<PAGE>
As filed with the Securities and Exchange Commission on February 3, 1997
Registration No. 333-4034
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2 REGISTRATION STATEMENTS ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
DIAGNOSTIC HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
8071
(Primary Standard Industrial Classification Code Numbers)
22-2960048
(I.R.S. Employer Identification Number)
2777 STEMMONS FREEWAY, SUITE 1525
DALLAS, TEXAS 75207
(214) 634-0403
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
MAX W. BATZER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
DIAGNOSTIC HEALTH SERVICES, INC.
2777 STEMMONS FREEWAY, SUITE 1525
DALLAS, TEXAS 75207
(214) 634-0403
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
COPIES TO:
SHAHE SINANIAN, ESQ.
GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL
CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 801-9200
TELECOPIER: (212) 223-7161
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. ___
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
---
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ____
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount To Offering Price Aggregate Offering Registration
To Be Registered Be Registered Per Unit Price Fee
- -------------------------------------------- ---------------- ------------------- ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share, issuable upon exercise of
Redeemable Common Stock Purchase
Warrants issued in connection with the
Company's 1993 initial public offering
(the "Public Warrants") 1,375,000(1) $6.25(2) $8,593,750 $2,604.17
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
underwriter warrants issued in
connection with the Company's 1993
initial public offering (the "Underwriter
Warrants") 158,075(1) $5.48(3) $ 866,250 $ 262.50
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of Public
Warrants underlying the Underwriter
Warrants
158,075(1) $7.50(4) $1,185,562 $ 359.26
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
warrants issued in connection with the
Company's April 1996 private
placement (the "Bridge Warrants") 47,500(1) $6.25(5) $ 296,875 $ 89.96
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
warrants issued in connection with a
bank loan obtained by the Company in
April 1996 (the "Bank Warrants") 50,000(1) $6.25(6) $ 312,500 $ 94.70
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share 2,500 $9.75(7) $ 24,375 $ 7.39
- ---------------------------------------------------------------------------------------------------------------------
Total Registration Fee $3,417.98*
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
_______________________________
* This Registration Statement incorporates (i) Post-Effective Amendment No. 1
to Diagnostic Health Services, Inc., Registration Statement on Form SB-2,
Registration No. 33-61392-FW, which Registration Statement was declared
effective by the Securities and Exchange Commission (the "Commission") on
June 22, 1993, and (ii) Post-Effective Amendment No. 1 to Diagnostic Health
Services, Inc., Registration Statement on Form SB-2, Registration No. 333-
4034, which Registration Statement was declared effective by the Commission
on June 6, 1996. 1,375,000 shares of Common Stock issuable upon exercise of
Public Warrants, 158,075 shares of Common Stock (prior to intervening
adjustments to such number of shares) issuable upon exercise of the
Underwriter Warrants, and 158,075 shares of Common Stock (prior to
intervening adjustments to such number of shares) issuable upon exercise of
Public Warrants underlying the Underwriter Warrants were previously
registered in connection with the Company's 1993 initial public offering
pursuant to Registration No. 33-61392-FW, and of the $3,417.98 filing fee
identified above ($3,166.05 of which relates to such shares of Common
Stock), $3,279.87 was previously paid in connection with Registration No.
33-61392-FW. 47,500 shares of Common Stock issuable, and 2,500 shares of
Common Stock issued, upon exercise of the Bridge Warrants were previously
registered in connection with the Company's 1996 public offering pursuant
to Registration No. 333-3043, and of the $3,417.98 filing fee identified
above ($97.35 of which relates to such shares of Common Stock), $107.76 was
previously paid in connection with Registration No. 333-3043. 50,000 shares
of Common Stock issuable upon exercise of the Bank Warrants were previously
registered in connection with the Company's 1996 public offering pursuant
to Registration No. 333-3043, and of the $3,417.98 filing fee identified
above ($94.70 of which relates to such shares of Common Stock), $107.76 was
previously paid in connection with Registration No. 333-3043. All shares of
Common Stock for which this Registration Statement is being filed have been
previously registered and sufficient registration fees have been previously
paid, as identified above.
(1) Pursuant to Rule 416, there are also being registered such indeterminate
number of additional shares of Common Stock as may be required for issuance
pursuant to the anti-dilution provisions of the Public Warrants, the
Underwriter Warrants, the Public Warrants underlying the Underwriter
Warrants, the Bridge Warrants and the Bank Warrants.
(2) Reflects the exercise price of a Public Warrant, payment of which entitles
the holder thereof to purchase one share of Common Stock.
(3) Reflects the exercise price of an Underwriter Warrant, payment of which
entitles the holder thereof to purchase one unit consisting of one share of
Common Stock and one Public Warrant to purchase one share of Common Stock.
(4) Reflects the exercise price of a Public Warrant issuable upon exercise of
an Underwriter Warrant, payment of which entitles the holder thereof to
purchase one share of Common Stock.
(5) Reflects the exercise price of a Bridge Warrant, payment of which entitles
the holder thereof to purchase one share of Common Stock.
(6) Reflects the exercise price of a Bank Warrant, payment of which entitles
the holder thereof to purchase one share of Common Stock.
(7) Pursuant to Rule 457, the calculation of the filing fee for the Common
Stock is based upon the average of the high and low sale prices on January
30, 1997 of $9.75 per share.
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT INCLUDES A COMBINED PROSPECTUS
RELATING TO THE REGISTRANTS PRIOR REGISTRATION STATEMENTS, REGISTRATION NO. 33-
61392-FW DECLARED EFFECTIVE BY THE COMMISSION ON JUNE 22, 1993, AND REGISTRATION
NO. 3333-4034 DECLARED EFFECTIVE BY THE COMMISSION ON JUNE 6, 1996.
-iii-
<PAGE>
1,791,150 SHARES
DIAGNOSTIC HEALTH SERVICES, INC.
COMMON STOCK
--------------
This Prospectus relates to an offering (the "Offering") of 1,791,150 shares
of common stock, par value $.001 per share (the "Common Stock"), of Diagnostic
Health Services, Inc. (the "Company"), consisting of (i) 1,375,000 shares of
Common Stock issuable upon exercise of Redeemable Common Stock Purchase Warrants
(the "Public Warrants") issued in connection with the Company's 1993 initial
public offering (the "Initial Public Offering"), (ii) 158,075 shares of Common
Stock issuable upon exercise of underwriter warrants issued in connection with
the Initial Public Offering (the "Underwriter Warrants"), (iii) 158,075 shares
of Common Stock issuable upon exercise of Public Warrants underlying the
Underwriter Warrants, (iv) 47,500 shares of Common Stock issuable, and 2,500
shares issued, upon exercise of warrants issued in connection with the Company's
April 1996 private placement (the "Bridge Warrants"), and (v) 50,000 shares of
Common Stock issuable upon exercise of warrants issued in connection with a loan
obtained by the Company from Texas Commerce Bank National Association in April
1996 (the "Bank Warrants"). The Public Warrants, the Underwriter Warrants, the
Bridge Warrants and the Bank Warrants are sometimes collectively referred to
herein as the "Warrants," and the shares of Common Stock issued or issuable upon
exercise of the Warrants are sometimes collectively referred to herein as the
"Warrant Shares." The Warrant Shares are being offered for sale by certain
warrantholders of the Company (collectively, the "Warrantholders"), and not for
the account of the Company. The Company will not receive any proceeds from the
sale of the Warrant Shares by the Warrantholders, although it has received, and
will receive, proceeds from the exercise of the Warrants, if and to the extent
exercised. The Company will pay all of the expenses, estimated to be
approximately $20,000, in connection with this offering, other than underwriting
and brokerage commissions, discounts, fees and counsel fees and expenses
incurred by the Warrantholders. See "USE OF PROCEEDS," "WARRANTHOLDERS" and
"PLAN OF DISTRIBUTION."
