STOCKHOLDER NON-COMPETITION AGREEMENT
THIS STOCKHOLDER NON-COMPETITION AGREEMENT (the "Agreement") is entered
into as of April 1, 1997, by and between TRI-CITY ORTHOPAEDIC SURGERY MEDICAL
GROUP, INC., a California professional corporation (the "Medical Group"), each
of the individuals identified on the signature page hereof (each, a
"Stockholder," and collectively, the "Stockholders"), and BONE, MUSCLE AND
JOINT, INC., a Delaware corporation ("BMJ"), with reference to the following
facts:
A. The Medical Group is engaged in the business of providing orthopedic
medical and surgical services and related medical and ancillary services (the
"Medical Services") to the general public.
B. Each Stockholder is a shareholder of the Medical Group.
C. BMJ is a corporation engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to medical groups and related facilities.
D. The Medical Group and BMJ have entered into a Management Services
Agreement effective as of the date hereof (the "Management Services Agreement"),
under which the Medical Group has agreed to cause the Stockholders to execute
this Agreement.
E. Each Stockholder is acquiring stock in BMJ in connection with the
execution of the Management Services Agreement, pursuant to a Restricted Stock
Agreement entered into by and among the Stockholders and BMJ, effective as of
the date hereof (the "Restricted Stock Agreement").
NOW, THEREFORE, in consideration of and as an inducement to BMJ's entering
into the Management Services Agreement, the Restricted Stock Agreement, and the
other agreements related thereto, and in consideration of each Stockholder's
status as a shareholder of the Medical
-1-
Group, each Stockholder hereby severally agrees with the Medical Group and BMJ
as follows:
1. Definition.
For all purposes of this Agreement, "Competitive Business" shall mean any
business that provides (i) orthopedic medical and surgical services and related
medical and ancillary services to the general public, or (ii) administrative,
billing, collection, financial, marketing, information technology and
operational services to professional medical groups relating to such groups'
provision of the professional medical and related services described in clause
(i), or any other services provided by BMJ.
2. Agreement Not to Compete or Interfere with Business.
(a) Each Stockholder acknowledges that (i) he or she is receiving
benefits from the purchase of securities from BMJ pursuant to the Restricted
Stock Agreement, (ii) the Medical Group and its affiliates conduct their
business primarily in Oceanside, California, and (iii) due to the highly
competitive nature of the Medical Group's and BMJ's businesses, the value and
goodwill of the Medical Group's and BMJ's businesses would be substantially
impaired if the Stockholder engaged in a Competitive Business. Accordingly, each
Stockholder hereby agrees that, during the period commencing on the date hereof
and ending two years after the earliest of (i) the expiration of the Management
Services Agreement, (ii) the termination of the Management Services Agreement by
BMJ pursuant to Section 13.2 thereof, or (iii) the effective date of the
Stockholder's resignation or termination of employment with the Medical Group or
sale, transfer, or other disposition of all or substantially all of the
Stockholder's equity interest in the Medical Group, he or she will not, except
as otherwise provided herein --
(A) engage, directly or indirectly, in any Competitive Business
at any location within twenty-five (25) miles of any Medical Group office (the
"Restricted Territory"), whether such engagement shall be as an employee,
officer, director, owner, partner, advisor, consultant, stockholder or other
participant in any Competitive Business
-2-
(or in any similar capacity in which the Stockholder derives an economic
benefit from a Competitive Business);
(B) assist others in engaging in any Competitive Business within
the Restricted Territory in the manner described in the foregoing clause (A);
(C) solicit, entice or induce any employee or independent
contractor of the Medical Group, BMJ, any affiliate of the Medical Group, or any
subsidiary of BMJ to terminate his or her employment or contract with any of the
foregoing or to engage in any Competitive Business within the Restricted
Territory;
(D) solicit, entice or induce any vendor, customer or distributor
of the Medical Group, BMJ, any affiliate of the Medical Group, or any subsidiary
of BMJ to terminate or materially diminish its relationship with the Medical
Group, BMJ, any affiliate of the Medical Group, or any subsidiary of BMJ; or
(E) otherwise knowingly damage, disparage or interfere with the
Medical Group, BMJ, any affiliate of the Medical Group, or any subsidiary of
BMJ;
provided, however, that nothing contained in this Agreement shall prohibit any
Stockholder from owning in the aggregate less than one percent (1.0%) of a class
of publicly-traded securities issued by any Competitive Business.
