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As filed with the Securities and Exchange Commission on July 8, 1998
Registration No. __________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
UNIVERSAL STANDARD HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
Michigan 38-2986640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26500 Northwestern Highway
Southfield, Michigan 48076
(248) 358-0810
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Alan S. Ker
26500 Northwestern Highway
Southfield, Michigan 48076
(248) 358-0810
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
______________________
copy to:
Mark A. Metz, Esq.
Dykema Gossett PLLC
400 Renaissance Center
Detroit, MI 48243
(313) 568-6800
______________________
Approximate date of commencement of proposed sale to public: From
time to time after this Registration Statement is declared effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or investment 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 reinvestment plans, please 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
Aggregate Maximum
Title Of Amount Offering Aggregate Amount of
Shares To Be To Be Price Offering Registration
Registered Registered Per Unit* Price* Fee**
<S> <C> <C> <C> <C>
Common Stock, 500,000 $ 2.0625 $ 1,031,250 $ 304.22
no par value shares
</TABLE>
* Estimated solely for purposes of computing the registration fee.
** Calculated on the basis of the average of the high and low reported sale
prices of the Common Stock on the Nasdaq National Market on July 6, 1998.
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 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 8, 1998
PROSPECTUS
UNIVERSAL STANDARD HEALTHCARE, INC.
500,000 SHARES
COMMON STOCK
The 500,000 shares of Common Stock of Universal Standard
Healthcare, Inc. (the "Company") offered hereby are presently outstanding shares
that may be sold from time to time in the market or in other transactions by a
certain shareholder of the Company (the "Selling Shareholder") listed under
"Selling Shareholder". See "Selling Shareholder" and "Plan of Distribution".
None of the proceeds of these sales will be received by the Company. This
offering is not underwritten. The Company's principal executive offices are
located at 26500 Northwestern Highway, Southfield, Michigan 48076 (telephone
number: (248) 358-0810).
The Common Stock is traded on the Nasdaq Stock Market's National
Market (the "National Market"). The average of the high and low sales prices of
the Common Stock on July 6, 1998 on the National Market was $2.0625.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
The shares of Common Stock offered hereby will be sold at market
prices prevailing from time to time or otherwise at prices then obtainable.
Expenses relating to this offering, estimated at approximately $17,000 will
be paid by the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE 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 , 1998
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. In addition, copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company.
This Prospectus is a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information included in
such Registration Statement. The Registration Statement may be inspected by
anyone at the office of the Commission without charge, and copies of all or any
part of it may be obtained upon payment of the Commission's charge for copying.
For further information about the Company and its securities, reference is
hereby made to such Registration Statement, and to the exhibits and financial
schedules filed as part thereof or otherwise incorporated herein. Each summary
herein of additional information included in the Registration Statement or any
exhibit thereto is qualified in its entirety by reference to such information or
exhibit.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (and the amendments thereto) filed by the
Company with the Commission are hereby incorporated by reference and made a part
hereof:
(a) The description of the Company's Common Stock included in the
Registration Statement on Form S-1 (No. 33-49092)
(incorporated by reference into the Company's Exchange Act
Registration Statement on Form 8-A, filed on July 10, 1992);
(b) Annual Report on Form 10-K for the year ended December 31,
1997; and
(c) Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
All documents filed by the Company with the Commission 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 of the securities
covered by this Prospectus shall be deemed to be incorporated herein by
reference and to be a part hereof from the respective date of filing of each
such document. Any statement contained in a document incorporated by reference
or deemed to be incorporated by reference 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 subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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To the extent the foregoing documents are incorporated by
reference herein, copies may be obtained without charge (other than for exhibits
to such documents) upon written request directed to the Company's principal
executive office, located at 26500 Northwestern Highway, Southfield, Michigan
48076 (telephone number: (248) 358-0810), to the attention of the Chief
Financial Officer.
THE COMPANY
Universal Standard Healthcare, Inc. provides clinical laboratory
testing services on a traditional fee-for-service basis. In addition, through
its specialty managed care programs, the Company offers clinical laboratory
testing services, home medical services, and diagnostic imaging to employer,
employer group-, union- and government-sponsored health care benefit plans and
other groups for a fixed payment per participating employee or retiree.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS.
