UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT

September    , 2007

Dear Fellow Stockholder:

On behalf of the Board of Directors and management of our Company, I cordially invite you to attend the 2007 Annual Meeting of Stockholders of Prospect Medical Holdings, Inc. to be held at 9:00 a.m. local time on November 14, 2007, at our corporate headquarters, 400 Corporate Pointe, Suite 525, Culver City, CA 90230.

The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the Annual Meeting. Once that business has been concluded, there will be a management presentation and a brief question and answer session.

We sincerely hope you will be able to attend our 2007 Annual Meeting of Stockholders. However, whether or not you personally attend, and regardless of the number of shares you own, it is important that your shares be represented at the Annual Meeting. Therefore, please take the time to vote by completing and mailing the enclosed proxy card to us.

Thank you for your continued support of Prospect Medical Holdings, Inc.

	Sincerely yours,
	Jacob Y. Terner, M.D.
	Chairman of the Board and Chief Executive Officer

 

NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS

The 2007 Annual Meeting of Stockholders of Prospect Medical Holdings, Inc. will be held at our corporate headquarters, 400 Corporate Pointe, Suite 525, Culver City, CA 90230, on November 14, 2007 at 9:00 a.m. (local time), for the following purposes, as more fully described in the accompanying proxy statement:

(1)         To elect seven directors to hold office until our next annual stockholders meeting;

(2)         To approve the adoption of the Prospect Medical Holdings, Inc. 2007 Omnibus Equity Incentive Plan;

(3)         To ratify the selection by the Audit Committee of our Board of Directors of Ernst & Young LLP as our independent auditors for 2007;

(4)         To approve the issuance of shares of Common Stock upon conversion of the Company’s currently outstanding Series B Preferred Stock and any resulting potential change of control; and

(5)         To transact such other business as may properly come before the meeting.

Our Board of Directors has set September 21, 2007 as the record date for the meeting. This means that holders of record of shares of our Common Stock at the close of business on that date are entitled to receive notice of, and to vote at, the meeting or any adjournment or postponement of the meeting. A complete list of stockholders as of the close of business on September 21, 2007 will be available for inspection by stockholders during normal business hours from October 12, 2007 through November 13, 2007, at our principal executive offices located at 400 Corporate Point Suite 525, Culver City, CA 90230. The list will also be available for inspection by stockholders at the meeting.

 

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 2007 Annual Meeting of Stockholders of Prospect Medical Holdings, Inc. To avoid delay and additional expense, and to ensure your representation at the meeting, please vote as promptly as possible, regardless of whether you plan to attend the meeting. To vote, please mark, sign, date and mail the proxy card included with this proxy statement using the enclosed envelope, which requires no postage. If you attend the annual meeting in person, you may vote at the meeting even if you have previously returned a proxy or voted by telephone. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

PROXY STATEMENT TABLE OF CONTENTS

		Page
Questions and Answers		1
Summary of Proposals to Be Voted On		6
Proposal 1: Election of Directors		8
The Board of Directors and Its Committees		11
Code of Ethics		15
Section 16(a) Beneficial Ownership Reporting Compliance		16
Certain Relationships and Related Transactions		16
Securities Ownership of Certain Beneficial Owners and Management		18
Stock Price Performance		21
Executive Compensation		22
Employment Arrangements		23
Director Compensation		24
Compensation Committee Report		25
Equity Compensation Plan Information		26
Proposal 2: Approval of 2007 Omnibus Equity Incentive Plan		27
Audit Committee Report		32
Principal Accountant Fees and Services		33
Proposal 3: Ratification of Selection of Independent Auditors		33
Proposal 4: Approval of Issuance of Common Stock upon Conversion of the Company’s Currently Outstanding Series B Preferred Stock and Any Resulting Potential Change of Control		34
Other Matters		37
Procedures for Stockholder Communications, Recommendations of Board Nominees and Stockholder Proposals		37
Additional Information		38
Appendix A: 2007 Omnibus Equity Incentive Plan		A-1

 

PROXY STATEMENT

The Board of Directors is furnishing you this proxy statement to solicit proxies on its behalf for use at the 2007 Annual Meeting of Stockholders of Prospect Medical Holdings, Inc., and at any adjournments or postponements of the meeting. The meeting will be held at our corporate headquarters, 400 Corporate Pointe, Suite 525, Culver City, CA 90230 on November 14, 2007, at 9:00 a.m. (local time). We expect to mail this proxy statement and the accompanying proxy card beginning on or about September      , 2007 to stockholders of record as of September 21, 2007. In this proxy statement, we refer to Prospect Medical Holdings, Inc. as the “Company,” “we,” “us” or “our.” We also refer to this proxy statement, the proxy card and our 2006 annual report to stockholders as the “proxy materials.”

