocaine detoxification processes the Company performs using the acquired intellectual property for so long as the Company (or any licensee) uses the acquired intellectual property. These fees will be reflected in expense during the periods incurred as a cost of revenues.

		Under the Technology Agreement, the Company is obligated to allocate each year a minimum of 50% of the funds it expends on sales, marketing, research and development on such activities relating to the use of the intellectual property acquired. If the Company does not expend at least the requisite percentage on such activities, the Company may terminate the CITA SL reversion rights by making an additional payment of an amount which, taken together with previously paid royalties and additional payments, would aggregate $1,000,000.

		The financial statements and operations through June 30, 2003 do not reflect revenue or significant operational activity, as the Company did not begin operations until subsequent to June 30, 2003.

2.	Summary of Significant Accounting Policies	Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of expenses. Actual results could differ from those estimates.

		Intellectual Property and Other Intangibles Intellectual Property consists primarily of certain technology, patents pending, know-how and related intangible assets with respect to alcohol, cocaine and opiate addiction and neuro-restoration detoxification processes. These assets will be amortized on a straight-line basis over the remaining life of the respective patents, which range from eleven to eighteen years. Such amortization will begin effective with the commencement of recognizing revenues.

		In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), long-lived assets such as intangibles subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

		Fair Value of Financial Instruments and Concentration of Credit Risk The carrying amount reported in the balance sheet for accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments.

		Recognition of Revenues The Company’s services will be provided to licensed healthcare providers on a fee for service basis for individual patients. In addition, the Company may enter into contractual agreements with major private and public hospitals situated near major U.S. addiction treatment markets. Recognition of all such fees into revenue will be based on dates the services are performed. In addition to the provision of services, the Company may derive revenue from licensing its technology to various hospitals and other institutions. Through June 30, 2003, the Company had derived no revenues from the sale of its services.

		Income Taxes The Company accounts for income taxes pursuant to SFAS 109, “Accounting for Income Taxes,” which uses the liability method to calculate defined income taxes. To date, the Company has not recorded any income tax liability due to its losses. Also, no income tax benefit has been recorded due to the uncertainty of its realization.

		Basic and Diluted Loss Per Share In accordance with SFAS No. 128, “Computation of Earnings Per Share,” basic earnings (loss) per share is computed by dividing the net earnings (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net earnings (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period.

		Common equivalent shares, consisting of incremental common shares issuable upon the exercise of stock options and warrants are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.

		A summary of the shares used to compute net loss per share is as follows:

				Period from February 13, 2003 (Inception) through June 30, 2003

		Weighted average common shares used to compute basic net loss per share		13,740,000
		Effect of dilutive securities		—

		Weighted average common shares used to compute diluted net loss per share		13,740,000

		For the period ended June 30, 2003, there were no stock options or warrants outstanding. The common shares reflected above have been retroactively restated for the stock split of 100 to 1 declared on July 1, 2003. Loss per share for the five month period ended June 30, 2003 has been computed using the number of shares adjusted for the 100 to 1 stock split.

		Stock Options and Warrants The Company accounts for the issuance of employee stock options using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). The Company accounts for the issuance of warrants in accordance with SFAS 123, “Accounting for Stock-Based Compensation, by estimating the fair value of warrants issued based on the Black-Scholes model. This model’s calculations include the warrant exercise price, the market price of shares on grant date, the weighted average information for risk free interest, expected life of warrant, expected volatility of the Company’s stock and expected dividends.

		If fully vested warrants are issued as compensation for services, the estimated value is set up as equity when vested and nonforfeitable and expensed when the services are performed and benefit is received as provided by Financial Accounting Standards Board Emerging Issues Task Force No. 96-18 (“EITF 96-18”). If the warrants are issued for consideration in an acquisition, the value of the warrants are included in equity at the time of issuance and included in the purchase price to be allocated.

		There were no stock options or warrants outstanding as of June 30, 2003.

		Recent Accounting Pronouncements In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based employee compensation. It also amends and expands the disclosure provisions of APB 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not require companies to account for employee stock options using the fair-value method, the disclosure provisions apply to all companies for fiscal years ending after December 15, 2002 regardless of whether they account for intrinsic value method of APB 25. The Company has elected to use the instrinsic value method under APB 25 to account for stock options issued to employees and will incorporate the expanded disclosures under SFAS 148 into its Notes to the Financial Statements.

		In June 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 150 requires certain instruments, including mandatorily redeemable shares, to be classified as liabilities, not as part of shareholders’ equity or redeemable equity. For instruments that are entered into or modified after May 31, 2003, SFAS 150 is effective immediately upon entering the transaction or modifying terms. For other instruments covered by SFAS 150 that were entered into before June 1, 2003, Statement 150 is effective for the first interim period beginning after June 15, 2003. The Company does not expect implementation of SFAS 150 to have a material effect on the Company’s financial position or results of operations.

		In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities (“FIN 46”). The primary objectives of FIN 46 are to provide guidance on the identification and consolidation of variable interest entities. Variable interest entities are entities that are controlled by means other than voting rights. The guidance applies to variable interest entities created after January 31, 2003. The Company holds no interest in variable interest entities.

3.	Related Party Transactions	As of June 30, 2003, the Company had $10,581 payable to Reserva, LLC for costs that Reserva, LLC incurred on behalf of the Company and approximately $21,500 payable to an officer of the Company for expense reimbursement.

4.	Subsequent Events	A. Equity Financing Through September 26, 2003, the Company raised approximately $17,500,000 in proceeds from private investors and plans to raise between $20,000,000 and $21,000,000 in total proceeds through a private placement offering (“Offering”). The Company raised approximately $4,000,000 of these proceeds through the issuance of approximately 1,600,000 shares of convertible preferred stock at a price of $2.50 per share, plus warrants for approximately 320,000 shares of common stock at an exercise price of $2.50 per share. The warrants have a fair market value using the Black-Scholes pricing model of $109,000, which will be reflected as a beneficial conversion feature in the financial statements. The preferred stock is entitled to 4% annual noncumulative dividends if and when declared by the Board of Directors, and is convertible into restricted shares of common stock on a 1 to 1 basis, with mandatory conversion upon the effective date of a Merger. The warrants expire from three to five years after issuance or 45 days from the date a registration statement covering the shares of the Company following a Merger is first declared effective by the Securities and Exchange Commission, whichever is earlier. The Company also agreed to issue 40,000 shares of common stock and 15,000 warrants at a price of $2.50 per share to financial consultants for services rendered in connection with the Offering. The warrants expire five years after issuance and have a fair market value of $5,400 using the Black-Scholes pricing model. The remaining proceeds from the Offering, pending completion of a Merger, will be invested in the purchase of restricted shares of the Company’s common stock at a price of $2.50 per share.

		In connection with the Offering, the Company has agreed to pay commissions to registered broker-dealers aggregating an estimated $350,000 to $450,000 in cash, 100,000 shares of common stock at a price of $2.50 per share and 200,000 to 300,000 warrants for the purchase of common stock at exercise prices of $2.50 to $3.00 per share. The warrants expire from three to four years from date of issue.

		Offering proceeds, except for the monies raised through the issuance of convertible preferred stock and the related warrants are to be held in a segregated account not available to the Company until the Merger has been consummated.

		B. Acquisition of Intellectual Property On August 20, 2003, the Company acquired a patent for the treatment of opiate addiction from Reserva, LLC through a foreclosure sale in satisfaction of debt owed to Reserva by CITA Biomedical, Inc. (“CITA Bio”). CITA Bio is not related to CITA SL. The Company paid approximately $314,000 in cash and agreed to issue 360,000 shares of its common stock to CITA Bio at a future date conditional upon the occurrence of certain events, including the registration of the Company’s shares to be issued and a full release of claims by all of CITA Bio creditors. The total cash consideration plus the value of the stock, if and when issued, will be reflected in other assets as intellectual property and amortized over the remaining 11 year life of the patent.

		On September 26, 2003, the Company and CITA SL signed an amendment to the Technology Purchase agreement expanding the Company’s territory to a worldwide exclusive right (except Spain) to the use of the acquired intellectual property for alcohol and cocaine treatment. In consideration for the expanded rights, the Company agreed to grant to CITA SL options to acquire 160,000 shares of common stock at $2.50 per share, exercisable at any time up to 5 years from the date of the Merger. The options have a fair market value of approximately $58,000 based on the Black-Scholes pricing model, which will be reflected in long-term assets as intellectual property acquired when the options are granted. The Company also agreed to pay to CITA SL an additional $3,000,000 in cash or stock, if both (i) the Company’s fair market value of its stock does not exceed an average of approximately $7.14 per share during any consecutive 30 day period during the first 18 months from the date of the Merger and (ii) the Company fails to develop a European expansion plan and does not have at least one facility in the European market utilizing the acquired treatment technology within 18 months from the date of the Merger. This contingent payment will not be reflected in the financial statements as a liability since management believes that the satisfaction of one of the two conditions is within management’s control.

C. Merger of Hythiam, Alaska Freightways, Inc. and its Subsidiary, Hythiam Acquisition Corp.

On September 4, 2003 the Company signed a non-binding letter of intent to merge with Hythiam Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Alaska Freightways, Inc. (“Alaska”) in a reverse merger transaction (“the Merger”). Alaska’s stock is listed on the Over-the-Counter Bulletin Board. As a result of the Merger and a subsequent reincorporation, Hythiam will be the surviving reporting company and Alaska will be renamed Hythiam, Inc. Alaska was incorporated in the state of Nevada on June 01, 2000 and provides transportation and freight brokerage services. In September 2003, Alaska created Merger Sub for the purposes of merging with Hythiam. Immediately prior to the Merger, Alaska has agreed to sell all of its assets and liabilities to certain shareholders of Alaska through the cancellation of 3,010,000 of its 3,568,033 shares outstanding. As a result, on the merger date, Alaska and Merger Sub will have no assets, liabilities or operations. Effective September 29, 2003 Alaska’s remaining outstanding shares of 558,033 will be split to 1,119,973 outstanding shares. The merger of Hythiam and Merger Sub will be effected through the exchange of all of Hythiam’s outstanding common stock for restricted shares of Alaska’s common stock. Since Hythiam will be the sole operating company at the merger date, the Merger will be accounted for as a reverse acquisition and Hythiam will be deemed the acquirer for accounting purposes. The stockholders of Alaska prior to the Merger will own approximately 4.5% of the outstanding shares upon completion of the Merger.

D. Lease Commitments On July 30, 2003, the Company entered into a month-to-month office lease agreement for its corporate offices in Los Angeles, California. The monthly rent is approximately $14,000. In September 2003, the Company signed a new office lease agreement for its corporate offices with the same landlord. The term of the lease is seven years beginning on the lease commencement date, which is estimated to be December 1, 2003, with a right to extend the lease for an additional five years. As a condition to signing the lease, the Company secured a $350,000 letter of credit for the landlord as a form of security deposit. The letter of credit is collateralized by the Company’s cash. In accordance with the new lease terms, payment of the monthly rent on the previous lease, since its inception, will be waived by the landlord.

Future minimum lease payments on the non-cancelable lease is as follows:

Period ending December 31,	Base Rental Payments

2003	$	32,598
2004	392,245
2005	405,073
2006	417,900
2007	430,718
Thereafter	1,329,050

Total	$	3,007,584

The Company incurred no rent expense for the period from February 13, 2003 through June 30, 2003.

		*E. Stock, Stock Options and Warrants* Common Stock On July 2, 2003, the Company effected a stock split of 100 to 1, thereby increasing its shares outstanding from 13,740 to 13,740,000. These shares are wholly owned by Reserva, LLC. The accompanying financial statements and loss per share have been adjusted retroactively to reflect the stock split.

		Preferred Stock In July 2003, 15,000,000 shares of preferred stock were authorized.

		2003 Stock Incentive Plan In September 2003, the Company established the 2003 Stock Incentive Plan (the “2003 Plan”) subject to approval by the Board of Directors and stockholders. The total number of shares of common stock subject to options under the 2003 Plan is 5,000,000 and will be subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions as described in the plan. Options may be exercisable by the payment of cash or by other means as authorized by the Board of Directors. The options will expire in 10 years from date of grant. The Company has elected to use the intrinsic value method under APB No. 25 in accounting for its employee stock options.

		Warrants On the merger date with Alaska, the Company plans to issue 80,000 warrants to a management advisor for investment relation services to be performed over a one year period. The warrants, which expire in five years, will be exercisable immediately upon issuance at a purchase price of $2.50 per share, and have an estimated value of approximately $29,000 based on the Black Scholes pricing model.

		Option Grants The Company plans to issue approximately 4,000,000 stock options at $2.50 to $2.75 per share to management, employees, consultants and Directors upon consummation of the merger with Alaska, subject to approval by the Board of Directors. Options for 275,000 shares to be granted to consultants have an estimated value of approximately $99,000 based on the Black-Scholes pricing model and will be charged to expense as services are provided.

(b) PRO FORMA FINANCIAL INFORMATION. The following unaudited pro forma financial statements are derived from the audited June 30, 2003 financial statements of Hythiam and give effect to the Merger between Alaska, Merger Sub and Hythiam on September 29, 2003. In addition, the pro forma financials reflect other significant events occurring or expected to occur subsequent to June 30, 2003. These events include 1) the issuance of 8,247,000 shares of Hythiam restricted common stock for gross proceeds of approximately $20,617,500, 2) the acquisition of patented technology for the treatment of opiate drug addiction for approximately $314,000 in cash, and 3) the issuance of 836,000 shares of Hythiam restricted common stock for the acquisition of patent pending technology for the treatment of alcohol and cocaine addition. The unaudited pro forma balance sheet as of June 30, 2003 and the unaudited pro forma statement of operations for the period ended June 30, 2003 reflect the Merger, equity financing and technology acquisitions as if the transactions had occurred on February 13, 2003, Hythiam’s inception date. The unaudited pro forma financial statements do not purport to be indicative of the results that would actually have been obtained if these transactions had been in effect on the dates indicated, or that may be obtained in the future. The unaudited pro forma financial statements should be read in conjunction with the audited June 30, 2003 financial statements of Hythiam, together with the related notes thereto.

Index

Pro Forma Balance Sheet as of June 30, 2003 (Unaudited)

Pro Forma Statement of Operations for the Period from February 13, 2003 (Inception) through June 30, 2003 (Unaudited)

Notes to the Pro Forma Financial Statements (Unaudited)

Hythiam, Inc.

(A Development Stage Company)

Proforma Balance Sheet

June 30, 2003

(Unaudited)

	Balance Sheet			Proforma Adjustments						Proforma Balance Sheet
ASSETS
Current Assets
Cash	$	—		$	4,190,000	(a)	$	(200,000	) (d)	$	19,795,460
								(387,500	)(d)
				16,427,500		(d)	(314,391		) (h)
				78,477		(k )
				1,374		(l )
	—			20,697,351			(901,891		)	19,795,460
Long-term assets
Intellectual property	69,196			2,089,790		(g)				2,664,673
				133,763		(g)
				314,391		(h)
				57,533		(i)
Other assets	10,300			17,979		(f)				116,825
				88,546		(f)
Total Long-term assets	79,496			2,702,002			—			2,781,498
Total assets	$	79,496		$	23,399,353		$	(901,891	)	$	22,576,958


LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	224,134		$	—		$	—		224,134
Accrued liabilities	56,512									56,512
Total current liabilities	280,646			—			—			280,646

Stockholders’ equity
Common shares	1,374			1,676		(a)				13,173
				335		(b)
				55		(c)
				6,571		(d)
				219		(e)
				100		(e)
				80		(f)
				275		(f)
				836		(g)
				372		(g)
				160		(i)
				1,120		(j)
Preferred shares	—			1,676		(a)	(1,676		) (a)	—
Paid-in capital	—			4,188,324		(a)	(100,000		) (c)	22,536,409
				109,137		(b)
				99,960		(c)
				5,379		(c)	(5,394		)(c)
				16,420,929		(d)	(387,500		) (d)
							(200,000		) (d)
				20,707		(e)	(20,926		) (e)
				249,900		(e)	(250,000		) (e)
				28,686		(f)
				98,609		(f)
				2,088,954		(g)
				133,391		(g)	(1,120		) (j)
				57,373		(i)
Stock subscription receivable	(1,374		)	1,374		(l)				—
Accumulated deficit	(201,150		)	78,477		(k)	(109,472		) (b)	(253,270		)
							(10,787		)(f)
							(10,338		) (f)
Total stockholders' equity	(201,150		)	23,594,675			( 1,097,213		)	22,296,312
Total liabilities and stockholders' equity	$	79,496		$	23,594,675		$	(1,097,213	)	$	22,576,958

Hythiam, Inc.

(A Development Stage Company)

Proforma Statement of Operations

For the Period from February 13, 2003 (Inception) through June 30, 2003

(Unaudited)

	Statement of Operations Since Inception through June 30, 2003			Proforma Adjustments			Proforma Statement of Operations

Revenues	$	—		$	—		$	—

Operating expenses
Employee costs and benefits	63,212						63,212
Professional fees	107,972						107,972
Other general and administrative	29,966			10,787		(f)	51,091
				10,338		(f)
Total operating expenses	201,150			21,125			222,275

Loss from operations	(201,150		)	(21,125		)	(222,275		)
Interest income				78,477		(k)	78,477
Provision for income taxes	—						—
Net Loss	$	(201,150	)	$	57,352		$	(143,798	)

Basic and Diluted Loss per Share	$	(0.01	)				$	(0.01	)

Weighted Average Shares Outstanding (m)	13,740,000						24,082,889

Notes to the Pro Forma Financial Statements (Unaudited)

The adjustments included in the unaudited proforma financial statements are based upon currently available information and upon certain assumptions that Hythiam's management believes are reasonable. The proforma adjustments reflect the effect of significant transactions subsequent to June 30, 2003 applied retroactively to the balance sheet and statement of operations as if such transactions had occurred at the beginning of the period.

a)		Bridge financing - issuance of 1,676,000 Series A convertible preferred shares at $2.50 per share. Shares automatically convert into restricted common stock immediately prior to closing of Merger.
b)		335,200 3 to 5-year warrants at $2.50 per share, issued in connection with bridge financing (valued using Black-Scholes model).
c)		40,000 shares of common stock and 15,000 warrants at $2.50 per share, for consulting services related to the Offering.
d)		Proceeds from private placement offering of 6,571,500 common shares at $2.50 per share, offset by related financing costs ($387,500) and legal fees ($200,000).
e)		218,500 warrants and 100,000 shares of common stock for commissions in connection with offering (warrants valued using Black Scholes model).
f)		80,000 5-year warrants and 275,000 options for future consulting services at $2.50 per share, and related amortization (valued using Black-Scholes model).
g)		Common stock issuance of 835,916 shares at $2.50 per share and issuance of 372,000 options (valued using Black Scholes model) for purchase of intellectual property from CITA SL.
h)		Cash paid for patent in foreclosure sale purchase totaling $314,391.
i)		160,000 options for CITA SL technology purchase amendment (valued using Black Scholes model).
j)		Exchange Hythiam common shares with Alaska shareholders (assuming 1,119,973 Alaska public shares outstanding), recorded at par value of $.001 per share.
k)		Interest income at 1% earned on net proceeds from private placement and bridge financing, retroactive to beginning of period.
l)		Proceeds received on common stock subscription receivable.
m)		Weighted average shares outstanding exclude all options and warrants.

FORWARDING-LOOKING STATEMENTS AND RISK FACTORS

The above pro forma financial statements are in substance forward-looking statements, and actual future results may be materially different from what the company expects or projects. The following factors particularly should be considered, but are not necessarily exhaustive. Factors other than those set forth below could have a material adverse effect on the company’s business and results of operations.

Regulation by State and Federal Authorities.

The healthcare industry is highly regulated and is undergoing significant change as third-party payors, such as Medicare and Medicaid, traditional indemnity insurers, managed care organizations and other private payors increase efforts to control cost, utilization, and delivery of healthcare services. The company believes that this industry will continue to be subject to increasing regulation, the scope and effect of which it cannot predict. Legislation is continuously being proposed or enacted at the federal, state, and local levels to regulate healthcare delivery. Providers of healthcare services are subject to federal and state laws governing illegal payments for patient referrals for items or services reimbursed by Medicare and Medicaid. In addition, professionals are subject to varying state laws governing self-referral, and entities which acquire professional practices are subject to laws regarding the corporate practice of medicine, and laws and regulations concerning proper billing to third party payors. Healthcare providers are subject to extensive and complex federal, state and local laws and regulations governing various matters such as the licensing and certification of facilities and personnel, the conduct of operations, billing policies and practices, policies and practices with regard to patient privacy and confidentiality, and prohibitions on payments for the referral of business and self-referrals. Some or all of these state and federal regulations may apply to the company or the services it intends to provide or may provide in the future.

In addition, the Food and Drug Administration (“FDA”) regulates development, testing, labeling, manufacturing, registration, notification, clearance or approval, marketing, distribution, record-keeping and reporting requirements for human and animal drugs, medical devices and biologics. Various other federal and state agencies, including the Environmental Protection Agency (“EPA”), and the Occupational Safety and Health Administration (“OSHA”), regulate the processes and/or methods of production of similar products. Their approval may be required relative to any medical products developed or used by the company. State regulatory approval may be required for some or all products developed by the company or which may be developed in the future. Failure to achieve any required approvals will require modification and redesign of the company’s products, or elimination of the product. Accordingly, the necessity and ability to obtain regulatory approval of the company’s products and services may be a threshold test for the company’s survival.

There can be no assurance that government regulations applicable to the company’s proposed products or the interpretation thereof will not change and thereby prevent the company from marketing some or all of its products for a period of time or permanently. The company is unable to predict the extent of adverse governmental regulation which might arise from future federal, state or foreign legislative or administrative action.

Compliance and Regulatory Proceedings.

The company may become the subject of regulatory or other investigations or proceedings, and the company’s interpretations of applicable laws and regulations may be challenged. The defense of any such challenge could result in substantial cost and a diversion of management’s time and attention. Thus, any such challenge could have a material adverse effect on the company’s business, regardless of whether it ultimately is successful. If the company fails to comply with any applicable laws, or a determination is made that the company has failed to comply with these laws, the company’s financial condition and results of operations could be adversely affected. In addition, changes in health care laws or regulations may restrict the company’s operations, limit the expansion of its business or impose additional compliance requirements.

Off-Label Uses of Prescription Drugs.

The company’s procedural medical treatment protocols include the use of prescription drugs for the treatment of chemical dependency and drug

addiction, conditions that may not be named in the drugs’ official labeling. While the FDA generally does not regulate licensed physicians who prescribe approved drugs for non-approved or “off-label” uses in the independent practice of medicine, and the company believes that its promotion of treatment programs which include the use of approved drugs for off-label uses should not violate the Food Drug & Cosmetic Act (“FDC”) or FDA regulations, such laws do prohibit the commercialization of prescription drugs for unapproved uses, and the FDA has broad discretion in interpreting those regulations. If the FDA determines that the company’s medical treatment protocols constitute labeling or are not sufficiently substantive independent of the prescription drugs they include to constitute a commercialized product, or brings an enforcement action against the company for violating the FDC or FDA regulations, the company’s financial condition and results of operations could be adversely affected.

Fee-Splitting and Corporate Practice of Medicine.

Many states, including California in which the company’s principal executive offices are located, have laws that prohibit business corporations, such as Hythiam DE, from practicing medicine, exercising control over medical judgments or decisions of physicians, or engaging in certain arrangements, such as fee-splitting, with physicians. Although the company believes that its business will be in compliance with applicable state laws in relation to the corporate practice of medicine and fee-splitting, regulatory authorities or other parties, including physicians, may assert that the company is engaged in the corporate practice of medicine or that the company’s contractual arrangements constitute fee-splitting or the corporate practice of medicine, in which case the company could be subject to civil and criminal penalties, its contracts could be found legally invalid and unenforceable, in whole or in part, or the company could be required to restructure its contractual arrangements. There can be no assurance that this will not occur or, if it does, that the company would be able to restructure its contractual arrangements on favorable terms.

Anti-Kickback and Self-Referral Laws.

The healthcare industry is subject to extensive federal and state regulation with respect to financial relationships and “kickbacks” among health care providers, physician self-referral arrangements and other fraud and abuse issues. Federal anti-kickback laws and regulations prohibit certain offers, payments or receipts of remuneration in return for (i) referring Medicaid or other government-sponsored health care program patients or patient care opportunities, or (ii) purchasing, leasing, ordering or arranging for or recommending any service or item for which payment may be made by a government-sponsored health care program. In addition, federal physician self-referral legislation, known as the Stark law, prohibits a physician from ordering certain services reimbursable by Medicare or Medicaid from any entity with which the physician has a financial relationship. These laws are broadly worded and have been broadly interpreted by courts, and potentially subject many business arrangements to government investigation and prosecution, which can be costly and time consuming. Violations of these laws are punishable by monetary fines, civil and criminal penalties, exclusion from participation in government-sponsored health care programs and forfeiture of amounts collected in violation of such laws. Some states also have similar anti-kickback and self-referral laws, imposing substantial penalties for violations. If the company’s relationships with contractors, hospitals or physicians were claimed by federal or state authorities to violate these anti-kickback and self-referral laws and regulations, that could have an adverse effect on the company’s business and results of operations.

Healthcare Anti-Fraud Initiatives.

State and federal governments are devoting increased attention and resources to anti-fraud initiatives against healthcare providers. Recent legislation expanded the penalties for heath care fraud, including broader provisions for the exclusion of providers from the Medicaid program. Anti-fraud actions,

however, could have an adverse effect on the company’s financial position and results of operations.

Privacy of Patient Health Information.

Numerous federal and state laws and regulations govern the collection, dissemination, use and confidentiality of patient-identifiable health information, including the federal Health Insurance Portability and Accountability Act of 1996 and related rules, or HIPAA. As part of medical record keeping, third party billing, research and other services, healthcare providers collect and maintain patient-identifiable health information. New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which the company must handle health care related data, and the cost of complying with these standards could be significant. If the company does not properly comply with existing or new laws and regulations related to patient health information it could be subject to criminal or civil sanctions.

Potential Environmental Liability.

The company’s business exposes it to the risk that harmful substances, if any, may escape into the environment and cause substantial damages or injuries. The company’s operations may expose it to possible liability for investigation and clean-up costs under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), and comparable state laws. The company is also exposed to possible liability under RCRA for violations of those requirements applicable to the generation, transportation, treatment, storage and disposal of hazardous wastes. Under some of these environmental laws, it is also possible that the company could be exposed to environmental risks and liabilities resulting from the actions of its customers, even if the company was not at fault. Finally, although the company’s use of hazardous substances in its own operations is quite small, the company also faces potential environmental liabilities under CERCLA, RCRA and comparable state laws relating to its uses of such materials. The company could be materially and adversely affected by an uninsured or partially insured claim.

Product Liability and Malpractice Claims, and Insurance Coverage.