Recent Profit Declines
The Company's level of profitability has declined significantly in
recent periods. The Company has reported a net loss for each of the last three
fiscal years and for the interim period of 1998. Recent declines in
profitability are believed to be principally due to recent changes in the health
care industry, including those described in "Risk Factors - Changes in the
Health Care Industry", reductions in testing facilities and lost accounts.
The Company's business strategy is to become a national leader in
the development and delivery of innovative health care services. In connection
with the implementation of this business strategy, beginning in 1996, the
Company initiated a series of revenue enhancement, reengineering and cost
reduction programs designed to increase revenues, reduce expenses and improve
overall profitability in both its laboratory fee-for-service and managed care
businesses. There can be no assurance that the Company will be successful in its
revenue enhancement, reengineering and cost reduction efforts.
The ability of the Company to successfully execute the strategies
set forth above involves a number of uncertainties, including, but not limited
to, the degree to which the Company's revenue enhancement initiatives will
generate new revenues, whether any such new revenues will be sufficient to
offset decreases in revenues, particularly if third party reimbursement levels
continue to decrease or the Company continues to experience declines in patient
visits or fee-for-service revenue per patient visit. Other uncertainties include
variations in cost savings from, and timing of, the Company's reengineering/cost
reduction efforts from those anticipated, the ability of the Company to develop
new managed care products, the level of interest that existing and potential new
customers may have in managed care products offered by the Company, the ability
of the Company to identify and satisfy market needs and the extent to which
increases in operating costs and decreases in reimbursement levels will offset
any benefits derived from these efforts. In addition, cost reduction efforts
such as those initiated by the Company, by their nature, result in a reduction
of customer service to customers in general, with greater impact on customers in
certain outlying geographic markets. As a result of these reductions in service,
the Company may experience increased customer attrition, especially in its
outlying geographic markets. Although the Company will attempt to reduce the
negative impact on revenues and profitability from its cost reduction efforts,
there can be no assurance that it will be successful in such efforts. See "Risk
Factors - Dependence on Managed Care Programs".
Increased Levels of Cash Flow Required
The Company has experienced reduced levels of operating cash flows
in recent months due to decreases in its fee-for-service revenues. The Company
needs increased levels of cash in future periods to meet its anticipated cash
needs. The Company is attempting to generate additional cash through its revenue
enhancement, reengineering and cost reduction efforts. The Company's ability to
generate additional operating cash flow, however, involves a number of
uncertainties and there can be no assurance that increased levels of cash will
be available to the Company on a timely basis or at all. For example, the
Company's revenue enhancement initiatives may not be at the level required to
offset
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decreases in revenues, particularly if third party reimbursement levels continue
to decrease or the Company continues to experience declines in patient visits or
fee-for-service revenue per patient visit. In addition, the Company's operating
cash flow could be negatively affected by a number of other factors, including
the impact of reengineering/cost reduction efforts on revenues, potential
offsetting increases in operating expenses, variations in cost savings from, and
timing of, the Company's reengineering/cost reduction efforts from those
anticipated, the impact on revenues and expenses of governmental and third-party
payor requirements and reimbursement levels, the impact on the Company of recent
and continuing changes in the health care industry and the competitive nature of
the laboratory industry. In the event that the Company's laboratory operations
and unregulated managed care subsidiaries do not generate cash to the extent
required to fund their operations, the Company will need to obtain additional
financing to meet its operating cash needs or consider disposition of assets or
curtailment of operations. See "Risk Factors - Restrictions on Cash
Distributions From Managed Care Subsidiaries".
Restrictions on Cash Distributions From Managed Care Subsidiaries
The Company conducts its managed care programs ("Managed Care
Programs") through subsidiaries ("Managed Care Subsidiaries") which are required
to be licensed in certain states, including the state of Michigan, and must
comply with applicable state regulations as a condition to continued licensure.