The Company's publicly traded Common Stock is currently quoted on the
Nasdaq National Market ("Nasdaq") under the symbol "DHSM." On January 30, 1997,
the last sale price of the Common Stock as quoted on Nasdaq was $9.688 per
share.
(Cover Page Continued on Next Page)
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK SEE "RISK
FACTORS" (COMMENCING ON PAGE 9 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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 1997
<PAGE>
Each Public Warrant entitles the holder thereof to purchase, at any time
through June 22, 1998, one share of Common Stock at a price of $6.25 per share.
The Company has the right to call the Public Warrants for redemption at $.05 per
Public Warrant on 30 days' written notice if either (i) the prior written
consent of H.J. Myers & Co., Inc. is obtained, or (ii) the average closing bid
price of the Common Stock, as reported on Nasdaq, equals or exceeds $9.00 per
share for 20 consecutive trading days ending within 15 days of the date of the
notice of redemption. In the event that the Company elects to exercise its right
to redeem the Public Warrants, such Public Warrants will be exercisable until
the close of business on the date for redemption fixed in such notice. If any
Public Warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the holder will be entitled only to the redemption
price. Each Underwriter Warrant entitles the holder thereof to purchase, at any
time through June 22, 1998, one unit consisting of one share of Common Stock and
one Public Warrant at a price of $5.48 per unit. The Public Warrants issuable
upon exercise of the Underwriter Warrants are substantially identical to the
outstanding Public Warrants, except that the exercise price thereunder is $7.50
per share and the Company does not have the right to call such Public Warrants.
Each Bridge Warrant entitles the holder thereof to purchase, at any time through
April 15, 2001, one share of Common Stock at a price of $6.25 per share. The
Company has the right to call the Bridge Warrants for redemption at $.01 per
Bridge Warrant on 30 days' written notice if the average market price of the
Common Stock equals or exceeds $9.00 per share (subject to adjustment) for any
20 trading days within a period of 30 consecutive trading days ending on the
fifth trading day prior to the date of the notice of redemption. Each Bank
Warrant entitles the holder thereof to purchase, at any time through April 15,
2001, one share of Common Stock at a price of $6.25 per share. The adjustment
provisions, call provisions and other terms and conditions of the Bank Warrants
are identical to the terms and conditions of the Bridge Warrants. The various
exercise prices of the Warrants are all subject to adjustment pursuant to their
respective anti-dilution provisions.
The Warrant Shares may be offered by the Warrantholders from time to time
in transactions on Nasdaq. The Warrant Shares may also be offered in negotiated
transactions, at fixed prices which may be changed, at market prices prevailing
at the time of sale, or at negotiated prices. The Warrantholders may effect
such transactions by selling the Warrant Shares in negotiated transactions, on
Nasdaq or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Warrantholders and/or the purchasers of the Warrant Shares for whom such broker-
dealers may act as agents or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). Alternatively, the Warrantholders may from time to time offer the
Warrant Shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Warrantholders and/or the purchasers of securities for whom they act as
agents. See "WARRANTHOLDERS" and "PLAN OF DISTRIBUTION."
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials can be obtained upon written request
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Each
statement made in this Prospectus concerning a document filed as part of the
Registration Statement is qualified in its entirety by reference to such
document for a complete statement of its provisions. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the
Commission, at the address set forth above, or on the World Wide Web through the
Commission's Internet address at "http://www.sec.gov."
--------------------
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of the Company,
including statements under the caption "SUMMARY." These forward-looking
statements involve certain risks and uncertainties. No assurance can be given
that any such matters will be realized. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking statements
include, among others, the following possibilities: (i) competitive conditions
in the industries in which the Company operates; and (ii) general economic
conditions that are less favorable than expected. Further information on other
factors which could affect the financial results of the Company and such
forward-looking statements is included in the section herein entitled "Risk
Factors."
-3-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-21758)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995;
2. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1995, consisting of (i)
the Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996, (ii) the
Company's Current Report on Form 8-K dated November 25, 1996, and
(iii) the Company's Amendment on Form 8-K/A-1 to the Current Report on
Form 8-K dated November 25, 1996; and
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, dated May 11, 1993.
All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Offering made hereby shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified shall not
be deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner of the Warrants or the Warrant Shares, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents which are incorporated herein by reference
(other than exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests for such copies should be directed
to: Stockholder Relations Department, Diagnostic Health Services, Inc., 2777
Stemmons Freeway, Suite 1525, Dallas, Texas 75207, telephone: (214) 634-0403.
-4-
<PAGE>
SUMMARY
Unless otherwise indicated, all financial and share information set forth in
this Prospectus assumes no issuance of an aggregate of 1,806,326 shares of
Common Stock reserved for issuance pursuant to outstanding options and warrants
(other than the Warrants), and pursuant to earn-out agreements with former
stockholders of subsidiaries of the Company. All references to fiscal years
refer to the fiscal year of the Company ending December 31. Unless the context
otherwise requires, all references in this Prospectus to the "Company" refer to
Diagnostic Health Services, Inc., its subsidiaries and predecessors.
THE COMPANY
The Company is a leading outsource provider of medical services to hospitals,
physicians' offices and other healthcare facilities primarily in the Midwest and
South Central United States. The Company provides radiology and cardiology
diagnostic services and equipment, as well as departmental management services
to healthcare facilities on an in-house and shared basis. The Company also
provides skilled and allied healthcare personnel on a temporary basis to perform
a variety of functions in hospitals, long-term care facilities, physicians'
offices, clinics and home healthcare settings. The Company is committed to
offering a broad range of services in a manner responsive to the healthcare
industry's increased focus on cost containment without compromising the quality
of patient care.
The market for the Company's services consists of hospitals, physicians and
other healthcare providers. According to the American Hospital Association there
are more than 5,000 hospitals, and according to the American Medical Association
there are more than 18,300 physician group practices, in the United States. In
the Company's core nineteen-state Midwestern and South Central United States
market, the Company estimates that there are approximately 3,100 hospitals,
approximately 13% of which are currently serviced by the Company. Additional
potential customers include long-term care facilities, sub-acute care facilities
and the expanding managed care marketplace.