All significant medical treatments and procedures, including the company’s treatment protocols, involve the risk of serious injury or death. The company’s business entails an inherent risk of claims of medical malpractice, which are subject to the attendant risk of substantial damage awards. A significant source of potential liability is negligence or alleged negligence by physicians. In addition, our contracts may require the company to indemnify physicians, hospitals or their affiliates for losses resulting from claims of negligence. The company will attempt to obtain professional liability insurance in accordance with standard industry practice, with appropriate coverage based on the nature and risks of its business. There can be no assurance that it can obtain adequate coverage at acceptable costs and on favorable terms. There can be no assurance that a future claim or claims will not be successful or if successful will not exceed the limits of available insurance coverage.

Insurance carriers are currently reluctant to provide product liability insurance for bio-technology products due to the limited claims history for such products. The company may be unable to secure product liability insurance, or be unable to secure such insurance except on terms unacceptable to the company. In the event of major product liability litigation or a major award against the company during a time when the company has no available insurance, the company may sustain significant losses. In addition, based upon current insurance markets, liability insurance will be more difficult to obtain and premiums will increase over time.

Need for Market Acceptance.

There can be no assurance that the company’s efforts or the efforts of others will be successful in fostering acceptance of the company’s technologies among the targeted markets. Although there are certain expectations with respect to the projected results of promotion activities, particular promotions may not reach anticipated levels of success. If early marketing and promotion is not successful, the likelihood of the company expending all of its funds prior to the company reaching a level of profitability will be increased.

In addition, the bio-technology industry has been characterized by the frequent introduction of new processes and products. Accordingly, the company may be adversely affected by the new processes and technology developed by its competitors.

Patient Referrals

The company will compete with many types of addiction treatment providers, many of which are more established and better funded than the company. The products the company seeks to develop are dependent upon referrals of patients for treatment by physicians. There is no requirement for these physicians to refer their patients, and they are free to refer patients to any other addiction treatment service, program or facility. The inability to generate physician referrals or the loss of key referring physicians could have a material adverse effect on operations and could adversely affect our revenues and earnings. In addition, if hospitals do not generate sufficient patient volume and revenue they may not be willing to carry or continue to offer the company’s products and services.

Competition

The healthcare, medical, drug and bio-technology businesses in general, and the addiction treatment business in particular, are highly competitive. The company and its products will be competing with various other manufacturers and service providers with existing technological support and acceptance in the same markets the company will target. Many of these other products and services are well established, have substantial sales volume, and are provided and marketed by companies with much greater financial resources, facilities, organization and experience than the company.

Ownership and Registration of Proprietary Rights

The company has proprietary ownership, or assigned or licensed rights in intellectual property which are capable of protection under federal copyright and patent laws, and under state laws regarding trade secrets. In respect of certain of these rights, the company may need to secure assignments of rights from independent contractors and third parties to consolidate the claims of the company. Although the company believes it has taken appropriate legal measures, there is no guarantee that the company has secured, or will secure, the necessary assignments to consolidate its claims. Failure to do so may result in the retention of certain ownership rights by third parties in and to the intellectual property upon which the company’s business is based.

Although the company and its affiliates have applied for patents on some of its products, in the future it may decide not to secure federal registration of certain copyrights, trademarks or patents to which it may be entitled. Failure to do so, in the case of copyrights and trademarks, may reduce the access of the company to the courts, and to certain remedies of statutory damages and attorneys’ fees, to which it may be entitled in the event of a violation of the company’s proprietary and intellectual rights by third parties. Similarly, the failure to seek registration of any patents to which the company may be entitled may result in loss of patent protection should a third party copy the patentable equipment, technology, or process. Finally, to the extent that the company utilizes processes, technology, or equipment which it is treating as trade secrets under state laws, the company must implement appropriate levels of security for said trade secrets to secure the

protections of such laws. There is no guarantee that the company has implemented, or will implement, such levels of security for said trade secrets. The loss of any proprietary rights which are protectable under any of the foregoing intellectual property safeguards may result in the loss of a competitive advantage over present or potential competitors, with a resulting decrease in the profitability for the company. There is no guarantee that such a loss of competitive advantage could be remedied or overcome by the company at a price which the company would be willing or able to pay.

Patents and Intellectual Property.

The company considers patent protection of its technology to be critical to its business prospects. There can be no assurance that the pending patent applications filed and/or licensed by the company will issue as patents, that any issued patents will provide the company with significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of any patent owned by the company or, if instituted, that such challenges will not be successful and the company’s patents invalidated. The cost of litigation to uphold the validity and prevent infringement of patents can be substantial. Furthermore, there can be no assurance that others will not independently develop similar or more advanced technologies, design around aspects of the company’s technology or duplicate the company’s trade secrets. Maintaining and prosecuting a patent portfolio might require funds that may not be available.

To the extent the company utilizes processes, technology or equipment that constitute trade secrets under state laws, the company must implement appropriate levels of security for those trade secrets to secure the protection of such laws. There can be no assurance that the company has implemented, or will implement, the required levels of security for its trade secrets. In respect of certain of its proprietary rights, the company may need to secure assignments of rights from independent contractors and third parties to perfect the rights of the company. There is no assurance that the company has secured, or will secure, the necessary assignments to perfect its rights. Failure to do so may result in the retention of certain ownership rights by third parties in, and to, the intellectual property upon which the company’s business is based. P olicing unauthorized use of the company’s technology is difficult, and the company may be unable to determine whether piracy of the company’s technology has occurred. In addition, the laws of many foreign countries do not protect proprietary rights as fully as the laws of the United States.

Any of the patents that have been or may be issued to the company will expire twenty years after they are filed. The loss of any proprietary rights which are protected or protectable under any of the foregoing intellectual property safeguards may result in the loss of a competitive advantage over present or potential competitors.

The future operations of the company may be subject to claims and potential litigation arising from alleged infringement of patents, trade secrets or copyrights owned by third parties. Within the bio-technology industry, established companies have actively pursued such infringement claims and have initiated claims and litigation that have made the entry of competitive products more difficult. There can be no assurance that the company will not experience such claims or litigation initiated by existing, better-funded competitors. Resisting such claims, litigation and court-ordered injunctions may prevent the company from bringing new products to market, and the resulting loss of revenues and expenses of litigation may substantially affect the ability of the company to meet its expenses and continue operations.

Infringement of Proprietary Rights

The future operations of the company may be subject to claims, and potential litigation, arising from alleged infringement of patents, trade secrets, or copyrights owned by other third parties. The company intends to fully comply with the law in avoiding such alleged infringements. However, within the medical, drug and bio-technology business, established companies have actively

pursued such infringements, and have initiated such claims and litigation, which has made the entry of competitive products more difficult. There can be no guarantee that the company will not experience such claims or litigation initiated by existing, better-funded competitors. Court-ordered injunctions may prevent the company from bringing new products to market, and the resulting loss of revenues and expenses of litigation may substantially affect the ability of the company to meet its expenses and continue operations.

Control of the Company.

Reserva, LLC, which is controlled by the company’s Chairman & CEO, owns 13,740,000 shares of Hythiam DE’s common stock, representing a majority of the company’s outstanding common stock. As a result, the company’s major shareholder will be able to elect all or many of the company’s directors and otherwise control through its stock ownership the business policies and operations of the company.

Exhibit Number		Description

2.1		Asset Purchase Agreement among Alaska Freightways, Inc., Donald E. Nelson, Richard L. Strahl and Brady L. Strahl, dated September 29, 2003

2.2		Agreement and Plan of Merger among Alaska Freightways, Inc., Hythiam Acquisition Corporation, Hythiam, Inc., a New York corporation, and certain Stockholders, dated September 29, 2003

2.3		Agreement and Plan of Merger between Alaska Freightways, Inc. and Hythiam, Inc., a Delaware corporation, dated September 29, 2003

3.1		Certificate of Incorporation of Hythiam, Inc., a Delaware corporation, filed with the Secretary of State of Delaware on September 29, 2003

3.2		By-Laws of Hythiam, Inc., a Delaware corporation

99.1		2003 Stock Incentive Plan

99.2		Hythiam, Inc. Announcement dated September 29, 2003

ITEM 9. REGULATION FD DISCLOSURE.

Hythiam, Inc. was formed for the purpose of researching, developing and marketing innovative treatment regimens for alcohol and drug addiction .

Conventional forms of addiction treatment and detoxification are typically conducted in medically supervised environments. There are numerous inpatient and hospital-supervised outpatient programs. Well-known examples are the Meadows, Betty Ford Center, Hazelden Foundation, Sierra Tucson, and Cottonwood. Following the actual detoxification procedure, local clinics specializing in drug abuse treatment often administer or provide aftercare treatment.

Hythiam will establish new proprietary and patented or patent pending treatment regimens to combat alcohol and drug addiction by treating both the physiological and psychological components of the disease. Hythiam’s methods will focus on rapid detoxification, neuron adaptation (the restoration of the physical characteristics of a neuron back to its original state) and aftercare treatments for alcohol, cocaine, crack cocaine, and opiate addictions, thereby allowing patients to concentrate on returning to a productive level of functioning.

Hythiam’s products will consist of its different proprietary and patent pending or patented treatment protocols as well as aftercare services methodology developed to ensure the long-term success of the addiction treatment technology. The company will operate and generate revenues by charging a fee to healthcare facilities (hospitals, clinics, etc.) for permitting their attending physicians to use Hythiam’s proprietary protocols to treat patients, and for providing administrative management services to the facilities in connection with such treatments. The administrative services provided by the company will include on-site liaison, marketing and sales support, data aggregation, registration, billing & collection, patient follow up, and provision of a national call center.

The company will not initially operate its own healthcare facilities, employ its own treating physicians or provide medical treatment directly to patients. The licensed healthcare facilities that the company plans to contract with for patient treatment will own the facility license, and will control and be responsible for all clinical activities provided on their premises.

Patients will receive medical care in accordance with orders from the healthcare facilities’ attending physicians. Each licensed physician will be responsible for exercising their own independent medical judgment in determining the specific application of the treatment protocols, and the appropriate course of care for each patient.

No employment or direct financial relationship is expected to exist between Hythiam and the attending physicians. In the course of performing its administrative duties, the company may bill and collect funds from the patients on behalf of the healthcare facility, and disburse a portion of that money to the facility and to the attending physician for professional services rendered.

The company’s procedural medical treatment protocols include the use of prescription drugs for the treatment of chemical dependency and drug addiction. These conditions are not named in the drugs’ official labeling, but the attending physicians will be permitted to prescribe these approved drugs for these non-approved or “off-label” uses in the independent practice of medicine.

Hythiam believes that the structure of its business and operations as outlined above will be in substantial compliance with applicable laws and regulations. However, the healthcare industry is highly regulated, and the criteria are often vague and subject to change and interpretation by various state and federal regulatory authorities. The success of the company is therefore speculative and involves a high degree of risk.

On September 29, 2003, Hythiam, Inc. issued a statement announcing the transactions described in Items 1 and 5 herein. A copy of the announcement is attached hereto as Exhibit 99.2and incorporated herein by reference.

Forward-Looking Statements.

This filing contains forward-looking statements under the Private Securities Litigation Reform Act, which are based on the company’s current expectations and assumptions. In some cases, forward-looking statements may be identified by forward-looking words like “will,” “should,” “intend,” “expect,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” or similar words. Forward-looking statements involve risks and uncertainties, which could cause actual outcomes and results to differ materially from expectations, including, without limitation, the risk factors described following the company’s pro forma financial information in Item 7(b) above. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

	Hythiam, Inc.


Dated: September 29, 2003	By:	/s/ Chuck Timpe
	Chuck Timpe, Chief Financial Officer

Exhibit 2.1

ASSET PURCHASE AGREEMENT

between

ALASKA FREIGHTWAYS, INC.

as Seller

and

DONALD E. NELSON, RICHARD L. STRAHL AND BRADY L. STRAHL

as Purchaser

TABLE OF CONTENTS

1.	Purchase and Sale of Assets
	1.1.	Purchased Assets
	1.2.	Excluded Assets
	1.3.	Purchase Price for Assets: Allocations
	1.4.	Inventory
	1.5.	Payment of Aggregate Price

2.	Liabilities of Alaska

3.	Creditor Matters

4.	Assembly of Assets

5.	Customer and Supplier Lists and Records

6.	Adjustment of Purchase Price

7.	Approvals, Permits, Licenses and Authorizations

8.	Brokerage Commissions

9.	Representations and Warranties
	9.1.	Representations and Warranties of Alaska
		9.1.1.	Ownership of Alaska
		9.1.2.	Due Organization; Name and Address; Good Standing, Authority of Alaska
		9.1.3.	Authorization and Validity of Agreements
		9.1.4.	Agreement Not in Conflict with Other Instruments; Required Approvals Obtained
		9.1.5.	Disclaimer of Fraudulent Intent
	9.2	Representations and Warranties of the Purchaser
		9.2.1.	Due Organization; Good Standing; Power
		9.2.2.	Authorization and Validity of Documents

10.	Particular Covenants
	10.1.	Risk of Loss
	10.2.	Full Access
	10.3.	Furnishing of Certain Information
	10.4	Short Year Tax Return

11.	Closing
	11.1.	Time, Date and Place
	11.2.	Alaska’s Conditions to Close
	11.3.	Purchaser’s Conditions to Close
	11.4.	Actions to Be Taken at the Closing
	11.5.	Contemporaneous Transfer
	11.6.	Operation of Business

12.	Indemnification by Purchaser to Alaska
	12.1.	Indemnification by Each of the Purchasers
	12.2	Survival of Obligation to Indemnify
	12.3	Notice and Procedure

13.	Expenses of Transactions

14.	Miscellaneous
	14.1.	Survival of Representations, Warranties and Agreements
	14.2.	Notices
	14.3.	Entire Agreement
	14.4.	Assignability
	14.5.	Binding Effect; Benefit
	14.6.	Severability
	14.7.	Amendment; Waiver
	14.8.	Section Headings
	14.9.	Counterparts
	14.10.	Applicable Law; Jurisdiction and Venue; Service of Process
	14.11.	Legal Expenses
	14.12.	Remedies
	14.13.	Further Assurances
	14.14.	Use of Genders

SCHEDULE 1.1.1	–	Tangible Assets
SCHEDULE 1.1.2	–	Assumed Contracts
SCHEDULE 1.1.5	–	Intangible Property Rights
SCHEDULE 1.1.6	–	Copyrights, Trade Names and Service Marks
SCHEDULE 1.1.8	–	Computer Software Programs
SCHEDULE 1.1.9	–	Actions by Alaska Against Third Parties

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into and effective as of September 29, 2003, by and among ALASKA FREIGHTWAYS, INC. , a Nevada corporation (“Alaska”) and DONALD E. NELSON, RICHARD L. STRAHL, and BRADY L. STRAHL (collectively referred to as the “Purchaser”).

EXPLANATORY STATEMENT

A. Alaska operates as a trucking company hauling over the road goods (the “Business”) located at 300 E. 54 ^th Avenue, Suite 200, Anchorage, Alaska 99518.

B. Alaska has entered into an Agreement and Plan of Merger (the “Merger Agreement”), incorporated herein by reference, dated effective as of September 16, 2003 between Alaska, Hythiam Acquisition Corp., a New York corporation (the “Merger Sub”) and Hythiam, Inc., a New York corporation (the “Company”) whereby the Merger Sub will be merged into the Company and the Company will be the surviving corporation, and all common and preferred shares of the Company will be converted to shares of Alaska common stock (the “Merger”).

C. The Purchaser owns, in the aggregate, Three Million Ten Thousand (3,010,000) shares of .001 par value common stock of Alaska and individually are all of Alaska’s officers and directors.

D. As part of the Merger, Alaska and the Purchaser have agreed to sell all of the assets of Alaska to the Purchaser for all of the shares of Alaska’s common stock owned by Purchaser.

E. Purchaser desires to purchase and Alaska desires to sell and transfer to Purchaser, substantially all of the assets of Alaska used in connection with the Business on the terms and conditions stated herein.

NOW THEREFORE, for and in consideration of the Explanatory Statement that shall be deemed a substantive part of this Agreement, and the mutual covenants, promises, agreements, representations and warranties contained herein, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereto agree, represent and warrant as follows:

1. Purchase and Sale of Assets .

1.1. Purchased Assets . Except as and to the extent otherwise provided in Section 1.2 below, Purchaser agrees to purchase from Alaska, and Alaska agrees to sell, transfer and assign to Purchaser, all of the assets, wherever located, which are owned by Alaska, or in which Alaska has any rights, title or interest (to the extent of such right, title or interest), and used in connection with the Business (collectively referred to herein as the “Purchased Assets”). The Purchased Assets shall include, but shall not be limited to, all of Alaska’s right, title and interest in the following:

1.1.1. All of the tangible personal property, machinery, equipment, phones, tools, machines and electric parts, supplies, computers, office furniture and fixtures and vehicles, wherever located, owned by Alaska and used in connection with the Business (collectively, the “Tangible Assets”), substantially all the items of which are identified in Schedule 1.1.1 attached hereto;

1.1.2. All of the rights, tangible and intangible, and leasehold interests in personal property, of Alaska existing under any of the contracts, agreements, leases, licenses, instruments or commitments that are listed in Schedule 1.1.2 attached hereto, and under any contracts, agreements, leases, licenses, instruments and commitments which are entered into by Alaska in connection with the Business after the date hereof and prior to the “Closing” (as defined below) with the prior written consent of Purchaser (collectively, the “Personal Property Contracts” or collectively referred to as the “Assumed Contracts”);

1.1.3. All rights in and to any governmental and private permits, licenses, certificates of occupancy, franchises and authorizations, to the extent assignable, used in connection with the Business;

1.1.4. All raw materials, work-in progress and finished-goods inventories, and all repair and replacement parts and materials, and all other parts and materials, used in the Business (collectively, the “Inventory”);

1.1.5. All rights in and to any requirements, processes, formulations, methods, technology, know-how, formulae, trade secrets, designs, inventions and other proprietary rights and all documentation embodying, representing or otherwise describing any of the foregoing, owned or held by Alaska in connection with the Business, which are more fully described in Schedule 1.1.5 (the assets described in Sections 1.1.5 through 1.1.8 are referred to as the “Intangible Property Rights”);

1.1.6. All copyrights, trade names and service marks of Alaska used in the Business, all of which are set forth in Schedule 1.1.6 , and all applications therefor, and all documentation embodying, representing or otherwise describing any of the foregoing with the agreement that the name “Alaska Freightways” will be transferred by Alaska to Purchaser within one (1) year of Closing;

1.1.7. All rights in and to the customer lists, promotion lists, supplier lists, marketing data and other complications of names and data developed in connection with the Business, and which shall be delivered by or on behalf of Alaska to Purchaser at or prior to the Closing;

1.1.8. All of Alaska’s rights in and to the computer software programs (including software licensed to Alaska) used in connection with the Business or developed or under development by, or on behalf of, Alaska in connection with the Business or developed or under development by, or on behalf of, Alaska in connection with the Business and identified on Schedule 1.1.8 , including the source code, object code and documentation for such software, in each case to the extent that Alaska possesses and has a right to possess and transfer the same (provided, however, that copies of all financial data and information, and any software necessary to access or process it, shall be provided or made available to Alaska following the Closing);

1.1.9. All causes of action, claims, suits, proceedings, judgments or demands, of or held by Alaska against third parties which are listed on Schedule 1.1.9 attached hereto;

1.1.10. All accounts and notes receivable pertaining exclusively to Alaska’s conduct of the Business existing as of the Closing Date;

1.1.11. Copies of all account lists, files, books and records, including personnel records, publications, and other records and data used in connection with the Business except the corporate minute book and shareholder list;

1.1.12. All goodwill associated with the Business and the Purchased Assets, including the Intangible Property Rights;

1.1.13. All leasehold interest in the Premises.

1.1.14. All cash, deposits, certificates of deposit, money market accounts and all other funds held by or on behalf of Alaska.

1.1.15. All assets of any kind, nature or description owned by Alaska not otherwise described in this Section 1.1 which are used exclusively in connection with the Business and which are not Excluded Assets (as hereinafter defined).

1.2. Excluded Assets . Set forth in Schedule 1.2 is a list and description of assets owned by Alaska and used in connection with the Business which shall not be sold, but shall be retained by Alaska (the “Excluded Assets”). Notwithstanding anything to the contrary set forth in Section 1.1, the Purchased Assets shall not include any of the Excluded Assets.

1.3. Purchase Price for Assets: Allocations . The purchase price for the Purchased Assets shall be the transfer to Alaska of 3,010,000 shares of $.001 par value common stock of Alaska that is owned by Purchaser (the “Purchase Price”). The Purchase Price shall be allocated to the Purchased Assets as determined by Purchaser in Purchaser’s sole discretion.

1.4. Inventory . All inventory of Alaska is included in the Purchase Price and shall be conveyed to Purchaser at Closing.

1.5. Payment of Aggregate Price . On the terms and subject to the conditions of this Agreement, at Closing the Purchaser shall pay the Purchase Price to Alaska by stock assignment.

2. Liabilities of Alaska . Purchaser assumes and shall be solely liable and responsible for all debts, obligations, duties, and liabilities of Alaska and the Business incurred prior to Closing and shall indemnify and hold Alaska harmless therefrom.

3. Creditor Matters . The transactions contemplated by this Agreement are intended by the parties to be a contemporaneous exchange between Alaska and the Purchaser and will be accomplished at Closing. The transactions contemplated by this Agreement represent a regularly conducted, noncollusive sale, and have been negotiated by the parties in an arm’s length manner with due regard for the respective obligations of the parties and value of the assets transferred.

4. Assembly of Assets . Alaska shall assemble all of the Purchased Assets at the Premises for delivery to Purchaser at Closing.

5. Customer and Supplier Lists and Records . Prior to or at the Closing Alaska shall furnish the Purchaser with all of Alaska’s Customer and Supplier Lists, which shall include a complete and correct list of all of Alaska’s customers and suppliers and their addresses, telephone numbers and such other and further information as the Purchaser may reasonably request in respect of the Business.

6. Adjustment of Purchase Price . The Purchase Price set forth in Section 1.3 above will not be adjusted at Closing for any prorations.

7. Approvals, Permits, Licenses and Authori zations. Promptly after the execution of this Agreement, Alaska and Purchaser shall use their best efforts to obtain such approvals, consents, permits, licenses and authorizations, if any, of all Governments and Governmental Agencies (as hereinafter defined) as may be required to complete lawfully the transactions contemplated hereby and to enable the Purchaser to acquire the Assets and operate the Business as operated by Alaska and in full compliance with any and all applicable laws, rules and regulations. Alaska agrees to cooperate fully, execute, acknowledge, swear to and deliver such instruments and documents and take all such other and further actions as may be necessary or desirable in order to obtain such approvals, consents, permits, licenses and authorizations.

8. Brokerage Commissions . Each party hereto represents to the other party that it, he or she, as applicable, has not incurred any obligation or liability, contingent or otherwise, for brokerage fees, finder’s fees, agent’s commissions, or the like in connection with this Agreement or the transactions reflected hereby.

9. Representations and Warranties .

9.1. Representations and Warranties of Alaska . Alaska represents and warrants to the Purchaser and each of them individually as of the date hereof and as of the Closing on the Closing Date that:

9.1.1. Ownership of Alaska . Alaska has the power and authority to sell, assign, transfer and deliver the Purchased Assets to the Purchaser in accordance with the terms of this Agreement, to consummate the transactions contemplated hereby and to enter into the Agreement.

9.1.2. Due Organization; Name and Address; Good Standing, Authority of Alaska . Alaska is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. The only name and business address of Alaska which has been used by Alaska at any time within the past three years ending at the date of the Agreement is “Alaska Freightways” at 300 East 54 ^th Avenue, Suite 200, Anchorage, Alaska 99518. Alaska has full right, power and authority to own, lease and operate its properties and assets, and to carry on its Business. Alaska is duly licensed, qualified and authorized to do business in each jurisdiction in which the properties and assets owned by it or the nature of the business conducted by it make such licensing, qualification and authorization legally necessary. Alaska is not in breach or violation of, and the execution, delivery and performance of this Agreement will not result in a breach or violation of, any of the provisions of Alaska’s Articles of Incorporation, Bylaws, shareholder agreements or any other corporation documents or agreements, amended to the date of this Agreement (“Alaska’s Corporate Documents”).

9.1.3. Authorization and Validity of Agreements . Alaska has the full right, power and authority to execute, acknowledge and deliver this Agreement and to perform the transactions contemplated by this Agreement. The execution, acknowledgment and delivery of this Agreement by Alaska and the performance by Alaska of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action. This Agreement has been duly executed, acknowledged and delivered by Alaska and is the legal, valid and binding obligation of Alaska, enforceable against Alaska in accordance with its terms, except in each case as such enforceability may be limited by general principles of equity, bankruptcy, insolvency, moratorium and similar laws relating to creditors rights generally.

9.1.4. Agreement Not in Conflict with Other Ins truments ; Required Approvals Obtained . The execution, acknowledgment, delivery, and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement will not (a) violate or require any consent, approval, or filing under, (i) any common law, law, statute, ordinance, rule or regulation

(collectively referred to throughout this Agreement as “Laws”) of any federal, state or local government (collectively referred to throughout this Agreement as “Governments”) or any agency, bureau, commission, instrumentality or judicial body of any Governments (collectively referred to throughout this Agreement as “Governmental Agencies”), or (ii) any judgment, injunction, order, writ or decree of any court, arbitrator, Government or Governmental Agency by which Alaska (b) conflict with, require any consent, approval, or filing under, result in the breach or termination of any provision of, constitute a default under, or result in the creation of any claim, security interest, lien, charge, or encumbrance upon any of the Purchased Assets pursuant to, (i) Alaska’s Corporate Documents, (ii) any indenture, mortgage, deed of trust, license, permit, approval, consent, franchise, lease, contract, or other instrument, document or agreement to which Alaska is a party or by which Alaska or any of the Purchased Assets is bound, or (iii) any judgment, injunction, order, writ or decree of any court, arbitrator, Government or Governmental Agency by which Alaska or any of the Purchased Assets is bound; and all permits, licenses and authorizations of any Government or Governmental Agency required to be obtained prior to the Closing, shall have been obtained and shall be in full force and effect as of the Closing Date.

9.1.5. Disclaimer of Fraudulent Intent . The transactions described in this Agreement have been undertaken by Alaska in good faith, considering their obligations to any person or entity to whom Alaska owes a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, claims are called “Creditors” under this paragraph), and have undertaken these transactions without any intent to hinder, delay or defraud any such Creditors, and either have disclosed in the ordinary course of business or will undertake to disclose to all such Creditors the existence of this transaction, and have not and will not conceal this transaction or the proceeds of this transaction from any such Creditors. Alaska further represents and warrants that: (i) it will not retain possession or control of any of the property transferred under this Agreement following the Closing; (ii) Alaska has not been sued or threatened with suit by any Creditor prior to the execution of this Agreement; (iii) Alaska has not removed or concealed any assets from any Creditors; (iv) Alaska has not incurred any individual or aggregate debt that is significantly greater than the normal and customary debts of Alaska in the ordinary course of business; and (v) Alaska at Closing believes in good faith that Alaska will receive consideration reasonably equivalent to the value of the assets transferred under this Agreement.

