SETTLEMENT AGREEMENT
This is an agreement to settle the dispute among Xxxxx Xxxxx Medical
Group, Inc. ("YLMG"), the senior shareholders of YLMG as identified on the
signature page of this Agreement ("the Senior Shareholders"), the junior
shareholders of YLMG as identified on the signature page of this Agreement
("the Junior Shareholders") who intend to form Xxxxx Xxxxx Family Physicians,
a Medical Group, Inc. ("YLFP") and Prospect Medical Holdings, Inc. ("PMH"),
its subsidiaries and affiliates (collectively referenced as "Prospect").
This document sets out the material terms of the agreement, which will be
memorialized in a long-form agreement to be drafted and signed by all parties.
The parties have agreed to the following material terms and conditions:
1. SENIOR SHAREHOLDERS NON-COMPETE AND PMH STOCK SURRENDER.
The Senior Shareholders will end their affiliation with
Prospect and surrender to PMH all of the PMH stock which was
previously issued to them plus the sum of $56,762.48. The
stock and funds will be transferred July 1, 1998, but the
service agreements between the Senior Shareholders and
Prospect may terminate at a later date at the Senior
Shareholders' option. Prospect will release the Senior
Shareholders from the non-competition covenants contained in
article X of the Stock Redemption Agreements previously
entered into by each such physician. In addition,
notwithstanding any provision contained in articles IX or X
of the Stock Redemption Agreements, each Senior Shareholder
may continue to treat those patients who have designated the
Senior Shareholder as his or her primary care physician.
2. JUNIOR STOCKHOLDERS NON-COMPETE AND YLMG STOCK SURRENDER.
YLMG will release the Junior Shareholders from any
restrictive covenant to which they may be bound under their
agreements with YLMG. The Junior Shareholders will
surrender to YLMG any and all of their ownership interest in
YLMG and its assets. YLMG shall pay the sum of $5,000 to
each Junior Shareholder in respect of the YLMG stock each is
surrendering.
3. NON-SOLICITATION OF PATIENTS. Notwithstanding the
provisions of paragraphs 1 and 2 above, the parties
acknowledge and agree that effective immediately and
continuing through and including January 1, 2000, the names,
addresses, and other data relating to the patients of the
physicians who are signatories to this agreement, including
but not limited to any list containing such information,
shall be deemed "trade secrets" as defined under Civil Code
Section 3426.1(d). The parties further agree that effective
immediately and continuing through and including
January 1, 2000, no party may use any trade secret to
solicit, directly or indirectly, any patient of any other
physician signatory. However, nothing in this paragraph should
be construed to prevent any signatory to this agreement from
soliciting patients by general advertising, mass mailings, or
other similar means which do not use protected trade secrets, as
defined herein, as the basis for identifying the persons to whom
the mailing or advertising is directed.
4. JUNIOR SHAREHOLDERS ACCOUNTS RECEIVABLE. YLMG shall
transfer to the Junior Shareholders (or YLFP if so
designated by the Junior Shareholders) thirty percent (30%)
of the net amount collected from all YLMG medical services
rendered through June 30, 1998 which are collected after
that date. Prospect shall continue billing and collecting
for all YLMG medical services rendered prior to July 1, 1998
for a fee equal to eight percent (8%) of the amount
collected on and after such date, which fee shall be
retained by Prospect from said collections. Prospect shall
remit thirty percent (30%) of such net collections to the
Junior Shareholders and the balance to YLMG to be paid on
the business day after collection. Payments on all patient
accounts, including over-the-counter payments, shall be
credited to the oldest account receivables. Global
obstetrical fees for patients of the Junior Shareholders who
deliver on or after July 1, 1998 shall be the responsibility
and property of the Junior Shareholders. Prospect shall not
be obligated to prepare financial statements on or after
July 1, 1998, but shall continue to prepare the following
reports which currently are provided to YLMG: (1) physician
production report, (2) daily deposit report, and (3)
accounts receivable collection report. Following the close
of each month, Prospect shall deliver to YLMG a
reconciliation covering any overpayments or other required
adjustments.