The Company currently provides shared diagnostic services, and staffs, equips,
operates and/or manages in-house radiology or cardiology departments, for
approximately 1,200 customers. The Company has achieved this market presence
through internal growth and strategic acquisitions. The Company's strategy is to
capitalize, within its business lines, on its demonstrated ability to reduce the
costs of providing radiology and cardiology services and to consolidate
providers of these services. The Company intends to implement this strategy by
continuing its aggressive acquisition and development program with a strong
geographic focus, cross-marketing its service lines across its customer base to
generate internal growth, pursuing the conversion of shared service arrangements
to in-house service agreements, and offering ancillary services to complement
its core radiology and cardiology services. The Company also intends to pursue
acquisitions of other service providers, as this highly fragmented sector of the
healthcare industry continues to consolidate.
In addition to diagnostic services, the Company provides, on a temporary
basis, allied healthcare personnel, including radiology technicians, physical
and occupational therapists and home healthcare professionals in its primary
market area and in Mexico City. Demand for such temporary personnel arises from
hiring freezes, the need to replace vacationing or sick personnel, and other
short-term needs. These services are complementary to the Company's core
business and afford the Company the opportunity to expand the services provided
to existing customers and to establish new client relationships.
Since 1991, the Company has significantly expanded the breadth of its
radiology and cardiology services. From 1991 to 1995, through internal growth
and the acquisition of twelve local service providers, the Company's gross
revenues increased from approximately $3.5 million to approximately $17.1
million, and income from operations increased from approximately $0.4 million to
$1.7 million. During the same period, the Company's customer base increased from
323 to 846. From December 31, 1995 to the date of this Prospectus, the Company
consummated five additional business acquisitions.
The Company was incorporated in Texas in 1983 and was reincorporated in
Delaware in 1992. Its principal executive office is located at 2777 Stemmons
Freeway, Suite 1525, Dallas, Texas 75207, and its telephone number is (214) 634-
0403.
-5-
<PAGE>
RECENT DEVELOPMENTS
Credit Facility
On July 31, 1995, the Company entered into loan agreements with Texas Commerce
Bank National Association ("Texas Commerce Bank"), which include a one-year
revolving credit facility providing up to $1,000,000 in available credit (or, if
less, 75% of the Company's and its subsidiaries' eligible accounts receivable
from time to time). Pursuant to the same loan agreements, the Company borrowed
$4,750,000 in term loans. In December 1995, the Company borrowed an additional
$600,000 from Texas Commerce Bank in connection with an acquisition. All but
$2,000,000 of these term loans were repaid out of the net proceeds of the 1996
Public Offering described below, and the remaining $2,000,000 of outstanding
borrowings were carried forward into the amended Credit Facility described
below. In April 1996, the Company borrowed an additional $1,000,000 from Texas
Commerce Bank for capital expenditures and working capital. In connection with
this loan, the Company issued to Texas Commerce Bank the Bank Warrants entitling
the holders thereof to purchase up to 50,000 shares of Common Stock. This loan
was repaid in full out of the net proceeds of the 1996 Public Offering described
below.
Neonatal Pediatric Echocardiography, Inc. and Pediatric Echocardiographic
Diagnostic Imaging, Inc.
In January 1996, Mobile Diagnostic Systems, Inc. ("MDS"), a wholly-owned
subsidiary of DHS Management Services, Inc. ("DHSMS"), which in turn is a
wholly-owned subsidiary of the Company, acquired all of the outstanding capital
stock of two affiliated Dallas, Texas-based businesses, Neonatal Pediatric
Echocardiography, Inc. ("NPE") and Pediatric Echocardiographic Diagnostic
Imaging, Inc. ("PEDI"), in consideration of an aggregate of 85,200 shares of
Common Stock. The Company acquired net assets of approximately $248,000 in
connection with the acquisitions.
1996 Private Placement
In April 1996, the Company effected a private placement of $1,000,000 in gross
amount of units of its securities, consisting of an aggregate of $1,000,000 in
principal amount of subordinated promissory notes (the "Bridge Notes") and
Bridge Warrants to purchase an aggregate of 50,000 shares of Common Stock at an
exercise price of $6.25 per share. The Bridge Notes were repaid in full out of
the net proceeds of the 1996 Public Offering described below.
1996 Public Offering
On June 12, 1996, the Company completed a public offering (the "1996 Public
Offering") of 3,000,000 shares of Common Stock at an offering price to the
public of $6.75 per share. Of the shares sold, 2,555,000 were sold by the
Company, and 445,000 shares were sold by certain stockholders of the Company.
Net proceeds to the Company, after incurred expenses, were approximately
$15,251,000.
On July 5, 1996, the investment banking firm of Rodman & Renshaw, Inc., as
representative of the several underwriters in the 1996 Public Offering,
exercised their over-allotment option to purchase from the Company an additional
400,000 shares of Common Stock. The additional net proceeds to the Company were
$2,524,500.
The Company realized total net proceeds from the 1996 Public Offering of
approximately $17,775,500. The net proceeds have been and will be used for
acquisitions, capital expenditures, working capital and retirement of
outstanding debt, including approximately $4,827,000 which was utilized to
retire all but $2,000,000 of the indebtedness previously outstanding under the
Company's senior credit facilities with Texas Commerce Bank, and $1,000,000
utilized to retire the Bridge Notes issued in connection with the Company's
April 1996 private placement.
Amended Credit Facility
On July 24, 1996, the Company entered into an amended and increased credit
facility (the "Credit Facility") with Texas Commerce Bank, which permits the
Company to borrow up to $20.0 million, including up to $17.5 million for
acquisitions (the "Acquisition Facility") and up to $2.5 million for working
capital (the "Working Capital Facility"). The Acquisition Facility terminates
on June 30, 2001 and the Working Capital Facility terminates on June 30, 1998.
Borrowings
-6-
<PAGE>
under the Credit Facility are secured by substantially all of the assets of the
Company (including the capital stock of the Company's subsidiaries) and bear
interest at one of two variable rates selected by the Company based upon (i) the
reserve adjusted LIBOR rate plus a margin ranging from 1.75% to 2.50%, or (ii)
the greater of Texas Commerce Bank's prime rate or the federal funds rate plus
0.50%, plus a margin ranging from 0.25% to 1.00%. As of December 31, 1996, the
outstanding principal borrowings under the Credit Facility were $10,141,573.
Cardiac Concepts, Inc.
On June 28, 1996, the Company, through its MDS subsidiary, consummated the
acquisition of all of the outstanding capital stock of Cardiac Concepts, Inc.
("CCI"), a Texas-based company providing cardiac imaging and monitoring services
(the "CCI Acquisition"). The consideration paid in the acquisition consisted of
22,785 shares of Common Stock, in exchange for which the Company received net
liabilities valued at approximately $430,000. In connection with the CCI
Acquisition, the Company also issued 26,861 shares of Common Stock in payment of
approximately $177,000 of the debt and liabilities of CCI. No goodwill was
recognized in connection with the CCI Acquisition.
Dysrhythmic Data, Inc.
In November 1996, the Company, through its MDS subsidiary, consummated the
acquisition of Dysrhythmic Data, Inc. ("DDI"), a Dallas, Texas-based provider of
ambulatory electrocardiographic monitoring services. The consideration paid for
DDI consisted of 39,521 shares of Common Stock.
