<PAGE>
PROSPECTUS SUPPLEMENT NO. 77 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 5, 1998, Registration No.: 333-1926
As Supplemented To Date
OPTION TO PURCHASE
2,000 Shares of
CLASS B COMMON STOCK
This Prospectus Supplement relates to the issuance by Doctors Health, Inc.,
a Delaware corporation ("Doctors Health") of an Option (the "Option") to
purchase 2,000 shares of its Class B Common Stock par value $.01 per share ("the
Class B Common Stock") pursuant to Option Agreement (the "Option Agreement") to
be entered into among Eric Hermansen, M.D. ("Physician") and Doctors Health.
This Prospectus Supplement should be read in conjunction with the Prospectus
dated January 5, 1998 and the Prospectus Supplement No. 76 dated May 10, 1998
which contains the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998; and Prospectus Supplement No. 70 which contains the Shareholders
Letter Agreement.
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 May 25, 1998.
<PAGE>
RISK FACTORS
Financial Performance of Doctors Health
Doctors Health has a limited operating history and for the fiscal year ended
June 30, 1997 and the six months ended December 31, 1997, recorded a net loss of
approximately $14.8 million and $8 million, respectively. Doctors Health is
likely to record a net loss for the fiscal year ending June 30, 1998. There can
be no assurance that Doctors Health will earn operating profits after completion
of this transaction.
Risk Factors set forth in the Prospectus dated January 5, 1998
The Risk Factors set forth in the Prospectus are incorporated herein by
reference and should be read carefully by investors.
PROPOSED OPTION AGREEMENT AMONG DOCTORS HEALTH AND ERIC HERMANSEN, M.D.
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 is immediately exercisable unless the Option has earlier
terminated pursuant to the provisions of the Option Agreement.
General
Dr. Hermansen has signed a five-year Employment Agreement and an Addendum to
Employment Agreement with Anne Arundel Medical Group. Pursuant to the Option
Agreement, Doctors Health has granted to Physician an option to purchase 2,000
shares of Doctors Health Class B Common Stock for an exercise price of $3.50 per
share
Termination
Options granted to Physician shall terminate with respect to any shares of
Class B Common Stock as to which the Option has not been exercised effective on
the date Physician is no longer employed by Doctors Health or an affiliate of
Doctors Health for any reason other than Physician's death or Disability (as
defined in Physician's Employment Agreement with Doctors Health dated August 15,
1997 and Addendum to Employment Agreement with Doctors Health dated June 4,
1998).
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 attached hereto as 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--Option Agreement between Doctors Health, Inc. and Eric Hermansen,
M.D.
Annex B--Shareholders Letter Agreement dated March 4, 1998 (delivered to
Physician as Prospectus Supplement No. 70) ANNEX A
S-3
<PAGE>
ANNEX A
DOCTORS HEALTH, INC.
OPTION AGREEMENT
This Option Agreement (the "Option Agreement") is entered into this
day of , 19 , by and between Doctors Health, Inc., a Delaware
corporation ("DH"), and Eric Hermansen, M.D. ("Optionee").
RECITALS:
1. DH has registered certain shares of its Class B Common Stock, par value
$.01 per share ("Class B Common Stock") and options to acquire Class B Common
Stock ("Options") with the Securities and Exchange Commission ("SEC") and with
certain applicable states.
2. Pursuant to such registration, DH is offering of some or all of such
registered securities (the "Offering"), the terms of which are set forth in a
Prospectus and a Prospectus Supplement (together referred to herein as the
"Prospectus") that are part of the registration statement on Form S-1 filed with
the SEC (the "Registration Statement").
3. Optionee desires to acquire the securities offered pursuant to the terms
of the Offering and, in connection therewith has executed an Employment
Agreement with DH dated August 15, 1997 (the "Employment Agreement"), as well as
the Addendum to Employment Agreement with DH dated June 4, 1998 (the "Addendum
to Employment Agreement").
4. Pursuant to the Offering and the Employment Agreement, the Company has
agreed to grant Optionee Options to purchase 2,000 shares of Class B Common
Stock.
AGREEMENTS:
In consideration of the foregoing and of the mutual agreements herein
contained and set forth in the Employment Agreement and Addendum to Employment
Agreement, 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.
Section 1.1 Affiliate. "Affiliate" shall mean any entity, whether now or
hereafter existing, which controls, is controlled by, is under common control
with, or whose medical practice is affiliated with, the Corporation (including,
but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power of all classes of stock or interests of the
entity.
Section 1.2 Class B Common Stock. "Class B Common Stock" shall mean shares
of DH'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 Compensation Committee of DH (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 DH
issues an Option to Optionee pursuant to this Option Agreement.
Section 1.5 Offering. "Offering" shall mean the offering of securities
by DH 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 DH 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 and this Option Agreement.
Section 1.7 Fair Market Value. "Fair Market Value" of a share of the
Corporation's Common Stock for any purpose on a particular date shall be
determined in a manner such as the Committee shall in good faith determine to
be appropriate; provided, however, that if the Common Stock is publicly
traded, then Fair Market Value shall mean the last reported sale price per
share of Common Stock, regular way, on such date or, in case no such sale
takes place on such date, 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 Common Stock is not so listed or admitted
to trading or included for quotation, the last quoted price, or if the Common
Stock is not so quoted, the average of the high
S-4
<PAGE>
bid and low asked prices, regular way, in the over-the-counter 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 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 Common Stock as selected in good faith by the Committee or by
such other source or sources as shall be selected in good faith by the
Committee. 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 Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.
