NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made effective as of the
25th day of September, 1997, by and between Prospect Medical Group, Inc., a
California professional corporation ("Purchaser"), and Karunyan Xxxxxxxxxxxx,
M.D. ("Physician"). All capitalized terms used herein and not otherwise
expressly defined shall have the same meanings set forth in the Agreement for
the Purchase and Sale of Stock, made and entered into as of September 23, 1997,
by and among Sierra Primary Care Medical Group, Inc., a California professional
corporation ("Company"), Physician (individually and as Trustee of the
Xxxxxxxxxxxx Charitable Remainder Trust), Sinnadurai X. Xxxxxxx, M.D., and
Purchaser ("Stock Purchase Agreement").
R E C I T A L S
A. Purchaser is developing an integrated delivery system, a key
component of which is a strong network of physicians who can provide the
necessary professional medical services to payors in a designated geographic
area.
B. To build the physician component of its integrated delivery
systems, Purchaser provides a range of alternative services to and relationships
with physicians including the recruitment of physicians to a designated
geographic area, the management of physician practices, the acquisition of
assets and/or physician practices, the consolidation of physician practices, the
formation of medical groups, the establishment of outpatient clinics, etc.
C. Physician owns 400 shares directly, and controls 100 shares
indirectly through a trust, of the issued and outstanding capital stock of the
Company.
D. Physician is selling to Purchaser and Purchaser is purchasing
from Physician all of Physician's stock in Company ("Stock") pursuant to the
Stock Purchase Agreement.
E. Purchaser desires to purchase the Stock pursuant to
Purchaser's goal of developing an integrated delivery system.
F. Physician will benefit from the sale of the Stock to
Purchaser.
G. As conditions to the Closing of the transactions contemplated
by the Stock Purchase Agreement, Physician shall have entered into an agreement
in the form of this Agreement to be delivered to Purchaser, and shall have
entered into an Employment Agreement
with Company.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. PHYSICIAN'S COVENANTS.
A. As a material inducement to Purchaser to enter into the Stock
Purchase Agreement and during the term of this Agreement in the Service Area
described in Section 4 below and except as set forth herein or as permitted
under the Employment Agreement between Physician and Company, Physician
(directly or indirectly through any business, enterprise, venture, partnership,
corporation or any other entity controlled directly or indirectly by Physician
whether alone or as a partner, stockholder, creditor or otherwise):
(i) shall not practice medicine, or engage, participate, aid,
assist, or hold any interest in any business or provision of any service which
is, or as of Physician's engagement or participation, would become, competitive
with any aspect of Purchaser's or any of Purchaser's Affiliates' outpatient or
other healthcare services;
(ii) shall not sell, transfer, assign or otherwise permit another
party to benefit from, any remaining goodwill attributable to Physician based
upon the provision of physician services by or through Physician;
(iii) shall not engage or contract (other than with Purchaser or
any of Purchaser's Affiliates) for the provision of any management services to
Physician or any physician employed or under contract to Physician (as
applicable) which are the same as or substantially similar to any of the
services that Purchaser or any of Purchaser's Affiliates furnishes;
(iv) shall not solicit or assist any other person to solicit any
business relating to a competing line of business (other than for Purchaser or
any of Purchaser's Affiliates) from any present or potential customer (including
all third party payors) of Physician, any other Seller, Purchaser, or any of
their affiliates;
(v) shall not commit any other act or assist others to commit any
other act which might injure the business of Purchaser or Purchaser's
Affiliates;
(vi) shall not directly or indirectly employ, contract, solicit or
encourage any employee or other person under contract with Purchaser or any of
Purchaser's Affiliates to leave the employ of any such entity, except pursuant
to the terms of the Stock Purchase Agreement; and
(vii) shall not directly or indirectly solicit, request, advise, or
encourage any present or future supplier, customer, patient or employee of
Purchaser or Purchaser's Affiliates
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(including practices managed by Purchaser or Purchaser's Affiliates) to
withdraw, curtail, disenroll, or become enrolled with another provider of health
care, or cancel its business dealings with Purchaser or Purchaser's Affiliates,
or take any actions that might impair the relations of Purchaser or any of
Purchaser's Affiliates and their respective suppliers, customers, employees or
others.
B. The parties agree that Inpamani Xxxxxxxxxxxx, M.D., the spouse of
Physician, shall not be bound by any of the terms herein.
C. If any term or provision of this Section is determined to be
illegal, unenforceable or invalid in whole or in part for any reason, such
illegal, unenforceable or invalid provision or part thereof shall be stricken
from this Agreement, and such provision shall not affect the legality,
enforceability or validity of the remainder of this Agreement. If any provision
or part thereof of this Agreement is stricken from this Agreement, in accordance
with the provisions of this Section, then the stricken provision shall
automatically be replaced to the extent possible, with a legal, enforceable and
valid provision which is as similar in tenor to the stricken provision as is
legally possible.
2. CONFIDENTIALITY. From and after the Closing Date, Physician shall keep
secret and retain in strictest confidence, and shall not use for the benefit of
any other party, except for Purchaser or any of Purchaser's Affiliates, all
confidential matters and trade secrets known to Physician relating to the
business and operations of Physician, any other Seller, Purchaser or any of
their affiliates, including without limitation, customer lists, pricing
policies, operational methods, utilization data, provider contract terms,
patient records, marketing plans or strategies, product development techniques
or plans, business acquisition plans, new personnel designs and design projects,
invention and research projects and other business affairs relating to the
business and operations of Physician, any other Seller, Purchaser or any of
their affiliates learned by Physician before or after the date of this
Agreement, and shall not disclose them to anyone outside of Purchaser and
Purchaser's Affiliates, provided however, that this section shall not apply to
information in the public domain or to information that is sought from Physician
pursuant to subpoena or court order (but Physician must provide notice to
Purchaser or Purchaser's Affiliates in order for them to contest such subpoenas
or court orders).
