<PAGE>
PROSPECTUS SUPPLEMENT NO. 7 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 24, 1997, Registration No.: 333-1926
As Supplemented To Date
Options to Purchase
15,000 Shares
of
Class B Common Stock
This Prospectus Supplement relates to the issuance by Doctors Health
System, Inc., a Maryland corporation ("Doctors Health") of Options (the
"Option") to purchase in the aggregate 15,000 (1,500 shares for each
Physician identified below) shares of its Class B Common Stock par value
$.01 per share ("the Class B Common Stock") pursuant to Option Agreements
(the "Option Agreement") to be entered into among each of Albert Strauss,
Paul Shuster, Julia D. Oakley, Mary E. Money, Evaristo R. Lardizabal,
Kristina Keyser, Ronald E. Keyser, Dino T. Delaportas, Barry Cohen and Robert
Brull (each a "Physician" and collectively, the "Physicians") and Doctors
Health. This Prospectus Supplement should be read in conjunction with the
Prospectus dated January 24, 1997, the Prospectus Supplement No. 1 dated
March 14, 1997 which contains the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 1996 and the Prospectus Supplement No. 2 which
contains the Stockholders Agreement dated January 31, 1997.
Doctors Health's principal executive office is located at 10451 Mill Run
Circle, Tenth Floor, Owings Mills, Maryland 21117, telephone number (410)
654-5800.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OF
ANY PERSON TO EXCHANGE OR SELL, OR A SOLICITATION FROM ANY PERSON OF AN OFFER
TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT
FROM ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS SUPPLEMENT
RELATES SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
See "Risk Factors" referred to on page S-2 hereof for certain information
that should be considered in connection with an investment in securities of
Doctors Health.
The date of this Prospectus Supplement is April 8, 1997.
<PAGE>
RISK FACTORS
Financial Performance of Doctors Health
Doctors Health has a limited operating history and for the fiscal year
ended June 30, 1996 and the six months ended December 31, 1996, recorded a net
loss of approximately $6.6 million and $6.7 million, respectively. Doctors
Health is likely to record a net loss for the fiscal year ending June 30, 1997.
There can be no assurance that after the competion of this transaction Doctors
Health will earn operating profits.
Risk Factors set forth in the Prospectus dated January 24, 1997
The Risk Factors set forth in the Prospectus are incorporated herein by
reference and should be read carefully by investors.
PROPOSED OPTION AGREEMENT
The following description of the transactions contemplated by the Option
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Option Agreement, a copy of which is attached to this
Prospectus Supplement as Annex A and is incorporated herein. Physician is urged
to read the Option Agreement in its entirety.
Vesting
The Option shall vest and be exercisable when Physician extends the term of
the Exclusive Participation Agreement between Doctors Health and the Physician,
(the "Participation Agreement"), unless the Option has earlier terminated
pursuant to the provisions of the Option Agreement.
General
Pursuant to each Option Agreement, Doctors Health has granted to each
Physician an option to purchase 1,500 shares of Doctors Health Class B Common
Stock for an exercise price of $.01 per share.
Termination
Options granted to Physician shall terminate with respect to any shares of
Class B Common Stock as to which the Option is not vested or exercisable; (a)
upon termination of the Participation Agreement during its initial three year
term or (b) if, during the initial three year term of the Participation
Agreement, the Physician does not extend the Participation Agreement for a term
of at least seven years.
RESALE OF OPTION AND CLASS B COMMON STOCK
The Option and the Shares offered by this Prospectus Supplement have been
registered under the Securities Act. The shares issuable upon exercise of the
Option will be subject to the Stockholders Agreement delivered to each Physician
as Prospectus Supplement No. 2 (Annex B) and therefore, will not be freely
transferable. The Option is nontransferable. In addition, there is no public
market for the Option or the Class B Common Stock.
S-2
<PAGE>
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby have been passed
upon for the Company by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
ANNEXES
Annex A - Form of Option Agreement between Doctors Health System, Inc.
Annex B - Stockholders Agreement dated January 31, 1997 delivered as
Prospectus Supplement No. 2.
S-3
<PAGE>
ANNEX A
DOCTORS HEALTH SYSTEM, INC.