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 any
Prospectus Supplements that are part of the Registration Statement filed on
Form S-1 by DH and which set forth the terms of the Offering.
Section 1.10 Registration Statement. "Registration Statement" shall
mean the registration statement filed by DH with the SEC with respect to the
registration of the securities of DH, some or all of which are the subject of
the Offering.
Section 1.11 Change in Control. "Change in Control" shall mean (i) a
liquidating distribution to DH shareholders (or similar event); (ii) a
combination, consolidation or merger where DH is not the survivor; (iii) any
sale, exchange or other disposition of all or substantially all of DH's
assets; or (iv) any public offering of DH's Securities at a company value of
at least $25,000,000 with proceeds to DH of at least $15,000,000.
ARTICLE 2
ISSUANCE OF OPTIONS
Section 2.1 Issuance of Options. DH hereby grants to Optionee, as of
the date hereof (the "Grant Date") Two Thousand (2,000) Options to purchase
shares of Class B Common Stock at an exercise price of Three Dollars and
Fifty Cents ($3.50) 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 DH Class B Common Stock.
ARTICLE 3
EXERCISE OF OPTIONS
Section 3.1 Exercisability of Options. The Options shall be
exercisable, in whole or in part, at any time on or after the date hereof
unless the Options have earlier terminated pursuant to the provisions of this
Option Agreement. The Option may not be exercised unless such 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 DH in such form as DH
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 DH 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. Notwithstanding the foregoing, if the Common
Stock is registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, unless the Committee determines otherwise in its discretion,
payment of the Option Price also may be satisfied, in whole or in part, by
delivery of a properly executed exercise notice, together with irrevocable
instructions; (i) to a brokerage firm approved by the Committee to deliver
promptly to DH the aggregate amount of sale or loan proceeds to pay the
Option Price and any withholding tax obligations that may arise in connection
with the exercise, and (ii) to DH to deliver the certificates for such
purchased shares directly to such brokerage firm. 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, DH
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.
S-5
<PAGE>
Section 3.4 Reservation of Shares. DH 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 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 DH may prescribe.
Section 4.2 Termination of Employment For Reason Other Than Death or
Disability. Unless earlier terminated pursuant to the provisions of this
Option Agreement, Options granted to Optionee shall terminate with respect to
any shares of Class B Common Stock as to which the Option has not been
exercised, as of the date Optionee is no longer employed by either DH or an
Affiliate for any reason other than Optionee's death or Disability (as such
term is defined in the Employment Agreement and Addendum to Employment
Agreement).
Section 4.3 Termination of Employment By Reason of Disability. Unless
the Options have earlier terminated pursuant to the provisions of this Option
Agreement, in the event that Optionee ceases to be an employee of DH or an
Affiliate by reason of Disability, Options that have not yet been exercised
may be exercised in whole or in part at any time on or after the date of
Disability, but not later than the end of the stated term of the Option or as
otherwise provided by the provisions of Section 4.1 of this Option Agreement.
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 DH or (ii) a stock dividend, stock split, combination of
shares, exchange of shares or other change in capital structure of DH
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 DH 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 Non-Guarantee of Employment. Nothing in the Offering, the
Employment Agreement and Addendum to Employment Agreement or this Option
Agreement shall be construed as a contract of employment between DH (or an
Affiliate) and Optionee, or as a contractual right of Optionee to continue in
the employ of DH or an Affiliate, or as a limitation of the right of DH or an
Affiliate to discharge Optionee at any time.
Section 6.4 Withholding Taxes. DH or any Affiliate shall have the right
to deduct from any compensation or any other payment of any kind (including
withholding the issuance of shares of Class B Common Stock) due Optionee the
amount of any federal, state or local taxes required by law to be withheld as
the result of the exercise of the Option or the disposition of shares of
Class B Common Stock acquired pursuant to the exercise of the Option. In lieu
of such deduction, DH may require Optionee to make a cash payment to DH or an
Affiliate equal to the amount required to be withheld. If Optionee does not
make such payment when requested, DH may refuse to issue any Class B Common
Stock certificate until arrangements satisfactory to the Company for such
payment have been made.
S-6
<PAGE>
Section 6.5 Agreement Subject to Charter and By-Laws. This Agreement is
subject to the Charter and By-Laws of DH, and any applicable federal or state
laws, rules or regulations.
Section 6.6 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 6.7 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 DH or an
Affiliate, or to DH for the attention of its Secretary at its principal
office.
Section 6.8 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 6.9 Counterparts. This Option Agreement may be executed
simultaneously in one 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.
Section 6.10 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, INC.
By:
---------------------------
Stewart B. Gold, President
OPTIONEE
By:
---------------------------
Eric Hermansen, M.D.
S-7
<PAGE>
EXHIBIT A
Doctors Health, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
Gentlemen:
I hereby exercise Options granted to me on , 1998, by Doctors
Health, Inc. (the "Company"), subject to all the terms and provisions of the
Option Agreement dated , 1998 and notify you of my desire to purchase
shares of Class B Common Stock of DH at a price of $3.50 per share
pursuant to the exercise of said Options, for a total purchase price of
$ .
I hereby confirm that I am a party to a Shareholders Letter Agreement
with DH (or will be upon DH's execution of the Shareholders Letter 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:
------------------------------ -----------------------------
(Optionee)
Received by Doctors Health, Inc. on
, 19
- -------------------- ----
By:
------------------------------
Name:
Title:
S-8