Such regulations include requirements relating to maintaining minimum levels of
net worth, working capital and cash reserves and limitations on distributions by
the Managed Care Subsidiaries to the Company. From time to time, the Managed
Care Subsidiaries may not be able to make cash distributions to the Company at
levels required to fully fund the Company's operating cash flow needs without
violating applicable regulatory requirements. The Company's Managed Care
Subsidiary operating in the State of Michigan (the "Michigan Managed Care
Subsidiary") is subject to regulation the Michigan Insurance Bureau ("MIB"), and
as a result, future cash transfers from the Michigan Managed Care Subsidiary to
the Company are likely to be limited to payments for services rendered and
dividends payable from the Michigan Managed Care Subsidiary's earned surplus,
which is more limited than cash transfers made in the past. Accordingly, the
cash needs of the Company's laboratory operations will have to be funded from
their own operations and the operation of the Company's unregulated Managed Care
Subsidiaries. In the event that the Company is not able to generate additional
operating cash flow or to receive cash distributions from its Michigan Managed
Care Subsidiary to the extent required to fund the Company's operating cash flow
needs, the Company may need to obtain additional financing.
Tax Indemnification Liability
In August 1996, the Company received a thirty-day demand letter
from the Internal Revenue Service ("IRS") proposing adjustments to the Company's
federal income taxes for the years 1991-1994 totaling $3.3 million. The proposed
adjustments principally relate to the timing of certain bad debt deductions and
claim expense accruals and the deductibility of certain sign-on bonus and
non-compete payments made in connection with the acquisition of the Company's
predecessor. The Company has filed a written protest with the IRS appeals office
regarding this matter. There can be no assurance that the Company will resolve
this dispute with the IRS in a manner favorable to the Company. The failure to
resolve this dispute in a manner favorable to the Company would result in a
current period charge to earnings and would have a material adverse effect on
the business, financial condition, including working capital, and results of
operations of the Company. While management believes the liability relating to
this matter, if any, will not be material to the Company, the ultimate effect,
if any, cannot be determined at this time. The foregoing statement may be a
"forward looking statement" withing the meaning of the Securities Act of 1933.
The outcome of this dispute involves a number of uncertainties, including those
inherent in interpreting and applying the Internal Revenue Code and other
federal income tax authority and precedent to actual transactions, those
relating to the valuation of various assets at the time of the acquisition and
those inherent in pursuing any legal action of the type instituted by the
Company. The Company has not accrued a liability relating to the deficiency
assessments or proposed tax adjustments.
Changes in the Health Care Industry
The Company believes that the health care industry is experiencing
a period of dramatic and rapid change. Many of these changes have negatively
affected the Company's operations and may continue to negatively affect the
Company in the future.
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Beginning August 1, 1993, third-party payors (such as Medicare,
Medicaid and insurance companies) have been instituting changes in reimbursement
policies which have negatively affected the Company's fee-for-service revenue
and overall profitability. Further significant changes in reimbursement policies
are under consideration by a number of third-party payors such as Medicare,
Medicaid and insurance companies. Such changes, if instituted, could further
negatively affect the Company's fee-for-service revenue and overall
profitability by reducing amounts received for the Company's services,
increasing testing costs and increasing collection costs and bad debt expenses.
The Company's fee-for-service revenues have also been negatively
affected by changes in payor and test mixes being experienced by the Company and
the clinical laboratory industry generally. These changes result from a variety
of factors, including the shift from traditional fee-for-service to discounted
or managed care arrangements and changes in the level and nature of tests
ordered.
Increasing numbers of patients, including Medicaid and Medicare
recipients, are participating in managed health care delivery systems such as
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs"), employer-, employer group-, union- and government-sponsored programs
and various managed health care organizations. These organizations often
contract with one or a limited number of laboratories to provide all laboratory
services for their members at significantly discounted rates or fixed rates for
each person covered by such contracts ("capitated rates"), rather than fees for
each service performed. While this change creates new opportunities for the
Company's Managed Care Programs, its fee-for-service revenues are being
negatively affected. In addition, such change is causing the Company to become
increasingly dependent on contracts with a few large managed care organizations.
