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EXHIBIT 10.1
SETTLEMENT
AGREEMENT, GENERAL RELEASE AND COVENANT NOT TO SUE
This Settlement
Agreement, General Release and Covenant Not to Sue
("Settlement Agreement") is made this 25th day of March, 2009 by
and among
Integrated Healthcare Holdings, Inc. ("IHHI"), Anil V. Shah, M.D.
("Dr. Shah"),
Orange County Physicians Investment Network, LLC ("OC-PIN"), Bruce
Mogel
("Mogel"), Pacific Coast Holdings Investment, LLC ("PCHI"), West
Coast Holdings,
LLC, ("WCH"), Dr. Kali P. Chaudhuri ("Dr. Chaudhuri"), Ganesha
Realty, LLC
("Ganesha"), William E. Thomas ("Thomas"), Medical Capital
Corporation ("MCC"),
Medical Provider Financial Corporation I ("MPFCI"), Medical
Provider Financial
Corporation II ("MPFCII") and Medical Provider Financial
Corporation III
("MPFCIII")(MCC, MPFCI, MPFCII and MPFCIII are sometimes
hereinafter
collectively referred to as "MedCap"). All the above entities and
individuals
are sometimes hereinafter collectively referred to as "Parties" or
individually
as a "Party."
RECITALS
A. Certain of the
Parties are currently engaged in litigation,
appellate, arbitration and/or court proceedings and/or have certain
legal
disputes and issues with each other as more particularly set forth
herein below.
B.
Specifically:
a. IHHI is now suing Dr. Shah in Orange County Superior Court
("OCSC") Case No. 07CC05895 (consolidated with OCSC Case No.
07CC06017) and OCSC Case No. 30-2008-106637;
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b. Dr. Shah has filed a cross-complaint against IHHI in OCSC
Case
No. 07CC05895;
c. OC-PIN (previously dismissed as a named defendant in OCSC
Case
No.
07CC05895) is now suing Mogel in OCSC Case No.
30-2008-00109286 (a derivative action purportedly filed on
behalf
of IHHI);
d. OC-PIN is also suing IHHI in OCSC Case Nos.
30-2008-00106805,
30-2008-00108983;
30-2008-00109959 and 30-2008-00112102;
e. Dr. Chaudhuri is now suing OC-PIN in OCSC Case No.
30-2008-0011293;
f. Dr. Shah presently seeks to perfect an arbitration award in
his favor against PCHI (JAMS Case No.
1200040611) in OCSC Case
No. 30-2008-00114434; and
g. PCHI is suing OC-PIN et al. in OCSC Case No.
30-2008-00112088.
C. The foregoing
litigation has spawned various related appellate
proceedings including, but not limited to, California Fourth
Appellate District
Case Nos. G041208, G041181, G041491 and California Supreme Court
Case No.
S168604.
D. Some of the
foregoing litigation has been stayed, while other
aspects of the litigation are now scheduled to be tried on July 27,
2009.
E. All of the
above described litigation, arbitration, appellate and
other legal proceedings are hereinafter collectively referred to as
the
"Actions."
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F. In addition to
the foregoing, periodic threats have been made by Dr.
Shah, OC-PIN and/or their legal counsel to hereinafter sue Dr.
Chaudhuri, MedCap
and/or IHHI's individual directors, executives and attorneys on a
variety of
theories, either directly or derivatively purportedly on behalf of
IHHI.
Periodic allegations have also been made against Dr. Chaudhuri and
others
alleging that Dr. Chaudhuri is not properly managing PCHI and that
PCHI is not
acting properly defending claims brought against it by Dr. Shah.
Certain members
of OC-PIN have also made threats and allegations against one
another and some
members of OC-PIN have assigned certain threatened claims to IHHI.
Dr. Chaudhuri
and PCHI have challenged the confirmation of the Arbitration Award
in favor of
Dr. Shah and have indicated that they will pursue all appellate
avenues.