The Board is asking you to vote your shares by completing, signing and returning the proxy card. If you attend the annual meeting in person, you may vote at the meeting even if you have previously returned a proxy. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

QUESTIONS AND ANSWERS

What is a proxy?

A proxy is the legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. We have designated Jacob Y. Terner, our Chairman and Chief Executive Officer, and Kenneth Schwartz, one of our independent directors, as proxies for the meeting. By completing, signing and returning the accompanying proxy card, you are authorizing Messrs. Terner and Schwartz to vote your shares at the meeting as you have instructed them on the proxy card. This way, your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, it is a good idea to complete, sign and return your proxy card before the meeting date just in case your plans change. You may vote at the meeting even if you have previously returned a proxy.

What is a proxy statement?

A proxy statement is a document that regulations of the Securities and Exchange Commission, or SEC, require us to give you when we ask you to sign a proxy card designating Messrs. Terner and Schwartz as proxies to vote on your behalf.

What is in this proxy statement?

This proxy statement describes the proposals on which we would like you, as a stockholder, to vote at the annual meeting. It also gives you information on the proposals, as well as other information about us, so that you can make an informed decision.

What am I voting on?

We are asking you to vote on the following proposals:

·       To elect seven directors to hold office until our next annual stockholders meeting;

·       To approve the adoption of the Prospect Medical Holdings, Inc. 2007 Omnibus Equity Incentive Plan;

·       To ratify the selection by the Audit Committee of our Board of Directors of Ernst & Young LLP as our independent auditors for 2007;

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·       To approve the issuance of shares of Common Stock upon conversion of the Company’s currently outstanding Series B Preferred Stock and any resulting potential change of control; and

·       To transact such other business as may properly come before the meeting.

The section appearing later in this proxy statement entitled “Summary of Proposals to Be Voted On” will give you more information on these proposals.

Who can vote at the annual meeting?

Only stockholders of record at the close of business on September 21, 2007, which is the Record Date, are entitled to receive notice of, and to vote at, the annual meeting or any adjournment or postponement of the annual meeting. Each share is entitled to one vote on each of the proposals to be voted on at the annual meeting. There were approximately 11,370,234 shares of our Common Stock outstanding on the Record Date.

What is the difference between a stockholder of record and a stockholder who holds stock in street name?

·       If your shares are registered in your name, you are a stockholder of record.

·       If your shares are in the name of your broker or bank, your shares are held in street name.

What different methods can I use to vote?

You may vote by mail.   You do this by completing and signing your proxy card and mailing it to our transfer agent, American Stock Transfer & Trust Company, using the prepaid and addressed envelope included with this proxy statement. If you mark your voting instructions on the proxy card, your shares will be voted:

·       as you instruct, and

·       at the discretion of Messrs. Terner and Schwartz, if a proposal properly comes up for a vote at the meeting that is not on the proxy card.

For your voting instructions to be effective, your proxy card must be received by the Company’s transfer agent no later than the close of business on November 13, 2007.

You may vote in person at the meeting.   We will pass out written ballots to stockholders of record who want to vote in person at the meeting. However, if you hold your shares in street name, you must request a proxy from the person in whose name your shares are held, usually your stockbroker, to vote at the meeting.

If you hold your shares through a bank, broker or other holder of record, check the information provided by that entity to determine which voting options are available to you.

What does it mean if I receive more than one proxy card?

It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete, sign and return all proxy cards to ensure that all your shares are voted. Unless you need multiple accounts for specific purposes, it may be less confusing if you consolidate as many of your transfer agent or brokerage accounts as possible under the same name and address.

What if I change my mind after I return my proxy card?

You may revoke your proxy card and change your vote by:

·       signing another proxy card with a later date and returning it before the polls close at the meeting, or

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·       voting in person at the meeting.

However, if you hold your shares in street name, you must request a proxy from the person in whose name your shares are held, usually your stockbroker, to vote at the meeting.