The Company has and will in the future actively seek contracts
with these large organizations. See "Risk Factors - Dependence on Managed Care
Programs" and " - Dependence on Key Managed Care Customers". However, there can
be no assurance that the Company will be successful in those efforts. If it is
not successful, the Company could face a significantly smaller market for its
fee-for-service business, and if it is successful, it could receive
significantly lower fees for the services it performs.
Year 2000 Compliance
While the Company's managed care computer system is year 2000
compliant, the laboratory computer system requires software modifications to
change all two-digit year references to four digits. Modifications will be made
by internal systems personnel and are expected to be completed by the end of
1999. The Company has not yet completed a detailed analysis of the level of
modifications required to bring its laboratory computer system into year 2000
compliance or the related costs of doing so. The Company does not believe that
the cost of bringing its laboratory system into year 2000 compliance will have a
material adverse effect on the Company's business, financial condition and
results of operations. The foregoing statements regarding the timing and cost of
the Company's year 2000 compliance efforts are "forward looking statements"
within the meaning of the Securities Act of 1933. The timing of and costs
required to bring the Company's laboratory system into year 2000 compliance are
subject to a number of uncertainties, including that the Company has not yet
completed a detailed analysis of the level of modifications required to bring
the system into compliance or the related costs of doing so. In addition, the
Company's fee-for-service charges are reimbursed by a number of third-party
payors, including Medicare and Medicaid, typically through electronic
submissions. In the event that the computer systems used by any such payors do
not become year 2000 compliant in a timely fashion, the Company could experience
delays in the receipt of reimbursement, even if the Company's systems are
compliant. Any such reimbursement delays would have a material adverse effect on
the Company's business, financial condition and results of operations.
Competition
The clinical laboratory industry is characterized by intense
competition. The Company may face competition with regard to its fee-for-service
and Managed Care Programs from other clinical laboratories, insurance companies,
HMOs, PPOs, third-party administrators and managed care organizations. The
Company also faces increasing competition from hospitals, particularly those
which control HMOs, PPOs or other managed care organizations. See "Risk Factors
- - Changes in the Health Care Industry".
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With respect to the Company's fee-for-service business, the
Company competes for fee-for-service business primarily on the basis of the
quality of its testing, reporting and information services, its reputation in
the medical community, the introduction of new testing procedures and its
ability to perform virtually all clinical laboratory tests in-house. Under
federal and Michigan law, physicians are prohibited from marking-up the cost of
third-party laboratory tests. Accordingly, the Company competes for
fee-for-service business primarily on the basis of quality and service, with a
particular emphasis on rapid reporting of test results and responsiveness to
customer requests, as well as its ability to perform virtually all clinical
laboratory tests in-house. Some of the laboratories which compete with the
Company have a national presence and have substantially greater financial
resources than the Company. The Company must also maintain competitive pricing
for both its fee-for-service and Managed Care Programs.
With respect to its Managed Care Programs, the Company competes on
the basis of price, service and its experience in providing this type of health
care program. The Company believes its experience, reputation and long-standing
relationships offer it a competitive advantage with respect to maintaining its
existing Managed Care Programs and establishing new Managed Care Programs. The
Company is experiencing increased competition with regard to its Managed Care
Programs from insurance companies, HMOs, PPOs, third-party administrators and
other managed health care companies which offer similar programs. In particular,
the Company is facing aggressive pricing of these programs by its principal
competitors.
There can be no assurance that competition in existing or new
markets will not have a material adverse effect on the Company's business,
financial condition, including working capital, and results of operations.
Changes in the regulatory environment in which the Company operates could also
affect the basis for competition in the clinical laboratory industry and could
thereby have a material adverse effect on the Company's business, financial
condition, including working capital, and results of operations.