G. For reasons of
their own and without admission of wrongdoing or
liability of any sort, the signatories to this Settlement Agreement
wish to
fully and finally resolve the foregoing pending Actions and
threatened
litigation, arbitration and discovery disputes, together with any
and all
possible claims, disputes or disagreements among certain of the
Parties relating
to any past fact, act or occurrence (except as expressly reserved
herein)
("Settlement").
H. Certain of the
Parties have entered into a separate settlement
agreement ("Second Settlement Agreement") concurrently herewith. No
term or
provision of the Second Settlement Agreement contradicts or is
inconsistent with
any term or provision of this Settlement Agreement nor does any
term or
provision of the Second Settlement Agreement decrease, diminish or
reduce any of
the agreements, covenants, waivers, or releases made by or granted
to any of the
Parties to this Settlement Agreement.
NOW, THEREFORE, in
consideration of the mutual covenants, promises and
undertakings set forth below, the adequacy and sufficiency of which
are hereby
expressly acknowledged by each of the Parties hereto, the Parties
agree as
follows:
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COVENANTS
1. The foregoing
Recitals are incorporated by reference as if fully set
forth herein.
2. The Closing of
the Settlement ("Closing") shall occur on or before
March 27, 2009 at Callahan & Blaine, 3 Hutton Centre Drive,
Ninth Floor, Santa
Ana, California.
3. The Closing
shall be contingent upon, subject to and concurrent with
the Closing of the Second Settlement Agreement.
MONETARY.
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4. IHHI shall pay
the Callahan & Blaine Trust Account as the jointly
designated representative of OC-PIN and Dr. Shah the total sum of
One Million
Five Hundred Thousand Dollars ($1,500,000) in two installments as
follows: Seven
Hundred Fifty Thousand Dollars ($750,000) payable at the Closing;
and Seven
Hundred Fifty Thousand Dollars ($750,000) and interest thereon
payable at eight
percent (8%) payable on September 25, 2009. Payment of the second
installment is
hereby guaranteed by PCHI, who shall make such payment by September
28, 2009, if
not timely paid by IHHI.
5. At the Closing,
PCHI will separately pay to the Callahan & Blaine
Trust Account, as the designated representative of Dr. Shah, Eight
Hundred Fifty
Thousand Dollars ($850,000).
6. At the Closing,
MedCap will separately pay to the Callahan & Blaine
Trust Account, as the jointly designated representative of OC-PIN
and Dr. Shah,
Three Hundred Fifty Thousand Dollars ($350,000).
7. At the Closing,
IHHI shall pay to the Callahan & Blaine Trust
Account, as the designated representative of Dr. Shah, the sum of
Fifteen
Thousand Dollars ($15,000) in satisfaction of all Shah's individual
claims
including, but not limited to, his claims for past due director's
fees and other
compensation.
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8. [Intentionally
Omitted.]
9. At the Closing,
IHHI and Mogel shall agree and stipulate to the
release and return of the $50,000 bond which was posted in
connection with the
shareholder derivative action filed by OC-PIN against Mogel and
IHHI in OCSC
Case No. 30-2008-00109286.
STOCK PURCHASE
AGREEMENTS.
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10. At the
Closing, IHHI, Dr. Shah, Dr. Chaudhuri and OC-PIN agree to
execute and deliver their respective Stock Purchase Agreements in
the forms
attached hereto as Exhibits A, B and C ("Stock Purchase
Agreements"). The shares
purchased under the Stock Purchase Agreements shall be referred to
as the "Stock
Purchase Shares." The Stock Purchase Agreements are an integral
part of this
First Settlement Agreement, the terms of which Stock Purchase
Agreements are
incorporated by reference as though fully set forth herein.
If either OC-PIN
or Dr. Shah choose not to purchase all of the
respective Stock Purchase Shares, then those Stock Purchase Shares
which either
party elects not to purchase may be purchased by the other party.
Either party
who elects not to purchase all or part of their Stock Purchase
Shares shall give
appropriate notice to the other party no later than 20 days after
Closing.