Advanced Clinical Technology, Inc. and Horizon MDS Corporation
On November 13, 1996, the Company, through its DHSMS subsidiary, purchased
substantially all of the operating assets (exclusive of cash, and exclusive of
assets utilized primarily in mobile x-ray operations) of Advanced Clinical
Technology, Inc. and Horizon MDS Corporation (collectively, the "Sellers"), each
of which is a wholly-owned subsidiary of Horizon/CMS Healthcare Corporation
("Horizon"). The acquired business (the "Business") consists primarily of
providing hospital-based and shared non-invasive ultrasound and other diagnostic
testing services to the acute and post-acute care industry and primary care
physicians in the Southwestern and Southern United States, including operations
in Arizona, Georgia, Kentucky, Nevada, New Mexico, Oklahoma, Tennessee, Texas
and Virginia.
The purchase included approximately $17,348,000 of various assets (including
goodwill), including approximately $3,452,000 of accounts receivable,
approximately $8,866,000 of equipment, furniture and fixtures, approximately
$550,000 of deposits, prepaid expenses and other such assets, and approximately
$4,480,000 of goodwill. The purchase price paid to the Sellers was
approximately $12,620,000 in cash (subject to adjustment) and 642,857 shares of
Series A Convertible Redeemable Preferred Stock of the Company (having an
aggregate liquidation preference of $4,500,000), and DHSMS assumed approximately
$618,000 of trade accounts payable, $3,584,000 of capital lease obligations, and
$525,000 of other liabilities.
Ultrasound Diagnostic Services, Ltd.
In January 1997, the Company, through Heart Institute of Tulsa, Inc. (a
wholly-owned subsidiary of DHSMS), acquired all of the outstanding capital stock
of Ultrasound Diagnostic Services, Ltd. ("UDS"), a Phoenix, Arizona-based
provider of non-invasive diagnostic ultrasound testing services, in
consideration of the issuance of 86,520 shares of Common Stock and the payment
of $400,000 in cash to the former UDS stockholders.
-7-
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
SECURITIES OFFERED.............. 1,791,150 shares of Common Stock, consisting of 1,375,000
shares of Common Stock issuable upon exercise of the Public
Warrants; 158,075 shares of Common Stock issuable upon
exercise of the Underwriter Warrants; 158,075 shares of
Common Stock issuable upon exercise of the Public Warrants
underlying the Underwriter Warrants; 47,500 shares of
Common Stock issuable, and 2,500 shares of Common Stock
issued, upon exercise of the Bridge Warrants; and 50,000
shares of Common Stock issuable upon exercise of the Bank
Warrants. See "RISK FACTORS - Shares Available for Future
Sale" and "DESCRIPTION OF SECURITIES."
COMMON STOCK OUTSTANDING PRIOR
TO THE OFFERING /1/............. 8,256,523 shares of Common Stock
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING /1/.......... 10,047,673 shares of Common Stock
USE OF PROCEEDS................. As of the date of this Prospectus, the Company has received
$15,625 from the exercise of certain of the Bridge Warrants by
a Warrantholder. In the event that all of the unexercised
Warrants are exercised, the maximum aggregate net proceeds
which the Company would receive from such exercise would be
approximately $11.2 million. To the extent received, such
proceeds will be utilized for working capital and general
corporate purposes, and for possible acquisitions (none of
which have been identified) at the discretion of the Company's
management. If no additional Warrants are exercised, the
Company will not receive any additional proceeds in
connection with this Offering. In addition, the Company will
not receive any proceeds from the sale of the Warrant Shares.
See "USE OF PROCEEDS."
TRADING SYMBOL.................. The Common Stock is traded on Nasdaq under the symbol
DHSM.
</TABLE>
_______________
/1/ Does not include (i) 1,603,776 shares of Common Stock issuable upon
exercise of outstanding options granted under the Company's stock option
plans, (ii) 143,615 shares of Common Stock issuable upon exercise of other
outstanding options and warrants, and (iii) 58,935 shares of Common Stock
reserved for issuance of certain former stockholders of the Company's
subsidiaries subject to such subsidiaries' achievement of certain financial
goals.
-8-
<PAGE>
RISK FACTORS
In considering the matters set forth in this Prospectus, prospective
purchasers should carefully consider the matters set forth below as well as
other information set forth in this Prospectus.
RISKS INHERENT IN GROWTH STRATEGY
A significant component of the Company's historical growth has come through
acquisitions of other healthcare service providers, and the Company intends to
continue to seek acquisition opportunities in the future. This growth strategy
is dependent on the continued availability of suitable acquisition candidates.
As of the date of this Prospectus, although the Company has one letter of intent
for a proposed acquisition, the Company has no binding commitments or agreements
with respect to any acquisitions, and there can be no assurance that the Company
will be able to identify or come to agreement with any future acquisition
candidates. The Company may also find itself in competition for acquisition
candidates with competitors who have greater financial and other resources than
the Company and who may be willing to pay higher prices for acquisition targets.
In addition, even if the Company is successful in consummating future
acquisitions, there can be no assurance that any such acquisitions will be
beneficial to the Company. Any growth or success through acquisitions will be
dependent upon a number of factors, including the Company's ability to evaluate
properly the potential benefits of each prospective acquisition, the Company's
ability to consummate the acquisition on terms favorable to the Company, and the
Company's ability to promptly and profitably integrate the acquired operations
and retain key personnel and customer relations. Acquisitions also place
significant demands on the Company's financial and management resources, which
can divert management's attention from other business concerns. Furthermore, the
Company generally records significant amounts of goodwill in connection with
acquisitions, and if the Company were to determine that the carrying value of
goodwill was impaired, the Company would be required to write down such carrying
value, which would result in a charge to earnings that could have a material
adverse effect on the Company's financial results.
UNCERTAINTIES SURROUNDING DILUTIVE IMPACT OF AND CAPITAL REQUIREMENTS RELATING
TO GROWTH STRATEGY
In order to grow its business by means of acquisitions, the Company will
require significant capital resources, both for the payment of the cost of
acquiring businesses, and for the effective integration, operation and expansion
of the acquired businesses. In the past, the Company has utilized its Common
Stock as a means of making payment for acquired businesses. Depending on the
agreed-upon value of the acquired business and the value of the Common Stock,
the Company may be required to issue a large number of additional shares of
Common Stock, thereby diluting existing stockholders, including investors in
this Offering. Alternatively, to avoid such dilution, or if the acquisition
candidate is unwilling to accept Common Stock as all or part of the
consideration for the transaction, the Company might be required to utilize more
of its cash resources (if available), or may be required to seek additional
capital. There can be no assurance that such additional capital, if and when
required, will be available on terms acceptable to the Company, if at all. If
the Company is unable to obtain required capital resources, its growth could be
limited, and its existing operations could be impaired.
DECREASE IN POTENTIAL ACQUISITION CANDIDATES
As the current consolidation trend in the healthcare services industry
continues, the Company can expect to encounter greater difficulty in identifying
suitable acquisition candidates, and in consummating acquisitions of such
businesses on terms favorable to the Company. Failure to identify and consummate
favorable acquisitions could have a material adverse effect on the Company's
business.