Will my shares be voted if I do not return my proxy card?

If your shares are held in street name, your brokerage firm, under certain circumstances, may vote your shares.

Brokerage firms have authority under American Stock Exchange, or AMEX, rules to vote customers’ unvoted shares on some “routine” matters. If you do not give instructions to your broker, your broker can vote your shares with respect to routine matters. Under these rules, proposals 1 and 3 described later under “Summary of Proposals to Be Voted On” are considered routine matters. On non-routine matters for which you do not give your broker instruction, the shares will be treated as broker non-votes.

If you do not return a proxy card to vote your shares, your brokerage firm may either:

·       vote your shares on routine matters, or

·       leave your shares unvoted.

We encourage you to provide instructions to your brokerage firm by returning your proxy card. This ensures that your shares will be voted at the meeting.

How many shares must be present to hold the meeting?

To hold the annual meeting and conduct business, a majority of the Company’s outstanding shares as of the Record Date must be present at the meeting. This is called a quorum.

Shares are counted as present at the meeting if the stockholder either:

·       is present and votes in person at the meeting, or

·       has properly submitted a proxy.

Abstentions and broker non-votes will be counted for purposes of determining the presence or absence of a quorum at the meeting.

What are my voting choices when voting for director nominees, and what vote is needed to elect directors?

In the vote to elect the seven director nominees to hold office until our next annual stockholders meeting, you may:

·       vote in favor of all nominees,

·       vote to withhold votes as to all nominees, or

·       vote to withhold votes as to specific nominees.

The nominees receiving the highest number of votes for election will be elected as directors. This number is called a plurality.

What are my voting choices when voting on the proposal to approve the 2007 Omnibus Equity Incentive Plan, and what vote is needed to approve this proposal?

In the vote to approve the 2007 Omnibus Equity Incentive Plan, you may:

·       vote in favor of adopting the plan,

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·       vote against adoption of the plan, or

·       abstain from voting on this proposal.

The proposal to adopt the 2007 Omnibus Equity Incentive Plan will be approved if a majority of the shares present at the meeting, in person or by proxy and entitled to vote on the matter, vote for approval.

What are my voting choices when voting on the proposal to ratify the selection by the Audit Committee of Ernst & Young LLP as the Company’s independent auditors for 2007, and what vote is needed to approve this proposal?

In the vote on the ratification of the selection by the Audit Committee of our Board of Directors of Ernst & Young LLP as our independent auditors for 2007, you may:

·       vote in favor of the ratification,

·       vote against the ratification, or

·       abstain from voting on the ratification.

The proposal to ratify the selection of Ernst & Young LLP as our independent auditors for 2007 will be approved if holders of a majority of the shares present at the meeting, in person or by proxy and entitled to vote on the matter, vote for approval. The Audit Committee of the Board of Directors in its discretion may appoint different independent auditors for 2007 at any time if it determines that doing so would be in the best interest of the Company and its stockholders.

What are my voting choices when voting on the proposal to approve the convertibility of the Series B Preferred Stock to Common Stock, and what vote is needed to approve this proposal?

In the vote to approve the convertibility of the Series B Preferred Stock to Common Stock, you may:

·       vote in favor of the proposal,

·       vote against the proposal, or

·       abstain from voting on the proposal.

The proposal to approve the convertibility of the Series B Preferred Stock will be approved if a majority of the shares present at the meeting, in person or by proxy (not counting shares of Common Stock received by the former shareholders of Alta Healthcare System, Inc. (“Alta”) when the Company acquired Alta) and entitled to vote on the matter, are voted in favor of the proposal.

What happens if a nominee is unable to stand for election?

The Board may reduce the number of nominees or select a substitute nominee. In the latter case, if you have completed, signed and returned your proxy card, Messrs. Terner and Schwartz can vote your shares for a substitute nominee. They cannot vote for more than seven nominees.

How are withheld votes, abstentions and broker non-votes counted?

If you withhold your vote from any one or more of the director nominees, your shares will not be counted as casting votes for such nominees. If you abstain from voting on any of the other proposals, it will have the same effect as a vote “against” the proposal. Broker non-votes have no effect and will not be counted toward the vote total for any proposal.

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What if I return my proxy without providing any voting instructions?

If you give your proxy without voting instructions, your shares will be counted as a vote for each director nominee and for each of the proposals described above.