5. JUNIOR SHAREHOLDERS BACK PAY. The Junior Shareholders shall
be entitled to all of their back pay accrued through May 31,
1998, together with interest at the rate of 8% from the
first day of January next following the date such
compensation became delinquent, with such payment to be made
on July 1, 1998. Such back pay shall include, but not be
limited to, task force stipends to be paid based upon
meeting attendance from June 1997 through June 1998 at $250
per month. Additionally, the Junior Shareholders shall
continue to be entitled to 40% of their collections through
June 30, 1998, to be paid to the Junior Shareholders on or
before July 31, 1998. All professional liability insurance
premiums, licensing fees and dues which are due through June
30, 1998, and have been historically paid by YLMG, shall be
paid by YLMG for all Junior Shareholders. However, YLFP
agrees to reimburse YLMG for its pro-rata share of the July
1998 malpractice insurance premium (due in June 1998) from
the joint signature account established pursuant to
paragraph 8 herein.
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6. SCPIE STOCK. YLMG shall release its claim and entitlement
to the SCPIE Holdings stock currently registered in the
names of the Junior Shareholders.
7. JUNIOR SHAREHOLDERS PRACTICE NAME AND LOCATION. The Junior
Shareholders will resign from employment with YLMG effective
July 1, 1998, provided that all payments upon closing which
are required by this Agreement have been made, and all other
conditions precedent which are required by this Agreement
have been satisfied, by that date. Thereafter, the Junior
Shareholders will be permitted to maintain an office in
their current building until November 30, 1998, under a
comprehensive full service lease with rent at $1.75 per
square foot and commercially reasonable terms under which
the Junior Shareholders will be responsible for insurance.
Rent for holding over from December 1, 1998 through December
15, 1998 shall be at 110% of base rent. Thereafter, rent
shall be at 200% of the base rate. The Junior Shareholders
will occupy the following three suites: Suites 130, 140 and
160 within the current building. The parties agree that
some or all of the Junior Shareholders will be required to
move their office location within the current building. The
cost of the move within the current building will be borne
by YLMG. Each physician will maintain custody of the
medical records for his or her patients. The Junior
Shareholders may use the name "Xxxxx Xxxxx Family
Physicians, a Medical Group, Inc." but will not be entitled
to external signage at the current Xxxxx Xxxxx building.
The Junior Shareholders may use an internal sign of similar
size and style as the existing YLMG Urgent Care sign. All
other current internal signage shall be modified to reflect
the change in affiliation of the Junior Shareholders from
YLMG to YLFP. The Junior Shareholders may use without
charge the furniture and medical equipment of YLMG in the
offices they occupy until they vacate the Xxxxx Xxxxx
building. However, the Junior Shareholders shall pay thirty
(30%) of the current lease payment obligations of YLMG for
the telephone system and photocopiers. Payment shall be made
by YLFP no later than ten business days after presentment of
the approved invoice by YLMG. Upon vacating the Xxxxx Xxxxx
building, the Junior Shareholders may take (1) the furniture
from their back office consultation rooms, (2) five (5) hand
held dopplers, and (3) the NST machine, but no other
furniture, equipment or supplies. The Junior Shareholders
will be responsible for all administration and management of
their practices on and after July 1, 1998.
8. JUNIOR SHAREHOLDERS START-UP EXPENSES. YLMG shall reimburse
the Junior Shareholders for their reasonable start-up
expenses of their new offices away from the current
building, including but not limited to, moving expenses and
tenant improvements. Such expenses shall not include
salaries or working capital. YLMG's maximum obligation for
such expenses is $150,000, and YLMG will pay that sum
($150,000) into a joint signature account established no
later than July 1, 1998. Each check on
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such account shall be co-signed by one authorized Senior
Shareholder and one authorized Junior Shareholder. Only one
distribution shall be made from the account each week, on
Friday, for expenses submitted for payment on or before the
close of business on the preceding business day. Interest, if
any, on the account shall accrue to YLMG.