9.2 Representations and Warranties of the Pu rchaser . The Purchaser represents and warrants to Alaska, as of the date hereof and as of the Closing on the Closing Date that:

9.2.1. Due Organization; Good Standing; Power . The Purchaser has full right, power and authority to enter into this Agreement and to perform its obligations hereunder and thereunder.

9.2.2. Authorization and Validity of Documents . The execution, delivery and performance by the Purchaser of this Agreement and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Purchaser. This Agreement has been duly executed, acknowledged and delivered by the Purchaser and is a legal, valid and binding obligation of the Purchaser and when executed and delivered, will be legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms except as such enforceability may be limited by general principles of equity, bankruptcy, insolvency, moratorium and similar laws relating to creditors’ rights generally.

10. Particular Covenants .

10.1. Risk of Loss . All risk of loss or damage to or destruction of the Purchased Assets, in whole or in part, shall be and remain with Alaska until the Closing and all of the transactions contemplated hereby shall have been consummated.

10.2. Full Access . Alaska shall afford to Purchaser, its counsel, accountants, lenders and investors (and accounting and legal and other authorized representatives), upon reasonable prior notice by Purchaser of the identity of such representatives, full access during normal business hours to all of its properties, personnel and information, including, without limitation, financial statements and records, leases and agreements and tax returns, to determine that the purchase of the Purchased Assets can be consummated in accordance with applicable statutes and regulations, to verify the accuracy of the representations and warranties made herein and to fully investigate the affairs of the business of Alaska as fully as the Purchase may desire. Alaska shall furnish to the Purchaser and its representatives, such information and data concerning the Purchased Assets and the operation of Business of Alaska as the Purchaser, or any such representative thereof, shall reasonably request.

10.3. Furnishing of Certain Information . If requested by Purchaser, Alaska (i) shall make, or cause to be made, available to Purchaser true, correct and complete copies of Alaska’s historical audited and interim financial statements, if any, for any periods prior to the Closing Date and such other information concerning Alaska or the Business as Purchaser may request; and (ii) shall permit Purchaser’s independent public accountants to have access to the books and records of Alaska so that any unaudited historical financial statements and other financial information of Alaska and its subsidiaries, if any, can be reviewed or audited . It is acknowledged by Purchaser that Purchaser has requested and has received all due diligence information Purchaser deemed necessary and that this Agreement is specifically not contingent upon Purchaser’s review of additional information provided by Alaska hereunder.

10.4 Short Year Tax Return . The Purchaser agrees that they will cause Alaska to prepare federal and state tax returns, as applicable, for Alaska for the tax year 2003 from January 1, 2003 through the date of the Closing of the Merger and provide such tax return(s) to the Company as soon as practicable. Purchaser shall timely pay any tax liability of Alaska shown on such return or resulting from the transactions contemplated hereby.

11. Closing .

11.1. Time, Date and Place . The closing of the purchase and sale of the Purchased Assets and the other transactions contemplated by this Agreement (referred to throughout this Agreement as the “Closing”) shall take place immediately prior to and at the same location as the Merger closing. The time, place and date of the Closing are referred to throughout this Agreement as the “Closing Date.” Each party shall be responsible for and pay the normal and customary Closing costs applicable to each such party. Further, each party shall be responsible for their respective legal fees and costs relating to the preparation and review of this Agreement and the transactions contemplated by this Agreement.

11.2. Alaska’s Conditions to Close . Alaska’s obligation to close the transactions contemplated hereby at the Closing shall be subject to the complete satisfaction and fulfillment of all of the following conditions precedent, any or all of which may be waived in whole or in part by Alaska (but no such waiver of any such condition precedent shall be or constitute a waiver of any covenant, promise, agreement, representation or warranty made by the Purchaser in this Agreement):

11.2.1. All representations and warranties made by the Purchaser in this Agreement shall be complete and accurate at and as of the Closing on the Closing Date.

11.2.2. All covenants, promises and agreements made by the Purchaser in this Agreement and all other actions required to be performed or complied with by the Purchaser under this Agreement prior to or at the Closing shall have been fully performed or complied with by the Purchaser.

11.2.3. The Merger closes in accordance with the Merger Agreement.

11.3. Purchaser’s Conditions to Close . The Purchaser’s obligation to close the transactions contemplated hereby at the Closing shall be subject to the complete satisfaction and fulfillment of all of the following conditions precedent, any or all of which may be waived in whole or in part by the Purchaser (but no such waiver of any such condition precedent shall be or constitute a waiver of any covenant, promise, agreement, representation or warranty made by Alaska in this Agreement):

11.3.1. All representations and warranties made by Alaska in this Agreement shall be complete and accurate at and as of the Closing on the Closing Date.

11.3.2. All covenants, promises and agreements made by Alaska in this Agreement and all other actions required to be performed or complied with by Alaska under this Agreement prior to or at the Closing shall have been fully performed or complied with by Alaska.

11.3.3. Alaska shall have delivered to Purchaser at Closing all instruments, consents, assignments, leases and other documents required by this Agreement including without limitation a bill of sale (“Bill of Sale”) and assignments and such other documents and instruments as Purchaser or its counsel reasonably request to better evidence or effectuate the transactions contemplated herein.

11.3.4. The Purchaser shall have received all things required to be delivered or furnished to the Purchaser by Alaska hereunder prior to or at the Closing.

11.3.5. All necessary permits, licenses and approvals required for Purchaser to operate the Business in the manner historically operated by Alaska and full compliance with all applicable Laws shall have been obtained.

11.3.6. There shall not have occurred any material adverse change in the Business or in the Purchased Assets.

11.3.7. The Merger closes in accordance with the Merger Agreement.

11.3.8. If any condition or contingency applicable to Purchaser is not satisfied at or before Closing or if Purchaser shall otherwise exercise any right it may have to terminate this Agreement, then this Agreement shall terminate, each party hereto shall be released and relieved from any further duty, liability or obligation hereunder.

11.4. Actions to Be Taken at the Closing . At the Closing, the following actions, among others, shall occur:

11.4.1. Alaska shall deliver to the Purchaser the Tangible Assets.

11.4.2. Alaska shall execute and deliver to the Purchaser the Bill of Sale, with warranties of merchantable title to the Assets, assigning, transferring and conveying the Purchased Assets to Richard L. Strahl, Donald E. Nelson and Brady L. Strahl as and in proportion as set forth in written notice from Richard L. Strahl to Alaska at time of Closing.

11.4.3. The Purchaser shall pay the Purchase Price as set forth in Section 1.3 above by stock assignment and delivery of their original stock certificates for cancellation.

11.5. Contemporaneous Transfer . All transfers, assignments, conveyances, and transactions under this Agreement shall be effected contemporaneously and shall be a contemporaneous exchange for present value between Alaska and the Purchaser.

11.6. Operation of Business . From and after the close of business on the day immediately preceding the Closing Date, Alaska shall cease to operate the Business and shall thereafter not take any action with respect to any of the Purchased Assets or the Business, except as expressly provided herein.

12. Indemnification by Purchaser to Alaska .

12.1. Indemnification by Each of the Purchaser s. Each of the Purchasers hereby jointly and severally agrees to indemnify and hold harmless Alaska (as it exists subsequent to the closing of the Merger) and its officers, directors and shareholders, against and in respect of:

12.1.1. Any loss, claim, liability, obligation or damage suffered or incurred by Alaska resulting from or arising in connection with any misrepresentation, breach of warranty, or non-fulfillment of any covenant or agreement on the part of Alaska or the Purchaser contained in the Merger Agreement;

12.1.2. Any liability or claim which may be asserted against Alaska arising out of, relating to, or in connection with Alaska’s ownership of its assets prior to the Closing, or Alaska’s business or other activities prior to the Closing;

12.1.3. Any taxes, as defined in the Merger Agreement, arising out of or relating to the transaction contemplated by this Agreement, including without limitation any state or federal income taxes realized as a result of the transfer of the Alaska assets to the Purchaser; and

12.1.4. All actions, suits, investigations, proceedings, demands, assessments, judgments, reasonable attorneys’ fees, costs and expenses incident to the foregoing, including, but not limited to, any audit or investigation by any governmental entity.

12.2 Survival of Obligation to Indemnify . The indemnity obligations of this Section 12 shall survive the Closing and the payment of the consideration therefor for a period of one (1) year from the Closing (or in the case of Section 12.1.2, the expiration of the applicable statute of limitation within which claims may be brought against Alaska for such activities, or in the case of Section 12.1.3., three (3) years from the date of filing of any required return), and shall continue thereafter with respect to: (a) matters which the party seeking indemnity hereunder shall have given the other party written notice of as provided herein prior to one (1) year from the Closing; and (b) any claims, actions, suits, investigations or proceedings based on fraud or willful misconduct, willful misrepresentation or willful breach of warranty.

12.3 Notice and Procedure . Any party claiming indemnity hereunder (hereinafter referred to as the “Indemnified Party”) shall give the party against whom indemnity is sought (hereinafter referred to as the “Indemnifying Party”) prompt written notice after obtaining knowledge of any claim or the existence of facts as to which recovery may be sought against it in respect of which the Indemnifying Party may be liable because of the indemnity provisions set forth in this Section 12. If such claim for indemnity arises in connection with a legal action instituted by a third party (hereinafter a “Third Party Claim”), the Indemnified Party hereby agrees that, within ten (10) Business Days after it is served with notice of the assertion of any Third Party Claim for which it may seek indemnity hereunder, the Indemnified Party will notify the Indemnifying Party in writing of such Third Party Claim.

12.3.1. The Indemnifying Party shall, within ten (10) Business Days after the date that the Indemnified Party gives notice of a claim (whether a Third Party Claim or otherwise) as provided above, notify the Indemnified Party whether it accepts or contests its obligation of indemnity hereunder as claimed by the Indemnified Party.

12.3.2. If the claim for indemnity arises in connection with a Third Party Claim and the Indemnifying Party accepts its indemnity obligation hereunder, the Indemnifying Party shall have the right, after conceding in writing its obligation of indemnity hereunder, to conduct the defense of such action at its sole expense through counsel reasonably acceptable to the Indemnified Party. The Indemnified Party shall cooperate in such defense as reasonably necessary to enable the Indemnifying Party to conduct its defense, including providing the Indemnifying Party with reasonable access to such records as may be relevant to its defense. The Indemnifying Party shall be entitled to settle any such Third Party Claim without the prior written consent of the Indemnified Party provided that the Indemnifying Party provides the Indemnified Party with reasonable assurances that the Indemnified Party will be fully indemnified by the Indemnifying Party in connection with any such Third Party Claim. The Indemnified Party shall be entitled to retain its own counsel at its own expense in connection with any Third Party Claim that the Indemnifying Party has elected to defend. If the Indemnifying Party accepts its indemnity obligations hereunder in connection with a Third Party Claim but elects not to conduct the defense thereof, the Indemnified Party may defend and/or settle such Third Party Claim and shall be entitled to be indemnified for the full amount of such claim and all costs and expenses, including attorneys’ fees, incurred in connection therewith pursuant to this Section 12.3.2.

12.3.3. If the claim for indemnity arises in connection with a Third Party Claim and the Indemnifying Party contests or does not accept its indemnity obligation hereunder, the Indemnified Party shall have the right to defend and/or settle such Third Party Claim and thereafter seek indemnity from the other party pursuant to this Section 12.3.3, however, that the Indemnified Party shall not settle any such claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld.

12.3.4. If the claim for indemnity arises other than in connection with a Third Party Claim and the Indemnifying Party accepts its indemnity obligation hereunder, the Indemnifying Party shall, upon the request of the Indemnified Party, pay the full amount of such claim to the Indemnified Party or to the third party asserting such claim as directed by the Indemnified Party. If the claim for indemnity arises other than in connection with a Third Party Claim and the Indemnifying Party contests its indemnity obligation hereunder, the Indemnified Party shall have the right to defend, settle or take any other action with respect to such claim and thereafter seek indemnity pursuant to this Section 12.3.4.; provided, however, that the Indemnified Party shall not settle any such claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld.

13. Expenses of Transactions . All sales, transfer and use taxes incurred in connection with the sale, assignment, transfer and delivery of the Purchased Assets shall be paid by the Purchaser.

14. Miscellaneous .

14.1. Survival of Representations, Warranties and Agreements . All of the representations, warranties, covenants, promises and agreements of the parties contained in this Agreement (or in any document delivered or to be delivered pursuant to this Agreement or at or in connection with the Closing) shall survive the execution, acknowledgment and delivery of this Agreement and the consummation of the transactions contemplated hereby.

14.2. Notices . All notices, requests, demands, consents, and other communications which are required or may be given under this Agreement (collectively, the “Notices”) shall be in writing and shall be given either (a) by personal delivery against a receipted copy, or (b) by certified or registered United States mail, return receipt requested, postage prepaid, to the following addresses:

(i) If to Alaska, to:

Alaska Freightways, Inc.

300 East 54th Avenue, Suite 200

Anchorage, Alaska 99518

Attn: Donald E. Nelson, President

With a copy to:

Law Office of Gary A. Agron

5445 DTC Parkway, Suite 520

Greenwood Village, Colorado 80111

(ii) If to the Purchaser, to:

Richard L. Strahl

300 East 54th Avenue, Suite 200

Anchorage, Alaska 99518

Donald E. Nelson

300 East 54th Avenue, Suite 200

Anchorage, Alaska 99518

Brady L. Strahl

300 East 54th Avenue, Suite 200

Anchorage, Alaska 99518

With a copy to:

Law Office of Michael J. Tauger

5445 DTC Parkway, Suite 520

Greenwood Village, CO 80111

or to such other address of which written notice in accordance with this Section 14.2 shall have been provided by such party. Notices may only be given in the manner hereinabove described in this Section 14.2 and shall be deemed received when given in such manner.

14.3. Entire Agreement . This Agreement (including the Schedules and Exhibits hereto) constitutes the full, entire and integrated agreement between the parties hereto with respect to the subject matter hereof, and supercedes all prior negotiations, correspondence, understandings and agreements among the parties hereto respecting the subject matter hereof.

14.4. Assignability . This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto; provided, however, the Purchaser may assign this Agreement to any corporation or other entity to be formed and owned or controlled by the Purchaser and, upon such assignment, shall be released and relieved from any further duty, liability or obligation hereunder.

14.5. Binding Effect; Benefit . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal and legal representatives, guardians, successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights, remedies, obligations, or liabilities.

14.6. Severability . Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability, without invalidating or rendering unenforceable the remaining provisions of this Agreement.

14.7. Amendment; Waiver . No provision of this Agreement may be amended, waived or otherwise modified without the prior written consent of all of the parties hereto. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement herein contained. The waiver by any party hereto of a breach of any provision or condition contained in this Agreement shall not operate or be construed as a waiver of any subsequent breach or of any other conditions hereof.

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

14.9. Counterparts and Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A facsimile signature shall be deemed an original signature for all purposes.

14.10. Applicable Law; Jurisdiction and Venue; Service of Process . This Agreement was made in the State of Nevada, and shall be governed by, construed, interpreted and enforced in exclusive accordance with the laws of the State of Nevada.

14.11. Legal Expenses . If any legal action is commenced to enforce any provision of this Agreement, the prevailing party in such legal action shall be entitled to receive, in addition to any damages or other legal remedy, his, her or its legal costs including but not limited to legal fees, court costs and expert fees, incurred in such action.

14.12. Remedies . The parties hereto acknowledge that in the event of a breach of this Agreement, any claim for monetary damages hereunder may not constitute an adequate remedy, and that it may therefore be necessary for the protection of the parties and to carry out the terms of this Agreement to apply for the specific performance of the provisions hereof. It is accordingly hereby agreed by all parties that no objection to the form of the action or the relief prayed for in any proceeding for specific performance of this Agreement shall be raised by any party, in order that such relief may be expeditiously obtained by an aggrieved party. All parties may proceed to protect and enforce their rights hereunder by a suit in equity, transaction at law or other appropriate proceeding, whether for specific performance or for an injunction against a violation of the terms hereof or in aid of the exercise of any right, power or remedy granted hereunder or by law, equity or statute or otherwise. No course of dealing and no delay on the part of any party hereto in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice its rights, powers or remedies, and no right, power or remedy conferred hereby shall be exclusive of any other right, power or remedy referred to herein or now or hereafter available by law, in equity, by statute or otherwise.

14.13. Further Assurances . Alaska agrees to execute, acknowledge and deliver, after the date hereof, without additional consideration, such further assurances, instruments and documents, and to take such further actions, as the Purchaser may reasonably request in order to fulfill the intent of this Agreement and the transactions contemplated hereby.

14.14. Use of Genders . Whenever used in this Agreement, the singular shall include the plural and vice versa, and the use of any gender shall include all genders and the neuter.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written.

PURCHASER:	ALASKA:

	Alaska Freightways, Inc.


	By:
Richard L. Strahl		Donald E. Nelson, President


	By:
Donald E. Nelson		Richard L. Strahl, Chairman



Brady L. Strahl

Exhibit 2.2

AGREEMENT AND PLAN OF MERGER

by and among

ALASKA FREIGHTWAYS, INC.

HYTHIAM ACQUISITION CORP.

HYTHIAM, INC.

and

CERTAIN STOCKHOLDERS

ALASKA FREIGHTWAYS, INC.

and

HYTHIAM, INC.

Dated: September 29, 2003

TABLE OF CONTENTS

ARTICLE I THE MERGER
	SECTION 1.01 The Merger
	SECTION 1.02 Effective Time; Closing
	SECTION 1.03 Effect of the Merger
	SECTION 1.04 Certificate of Incorporation; By-Laws.
	SECTION 1.05 Directors
	SECTION 1.06 Officers
	SECTION 1.07 Tax Consequences

ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
	SECTION 2.01 Capital Stock of Merger Sub
	SECTION 2.02 Cancellation of Treasury Stock
	SECTION 2.03 Conversion of Company Stock.
	SECTION 2.04 Company Preferred Stock.
	SECTION 2.05 Stock Options and Warrants.
	SECTION 2.06 Exchange of Certificates.
	SECTION 2.07 Stock Transfer Books

ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF ALASKA AND SIGNING ALASKA STOCKHOLDERS
	SECTION 3.01 Organization
	SECTION 3.02 Capitalization and Ownership.
	SECTION 3.03 Subsidiaries
	SECTION 3.04 Financial Condition
	SECTION 3.05 Reports.
	SECTION 3.06 Tax and Other Liabilities.
	SECTION 3.07 Absence of Certain Changes or Events
	SECTION 3.08 Issuance
	SECTION 3.09 Approval of Agreement
	SECTION 3.10 Alaska Schedules
	SECTION 3.11 Litigation and Proceedings
	SECTION 3.12 Contracts.
	SECTION 3.13 Material Contract Defaults
	SECTION 3.14 No Conflict With Other Instruments
	SECTION 3.15 Governmental Authorizations
	SECTION 3.16 Compliance With Laws and Regulations
	SECTION 3.17 Insurance
	SECTION 3.18 Approval of Agreement

	SECTION 3.19 Labor and Employment Matters.
	SECTION 3.20 Employee Benefits
	SECTION 3.21 Environmental Matters.
	SECTION 3.22 Loans
	SECTION 3.23 Absence of Certain Business Practices
	SECTION 3.24 No Undisclosed Liabilities
	SECTION 3.25 Materiality

ARTICLE IV REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SIGNING COMPANY STOCKHOLDER
	SECTION 4.01 Ownership of the Shares of Company Stock
	SECTION 4.02 Voting in Favor of the Merger

ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
	SECTION 5.01 Organization
	SECTION 5.02 Capitalization
	SECTION 5.03 Private Placement Memorandum
	SECTION 5.04 No Conflict With Other Instruments
	SECTION 5.05 Approval of Agreement
	SECTION 5.06 No Undisclosed Liabilities
	SECTION 5.07 Materiality

ARTICLE VI DELIVERIES AT CLOSING
	SECTION 6.01 Taking of Necessary Action
	SECTION 6.02 Stock Legends
	SECTION 6.03 Fees and Expenses
	SECTION 6.04 Closing Events

ARTICLE VII SPECIAL COVENANTS AND AGREEMENTS OF THE PARTIES
	SECTION 7.01 Board of Directors Action by Alaska
	SECTION 7.02 Required Filings
	SECTION 7.03 Access to Properties and Records
	SECTION 7.04 Special Covenants and Representations Regarding Issuance of Alaska Merger Stock
	SECTION 7.05 Third party Consents and Certificates
	SECTION 7.06 Actions Prior to Closing.
	SECTION 7.07 Indemnification Provisions.
	SECTION 7.08 Termination

ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF ALASKA AND THE SIGNING ALASKA STOCKHOLDERS
	SECTION 8.01 Accuracy of Representations
	SECTION 8.02 Further Assurances

	SECTION 8.03 Financing

ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SIGNING COMPANY STOCKHOLDER
	SECTION 9.01 Accuracy of Representations
	SECTION 9.02 Further Assurances
	SECTION 9.03 No Liabilities

ARTICLE X RESOLUTION OF DISPUTES

ARTICLE XI MISCELLANEOUS
	SECTION 11.01 No Brokers
	SECTION 11.02 Notices
	SECTION 11.03 No Third-Party Beneficiaries
	SECTION 11.04 Expenses
	SECTION 11.05 Amendment; Waiver
	SECTION 11.06 Rules of Interpretation
	SECTION 11.07 Construction
	SECTION 11.08 Governing Law and Waiver of Jury Trial
	SECTION 11.09 Severability
	SECTION 11.10 Arm’s Length Negotiations
	SECTION 11.11 Public Disclosure
	SECTION 11.12 Confidentiality
	SECTION 11.13 Tax-Free Nature of Transaction
	SECTION 11.14 Binding Effect; Assignment
	SECTION 11.15 Counterparts
	SECTION 11.16 Entire Agreement

iii

AGREEMENT AND PLAN OF MERGER (“ Agreement ”) entered into and effective as of September 29, 2003 by and among ALASKA FREIGHTWAYS, INC., a Nevada corporation (“ Alaska ”), HYTHIAM ACQUISITION CORP., a New York corporation (the “ Merger Sub ”), and HYTHIAM, INC., a New York corporation (the “ Company ”).

WHEREAS , the parties hereto desire to cause the Merger Sub, a wholly-owned subsidiary of Alaska, upon the terms and subject to the conditions of this Agreement and in accordance with Article 9 of the New York Business Corporation Law (the “ BSC ”), to merge with and into the Company, with the Company as the surviving corporation in such merger (the “ Merger ”);

WHEREAS , the Board of Directors of the Company has (a) determined that the Merger is advisable and is fair to and in the best interests of the holders of (i) the Company’s common stock, $0.001 par value per share (the “ Company Common Stock ”), and (ii) the Company’s Series A convertible preferred stock, $.001 par value per share (the “ Company Preferred Stock ”), and (b) approved this Agreement, the Merger and the transactions contemplated hereby and thereby, and recommended that the holders of the Company Common Stock and the Company Preferred Stock (collectively, the “ Company Stock ”) adopt this Agreement and approve the Merger;

WHEREAS , the Board of Directors of Alaska, as the sole stockholder of the Merger Sub, has determined that the Merger is advisable and in the best interests of Alaska and its stockholders and has adopted this Agreement and approved the Merger and the transactions contemplated hereby and thereby;

WHEREAS , certain of Alaska’s and the Company’s stockholders who are executing this Agreement have agreed, upon the terms and subject to the conditions contained herein, to vote all shares of their Common Stock then owned by such stockholders in favor of the adoption of this Agreement and the approval of the Merger;

WHEREAS , the Company, the Merger Sub, Alaska and certain stockholders of Alaska desire to make certain representations, warranties, covenants and agreements in respect of the Merger and to prescribe various conditions thereto, all as hereinafter set forth; and

WHEREAS , it is the intention of the parties that, for United States federal income tax purposes, (i) the Merger shall constitute a “tax-free reorganization” within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and (ii) this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.

NOW, THEREFORE , in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I
THE MERGER

SECTION 1.01 The Merger . Upon the terms and subject to the conditions set forth in Article VII , and in accordance with the BSC, at the Effective Time, the Merger Sub shall be merged with and into the Company, whereupon the separate corporate existence of the Merger Sub shall cease, and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”).

SECTION 1.02 Effective Time; Closing . As promptly as practicable following the execution of this Agreement, immediately after the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VII , other than those conditions that only can be satisfied at the Closing (the “ Effective Time ”), the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of New York, in such form as is required by and executed in accordance with the BSC. Immediately prior to the filing of the Certificate of Merger, a closing will be held at the offices of Greenberg Traurig, LLP, 2450 Colorado Avenue, Santa Monica, California 90404 (the “ Closing ”), or such other place, date and time as the parties mutually may agree.

SECTION 1.03 Effect of the Merger . From and after the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. Without limitation of the foregoing, the Merger shall have the effects specified in Section 906 of the BSC.

SECTION 1.04 Certificate of Incorporation; By-Laws .

(a) At or prior to the Effective Time, the certificate of incorporation of the Surviving Corporation shall be amended to read in its entirety in the form of the certificate of incorporation of the Company, and such certificate of incorporation shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by the BSC.

(b) At or prior to the Effective Time, the by-laws of the Surviving Corporation shall be amended to read in their entirety in the form of the by-laws of the Company, and such by-laws shall be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by the BSC.

SECTION 1.05 Directors . At the Effective Time, all members of the boards of directors of the Merger Sub and of Alaska shall tender their resignations and such vacancies shall be filled solely by the members of the board of directors of the Company immediately prior to the Effective Time. The directors of the Company immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and of Alaska immediately after the Effective Time, and such directors, together with any additional directors as thereafter may be elected, shall hold office in accordance with the certificate of incorporation and by-laws of

Alaska and the Surviving Corporation until their respective successors are duly elected and qualified.

SECTION 1.06 Officers . At the Closing, the Company shall designate all of the officers of the Surviving Corporation and of Alaska; and such officers, together with any additional officers as thereafter may be appointed, to hold office until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. At the Effective Time, all officers of the Merger Sub and of Alaska shall tender their resignations and all officers of the Surviving Corporation and of Alaska shall be such persons who shall be designated solely by the members of the board of directors of the Company immediately prior to the Effective Time of the Merger.

SECTION 1.07 Tax Consequences . The parties intend that, for United States federal income tax purposes, (a) the Merger shall constitute a tax-free reorganization within the meaning of Section 368 of the Code, and Alaska, Merger Sub and the Company each shall be a party within the meaning of Section 368(b) of the Code to such reorganization, (b) this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code, and (c) the Alaska Merger Stock shall be treated as a “common stock” under Section 305 of the Code.

ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 2.01 Capital Stock of Merger Sub . At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Stock, or Alaska or Merger Sub, each share of common stock, $0.01 par value, of Merger Sub outstanding immediately prior to the Effective Time shall remain outstanding and each certificate therefor shall continue to evidence one fully paid and non-assessable share of common stock, $0.01 par value, of the Surviving Corporation.