Is my vote kept confidential?

Proxies, ballots and voting tabulations identifying stockholders are kept confidential and will not be disclosed to third parties except as may be necessary to meet legal requirements.

Where do I find the voting results of the meeting?

We will announce preliminary voting results at the meeting. We will publish the final results in our annual report on Form 10-K for the year ending September 30, 2007 or earlier on a Form 8-K. We intend to file the report on Form 10-K no later than December 29, 2007 with the Securities and Exchange Commission, or SEC. You may obtain a copy of this report by contacting our Investor Relations, c/o Linda Hodges, at (310) 337-4170 or at an SEC public reference room. For the location of an SEC public reference room near you, please contact the SEC at (800) SEC-0330.

You can also get a copy of the Form 10-K that will contain the voting results on the Internet at www.prospectmedicalholdings.com or through the SEC’s electronic data system called EDGAR at www.sec.gov.

How do I receive an annual report?

A copy of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006 (as amended) is being delivered to each stockholder of the Company together with this proxy statement. A copy of the Annual Report is also available on our web site at www.prospectmedicalholdings.com and on the SEC’s web site at www.sec.gov. Copies of exhibits to the Annual Report will be made available for a reasonable charge upon written request to Investor Relations, c/o Linda Hodges, Prospect Medical Holdings, Inc., 400 Corporate Pointe, Suite 525, Culver City, CA 90230.

Do we have a policy about directors’ attendance at the annual meeting?

We do not have a policy regarding attendance of directors at our Annual Meetings of Stockholders. At last year’s meeting, two of the six directors then serving on the Board of Directors were in attendance.

How are proxies solicited and what is the cost?

We pay all expenses incurred in connection with distributing and soliciting proxies. As part of this process, we reimburse brokers, nominees, fiduciaries and other custodians’ reasonable fees and expenses in forwarding proxy materials to stockholders. Our directors and employees may solicit proxies by mail, telephone or other means. Our directors and employees do not receive any additional compensation for these activities.

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SUMMARY OF PROPOSALS TO BE VOTED ON

Following are summaries of each of the proposals to be voted on by stockholders at our 2007 Annual Meeting of Stockholders. Additional information about each proposal is included later in this proxy statement.

Proposal 1—Election of Directors

The Board of Directors currently consists of nine directors. Seven of the current directors have been nominated for election at the Annual Meeting by holders of our Common Stock. The other two directors have been designated for election by a separate vote of holders of our Series B Preferred Stock.

The seven nominees for election at the Annual Meeting are Jacob Y. Terner, Catherine S. Dickson, David Levinsohn, Kenneth Schwartz, Joel S. Kanter, Gene Burleson and Jeereddi Prasad. The two nominees designated for election by vote of holders of Series B Preferred Stock are Samuel S. Lee and Glenn R. Robson.

Each elected director will hold office until the next annual stockholders meeting and until a successor is elected and has qualified, subject to earlier resignation, removal or death. The nominees’ biographies begin on page 8.

Directors are elected by a plurality of the votes properly cast in person or by proxy. The seven nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the seven nominees named in this proxy statement. Proxies cannot be voted for a greater number of persons than the seven nominees named. If any nominee becomes unavailable for election as a result of an unexpected occurrence, your shares will be voted by the proxy holders for the election of a substitute nominee proposed by the Corporate Governance and Nominating Committee. Each person nominated for election has agreed to serve if elected. Our management has no reason to believe that any nominee will be unable to serve.

Proposal 2—Approval of 2007 Omnibus Equity Incentive Plan

We are requesting that the stockholders approve the Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”). The Board proposes to adopt the 2007 Plan to enable the Company to provide appropriate equity incentives to its employees, directors and consultants.

The proposal to approve the adoption of the 2007 Plan will require approval by holders of a majority of the shares present at the meeting, in person or by proxy and entitled to vote on the matter. Withholding authority to vote for approval of the 2007 Plan will have the effect of a vote against the approval of the adoption of the 2007 Plan.

A summary of the 2007 Plan is set forth beginning on page 27, and a complete copy of the plan is attached as Appendix A to this proxy statement.

Proposal 3—Ratification of Selection of Independent Auditors

The Audit Committee of the Company’s Board has selected Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending September 30, 2007 and has further directed that management submit the selection of the Company’s independent auditors for ratification by its stockholders at the meeting.