Within 30 days after Closing, OC-PIN and Dr. Shah shall jointly
notify IHHI and
Dr. Chaudhuri in writing ("SPA Notice") of their final
determination of the
number of Stock Purchase Shares subject to their respective Stock
Purchase
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Agreements whereupon such Stock Purchase Agreements shall be deemed
so amended
to reflect the final number of Stock Purchase Shares being
purchased. In the
event IHHI and Dr. Chaudhuri do not receive a SPA Notice duly
executed by OC-PIN
and Dr. Shah within 30 days of Closing there shall be no adjustment
in the
number of shares subject to any of the Stock Purchase
Agreements.
In the event that
OC-PIN and Dr. Shah purchase, in the aggregate, fewer
Stock Purchase Shares than the maximum they were entitled to
purchase under the
terms of their Stock Purchase Agreements then Dr. Chaudhuri agrees
that the
number of Stock Purchase Shares he is entitled to purchase under
his Stock
Purchase Agreement shall be automatically reduced to an amount
which is 51% of
the aggregate number of Stock Purchase Shares which Dr. Chaudhuri,
OC-PIN and
Dr. Shah actually purchase under their Stock Purchase Agreements.
By way of
illustration, if OC-PIN and Dr. Shah actually purchase an aggregate
of 15
million shares, then Dr. Chaudhuri is entitled to purchase
15,612,245 shares
which is 51% of the aggregate number of shares being sold under all
Stock
Purchase Agreements.
At the same time,
as part of the SPA Notice, OC-PIN and Dr. Shah must
elect whether they intend to use as a credit all or a portion of
the second
Seven Hundred Fifty Thousand Dollars ($750,000) payment (as
specified in
Paragraph 4 above and hereinafter referred to as the "Second
Payment"), and any
accrued interest thereon, toward OC-PIN and Dr. Shah's payment to
IHHI for their
respective Stock Purchase Shares. In the SPA Notice, OC-PIN and
Shah will
provide an agreed allocation of the Second Payment signed by each
of them.
Neither OC-PIN nor Dr. Shah are entitled to use as a credit all or
a portion of
the Second Payment unless such a fully signed allocation is so
provided. If
OC-PIN and Dr. Shah properly provide a SPA Notice with a fully
signed
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allocation, they can use so much of the amount allocated as a
credit applicable
to their respective obligations under their respective Stock
Purchase
Agreements. If the credit is more than what is owed to IHHI, then
IHHI will
continue to owe the balance under the terms of Section 4. If the
credit is less
than what is owed to IHHI, OC-PIN and Dr. Shah will need to furnish
the
additional funds at the Closing of their respective Stock Purchase
Agreements.
If OC-PIN and Dr. Shah fail to timely give the SPA Notice with
fully signed
allocation, then no credit shall be given but IHHI shall continue
to owe the
Second Payment under the terms of Section 4.
11. IHHI agrees
(and MedCap concurs) that IHHI will use the net
proceeds of the sale of the Stock Purchase Shares to pay down the
principal
balance of IHHI's $10,700,000 Convertible Term Note, dated October
9, 2007, held
by MPFCIII, and MedCap agrees to promptly advance (or cause its
subsidiaries to
promptly advance) to IHHI additional funds equal to such amount by
which the
$10,700,000 Convertible Term Note is paid down ("Additional Loaned
Funds"). IHHI
agrees (and MedCap concurs) that the source of the Additional
Loaned Funds will
be further borrowing on and against IHHI's existing lines of credit
with MedCap.
If necessary, IHHI then agrees to use the Additional Loaned Funds
to bring
current the Chapman Lease and the PCHI Lease, including all late
fees,
penalties, etc., associated with IHHI's failure to timely pay such
rent and
other payments required under the leases.
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12. IHHI shall use
its reasonable best efforts to ensure that it has
enough authorized capital stock to issue the Stock Purchase Shares,
after
consideration of all previously granted warrants, conversion rights
and stock
purchase agreements. The IHHI Board has authorized, and the
majority-in-interest
of IHHI's shareholders have consented to an increase in authorized
capital stock
to accommodate the Stock Purchase Agreements. IHHI has filed an
information
statement on Schedule 14C with the Securities and Exchange
Commission ("SEC").