SECTION 2.02 Cancellation of Treasury Stock . At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Stock, or Alaska or Merger Sub, each share of Company Stock issued and held immediately prior to the Effective Time in the Company’s treasury shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefore.

SECTION 2.03 Conversion of Company Stock .

(a) At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Stock, Alaska or Merger Sub (i) all shares of Company Common Stock which are issued and outstanding immediately prior to the Effective Time, (ii) all shares of Company Preferred Stock which are issued and outstanding immediately prior to the Effective Time, and (iii) all shares of Company Common Stock issuable under any Company Options (as defined below) which are issued and outstanding immediately prior to the Effective Time, shall collectively be converted on a one-for-one basis into a number of shares of common stock, $.001 par value per share (the “ Alaska Common Stock ”) of Alaska (the “ Alaska Merger Stock ”) equal to such aggregate number of shares of Company Common Stock

Based on the Company raising $15,000,000 in equity financing and having a total of 20,576,000 shares of Company Stock outstanding immediately prior to the Closing, and Alaska’s representations and warranties contained herein that immediately prior to the Closing the fully-diluted Alaska Stock shall consist of 1,120,000 shares, at the Closing Alaska shall issue 20,576,000 shares of Alaska Merger Stock to the Company Stockholders in exchange for all Company Stock outstanding; at which time an aggregate of 21,696,000 shares of Alaska Stock shall be issued and outstanding. For each $2.50 more or less than $15,000,000 in equity financing which is raised by the Company, there shall be one more or less share, respectively, of either Company Common Stock or Company Preferred Stock issued and outstanding as of the Closing Date, and one more or less share, respectively, of Alaska Merger Stock issued to Company Stockholders.

At the Effective Time, each share of Company Stock no longer shall be deemed outstanding and automatically shall be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Stock shall cease to have any rights with respect thereto.

(b) At the Effective Time, each full outstanding share of Company Common Stock shall be converted into one (1) share of Alaska Merger Stock.

SECTION 2.04 Company Preferred Stock .

(a) At the Effective Time, all issued and outstanding shares of the Company Preferred Stock not theretofore converted into shares of Company Common Stock shall, without any action on the part of the holder of any shares of Company Preferred Stock, be converted into their pro-rata portion of the Alaska Merger Stock, as though each such issued and outstanding share of Company Preferred Stock had been voluntarily converted by the holder thereof into Company Common Stock immediately prior to the Effective Time, at the conversion price then in effect. Without limiting the generality of the foregoing, the Company shall use its commercially reasonable efforts to obtain all amendments to the instruments governing the rights and preferences of the Company Preferred Stock and of the holders thereof, and consents of such holders to convert, at or prior to the Effective Time, their shares of Company Preferred Stock in the first instance and otherwise to effectuate the transactions contemplated by this Section 2.04(a) .

(b) At the Effective Time, each full outstanding share of Company Preferred Stock shall be deemed to have been fully converted into shares of Company Common Stock at the applicable conversion price then in effect (the “ Converted Stock ”), and each share of such deemed Converted Stock shall be converted into one (1) share of Alaska Merger Stock.

SECTION 2.05 Stock Options and Warrants .

(a) At the Effective Time, each outstanding employee or non-employee stock option, right or warrant to purchase shares of Company Common Stock (each, a “ Company Option ”) granted under any employee stock option, compensation, stock purchase or other option plan, warrant agreement, or other arrangement of the Company (the “ Company Stock Plans ”), whether or not then vested or exercisable, shall, without any action on the part of the

holder of any Company Option, be converted into options to purchase (at the same exercise price applicable to each such Company Option) their pro-rata portion of the Alaska Merger Stock, as though each such Company Option had been voluntarily exercised by the holder thereof for shares of Company Common Stock immediately prior to the Effective Time, at the exercise price then in effect. Without limiting the generality of the foregoing, the Company shall use its commercially reasonable efforts to obtain all amendments to the instruments governing the rights of the Company Options and to obtain the consents of such holders to exercise such Company Options, at or prior to the Effective Time.

(b) At the Effective Time, each full Company Option shall be deemed to entitle the holder thereof to an option (the “ Alaska Option ”) to purchase, upon the same terms and at the applicable exercise price then in effect with respect to the Company Option.

SECTION 2.06 Exchange of Certificates .

(a) Certificates. As soon as reasonably practicable after the Effective Time, Alaska shall mail to each holder of record of a certificate or certificates (the “ Certificates ”) that immediately prior to the Effective Time evidenced outstanding shares of Company Stock which were converted into the right to receive such holder’s ratable portion of the Alaska Merger Stock instructions for use in effecting the surrender of the Certificates in exchange for such holder’s ratable portion of the Alaska Merger Stock. Upon surrender of a Certificate for cancellation to Alaska or to other agent or agents as may be appointed by Alaska, together with such letter of transmittal, duly executed, and such other documents as reasonably may be required by Alaska, the holder of such Certificate shall be entitled to receive in exchange therefore the ratable portion of the Alaska Merger Stock into which the shares of Company Stock theretofore evidenced by such Certificate shall have been converted pursuant to this Agreement, and the Certificate so surrendered forthwith shall be canceled. In the event of a transfer of ownership of Company Stock that is not registered in the transfer records of the Company, delivery may be made to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such delivery shall pay all transfer and other Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Alaska that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.06 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the ratable portion of the Alaska Merger Stock into which the shares of Company Stock theretofore evidenced by such Certificate shall have been converted pursuant to Section 2.03 or Section 2.04 . No interest shall be paid or accrue on any Alaska Merger Stock payable upon surrender of any Certificate.

(b) Lost Certificates . If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Alaska, the posting by such Person of an indemnity bond, in such reasonable amount as the Surviving Corporation may direct, as collateral security against any claim that may be made against it with respect to such Certificate, Alaska shall issue in exchange for such lost, stolen or destroyed Certificate the applicable number of shares of Alaska Merger Stock.

(c) Further Assurances . If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Merger Sub or the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of the Merger Sub and the Company or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in such names and on such behalves or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement.

SECTION 2.07 Stock Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Company Common Stock thereafter on the records of the Company. From and after the Effective Time, the holders of Certificates shall cease to have any rights with respect to such shares of Company Stock, except as otherwise provided herein or by Law. At or after the Effective Time, any Certificates presented to the Surviving Corporation or Alaska, for any reason shall represent only the right to receive the applicable Alaska Merger Stock, without any interest thereon.

ARTICLE III
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF ALASKA AND SIGNING ALASKA STOCKHOLDERS

As an inducement to, and to obtain the reliance of the Company and the Company Stockholders, Alaska and each of the Alaska Stockholders who have executed this Agreement (the “ Signing Alaska Stockholders ”), hereby jointly and severally represent, warrant and covenant as follows:

SECTION 3.01 Organization . Alaska is a corporation duly organized, validly existing, and in good standing under the laws of the state of Nevada. Alaska has the corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business as it is now being conducted, including qualification to do business as a foreign corporation in the State of Alaska and any states in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification, except where such failure would not have a material adverse effect on business or financial condition of Alaska.

SECTION 3.02 Capitalization and Ownership .

(a) Capitalization . As of the date hereof, the entire authorized capitalization of Alaska consists of 50,000,000 shares of common stock, $.001 par value per share (the “ Alaska Common Stock ”), of which 3,568,033 shares of Alaska Common Stock are currently

issued and outstanding. All of the issued and outstanding shares of Alaska Common Stock are validly issued, fully paid, and non-assessable. Prior to the Closing, Alaska shall cause a sufficient number of shares of issued and outstanding Alaska Common Stock to be returned to the treasury of Alaska and cancelled, so that at the Closing, not more than 1,120,000 shares of Alaska Common Stock shall be issued and outstanding. No shares of Alaska Common Stock are reserved for issuance upon exercise of outstanding options and warrants, or upon conversion of any outstanding Alaska convertible securities. Alaska Common Stock is not owned or held in violation of any preemptive right of any other person or entity. Except as described herein, there is no commitment, plan, subscription rights, or arrangement to issue, no preemptive right to acquire, and no outstanding option, warrant, or other right calling for the issuance of, any shares of Alaska Common Stock or any security or other instrument convertible into, exercisable for, or exchangeable for Alaska Common Stock. There is outstanding no right, security or other instrument convertible into or exchangeable for Alaska Common Stock.

(b) Ownership of the Shares of Company Stock. Each of the Signing Alaska Stockholders is the legal and beneficial owner of the number of shares of Company Stock set forth opposite their name on Schedule A attached hereto, free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever, and each such Signing Company Stockholder has full right, power, and authority to vote such shares of Company Stock in favor of the Merger contemplated by this Agreement. The Signing Company Stockholders own of record a majority of the issued and outstanding shares of Company Common Stock.

(c) Voting in Favor of the Merger. If and for so long as Company shall comply with all of its representations, warranties, covenants and agreements contained in this Agreement, and subject to the Alaska’s right to terminate this Agreement in accordance with the provisions of Section 7.08 hereof, each Signing Alaska Stockholder will vote their shares of Alaska Stock in favor of the Merger.

(d) Cancellation of Shares . Prior to the Closing, pursuant to the Asset Purchase Agreement between Alaska and the Signing Alaska Stockholders dated September 16, 2003 (the “ Purchase Agreement ”), incorporated herein by reference, the Signing Alaska Stockholders shall return to Alaska, for cancellation, a total of 3,010,000 of their issued and outstanding shares of Alaska Common Stock, in the individual amounts set forth opposite each of their names on Schedule A attached hereto.

(e) Assumption of Liabilities . Effective as of the Effective Time, the Signing Alaska Stockholders hereby absolutely, unconditionally and irrevocably assume all obligations and liabilities of Alaska prior to the Closing, whether vested or contingent, accrued or unaccrued, liquidated or unliquidated, arising out of contract, tort, statute, common law or otherwise.

SECTION 3.03 Subsidiaries . Alaska does not have any subsidiaries and does not own, beneficially or of record, any shares of any other corporation.

SECTION 3.04 Financial Condition . Alaska has delivered to Company Alaska’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 (“ Form 10-KSB ”) and its Quarterly Reports on Form 10-QSB for the three months ended March 31, 2003 and for

the three and six months ended June 30, 2003 (“ Form 10-QSBs ”). Each of the Form 10-KSB and Form 10-QSBs presents fairly and accurately the information contained therein and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; each such statement of income and statement of retained earnings presents fairly and accurately the results of operations of Alaska for the period indicated; and each such statement of changes in financial position presents fairly and accurately the information purported to be shown therein. The financial statements (including the notes thereto) referred to in this Section 3.04 have been prepared in accordance with United States generally accepted accounting principals (“ GAAP ”) consistently applied throughout the periods involved are in compliance with all applicable rules and regulations promulgated by the Securities and Exchange Commission (the “ SEC ”), are correct and complete and are in accordance with the books and records of Alaska.

SECTION 3.05 Reports .

(a) Alaska has filed all forms, reports and documents with the SEC required to be filed by it pursuant to the federal securities laws and SEC rules and regulations thereunder, and all such forms, reports and documents, as amended, filed with the SEC have complied with all applicable requirements of the federal securities laws and the SEC rules and regulations promulgated thereunder.

(b) Alaska is not required to file with the SEC any supplementary and periodic information, documents or reports pursuant to Sections 12, 13 or 14 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or the rules and regulations promulgated thereunder, including without limitation any information statement under Regulation 14C. Since the beginning of its current fiscal year until the Effective Time, Alaska’s securities have been held of record by less than 300 persons, Alaska has had total assets less than $10,000,000, and has not had any class of securities registered on any national securities exchange, nor any class of securities registered under or pursuant to any provision of Section 12, including but not limited to Sections 12(b) and 12(g) of the Exchange Act.

SECTION 3.06 Tax and Other Liabilities .

(a) Alaska has filed all state and federal Tax returns that it was required to file, and has paid all Taxes shown thereon as owing, except where the failure to file Tax returns or to pay Taxes would not have a material adverse effect on the financial condition of Alaska and its subsidiaries taken as a whole.

(b) Alaska has delivered to Company correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Alaska. None of such tax returns are under audit.

(c) Alaska has not waived any statute of limitations in respect of any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency.

(d) Alaska is not a party to any Tax allocation or sharing agreement.

As used herein “Taxes” shall include all federal, state, local or foreign taxes, including but not limited to income, gross receipts, windfall profits, goods and services, value added, severance, property, production, sales, use, license, excise, franchise, employment, withholding or similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

SECTION 3.07 Absence of Certain Changes or Events . Except as set forth in this Agreement or in the Form 10-QSB, since June 30, 2003:

(a) To the best of Alaska’s knowledge, there has not been (i) any adverse change in the business, operations, properties, assets, or condition of Alaska; or (ii) any damage, destruction, or loss to Alaska (whether or not covered by insurance) adversely affecting the business, operations, properties, assets, or condition of Alaska;

(b) Alaska has not (i) amended its articles of incorporation or bylaws; (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Alaska; (iv) made any change in its method of management, operation, or accounting; (v) entered into any other transaction; (vi) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers, directors or employees or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees; and

(c) Alaska has not (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any obligation or liability (absolute or contingent); (ii) paid any obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent Alaska balance sheet; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except (A) the transactions contemplated by the Purchase Agreement, and (B) assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $1,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $1,000); (iv) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Alaska; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities of whatever kind or nature including without limitation debentures (whether authorized and unissued or held as treasury stock), convertible securities, warrants, options, or preferred stock).

SECTION 3.08 Issuance . The shares of Alaska Common Stock issued as consideration hereunder are duly authorized and, upon issuance in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and shall not be subject to preemptive rights or other similar rights of stockholders of Alaska.

SECTION 3.09 Approval of Agreement . The board of directors of Alaska has authorized the execution and delivery of this Agreement and has approved the transactions contemplated hereby, and approved the submission of this Agreement and the transactions contemplated hereby to the stockholders of Alaska for their approval with the recommendation that the transaction be accepted if it has been deemed necessary.

SECTION 3.10 Alaska Schedules . Alaska has delivered to Company a copy of all the board of directors’ and stockholders’ minutes of Alaska approving this transaction.

SECTION 3.11 Litigation and Proceedings . There are no actions, suits, proceedings, or investigations pending or, to the best of Alaska’s knowledge, threatened by or against Alaska or affecting Alaska or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator that would have a material adverse effect on its business. Alaska does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default.

SECTION 3.12 Contracts .

(a) Except for the Purchase Agreement, there are no material contracts, agreements, franchises, license agreements, or other commitments to which Alaska is a party or by which it or any of its assets, products, or properties are bound outside of the ordinary course of business;

(b) Alaska is not a party to any oral or written (i) contract for the employment of any officer or employee which is not terminable on 30 days or less notice; (ii) profit sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan, agreement, or arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended; (iii) agreement, contract, or indenture relating to the borrowing of money; (iv) guaranty of any obligation, other than one on which Alaska is a primary obligor, for the borrowing of money or otherwise, excluding endorsements made for collection and other guaranties of obligations, which, in the aggregate do not exceed more than one year or providing for payments in excess of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii) agreement with any present or former officer or partner of Alaska or (viii) contract, agreement, or other commitment involving payments by it of more than $10,000 in the aggregate.

SECTION 3.13 Material Contract Defaults . To the best of Alaska’s knowledge, Alaska is not in default under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the business, operations, properties, assets, or condition of Alaska and there is no event of default in any material respect under any such contract, agreement, lease, or other commitment in respect of which Alaska has not taken adequate steps to prevent such a default from occurring.

SECTION 3.14 No Conflict With Other Instruments . The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any

material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which Alaska is a party or to which any of its properties or operations are subject.

SECTION 3.15 Governmental Authorizations . To the best of Alaska’s knowledge, Alaska has all licenses, franchises, permits, and other governmental authorizations that are legally required to enable it to conduct its business in all material respects as conducted on the date hereof; except for compliance with federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Alaska of this Agreement and the consummation by Alaska of the transactions contemplated hereby.

SECTION 3.16 Compliance With Laws and Regulations . To the best of Alaska’s knowledge, Alaska has complied with all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Alaska or except to the extent that noncompliance would not result in the incurrence of any material liability for Alaska.

SECTION 3.17 Insurance . All the insurable properties of Alaska are insured in their full replacement value against all risks customarily insured against by persons operating similar properties in localities where such properties are located and under valid and enforceable policies by insurers of recognized responsibility. Such policy or policies containing substantially equivalent coverage will be outstanding on the date of consummation of the transactions contemplated by this Agreement.

SECTION 3.18 Approval of Agreement . All member(s) of the Board of Directors of Alaska have authorized the execution and delivery of this Agreement and have approved the transactions contemplated hereby. Alaska has delivered to Company a copy of the resolution of the Board of Directors approving this transaction.

SECTION 3.19 Labor and Employment Matters .

(a) Labor. Alaska is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and, there has been no effort by any labor union or any other person during the twenty-four (24) months prior to the date hereof to organize any employees of Alaska into one or more collective bargaining units, nor are any such efforts being conducted. To the best of Alaska’s knowledge, there is no pending or threatened labor dispute, strike or work stoppage which affects or which may affect the business of Alaska, or which may interfere with its continued operations. To the best of Alaska’s knowledge, neither Alaska nor any agent, representative or employee thereof has within the last twenty-four (24) months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against Alaska by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees or consultants of the Stockholders during the twenty-four (24) months prior to the date hereof. To the best of Alaska’s knowledge, Alaska has complied with applicable laws, rules and regulations relating to employment, civil

rights and equal employment opportunities or other employment practices, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.

(b) Employment. The employment of each employee of Alaska is “at will , ” and may be terminated at any time by Alaska, without the imposition of penalties or damages. Alaska has received no notice of any claim before any governmental body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of employees or any governmental body or, is any such claim threatened against Alaska. Alaska is not a party to, or otherwise bound by, any order relating to its employees or employment practices. Alaska has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees. No current or former employee of Alaska is (i) absent on a military leave of absence and/or eligible for rehire under the terms of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent on a leave of absence under the Family and Medical Leave Act.

SECTION 3.20 Employee Benefits . There is no employee benefit plan which is sponsored, maintained or contributed to by Alaska or to which Alaska has an obligation to contribute, or otherwise affecting or involving Alaska or any of the employees of or consultants to Alaska.

SECTION 3.21 Environmental Matters .

(a) To the best of Alaska’s knowledge, Alaska has no liability under, and each are presently in compliance in all material respects with all Environmental Laws applicable to Alaska, its assets or business.

(b) Alaska has no knowledge of the releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping of Hazardous Substances into the soil, surface waters, ground waters, land, stream sediments, surface of subsurface strata, ambient air, sewer system, or any environmental medium at or from any property or asset owned, used or occupied by Alaska ( “Environmental Condition” ) in violation of any applicable Environmental Law.

(c) To the best of Alaska’s knowledge, none of the following exists at any property owned, occupied or controlled by Alaska: (1) underground storage tanks, (2) materials or equipment containing polychlorinated biphenyls in concentrations greater than 50 parts per million, or (3) landfills or disposal areas.

SECTION 3.22 Loans . Schedule 3.23 sets forth (i) the name of each bank, trust company or other financial institution and stock or other broker with which Alaska has an account, credit line or loan, and the names of all persons authorized by proxies, powers of attorney or other like instrument to act on behalf of Alaska in matters concerning any of its business or affairs. No such proxies, powers of attorney or other like instruments are irrevocable.

SECTION 3.23 Absence of Certain Business Practices . To the best of Alaska’s knowledge, neither Alaska, the Signing Alaska Shareholders nor any other affiliate or agent of Alaska, or any other person acting on behalf of or associated with Alaska, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, employee or agent of any customer or supplier; or (b) directly or indirectly given or agreed to give any money, gift or similar benefit to any customer, supplier, employee or agent of any customer or supplier, any official or employee of any government (domestic or foreign), or any political party or candidate for office (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of Alaska (or assist Alaska in connection with any actual or proposed transaction), in each case which (i) may subject Alaska to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the assets, business, operations or prospects of Alaska, or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of Alaska.

SECTION 3.24 No Undisclosed Liabilities . To the best of Alaska’s knowledge, Alaska has no liabilities or obligations of any nature (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due), including without limitation any liability for Taxes or any obligations or liabilities of the nature or type required to be disclosed under GAAP, which are, individually or in the aggregate, material to the business, results of operations, assets or financial condition of Alaska, taken as a whole, other than such liabilities or obligations that have been specifically disclosed in the Form 10-KSB or Form 10-QSBs.

SECTION 3.25 Materiality . To the best of Alaska’s knowledge, no representation or warranty in this Article III contains any materially untrue statement of a material fact or omits to state any material fact required to make the statements contained therein not materially misleading or materially necessary in order to provide Company with reasonably complete information as to Alaska’ business or financial condition.

ARTICLE IV
REPRESENTATIONS, COVENANTS, AND
WARRANTIES OF SIGNING COMPANY STOCKHOLDER

As an inducement to, and to obtain reliance of Alaska and the Signing Alaska Stockholders, the Company Stockholder who has executed this Agreement (the “ Signing Company Stockholder ”) hereby represents, warrants and covenants as follows:

SECTION 4.01 Ownership of the Shares of Company Stock . The Signing Company Stockholder is the legal and beneficial owner of the number of shares of Company Stock set forth opposite its name on Schedule B attached hereto, free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever, and the Signing Company Stockholder has full right, power, and authority to vote such shares of Company Stock in favor of the Merger contemplated by this Agreement. The Signing Company Stockholder owns of record a majority of the issued and outstanding shares of Company Stock.

SECTION 4.02 Voting in Favor of the Merger . If and for so long as Alaska and the Signing Alaska Stockholders shall comply with all of their representations, warranties, covenants and agreements contained in this Agreement, and subject to the Company’s right to terminate this Agreement in accordance with the provisions of Section 7.08 hereof, the Signing Company Stockholder will vote its shares of Company Stock in favor of the Merger.

ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

As an inducement to, and to obtain the reliance of Alaska and the Signing Alaska Stockholders, the Company hereby represents, warrants and covenants as follows:

SECTION 5.01 Organization . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York. The Company has no subsidiary corporations. The Company has the power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, including qualification to do business as a foreign corporation in the countries, provinces, territories and states in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. Company has furnished to Alaska complete and correct copies of the certificate of incorporation, as amended, and bylaws of Company as in effect on the date hereof. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof will not, violate any provision of such certificates of incorporation or bylaws. The Company has taken all action required by law, its certificate of incorporation, bylaws, or otherwise to authorize the execution and delivery of this Agreement. The Company has full power, authority, and legal right and has taken all action required by law, its incorporation and bylaws, and otherwise to consummate the transactions herein contemplated.

SECTION 5.02 Capitalization . As of the date hereof, the entire authorized capitalization of the Company consists of (a) 30,000,000 shares of common stock, $.001 par value per share (the “ Company Common Stock ”), of which 13,740,000 shares of Company Common Stock are currently issued and outstanding, and (b) 15,000,000 shares of Series A preferred stock, $.001 par value, (the “ Company Preferred Stock ”), of which 1,176,000 shares of Company Preferred Stock are issued and outstanding. The Company Common Stock and Company Preferred Stock are hereinafter collectively referred to as the “ Company Stock .” All of the issued and outstanding shares of Company Stock are validly issued, fully paid, and non-assessable. There are currently no shares of Company Common Stock reserved for issuance upon exercise of Outstanding Company Options and warrants. Company Common Stock is not owned or held in violation of any preemptive right of any other person or entity.

SECTION 5.03 Private Placement Memorandum . The Company has delivered to Alaska the Company’s confidential Private Placement Memorandum dated August 8, 2003 (the “ Memorandum ”). To the best of Company’s knowledge (and, in the case of forward-looking statements, subject to the Risk Factors contained therein), the Memorandum presents fairly and accurately the information contained therein and does not contain an untrue statement of a

material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

SECTION 5.04 No Conflict With Other Instruments . The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which the Company is a party or to which any of its properties or operations are subject.

SECTION 5.05 Approval of Agreement . The Board of Directors of the Company have authorized the execution and delivery of this Agreement and have approved the transactions contemplated hereby. The Company has delivered to Alaska a copy of the resolution of the Board of Directors approving this transaction.

SECTION 5.06 No Undisclosed Liabilities . To the best of the Company’s knowledge, the Company has no liabilities or obligations of any nature (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due), including without limitation any liability for Taxes or any obligations or liabilities of the nature or type required to be disclosed under GAAP, which are, individually or in the aggregate, material to the business, results of operations, assets or financial condition of the Company, taken as a whole, other than such liabilities or obligations that have been specifically disclosed in the Memorandum or the Company’s audited financial statements.

SECTION 5.07 Materiality . To the best of the Company’s knowledge, no representation or warranty in this Article V contains any materially untrue statement of a material fact or omits to state any material fact required to make the statements contained therein not materially misleading or materially necessary in order to provide Alaska with reasonably complete information as to the Company’s business or financial condition.

ARTICLE VI
DELIVERIES AT CLOSING

SECTION 6.01 Taking of Necessary Action . Alaska, the Alaska Stockholders, Company and the Company Stockholders shall take all such actions as may be necessary or appropriate in order to effectuate the transactions contemplated by this Agreement. If, at any time after the execution hereof, any further action is necessary or desirable to carry out the purposes of this Agreement, to (a) vest Alaska with title to 100% of the issued and outstanding shares of Company Stock, or (b) vest the Company Stockholders with title to 100% of the issued and outstanding shares of Alaska Merger Stock, the officers and directors of Company or Alaska, as the case may be, shall take such necessary or desirable action in order to effectuate the transactions contemplated by this Agreement.

SECTION 6.02 Stock Legends . Certificates representing all shares of Alaska Merger Stock shall bear a legend restricting transfer of the shares of Alaska Merger Stock represented by such certificate in substantially the form set forth below:

“The shares evidenced by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be

transferred, nor will any assignee or endorsee hereof be recognized as an owner hereof by the issuer for any purpose, unless a registration statement under the Securities Act with respect to such shares shall then be in effect or unless the availability of an exemption from registration with respect to any proposed transfer or disposition of such shares shall be established to the satisfaction of counsel for the issuer.”

Alaska shall, from time to time, make stop transfer notations in its records to ensure compliance in connection with any proposed transfer of the shares with the Securities Act, and all applicable state securities laws.

SECTION 6.03 Fees and Expenses . Each of Company and Alaska shall be responsible for all of their respective fees and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby, including, without limitation, the professional fees of counsel for each of the parties incurred in connection with this Agreement.

SECTION 6.04 Closing Events . At the Closing, each of the respective parties hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) any and all certificates, opinions, financial statements, schedules, agreements, resolutions, rulings, or other instruments required by this Agreement to be so delivered at or prior to the Closing, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby. Deliveries at Closing shall include, without limitation, the following:

(a) Deliveries by Company and Company Stockholders . At or prior to the Closing, Company shall deliver to Alaska:

(i) resolutions or consents signed by the Signing Company Stockholder approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;

(ii) a certificate executed by Company to the effect that the conditions set forth in Article VII and Article VIII have been satisfied;

(iii) evidence establishing that funds totaling at least Six Million Dollars ($6,000,000.00) in equity funds have been raised by the Company and will be released and available to the surviving corporation as of the Effective Time; and

(iv) Audited financial statements from inception through June 30, 2003, and any interim financial statements necessary for the Closing.