The proposal to ratify the selection of Ernst & Young LLP as our independent auditors for 2007 will be approved if holders of a majority of the shares present at the meeting, in person or by proxy and entitled to vote on the matter, vote for approval. Additional information about this proposal is set forth on page 33.

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Proposal 4—Approval of Issuance of Common Stock upon Conversion of the Company’s Currently Outstanding Series B Preferred Stock and Any Resulting Potential Change of Control

On August 8, 2007, the Company acquired Alta Healthcare System, Inc. (“Alta”) in a merger transaction for a combination of $51.3 million in cash, 1,887,136 shares of Common Stock and 1,672,880 shares of Series B Preferred Stock. The number of shares of Common Stock issued as part of the merger consideration equaled approximately 19.9% of the class outstanding prior to the merger. The terms of the Series B Preferred Stock provide that it will not become convertible until receipt of stockholder approval, in conformity with the rules of the American Stock Exchange that prohibit the issuance of shares of Common Stock in an acquisition in an amount that is equal to or greater than 20% of the class outstanding prior to the acquisition. We are seeking stockholder approval of this proposal in order to satisfy American Stock Exchange rules that require us to obtain stockholder approval prior to issuing Common Stock at or above the 20% threshold and prior to any potential change of control that might result from such issuance.

If stockholders approve this proposal, the holders of the Series B Preferred Stock will be able to convert their Series B Preferred Stock into shares of our Common Stock at a rate of five shares of Common Stock for each share of Series B Preferred Stock outstanding (subject to adjustments). Without such approval, the Series B Preferred Stock will not be convertible and will continue to have a liquidation preference, the right to elect two directors of the Company, and the right to accrue dividends at a rate of 18% per annum of the original issue price of $25.00 per share of Series B Preferred Stock for as long as the Series B Preferred Stock is outstanding. If stockholders approve this proposal and the Series B Preferred Stock is converted, such dividends will terminate and cease to accrue and will not be payable.

This proposal will be approved if holders of a majority of the shares present at the meeting, in person or by proxy (not counting shares of Common Stock received by the former shareholders of Alta) and entitled to vote on the matter are voted in favor of the proposal. More detailed information about this proposal is given beginning on page 34.

Other Business

The Board knows of no other business to be considered at the meeting. However, if:

·       other matters are properly presented at the meeting, including at a reconvened meeting after any adjournment or postponement of the meeting, and

·       you have appropriately returned your proxy card as described above,

then Messrs. Terner and Schwartz will, with your proxy, vote your shares on those matters at their discretion.

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PROPOSAL 1

ELECTION OF DIRECTORS

Biographies

Our certificate of incorporation provides for directors to be elected on an annual basis. Our bylaws provide that the Board will consist of no greater than nine nor less than five members, with the exact number of directors within this range to be fixed from time to time by the Board. Currently, the number of members constituting the Board has been fixed by the Board at nine.

The following sets forth information regarding the seven nominees for director to be voted on by holders of our Common Stock at the Annual Meeting, followed by information regarding the two nominees for director that have been designated for election by a separate vote of the holders of our Series B Preferred Stock, as explained more fully below.

Nominees for Election by Holders of Common Stock

Jacob Y. Terner, M.D.   Jacob Y. Terner, 73, has served as our Chairman, Chief Executive Officer and a member of our Board of Directors since July 31, 1996. Dr. Terner is also the Chief Executive Officer and a Director of each of our management subsidiaries and is the Chief Executive Officer, President, Treasurer and a Director of each of our affiliated physician organizations except for AMVI/Prospect Health Network, which is a joint venture partner where Dr. Terner is Chief Executive Officer, President, Treasurer and a Director of one of the two general partners; Sierra Primary Care Medical Group, where Dr. Terner serves as Chief Executive Officer, Treasurer and a Director; and Nuestra Familia Medical Group, where Dr. Terner serves as Secretary and a Director. Dr. Terner held the position of Clinical Professor of Obstetrics and Gynecology at the University of Southern California, School of Medicine from 1972 to 2001. Dr. Terner is currently Emeritus Clinical Professor of Obstetrics and Gynecology. Dr. Terner also served as Chairman and Chief Executive Officer of Century MediCorp, Inc., a publicly-traded, integrated health-management organization from June 24, 1988 until its October 1992 merger with Foundation Health Corporation. Following this merger, Dr. Terner was named to Foundation’s Board of Directors and served as its Executive Vice President and as a Director until his resignation in December 1992. Dr. Terner is also a Director of Brotman Medical Center, Inc.

