UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Prospect Medical Holdings, Inc.

 

(Name of Issuer)

Common Stock, par value $.01 per share

(Title of Class of Securities)

743494106

(CUSIP Number)

David R. Topper
c/o Alta Hospitals System, LLC
11500 W. Olympic Blvd., Suite 502
Los Angeles, CA 90064

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

August 8, 2007

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

* The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act.

 

 

CUSIP No.		743494106

* Based on 11,370,234 shares of Common Stock outstanding (comprised of the aggregate of 9,483,098 shares of Common Stock outstanding as of July 25, 2007 (as reported by the Issuer in its Form 8-K filed July 25, 2007) and 1,887,136 shares of Common Stock issued to the Shareholders on August 8, 2007 pursuant to the Merger (as such capitalized terms are hereinafter defined).

CUSIP No.		743494106

* Based on 11,370,234 shares of Common Stock outstanding (comprised of the aggregate of 9,483,098 shares of Common Stock outstanding as of July 25, 2007 (as reported by the Issuer in its Form 8-K filed July 25, 2007) and 1,887,136 shares of Common Stock issued to the Shareholders on August 8, 2007 pursuant to the Merger (as such capitalized terms are hereinafter defined).

such stockholder approval, each share of Preferred Stock will become convertible into five shares of Common Stock at a conversion price of $5.00 per share of Common Stock (subject to adjustments). The Preferred Stock also includes the following terms:

          Non-Voting. Except as required by law, the holders of the Preferred Stock have no voting rights except for the right as a class to elect two directors of the Issuer, one of whom must be an independent director who is approved by a majority of the other members of the Issuer’s Board of Directors. The Preferred Stock also contains protective provisions that prohibit the Issuer from taking certain actions without first obtaining the approval of at least 51% of the then outstanding shares of the Preferred Stock.

          Dividends. Holders of the Preferred Stock are entitled to receive dividends at a rate per share of 18% per annum of the Original Issue Price (as defined in the Certificate of Designation) (subject to adjustments) with any unpaid dividends accruing on a cumulative basis and compounding annually; provided, however, that dividends will not be paid and the dividends will terminate and cease to accrue in the event that the Preferred Stock converts into shares of the Common Stock.

          Liquidation Preference. In the event of a liquidation of the Issuer’s assets, the holders of the Preferred Stock will be entitled to receive, prior and in preference to any distribution of the proceeds of the liquidation to holders of Common Stock (or any junior series of preferred stock) by reason of their ownership thereof, an amount per share equal to the sum of the applicable Original Issue Price for such shares of the Preferred Stock, plus accrued but unpaid dividends on such shares.

          The Merger Agreement includes certain indemnification provisions pursuant to which the Shareholders have agreed, severally (not jointly), to indemnify the Issuer and certain of its affiliates against certain losses and expenses (i) resulting from breaches of representations and warranties and covenants of the Shareholders and Alta and its subsidiaries under the Merger Agreement and (ii) relating to certain pending litigation against Alta, Mr. Lee and Mr. Topper (the “Special Litigation”). Pursuant to the Merger Agreement, (i) the Issuer has limited periods of time in which to make claims, depending on the event that gives rise to the indemnification obligation; and (ii) subject to certain exceptions (including those provisions relating to the Special Litigation), the Shareholders are obligated to pay only those losses which exceed $800,000 in the aggregate and the Shareholders have a maximum aggregate liability of (A) 10% of the total consideration received by the Shareholders (the “Merger Consideration”) with respect to claims asserted on or before January 2, 2008 and (B) 5% of the Merger Consideration with respect to claims asserted after January 2, 2008.

          Under the Merger Agreement, the Shareholders may satisfy their indemnification obligation by payment half in cash and half by returning shares of the Common Stock and/or the Preferred Stock for cancellation, except that, prior to the approval by the stockholders of the Issuer of the Conversion Approval Proposal (as defined below), the Shareholders may satisfy their indemnification obligation by returning shares of the Preferred Stock for cancellation. With respect to any shares of the Common Stock returned for cancellation, such shares will be assigned a value of $5.00 per share; and with respect to any shares of the Preferred Stock returned for cancellation, such shares will be assigned a value equivalent to the face amount thereof, together with any dividends which may have accrued and not been paid thereon.

          The Merger Agreement also includes certain non-competition provisions that are binding on Mr. Topper.