3. PHYSICIAN'S REPRESENTATION. Physician specifically acknowledges,
represents, and warrants that (i) Physician's covenants set forth in this
Agreement are being purchased in connection with the sale of the Stock to
Purchaser, (ii) such covenants are reasonable and necessary to protect the
legitimate interests of Purchaser, and (iii) Purchaser would not have entered
into the Stock Purchase Agreement in the absence of such restrictions.
Physician acknowledges that this Agreement is subject to all representations,
warranties and covenants in the Stock Purchase Agreement.
4. SERVICE AREA. The Service Area to which Physician's covenants in Section 1
apply is defined as the fifteen (15) mile radius area around 0000 X. Xxxxxxxx
Xxxx., Xxxxxxxx, Xxxxxxxxxx
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93550; 00000 00xx Xxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxx 00000; and 00000 00xx
Xxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxx 00000.
5. TERM. The term of this Agreement commences as of the day and year first
above written and terminates upon the earlier to occur of:
(i) the date which is five (5) years following the day and year
first above written; or
(ii) the date which is three (3) years following the termination
or expiration of the Employment Agreement through no fault of Physician; or
(iii) the date upon which Company, as employer, is in material
default of any of Company obligations under its Employment Agreement with
Physician, and Physician terminates the Employment Agreement as a result of such
material breach.
6. DEFAULT. Any default by Company in the payment when due, of any amount
owed by Company to Physician under the Contingent Promissory Note, of even date
herewith, issued from Company to Physician, in the principal amount of
$1,125,000, which default continues for a period of ten (10) days, shall
constitute a default under this Agreement. Upon written notice from Physician
of such default, Company shall have a thirty (30) day period in which to cure
such default. In the event Company fails to cure such default within thirty
(30) days of such notice, at Physician's option, this Agreement shall terminate
and Physician shall have no further obligations hereunder.
7. MISCELLANEOUS.
A. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs (as
applicable), legal representatives, and permitted successors and assigns. No
party may assign this Agreement or the rights, interests or obligations
hereunder. Any assignment or delegation in contravention of this Section 7
shall be null and void.
B. MEDICAL STAFF PRIVILEGES. Nothing in this Agreement is intended to
prohibit Physician from maintaining professional staff membership or clinical
privileges at any acute care hospital or other health facility licensed to
provide patient care for stays in excess of twenty-four (24) hours.
C. COUNTERPARTS. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
D. HEADINGS. The section headings contained in this Agreement are
inserted for
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convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
E. AMENDMENT. This Agreement may not be amended except in writing and
as executed by all parties.
F. TIME OF ESSENCE. Time is expressly made of the essence of this
Agreement and each and every provision hereof of which time of performance is a
factor.
G. NOTICES. Any notices required or permitted to be given hereunder by
any party to the other shall be in writing and shall be deemed delivered upon
personal delivery; twenty-four (24) hours following deposit with a courier for
overnight delivery; or seventy-two (72) hours following deposit in the U.S.
Mail, registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may specify in writing:
If to Physician: Karunyan Xxxxxxxxxxxx, M.D.
0000 Xxxxxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
With copy to: Xxxx Xxxxxxx, Esq.
Xxxxx & Xxxxxx
000 X. Xxxxxx Xx., Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
If to Purchaser: Xxxxx XxXxxxxx, M.D.
Prospect Medical Group, Inc.
00000 Xxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
With copy to: Xxxx X. Xxxxxx, Esq.
Xxxxxx & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
H. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
I. INJUNCTIVE RELIEF. The parties hereto acknowledge and agree that a
breach by Physician of this Agreement will cause irreparable damage to
Purchaser, the exact amount of which will be difficult to ascertain, and that
remedies at law for any such breach will be inadequate. Accordingly, Physician
agrees that if Physician breaches this Agreement, then Purchaser shall be
entitled to injunctive relief, without bond, and Physician agrees not to assert
in any proceeding that Purchaser has an adequate remedy at law. Physician shall
pay the
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reasonable fees and expenses, including attorneys' fees, incurred by Purchaser
or any successor or assign in enforcing this Agreement.
J. SEVERABILITY. If any provision or portion of this Agreement is held
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Agreement will nevertheless continue in full force and effect
and shall not be invalidated or rendered unenforceable or otherwise adversely
affected, unless such invalidity or unenforceability would defeat an essential
business purpose of this Agreement. Without limiting the generality of the
foregoing, if the provisions of this Agreement shall be deemed to create a
restriction which is unreasonable as to either duration or geographical area, or
both, the parties agree that the provisions of this Agreement shall be enforced
for such duration and in such geographical area as any court of competent
jurisdiction may determine to be reasonable.
K. ATTORNEYS' FEES. Should either Purchaser or Physician institute any
action or procedure to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder (including without limitation
arbitration), the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including
without limitation reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the
day and year first written above.
"Purchaser":
PROSPECT MEDICAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxx, M.D.
--------------------------------
Xxxxx X. Xxxxxx, M.D., President
"Physician":
/s/ Karunyan Xxxxxxxxxxxx
------------------------------------
Karunyan Xxxxxxxxxxxx, M.D.
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