-9-
<PAGE>
REDUCED CUSTOMER BASE DUE TO INDUSTRY CONSOLIDATION
As consolidation among healthcare providers continues, the Company's customer
base may be reduced either because customers are consolidated or acquired by
other entities, or because outsourcing decisions shift to individuals with whom
the Company has not had a prior relationship. There can be no assurance that the
Company will be able to maintain relationships with its customers following such
an acquisition or consolidation. Any significant reduction in the Company's
customer base would have a material adverse effect on the Company's business.
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use a portion of any net proceeds of this Offering to
expand the Company's business, either through development of new facilities, or
by acquisition of other service providers. However, as of the date of this
Prospectus, although the Company has one letter of intent for a proposed
acquisition, the Company does not have any binding commitments relating to any
acquisitions. As a result, a portion of the net proceeds of this Offering will
be available for acquisitions and projects that are not yet identified, and the
Board of Directors will have broad discretion with respect to the application of
such net proceeds. See "USE OF PROCEEDS."
RELIANCE ON KEY EMPLOYEES
The Company is substantially dependent on the personal efforts and abilities
of Max W. Batzer (Chairman and Chief Executive Officer) and Brad A. Hummel
(President, Chief Operating Officer and Chief Financial Officer). Each is a
substantial stockholder of the Company and has an employment agreement with the
Company. Mr. Batzer is not required to devote his full time to the affairs of
the Company, but is prohibited from engaging in any other business activities
which are competitive with the business of the Company, or which materially
interfere with the performance of his duties and responsibilities to the
Company. The loss or unavailability of either of these officers or certain other
key employees for any significant period of time could have a material adverse
effect on the Company's business prospects or earning capacity. In addition to
$1.0 million per individual of key man life insurance payable to the Company's
commercial lender pursuant to a loan agreement, the Company maintains and is
sole beneficiary of key man life insurance policies on the lives of Messrs.
Batzer and Hummel in the amount of $500,000 per individual.
POTENTIAL FOR PROFESSIONAL LIABILITY CLAIMS
The nature of the Company's business and services entails the risk of
professional liability claims, which could arise, for example, out of faulty
testing procedures or mishandling of test results. This concern is heightened as
the Company is called upon to perform services that might be deemed to be
"invasive" in nature (entering or placing objects inside a patient's body). The
Company maintains professional liability insurance coverage with limits of $5.0
million per occurrence and $5.0 million in the aggregate in respect of such
contingencies. However, there can be no assurance that claims will not be
asserted in the future, or that any damages assessed against the Company will
not exceed the limits of available insurance coverage. In addition, the
potential negative publicity that could arise from a professional liability
claim could have a material adverse effect on the Company, even if the Company
were ultimately to prevail in the defense of the claim.
POSSIBLE SHORTAGE OF QUALIFIED PERSONNEL
From time to time, the Company has experienced difficulties in obtaining
and/or retaining qualified healthcare professionals, and shortages of such
personnel may be expected from time to time in the future.
-10-
<PAGE>
The Company will be competing for qualified personnel with numerous other
healthcare providers, many of whom have substantially greater financial and
other resources than the Company.
COMPETITION
Radiology and cardiology diagnostic services, as well as the provision of
allied healthcare professionals, are characterized by a high degree of
competition. This competition comes from a number of independent local operators
specializing in one or two clinical applications, and from a few large
diversified healthcare companies (primarily larger hospitals having the
resources and capability to provide shared diagnostic services to other
healthcare facilities) which provide these services as part of their overall
business. Although the Company believes that it has a competitive advantage over
most of the small operators (primarily because most of them do not provide the
full range of services offered by the Company, and do not have the same volume
of revenues to absorb necessary fixed overhead costs), the Company may be
vulnerable to competition from the larger healthcare companies, at least one of
which can be found in each of the Company's geographic markets, and all of which
are substantially larger and possess greater financial resources than the
Company. There can be no assurance that the Company will be able to compete
successfully in its markets.
GOVERNMENT REGULATION; POTENTIAL NATIONAL HEALTHCARE REFORM
Many aspects of the medical industry in the United States are presently
subject to extensive federal and state governmental regulation, including
reimbursement rates and policies imposed by Medicare and other third-party
reimbursement programs (from which the Company receives a material portion of
its revenues). Laws and regulations affecting the Company's business include
federal and state "kickback laws," conflict of interest laws (such as the
federal "Stark" legislation), and licensing requirements relating to the
operation of independent physiological laboratories and the handling of nuclear
materials. In addition, both the Clinton Administration and the Congress have
periodically asserted a need to overhaul or reform the nation's healthcare
system. Such legislative initiatives, if enacted, could impose pressures on the
pricing structures applicable to the Company's services. In particular, there is
a possibility that a significant portion of healthcare services will be rendered
and administered through managed care systems, which could have the effect of
forcing price concessions and reductions on the part of service providers such
as the Company. Moreover, healthcare reform could also entail a greater analysis
of each patient's need for diagnostic testing, with the aim of reducing the
total volume of testing and the overall cost of medical care. Depending on the
nature and extent of any new laws and/or regulations, or possible changes in the
interpretation of existing laws and/or regulations, any such changes may have a
material adverse effect on the Company's revenues, operating margins and
profitability.
LIMITATIONS BROUGHT ON BY REIMBURSEMENT PROGRAMS
In 1994 and 1995, the Company derived approximately 7.8% and 4.9%,
respectively, of its total revenues from Medicare and Medicaid, and
approximately 4.9% and 2.2%, respectively, from other third-party indemnity
payors. In January 1992, the federal government implemented, through the
Medicare program, a resource-based relative value scale ("RBRVS") payment
methodology. Implementation of RBRVS reduced reimbursement rates for certain of
the Company's diagnostic procedures. Policymakers have from time to time
advocated that a RBRVS type of reimbursement system be imposed on private-sector
third-party payors. Implementation of such a program would reduce reimbursements
by private third-party payors, and would adversely affect the Company's
operating margins to the extent that costs on these procedures could not be
concomitantly reduced. There can be no assurance that some or any of these
reduced operating margins could be recouped through cost reductions or
otherwise.
-11-
<PAGE>
TECHNOLOGICAL CHANGE AND OBSOLESCENCE
Diagnostic imaging technology is constantly undergoing development and change.
New technologies may be developed, or existing technologies refined, which could
render the Company's existing equipment technologically or economically
obsolete. Due to cost factors, competitive considerations or other constraints,
there can be no assurance that the Company will be able to acquire or have
access to any new or improved equipment that the Company may need in order to
serve its clients and customers.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been and may continue to be highly
volatile, and could in the future be subject to wide fluctuations in response to
the timing and size of acquisitions, quarter to quarter variations in operating
results, changes in earnings estimates by analysts, market conditions in the
industry, prospects of healthcare reform, changes in government regulation, and
general economic conditions. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have been unrelated
to the operating performance of particular companies. Investors in the Common
Stock must be willing to bear the risk of such fluctuations in earnings and
stock price.
SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE
Of the Company's 10,047,673 shares of Common Stock that will be outstanding
upon completion of this Offering, 2,218,689 shares will be "restricted
securities" under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Ordinarily, under Rule 144, a person who has
held restricted securities for a period of two years may, every three months,
sell in ordinary brokerage transactions or in transactions directly with a
market maker an amount equal to the greater of one percent of the Company's
then-outstanding Common Stock or the average weekly trading volume during the
four calendar weeks prior to such sale. Rule 144 also permits the sale of shares
without any quantity limitations by a person who is not an affiliate of the
Company and has satisfied a three-year holding period. Of the 2,218,689
restricted securities, 1,828,196 shares are now eligible or will be eligible for
sale under Rule 144 within 90 days from the date of this Prospectus. Sales of
Common Stock pursuant to Rule 144 may have a depressive effect on the market
price of the Common Stock.
The Company has reserved 2,900,884 shares of Common Stock for issuance to key
employees, officers, directors and consultants pursuant to the Company's stock
option plans, and options for 1,603,776 of such shares are outstanding as of the
date of this Prospectus. The Company has further reserved 1,791,150 shares of
Common Stock issuable at prices ranging from $7.50 to $5.48 per share upon
exercise of the Warrants, 143,615 shares of Common Stock for issuance upon
exercise of other outstanding options and warrants, and 58,935 shares for
issuance to certain former stockholders of its subsidiaries subject to such
subsidiaries' achievement of certain financial goals. All of these options and
warrants have exercise prices that are substantially less than the current
market price of the Common Stock. The existence of such options and warrants may
hinder future equity financing by the Company. Further, the holders of such
warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Certificate of Incorporation, By-Laws,
Delaware law and certain executive employment agreements could, together or
separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company, and limit the price that certain investors
might be willing to pay in the future for the Company's Common Stock. These
provisions include a classified board
-12-
<PAGE>
of directors and the issuance, without further stockholder approval, of
preferred stock with rights and preferences which could be senior to the Common
Stock. The Company is also subject to Section 203 of the Delaware General
Corporation Law, which may also inhibit a change in control of the Company. In
addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control.
NO ANTICIPATED DIVIDENDS
The Company has not previously paid any dividends on its Common Stock and for
the foreseeable future intends to continue its policy of retaining any earnings
to finance the development and expansion of its business. In addition, the loan
agreement between the Company and its commercial lender prohibits the payment of
dividends.
USE OF PROCEEDS
As of the date of this Prospectus, the Company has received proceeds of
approximately $15,625 from the exercise of certain of the Bridge Warrants by a
Warrantholder. Such proceeds will be utilized for working capital and general
corporate purposes. In the event that all of the remaining unexercised Warrants
are exercised, the Company will receive maximum proceeds of $8,593,750 from the
exercise of the Public Warrants, $866,250 from the exercise of the Underwriter
Warrants, $1,185,562 from the exercise of the Public Warrants underlying the
Underwriter Warrants, $296,875 from the exercise of the remaining Bridge
Warrants and $312,500 from the exercise of the Bank Warrants. Accordingly, the
maximum net proceeds which the Company would receive from such exercise, after
deduction of expenses of approximately $20,000 incurred in connection with this
Offering, would be approximately $11.2 million. Although the Company currently
intends to utilize the net proceeds of the Offering for working capital and
general corporate purposes, such net proceeds may be expended for other
corporate purposes, including additional acquisitions, at the discretion of the
Company's management.
On January 30, 1997, the last sale price quoted on Nasdaq for a share of
Common Stock was $9.688 per share. Although it is possible that the Warrants,
exercisable at prices ranging from $7.50 per share to $5.48 per share, may be
exercised insofar as the current market price of the Common Stock exceeds such
exercise prices, it is impossible to predict how many of the Warrants will be
exercised and the amount of the proceeds, if any, realizable therefrom.
If none of the outstanding Warrants are exercised, the Company will not
receive any additional proceeds in connection with this Offering. The Company
will not, under any circumstances, receive any proceeds from any sales of
Warrant Shares by the Warrantholders.
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<PAGE>
WARRANTHOLDERS
Of the 1,791,150 Warrant Shares offered hereby, 1,375,000 Warrant Shares are
issuable upon exercise of Public Warrants which were issued in the Company's
Initial Public Offering in 1993 and are currently publicly traded on Nasdaq. The
following table sets forth the name of each person who is a holder of Warrants
other than Public Warrants, the number of Warrant Shares and other shares of
Common Stock beneficially owned by such Warrantholder's account and the number
of shares of Common Stock such Warrantholder will own after the completion of
this Offering. Unless otherwise indicated, all beneficial ownership consists
solely of Warrant Shares. Except for Mr. Sestak, Mr. Angelica and Ms. Gannon,
none of the listed persons has had any position, office or other material
relationship with the Company or any predecessor in the past three years.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- ---------------------
NAME SHARES PERCENTAGE SHARES PERCENTAGE
---- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Thomas M. Sestak(1)................................. 338,066 4.0% 333,066 3.3%
James R. Angelica(2)................................ 466,552 5.6% 464,052 4.6%
Carol J. Gannon(3).................................. 215,500 2.6% 213,000 2.1%
Jonathan E. Goldstein(4)............................ 105,226 1.3% 102,726 1.0%
Peter Leers(5)...................................... 9,447 * 6,947 *
Katy Barker......................................... 2,500 * __ *
Carl S. Luikart..................................... 2,500 * __ *
Thomas A. Meyers.................................... 2,500 * __ *
Nelson Obus......................................... 2,500 * __ *
Mary C. Shanley..................................... 2,500 * __ *
Henry Solowiejczyk.................................. 2,500 * __ *
Mervin H. Wampold................................... 2,500 * __ *
Robert Dubin........................................ 1,250 * __ *
Leonard M. Amoroso and Nancy
Amoroso............................................. 1,250 * __ *
Felcor, Inc. (beneficial owner: no controlling
stockholders)....................................... 2,500 * __ *
Invest L'Inc. Partners, LLC
(beneficial owner: Robert J.
Skandalaris and Troy D.
Wiseman)............................................ 2,500 * __ *
Jensen Investments Inc. (beneficial owner: no
controlling stockholders).......................... 7,500 * __ *
Litchfield Asset Holdings, Inc. (beneficial owner:
H. Sean Mathis)..................................... 2,500 * __ *
H.J. Meyers & Co., Inc. (Beneficial owner: James
Villa)............................................. 316,150 3. 7% __ *
Texas Commerce Bank (beneficial owner: no
controlling stockholders).......................... 50,000 * __ *
*less than 1%
- ------------
</TABLE>
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<PAGE>
(1) In addition to 5,000 Warrant Shares offered hereby, beneficial ownership
includes 145,969 outstanding shares, 452 shares held by Mr. Sestak as
custodian for his minor children, and 186,645 shares which are subject to
currently exercisable stock options.
(2) In addition to 2,500 Warrant Shares offered hereby, beneficial ownership
includes 370,252 outstanding shares held jointly by Mr. Angelica and his
spouse, 56,800 shares which are subject to currently exercisable stock
options held by Mr. Angelica and his spouse, and 37,000 shares which are
subject to currently exercisable stock options held by Mr. Angelica
individually. Mr. and Mrs. Angelica have granted to Max W. Batzer a proxy,
expiring September 5, 1997, to vote 370,252 shares owned by Mr. and Mrs.