Dependence on Managed Care Programs
The Company's Managed Care Programs represented 33.7% of the
Company's net revenues for the year ended December 31, 1997. Under the Managed
Care Programs, in exchange for a capitated rate, the Company is required to
provide, or to coordinate the provision of, substantially all of the services
specified in the Managed Care Program contract to all Covered Persons. Depending
on the Managed Care Program involved, those services currently include any one
or more of the following ordered by physicians for Covered Persons: non-hospital
clinical laboratory tests, durable medical equipment, respiratory therapy and
orthotic and prosthetic appliances (devices supporting joints or muscles or
artificially replacing body parts) and diagnostic imaging services. Therefore,
the Company's revenues under these programs are fixed and its costs depend on
the extent to which its services are used by Covered Persons. A "Covered Person"
is a person who is entitled to benefits under a specific Managed Care Program
contract. There can be no assurance that higher than anticipated utilization
rates over an extended period of time will not cause the expenses associated
with the Managed Care Programs to exceed net revenues, which would have a
material adverse effect on the Company's business, financial condition,
including working capital, and results of operations. The fixed monthly payments
established by the Company generally are guaranteed by the Company for two
years, while the contracts governing the Managed Care Programs are generally
renewable on an annual basis and are terminable upon 30 or 60 days' written
notice by the customer. There can be no assurance that the Company will not lose
a significant Managed Care Program, which could have a material adverse effect
on the Company's business, financial condition, including working capital, and
results of operations.
Dependence on Managed Care Subcontractors
For the Company's laboratory Managed Care Programs covering
Covered Persons located outside Michigan, the Company subcontracts on a
discounted fee-for-service basis with other clinical laboratories, principally
Laboratory Corporation of America ("LCA"), Quest Diagnostics Incorporated and,
to a lesser extent, SmithKline Beecham Clinical Laboratories, Inc.
("SmithKline"), to provide all laboratory services to those Covered Persons. The
Company's subcontracts with LCA are generally terminable on short notice. In the
event that LCA terminates these subcontracts or is unable or unwilling to
perform its services under these subcontracts, the Company would be required to
locate another national clinical laboratory or a group of smaller laboratories
throughout the country to provide such
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services on short notice and, potentially, at a significantly greater cost.
While the Company believes it could replace LCA's services without a significant
increase in cost, there can be no assurance to that effect. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Act of 1933. The ability of the Company to replace LCA's services
without a significant increase in cost is subject to a number of uncertainties,
including the level of interest of another national laboratory in providing
services to the Company and the willingness of the Company's customers to accept
services from another laboratory or group of laboratories. As a result, the
termination by LCA of these subcontracts could have a material adverse effect on
the Company's business, financial condition, including working capital, and
results of operations. Because the Company does not have long-term agreements
with LCA, it may be subject to increases in LCA's prices to provide services
under these agreements, which may adversely affect the Company's profit margins.
Similarly, all services under the Company's home medical services
("HMS") and diagnostic imaging Managed Care Programs are subcontracted to a
small number of providers. While these subcontractors will generally receive a
capitated rate under the program, if a subcontractor did not or was not able to
provide services, the Company would be obligated to locate other providers to do
so, potentially at a significantly greater cost. The refusal of one of these
subcontractors to participate in future HMS or imaging programs could have a
material adverse effect on the Company's ability to offer these programs and on
the Company's costs of providing these programs.
The Company is required to indemnify Ford Motor Company ("Ford")
for any expenses incurred by Ford in replacing the Ford HMS Program in the event
that Ford cancels such program due to the Company's or its subcontractor's
non-performance. While the subcontractor for durable medical equipment under the
Ford HMS Program has indemnified the Company for liability arising from its
non-performance, there can be no assurance that this subcontractor will be able
to satisfy such indemnification liability or that the Company will not have
liability to Ford in a situation where the subcontractor's indemnification is
not applicable. In addition, the other current providers under the HMS programs
have not provided similar indemnification to the Company and the amount payable
to such providers has not been capped. The Company's obligations under the Ford
HMS Program are secured by a $1.8 million letter of credit.