9. ATTORNEY'S FEES. YLMG and the Senior Shareholders represent
to Prospect and the Junior Shareholders that none of the
attorneys' fees incurred in association with negotiations
with St. Jude Heritage Health Foundation, in connection with
the negotiation of this Agreement, or in connection with the
pending litigation between the parties have been borne by
YLMG.
10. COOPERATING ON TRANSFER. The parties will cooperate on any
patient transfer issues which arise from this Agreement.
Such cooperation will include, but not be limited to,
drafting a "neutral" announcement, the form of which will be
agreed upon prior to being sent to the patients of the
Senior Shareholders or Junior Shareholders. Prospect will
cooperate in transferring management and administrative
functions to YLMG and its agents or designees, and shall
authorize third party payors to release information on the
Senior Shareholders patients to the designee of YLMG. Such
designee shall be considered a successor in interest with
respect to enforcement of this provision.
11. COOPERATING ON PATIENT CARE. The parties will cooperate on
the continuing patient care of their respective patients on
and after July 1, 1998. Such cooperation shall include, but
not be limited to, properly directing patients presenting at
the YLMG or YLFP offices to the proper location for such
patients' designated physician, allowing YLFP use of the
flexible sigmoidoscopy, colposcopy and treadmill equipment
and facilities (for which YLMG will reimbursed at the rate
of $35 per case), and directing telephone inquiries from
patients to the appropriate designated physician or such
physician's staff.
12. TRANSITION TEAM. A transition team comprised of Xxxxxxx X.
Xxx, M.D., representing the Senior Shareholders, and Xxxx X.
Xxxxxx, M.D., representing the Junior Shareholders, shall be
established effective immediately and shall continue in
existence until at least January 15, 1999. During its first
two months of operations, the transition team shall meet at
least twice a week to discuss and resolve operational and
other issues which arise in connection with the transition
of the Junior Shareholders and their patients from YLMG to
YLFP. Thereafter the transition team shall meet at least
once a week for that purpose. In the first instance, the
parties shall report to their designated representative any
and all issues which arise in connection with the
transition. In the event the transition team is not able to
effect a
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satisfactory resolution of an issue raised by a party, the party
shall submit the issue to mediation. YLMG and YLFP shall split
equally the fees of the mediator. However, nothing in this
paragraph shall be construed to require the parties to mediate
any dispute arising in connection with any alleged breach of
this Agreement. Mediation shall be required only for issues
arising in connection with the transition, as discussed herein.
13. PMH STOCK CERTIFICATES. Xxxxxxx X. Xxxxxxxx shall collect
and maintain custody of the PMH stock certificates from the
Senior Shareholders, so that they can be surrendered to PMH
upon the execution of the long form agreement.
14. MUTUAL RELEASE. Prospect and the Junior Shareholders, on
the one hand, and YLMG and the Senior Shareholders on the
other hand, will mutually release each other, and their
respective directors, officers, employees, and attorneys,
from any and all existing claims, whether known or unknown,
and also waive the provisions of California Civil Code
Section 1542 so that full effect can be given to this
release. Upon the signature by all parties of the long-form
agreement, the Junior Shareholders shall dismiss with
prejudice the action styled XXXXXXXX X. XXXXXXX, Orange
County Superior Court Case No. 795018. In addition, the
Junior Shareholders shall request that the Court continue
for two (2) weeks the hearing presently scheduled for June
30, 1998, in connection with the Junior Shareholders'
petition for a writ of mandate requiring the disclosure of
certain documents, in order to permit the parties to prepare
and execute a long-form agreement.
15. CLOSING. Except as otherwise provided in this agreement,
the closing of the transaction between the parties and the
delivery of payments and other materials shall occur at 9:00
a.m. on Wednesday, July 1, 1998 at the offices of YLMG.