OPTION AGREEMENT
This Option Agreement (the "Option Agreement") is entered
into this ____ day of April, 1997, by and between Doctors Health System,
Inc., a Maryland corporation ("DHS"), and _________________________
("Optionee").
In consideration of the mutual agreements herein
contained and set forth in the Main Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Option Agreement, the
definitions set forth in Sections 1.1 through 1.11 shall be applicable.
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Main Agreement[s].
Section 1.1 AFFILIATE. "Affiliate" shall mean: (i) any
corporation in which DHS owns, directly or indirectly, fifty percent (50%) or
more of the total combined voting power of all classes of stock of such
corporation; and (ii) any Core Medical Group which is affiliated with DHS.
Section 1. 2 CLASS B COMMON STOCK. "Class B Common
Stock" shall mean shares of DHS's authorized but unissued Class B common
stock, par value of one cent ($0.01) per share.
Section 1. 3 EXERCISE DATE. "Exercise Date" shall mean
the date on which the Committee receives the written notice required under
Section 3.2 of this Option Agreement that Optionee has exercised the Option.
Section 1. 4 GRANT DATE. "Grant Date" shall mean the
date on which DHS issues the Options to Optionee pursuant to this Option
Agreement.
Section 1. 5 OFFERING. "Offering" shall mean the
offering of securities by DHS pursuant to which Optionee is acquiring the
Options, the terms of which are set forth in the Prospectus.
Section 1. 6 OPTIONS. "Options" shall mean those
options to acquire shares of Class B Common Stock of DHS granted to Optionee
pursuant to this Option Agreement, each such option, upon proper exercise,
entitling the Optionee to one share of Class B Common Stock pursuant to the
terms set forth in the Prospectus, the Main Agreement and this Option
Agreement.
Section 1.7 FAIR MARKET VALUE. "Fair Market Value" of a
share of Class B Common Stock on the Grant Date or Exercise Date, as the case
may be, shall mean the last reported sale price per share of Class B Common
Stock, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on a national securities
exchange or included for quotation on the NASDAQ-National Market, or if the
Class B Common Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Class B Common Stock is not so
quoted, the average of the high bid and low asked prices, regular way, in the
over-the-counter
A-1
<PAGE>
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer in use, the
principal other automated quotations system that may then be in use or, if
the Class B Common Stock is not quoted by any such organization, the average
of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Class B Common Stock as
selected in good faith by the Company or by such other source or sources as
shall be selected in good faith by the Class B Company for any other reason,
the Fair Market Value of shares of Class B Common Stock shall be determined
by the Company in such other manner as it may deem appropriate. If, as the
case may be, the relevant date is not a trading day, the determination shall
be made as of the next preceding trading day. As used herein, the term
"trading day" shall mean a day on which public trading of securities occurs
and is reported in the principal consolidated reporting system referred to
above, or if the Class B Common Stock is not listed or admitted to trading on
a national securities exchange or included for quotation on the
NASDAQ-National Market, any day other than a Saturday, a Sunday or a day in
which banking institutions in the State of New York are closed.
Section 1. 8 OPTION PRICE. "Option Price" shall mean
the price per share of Common Stock at which the Option may be exercised.
"Aggregate Option Price" shall mean the Option Price multiplied by the number
of Options to be exercised pursuant to a notice of exercise.
Section 1. 9 PROSPECTUS. "Prospectus" shall mean the
Prospectus and Prospectus Supplement that are part of the Registration
Statement filed on Form S-1 by DHS and which set forth the terms of the
Offering.
Section 1. 10 MAIN AGREEMENT. "Main Agreement" shall
mean the Exclusive Physician Participation Agreement between DHS and Optionee
pursuant to which Optionee agreed to the terms of the Offering and pursuant
to which Optionee is entitled to receive the Options.
Section 1. 11 REGISTRATION STATEMENT. "Registration
Statement" shall mean the registration statement filed by DHS with the SEC
with respect to the registration of the securities of DHS, some or all of
which are the subject of the Offering.