Catherine S. Dickson.   Catherine S. Dickson, 37, serves as our President and Chief Operating Officer, positions she has held since July 2003. In February 2004, Ms. Dickson was elected as a member of our Board of Directors. Ms. Dickson is also the President and Chief Executive Officer of Prospect Medical Systems. Prior to Ms. Dickson’s appointment as our President and Chief Operating Officer, Ms. Dickson served as Vice President of Contracting and Credentialing for Prospect Medical Systems since February 2000. Ms. Dickson has been with Prospect Medical Systems since January 1998. Ms. Dickson has significant experience across a broad range of managed care divisions, including contract negotiation and implementation, claims adjudication, eligibility, utilization management and credentialing. Before joining Prospect Medical Systems, Ms. Dickson served as an Associate Contract Administrator for Orange Coast Managed Care Services, Inc., the health care management company for the Sisters of St. Joseph Health Organization Independent Physician Association.

David Levinsohn.   David Levinsohn, 72, has served as a member of our Board of Directors since July 1996 and as a member of the Audit Committee of our Board of Directors since 1996. Since January 2007, Mr. Levinsohn has been a private health care consultant. Mr. Levinsohn served as the President and Chief Executive Officer of Sherman Oaks Health Systems, Inc. d/b/a Sherman Oaks Hospital and Medical Center from March 1995 through December 2006. Prior to being named to those positions, Mr. Levinsohn served as the Chief Operating Officer of Sherman Oaks Health Systems since May 1994. From November 1993 to May 1994, Mr. Levinsohn was the Vice President of Encino Tarzana Medical Center. From 1989 until November 1993, Mr. Levinsohn was Executive Director of Sherman Oaks Hospital.

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Kenneth Schwartz, CPA.   Kenneth Schwartz, 71, has served as a member of our Board of Directors since June 1998. Mr. Schwartz served as a Director of Deloitte & Touche LLP from December 1990 to June 1998. Mr. Schwartz previously served as a member of the National Management Committee and Managing Partner of the Los Angeles office of Spicer & Oppenheimer.

Joel S. Kanter.   Mr. Kanter, 50, was elected as a member of our Board of Directors in February 2004. Mr. Kanter has been the President of Windy City, Inc., a privately held investment company, since 1986. From 1993 to 1999, Mr. Kanter was the President or Chief Executive Officer of Walnut Financial Services, Inc., a publicly traded company (NMS:WNUT). Mr. Kanter’s past experience includes serving as a Legislative Assistant to former Congressman Abner J. Mikva (D-Illinois), Special Assistant to the National Association of Attorneys General, Staff Director of the House Rules Committee’s Subcommittee on Legislative Process and Managing Director of The Investors’ Washington Service. Mr. Kanter serves on the Board of Directors of Echo Healthcare Acquisition Corp. (OTC Bulletin Board: EHHA.OB), I-Flow Corporation (NASDAQ: IFLO), Aquamatrix, Inc. (OTC Bulletin Board: AQMX.OB), and Magna-Lab, Inc. (OTC Bulletin Board: MAGLA.OB). Mr. Kanter is also a Trustee at the Georgetown Day School (Washington, D.C.), The Langley School (McLean, Virginia), and the Union Institute & University (Cincinnati, Ohio).

Gene E. Burleson.   Mr. Burleson, 66, has served as a member of our Board of Directors since July 2004. Mr. Burleson served as Chairman of the Board of Directors of Mariner Post-Acute Network Inc., an operator of long-term care facilities from January 2000 to June 2002. Mr. Burleson also served as Chairman of the Board of Directors of Alterra Healthcare Inc., a developer and operator of assisted living facilities and is on the Board of Deckers Outdoor Corporation, Inc. In addition he is involved with several private health care companies as an investor and director. Mr. Burleson served as Chairman of the Board of GranCare Inc. from October 1989 to November 1997. Additionally, Mr. Burleson served as President and Chief Executive Officer of GranCare Inc. from December 1990 to February 1997. Upon completion of the merger of GranCare’s pharmacy operations with Vitalink Pharmacy Services Inc. in February 1997, he became Chief Executive Officer and a Director of Vitalink Pharmacy Services Inc. Mr. Burleson resigned as Chief Executive Officer and a director of Vitalink Pharmacy Services in August 1997. From June 1986 to March 1989 Mr. Burleson served as President, Chief Operating Officer and a director of American Medical International Inc. (“AMI”), an owner and operator of acute care hospitals. Based in London from May 1981 to June 1986, Mr. Burleson served as Managing Director of AMI’s international operations.