16. BINDING EFFECT. Although the parties anticipate drafting
and executing a more formal agreement, this letter
agreement, once fully executed, shall be binding upon the
parties and fully enforceable under the provisions of
California Code of Civil Procedure Section 664.6. This
Agreement may be executed in counterparts and shall be
deemed fully executed when each party has signed and
transmitted a counterpart to the other. All counterparts
taken together shall constitute a single agreement.
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The parties have indicated their acceptance of the terms of this agreement
by their signatures below.
/s/ Xxxxxxx X. Xxxxxxxx /s/ Xxxxxx X. Xxxxx, M.D.,
----------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxx, M.D.,
Attorney for Xxxxx Xxxxx President, Xxxxx Xxxxx Medical
Medical Group, Inc., and the Group, Inc.
Senior Shareholders
SENIOR SHAREHOLDERS /s/ R. Xxxxx Xxxx, M.D.
-----------------------------------
R. Xxxxx Xxxx, M.D., Secretary,
Xxxxx Xxxxx Medical Group, Inc.
/s/ W. Xxx XxXxxxx, M.D. /s/ Xxxxxx X. Xxxxx, M.D.
----------------------------------- -----------------------------------
W. Xxx XxXxxxx, M.D. Xxxxxx X. Xxxxx, M.D.
/s/ Xxxx X. Xxxxxxx, M.D. /s/ Xxxx X. Xxxxx, M.D.
----------------------------------- -----------------------------------
Xxxx X. Xxxxxxx, M.D. Xxxx X. Xxxxx, M.D.
/s/ Xxxxxxx X. Xxxxxxxx, M.D. /s/ R. Xxxxx Xxxx, M.D.
----------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxxxx, M.D. R. Xxxxx Xxxx, M.D.
/s/Xxxxx X.X. Xxxxxxx, M.D. /s/ Xxxxxxx X. Xxx, M.D.
----------------------------------- -----------------------------------
Xxxxx X.X. Xxxxxxx, M.D. Xxxxxxx X. Xxx, M.D.
/s/ Xxxxxx X. Xxx, M.D. /s/ Xxxx X. Xxxxxxx, M.D.
----------------------------------- -----------------------------------
Xxxxxx X. Xxx, M.D. Xxxx X. Xxxxxxx, M.D.
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JUNIOR SHAREHOLDERS
/s/ Xxxxxxx X. Xxxxxx, Esq.
-----------------------------------
Xxxxxxx X. Xxxxxx, Esq.
Attorney for Junior
Shareholders
/s/ Xxxxx X. XxXxxxxx, M.D. /s/ Xxxxxxx X. Xxxx, M.D.
----------------------------------- -----------------------------------
Xxxxx X. XxXxxxxx, M.D. Xxxxxxx X. Xxxx, M.D.
/s/ Xxxxxx X. Xxxxxx, M.D. /s/ Xxxxxx X. Xxxxxx, M..D
----------------------------------- -----------------------------------
Xxxxxx X. Xxxxxx, M.D. Xxxxxx X. Xxxxxx, M..D
/s/ Xxxxxx X. May, M.D. /s/ Xxxx X. Xxxxxx, M.D.
----------------------------------- -----------------------------------
Xxxxxx X. May, M.D. Xxxx X. Xxxxxx, M.D.
PROSPECT
/s/ Xxxxxxx X. Xxxxxxx, Esq. /s/ Xxxxx X. Xxxxxx, M.D.
----------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxxx, Esq. Xxxxx X. Xxxxxx, M.D., President,
Attorneys for Prospect Prospect Medical Holdings, Inc.
/s/ Xxxxx X. XxXxxxxx, M.D. /s/ Xxxxx X. XxXxxxxx, M.D.
----------------------------------- -----------------------------------
Xxxxx X. XxXxxxxx, M.D., __________________, Secretary,
President, Prospect Medical Prospect Medical Holdings,
Group, Inc. Inc.
/s/ Xxxxx X. XxXxxxxx, M.D.
-----------------------------------
__________________, Secretary,
Prospect Medical Group, Inc.
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