(b) Deliveries by Alaska . At or prior to the Closing, Alaska shall deliver to Company:

(i) resolutions or consents signed by each of the Signing Alaska Stockholders and a majority of the other outstanding shares of Alaska Stock approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;

(ii) the certificates representing the Alaska Merger Stock required to be delivered at Closing pursuant to Section 2.06 hereof;

(iii) a certificate executed by an authorized officer of Alaska, on behalf of Alaska, to the effect that the conditions set forth in Article VII and Article VIII have been satisfied;

(iv) the resignations of all the officers and directors of Alaska and Merger Sub and a resolution of the Board of Directors of Alaska electing the persons designated by Company prior to the Closing as the sole directors of Alaska and the Surviving Corporation, and appointing persons designated by the Company prior to the Closing as the sole senior executive officers of Alaska and the Surviving Corporation;

(v) Evidence establishing that all obligations and liabilities of Alaska, whether vested or contingent, accrued or unaccrued, liquidated or unliquidated, arising out of contract, tort, statute, common law or otherwise, have been absolutely, unconditionally and irrevocably assumed by the Signing Alaska Stockholders; and

(vi) Audited financial statements for the last two years through June 30, 2003, and any interim financial statements necessary for the Closing.

ARTICLE VII
SPECIAL COVENANTS AND AGREEMENTS OF THE PARTIES

SECTION 7.01 Board of Directors Action by Alaska . Prior to the Closing, the Board of Directors of Alaska shall:

(a) effect the authorization and approval of this Agreement and the transactions contemplated thereby;

(b) effect the actions described in Article VI ; and

(c) take such other actions as the directors may determine are appropriate in furtherance of the consummation of this Agreement.

SECTION 7.02 Required Filings . Alaska shall timely file with the SEC any forms, statements, reports and documents required to be filed by it pursuant to the federal securities laws and SEC rules and regulations thereunder as a result of the Merger, this Agreement or any of the transactions contemplated hereby, and shall use its best efforts to cause all such forms, statements, reports and documents to be declared or become effective as soon as practicable thereafter.

SECTION 7.03 Access to Properties and Records . Alaska and the Company will each afford to the officers and authorized representatives of the other full access to the properties, books, and records of each other as the case may be, in order that each may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other, and each will furnish the other with such additional financial and operating data and other

information as to the business and properties of each other, as the case may be, as the other shall from time to time reasonably request.

SECTION 7.04 Special Covenants and Representations Regarding Issuance of Alaska Merger Stock . The consummation of this Agreement and the transactions herein contemplated, including the issuance of Alaska Merger Stock to the Company Stockholders as contemplated hereby, constitutes the offer and sale of securities under the Securities Act and applicable state statutes. Such transaction shall be consummated in reliance on exemptions from the registration and prospectus delivery requirements of such statutes which depend, inter alia, upon the circumstances under which the Company Stockholders acquire such securities. In connection with reliance upon exemptions from the registration and prospectus delivery requirements for such transactions, at the Closing the Company Stockholders shall deliver to Alaska customary investment letters of representation.

SECTION 7.05 Third party Consents and Certificates . Alaska and the Company agree to cooperate with each other in order to obtain any required third party consents to this Agreement and the transactions herein and therein contemplated.

SECTION 7.06 Actions Prior to Closing .

(a) From and after the date of this Agreement until the Closing and except as set forth in the Agreement or Schedules attached hereto or as otherwise approved in writing by Company, Alaska will:

(i) carry on its business in substantially the same manner as it has heretofore;

(ii) maintain and keep its properties in states of good repair and condition as at present, except for depreciation due to ordinary wear and tear and damage due to casualty;

(iii) maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it;

(iv) perform in all material respects all of its obligation under material contracts, leases, and instruments relating to or affecting its assets, properties, and business;

(v) use its best efforts to maintain and preserve its business organization intact, to retain its key employees, and to maintain its relationship with its material suppliers and customers; and

(vi) fully comply with and perform in all material respects all obligations and duties imposed on it by all federal and state laws and all rules, regulations, and orders imposed by federal or state governmental authorities.

(b) From and after the date of this Agreement until the Closing, unless otherwise approved in advance by Company in writing, Alaska will not:

(i) make any change in its articles of incorporation or bylaws;

(ii) conduct any business or enter into any contract, agreement or commitment of any kind, or amend any contact, agreement or commitment currently in existence, other than as previously approved by the Signing Company Stockholder and to further the transactions contemplated by this Agreement; or

(iii) issue or commit to issue any shares of Alaska Common Stock or other securities convertible into or exercisable for Alaska Common Stock to any person, firm or corporation.

(c) Prior to the Closing, Alaska shall arrange for the Signing Alaska Stockholders to return 3,010,000 shares of Alaska Common Stock to Alaska for cancellation and to forward split the remaining 558,033 shares, such that at the Closing not more than 1,120,000 shares of Alaska Common Stock shall be issued and outstanding.

SECTION 7.07 Indemnification Provisions .

(a) By Company . The Company hereby agrees to indemnify and hold harmless the Signing Alaska Shareholders, Alaska and its officer, directors and shareholders, against and in respect of any loss, claim, liability, obligation or damage suffered or incurred by Alaska resulting from or arising in connection with any misrepresentation (in this Agreement or the Memorandum), breach of warranty, or non-fulfillment of any covenant or agreement on the part of the Company or the Signing Company Shareholders contained in this Agreement.

(b) By Signing Alaska Shareholders . Each of the Signing Alaska Shareholders hereby jointly and severally agrees to indemnify and hold harmless Alaska (as it exists subsequent to the Effective Time) and its officers, directors and shareholders, against and in respect of:

(i) any loss, claim, liability, obligation or damage suffered or incurred by Alaska resulting from or arising in connection with any misrepresentation (in this Agreement or the Form 10-KSB or Form 10-QSBs), breach of warranty, or non-fulfillment of any covenant or agreement on the part of Alaska or the Signing Alaska Shareholders contained in this Agreement;

(ii) any liability or claim which may be asserted against Alaska arising out of, relating to, or in connection with Alaska’s ownership of its assets prior to the Closing, or Alaska’s business or other activities prior to the Closing;

(iii) any Taxes arising out of or relating to the transaction contemplated by this Agreement or the Purchase Agreement, including without limitation any state or federal income taxes realized as a result of the transfer of the Alaska assets to the signing Alaska stockholders; and

(iv) All actions, suits, investigations, proceedings, demands, assessments, judgments, reasonable attorneys’ fees, costs and expenses incident to the foregoing, including, but not limited to, any audit or investigation by any governmental entity.

(c) Survival of Obligation to Indemnify . The indemnity obligations of this Section 7.07 shall survive the Closing and the payment of the consideration therefor for a period of one (1) year from the Closing (or in the case of Section 7.07(b)(iii) , three (3) years from the date of filing of any required return), and shall continue thereafter with respect to: (a) matters which the party seeking indemnity hereunder shall have given the other party written notice of as provided herein prior to one (1) year from the Closing; and (b) any claims, actions, suits, investigations or proceedings based on fraud or willful misconduct, willful misrepresentation or willful breach of warranty.

(d) Notice and Procedure . Any party claiming indemnity hereunder (hereinafter referred to as the “ Indemnified party ”) shall give the party against whom indemnity is sought (hereinafter referred to as the “ Indemnifying party ”) prompt written notice after obtaining knowledge of any claim or the existence of facts as to which recovery may be sought against it in respect of which the Indemnifying party may be liable because of the indemnity provisions set forth in this Section 7.07 . If such claim for indemnity arises in connection with a legal action instituted by a third party (hereinafter a “ Third Party Claim ”), the Indemnified party hereby agrees that, within ten (10) Business Days after it is served with notice of the assertion of any Third Party Claim for which it may seek indemnity hereunder, the Indemnified party will notify the Indemnifying party in writing of such Third Party Claim.

The Indemnifying party shall, within ten (10) Business Days after the date that the Indemnified party gives notice of a claim (whether a Third Party Claim or otherwise) as provided above, notify the Indemnified party whether it accepts or contests its obligation of indemnity hereunder as claimed by the Indemnified party.

If the claim for indemnity arises in connection with a Third Party Claim and the Indemnifying party accepts its indemnity obligation hereunder, the Indemnifying party shall have the right, after conceding in writing its obligation of indemnity hereunder, to conduct the defense of such action at its sole expense through counsel reasonably acceptable to the Indemnified party. The Indemnified party shall cooperate in such defense as reasonably necessary to enable the Indemnifying party to conduct its defense, including providing the Indemnifying party with reasonable access to such records as may be relevant to its defense. The Indemnifying party shall be entitled to settle any such Third Party Claim without the prior written consent of the Indemnified party provided that the Indemnifying party provides the Indemnified party with reasonable assurances that the Indemnified party will be fully indemnified by the Indemnifying party in connection with any such Third Party Claim. The Indemnified party shall be entitled to retain its own counsel at its own expense in connection with any Third Party Claim that the Indemnifying party has elected to defend. If the Indemnifying party accepts its indemnity obligations hereunder in connection with a Third Party Claim but elects not to conduct the defense thereof, the Indemnified party may defend and/or settle such Third Party Claim and shall be entitled to be indemnified for the full amount of such claim and all costs and expenses, including attorneys’ fees, incurred in connection therewith pursuant to this Section 7.07 .

If the claim for indemnity arises in connection with a Third Party Claim and the Indemnifying party contests or does not accept its indemnity obligation hereunder, the Indemnified party shall have the right to defend and/or settle such Third Party Claim and thereafter seek indemnity from the other party pursuant to this Section 7.07 ; provided , however ,

that the Indemnified party shall not settle any such claim without the prior written consent of the Indemnifying party, which consent shall not be unreasonably withheld.

If the claim for indemnity arises other than in connection with a Third Party Claim and the Indemnifying party accepts its indemnity obligation hereunder, the Indemnifying party shall, upon the request of the Indemnified party, pay the full amount of such claim to the Indemnified party or to the third party asserting such claim as directed by the Indemnified party. If the claim for indemnity arises other than in connection with a Third Party Claim and the Indemnifying party contests its indemnity obligation hereunder, the Indemnified party shall have the right to defend, settle or take any other action with respect to such claim and thereafter seek indemnity pursuant to this Section 7.07 ; provided , however , that the Indemnified party shall not settle any such claim without the prior written consent of the Indemnifying party, which consent shall not be unreasonably withheld.

SECTION 7.08 Termination . This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:

(a) by the mutual written consent of Alaska and the Company; or

(b) by any party , if: (i) a material breach shall exist with respect to the written representations and warranties made by the other party; (ii) the other party shall take any action prohibited by this Agreement, if such actions shall or may have a material adverse effect on Company or on Alaska, and/or the transactions contemplated hereby, and shall not fully remedy same within ten (10) Business Days after written notice thereof to such party; (iii) the other party shall not have furnished, upon reasonable notice therefore, such certificates and documents required in connection with the transactions contemplated hereby and matters incidental thereto as it or he shall have agreed to furnish, and it is reasonably unlikely that the other party will be able to furnish such item(s) prior to October 17, 2003 (the “ Outside Closing Date ”); or (iv) any consent of any third party to the transactions contemplated hereby (whether or not the necessity of which is disclosed herein or in any Schedule hereto) is reasonably necessary to prevent a default under any outstanding material obligation of either party hereto and such consent is not obtainable without material cost or penalty (unless the party not seeking to terminate this Agreement agrees or agree to pay such cost or penalty); or

(c) by any party, at any time on or after the Outside Closing Date, if the transactions contemplated hereby shall not have been consummated prior thereto; provided , that the party seeking to effect such termination of this Agreement shall not then be in breach or default of any material representation, warranty, covenant, agreement or obligation imposed upon such party by this Agreement; or

(d) by the Company in the event that its due diligence investigation of Alaska shall reveal that Alaska (i) has any business operations at the Closing, (ii) has any liabilities, obligations, contracts, commitments or contingencies of any kind, which could reasonable be expected to expose Alaska or Company to any cost, claim, expense, damage or liability from and after the Closing, or (iii) is subject to any claim, deficiency, legal or administrative proceeding or threats thereof which could reasonably be expected to result in litigation and liability to Alaska or Company from and after the Closing; or

(e) by the Company in the event that the Signing Alaska Stockholders and the holders of a majority of the outstanding shares of the Alaska Stock do not consent in writing to this Agreement, the Merger and the transactions contemplated hereby.

(f) In the event of termination of this Agreement pursuant to this Section 7.08 , prompt written notice shall be given by the terminating party to the other party, and, unless the party seeking to terminate this Agreement shall have no right to do so, neither party to this Agreement shall have any further liability to the other.

ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF ALASKA
AND THE SIGNING ALASKA STOCKHOLDERS

The obligations of Alaska and the Signing Alaska Stockholders under this Agreement are subject to the satisfaction, at or before the Closing, of the following conditions:

SECTION 8.01 Accuracy of Representations . The representations and warranties made by the Company in this Agreement were true when made and shall be true at the Closing with the same force and effect as if such representations and warranties were made at and as of the Closing (except for changes therein permitted by this Agreement), and the Company shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by the Company prior to or at the Closing. Alaska shall be furnished with a certificate, signed by a duly authorized officer of Company and dated the date of the Closing, to the foregoing effect.

SECTION 8.02 Further Assurances . From time to time from and after the date hereof, the parties will execute and deliver to one another any and all further agreements, instruments, certificates and other documents as may reasonably be requested by any other party in order more fully to consummate the transactions contemplated hereby.

SECTION 8.03 Financing . Company shall raise equity funds totaling at least Six Million Dollars ($6,000,000.00) that will be released and available to the Surviving Corporation as of the Effective Time.

ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE SIGNING COMPANY STOCKHOLDER

The obligations of the Company and the Signing Company Stockholder under this Agreement are subject to the satisfaction, at or before the Closing, of the following conditions:

SECTION 9.01 Accuracy of Representations . The representations and warranties made by Alaska in this Agreement were true when made and shall be true as of the Closing (except for changes therein permitted by this Agreement) with the same force and effect as if such representations and warranties were made at and as of the Closing, and Alaska shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with by Alaska prior to or at the Closing. The Company shall have been

furnished with a certificate, signed by a duly authorized executive officer of Alaska and dated the date of the Closing, to the foregoing effect.

SECTION 9.02 Further Assurances . From time to time from and after the date hereof, the parties will execute and deliver to one another any and all further agreements, instruments, certificates and other documents as may reasonably be requested by any other party in order more fully to consummate the transactions contemplated hereby, and to effect an orderly transition of the Signing Company Stock being acquired by Alaska hereunder.

SECTION 9.03 No Liabilities . All obligations and liabilities of Alaska, whether vested or contingent, accrued or unaccrued, liquidated or unliquidated, arising out of contract, tort, statute, common law or otherwise, have been absolutely, unconditionally and irrevocably assumed by the Signing Alaska Stockholders.

ARTICLE X
RESOLUTION OF DISPUTES

Any controversy, dispute or claim arising out of or relating to this Agreement, or involving the parties hereto, shall be resolved by binding arbitration before a retired judge at JAMS in Santa Monica, California. The prevailing party shall be awarded its attorney’s fees, costs and expenses.

In connection with the defense of any third party claims for which claims for indemnification have been made hereunder, each party will provide reasonable access to its and the Company’s books and records as and to the extent required for the proper defense of such third party claim. Neither party shall consent to any settlement or purport to bind any other party to any settlement without the written consent of the other party.

ARTICLE XI
MISCELLANEOUS

SECTION 11.01 No Brokers . Alaska, the Company and the Signing Company Stockholders each agree that there are no other finders or brokers involved in bringing the parties together or who were instrumental in the negotiation, execution, or consummation of this Agreement. Alaska, Company and the Signing Company Stockholders each agree to indemnify the other against any claim by any third person for any commission, brokerage, or finders’ fee arising from the transactions contemplated hereby based on any alleged agreement or understanding between the indemnifying party and such third person, whether express or implied from the actions of the indemnifying party.

SECTION 11.02 Notices . Any notice, demand, request, offer, consent, approval or communications (collectively, a “ Notice ”) to be provided under this Agreement shall be in writing and sent by one of the following methods: (i) postage prepaid, United States certified or registered mail with a return receipt requested, addressed to Alaska, Company and the Signing Company Stockholders, as appropriate, at the addresses set forth below; (ii) overnight delivery with a nationally recognized and reputable air courier (with electronic tracking requested) addressed to Alaska, Company and the Signing Company

Stockholders, as appropriate, at the addresses set forth below; (iii) personal delivery to Alaska, Company and the Signing Company Stockholders, as appropriate, at the addresses set forth below; or (iv) by confirmed facsimile or telecopier transmission to Alaska or the Company or the Signing Company Stockholders, as appropriate, at the facsimile numbers set forth below and in such case of facsimile transmission, a copy must also be contemporaneously sent by one of the methods described in the preceding clause (i), (ii) or (iii) of this Section (it being understood and agreed, however, that such Notice shall be deemed received upon receipt of electronic transmission). Any such Notice shall be deemed given upon receipt thereof, or, in case of any Notice sent pursuant to clause (i), (ii) or (iii) above, the refusal thereof by the intended receipt. Notwithstanding the foregoing, in the event any Notice is sent by overnight delivery or personal delivery and it is received (or delivery is attempted) during non-business hours ( i.e. , other than during 8:30 a.m. to 5:30 p.m. PST, Monday through Friday, excluding holidays), then such Notice shall not be deemed to have been received until the next Business Day. Either party may designate a different address for receiving Notices hereunder by notice to the other party in accordance with the provisions of this Section . Further notwithstanding the foregoing, if any Notice is sent by either party hereto to the other and such Notice has not been sent in compliance with this Section but has in fact actually been received by the other party, then such Notice shall be deemed to have been duly given by the sending party and received by the recipient party effective as of such date of actual receipt.

If to Alaska or the Alaska Shareholders:		Alaska Freightways, Inc. 300 East 54th Avenue, Suite 200 Anchorage, Alaska 99518 Attn: Donald E. Nelson, President

With a copy to:		Law Office of Gary A. Agron 5445 DTC Parkway, Suite 520 Englewood, Colorado 80111 Attn: Gary A. Agron, Esq.

If to Company or the Company Stockholders:		Hythiam, Inc. 11111 Santa Monica Blvd., Suite 550 Los Angeles, California 90025 Attn: Terren S. Peizer, Chairman & CEO

With a copy to:		Greenberg Traurig, LLP 2450 Colorado Avenue, Suite 400E Santa Monica, California 90404 Attn: John C. Kirkland, Esq.

Notwithstanding anything in this Section to the contrary, any Notice delivered in accordance herewith to the last designated address of any person or party to which a Notice may be or is required to be delivered pursuant to this Agreement shall not be deemed ineffective if actual delivery cannot be made due to a change of address of the person or party to which the Notice is directed or the failure or refusal of such person or party to accept delivery of the Notice.

SECTION 11.03 No Third-Party Beneficiaries . This Agreement is not intended to confer upon any person, other than the parties hereto, any rights or remedies hereunder.

SECTION 11.04 Expenses . Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby.

SECTION 11.05 Amendment; Waiver . This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other except as may be specifically limited herein.

SECTION 11.06 Rules of Interpretation . Except as otherwise expressly provided in this Agreement, the following rules shall apply hereto: (i) the singular includes the plural and plural includes the singular; (ii) “or” is not exclusive and “include” and “including” are not limiting; (iii) a reference to any agreement or other contract includes any permitted supplements and amendments; (iv) a reference in this Agreement to a section or exhibit is a reference to a section or exhibit within or attached to this Agreement unless otherwise expressly provided; (v) a reference to a section or paragraph in this Agreement shall, unless the context clearly indicates to the contrary, refer to all sub-parts or sub-components of any said section or paragraph; (vi) words such as “hereunder,” “hereto,” “hereof,” and “herein,” and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of this Agreement and not to any particular clause hereof; (vii) the headings of the articles or sections and the ordering or position thereof are for convenience only and shall not in any way be deemed to affect the meaning of this Agreement; (viii) a reference in this Agreement to a “person” or “party” (whether in the singular or the plural) shall (unless otherwise indicated herein) include both natural persons and unnatural persons (including, but not limited to, corporations, partnerships, limited liability companies or partnerships, trusts, etc. ); (ix) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP; and (x) any reference in this Agreement to a “ Business Day ” shall include each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the United States are closed.

SECTION 11.07 Construction . The parties agree and acknowledge that they have jointly participated in the negotiation and drafting of this Agreement and that this Agreement has been fully reviewed and negotiated by the parties and their respective counsel. In the event of an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. If any party has

breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty, or covenant. The mere listing (or inclusion of copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty relates solely to the existence of the document or other items itself).

SECTION 11.08 Governing Law and Waiver of Jury Trial . This Agreement is made in and shall be governed by the laws of the State of California, and the sole and exclusive venue for any action relating to or arising out of this Agreement shall be Los Angeles County, California. The parties hereto expressly waive any claim or defense therein that such courts constitute an inconvenient forum. The parties hereto expressly waive all rights to trial by jury regarding all matters or disputes arising out of or related to this Agreement. In no event shall any party be liable for any indirect, special, exemplary, punitive or consequential damages arising out of or relating to this Agreement.

SECTION 11.09 Severability . If any clause or provision of this Agreement is illegal, invalid or unenforceable under applicable present or future laws effective during the term of this Agreement, the remainder of this Agreement shall not be affected. In lieu of each clause or provision of this Agreement that is illegal, invalid or unenforceable, there shall be added as a part of this Agreement a clause or provision as nearly identical as may be possible and as may be legal, valid and enforceable. In the event any clause or provision of this Agreement is illegal, invalid or unenforceable as aforesaid and the effect of such illegality, invalidity or unenforceability is that either party no longer has the substantial benefit of its bargain under this Agreement and a clause or provision as nearly identical as may be possible cannot be added, then, in such event, such party may in its discretion cancel and terminate this Agreement provided such party exercises such right within a reasonable time after such occurrence.

SECTION 11.10 Arm’s Length Negotiations . Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm’s length negotiations conducted by and among the parties and their respective counsel.

SECTION 11.11 Public Disclosure . Notwithstanding anything herein to the contrary, each of the parties to this Agreement hereby agrees with the other party or parties hereto that, except as may be required to comply with the requirements of any applicable Laws and the rules and regulations of each stock exchange upon which the securities of one of the parties (or its Affiliates) is listed (in which case the disclosing party shall use its commercially reasonable efforts to advise the other party, or parties prior to making such disclosure), no press release or similar public announcement or communication shall, whether prior to or subsequent to the Closing, be made or cause to be made concerning the execution or performance of this

Agreement, unless specifically approved in advance in writing by all parties hereto. Subject to the prior sentence, Alaska and Company shall reasonably cooperate with each other in the development and distribution of all news releases and other public announcements of this Agreement, or any of the transactions contemplated hereby.

SECTION 11.12 Confidentiality . Prior to the Closing, Alaska shall, and shall cause its affiliates and its and their employees, agents, accountants, legal counsel and other representatives and advisers to, hold in strict confidence all, and not divulge or disclose any, information of any kind concerning Company and its business; provided , however , that the foregoing obligation of confidence shall not apply to (i) information that is or becomes generally available to the public other than as a result of a disclosure by Alaska or its affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers, (ii) information that is or becomes available to Alaska or its Affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers on a non-confidential basis prior to its disclosure by Alaska or its affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers and (iii) information that is required to be disclosed by Alaska or its affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers as a result of any applicable law, rule or regulation of any governmental authority; and provided further that Alaska promptly shall notify Company of any disclosure pursuant to clause (iii) of this Section and cooperate fully with Company if Company attempts to obtain a protective order baring such disclosure.

SECTION 11.13 Tax-Free Nature of Transaction . Each of the parties shall use its best efforts to cause the Merger to constitute a “tax-free reorganization” within the meaning of Section 368 of the Code, and none of the parties shall knowingly take or cause to be taken any action that, or knowingly fail to take or cause not to be taken any action the failure of which, would reasonably be expected to adversely affect the foregoing qualifications under the Code. Except as otherwise required by applicable law, following the Effective Time, each party agrees to file its Tax Returns in a manner that is consistent with this Section 11.13 .

SECTION 11.14 Binding Effect; Assignment . The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. The rights and obligations of this Agreement may not be assigned without the prior written consent of the other party which may be granted or withheld in such parties sole and absolute discretion.

SECTION 11.15 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. A telecopy signature of any party shall be considered to have the same binding legal effect as an original signature.

SECTION 11.16 Entire Agreement . This Agreement (including the exhibits and schedules attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The parties agree that prior drafts of this Agreement shall not be deemed

to provide any evidence as to the meaning of any provision hereof or the intent of the parties with respect thereto. The exhibits and schedules constitute a part hereof as though set forth in full above. This Agreement is not intended to confer upon any person, other than the parties hereto, any rights or remedies hereunder.

IN WITNESS WHEREOF , the corporate parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the date first above-written.

ALASKA FREIGHTWAYS, INC.		HYTHIAM, INC.


By:		By:
	Donald E. Nelson, President		Terren S. Peizer, Chairman & CEO


By:		By:
	Richard L. Strahl, Secretary & Treasurer		Chuck Timpe, Chief Financial Officer


SIGNING ALASKA STOCKHOLDERS:		SIGNING COMPANY STOCKHOLDER:


		RESERVA, LLC
Donald E. Nelson


		By:
Richard L. Strahl				Terren S. Peizer, Managing Member



Brady L. Strahl

SCHEDULE A

Name of Alaska Freightways, Inc. Stockholder	No. of Shares of Common Stock	% of Shares
Richard L. Strahl	2,500,000	70.06
Donald E. Nelson	500,000	14.01
Brady L. Strahl	10,000	0.28
Non-Signing Stockholders	558,033	15.64
Total	3,568,033	100	%

SCHEDULE B

Name of Hythiam, Inc. Stockholder	No. of Shares of Common Stock	% of Shares
Reserva, LLC	13,740,000	100
Total	13,740,000	100	%

Exhibit 2.3

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), is made and entered into this 29th day of September, 2003, by and between Alaska Freightways, Inc., a Nevada corporation (the “ Nevada Entity ”), and Hythiam, Inc., a Delaware corporation (the “ Delaware Entity ”) (each of the Nevada Entity and the Delaware Entity shall be referred to herein as a “Party, ” and collectively as the “ Parties ”).

R E C I T A L S

A. The Nevada Entity is a corporation duly organized and validly existing under the Nevada Revised Statutes (the “ NRS ”).

B. The Delaware Entity is a corporation duly organized and validly existing under the General Corporation Laws of the State of Delaware (the “ DGCL ”).

C. The Delaware Entity was formed by the Nevada Entity for the purpose of reincorporating the Nevada Entity as a Delaware corporation by merging the Nevada Entity with and into the Delaware Entity (the “ Merger ”).