Jeereddi Prasad, M.D.   Jeereddi Prasad, M.D., 59, was appointed as a member of our Board of Directors effective June 1, 2007 in connection with our acquisition of the ProMed group of companies, which include a management services organization, or MSO, and two independent physician associations, or IPAs, based in Southern California. Dr. Prasad served as the President of each of the ProMed group entities from 1994 (2002 in the case of Upland Medical Group) until their acquisition by the Company, and he has continued to serve as the President of Upland Medical Group following the ProMed acquisition. Since 1991, Dr. Prasad has also served as the President and Medical Director of Chaparral Medical Group, Inc., a fifty physician multi-specialty group that he founded in Southern California, within which he created a strong Endocrinology Department that is an ADA Certified Center of Excellence for Diabetic Education. Dr. Prasad completed his Endocrinology Fellowship at Bellevue/ NYU Medical Center in 1978. He is board certified in Endocrinology and Internal Medicine and is a Fellow of both the American College of Endocrinologists and American College of Physicians.

Nominees for Election by Holders of Series B Preferred Stock

The two directors named below were recently appointed as members of our Board of Directors in connection with the acquisition of our Alta hospital subsidiary. Under the terms of our Series B Preferred Stock, which was issued to the former shareholders of Alta in the acquisition, the holders of the Series B Preferred Stock are entitled to elect two directors at any election of directors until the next election of

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directors, for so long as the Series B Preferred Stock remains outstanding. The terms of the Series B Preferred Stock require that one of the two directors must be an independent director who is approved by a majority of the other members of the Company’s Board of Directors. These two directors have been designated for election as directors by a separate vote of the holders of our Series B Preferred Stock, to serve as members of the Board together with the other seven directors named above who have been nominated for election by the holders of our class of Common Stock. Mr. Robson has been designated and approved to serve as an independent director in accordance with the requirements of the Series B Preferred Stock:

Samuel S. Lee.   Mr. Lee, 41, was appointed as a member of our Board of Directors upon the August 8, 2007 closing of the Alta acquisition, with service commencing at the first regularly scheduled Board meeting thereafter, being September 19, 2007. Mr. Lee is currently the Chief Executive Officer of Alta Hospitals System, LLC, and he served previously as the President of Alta beginning in January 2002. Mr. Lee’s background also involves healthcare and technology related private equity investment management, operational leadership, entrepreneurship, mergers and acquisitions, and leveraged financing for various corporations. Prior to Alta, Mr. Lee was a General Partner with Kline Hawkes & Co., a $500 million private equity firm located in Brentwood, California, that focuses on healthcare, technology, and business services. Mr. Lee has been the lead/principal investor and director of several private and public companies. Additionally, Mr. Lee worked in healthcare reimbursement, business office, and operations for SFS, Inc., and in consulting and systems engineering for Andersen Consulting and Verizon. Mr. Lee received his bachelor’s degree in Industrial and Systems Engineering from Georgia Tech and master’s degree in business administration from Harvard Business School. Mr. Lee is an active member of the Young President’s Organization of Los Angeles, and also involved with several civic and community organizations.

Glenn R. Robson.   Mr. Robson, 45, was appointed a member of our Board of Directors upon the on August 8, 2007 closing of the Alta acquisition, with service commencing at the first regularly scheduled Board meeting thereafter, being September 19, 2007. Mr. Robson has served as Senior Vice President and Chief Strategy Officer of AECOM Technology Corporation since December 2006. Mr. Robson joined AECOM in May 2002 as Senior Vice President and Chief Financial Officer. AECOM Technology Corporation provides professional technical services, including consulting, planning, architecture, engineering, construction management, project management and environmental services, as well as management support services to government and commercial clients worldwide. Prior to joining AECOM, Mr. Robson worked at Morgan Stanley & Co. Incorporated for twelve years, where he served most recently as a Managing Director in the investment banking division,