Angelica (a) as to the election of directors, in such manner as Mr. Batzer
may determine in his sole discretion, and (b) as to all other matters, in
the same manner as the greatest plurality of votes otherwise cast or given
by holders of Common Stock with respect to the particular matter under
consideration.
(3) In addition to 2,500 Warrant Shares offered hereby, beneficial ownership
includes 198,000 outstanding shares, and 15,000 shares which are subject to
currently exercisable stock options.
(4) In addition to 2,500 Warrant Shares offered hereby, beneficial ownership
includes 97,726 outstanding shares., and 5,000 shares which are subject to
currently exercisable stock options.
(5) In addition to 2,500 Warrant Shares offered hereby, beneficial ownership
includes 6,947 outstanding shares.
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<PAGE>
PLAN OF DISTRIBUTION
The Warrant Shares issuable upon exercise of the Warrants may be distributed
if, as and when such Warrants are exercised by the holders thereof. The Company
may solicit the exercise of the Warrants at any time by reducing the various
exercise prices of the Warrants. The Company also has the right to call the
Public Warrants (other than the Public Warrants issuable upon exercise of the
Underwriter Warrants), the Bridge Warrants and the Bank Warrants upon the
occurrence of certain events, which could have the effect of encouraging the
exercise of such Warrants.
The Warrant Shares offered hereby may, upon compliance with applicable "blue
sky" laws, be sold from time to time to purchasers directly by the
Warrantholders or by pledgees, donees, transferees or other successors in
interest, or in negotiated transactions and on Nasdaq through brokers or
dealers, or otherwise. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Warrantholders for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to this Prospectus.
Alternatively, the Warrantholders may from time to time offer the Warrant
Shares offered hereby through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Warrantholders and/or the purchasers of Warrant Shares for whom they
may act as agents.
The Warrantholders and any underwriters, dealers or agents that participate in
the distribution of Warrant Shares offered hereby may be deemed to be
underwriters, and any profit on the sale of such Warrant Shares by them and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of Warrant Shares is made, to
the extent required, a post-effective amendment to this Registration Statement
will be filed with the Commission which will set forth the aggregate amount of
Warrant Shares being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, and discounts, commissions and
other items constituting compensation from the Warrantholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The Warrant Shares offered hereby may be sold from time to time in one or more
transactions at market prices prevailing at the time of sale, at a fixed
offering price, which may be changed, at varying prices determined at the time
of sale or at negotiated prices. The Warrantholders will pay the commissions
and discounts of underwriters, dealers or agents, if any, incurred in connection
with the sale of the Warrant Shares.
The Company will not receive any proceeds from the sale of the Warrant Shares
issuable upon exercise of the Warrants. As of the date of this Prospectus, the
Company has received proceeds in the aggregate amount of $15,625 from the
exercise of certain of the Bridge Warrants by a Warrantholder. On the
assumption that all of the remaining unexercised Warrants are exercised, the
maximum net proceeds which the Company would receive from such exercise, after
deduction of expenses of this Offering, would be approximately $11.2 million.
There can be no assurance that any of such Warrants will be exercised.
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<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The Company's Certificate of Incorporation authorizes the issuance of
15,000,000 shares of Common Stock, par value $.001 per share. As of January 30,
1997, an aggregate of 8,256,523 shares of Common Stock was outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders of the Company. In addition, such holders
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities of the Company. All outstanding shares of
Common Stock are fully paid and nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
Offering, persons acquiring Common Stock in this Offering would have no right to
purchase additional shares, and as a result, their percentage equity interest in
the Company would be reduced.
Pursuant to the Company's By-Laws, except for any matters which, pursuant to
the Delaware General Corporation Law ("Delaware Law"), require a greater
percentage vote for approval, the holders of one-third of the outstanding Common
Stock, if present in person or by proxy, are sufficient to constitute a quorum
for the transaction of business at meetings of the Company's stockholders.
Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to the vote of Company stockholders. Except as to any matters
which, pursuant to Delaware Law, require a greater percentage vote for approval,
the affirmative vote of the holders of a majority of the Common Stock present in
person or by proxy at any meeting (provided a quorum as aforesaid is present
thereat) is sufficient to authorize, affirm or ratify any act or action,
including the election of directors.
The holders of Common Stock do not have cumulative voting rights. Accordingly,
the holders of more than half of the outstanding shares of Common Stock can
elect all of the Directors to be elected in any election, if they choose to do
so. In such event, the holders of the remaining shares of Common Stock would not
be able to elect any Directors. The Board is empowered to fill any vacancies on
the Board created by the resignation, death or removal of Directors.
In addition to voting at duly called meetings at which a quorum is present in
person or by proxy, Delaware Law and the Company's By-Laws provide that
stockholders may take action without the holding of a meeting by written consent
or consents signed by the holders of a majority of the outstanding shares of the
capital stock of the Company entitled to vote thereon. Prompt notice of the
taking of any action without a meeting by less than unanimous consent of the
stockholders will be given to those stockholders who do not consent in writing
to the action. The purposes of this provision are to facilitate action by
stockholders and to reduce the corporate expense associated with annual and
special meetings of stockholders. Pursuant to the rules and regulations of the
Commission, if stockholder action is taken by written consent, the Company will
be required to send to each stockholder entitled to vote on the matter acted on,
but whose consent was not solicited, an information statement containing
information substantially similar to that which would have been contained in a
proxy statement.
-17-
<PAGE>
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
The Company's Certificate of Incorporation provides that the Board of
Directors is divided into three classes, and that the directors serve staggered
terms of three years each. The purpose of the classified board is to promote
conditions of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors, by insuring
that in the ordinary course, at least two-thirds of the directors will at all
times have at least one year's experience as directors. However, the classified
board structure may prevent stockholders who do not approve of the policies of
the Board of Directors from removing a majority of the Board of Directors at a
single annual meeting, because it will normally take two annual meetings of
stockholders to elect a majority of the Board. Directors of the Company may be
removed from office by stockholders prior to the expiration of their terms only
for cause.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware Law prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, or (iii) on or after such date,
the business combination is approved by the board of directors and by the
affirmative vote of at least 66/2//3% of the outstanding voting stock that is
not owned by the interested stockholder. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" is a person, who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, New York, New
York.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries as of December 31, 1994 and 1995, the Statement of Assets Acquired
and Liabilities Assumed from Advanced Clinical Technologies, Inc. and Horizon
MDS Corporation (collectively, "ACT") as of September 30, 1996 and May 31, 1996,
and the Statement of Operations and Cash Flows of ACT for the four months ended
September 30, 1996 and years ended May 31, 1996 and 1995, have been incorporated
by reference in this prospectus and registration statement from the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995, and
from the Company's Amendment on Form 8-K/A-1 to the Current Report on Form 8-K
dated November 25, 1996, in reliance upon the reports of Simonton, Kutac &
Barnidge, L.L.P., independent certified public accountants, which are
incorporated herein by reference, and upon the authority of said firm as experts
in accounting and auditing.