(b) (i) BMJ acknowledges that Xxxxxx Xxxx, M.D. currently conducts a
medical practice in La Jolla, California, separate and apart from his practice
with the Medical Group. Xx. Xxxx'x continuation of his La Jolla practice shall
not constitute a breach of this Agreement, provided that the following
conditions are satisfied:
(A) during the first four (4) years after the date hereof,
Xx. Xxxx shall devote at least sixty percent (60%) of his professional time,
excluding weekends and holidays, to his practice in Oceanside;
-3-
(B) except on an occasional and isolated basis, Xx. Xxxx
shall not treat at the La Jolla office any patient previously seen at the
Medical Group's Oceanside office, or any patient who initially contacts or
attempts to contact Xx. Xxxx at the Oceanside office;
(C) Xx. Xxxx shall not request any physician, payor, or
patient referral source to direct or refer any patient to his La Jolla office if
such physician, payor, or patient referral source previously directed or
referred the majority of such patients to Xx. Xxxx at his office with the
Medical Group at Oceanside; and
(D) at no time shall Xx. Xxxx move his La Jolla office to
any location which is closer to the Medical Group's Oceanside office; provided,
however, that the relocation of Xx. Xxxx'x La Jolla practice to any office
located on the current campus of Scripps Memorial Hospital shall not be
considered a violation of the condition set forth in this clause (D).
(ii) BMJ acknowledges that Xxxxx X. Xxxxxxxx, M.D. currently
provides services to patients at an occupational medicine clinic known as the
IMC Clinic, and that Xx. Xxxxxxxx spends less than an average of four (4) hours
per week in such practice. Xx. Xxxxxxxx'x continuation of such practice at the
IMC Clinic shall not constitute a breach of this Agreement so long as Xx.
Xxxxxxxx does not spend more than an average of four (4) hours per week in such
practice.
(iii) Notwithstanding anything to the contrary set forth in this
Agreement, the practice of medicine by Xxxxx Xxxxx, M.D. at a free clinic,
without compensation to Xx. Xxxxx, after Xx. Xxxxx has ceased to practice
medicine with the Medical Group, shall not constitute a breach of this
Agreement.
(iv) Notwithstanding anything to the contrary set forth in this
-4-
Agreement, the practice of medicine by Xxxxxxx X. Xxxxxxx, M.D. at a location
which is south of Encinitas and outside of a radius of fifteen (15) miles from
the Medical Group's present office in Oceanside shall not constitute a breach of
this Agreement if (A) Xx. Xxxxxxx has ceased to practice medicine with the
Medical Group and (B) Xx. Xxxxxxx has attained the age of fifty-nine and
one-half (59-1/2) years.
(v) Notwithstanding anything to the contrary set forth in this
Agreement, if a Stockholder ceases to conduct his medical practice with the
Medical Group, it shall not be a violation of this Agreement for such
Stockholder to continue his medical practice in the Restricted Territory if (A)
the Stockholder enters into a Management Services Agreement with BMJ
substantially in the form of the Management Services Agreement entered into by
and between the Medical Group and BMJ and (B) the Stockholder enters into a new
Stockholder Non-Competition Agreement with BMJ substantially in the form of this
Agreement.
(c) The Medical Group and BMJ acknowledge and agree that a Stockholder
shall have no further obligation pursuant to this Agreement in the event that
(i) the Medical Group terminates the Management Services Agreement pursuant to
Section 13.1 thereof, (ii) either party to the Management Agreement terminates
such agreement pursuant to Section 13.3 thereof, or (iii) the Stockholder's
employment by the Medical Group is terminated without cause by the Medical Group
(unless such termination is not permitted under any applicable agreement with
the Medical Group) and such termination is approved by BMJ.
3. Confidentiality.
(a) Each Stockholder acknowledges and agrees that certain information
he or she has received or will receive from the Medical Group and its affiliates
or from BMJ constitutes the confidential and proprietary trade secrets of the
Medical Group or of BMJ and that the Stockholder's non-disclosure thereof is
essential to this Agreement and a condition to
-5-
the Stockholder's use and possession thereof. The Stockholder shall retain in
strict confidence any and all such confidential information received from the
Medical Group ("Medical Group Confidential Information") or from BMJ ("BMJ
Confidential Information") (collectively, "Confidential Information") and under
no circumstances shall the Stockholder distribute or in any way disseminate
Confidential Information, directly or indirectly, to any third party or use
Confidential Information for the Stockholder's personal benefit without the
prior written consent of the Medical Group (in the case of Medical Group
Confidential Information) or without the prior written consent of BMJ (in the
case of BMJ Confidential Information).
(b) Notwithstanding the above, the Stockholder shall have no liability
to the Medical Group or its affiliates or to BMJ with respect to Confidential
Information which:
(i) was generally known and available in the public domain at the
time it was disclosed or becomes generally known and available in the public
domain through no fault of the Stockholder;
(ii) is disclosed with the prior written consent of the Medical
Group or its affiliate or BMJ;
(iii) becomes known to the Stockholder from a source other than
the Medical Group or its affiliates without breach of this Agreement by the
Stockholder and otherwise not in violation of the Medical Group's or its
affiliates' rights; or
(iv) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body; provided, however,
that the Stockholder shall provide prompt, advance notice thereof to enable the
Medical Group or its affiliate to seek a protective order or otherwise prevent
such disclosure.