Dependence on Key Managed Care Customers
Although many of the Company's new Managed Care Programs are with
groups not affiliated with the automobile industry, a majority of the Company's
Managed Care Program revenues during 1996 were from contracts with companies and
unions affiliated with the automobile industry. A decrease in the number of
employees and retirees under these programs, downsizing in the automobile
industry or an adverse change in the Company's relationships with the employers
and unions with whom it has Managed Care Programs could have a material adverse
effect on the Company's business, financial condition, including working
capital, and results of operations. In addition, during 1997, revenues from
Managed Care Programs with one of the Company's automobile industry-related
customers accounted for approximately 14% of the Company's total revenues. The
loss of this customer could have a material adverse effect on the Company's
business, financial condition, including working capital, and results of
operations. In addition, because of the relatively low costs of the services
provided by the Company in its Managed Care Programs (relative to total health
care costs), the market for the Company's Managed Care Programs is limited to
sponsors of significant size who are willing to administer the health care
services offered by the Company separately from their other health care
benefits.
Seasonal Fluctuations in Operating Results
The volume of tests performed by the Company tends to decrease
during the summer months, year-end holiday periods and periods of inclement
weather. Although these seasonal effects are partially offset by the Company's
Managed Care Programs, which provide monthly revenues based upon capitated rates
rather than based upon testing volume, these seasonal decreases in testing
volume tend to reduce net revenue and net income for the third and fourth
quarters each year. As a result, comparisons of the results of successive
quarters may not accurately reflect trends or results for the full year.
Dependence Upon Senior Management and Key Laboratory Personnel
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The Company's success depends upon the continued services of
certain members of its senior management. The Company's operations also depend
upon its ability to recruit and retain skilled laboratory professionals.
Competition among clinical laboratories for qualified personnel is intense. The
loss of the services of certain members of senior management for any reason or
the inability to attract and retain skilled laboratory personnel may have a
material adverse effect on the Company's business, financial condition,
including working capital, and results of operations.
Possible Adverse Effects of Government Regulation
The Company is subject to licensing and certification requirements
and other regulation under federal, state and local laws relating to clinical
laboratory conditions and operations, protection of the environment and public
safety, handling and disposal practices for wastes and special materials, and
worker safety and health. The Company also must comply with various federal and
state laws, regulations and restrictions governing its Managed Care Programs,
business practices such as referrals from health care providers, and
reimbursement for services under Medicare and Medicaid. The Company must also
comply with restrictions imposed by insurance companies and other third-party
payors. The Company's third-party payors, including Medicare and Medicaid, from
time to time conduct audits and reviews of the Company's activities to determine
compliance with these laws, regulations and restrictions. In recent years, these
third-party and governmental payors have significantly expanded their efforts to
detect instances of non-compliance and related enforcement activities. The
Company has from time to time experienced compliance reviews, including reviews
of its billing practices, by its third-party payors and, from time to time, has
been required to return monies paid to it by such payors. The Company has not
yet received a final determination notice or decision letter relating to an
audit conducted by one of its largest third-party payors. Failure to comply with
these laws, regulations or restrictions could result in the imposition of
significant fines, civil and criminal penalties, third-party liability,
exclusion from Medicare and Medicaid, and loss of licenses and approvals
necessary for the Company to conduct its business operations, any of which could
have a material adverse effect on the Company's business, financial condition,
including working capital, and results of operations. The Company is also
subject to the requirements of a federal law (the "Stark Law") that prohibits
the Company from receiving referrals of business from physicians if the
physician or his or her immediate family members have a financial relationship
with the Company. This law also requires the Company to make periodic reports on
any financial relationships the Company has with any physicians or immediate
family members of physicians. Although the Company endeavors to comply with all
laws, regulations, restrictions and other legal requirements applicable to its
operations, there can be no assurance that applicable statutes and regulations,
including the prohibitions and reporting requirements of the Stark Law, might
not be interpreted by a regulatory or judicial authority in a manner that would
adversely affect the Company's operating results or that any new governmental
requirements will not have a material adverse effect on the Company's business,
financial condition, including working capital, and results of operations.