IHHI covenants to promptly (1) seek to have such information
statement declared
effective by the SEC, (2) respond to any comments by the SEC, (3)
mail the
information statement to the shareholders, and (4) file restated
articles of
incorporation with the Nevada Secretary of State. The increase in
authorized
capital stock shall be completed within 45 days subject to
reasonable extension
if IHHI must respond to SEC comments. Notwithstanding the
foregoing, in no event
shall IHHI be required to perform under the Stock Purchase
Agreements if the
effect would be to require IHHI to issue shares, including
outstanding warrants,
conversion rights and stock purchase options, in excess of its
authorized and
unreserved capital stock.
13. OC-PIN
expressly acknowledges the validity and enforceability of
the preemptive rights granted by IHHI to Dr. Chaudhuri. OC-PIN
recognizes that
in connection with this Settlement Agreement, OC-PIN is releasing
its claim that
IHHI granted or should have granted OC-PIN competing or superior
preemptive
rights and acknowledges that as of the Closing, it does not have
any preemptive
rights with respect to securities of IHHI; provided, however,
nothing herein is
intended to affect the Stock Purchase Agreements described in
Section 10 of this
Settlement Agreement or the OC-PIN members' Tag Along Right
described in the
Shareholder's Agreement referenced in the Second Settlement
Agreement.
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LOAN INTEREST AND
RENT REDUCTION.
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14. MPFCII agrees,
effective as of the Closing, to reduce the interest
rate on the $45,000,000 Term Note dated October 9, 2007 ("Term
Note") to simple
interest of 10.25% and to maintain such interest rate up to and
including the
Maturity date of such Term Note, or any extension thereof, as
defined in the
$80,000,000 Credit Agreement dated October 9, 2007 ("Credit
Agreement"), under
which Credit Agreement the Term Note was issued ("MedCap Debt
Service
Reduction"). Provided, however, the MedCap Debt Service Reduction
shall have no
force or effect, and shall be suspended, at any time an Event of
Default shall
have occurred and continues under the Credit Agreement. PCHI agrees
that during
the period of the MedCap Debt Service Reduction it will reduce the
rent payable
by IHHI to PCHI in an amount equal to the MedCap Debt Service
Reduction (I.E.,
the difference between 14% and 10.25%). At Closing, all parties to
the Credit
Agreement will execute and deliver to MPFCII a written amendment to
the Credit
Agreement memorializing the MedCap Debt Service Reduction set forth
immediately
above.
PCHI RENT.
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15. IHHI agrees to
bring the PCHI lease and the Chapman leases current
and pay all arrearages due under the PCHI Lease and the Chapman
leases within
forty-five (45) days after the Closing.
IHHI BY-LAWS AND BOARD CHANGES.
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16. OC-PIN's
obligation to fulfill its agreements at the Closing shall
be subject to the following actions by IHHI's Board of
Directors:
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i. Approve an amendment to IHHI's Bylaws to
provide that the number
of members serving on IHHI's Board of Directors shall be fixed
at
seven. This amendment shall be made not later than Closing.
ii.
Approve an amendment to Section 4 of Article III of IHHI's
Bylaws
to provide that, effective immediately after IHHI's 2009 Annual
Meeting of Shareholders, a Shareholder who owns fifteen percent
(15%) or more of the voting stock of IHHI is entitled to call
one
special shareholders meeting per year. This amendment shall be
made not later than Closing; and
iii. Appoint
an OC-PIN representative selected by a
majority-in-interest of OC-PIN to fill the seat to be vacated
by
Ken Westbrook at Closing until the September 2009 annual
meeting
of shareholders.
17. In connection
with the provisions set forth in Paragraph 16
immediately above, MedCap (and all related and affiliated persons
and entities)
makes no representation or takes any position other than as set
forth in the $80
Million Loan Documents and the Other Loan Documents (as said terms
are defined
in Paragraph 23(x) below.)
18. Dr. Shah and
OC-PIN agree to make, within five (5) business days
after the Closing, and keep current on a timely basis, all such
filings and
reports that are required to be made by each of them under Section
13(d) of the
Securities Exchange Act of 1934, as amended, including such filings
or reports
that are required to publicly disclose or report to the SEC the
transactions
contemplated by this Settlement Agreement.