(c) The Stockholder agrees to indemnify the Medical Group or its
affiliates for any damages the same may suffer as a result of the Stockholder's
or his or her agents' failure to abide by the provisions of this Section 3.
-6-
(d) The rights and obligations of the parties under this Section 3
shall survive for five (5) years following the expiration or termination of this
Agreement.
4. Acknowledgment.
Each Stockholder acknowledges that the provisions of this Agreement
are not designed to prevent the Stockholder from earning a living or fostering
his or her own career. The provisions of this Agreement are designed to prevent
any third party from gaining unfair advantage from the Stockholder's knowledge
of confidential and proprietary information relating to the Medical Group or BMJ
or otherwise damaging or interfering with the business of the Medical Group or
BMJ or from his or her participation in any Competitive Business. The
Stockholder further acknowledges receiving sufficient consideration under the
Restricted Stock Agreement to compensate him or her for any losses he or she may
suffer or incur as a result of losing any employment or other professional
opportunity as a result of entering into and performing any obligations under
this Agreement.
5. Survival; Remedies.
Each Stockholder's covenants under this Agreement shall survive
termination of the Stockholder's status as a shareholder of the Medical Group
and/or employment with the Medical Group. Each Stockholder acknowledges that a
remedy at law for any breach or threatened breach of the provisions of this
Agreement would be inadequate and therefore agrees that either the Medical Group
or BMJ shall be entitled to injunctive relief; provided, however, that nothing
contained herein shall be construed as prohibiting the Medical Group or BMJ from
pursuing any other remedies available for any such breach or threatened breach.
6. Benefits of Agreement.
This Agreement and the rights and obligations of the parties hereto
shall bind and inure to the benefit of any successor or successors of either the
Medical Group or BMJ by
-7-
reorganization, merger or consolidation or otherwise and any assignee of all or
substantially all of the business and properties of the Medical Group or BMJ.
7. Severability.
It is the desire and intent of the parties hereto that the provisions
of this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
8. Notices.
All notices or other communications required or permitted hereunder
shall be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Medical Group, to:
Tri-City Orthopaedic Surgery
Medical Group, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: President
If to a Stockholder, to:
[Name of Stockholder]
Tri-City Orthopaedic Surgery
Medical Group, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
-8-
If to BMJ, to:
Bone, Muscle and Joint, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
with a copy to:
Bone, Muscle and Joint, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx, Vice President, Western Region
and to:
Xxxxxxx and Xxxxxx Law Corporation
1900 Avenue of the Stars, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other parties in writing in accordance herewith.
Any such communication shall be deemed to have been given (a) when delivered, if
personally delivered, (b) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (c) on the third business day after
dispatch, if sent by mail.
9. Relationship Among Stockholders.
No Stockholder shall have any responsibility for any breach of this
Agreement by any other Stockholder or for any representations, warranties, acts,
or omissions of any other Stockholder. Each Stockholder is entering into this
Agreement for and on behalf of such Stockholder only, and no partnership, joint
venture, unincorporated association, or any other legal entity is intended to be
formed by or among the Stockholders as a result of or in connection with this
Agreement. The parties have chosen to execute a single instrument for
convenience only, and this Agreement shall be construed as separate and several
agreements between the Medical Group, BMJ, and each of the respective
Stockholders for all purposes.
-9-
This Agreement may be executed in separate counterparts.
10. Entire Agreement; Amendments; Prior Agreements.
The foregoing is the entire agreement of the parties with respect to
the subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by both parties hereto. This
Agreement supersedes any and all prior agreements among the parties hereto with
respect to the matters covered hereby.
11. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California without regard to the laws and principles
thereof or of any other jurisdiction which would direct the application of the
laws of another jurisdiction.
12. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating
to this Agreement, the prevailing party shall be entitled to recover from the
losing party all costs and expenses, including attorneys' fees and accountants'
fees, incurred in connection with such dispute or controversy.
13. Headings.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
TRI-CITY ORTHOPAEDIC SURGERY
MEDICAL GROUP, INC.
By:__/s/ Xxxxx X. Xxxx, M.D.______________
Xxxxx X. Xxxx, M.D., President
-10-
BONE, MUSCLE AND JOINT, INC.
By:___/s/ Xxxxxx Xxxxxx, M.D.____________
Xxxxxx Xxxxxx, M.D., President
and Chief Executive Officer
STOCKHOLDERS
=============================
Xxxxxxx Xxxxxxx, M.D. Xxxxxxx X. Xxxx, M.D.
=============================
Xxxxx X. Xxxx, M.D. Xxxxxxx X. Xxxxxxx, M.D.
=============================
Xxxxx X. Xxxxxxxx, M.D. Xxxxx Xxxxx, M.D.
-----------------------------
Xxxxxx Xxxx, M.D.