-18-
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to make any representation not contained in this Prospectus in connection
with this offering, and any information or representation not contained herein
must not be relied upon as having been authorized by the Company or any other
person. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates or an offer to or solicitation of any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus at any time nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein contained is
correct as of any time subsequent to the date of this Prospectus.
_____________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................................. 3
Incorporation of Certain
Documents by Reference.............................................. 4
Summary............................................................... 5
Risk Factors.......................................................... 9
Use of Proceeds....................................................... 13
Warrantholders........................................................ 14
Plan of Distribution.................................................. 16
Description of Common Stock........................................... 17
Legal Matters......................................................... 18
Experts............................................................... 18
</TABLE>
1,791,150 SHARES
DIAGNOSTIC HEALTH
SERVICES, INC.
COMMON STOCK
__________________________
PROSPECTUS
__________________________
_____________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses in connection with the offering described
in this registration statement (other than underwriting and brokerage discounts,
commissions and fees and legal fees incurred by the Warrantholders, if any,
payable by such Warrantholders) will be as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.. $ 0
Legal fees and expenses.............................. 15,000
Accounting fees and expenses......................... 5,000
Total........................................... $20,000
=======
</TABLE>
________________________
All amounts except the Securities and Exchange Commission registration fee
(which was paid in connection with prior filings) are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ninth of the Certificate of Incorporation of Diagnostic Health
Services, Inc., (the "Registrant" or the "Company") eliminates the personal
liability of directors and/or officers to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided that such
elimination of the personal liability of a director and/or officer of the
Registrant does not apply to (i) any breach of such person's duty of loyalty to
the Registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
actions prohibited under Section 174 of the Delaware General Corporation Law
(i.e., liabilities imposed upon directors who vote for or assent to the unlawful
payment of dividends, unlawful repurchases or redemption of stock, unlawful
distribution of assets of the Registrant to the stockholders without the prior
payment or discharge of the Registrant's debts or obligations, or unlawful
making or guaranteeing of loans to directors and/or officers), or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, Article Tenth of the Registrant's Certificate of Incorporation, and
Article IV of the Registrant's By-Laws, provides that the Registrant shall
indemnify its corporate personnel, directors and officers to the fullest extent
permitted by the Delaware General Corporation Law, as amended from time to time.
II-1
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Form of Warrant Agreement.(1)
4.2 Form of Underwriter Warrant.(1)
4.3 Specimen Form of Common Stock Certificate. (1)
4.4 Specimen Form of Warrant Certificate. (1)
4.5 Form of Bridge Warrant and Bank Warrant. (2)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel.
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
(included in Exhibit 5.1).
23.2 Consent of Simonton, Kutac & Barnidge, L.L.P.
24.1 Power of Attorney.(3)
- ------------
(1) Incorporated by reference, filed as an exhibit to Amendment No. 2 to the
Company's Registration Statement on Form SB-2 filed on June 11, 1993, SEC
File No. 33-61392-FW.
(2) Incorporated by reference, filed as an exhibit to the Company's
Registration Statement on Form SB-2 filed on April 25, 1996, SEC File No.
333-4034.
(3) Reference is made to the Signatures section of this Registration Statement
for the Power of Attorney contained therein.
ITEM 17. UNDERTAKINGS.
------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
II-2
<PAGE>
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on this 31st day of January,
1997.
DIAGNOSTIC HEALTH SERVICES, INC.
By: /s/ Max W. Batzer
-----------------
Max W. Batzer,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Max W. Batzer and Brad A. Hummel,
respectively, his true and lawful attorney-in-fact, each acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents to be filed in connection therewith,
including any registration statement pursuant to Rule 462 under the Securities
Act, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute, acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Max W. Batzer Chairman of the Board and Chief January 31, 1997
- ---------------------- Executive Officer (principal
Max W. Batzer executive officer)
/s/ Brad A. Hummel President, Chief Operating January 31, 1997
- ---------------------- Officer, Chief Financial Officer
Brad A. Hummel and Director (principal financial
and accounting officer)
/s/ Thomas M. Sestak Director January 31, 1997
- ----------------------
Thomas M. Sestak
/s/ Bo W. Lycke Director January 31, 1997
- ----------------------
Bo W. Lycke
</TABLE>
II-4
<PAGE>
Exhibit 5.1
GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL
153 East 53rd Street
New York, New York 10022
(212) 801-9200
February 3, 1997
Diagnostic Health Services, Inc.
2777 Stemmons Freeway, Suite 1525
Dallas, Texas 75207
Dear Sirs:
We are acting as counsel to Diagnostic Health Services, Inc. (the
"Company") in connection with the Registration Statement on Form S-3, filed on
February 3, 1997 (the "Registration Statement"), under the Securities Act of
1933, as amended (the "Act"), covering 1,791,150 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), consisting of (i)
1,375,000 shares of Common Stock issuable upon exercise of Redeemable Common
Stock Purchase Warrants (the "Public Warrants") issued in connection with the
Company's 1993 initial public offering (the "Initial Public Offering"), (ii)
158,075 shares of Common Stock issuable upon exercise of underwriter warrants
issued in connection with the Initial Public Offering (the "Underwriter
Warrants"), (iii) 158,075 shares of Common Stock issuable upon exercise of
Public Warrants underlying the Underwriter Warrants, (iv) 47,500 shares of
Common Stock issuable, and 2,500 shares issued, upon exercise of warrants issued
in connection with the Company's April 1996 private placement (the "Bridge
Warrants"), and (v) 50,000 shares of Common Stock issuable upon exercise of
warrants issued in connection with a loan obtained by the Company from Texas
Commerce Bank National Association in April 1996 (the "Bank Warrants"). The
Public Warrants, the Underwriter Warrants, the Bridge Warrants and the Bank
Warrants are collectively referred to herein as the "Warrants."
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have
relied upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or
representatives of the Company, and others.
Based upon the foregoing, we are of the opinion that the shares of
Common Stock reserved for issuance upon exercise of the Warrants, when so
issued, upon exercise in
<PAGE>
accordance with the terms and provisions of the Warrants, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
<PAGE>
Exhibit 23.2
SIMONTON, KUTAC
& BARNIDGE, L.L.P.
Certified Public Accountants/Consultants to Business
909 Fannin, Suite 2050, Houston, Texas 77010-1007
================================================================================
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the use in this Registration Statement on Form S-3 of our
report dated March 1, 1996 relating to the consolidated financial statements of
Diagnostic Health Services, Inc. and Subsidiaries for the years ended December
31, 1994 and 1995, our report dated December 12, 1996 relating to the Statement
of Assets Acquired and Liabilities Assumed from Advanced Clinical Technologies,
Inc. and Horizon MDS Corporation as of September 30, 1996 and May 31, 1996, and
the Statements of Operations and Cash Flows for the four months ended September
30, 1996 and years ended May 31, 1996 and 1995, and the reference of our firm
under the captions "SELECTED FINANCIAL DATA" and "EXPERTS" in the Prospectus.
Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
January 31, 1997