D. As of the date of this Agreement, no shares of stock of the Delaware Entity have been issued.

E. The stockholders (the “ Stockholders ”) holding a majority of the issued and outstanding shares of common stock of the Nevada Entity and the Board of Directors of the Nevada Entity have, by written consent, duly ratified, confirmed approved and adopted the transactions contemplated by the Merger upon the terms and subject to the conditions of this Agreement.

A G R E E M E N T

NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and agreements contained in this Agreement, on the terms and subject to the conditions set forth in this Agreement, the Parties to this Agreement hereby agree as follows:

1. Merger . Effective as of and at the Effective Date (as defined herein), the Nevada Entity shall be merged with and into the Delaware Entity pursuant to the terms and subject to the conditions set forth herein.

2. Filing of Agreement of Merger and Certificates of Approval; Effective Date .

2.1 On the Effective Date of the Merger (as hereinafter defined), the Parties agree to cause the Merger to be consummated by the action of the Delaware Entity filing with the Secretary of State of the State of Delaware (the “ Delaware Secretary of State ”) an original executed Certificate of Merger in accordance with Section 264 of the DGCL.

2.2 On the Closing Date, the Parties shall file such other documents with the Delaware Secretary of State as may be required by the provisions of the DGCL and as are necessary to cause the Merger to become effective. The date on which the Merger shall become effective is the date when said Certificate of Merger is so filed with the Delaware Secretary of State (the “ Effective Date ”).

3. Separate Existence . The separate existence of the Nevada Entity shall cease as of the Effective Date.

4. Surviving Corporation . The Delaware Entity (sometimes referred to herein as the “ Surviving Corporation ”) shall survive the Merger and will continue to carry on its business after the Effective Date as a Delaware corporation under the name, “ Hythiam, Inc. ”

5. Surviving Corporation Certificate of Incorporation and Bylaws .

5.1 The Certificate of Incorporation of the Delaware Entity in effect immediately prior to the Effective Date shall be the Certificate of Incorporation of the Surviving Corporation after the Merger and shall continue in full force and effect without further change or amendment until thereafter amended in accordance with the provisions thereof and applicable law.

5.2 The Bylaws of the Delaware Entity in effect immediately prior to the Effective Date shall constitute the bylaws of the Surviving Corporation without change or amendment until thereafter amended in accordance with the provisions thereof and applicable law.

6. Successor Entity . At the Effective Date, the Delaware Entity shall succeed to and possess all the rights, privileges, powers and franchises of a public or private nature of the Nevada Entity; and all the rights, privileges, powers and franchises of the Nevada Entity, and all property, real, personal and mixed, and all debts due to the Nevada Entity on whatever account, shall be vested in the Delaware Entity; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectively the property of the Delaware Entity as the same were of the Nevada Entity, and the title to any real estate vested by deed or otherwise shall not revert or be in any way impaired by reason of the Merger, but all rights of creditors and liens upon any property of the Nevada Entity shall be preserved unimpaired; provided, however , that such liens upon property of the Nevada Entity will be limited to the property affected thereby immediately prior to the Merger. All corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of the Nevada Entity and its officers and agents which were valid and effective immediately prior to the Effective Date, shall be taken for all purposes as the acts, plans, policies, agreements, arrangements, approval and authorizations of the Delaware Entity and its stockholders, board of directors and committees thereof, and shall be as effective and binding thereon as the same were with respect to the Nevada Entity.

7. Conversion of Shares .

7.1 Conversion of Stock . At the Effective Date, by virtue of the Merger and without any action on the part of the holders of any outstanding shares of capital stock or other securities of the Nevada Entity, each share of Common Stock of the Nevada Entity, par value $0.001 per share (“Nevada Common Stock”), issued and outstanding or held in treasury immediately prior to the Effective Date shall be converted into one (1) fully paid and non-assessable share of Common Stock, par value $0.0001 per share, of the Delaware Entity (“Delaware Common Stock”), except for those shares, if any, of Nevada Common Stock with respect to which the holders thereof duly, properly and timely exercise their dissenters’ rights under Nevada state law. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holders of any outstanding shares of capital stock or other securities of the Nevada Entity, each certificate which, immediately prior to the Effective Date represented a share or shares of Nevada Common Stock shall represent the same number of shares of Delaware Common Stock.

7.2 Extinguished Stock . Upon the Effective Date, each share of Delaware Common Stock, Delaware Preferred Stock or Nevada Preferred Stock issued and outstanding immediately prior to the Merger, if any, shall, by virtue of the Merger and without any action by the holder thereof , the Nevada Entity or the Delaware Entity, cease to be outstanding, and shall be canceled and returned to the status of authorized but unissued shares and any holder of certificates which immediately prior to the Effective Date represented such shares of Delaware Common Stock, Delaware Preferred Stock shall thereafter cease to have any rights with respect to such shares.

7.3 Option Plans and Warrants .

(a) Upon the Effective Date, each outstanding and unexercised warrant, option or other right to purchase Nevada Common Stock, except Nevada Preferred Stock, shall become an option or right to purchase Delaware Common Stock on the basis of one (1) share of Delaware Common Stock for each one (1) shares of Nevada Common Stock issuable pursuant to such option or stock purchase right, on the same terms and conditions and at an exercise price per share equal to the exercise price applicable to any such Nevada option or stock purchase right on the Effective Date. There are no options or stock purchase rights for or securities convertible into Nevada Preferred Stock.

(b) A number of shares of Delaware Common Stock shall be reserved for issuance upon the exercise of options, stock purchase rights and convertible securities equal to the number of shares of Nevada Common Stock so reserved immediately prior to the Effective Date.

8. No Fractional Shares . No fractional shares of the Delaware Entity’s Common Stock will be issued in the Merger.

9. Further Assurances . Each Party to this Agreement hereby covenants and agrees that it will use its respective best efforts to cause the conditions set forth herein to

be satisfied on or before the Effective Date. Each Party to this Agreement shall execute, acknowledge and deliver such agreements, documents, instruments and other writings, and otherwise do all such acts and things, as the other Parties may reasonably require in order to carry out and effectuate the purposes of this Agreement and the transactions contemplated hereby.

10. Modification and Waiver .

No supplement, modification, waiver or termination of this Agreement or any provisions hereof shall be binding unless executed in writing by all Parties hereto.

11. Successors and Assigns .

This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

12. Execution .

The Parties and individuals executing this Agreement represent and warrant that they have the necessary authority to do so. This Agreement will be binding and effective as of the Effective Date.

13. Applicable Law .

This Agreement will be construed, performed and enforced in accordance with the laws of the State of Delaware.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

	ALASKA FREIGHTWAYS, INC. , a Nevada corporation


	By:
		Terren S. Peizer
		Chairman and Chief Executive Officer


	HYTHIAM, INC. , a Delaware corporation


	By:
		Terren S. Peizer
		Chairman and Chief Executive Officer

Exhibit 3.1

CERTIFICATE OF INCORPORATION

HYTHIAM, INC.

FIRST : The name of the Corporation is: HYTHIAM, INC. (hereinafter referred to as the “ Corporation ”).

SECOND : The address of the registered office of the Corporation in the State of Delaware is 615 South DuPont Highway, City of Dover, County of Kent, Delaware 19901. The name of its registered agent at such address is National Corporate Research, Ltd.

THIRD : The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ GCL ”).

FOURTH : 1. The authorized capital stock of the Corporation shall consist of two hundred fifty million (250,000,000) shares, of which two hundred million (200,000,000) shares shall be designated as Common Stock, each with a par value of $0.0001 per share (the “ Common Stock ”), and fifty million (50,000,000) shares shall be designated as Preferred Stock, each with a par value $0.0001 per share (the “ Preferred Stock ”).

2. Shares of Preferred Stock may be issued from time to time in one or more classes or series, each of which class of series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation (the “ Board ”) prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the GCL.

FIFTH : Elections of directors need not be by written ballot unless a duly adopted bylaw of the Corporation shall so provide.

SIXTH : 1. To the fullest extent permitted by the GCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damage for breach of fiduciary duty as a director. If the GCL is amended after the date of the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended from time to time. No amendment or repeal of this Article Sixth shall adversely affect

any right or protection of a director of the Corporation provided hereunder with respect to any act or omission occurring prior to such amendment or repeal.

2. The Corporation shall indemnify to the fullest extent permitted by the GCL as the same exists or may hereafter be amended, any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that such person, or his or her testator or intestate, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or enterprise. Nothing contained herein shall affect any rights to indemnification to which any person may be entitled by law. No amendment or repeal of this Article Sixth shall adversely affect any right to indemnification provided hereunder with respect to any act or omission occurring prior to such amendment or repeal.

3. In furtherance and not in limitation of the powers conferred by statute:

(a) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify against such liability under the provisions of law; and

(b) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere.

SEVENTH : In furtherance and not in limitation of the powers conferred by the GCL, the Board is expressly authorized to make, alter and repeal the bylaws of the corporation, subject to the power of the stockholders of the corporation to alter or repeal any bylaw whether adopted by them or otherwise.

EIGHTH : The name and mailing address of the incorporator of the Corporation is as follows:

Name		Address

Terren S. Peizer		11111 Santa Monica Blvd., Suite 550 Los Angeles, CA 90025

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation this 29 ^th day of September, 2003.


				Terren S. Peizer, Incorporator

Exhibit 3.2

BYLAWS

HYTHIAM, INC.,

A DELAWARE CORPORATION

TABLE OF CONTENTS

ARTICLE I
SECTION 1.1.	Name
SECTION 1.2.	Principal Office; Other Offices
ARTICLE II
SECTION 2.1.	Annual Meeting
SECTION 2.2.	Special Meeting
SECTION 2.3.	Place of Stockholder Meetings
SECTION 2.4.	Notice of Meetings
SECTION 2.5.	Quorum and Adjourned Meetings
SECTION 2.6.	Fixing of Record Date
SECTION 2.7.	Voting List
SECTION 2.8.	Voting
SECTION 2.9.	Proxies
SECTION 2.10.	Ratification of Acts of Directors and Officers
SECTION 2.11.	Informal Action of Stockholders
SECTION 2.12.	Organization
ARTICLE III
SECTION 3.1.	Number and Tenure of Directors
SECTION 3.2.	Election of Directors
SECTION 3.3.	Special Meetings
SECTION 3.4.	Notice of Special Meetings of the Board of Directors
SECTION 3.5.	Quorum
SECTION 3.6.	Voting
SECTION 3.7.	Vacancies
SECTION 3.8.	Removal of Directors
SECTION 3.9.	Informal Action of Directors
SECTION 3.10.	Participation by Conference Telephone
ARTICLE IV
SECTION 4.1.	Written Waiver of Notice
SECTION 4.2.	Attendance as Waiver of Notice
ARTICLE V
SECTION 5.	General Provisions
ARTICLE VI
SECTION 6.1.	General Provisions
SECTION 6.2.	Election and Term of Office
SECTION 6.3.	Removal of Officers
SECTION 6.4.	The Chief Executive Officer
SECTION 6.5.	The President
SECTION 6.6.	The Chairman of the Board
SECTION 6.7.	Vice Chairman of the Board
SECTION 6.8.	The Vice President
SECTION 6.9.	The Secretary
SECTION 6.10.	The Assistant Secretary
SECTION 6.11.	The Treasurer

SECTION 6.12.	The Assistant Treasurer
SECTION 6.13.	Duties of Officers May be Delegated
SECTION 6.14.	Compensation
ARTICLE VII
SECTION 7.1.	Certificates of Shares
SECTION 7.2.	Signatures of Former Officer, Transfer Agent or Registrar
SECTION 7.3.	Transfer of Shares
SECTION 7.4.	Lost, Destroyed or Stolen Certificates
ARTICLE VIII
SECTION 8.	Dividends
ARTICLE IX
SECTION 9.1.	Contracts
SECTION 9.2.	Loans
SECTION 9.3.	Checks, Drafts, Etc
SECTION 9.4.	Deposits
ARTICLE X
ARTICLE XI
SECTION 11.	Amendments
SECRETARY’S CERTIFICATE OF ADOPTION OF BYLAWS

BYLAWS

HYTHIAM, INC.,
a Delaware Corporation

ARTICLE I

IDENTIFICATION; OFFICES

SECTION 1.1 . Name . The name of the corporation is Hythiam, Inc. , a Delaware corporation (the “ Corporation ”).

SECTION 1.2 . Principal Office; Other Offices . The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of Delaware. The Corporation may have such other offices, either within or outside of the State of Delaware, as the business of the Corporation may require from time to time.

ARTICLE II

STOCKHOLDERS

SECTION 2.1 . Annual Meeting . An annual meeting of the stockholders shall be held each year on a date and at a time designated by the Board of Directors. At each annual meeting, the stockholders shall elect directors to hold office for the term provided in Section 3.1 of these Bylaws.

SECTION 2.2 . Special Meeting . A special meeting of the stockholders may be called by the President of the Corporation, the Board of Directors, or by such other officers or persons as the Board of Directors may designate.

SECTION 2.3 . Place of Stockholder Meetings . The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting. If no such place is designated by the Board of Directors, the place of meeting will be the principal business office of the Corporation.

SECTION 2.4 . Notice of Meetings . Unless waived as provided herein or under the General Corporation Laws of the State of Delaware, whenever stockholders are required or permitted to take any action at a meeting, written notice of the meeting shall be given stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such written notice shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at the meeting or in the event of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of all or substantially all of the Corporation’s property, business or assets not less than twenty (20) days before the date of the meeting. If mailed, notice

is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder’s address as it appears on the records of the Corporation.

When a meeting is adjourned to another time or place in accordance with Section 2.5 of these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting in which the adjournment is taken. At the adjourned meeting the Corporation may conduct any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

SECTION 2.5 . Quorum and Adjourned Meetings . Unless otherwise provided by law or the Corporation’s Certificate of Incorporation, a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the shares entitled to vote at a meeting of stockholders is present in person or represented by proxy at such meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. The stockholders present at a meeting may continue to transact business until adjournment, notwithstanding the withdrawal of such number of stockholders as may leave less than a quorum.

SECTION 2.6 . Fixing of Record Date .

(a) For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b) For the purpose of determining stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is established by the Board of Directors, and which date shall not be more than ten (10) days after the date on which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal office, or an officer or agent of the

Corporation having custody of the book in which the proceedings of meetings of stockholders are recorded. Delivery to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders’ consent to corporate action in writing without a meeting shall be the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(c) For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect to any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining the stockholders for any such purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 2.7 . Voting List . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 2.8 . Voting . Unless otherwise provided by the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by each stockholder. In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by plurality of the votes of the shares present in person or represented by a proxy at the meeting entitled to vote on the election of directors.

SECTION 2.9 . Proxies . Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may remain irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

SECTION 2.10 . Ratification of Acts of Directors and Officers . Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, any

transaction or contract or act of the Corporation or of the directors or the officers of the Corporation may be ratified by the affirmative vote of the holders of the number of shares which would have been necessary to approve such transaction, contract or act at a meeting of stockholders, or by the written consent of stockholders in lieu of a meeting.

SECTION 2.11 . Informal Action of Stockholders . Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate with any governmental body, if such action had been voted on by stockholders at a meeting thereof, the certificate filed shall state, in lieu of any statement required by law concerning any vote of stockholders, that written consent had been given in accordance with the provisions of Section 228 of the Delaware General Corporation Law, and that written notice has been given as provided in such section.

SECTION 2.12 . Organization . Such person as the Board of Directors may designate or, in the absence of such a designation, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of such meeting. In the absence of the Secretary of the Corporation, the chairman of the meeting shall appoint a person to serve as Secretary at the meeting.

ARTICLE III

DIRECTORS

SECTION 3.1 . Number and Tenure of Directors . The number of directors constituting the entire Board shall be such number to be determined from time to time by the resolution of the Board. This Section 3.1 may be changed by a duly adopted amendment to the Certificate of Incorporation or by a Bylaw amending this Section 3.1.

SECTION 3.2 . Election of Directors . Directors shall be elected at the annual meeting of stockholders. In all elections for directors, every stockholder shall have the right to vote the number of shares owned by such stockholder for each director to be elected.

SECTION 3.3 . Special Meetings . Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or at least one-third of the number of directors constituting the entire Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them.

SECTION 3.4 . Notice of Special Meetings of the Board of Directors . Notice of any special meeting of the Board of Directors shall be given at least one (1) day previous thereto by written notice to each director at his or her address. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail so addressed, with first-class postage thereon prepaid. If sent by any other means (including facsimile, courier, or express mail, etc.), such notice shall be deemed to be delivered when actually delivered to the home or business address of the director.

SECTION 3.5 . Quorum . A majority of the total number of directors fixed by these Bylaws, or in the absence of a Bylaw which fixes the number of directors, the number stated in the Certificate of Incorporation or named by the incorporators, shall constitute a quorum for the transaction of business. If less than a majority of the directors are present at a meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time without further notice.

SECTION 3.6 . Voting . The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the Delaware General Corporation Law or the Certificate of Incorporation requires a vote of a greater number.

SECTION 3.7 . Vacancies . Vacancies in the Board of Directors may be filled by a majority vote of the Board of Directors or by an election either at an annual meeting or at a special meeting of the stockholders called for that purpose. Any directors elected by the stockholders to fill a vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed by the Board of Directors to fill a vacancy shall serve until the next meeting of stockholders at which directors are elected.

SECTION 3.8 . Removal of Directors . A director, or the entire Board of Directors, may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

SECTION 3.9 . Informal Action of Directors . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

SECTION 3.10 . Participation by Conference Telephone . Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of the Board of Directors, or committee thereof, by means of conference telephone or similar communications equipment as long as all persons participating in the meeting can speak with and hear each other, and participation by a director pursuant to this Section 3.10 shall constitute presence in person at such meeting.

ARTICLE IV

WAIVER OF NOTICE

SECTION 4.1 . Written Waiver of Notice . A written waiver of any required notice, signed by the person entitled to notice, whether before or after the date stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

SECTION 4.2 . Attendance as Waiver of Notice . Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, and objects at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE V

COMMITTEES

SECTION 5 . General Provisions . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member at any meeting of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger, pursuant to Section 253 of the Delaware General Corporation Law.

ARTICLE VI

OFFICERS

SECTION 6.1 . General Provisions . The Board of Directors shall elect a Chief Executive Officer, a Treasurer and a Secretary of the Corporation. The Board of Directors may also elect a Chairman of the Board, one or more Vice Chairmen of the Board, a Chief Operating Officer, one or more Vice Presidents, a Chief Financial Officer, one or more Assistant

Secretaries and Assistant Treasurers and such additional officers as the Board of Directors may deem necessary or appropriate from time to time. Any two or more offices may be held by the same person. The officers elected by the Board of Directors shall have such duties as are hereafter described and such additional duties as the Board of Directors may from time to time prescribe. The Board of Directors may also delegate to the Chief Executive Officer the authority to appoint one or more Vice Presidents with such duties as the Board of Directors or Chief Executive Officer may from time to time prescribe.

SECTION 6.2 . Election and Term of Office . The officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as may be convenient. New offices of the Corporation may be created and filled and vacancies in offices may be filled at any time, at a meeting or by the written consent of the Board of Directors. Unless removed pursuant to Section 6.3 of these Bylaws, each officer shall hold office until his successor has been duly elected and qualified, or until his earlier death or resignation. Election or appointment of an officer or agent shall not of itself create contract rights.

SECTION 6.3 . Removal of Officers . Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person(s) so removed.

SECTION 6.4 . The Chief Executive Officer . The Board of Directors shall designate whether the Chairman of the Board, if one shall have been chosen, or the President shall be the Chief Executive Officer of the Corporation. If a Chairman of the Board has not been chosen, or if one has been chosen but not designated Chief Executive Officer, then the President shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation, unless otherwise provided by the Board of Directors. The Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation. The Chief Executive Officer shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Corporation and his decision as to any matter affecting the Corporation shall be final and binding as between the officers of the Corporation subject only to the Board of Directors.

SECTION 6.5 . The President . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has not been designated Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times the President shall have the active management of the business of the Corporation under the general supervision of the Chief Executive Officer.

The President shall have concurrent power with the Chief Executive Officer to sign bonds, mortgages, certificates for shares and other contracts and documents, whether or not under the seal of the Corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors, or by these Bylaws to some other officer or agent of the Corporation. In general, the President shall perform all duties incident to the office of president and such other duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

SECTION 6.6 . The Chairman of the Board . The Chairman of the Board, if one is chosen, shall be chosen from among the members of the Board of Directors. If the Chairman of the Board has not been designated Chief Executive Officer, the Chairman of the Board shall perform such duties as may be assigned to the Chairman of the Board by the Chief Executive Officer or by the Board of Directors.

SECTION 6.7 . Vice Chairman of the Board . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has been designated Chief Executive Officer, the Vice Chairman, or if there be more than one, the Vice Chairmen, in the order determined by the Board of Directors, shall perform the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times, the Vice Chairman or Vice Chairmen shall perform such duties and have such powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

SECTION 6.8 . The Vice President . In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Executive Vice President and the other Vice President or Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

SECTION 6.9 . The Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.

SECTION 6.10 . The Assistant Secretary . The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if

there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

SECTION 6.11 . The Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.

SECTION 6.12 . The Assistant Treasurer . The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

SECTION 6.13. Duties of Officers May be Delegated . In the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate the powers or duties, or any portion of such powers or duties, of any officers or officer to any other officer or to any director.

SECTION 6.14 . Compensation . The Board of Directors shall have the authority to establish reasonable compensation of all officers for services rendered to the Corporation.

ARTICLE VII

CERTIFICATES FOR SHARES

SECTION 7.1 . Certificates of Shares . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertified shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertified shares shall be entitled to have a certificate signed by, or in

the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, Chief Executive Officer, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile.

SECTION 7.2 . Signatures of Former Officer, Transfer Agent or Registrar . In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue.

SECTION 7.3 . Transfer of Shares . Transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of certificate for such shares. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat a registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all of the rights and powers of an owner of shares.

SECTION 7.4 . Lost, Destroyed or Stolen Certificates . Whenever a certificate representing shares of the Corporation has been lost, destroyed or stolen, the holder thereof may file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place, and circumstance of such loss, destruction or theft together with a statement of indemnity sufficient in the opinion of the Board of Directors to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. Thereupon the Board may cause to be issued to such person or such person’s legal representative a new certificate or a duplicate of the certificate alleged to have been lost, destroyed or stolen. In the exercise of its discretion, the Board of Directors may waive the indemnification requirements provided herein.

ARTICLE VIII

DIVIDENDS

SECTION 8 . Dividends . The Board of Directors of the Corporation may declare and pay dividends upon the shares of the Corporation’s capital stock in any form determined by the Board of Directors, in the manner and upon the terms and conditions provided by law.

ARTICLE IX

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 9.1 . Contracts . The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

SECTION 9.2 . Loans . No loans shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 9.3 . Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

SECTION 9.4 . Deposits . The funds of the Corporation may be deposited or invested in such bank account, in such investments or with such other depositories as determined by the Board of Directors.

ARTICLE X

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS

SECTION 10.1. Indemnification of Directors . The Corporation shall, to the maximum extent and in the manner permitted by Section 145 of the Delaware General Corporation Law (the “Delaware Law”), indemnify each of its directors against expenses judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the Delaware Law), arising by reason of the fact that such person is or was a director of the Corporation. For purposes of this Article X, a “director” of the Corporation includes any person (i) who is or was a director of the Corporation, (ii) who is or was serving at the request of the Corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

SECTION 10.1. Indemnification of Others . The Corporation shall have the power, to the extent and in the manner permitted by the Delaware Law, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 145 of the Delaware Law), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the Delaware Law), arising by reason of the fact that such person is or was an employee, officer or agent of the Corporation. For purposes of this Article X, an “employee” or “officer” or “agent” of the Corporation (other than a director) includes any person (i) who is or was an employee, officer, or agent of the Corporation, (ii) who is or was serving at the request of the Corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

SECTION 10.2. Indemnity Not Exclusive . The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or directors

or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnify hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person.

SECTION 10.3. Insurance Indemnification . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person’s status as such, whether or not the Corporation would have the power to indemnify that person against such liability under the provisions of this Article X.

ARTICLE XI

AMENDMENTS

SECTION 11 . Amendments . These Bylaws may be adopted, amended or repealed by either the Board of Directors or the Corporation’s stockholders.

SECRETARY’S CERTIFICATE OF ADOPTION OF BYLAWS

HYTHIAM, INC. ,

a Delaware corporation

I, the undersigned, do hereby certify:

1. That I am the duly elected and acting Secretary of Hythiam, Inc. , a Delaware corporation.

2. That the foregoing Bylaws constitute the Bylaws of said corporation as adopted by Written Consent of the Sole Incorporator dated of even date herewith and Unanimous Written Consent of the Board of Directors dated of even date herewith.

IN WITNESS WHEREOF, I have hereunto subscribed my name as of this 29th day of September, 2003.


	Chuck Timpe
	Secretary

Exhibit 99.1

HYTHIAM, INC.

2003 STOCK INCENTIVE PLAN

SECTION 1: GENERAL PURPOSE OF PLAN

The name of this plan is the Hythiam, Inc. 2003 Stock Incentive Plan (the “ Plan ”). The purpose of the Plan is to enable Alaska Freightways, Inc., a Nevada corporation, to be reincorporated in Delaware under the new name of Hythiam, Inc. (the “ Company ”), and any Parent or any Subsidiary to obtain and retain the services of the types of Employees, Consultants, officers and Directors who will contribute to the Company’s long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all shareholders of the Company.

SECTION 2: DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set forth below:

2.1 “ Administrator ” shall have the meaning as set forth in Section 3 hereof.

2.2 “ attestation exercise ” shall have the meaning as set forth in Section 8.1 hereof.

2.3 “ Board ” means the Board of Directors of the Company.

2.4 “ cashless exercise ” shall have the meaning as set forth in Section 8.1 hereof.

2.5 “ Cause ” means (i) failure by an Eligible Person to substantially perform his or her duties and obligations to the Company (other than any such failure resulting from his or her incapacity due to physical or mental illness); (ii) engaging in sexual harassment, discrimination, misconduct or a fiduciary breach which is or potentially is materially injurious to the Company or its shareholders; (iii) commission of a felony; (iv) the commission of a crime against the Company which is or potentially is materially injurious to the Company; or (v) as otherwise provided in the Stock Option Agreement. For purposes of this Plan, the existence of Cause shall be determined by the Administrator in its sole discretion.

2.6 “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

2.7 “ Committee ” means a committee of the Board designated by the Board to administer the Plan.

2.8 “ Company ” means Alaska Freightways, Inc., a corporation organized under the laws of the State of Nevada (to be reincorporated in Delaware under the new name of “Hythiam, Inc.”) (or any successor corporation).

2.9 “ Consultant ” means an individual who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

2.10 “ Date of Grant ” means the date on which the Administrator adopts a resolution expressly granting a Right to a Participant or, if a different date is set forth in such resolution as the Date of Grant, then such date as is set forth in such resolution.