The laws and regulations affecting the health care industry and
third party reimbursement change frequently. There can be no assurance that
changes to such laws and regulations will not have a material adverse effect on
the Company's business, financial condition, including working capital, and
results of operations. In addition, legislation may be introduced by Congress or
by one or more state legislators to reform certain facets of the health care
delivery system. The Company cannot predict whether any of these possible
proposals will become law or the effect such legislation would have on the
Company. In addition, even consideration of reform proposals can have an adverse
effect on the Company's Managed Care Programs because the Company believes
health care plan sponsors are less willing to consider changes in their plans
when they think the government will mandate the types of benefits that must be
provided or the method of delivery of benefits. The Company cannot predict
which, if any, health care reform proposals will be adopted or, if adopted,
their effect on the Company's business.
Limitations on Medicare and Medicaid Reimbursement; Possible Slowdowns in Third
Party Payments
Medicare and Medicaid reimbursements account for a significant
portion of the Company's net revenues. Government reimbursement to the clinical
laboratory industry has been the subject of heightened legislative and
regulatory scrutiny in recent years. Medicare and Medicaid reimbursement
programs contain various restrictions on prices that can be charged by
laboratories. Medicare reimbursement for services provided by clinical
laboratories was reduced several times in recent years from previously
authorized levels. Further changes in Medicare reimbursement policies are under
consideration and such changes, if instituted, could negatively affect the
Company's fee-for-service revenue and overall profitability. For most of the
tests performed for Medicare or Medicaid recipients, laboratories are required
to bill Medicare or Medicaid directly and, for all tests except anatomical
testing which has co-insurance and deductible provisions, laboratories are
required to accept Medicare or Medicaid approved amounts as payment in full.
8
<PAGE> 10
In addition, state Medicaid programs are prohibited from paying more than the
Medicare fee schedule amount for testing for Medicaid recipients. Future changes
in federal, state or local regulation (or in the interpretation of current
regulations) affecting government reimbursement for laboratory-testing or
taxation could have a material adverse effect on the Company's business,
financial condition, including working capital, and results of operations. In
addition, the Company's liquidity may be affected by how promptly the Company is
reimbursed by Medicare, Medicaid and other third-party payors. The Company from
time to time has experienced a slowdown in payments from third-party payors.
Delays in payments by third-party payors could have an adverse effect on the
Company's business, financial condition, including working capital, and results
of operations. See "Risk Factors - Possible Adverse Effects of Government
Regulation".
Litigation and Limits of Liability Insurance Coverage
The Company may be subject to legal actions arising out of the
performance of its laboratory testing services. Damages assessed in connection
with, and the cost of defending, any legal actions could be substantial. The
Company currently maintains professional liability insurance and customary
liability insurance coverage in types and amounts that management believes are
adequate in view of the risks associated with the Company's operations. There
can be no assurance that this coverage will be sufficient. Furthermore, there
can be no assurance that the Company will be able to maintain this coverage at
an acceptable cost, or that the Company will have other resources sufficient to
satisfy any liability or litigation expenses that may result from any uninsured
or underinsured claims.
Control by Existing Shareholders
The Company's directors, executive officers and their affiliates
in the aggregate beneficially own nearly a majority of the outstanding shares of
Common Stock. As a result, these shareholders as a group are able, in effect, to
determine the outcome of corporate actions requiring shareholder approval,
including the election of directors, and otherwise control the business of the
Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the shares of Common Stock offered hereby.
PLAN OF DISTRIBUTION
The Selling Shareholder has advised the Company that it may from
time to time offer and sell the shares of Common Stock offered hereby on the
National Market or otherwise at market prices then prevailing or at prices and
upon terms then obtainable. Sales may be made in ordinary brokerage
transactions, in block transactions, in privately negotiated transactions or
otherwise. The Company will not receive any of the proceeds of the sales. The
Company will bear the costs of the offering, including those incurred by the
Selling Shareholder, except that the Selling Shareholder will pay all applicable
broker-dealer fees and charges.
SELLING SHAREHOLDER
There are 500,000 shares of Common Stock being offered by this
Prospectus. The Selling Shareholder purchased the shares being registered
hereunder pursuant to a Stock Purchase Agreement, dated June 8, 1998, between
the Company and the Selling Shareholder.