ARTICLE 2
ISSUANCE OF OPTIONS
Section 2.1 ISSUANCE OF OPTIONS. DHS hereby grants to
Optionee, as of the date hereof (the "Grant Date") One Thousand Five Hundred
(1,500) Options to purchase shares of Class B Common Stock at an exercise
price of One Cent ($0.01) per share (the "Option Price") or such adjusted
number of Options at such adjusted Option Price as may be established from
time to time pursuant to the provisions of Article 5 hereof. Each Option,
upon proper exercise thereof in accordance with this Option Agreement,
entitles Optionee to purchase one share of DHS Class B Common Stock.
Section 2.2 TERM OF OPTIONS. The Options granted
pursuant to Section 2.1 shall expire on the day prior to the tenth
anniversary of the Grant Date, unless such Options terminate earlier pursuant
to other provisions of this Option Agreement.
ARTICLE 3
EXERCISE OF OPTIONS
Section 3.1 EXERCISABILITY OF OPTIONS. The Options
shall be exercisable, in whole or in part, at any time after Optionee
executes an agreement extending the term of the Main Agreement for an
additional term of not less than seven (7) years, unless the Options have
earlier
A-2
<PAGE>
terminated pursuant to the provisions of this Option Agreement.
Notwithstanding anything to the contrary herein, no Option may be exercised
unless the shares of Class B Common Stock issuable upon exercise of such
Options are then subject to a currently effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), and
unless such other action or consent as may be required by federal or state
law relating to the issuance or distribution of securities shall have been
taken or obtained.
Section 3.2 MANNER OF EXERCISE. The Options may be
exercised, in whole or in part, by delivering written notice of exercise to
DHS in such form as DHS may require from time to time. Such notice shall
specify the number of Options being exercised, and shall be accompanied by
full payment of the Aggregate Option Price. In addition, such notice shall be
accompanied by (i) a written acknowledgment of the restrictions on the
transferability of the shares of Class B Common Stock executed in the form of
the letter attached hereto and marked Exhibit A and (ii) a signed copy of a
Stockholders Agreement in such form as DHS may prescribe. Notwithstanding
anything herein to the contrary, all Class B Common Stock issued pursuant to
the Options shall be subject to the terms and conditions of said Stockholders
Agreement. Payment of the Aggregate Option Price may be made (i) in cash,
(ii) in a number of shares of Class B Common Stock (including shares of Class
B Common Stock acquired upon the exercise of an option) having a total Fair
Market Value on the Exercise Date equal to the aggregate Option Price, or
(iii) by a combination of the foregoing. The Options may be exercised only in
multiples of whole shares of Class B Common Stock and no partial shares shall
be issued.
Section 3.3 ISSUANCE OF SHARES AND PAYMENT OF CASH UPON
EXERCISE. Upon exercise of the Options, in whole or in part, in accordance
with the terms of this Option Agreement and upon payment of the aggregate
Option Price, DHS shall issue to Optionee the number of shares of Class B
Common Stock equal to the number of Options being exercised and for which
payment was received, in the form of fully paid and non-assessable Class B
Common Stock.
Section 3.4 RESERVATION OF SHARES. DHS shall at all
times reserve and keep available for issuance upon the exercise of Options a
number of its authorized but unissued shares of Class B Common Stock that
will be sufficient to permit the exercise in full of all outstanding Options.
ARTICLE 4
TERMINATION OF OPTIONS
Section 4.1 UPON OPTIONEE'S DEATH. Unless such Options
are earlier terminated pursuant to the provisions of this Option Agreement,
upon Optionee's death Optionee's executor, personal representative or the
person to whom the Options shall have been transferred by will or the laws of
descent and distribution, as the case may be, may exercise all or any part of
the Options not previously exercised, provided that the Options are otherwise
exercisable pursuant to Section 3.1 hereof and such exercise occurs within
twelve (12) months after the date Optionee dies, but not later than the end
of the stated term of the Option and, provided further, that such person
executes a Stockholders Agreement in such form as DHS may prescribe.
Section 4.2 UPON TERMINATION OF MAIN AGREEMENT. In the
event that (a) the Main Agreement is terminated in accordance with its terms,
or (b) during the initial three (3) year term of the Main Agreement, Optionee
does not extend the Main Agreement for an additional term of at least seven
(7) years, the Options shall automatically terminate without notice or other
action.