2.11 “ Director ” means a member of the Board.

2.12 “ Disability ” means that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. For purposes of determining the term of an ISO pursuant to Section 6.6 hereof, the Disability must be expected to result in death or to have lasted or be expected to last for a continuous period of not less than 12 months. The determination of whether an individual has a Disability shall be determined under procedures established by the Plan Administrator.

2.13 “ Eligible Person ” means an Employee, officer, Consultant or Director of the Company, any Parent or any Subsidiary.

2.14 “ Employee ” means any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

2.15 “ Exercise Price ” shall have the meaning set forth in Section 6.3 hereof.

2.16 “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

2.17 “ Fair Market Value ” shall mean the fair market value of a share of Stock, determined as follows:

2.17.1 If the Stock is listed on any established stock exchange or a national market system, including without limitation the NASDAQ National Market, the Fair Market Value of a share of Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable;

2.17.2 If the Stock is quoted on the NASDAQ SmallCap or OTC Bulletin Board or is regularly quoted by a recognized securities dealer but closing sale prices are not reported, the Fair Market Value of a share of Stock shall be the mean between the bid and asked prices for the Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable;

2.17.3 In the absence of an established market for the Stock, the Fair Market Value shall be determined in good faith by the Administrator. Such determination shall be conclusive and binding on all persons.

2.18 “ First Refusal Right ” shall have the meaning set forth in Section 8.7 hereof.

2.19 “ immediate family ” shall have the meaning as set forth in Section 8.10.1 hereof.

2.20 “ ISO ” means a Stock Option intended to qualify as an “incentive stock option” as that term is defined in Section 422(b) of the Code.

2.21 “ Market Stand-Off ” shall have the meaning as set forth in Section 9.4 hereof.

2.22 “ Non-Employee Director ” means a member of the Board who is not an Employee of the Company, a Parent or Subsidiary, who satisfies the requirements of such term as defined in Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission.

2.23 “ Non-Qualified Stock Option ” means a Stock Option not described in Section 422(b) of the Code.

2.24 “ Offeree ” means a Participant who is granted a Purchase Right pursuant to the Plan.

2.25 “ Optionee ” means a Participant who is granted a Stock Option pursuant to the Plan.

2.26 “ Outside Director ” means a member of the Board who is not an Employee of the Company, a Parent or Subsidiary, who satisfies the requirements of such term as defined in Treas. Regs. Section 1.162-27(e)(3).

2.27 “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

2.28 “ Participant ” means any Eligible Person selected by the Administrator, pursuant to the Administrator’s authority in Section 3 , to receive grants of Stock Options.

2.29 “ Permitted Transferee ” shall have the meaning set forth in Section 8.10.1 hereof.

2.30 “ Plan ” means this Alaska Freightways, Inc. 2003 Stock Incentive Plan, as the same may be amended or supplemented from time to time.

2.31 “ Repurchase Right ” shall have the meaning set forth in Section 8.8 hereof.

2.32 “ Securities Act ” means the Securities Act of 1933, as amended.

2.33 “ Service ” shall mean service provided by any person as an Employee, Director or Consultant.

2.34 “ Stock ” means common stock, without par value, of the Company.

2.35 “ Stock-for-Stock exercise ” shall have the meaning as set forth in Section 8.1 hereof.

2.36 “ Stock Option ” means an option to purchase shares of Stock granted pursuant to Section 6 .

2.37 “ Stock Option Agreement ” means the agreement between the Company and the Optionee evidencing the grant of a Stock Option under the Plan.

2.38 “ Stock withholding ” shall have the meaning as set forth in Section 8.2 hereof.

2.39 “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

2.40 “ Ten Percent Shareholder ” means a person who on the Date of Grant owns, either directly or through attribution as provided in Section 424 of the Code, Stock constituting more than 10% of the total combined voting power of all classes of stock of his or her employer corporation or of any Parent or Subsidiary.

SECTION 3: ADMINISTRATION

3.1 Administrator . The Plan shall be administered by either (i) the Board or (ii) the Committee (the group that administers the Plan is referred to as the “ Administrator ”).

3.2 Powers in General . The Administrator shall have the power and authority to grant Stock Options to Eligible Persons, pursuant to the terms of the Plan.

3.3 Specific Powers . In particular, the Administrator shall have the authority: (i) to construe and interpret the Plan and apply its provisions; (ii) to promulgate, amend and rescind rules and regulations relating to the administration of the Plan; (iii) to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; (iv) to determine when Stock Options are to be granted under the Plan; (v) from time to time to select, subject to the limitations set forth in this Plan, those Eligible Persons to whom Stock Options shall be granted; (vi) to determine the number of shares of Stock to be made subject to each Stock Option; (vii) to determine whether each Stock Option is to be an ISO or a Non-Qualified Stock Option; (viii) to prescribe the terms and conditions of each Stock Option, including, without limitation, the Purchase Price and medium of payment, vesting provisions and repurchase provisions, and to specify the provisions of the Stock Option Agreement relating to such grant or sale; (ix) to amend any outstanding Stock Options for the purpose of modifying the time or manner of vesting, the Purchase Price or Exercise Price, as the case may be, subject to applicable legal restrictions and to the consent of the other party to such agreement; (x) to determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment for purposes of the Plan; (xi) to make decisions with respect to outstanding Stock Options that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments; and (xii) to make any and all other determinations which it determines to be necessary or advisable for administration of the Plan.

3.4 Decisions Final . All decisions made by the Administrator pursuant to the provisions of the Plan shall be final and binding on the Company and the Participants.

3.5 The Committee . The Board may, in its sole and absolute discretion, from time to time, and at any period of time during which the Stock is registered pursuant to Section 12 of the Exchange Act shall, delegate any or all of its duties and authority with respect to the Plan to the Committee, whose members are to be appointed by and to serve at the pleasure of the Board. From time to time, the Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members, whether present or not, or by the written consent of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous written consent of its members, and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable. During any period of time during which the Stock is registered pursuant to Section 12 of the Exchange Act, all members of the Committee shall be Non-Employee Directors and Outside Directors.

3.6 Indemnification . In addition to such other rights of indemnification as they may have as Directors or members of the Committee, and to the extent allowed by applicable law, the Administrator shall be indemnified by the Company against the reasonable expenses, including attorney’s fees, actually incurred in connection with any action, suit or proceeding or in connection with any appeal therein, to which the Administrator may be party by reason of any action taken or failure to act under or in connection with the Plan or any Stock Option granted under the Plan, and against all amounts paid by the Administrator in settlement thereof (provided that the settlement has been approved by the Company, which approval shall not be unreasonably withheld) or paid by the Administrator in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Administrator did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the Company, and in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful; provided , however , that within 60 days after institution of any such action, suit or proceeding, such Administrator shall, in writing, offer the Company the opportunity at its own expense to handle and defend such action, suit or proceeding.

SECTION 4: STOCK SUBJECT TO THE PLAN

4.1 Stock Subject to the Plan . Subject to adjustment as provided in Section 9 , shares of Stock shall be reserved and available for issuance under the Plan. Stock reserved hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares.

4.2 Basic Limitation . The maximum number of shares of Stock with respect to which Stock Options, awards or sales of Stock may be granted under the Plan to any Participant in any one calendar year shall be 1,000,000 shares. The number of shares of Stock that are subject to Stock Options under the Plan shall not exceed the number of shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available a sufficient number of shares of Stock to satisfy the requirements of the Plan.

4.3 Additional Shares . In the event that any outstanding Stock Option or other right for any reason expires or is canceled or otherwise terminated, the shares of Stock allocable to the unexercised portion of such Stock Option or other right shall again be available for the purposes of the Plan. In the event that shares of Stock issued under the Plan are reacquired by the Company pursuant to the terms of any forfeiture provision, right of repurchase or right of first refusal, such shares of Stock shall again be available for the purposes of the Plan.

SECTION 5: ELIGIBILITY

Eligible Persons who are selected by the Administrator shall be eligible to be granted Stock Options hereunder, subject to limitations set forth in this Plan; provided , however , that only Employees shall be eligible to be granted ISOs hereunder.

SECTION 6: TERMS AND CONDITIONS OF OPTIONS.

6.1 Stock Option Agreement . Each grant of a Stock Option under the Plan shall be evidenced by a Stock Option Agreement, a form of which is attached hereto as Exhibit A . Such Stock Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Administrator deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

6.2 Number of shares . Each Stock Option Agreement shall specify the number of shares of Stock that are subject to the Stock Option and shall provide for the adjustment of such number in accordance with Section 9 hereof. The Stock Option Agreement shall also specify whether the Stock Option is an ISO or a Non-Qualified Stock Option.

6.3 Exercise Price .

6.3.1 In General . Each Stock Option Agreement shall state the price at which shares of Stock subject to the Stock Option may be purchased (the “ Exercise Price ”), which shall be, with respect to Incentive Stock Options, not less than 100% of the Fair Market Value of the Stock on the Date of Grant. In the case of Non-Qualified Stock Options, the Exercise Price shall be determined in the sole discretion of the Administrator; provided , however , that the Exercise Price shall be no less than 85% of the Fair Market Value of the shares of Stock on the Date of Grant of the Non-Qualified Stock Option.

6.3.2 Ten Percent Shareholder . A Ten Percent Shareholder shall not be eligible for designation as an Optionee or Purchaser, unless (i) the Exercise Price of a Non-Qualified

Stock Option is at least 110% of the Fair Market Value of a share of Stock on the Date of Grant, or (ii) in the case of an ISO, the Exercise Price is at least 110% of the Fair Market Value of a share of Stock on the Date of Grant and such ISO by its terms is not exercisable after the expiration of five years from the Date of Grant.

6.3.3 Non-Applicability . The Exercise Price restriction applicable to Non-Qualified Stock Options required by Sections 6.3.1 and 6.3.2(i) shall be inoperative if (i) the offer and sale of the shares of Stock to be issued upon payment of the Exercise Price have been registered under a then currently effective registration statement under applicable federal or state securities laws, or (ii) a determination is made by counsel for the Company that such Exercise Price restrictions are not required in the circumstances under applicable federal or state securities laws.

The Exercise Price shall be payable in a form described in Section 8 hereof.

6.4 Withholding Taxes . As a condition to the exercise of a Stock Option, the Optionee shall make such arrangements as the Board may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise or with the disposition of shares acquired by exercising a Stock Option.

6.5 Exercisability . Each Stock Option Agreement shall specify the date when all or any installment of the Stock Option becomes exercisable. In the case of an Optionee who is not an officer of the Company, a Director or a Consultant, a Stock Option shall become exercisable at least as rapidly as 20% per year over the five-year period commencing on the Date of Grant. Subject to the preceding sentence, the exercise provisions of any Stock Option Agreement shall be determined by the Board, in its sole discretion.

6.6 Term. The Stock Option Agreement shall specify the term of the Stock Option. No Stock Option shall be exercised after the expiration of ten years after the date the Stock Option is granted. In addition, no Stock Option may be exercised (i) three months after the date the Optionee’s Service with the Company, its Parent or its Subsidiaries terminates if such termination is for any reason other than death, Disability or Cause, or (ii) one year after the date the Optionee’s Service with the Company and its subsidiaries terminates, if such termination is a result of death or Disability. Notwithstanding the foregoing, if the Optionee’s Service with the Company and its Subsidiaries terminates for Cause, all outstanding Stock Options granted to such Optionee shall expire as of the commencement of business on the date of such termination. Provided , however , that the Stock Option Agreement for any Stock Option may provide for longer or shorter periods, and the Administrator may, in its sole discretion, waive the accelerated expiration provided for above in (i) or (ii). Subject to Section 9.1.3 hereof, outstanding Stock Options that are not exercisable at the time of termination of employment for any reason shall expire at the close of business on the date of such termination. In the case of an ISO granted to an Employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Parent or Subsidiary corporations, the term set forth in (i), above, shall not be more than five years after the date the Stock Option is granted.

6.7 Leaves of Absence . For purposes of Section 6.6 above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by

the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Administrator).

6.8 Modification, Extension and Assumption of Stock Options . Within the limitations of the Plan, the Administrator may modify, extend or assume outstanding Stock Options or may accept the cancellation of outstanding Stock Options (whether granted by the Company or another issuer) in return for the grant of new Stock Options for the same or a different number of shares of Stock and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of a Stock Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Stock Option. However, a termination of the Stock Option in which the Optionee receives a cash payment equal to the difference between the Fair Market Value and the Exercise Price for all shares subject to exercise under any outstanding Stock Option shall not be deemed to impair any rights of the Optionee or increase the Optionee’s obligations under such Stock Option.

SECTION 7: INTENTIONALLY OMITTED

SECTION 8: PAYMENT; RESTRICTIONS

8.1 General Rule . The entire Purchase Price or Exercise Price of shares of Stock issued under the Plan shall be payable in full by, as applicable, cash or check for an amount equal to the aggregate Purchase Price or Exercise Price for the number of shares being purchased, or in the discretion of the Administrator, upon such terms as the Administrator shall approve, including, but not limited to, the following: (i) by a copy of instructions to a broker directing such broker to sell the Stock for which a Stock Option is exercised, and to remit to the Company the aggregate Exercise Price of such Stock Options (a “ cashless exercise ”), (ii) by paying all or a portion of the Exercise Price or Purchase Price for the number of shares being purchased by tendering Stock owned by the Optionee, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the aggregate Purchase Price of the Stock with respect to which a Stock Option or portion thereof is thereby exercised or Stock acquired (a “ Stock-for-Stock exercise ”) or (iii) by a Stock-for-Stock exercise by means of attestation whereby the Optionee identifies for delivery specific shares of Stock already owned by Optionee and receives a number of shares of Stock equal to the difference between the Stock Option shares thereby exercised and the identified attestation shares of Stock (an “ attestation exercise ”).

8.2 Withholding Payment . The Purchase Price or Exercise Price shall include payment of the amount of all federal, state, local or other income, excise or employment taxes subject to withholding (if any) by the Company or any parent or subsidiary corporation as a result of the exercise of a Stock Option. The Optionee may pay all or a portion of the tax withholding by cash or check payable to the Company, or, at the discretion of the Administrator, upon such terms as the Administrator shall approve, by (i) cashless exercise or attestation exercise; (ii) Stock-for-Stock exercise; (iii) in the case of a Stock Option, by paying all or a portion of the tax withholding for the number of shares of Stock being purchased by withholding shares from any transfer or payment to the Optionee (“ Stock withholding ”); or (iv) a combination of one or more of the foregoing payment methods. Any shares of Stock issued

pursuant to the exercise of a Stock Option and transferred by the Optionee to the Company for the purpose of satisfying any withholding obligation shall not again be available for purposes of the Plan. The Fair Market Value of the number of shares subject to Stock withholding shall not exceed an amount equal to the applicable minimum required tax withholding rates.

8.3 Services Rendered . At the discretion of the Administrator, shares of Stock may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award. At the discretion of the Administrator, shares of Stock may also be awarded under the Plan in consideration of services to be rendered to the Company, a Parent or a Subsidiary after the award, except that the par value of such shares, if newly issued, shall be paid in cash or cash equivalents.

8.4 Promissory Note . To the extent that a Stock Option Agreement so provides, in the discretion of the Administrator, upon such terms as the Administrator shall approve, all or a portion of the Exercise Price of shares of Stock issued under the Plan may be paid with a full-recourse promissory note. However, the par value of the shares, if newly issued, shall be paid in cash or cash equivalents. The shares of Stock shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Administrator (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note. Unless the Administrator determines otherwise, shares of Stock having a Fair Market Value at least equal to the principal amount of the loan shall be pledged by the holder to the Company as security for payment of the unpaid balance of the loan and such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the Administrator, in its discretion; provided , however , that each loan shall comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction.

8.5 Exercise/Pledge . To the extent that a Stock Option Agreement so allows and if the Stock is publicly traded, in the discretion of the Administrator and upon such terms as the Administrator shall approve, payment may be made all or in part by the delivery (on a form prescribed by the Administrator) of an irrevocable direction to pledge shares of Stock to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

8.6 Written Notice . The Purchaser shall deliver a written notice to the Administrator requesting that the Company direct the transfer agent to issue to the Purchaser (or to his designee) a certificate for the number of shares of Stock being exercised or purchased or, in the case of a cashless exercise or Share withholding exercise, for any Shares that were not sold in the cashless exercise or withheld.

8.7 First Refusal Right . Each Stock Option Agreement may provide that the Company shall have the right of first refusal (the “ First Refusal Right ”), exercisable in connection with any proposed sale, hypothecation or other disposition of the Stock purchased by

the Optionee pursuant to a Stock Option Agreement; and in the event the holder of such Stock desires to accept a bona fide third-party offer for any or all of such Stock, the Stock shall first be offered to the Company upon the same terms and conditions as are set forth in the bona fide offer.

8.8 Repurchase Rights . Following a termination of the Participant’s Service the Company may repurchase the Participant’s Stock Options as provided in this Section 8.8 .

8.8.1 Repurchase Price . Following a termination of the Participant’s Service, the Repurchase Right shall be exercisable at a price equal to the Fair Market Value of the Stock underlying such unexercised Stock Options less the Exercise Price.

8.8.2 Exercise of Repurchase Right . A Repurchase Right may be exercised only within 90 days after the termination of the Participant’s Service for cash.

8.9 Termination of Repurchase and First Refusal Rights . Each Stock Option Agreement shall provide that the Repurchase Rights and First Refusal Rights shall have no effect over, or shall lapse and cease to have effect over, shares of Stock that have been registered under a then currently effective registration statement under applicable federal or state securities laws, or when a determination is made by counsel for the Company that such Repurchase Rights and First Refusal Rights are not required in the circumstances under applicable federal or state securities laws.

8.10 No Transferability . Except as provided herein, a Participant may not assign, sell or transfer Stock Options, in whole or in part, other than by will or by operation of the laws of descent and distribution.

8.10.1 Permitted Transfer of Non-Qualified Option . The Administrator, in its sole discretion, may permit the transfer of a Non-Qualified Option (but not an ISO) as follows: (i) by gift to a member of the Participant’s immediate family or (ii) by transfer by instrument to a trust providing that the Stock Option is to be passed to beneficiaries upon death of the trustor (either or both (i) or (ii) referred to as a “ Permitted Transferee ”). For purposes of this Section 8.10.1 , “ immediate family ” shall mean the Optionee’s spouse (including a former spouse subject to terms of a domestic relations order); child, stepchild, grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall include adoptive relationships.

8.10.2 Conditions of Permitted Transfer . A transfer permitted under Section 8.10.1 hereof may be made only upon written notice to and approval thereof by Administrator. A Permitted Transferee may not further assign, sell or transfer the transferred Stock Option, in whole or in part, other than by will or by operation of the laws of descent and distribution. A Permitted Transferee shall agree in writing to be bound by the provisions of this Plan.

SECTION 9: ADJUSTMENTS; MARKET STAND-OFF

9.1 Effect of Certain Changes .

9.1.1 Stock Dividends, Splits, Etc . If there is any change in the number of outstanding shares of Stock by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, then (i) the number of shares of Stock available for Stock Options, (ii) the number of shares of Stock covered by outstanding Stock Options and (iii) the Exercise Price or Purchase Price of any Stock Option, in effect prior to such change, shall be proportionately adjusted by the Administrator to reflect any increase or decrease in the number of issued shares of Stock; provided , however , that any fractional shares resulting from the adjustment shall be eliminated.

9.1.2 Liquidation, Dissolution, Merger or Consolidation . In the event of: a dissolution or liquidation of the Company, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale of substantially all of the assets of the Company; a merger or consolidation in which the Company is not the surviving corporation; or a reverse merger in which the Company is the surviving corporation, but the shares of Company stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then, the Company, to the extent permitted by applicable law but otherwise in its sole discretion, may provide for: (i) the continuation of outstanding Stock Options by the Company (if the Company is the surviving corporation); (ii) the assumption of the Plan and such outstanding Stock Options by the surviving corporation or its Parent; (iii) the substitution by the surviving corporation or its Parent of Stock Options with substantially the same terms for such outstanding Stock Options; or (iv) the cancellation of such outstanding Stock Options without payment of any consideration, provided that if such Stock Options would be canceled in accordance with the foregoing, the Participant shall have the right, exercisable during the later of the ten-day period ending on the fifth day prior to such merger or consolidation or the ten-day period after the Administrator provides the Stock Options holder a notice of cancellation, to exercise such Stock Options in whole or in part without regard to any installment exercise provisions in the applicable Stock Option Agreement.

9.1.3 Accelerated Vesting and Exercisability . If the applicable Stock Option Agreement expressly so provides, any right to repurchase a Purchaser’s shares at the original Purchase Price (if any) upon termination of the Purchaser’s Service shall lapse and all of such Stock Options shall become exercisable in full if (i) a Change in Control occurs before the Purchaser’s Service terminates, and (ii) the Stock Options are not assumed by, or Repurchase Rights are not assigned to, either the entity that employs the Participant immediately after the Change in Control or its Parent or Subsidiary.

9.2 Decision of Administrator Final . To the extent that the foregoing adjustments relate to Stock or other securities of the Company, such adjustments shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive; provided , however , that each ISO granted pursuant to the Plan shall not be adjusted in a manner that causes such Stock Option to fail to continue to qualify as an ISO without the prior consent of the Optionee thereof.

9.3 No Other Rights . Except as hereinbefore expressly provided in this Section 9 , no Participant shall have any rights by reason of any subdivision or consolidation of shares of Company capital stock or the payment of any dividend or any other increase or decrease in the number of shares of Company stock of any class or by reason of any of the events described in Section 9.1 , above, or any other issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class; and, except as otherwise provided in this Section 9 , none of the foregoing events shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to Stock Options. The grant of a Right pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets.

9.4 Market Stand-Off . Each Stock Option Agreement shall provide that, in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, the Participant shall agree not to sell, make any short sale of, loan, hypothecate, pledge, grant any Stock Option for the repurchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any Stock without the prior written consent of the Company or its underwriters, for such period of time from and after the effective date of such registration statement as may be requested by the Company or such underwriters (the “ Market Stand-Off ”).

SECTION 10: AMENDMENT AND TERMINATION

The Board may amend, suspend or terminate the Plan at any time and for any reason. At the time of such amendment, suspension or termination the Board shall determine, upon advice from counsel, whether such amendment, suspension or termination will be contingent on Company shareholder approval.

SECTION 11: GENERAL PROVISIONS

11.1 General Restrictions .

11.1.1 No View to Distribute . The Administrator may require each person acquiring shares of Stock pursuant to the Plan to represent to and agree with the Company in writing that such person is acquiring the shares without a view towards distribution thereof. The certificates for such shares of Stock may include any legend that the Administrator deems appropriate to reflect any restrictions on transfer.

11.1.2 Legends . All certificates for shares of Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed and any applicable federal or state securities laws, and the Administrator may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

11.1.3 No Rights as a Shareholder . Except as specifically provided in this Plan, a Participant or a transferee of a Stock Option shall have no rights as a shareholder with respect to any shares of Stock covered by the Stock Options until the date of the issuance of a Stock certificate to him or her for such shares, and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Stock certificate is issued, except as provided in Section 9.1 hereof.

11.2 Other Compensation Arrangements . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

11.3 Disqualifying Dispositions . Any Participant who shall make a “ disposition ” (as defined in Section 424 of the Code) of all or any portion of an ISO within two years from the date of grant of such ISO or within one year after the issuance of the shares of Stock acquired upon exercise of such ISO shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Stock.

11.4 Regulatory Matters . Each Stock Option Agreement shall provide that no shares of Stock shall be purchased or sold thereunder unless and until (i) any then applicable requirements of state or federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel, and (ii) if required to do so by the Company, the Optionee shall have executed and delivered to the Company a letter of investment intent in such form and containing such provisions as the Board or Committee may require.

11.5 Recapitalizations . Each Stock Option Agreement shall contain provisions required to reflect the provisions of Section 9 .

11.6 Delivery . Upon exercise of a Stock Option granted under this Plan, the Company shall issue Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory obligations the Company may otherwise have, for purposes of this Plan, 30-days shall be considered a reasonable period of time.

11.7 Other Provisions . The Stock Option Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of the Stock Options, as the Administrator may deem advisable.

SECTION 12: INFORMATION TO PARTICIPANTS

The Company at its option may cause a report to be sent to each Participant not later than 120 days after the end of each fiscal year. Such report, if provided, shall consist of the financial statements of the Company for such fiscal year and shall include such other information as is provided by the Company to its shareholders.

SECTION 13: EFFECTIVE DATE OF PLAN

The effective date of this Plan is September , 2003. The adoption of the Plan is subject to approval by the Company’s shareholders, which approval must be obtained within 12 months from the date the Plan is adopted by the Board. In the event that the shareholders fail to approve the Plan within 12 months after its adoption by the Board, any grants of Stock Options or sales or awards of Shares that have already occurred shall be rescinded, and no additional grants, sales or awards shall be made thereafter under the Plan.

SECTION 14 : TERM OF PLAN

The Plan shall terminate automatically on the 10 ^th anniversary of the effective date set forth in the preceding paragraph. No Right shall be granted pursuant to the Plan after such date, but Stock Options theretofore granted may extend beyond that date. The Plan may be terminated on any earlier date pursuant to Section 10 hereof.

SECTION 15: EXECUTION.

To record the adoption of the Plan by the Board, the Company has caused its authorized officer to execute the same as of September , 2003.

	Hythiam, Inc.

	By:
	Name:		Terren S. Peizer
	Title:		Chairman & CEO

EXHIBIT A

STOCK OPTION AGREEMENT

Option Grant Issued (#)

HYTHIAM, INC. 2003 STOCK INCENTIVE PLAN

Notice Of Stock Option Grant

You have been granted the following option to purchase common stock of Hythiam, Inc. (the “ Company ”):

Name of Optionee:

Total Number of Shares Subject to Option Granted:

Type of Option:

Exercise Price Per Share:

Date of Grant:

Date Exercisable:

Vesting Commencement Date:

Vesting Schedule:

Expiration Date:

By your signature and the signature of the Company’s representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the Stock Option Agreement (Annex I) and the Hythiam, Inc. 2003 Stock Incentive Plan (the “ Plan ”) (Annex II), both of which are attached to and made a part of this document. Optionee hereby represents that both the option and any shares acquired upon exercise of the option have been or will be acquired for investment for his or her own account and not with a view to or for sale in connection with any distribution or resale of the security.

Optionee:					Hythiam, Inc.


By:					By:

Print Name:					Its:

ANNEX I

THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

Hythiam, Inc. 2003 Stock Incentive Plan:

Stock Option Agreement

SECTION 16: GRANT OF OPTION

16.1 Option . On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee the option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant. This option is intended to be either an ISO or a Non-Qualified Stock Option, as provided in the Notice of Stock Option Grant.

16.2 Stock Plan and Defined Terms . This option is granted pursuant to and subject to the terms of the Plan, a copy of which is attached hereto and which the Optionee acknowledges having received. Capitalized terms are defined at the end of this Agreement.

