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                                                                   EXHIBIT 10.26
                                                                   -------------

                      SETTLEMENT AGREEMENT                      [Execution copy]
                      --------------------                      ----------------


THIS AGREEMENT (this "Agreement") is entered into as of January 4, 1999 between
Richard A. Gilleland ("Gilleland") and Physicians Resource Group, Inc., a
Delaware corporation ("PRG").

                             RECITATIONS OF FACTS:
                             ====================

     A.   On December 5, 1997, PRG and Gilleland entered into an employment
agreement (the "Employment Agreement") for the services of Gilleland as Chairman
of the Board, President, and Chief Executive Officer of PRG.  On October 2,
1998, a public announcement was made that Gilleland had been appointed Chief
Executive Officer of another company.  On October 29, 1998, Gilleland resigned
from the board of directors of PRG. Gilleland also resigned as an officer of
PRG.

     B.   Gilleland and PRG were in disagreement about the severance payments
owed to Gilleland under the Employment Agreement (the "Dispute").

     C.   Although not to be construed as an admission of liability by any party
to this Agreement, the parties to the Dispute and to this Agreement have
resolved the issues in the Dispute by mutual agreement, and the terms of the
resolution and agreement are contained in this Agreement.  By execution of this
document, all parties to this Agreement acknowledge that they clearly understand
each of the terms of this Agreement and have had an opportunity to seek legal
advice concerning this Agreement.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as follows:

1.   Closing.  The "Closing" contemplated by this Agreement will occur on or
     -------        -------
before February 8, 1999, if counterpart signature pages have been executed by
both parties.

2.   Payment at Closing; Retention of Computers.  At the Closing, PRG shall
     ------------------------------------------
tender to the Gilleland a cashier's check made payable to the order of Gilleland
in the total amount of TWO HUNDRED THIRTY FIVE THOUSAND DOLLARS ($235,000.00),
which is the equivalent of a one year bonus ($270,000) (from January 5, 1998
through January 4, 1999) and an amount equal to Gilleland's salary from the date
of his last paycheck through January 4, 1999 ($45,000), minus a deduction
($80,000) discussed by the parties.  In addition,

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Gilleland shall have no obligation to return to PRG the obsolete personal
computer which PRG transferred to a student at Gilleland's request or the
obsolete personal computer which PRG transferred to Gilleland for his personal
use.

3.   Release; Termination of Employment Agreement and Stock Options.  In
     --------------------------------------------------------------
consideration of the foregoing, Gilleland agrees to and does hereby RELEASE,
ACQUIT, and FOREVER DISCHARGE PRG and each of its affiliates, directors,
officers, employees, attorneys, accountants, advisors and consultants from All
Claims and assigns, quitclaims and transfers to PRG All Claims.  As used herein,
"ALL CLAIMS" means all claims, demands, and causes of action, known or unknown,
pending or threatened, for all damages and remedies of any kind or nature
whatsoever that have been brought or that could have been brought by or on
behalf of Gilleland against PRG or any of its affiliates, directors, officers,
employees, attorneys, accountants, advisors or consultants directly or
indirectly arising out of the Employment Agreement and/or Gilleland's employment
relationship with PRG and/or his position as a director of PRG or otherwise
arising out of any matter that occurred prior to the date of this Agreement.
This definition of "All Claims" specifically excludes any and all obligations
and liabilities arising under or as a result of this Agreement.  All of PRG's
obligations under the Employment Agreement and all of the stock options granted
to Gilleland pursuant to or in connection with the Employment Agreement are
hereby terminated and cancelled and shall be of no further force and effect, and
the instruments evidencing such stock options shall be returned to PRG by
Gilleland immediately after the execution of this Agreement.

4.   Time To Review. Gilleland understands that this Agreement includes a
     --------------
release of claims arising under the Age Discrimination in Employment Act.
Gilleland understands and warrants that he has been offered a period of 21 days
to review and consider this Agreement. By his signature hereon, Gilleland
warrants that he has been fully and fairly advised by his legal counsel as to
the terms of this Agreement. Gilleland further warrants that he has used as much
or all of his 21-day period as he wished before signing and warrants that he has
done so.