          At the closing of the Merger (the “Closing”), the Trust and Mr. Lee entered into a Registration Rights Agreement with the Issuer, dated as of August 8, 2007 (the “Registration Rights Agreement”), which contains provisions that, among other things, (i) restrict transfers of a certain percentage of shares of the Common Stock for a period of three years; and (ii) obligate the Issuer to prepare and file a registration statement to register such shares under the U.S. securities laws upon the request of any holder of such shares (as well as grants such holder so-called “piggyback” registration rights). A copy of the Registration Rights Agreement is attached hereto as Exhibit 3 and is incorporated herein by reference. In addition, at the Closing of the Merger the Survivor entered into an Executive Employment Agreement, dated as of August 8, 2007 (the “Employment Agreement”), with Mr. Topper. The Employment Agreement provides, among other things, that Mr. Topper will serve as the President of the Survivor for a term of five years, on the terms and subject to the conditions set forth therein. A copy of the Employment Agreement is attached hereto as Exhibit 4 and is incorporated herein by reference.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in the acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer, (i) Mr. Topper and Ms. Topper may in the future be deemed to have acquired beneficial ownership of additional shares of the Common Stock if the Conversion Approval Proposal is approved by the stockholders of the Issuer (the “Conversion Approval Proposal” means the proposal to authorize (x) the convertibility of the Preferred Stock into the Common Stock pursuant to the Certificate of Designation, as discussed above, and (y) the change of control of the Issuer and/or any other action required by the American Stock Exchange to be approved by the stockholders of the Issuer in connection with the Merger Agreement, the Merger or the transactions contemplated thereby, to the extent applicable); (ii) if the Conversion Approval Proposal is approved by the stockholders of the Issuer, the Trust may convert all its shares of Preferred Stock into shares of the Common Stock; (iii) the Trust, Mr. Topper or Ms. Topper may in the future seek to acquire additional shares of the Common Stock; (iv) Mr. Topper’s Employment Agreement provides that he shall be eligible to participate in any executive equity incentive plan adopted by the Board of Directors of the Issuer; and (v) subject to the terms of the Registration Rights Agreement, the Trust may in the future seek to dispose of some or all of its shares of the Common Stock. Any such acquisition or disposition may be effected in privately negotiated transactions, in the open market, in block transactions, pursuant to underwritten transactions (in the case of dispositions) or otherwise. There can be no assurance that any such acquisition or disposition of shares of the Common Stock would occur or as to the timing or method of any such acquisition or disposition on the open market, through private transactions or otherwise in accordance with applicable law.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in any material change in the present capitalization or dividend policy of the Issuer, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in any other material change in the Issuer’s business or corporate structure, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals, except as discussed herein or as contemplated by the Merger Agreement.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to section 12(g)(4) of the Securities Exchange Act of 1934, as amended, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals.

          With respect to current plans or proposals of Mr. Topper or Ms. Topper which relate to or would result in any action similar to any of those enumerated above, neither Mr. Topper nor Ms. Topper currently has any such plans or proposals, except as set forth herein or as may be contemplated by the Registration Rights Agreement or the Merger Agreement.

          In addition to the foregoing, Mr. Topper or Ms. Topper may, at any time, review or reconsider his or her position with respect to the Issuer and formulate plans or proposals with respect to any of such matters, but as of the date hereof, neither has any present intention of doing so.

          The foregoing is qualified in its entirety by reference to the exhibits attached hereto, including the Merger Agreement and the Registration Rights Agreement.

Item 5. Interest in Securities of the Issuer.

     (a)-(b)

          The aggregate number of shares of Common Stock deemed to be beneficially owned by each of Mr. Topper and Ms. Topper for the purposes of this Statement is 943,568, representing 8.3% of the outstanding shares of Common Stock of the Issuer (based on 11,370,234 shares of Common Stock outstanding (comprised of the aggregate of 9,483,098 shares of Common Stock outstanding as of July

25, 2007 (as reported by the Issuer in its Form 8-K filed July 25, 2007) and 1,887,136 shares of Common Stock issued to the Shareholders on August 8, 2007 pursuant to the Merger)). Each of Mr. Topper and Ms. Topper has shared voting and dispositive power as to all of such shares.

     (c)

          The information set forth in Items 3 and 4 above is hereby incorporated by reference.

     (d)-(e)

          Not applicable.

Item 6.		Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

          Other than the agreements and documents described in Items 3 and 4 and incorporated by reference herein, to the knowledge of Mr. Topper or Ms. Topper there are no contracts, arrangements, understandings or relationships (legal or otherwise) between Mr. Topper or Ms. Topper and any person with respect to the securities of the Issuer.

Item 7. Material To Be Filed As Exhibits.

     1) Agreement and Plan of Reorganization, dated as of July 25, 2007, by and among the Issuer, Sub, Alta, the Trust and Mr. Lee (incorporated by reference to Exhibit 1 to the Schedule 13D filed by Samuel S. Lee on August 20, 2007)

     2) Certificate of Designation dated August 8, 2007 (incorporated by reference to Exhibit 3.2 to the Form 8-K filed by the Issuer on August 10, 2007)

     3) Registration Rights Agreement, dated as of August 8, 2007, by and among the Issuer, the Trust and Mr. Lee (incorporated by reference to Exhibit 3 to the Schedule 13D filed by Samuel S. Lee on August 20, 2007)

     4) Executive Employment Agreement, dated as of August 8, 2007, between Mr. Topper and the Survivor

     5) Joint Filing Agreement, dated as of August 19, 2007, between David R. Topper and Alexa Topper

SIGNATURE

     After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.

Dated: August 20, 2007

SIGNATURE

     After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.

Dated: August 20, 2007

EXHIBIT INDEX

     1) Agreement and Plan of Reorganization, dated as of July 25, 2007, by and among the Issuer, Sub, Alta, the Trust and Mr. Lee (incorporated by reference to Exhibit 1 to the Schedule 13D filed by Samuel S. Lee on August 20, 2007)

     2) Certificate of Designation dated August 8, 2007 (incorporated by reference to Exhibit 3.2 to the Form 8-K filed by the Issuer on August 10, 2007)

     3) Registration Rights Agreement, dated as of August 8, 2007, by and among the Issuer, the Trust and Mr. Lee (incorporated by reference to Exhibit 3 to the Schedule 13D filed by Samuel S. Lee on August 20, 2007)

     4) Executive Employment Agreement, dated as of August 8, 2007, between Mr. Topper and the Survivor

     5) Joint Filing Agreement, dated as of August 19, 2007, between David R. Topper and Alexa Topper