SECTION 17: RIGHT TO EXERCISE

17.1 Exercisability . Subject to Sections 17.2 and 2.3 below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant. Shares purchased by exercising this option may be subject to the Right of Repurchase under Section 22 .

17.2 $100,000 Limitation . The aggregate fair market value (determined at the time the option is granted) of the Shares with respect to which ISOs are exercisable for the first time during any calendar year (under all ISO plans of the Company and its Subsidiaries) shall not exceed $100,000. If this option is designated as an ISO in the Notice of Stock Option Grant, then to the extent (and only to the extent) the Optionee’s right to exercise this option causes this option (in whole or in part) to not be treated as an ISO by reason of the $100,000 annual limitation under Section 422(d) of the Code, such options shall be treated as Non-Qualified Stock Options, but shall be exercisable by their terms. The determination of options to be treated as Non-Qualified Stock Options shall be made by taking options into account in the order in which they are granted. If the terms of this option cause the $100,000 annual limitation under Section 422(d) of the Code to be exceeded, a pro rata portion of each exercise shall be treated as the exercise of a Non-Qualified Stock Option.

17.3 Shareholder Approval . Any other provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s shareholders.

SECTION 18: NO TRANSFER OR ASSIGNMENT OF OPTION

Except as provided herein, an Optionee may not assign, sell or transfer the option, in whole or in part, other than by will or by operation of the laws of descent and distribution. The Administrator, in its sole discretion may permit the transfer of a Non-Qualified Option (but not an ISO) as follows: (i) by gift to a member of the Participant’s immediate family or (ii) by transfer by instrument to a trust providing that the Option is to be passed to beneficiaries upon death of the trustor (either or both (i) or (ii) referred to as a “ Permitted Transferee ”). For purposes of this Section 18 , “ immediate family ” shall mean the Optionee’s spouse (including a former spouse subject to terms of a domestic relations order); child, stepchild, grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall include adoptive relationships. A transfer permitted under this Section 18 hereof may be made only upon written notice to and approval thereof by the Administrator. A Permitted Transferee may not further assign, sell or transfer the transferred option, in whole or in part, other than by will or by operation of the laws of descent and distribution. A Permitted Transferee shall agree in writing to be bound by the provisions of the Plan.

SECTION 19: EXERCISE PROCEDURES

19.1 Notice of Exercise . The Optionee or the Optionee’s representative may exercise this option by delivering a written notice in the form of Exhibit A attached hereto (“ Notice of Exercise ”) to the Company in the manner specified pursuant to Section 28.3 hereof. Such notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment, which must comply with Section 20 hereof. The notice shall be signed by the person who is entitled to exercise this option. In the event that this option is to be exercised by the Optionee’s representative, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option.

19.2 Issuance of Shares . After receiving a proper notice of exercise, the Company shall cause to be issued a certificate or certificates for the Shares as to which this option has been exercised, registered in the name of the person exercising this option (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship). The Company shall cause such certificate or certificates to be deposited in escrow or delivered to or upon the order of the person exercising this option.

19.3 Withholding Taxes . In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by exercising this option.

SECTION 20: PAYMENT FOR STOCK

20.1 General Rule . The entire Exercise Price of Shares issued under the Plan shall be payable in full by cash or check for an amount equal to the aggregate Exercise Price for the

number of Shares being purchased. Alternatively, in the sole discretion of the Administrator and upon such terms as the Administrator shall approve, the Exercise Price may be paid by:

20.1.1 Cashless Exercise . A copy of instructions to a broker directing such broker to sell the Shares for which this option is exercised, and to remit to the Company the aggregate Exercise Price of such option;

20.1.2 Stock-for-Stock Exercise . Paying all or a portion of the Exercise Price for the number of Shares being purchased by tendering Shares owned by the Optionee, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the aggregate Purchase Price of the Shares with respect to which this option or portion hereof is exercised; or

20.1.3 Attestation Exercise . By a stock for stock exercise by means of attestation whereby the Optionee identifies for delivery specific Shares already owned by Optionee and receives a number of Shares equal to the difference between the Shares with respect to which this option or portion hereof is exercised and the identified attestation Shares.

20.2 Withholding Payment . The Exercise Price shall include payment of the amount of all federal, state, local or other income, excise or employment taxes subject to withholding (if any) by the Company or any Parent or Subsidiary as a result of the exercise of a Stock Option. The Optionee may pay all or a portion of the tax withholding by cash or check payable to the Company, or, at the discretion of the Administrator, upon such terms as the Administrator shall approve, by (i) cashless exercise or attestation exercise; (ii) Stock-for-Stock exercise; (iii) in the case of an Option, by paying all or a portion of the tax withholding for the number of shares being purchased by withholding Shares from any transfer or payment to the Optionee (“ Stock withholding ”); or (iv) a combination of one or more of the foregoing payment methods. Any Shares issued pursuant to the exercise of an option and transferred by the Optionee to the Company for the purpose of satisfying any withholding obligation shall not again be available for purposes of the Plan. The Fair Market Value of the number of Shares subject to Stock withholding shall not exceed an amount equal to the applicable minimum required tax withholding rates.

20.3 Promissory Note . The Plan Administrator, in its sole discretion, upon such terms as the Plan Administrator shall approve, may permit all or a portion of the Exercise Price of Shares issued under the Plan to be paid with a full-recourse promissory note. However, the par value of the Shares acquired upon exercise of such option, if newly issued, shall be paid in cash or cash equivalents. The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. Subject to the foregoing, the Administrator (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.

20.4 Exercise/Pledge . In the discretion of the Administrator, upon such terms as the Administrator shall approve, payment may be made all or in part by the delivery (on a form prescribed by the Administrator) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

SECTION 21: TERM AND EXPIRATION

21.1 Basic Term . This option shall expire and shall not be exercisable after the expiration of the earliest of (i) the expiration date specified in the Notice of Stock Option Grant, (ii) three months after the date the Optionee’s Service with the Company and its Subsidiaries terminates if such termination is for any reason other than death, Disability or Cause, and (iii) one year after the date the Optionee’s Service with the Company and its Subsidiaries terminates if such termination is a result of death or Disability. Notwithstanding the foregoing, if the Optionee’s Service with the Company and its Subsidiaries terminates for Cause, all outstanding options granted to such Optionee shall expire as of the commencement of business on the date of such termination. Outstanding options that are not exercisable at the time of termination of employment for any reason shall expire at the close of business on the date of such termination. The Administrator shall have the sole discretion to determine when this option is to expire. For any purpose under this Agreement, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Administrator).

21.2 Exercise After Death . All or part of this option may be exercised at any time before its expiration under Section 21.1 above by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option had become exercisable before the Optionee’s death. When the Optionee dies, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Stock.

21.3 Notice Concerning ISO Treatment . If this option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent it is exercised (i) more than three months after the date the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code), (ii) more than 12 months after the date the Optionee ceases to be an Employee by reason of such permanent and total disability or (iii) after the Optionee has been on a leave of absence for more than 90 days, unless the Optionee’s reemployment rights are guaranteed by statute or by contract.

SECTION 22: RIGHT OF REPURCHASE

22.1 Option Repurchase Right . Following a termination of the Optionee’s Service, the Option Repurchase Right shall be exercisable over the Optionee’s options at a price equal to the Fair Market Value of the Stock underlying vested options, less the Exercise Price.

22.2 Stock Repurchase Right . Unless they have become vested in accordance with the Notice of Stock Option Grant and Section 22.4 below, the Stock acquired under this Agreement initially shall be Restricted Stock and shall be subject to a right (but not an obligation) of repurchase by the Company, which shall be exercisable at a price equal to the Exercise Price paid for such Restricted Stock. Vested stock acquired under this Agreement shall be subject to a right (but not an obligation) of repurchase by the Company, which shall be exercisable at a price equal to the Fair Market Value of the vested Stock.

22.3 Condition Precedent to Exercise . The Option Repurchase Right and Stock Repurchase Rights (collectively, the “ Right of Repurchase ”) shall be exercisable over Restricted Stock only during the 90-day period next following the later of:

22.3.1 The date when the Optionee’s Service terminates for any reason, with or without Cause, including (without limitation) death or disability; or

22.3.2 The date when this option was exercised by the Optionee, the executors or administrators of the Optionee’s estate or any person who has acquired this option directly from the Optionee by bequest, inheritance or beneficiary designation.

22.4 Lapse of Right of Repurchase . The Right of Repurchase shall lapse with respect to the Shares subject to this option in accordance with the vesting schedule set forth in the Notice of Stock Option Grant. The Right of Repurchase shall lapse with respect to Shares that have been registered under a then currently effective registration statement under applicable federal or state securities laws, or with respect to Shares that counsel for the Company determines need not, under applicable federal or state securities laws, have such restrictions.

22.5 Exercise of Right of Repurchase . The Company shall exercise the Right of Repurchase by written notice delivered to the Optionee prior to the expiration of the 90-day period specified in Section 22.3 above. The notice shall set forth the date on which the repurchase is to be effected, which must occur within 31 days of the notice. The certificate(s) representing the Restricted Stock to be repurchased shall, prior to the close of business on the date specified for the repurchase, be delivered to the Company properly endorsed for transfer. The Company shall, concurrently with the receipt of such certificate(s), pay to the Optionee the Purchase Price determined according to this Section 7 . Payment shall be made in cash or cash equivalents or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Stock. The Right of Repurchase shall terminate with respect to any Restricted Stock for which such Right of Repurchase has not been timely exercised pursuant to this Section 22.5 .

22.6 Adjustments . If there is any change in the number of outstanding shares of Stock by reason of a stock split, reverse stock split, stock dividend, an extraordinary dividend payable in a form other than stock, recapitalization, combination or reclassification, or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, then (i) any new, substituted or additional securities or other property (including money paid other than as an ordinary cash dividend) distributed with respect to any Restricted Stock (or into which such Restricted Stock thereby become convertible) shall immediately be subject to the Right of Repurchase; and (ii) appropriate adjustments to reflect the distribution of such securities or property shall be made to the number and/or class of the Restricted Stock and to the price per share to be paid upon the exercise of the Right of Repurchase; provided , however , that the aggregate Purchase Price payable for the Restricted Stock shall remain the same.

22.7 Termination of Rights as Shareholder . If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Restricted Stock to be repurchased in accordance with this Section 22 , then after such time the person from whom such Restricted Stock is to be repurchased shall no longer have any rights as a holder of such Restricted Stock (other than the right to receive payment of such consideration in accordance with this Agreement). Such Restricted Stock shall be deemed to have been

repurchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.

22.8 Escrow . Upon issuance, the certificates for Restricted Stock shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any new, substituted or additional securities or other property described in Section 22.6 above shall immediately be delivered to the Company to be held in escrow, but only to the extent the Shares are at the time Restricted Stock. All regular cash dividends on Restricted Stock (or other securities at the time held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Stock, together with any other assets or securities held in escrow hereunder, shall be (i) surrendered to the Company for repurchase and cancellation upon the Company’s exercise of its Right of Repurchase or Right of First Refusal or (ii) released to the Optionee upon the Optionee’s request to the extent the Shares are no longer Restricted Stock (but not more frequently than once every six months). In any event, all Shares which have vested (and any other vested assets and securities attributable thereto) shall be released within 60 days after the earlier of (i) the Optionee’s cessation of Service or (ii) the lapse of the Right of First Refusal.

SECTION 23: RIGHT OF FIRST REFUSAL

23.1 Right of First Refusal. In the event that the Stock is not publicly traded and the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal or state securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company. The Company’s rights under this Section 23.1 shall be freely assignable, in whole or in part.

23.2 Additional Shares or Substituted Securities . In the event of the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities or other property (including money paid other than as an ordinary cash dividend) which are by reason of such transaction distributed with respect to any Shares subject to this Section 23 or into which such Shares thereby become convertible shall immediately be subject to this Section 23 . Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 23 .

23.3 Termination of Right of First Refusal . Any other provision of this Section 23 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal,

6

and the Optionee shall have no obligation to comply with the procedures prescribed by this Section 23 .

23.4 Permitted Transfers . This Section 23 shall not apply to a transfer (i) by gift to a member of the Optionee’s immediate family or (ii) by transfer by instrument to a trust providing that the option is to be passed to beneficiaries upon death of the trustor. For purposes of this Section 23.4 , “ immediate family ” shall mean the Optionee’s spouse (including a former spouse subject to terms of a domestic relations order); child, stepchild, grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall include adoptive relationships.

23.5 Termination of Rights as Shareholder . If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 23 , then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.

SECTION 24: LEGALITY OF INITIAL ISSUANCE

No Shares shall be issued upon the exercise of this option unless and until the Company has determined that:

24.1 Both the Company and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;

24.2 Any applicable listing requirement of any stock exchange on which Stock is listed has been satisfied; and

24.3 Any other applicable provision of state or federal law has been satisfied.

SECTION 25: NO REGISTRATION RIGHTS

The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.

SECTION 26: RESTRICTIONS ON TRANSFER

26.1 Securities Law Restrictions . Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law.

26.2 Market Stand-Off . In the event of an underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act (a “ Public Offering ”), the Optionee shall not Transfer for value any shares of Stock without the prior written consent of the Company or its underwriters, for such period of time from and after the effective date of such registration statement as may be requested by the Company or such underwriters (the “ Market Stand-Off ”). The Market Stand-Off shall terminate following the expiration of the two-year period immediately following the effective date of the Public Offering. Such restriction shall be in effect for such period of time following the date of the final prospectus for the Public Offering as may be requested by the Company or such underwriters. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period.

26.3 Investment Intent at Grant . The Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.

26.4 Investment Intent at Exercise . In the event that the sale of Shares under the Plan is not registered under the Securities Act but that an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

26.5 Legends . All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

26.6 Removal of Legends . If, in the opinion of the Company and its counsel, any legend placed on a certificate representing Shares sold under this Agreement no longer is required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares, but without such legend.

26.7 Administration . Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 26 shall be conclusive and binding on the Optionee and all other persons.

SECTION 27: INTENTIONALLY OMITTED

SECTION 28: MISCELLANEOUS PROVISIONS

28.1 Rights as a Shareholder . Neither the Optionee nor the Optionee’s representative shall have any rights as a shareholder with respect to any Shares subject to this option until the Optionee or the Optionee’s representative becomes entitled to receive such Shares by filing a Notice of Exercise and paying the Purchase Price pursuant to Section 19 and Section 20 hereof.

28.2 No Retention Rights . Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without Cause.

28.3 Notice . Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company.

28.4 Entire Agreement . The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.

28.5 Choice of Law . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, AS SUCH LAWS ARE APPLIED TO CONTRACTS ENTERED INTO AND PERFORMED IN SUCH STATE.

SECTION 29: DEFINITIONS

29.1 **“ Agreement ”** shall mean this Stock Option Agreement.

29.2 **“ Board ”** shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.

29.3 **“ Cause ”** means (i) failure by an Eligible Person to substantially perform his or her duties and obligations to the Company (other than any such failure resulting from his or her incapacity due to physical or mental illness); (ii) engaging in sexual harassment, discrimination, misconduct or a fiduciary breach which is or potentially is materially injurious to the Company or its shareholders; (iii) commission of a felony; (iv) the commission of a crime against the Company which is, or potentially is, materially injurious to the Company; or (v) as otherwise provided in the Agreement. For purposes of the Plan, the existence of Cause shall be determined by the Administrator in its sole discretion.

29.4 **“ Code ”** shall mean the Internal Revenue Code of 1986, as amended.

29.5 **“ Committee ”** shall mean a committee of the Board of Directors, as provided in Section 3.5 of the Plan.

29.6 **“ Company ”** shall mean Alaska Freightways, Inc., a Nevada corporation (to be reincorporated in Delaware under the new name of “Hythiam, Inc.”) .

29.7 **“ Consultant ”** shall mean an individual who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

29.8 **“ Date of Grant ” shall mean the date specified in the Notice of Stock Option Grant, which date shall be the later of (i) the date on which the Board resolved to grant this option or (ii) the first day of the Optionee’s Service (a form of Board Resolutions for Options is attached hereto as *Exhibit B*** .

29.9 **“ Disability ”** shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

13.10 “ Eligible Person ” shall mean an Employee, officer, Consultant or Director of the Company, any Parent or any Subsidiary.

13.11 “ Employee ” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

13.12 “ Exercise Price ” shall mean the amount for which one Share may be purchased from the Company upon exercise of this option, as specified in the Notice of Stock Option Grant.

13.14 “ Fair Market Value ” shall mean the fair market value of a Share, as determined by the Board in good faith. Such determination shall be conclusive and binding on all persons.

13.15 “ ISO ” shall mean an employee incentive stock option described in Section 422(b) of the Code.

13.16 “ Non-Qualified Stock Option ” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

13.17 “ Notice of Stock Option Grant ” shall mean the document so entitled, to which this Agreement is attached.

13.18 “ Option Repurchase Right ” means the Company’s right to repurchase Optionee’s option pursuant to Section 22.1 hereof.

13.19 “ Optionee ” shall mean the individual named in the Notice of Stock Option Grant.

13.20 “ Outside Director ” shall mean a member of the Board who is not an Employee.

13.21 “ Parent ” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

13.22 “ Plan ” shall mean the Alaska Freightways, Inc. 2003 Stock Incentive Plan, as in effect on the Date of Grant and as amended from time to time.

13.23 “ Purchase Price ” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised.

13.24 “ Restricted Stock ” shall mean a Share that is subject to the Right of Repurchase.

13.25 “ Right of First Refusal ” shall mean the Company’s right of first refusal described in Section 23 hereof.

13.26 “ Right of Repurchase ” shall mean the Company’s right of repurchase described in Section 22 hereof.

13.27 “ Securities Act ” shall mean the Securities Act of 1933, as amended.

13.28 “ Service ” shall mean service as an Employee, Outside Director or Consultant.

13.29 “ Share ” shall mean one share of Stock, as adjusted in accordance with Section 22.6 or Section 23.2 hereof (if applicable).

13.30 “ Stock ” shall mean the common stock, without par value, of the Company.

13.31 “ Subsidiary ” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

13.32 “ Transferee ” shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement.

13.32 “ Transfer Notice ” shall mean the notice of a proposed transfer of Shares described in Section 23.1 hereof.

EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Option)

Hythiam, Inc.

11111 Santa Monica Blvd., Suite 550

Los Angeles, California 90025

The undersigned, the holder of the enclosed Stock Option Agreement, hereby irrevocably elects to exercise the purchase rights represented by the option (the “ Option ”) and to purchase thereunder * shares of common stock of Hythiam, Inc. (the “ Company ”), and herewith encloses payment of $and/or shares of the Company’s common stock in full payment of the purchase price of such shares being purchased.

Dated:

YOUR STOCK MAY BE SUBJECT TO RESTRICTIONS AND FORFEITABLE UNDER THE NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT


	(Signature must conform in all respects to name of holder as specified on the face of the Option)



	(Please Print Name)




	(Address)

* Insert here the number of shares called for on the face of the Option, or, in the case of a partial exercise, the number of shares being exercised, in either case without making any adjustment for additional common stock of the Company, other securities or property that, pursuant to the adjustment provisions of the Option, may be deliverable upon exercise.

EXHIBIT B

FORM OF RESOLUTIONS FOR OPTIONS

WHEREAS , Hytyhiam, Inc., a Delaware corporation (the “ Company ”), has adopted the Hythiam, Inc. 2003 Stock Incentive Plan (the “ Plan ”) and has delegated the responsibility to administer the plan to the undersigned (collectively, the “ Administrator ”); and

WHEREAS , the Administrator has determined that it is in the best interest of this Company and its shareholders to provide additional equity incentives to those employees of the Company identified below;

NOW, THEREFORE, BE IT RESOLVED , that the person or those persons listed on the Schedule provided to the Administrator, which Schedule shall be included with the Minutes of this Meeting, is or are hereby granted an option to purchase up to shares of the Stock at any time on or prior to at a per share exercise price of $, which exercise price represents the fair market value or in the case of Non-Qualified Stock Options at least 85% of the fair market value or in the case of either an Incentive Stock Option or a Non-Qualified Stock Option granted to a Ten Percent Shareholder 110% of such Fair Market Value of the Stock on the date of this Meeting;

RESOLVED FURTHER , that such option shall be [an incentive stock option] or [a Non-Qualified Stock Option] , as that term is defined under the Plan;

RESOLVED FURTHER , that the officers of this Company be, and they hereby are, authorized, directed and empowered for and on behalf of this Company to prepare or cause to be prepared a Stock Option Agreement to represent the option(s) granted at this meeting substantially in the form, and containing the terms and provisions, heretofore approved by the Administrator, and containing such other terms and provisions as such officers shall, upon advice of counsel, determine to be necessary or appropriate, their execution of such Stock Option Agreement to conclusively evidence such determination;

RESOLVED FURTHER , that there is hereby reserved and set aside from the authorized but unissued shares of the Stock, a number of shares adequate to cover the shares underlying the options granted, plus such additional number of shares as may be necessary in order to satisfy the anti-dilution provisions of the options; and

RESOLVED FURTHER , that the officers of this Company, and each of them, be, and they hereby are, authorized, directed and empowered for and on behalf of this Corporation to do or cause to be done all such acts and things and to sign, deliver and/or file all such documents and notices as any of such officers may deem necessary or advisable in order to carry out and perform the foregoing resolutions and the intention thereof.

Exhibit 99.2

Dear Hythiam investors and collegues:

We are pleased to inform you that Hythiam, Inc. has completed its private placement offering in the amount of $20.6 million, or approximately $20 million after transaction costs. On September 29, 2003, Hythiam also completed its merger with Alaska Freightways, Inc. (AKFW). An 8-K will be filed before the market opens on September 30, 2003. The trading symbol on the OTCBB will continue to be AKFW until Hythiam is assigned a new trading symbol. The company will be applying for a listing on NASDAQ or AMEX in the near future. Additional information on Hythiam will be available on the company’s website, Hythiam.com.

As we look forward to our promising future, we thank you for your continuing support.

Hythiam, Inc.

CITA SL also has the right to require the Company to repurchase the common shares at a price equal to fair market value if the Company has not completed an initial public offering or a reverse merger with a public company (“Merger”) within three years.

The financial statements and operations through June 30, 2003 do not reflect revenue or significant operational activity, as the Company did not begin operations until subsequent to June 30, 2003.

ARTICLE I THE MERGER

ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 2.03 Conversion of Company Stock .

(b) At the Effective Time, each full outstanding share of Company Common Stock shall be converted into one (1) share of Alaska Merger Stock.

SECTION 2.04 Company Preferred Stock .

SECTION 2.05 Stock Options and Warrants .

(b) At the Effective Time, each full Company Option shall be deemed to entitle the holder thereof to an option (the “ Alaska Option ”) to purchase, upon the same terms and at the applicable exercise price then in effect with respect to the Company Option.

SECTION 2.06 Exchange of Certificates .

ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF ALASKA AND SIGNING ALASKA STOCKHOLDERS

(a) Capitalization . As of the date hereof, the entire authorized capitalization of Alaska consists of 50,000,000 shares of common stock, $.001 par value per share (the “ Alaska Common Stock ”), of which 3,568,033 shares of Alaska Common Stock are currently

SECTION 3.05 Reports .

SECTION 3.06 Tax and Other Liabilities .

(b) Alaska has delivered to Company correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Alaska. None of such tax returns are under audit.

(c) Alaska has not waived any statute of limitations in respect of any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency.

(d) Alaska is not a party to any Tax allocation or sharing agreement.

(a) Except for the Purchase Agreement, there are no material contracts, agreements, franchises, license agreements, or other commitments to which Alaska is a party or by which it or any of its assets, products, or properties are bound outside of the ordinary course of business;

SECTION 3.19 Labor and Employment Matters .

rights and equal employment opportunities or other employment practices, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.

(a) To the best of Alaska’s knowledge, Alaska has no liability under, and each are presently in compliance in all material respects with all Environmental Laws applicable to Alaska, its assets or business.

ARTICLE IV REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SIGNING COMPANY STOCKHOLDER

ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

ARTICLE VI DELIVERIES AT CLOSING

(a) Deliveries by Company and Company Stockholders . At or prior to the Closing, Company shall deliver to Alaska:

(i) resolutions or consents signed by the Signing Company Stockholder approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;

(ii) a certificate executed by Company to the effect that the conditions set forth in Article VII and Article VIII have been satisfied;

(iii) evidence establishing that funds totaling at least Six Million Dollars ($6,000,000.00) in equity funds have been raised by the Company and will be released and available to the surviving corporation as of the Effective Time; and

(iv) Audited financial statements from inception through June 30, 2003, and any interim financial statements necessary for the Closing.

(b) Deliveries by Alaska . At or prior to the Closing, Alaska shall deliver to Company:

(i) resolutions or consents signed by each of the Signing Alaska Stockholders and a majority of the other outstanding shares of Alaska Stock approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;

(ii) the certificates representing the Alaska Merger Stock required to be delivered at Closing pursuant to Section 2.06 hereof;

(iii) a certificate executed by an authorized officer of Alaska, on behalf of Alaska, to the effect that the conditions set forth in Article VII and Article VIII have been satisfied;

(vi) Audited financial statements for the last two years through June 30, 2003, and any interim financial statements necessary for the Closing.

ARTICLE VII SPECIAL COVENANTS AND AGREEMENTS OF THE PARTIES

(a) effect the authorization and approval of this Agreement and the transactions contemplated thereby;

(b) effect the actions described in Article VI ; and

(c) take such other actions as the directors may determine are appropriate in furtherance of the consummation of this Agreement.

SECTION 7.06 Actions Prior to Closing .

(a) From and after the date of this Agreement until the Closing and except as set forth in the Agreement or Schedules attached hereto or as otherwise approved in writing by Company, Alaska will:

(i) carry on its business in substantially the same manner as it has heretofore;

(ii) maintain and keep its properties in states of good repair and condition as at present, except for depreciation due to ordinary wear and tear and damage due to casualty;

(iii) maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it;

(iv) perform in all material respects all of its obligation under material contracts, leases, and instruments relating to or affecting its assets, properties, and business;

(v) use its best efforts to maintain and preserve its business organization intact, to retain its key employees, and to maintain its relationship with its material suppliers and customers; and

(vi) fully comply with and perform in all material respects all obligations and duties imposed on it by all federal and state laws and all rules, regulations, and orders imposed by federal or state governmental authorities.

(b) From and after the date of this Agreement until the Closing, unless otherwise approved in advance by Company in writing, Alaska will not:

(i) make any change in its articles of incorporation or bylaws;

ARTICLE I
THE MERGER

ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

ARTICLE III
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF ALASKA AND SIGNING ALASKA STOCKHOLDERS

ARTICLE IV
REPRESENTATIONS, COVENANTS, AND
WARRANTIES OF SIGNING COMPANY STOCKHOLDER

ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

ARTICLE VI
DELIVERIES AT CLOSING

ARTICLE VII
SPECIAL COVENANTS AND AGREEMENTS OF THE PARTIES