STOCK OPTION
(ANIL V. SHAH, M.D.)
THIS STOCK OPTION (the "Option") is issued this 16th day of November,
2004, by Integrated Healthcare Holdings, Inc., a Nevada corporation
("Optionor"), to Anil V. Shah, M.D. ("Optionee").
R E C I T A L S
A. Optionor and Optionee are parties to that certain Purchase Option
Agreement, dated November 16, 2004 (the "Purchase Option Agreement").
B. In consideration of the mutual agreements set forth in the Purchase
Option Agreement, Optionor desires to grant to Optionee this Option to acquire
shares of its common stock on the terms and conditions specified herein.
A G R E E M E N T
1. GRANT OF OPTION. Optionor hereby grants to Optionee an irrevocable,
non-transferable option (the "Option") to purchase 10,000,000 shares of
Optionor's Common Stock (the "SHARES") at an exercise price (the "EXERCISE
PRICE") of $0.25 per share, subject to adjustment as provided herein. The Option
shall be exercisable at any time prior to November 30, 2005 (the "EXPIRATION
DATE"), but only if Optionee (or his assignee under the Purchase Option
Agreement) has fully exercised the "Option" under the Purchase Option Agreement
by exercising all three "Tranches" (as such terms are defined in the Purchase
Option Agreement) and delivering to Optionor a total of $17,500,000 in
connection with such exercise. The Expiration Date will be extended to a date
that is one year after the Optionor's closing at its acquisition of the property
as defined in the Purchase Option Agreement, if later than November 30, 2004.
2. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number of Shares purchasable upon the exercise of this Option shall be
subject to adjustment from time to time upon the happening of any of the
following events:
(a) If at any time Optionor subdivides its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced. If at
any time the outstanding shares of Common Stock of Optionor are combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
(b) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to this Section 2, the number of Shares purchasable upon
exercise hereof simultaneously shall be adjusted by multiplying the number of
Shares issuable immediately prior to such adjustment by the Exercise Price in
effect immediately prior to such adjustment and dividing the product so obtained
by the Exercise Price, as adjusted.
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(c) Optionor shall give notice to Optionee of any event or
transaction that results in an adjustment in the Exercise Price, within ten
business days thereof, at Optionee's address as it appears on the books of
Optionor, including a computation of such adjustment and any adjustment in the
number of Shares for which Optionee may exercise this Option and any further
information as shall be necessary to confirm the computation of such
adjustments.
(d) So long as this Option is outstanding, if (i) Optionor pays any
dividend or makes any distribution upon the Common Stock, (ii) Optionor offers
to the holders of the Common Stock for subscription or purchase by them any
share of any class of capital stock or any other rights or (iii) any capital
reorganization of Optionor, reclassification of the capital stock of Optionor,
consolidation, merger or other business combination of Optionor with or into
another entity, sale, lease or transfer of all or substantially all of the
assets of Optionor to another entity, or voluntary or involuntary dissolution,
liquidation or winding up of Optionor shall be effected, then in any such case,
Optionor shall cause to be mailed by certified mail to Optionee, at least ten
days prior to the date specified in clause (x) or (y) below, as the case may be,
a notice containing a brief description of the proposed action and stating the
date on which (x) a record date shall be established for the purpose of such
dividend, distribution or rights offering or (y) such reclassification,
reorganization, consolidation, merger, conveyance, sale, lease, transfer,
dissolution, liquidation or winding up shall take place and the date, if any to
be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
3. MANNER OF EXERCISE. Optionee may exercise this Option by delivering to
Optionor, on or prior to the Expiration Date, a written notice of election to
exercise this Option ("NOTICE OF EXERCISE"). The Notice of Exercise shall state
the election to exercise the Option and the number of shares in respect of which
it is being exercised and shall be signed by the Optionee. Such notice shall be
accompanied by payment in cash, certified check or bank draft in the amount of,
or with the prior consent of the Optionor's board of directors, any other lawful
form of consideration representing, the full purchase price of such shares. As
soon as practicable following receipt by the Optionor of the Notice of Exercise
and full payment of the Exercise Price, the Optionor shall deliver (or cause to
be delivered) to Optionee, appropriate original stock certificates in the name
of Optionee representing the Shares. The Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and nonassessable.
If this Option is exercised in part, the remaining portion of this Option shall
continue to be exercisable during the term hereof, and Optionor shall, upon
Optionee's request, issue to Optionee a replacement Option for the remaining
amount of Shares.
4. RESTRICTED SECURITIES. The share certificates delivered to the Optionee
upon exercise of this Option will bear a legend indicating that the Shares
represented thereby are "restricted securities" as defined in Rule 144
promulgated under the Securities Act of 1933, as amended ("RULE 144") and are
not transferable outside of Rule 144 unless a registration statement filed with
the Securities and Exchange Commission covering the Shares is in effect at the
time of the transfer thereof.
5. TAXES. Optionor shall pay any transfer tax payable by reason of the
granting of this Option and all other fees and expenses necessarily incurred by
the Optionor in connection therewith. 6. MISCELLANEOUS.
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6.1. NOTICES. All notices or communications required or permitted
under this Option shall be given in writing and delivered personally or sent by
United States registered or certified mail with postage prepaid and return
receipt requested or by overnight delivery service (e.g., Federal Express, DHL).
Notice shall be deemed given when sent, if sent as specified in this Section, or
otherwise deemed given when received. In each case, notice shall be delivered or
sent to:
If to Optionor, addressed to: Integrated Healthcare Holdings, Inc.
695 Town Center Drive, Suite 260
Costa Mesa, CA 92626
Attention: Chief Executive Officer
If to Optionee, addressed to: Anil V. Shah, M.D.
2621 South Bristol Street, #108
Santa Ana, California 92704
6.2. ENTIRE AGREEMENT. This Option, together with the Purchase
Option Agreement, constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
in writing.
6.3. BINDING ON SUCCESSORS. This Option binds and benefits the
respective parties hereto and their respective heirs, legal representations,
designees, successors and assigns.
6.4. ATTORNEYS' FEES. In any legal action or proceeding to enforce
or interpret the terms of this Option, the finally prevailing party shall be
entitled to recover reasonable attorneys' fees, in addition to any other relief
to which that party may be entitled.
6.5. GOVERNING LAW. This Option shall be governed by and construed
in accordance with the laws of the state of California without regard to its
choice of laws principles.
6.6. GENDER. As used herein, the masculine gender includes the
feminine and neuter, and the singular number includes the plural and the plural
number includes the singular, wherever the context requires.
6.7. DISPUTE RESOLUTION. In the event of any dispute arising out of
or relating to this Option, then such dispute shall be resolved solely and
exclusively by confidential binding arbitration with the Orange County branch of
JAMS ("JAMS") to be governed by JAMS' Commercial Rules of Arbitration in effect
at the time of the commencement of the arbitration (the "JAMS RULES") and heard
before one arbitrator. The parties shall attempt to mutually select the
arbitrator. In the event they are unable to mutually agree, the arbitrator shall
be selected by the procedures prescribed by the JAMS Rules. Each party shall
bear its own attorneys' fees, expert witness fees, and costs incurred in
connection with any arbitration.
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6.8. COUNTERPARTS. This Option may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the Optionor has executed this Option as of the date first
above written.
"OPTIONOR": INTEGRATED HEALTHCARE HOLDINGS, INC.,
a Nevada corporation
By: /s/ Larry B. Anderson
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Larry B. Anderson, President
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