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19. Dr. Shah
covenants and agrees that for a period of two (2) years
after the Closing Dr. Shah will not accept any nomination,
appointment or serve
in the capacity as a director, officer or employee of IHHI, so long
as IHHI
keeps the PCHI and Chapman leases current ("current" means payment
is made
within forty-five (45) days of when payment is due).
DISMISSALS AND
RELEASES.
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20. Dr. Shah and
OC-PIN specifically covenant not to sue, and further
covenant not to assist anyone else in suing, directly or
derivatively on behalf
of IHHI or any other entity, Dr. Chaudhuri or MedCap (and all
related and
affiliated persons and entities). Dr. Chaudhuri and MedCap
specifically covenant
not to sue, and further covenant not to assist anyone else in
suing, directly or
derivatively on behalf of IHHI or any other entity, Dr. Shah and
OC-PIN based on
any act, occurrence or omission which occurred or allegedly
occurred prior to
the Closing.
21. At the
Closing, Dr. Shah and OC-PIN shall sign and deliver to IHHI,
PCHI, Chaudhuri and Mogel dismissals with prejudice of all Dr. Shah
and OC-PIN's
claims in the Actions described in the Recitals.
22. At the
Closing, IHHI, PCHI and Chaudhuri shall sign and deliver to
Shah and OC-PIN dismissals with prejudice of all IHHI, PCHI and
Chaudhuri's
claims against Dr. Shah and/or OC-PIN in the Actions described in
the Recitals.
23. Except as to
such rights or claims as may be created by this
Settlement Agreement, the Second Settlement Agreement or expressly
reserved in
either of them, the following releases are provided:
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i. RELEASE OF CLAIMS BY IHHI. IHHI irrevocably,
unconditionally and
fully releases and forever discharges OC-PIN, Dr. Shah, PCHI,
WCH, MedCap (and all related and affiliated persons and
entities), Dr. Chaudhuri, Ganesha, Thomas and their respective
past and present subsidiaries,
affiliates, officers, directors,
partners, agents, employees, members, managers,
representatives,
lawyers and law firms, and all persons acting by, through,
under
or in concert with them, or any of them, from any and all
rights,
suits, claims, actions, accounts, demands, contracts, debts,
controversies, agreements, promises, liabilities, duties,
obligations, costs, expenses, damages and causes of action,
whether presently known or unknown, vested or contingent,
suspected or unsuspected, accrued or yet to accrue, in law or
in
equity, which IHHI may now or hereafter have, own or claim to
have
arising out of, connected with or otherwise related to or
concerning the Actions, any facts, circumstances or claims
which
were alleged or which could have been alleged in the pleadings
in
the Actions, or which could have been asserted in any action or
proceeding in any legal, administrative or other forum
whatsoever
in any jurisdiction, including, but not limited to, any legal
fees, court costs or expenses relating to the Actions;
provided,
however, nothing in this Settlement Agreement shall constitute
or
include a release or compromise of any claims by IHHI against
Mogel, either in his individual or representative capacity as
an
agent for any party.
THIS IS A GENERAL RELEASE.
ii.
RELEASE OF CLAIMS BY OC-PIN OC-PIN irrevocably, unconditionally
and fully releases and forever discharges IHHI, Mogel, PCHI,
Dr.
Chaudhuri, Ganesha, Thomas, MedCap (and all related and
affiliated persons and entities), and their respective past and
present subsidiaries, affiliates, officers, directors,
partners,
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agents, employees, members, managers, insurers,
representatives,
lawyers and law firms, and all persons acting by, through,
under
or in concert with them, or any of them, from any and all
rights,
suits, claims, actions, accounts, demands, contracts, debts,
controversies, agreements, promises, liabilities, duties,
obligations, costs, expenses, damages and causes of action,
whether presently known or unknown, vested or contingent,
suspected or unsuspected, accrued or yet to accrue, in law or
in
equity, which OC-PIN may now or hereafter have, own or claim to
&n