5.   Revocation and Notice. Gilleland also warrants that he understands that he
     ---------------------
has until 5:00 p.m. (Pacific Standard Time) on the seventh day following the
execution of this Agreement to revoke this Agreement by notice in writing to
Michael Yeary, President of PRG by facsimile at (713) 629-0572, with a copy to
James S. Ryan, III, Jackson & Walker, by facsimile at (214) 953-5736, and the
original delivered by regular mail to the addresses shown at the end of this
Agreement.  This Agreement shall be binding, effective and enforceable upon the
parties upon the expiration of this seven-day revocation period if such
revocation notice has not been received by the persons indicated above prior
thereto.

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Contemporaneously with any such revocation, Gilleland must also return to PRG in
good funds the amount of the payment shown in Section 2 hereof.

6.   Adequacy of Consideration; No Admission Against Interest.  PRG and
     --------------------------------------------------------
Gilleland acknowledge the receipt and sufficiency of the consideration hereunder
by signing this Agreement.  Neither the execution of this Agreement nor the
payment or performance hereunder is an admission of liability or an admission
against interest by PRG or Gilleland and may not be so construed.  PRG and
Gilleland acknowledge that this Agreement is made as a compromise to avoid
further expense and to terminate for all time the Dispute.

7.   Assignment; Successors.  Subject to other provisions hereof, if any,
     ----------------------
limiting assignment, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns and, in the
case of individuals, their heirs and legal representatives.

8.   Severability.  Should any provision of this Agreement be held unenforceable
     ------------
or invalid under the laws of the United States of America or the State of Texas
or under any other applicable laws of any other jurisdiction, then the parties
hereto agree that such provision shall be deemed modified for purposes of
performance of this Agreement in such jurisdiction to the extent necessary to
render it lawful and enforceable, or if such a modification is not possible
without materially altering the intention of the parties hereto, then such
provision shall be severed herefrom for purposes of performance of this
Agreement in such jurisdiction.  The validity of the remaining provisions of
this Agreement shall not be affected by any such modification or severance,
except that if any severance materially alters the intentions of the parties
hereto as expressed herein (a modification being permitted only if there is no
material alteration), then the parties hereto shall use reasonable efforts to
agree to appropriate equitable amendments to this Agreement in light of such
severance.

9.   Entire Agreement.  THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE
     ----------------
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

10.  Amendment; Waiver.  This Agreement may be amended, modified, superseded or
     -----------------
canceled, and any of the terms, provisions, representations, warranties,
covenants or

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agreements hereof may be waived, only by a written instrument executed by all
parties hereto, or, in the case of a waiver, by the party waiving compliance.

11.  Counterparts.  This Agreement may be executed simultaneously in two or more
     ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as signatories.

12.  Notices.  Any notices or other communications given under this Agreement
     -------
must be (i) given in writing and personally delivered or mailed by prepaid first
class mail or (ii) made by facsimile transmission to the party to whom such
notice or communication is directed, to the address or facsimile number of such
party stated beside its name on the signature lines below (or otherwise provided
to or obtained by the sending party), with a copy to the other persons
indicated.  Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is mailed or personally
delivered or, if transmitted by facsimile, on the day that such notice is
transmitted.  Any party may change its address, telephone number or facsimile
number for purposes of this Agreement by giving notice of such change to the
other parties pursuant to this Section.

13.  Governing Law.  This Agreement shall be construed and enforced in
     -------------
accordance with the laws of the State of Texas, without regard to conflict-of-
laws rules as applied in Texas.

EXECUTED as of January 4, 1999.



/s/ Richard A. Gilleland                PHYSICIANS RESOURCE GROUP INC.
---------------------------
Richard A. Gilleland
(2/4/99)                                By: /s/ Michael Yeary, Pres.
                                            -----------------------------------
                                            Michael Yeary, President (2/8/99)


Mr. Richard A. Gilleland                Mr. Michael Yeary
2829 Townsgate Road, Suite 301          Physicians Resource Group, Inc.
Westlake Village, California 91361      5005 Riverway, Suite 400
Telephone  (805) 374-2737               Houston, Texas 77056
Facsimile: (805) 374-2736               Telephone: (713) 629-0572
                                        Facsimile: (713) 629-5780

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