A-3
<PAGE>
ARTICLE 5
ADJUSTMENTS
Section 5.1 ADJUSTMENT OF NUMBER OF OPTIONS; OPTION
PRICE. Subject to the provisions of this Article 5, the Option Price shall
be subject to adjustment as follows:
(a) In the event any change is made to the Class B
Common Stock (whether by reason of (i) a merger, consolidation,
reorganization or recapitalization of DHS, or (ii) a stock dividend, stock
split, combination of shares, exchange of shares, or other change in capital
structure of DHS effected without receipt of consideration), then,
appropriate adjustments shall be made to the number of shares and Option
Price of the Class B Common Stock subject to the Options.
(b) If DHS is the surviving entity in any merger or
other business combination then the Options outstanding immediately after
such merger or other business combination, shall be appropriately adjusted to
apply and pertain to the number and class of securities that would be
issuable to the Optionee in the consummation of such merger or business
combination if the Options were exercised immediately prior to such merger or
business combination, and appropriate adjustments shall also be made to the
Option Price.
ARTICLE 6
MISCELLANEOUS
Section 6.1 NO RIGHTS OF STOCKHOLDER. Optionee shall
not have any of the rights of a stockholder with respect to the shares of
Class B Common Stock that may be issued upon the exercise of the Options
until such shares of Class B Common Stock have been issued to Optionee upon
the due exercise of the Options.
Section 6.2 NONTRANSFERABILITY OF OPTION. The Option
shall be nontransferable otherwise than by will or the laws of descent and
distribution. During the lifetime of Optionee, the Options may be exercised
only by Optionee or, during the period Optionee is under a legal disability,
by Optionee's guardian or legal representative.
Section 6.3 AGREEMENT SUBJECT TO CHARTER AND BY-LAWS.
This Agreement is subject to the Charter and By-Laws of DHS, and any
applicable federal or state laws, rules or regulations.
Section 6.4 HEADINGS. The headings in this Option
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Option Agreement.
Section 6.5 NOTICES. All notices and other
communications made or given pursuant to this Option Agreement shall be in
writing and shall be sufficiently made or given if hand delivered or mailed
by certified mail, addressed to Optionee at the address contained in the
records of DHS or an Affiliate, or to DHS for the attention of its Secretary
at its principal office.
Section 6.6 ENTIRE AGREEMENT; MODIFICATION. This Option
Agreement contains the entire agreement between the parties with respect to
the subject matter contained herein and may not be modified, except in a
written document signed by each of the parties hereto.
Section 6.7 COUNTERPARTS. This Option Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original and all of which together shall constitute one and the same
instrument.
A-4
<PAGE>
Section 6.8 GOVERNING LAW. This Option Agreement shall
be governed by and construed under the laws of the State of Maryland without
regard to conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Option
Agreement as of the date first above written.
DOCTORS HEALTH SYSTEM, INC.
By: _______________________(SEAL)
OPTIONEE
_______________________(SEAL)
_______________________
A-5
<PAGE>
EXHIBIT A
Doctors Health System, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
Gentlemen:
I hereby exercise _________ Options granted to me on
April ___, 1997, by Doctors Health System, Inc. (the "Company"), subject to
all the terms and provisions of the Option Agreement dated April ___, 1997,
and notify you of my desire to purchase ____________ shares of Class B Common
Stock of DHS at a price of $___________ per share pursuant to the exercise of
said Options, for a total purchase price of $________.
I confirm that I am a party to a Stockholders Agreement
with DHS (or will be upon DHS's execution of the Stockholders Agreement
executed by me and attached hereto) pursuant to which I have agreed to
certain restrictions on the transferability of the shares of Class B Common
Stock issued to me upon exercise of the Options and other matters relating
thereto, and the certificates for the Shares to be issued to me shall contain
a legend to that effect.
Total Amount Enclosed: $__________
Date:___________________________ ______________________________
______________________________
Received by Doctors Health System, Inc. on
______________________________, 19___
By: ________________________________
A-6