<TABLE>
<CAPTION>
Number of
Shares Owned
Number Number Assuming All % of Outstanding
of Shares of Shares Shares Offer- Shares Owned Assuming
Selling Shareholder Owned Registered red Are Sold All Shares Offered Are Sold
- ------------------- ----------- ------------ -------------- ---------------------------
<S> <C> <C> <C> <C>
The Kaufmann Fund, Inc. 1,200,000* 500,000 700,000* 9.9%*
</TABLE>
* Does not include 1,142,857 shares of Common Stock which may be acquired upon
conversion of the Company's
9
<PAGE> 11
8.25% Convertible Subordinated Debentures Due 2006.
LEGAL MATTERS
The validity under Michigan law of the authorization and issuance
of the shares offered hereby will be passed upon for the Company by Dykema
Gossett PLLC, Detroit, Michigan.
EXPERTS
The financial statements and schedule incorporated by reference in
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
10
<PAGE> 12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated amounts of
expenses, all of which will be borne by the Company in connection with the
distribution of the Common Stock offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ....$ 304
Accounting Fees and Expenses ........................... 1,000
Legal Fees and Expenses ................................ 15,000
Miscellaneous Expenses ................................. 696
--------
Total Expenses .........................................$ 17,000
========
</TABLE>
All amounts in the table above are estimated, other than the
Securities and Exchange Commission Registration Fee.
Item 15. Indemnification of Directors and Officers
The Company is organized under the Michigan Business Corporation
Act (the "MBCA") which, in general, empowers Michigan corporations to indemnify
a person who is a party or threatened to be made a party to any civil, criminal,
administrative or investigative action, suit or proceeding (other than actions
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or of another
enterprise at such corporation's request, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection
therewith if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders and, in the case of a criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
If a person is successful in defending against a derivative action or
third-party action, the MBCA requires that a Michigan corporation indemnify the
person against expenses incurred in the action.
The MBCA also empowers Michigan corporations to provide similar
indemnity against amounts paid in settlement and expenses actually and
reasonably incurred by such a person in actions or suits by or in the right of
the corporation except in respect of any claim, issue or matter as to which such
person is adjudged to be liable to the corporation, unless and only to the
extent that a court determines that, despite the adjudication of the liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity.
The Company's bylaws generally require the Company to indemnify
its directors and officers to the fullest extent permissible under Michigan law,
require the advancement and reimbursement of expenses under certain
circumstances and establish a procedure for determination of when
indemnification is proper.
The MBCA permits Michigan corporations to limit the personal
liability of directors for a breach of their fiduciary duty. The Company's
Articles of Incorporation, which limit liability to the maximum extent permitted
by law, provide that a director of the Company shall not be personally liable to
the Company or its shareholders for monetary damages for breach of the
director's fiduciary duty. However, the MBCA and the Articles of Incorporation
do not eliminate or limit the liability of a director for any of the following:
(i) a breach of the director's duty of loyalty to the Company or its
shareholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) declaration of a
unlawful dividend, stock purchase or redemption; (iv) a transaction from which
the director derives an improper personal benefit; and (v) an act or omission
occurring prior to the date when the provision becomes effective. As a result of
the inclusion of such a provision, shareholders of the Company may be unable to
recover monetary damages against directors for actions taken by them which
constitute negligence or gross negligence or which are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions.
Under an insurance policy maintained by the Company, the directors
and officers of the Company are insured, within the limits and subject to the
limitations of the policy, against certain expenses and liabilities incurred in
11
<PAGE> 13
connection with the defense of certain claims, actions, suits or proceedings
which may be brought against them by reason of being or having been directors or
officers. In addition, various agreements which require the Company to register
shares of its Common Stock under the Securities Act of 1933 provide that the
Company will indemnify, to the extent permitted by law, each holder of shares
registered pursuant to such agreements, and their officers, directors and
controlling persons, against all losses, claims damages, liabilities and
expenses caused by misstatements or omissions in any registration statement,
prospectus or preliminary prospectus, except insofar as such misstatements are
caused by or contained in information furnished to the Company by such holders.
Item 16. Exhibits
A list of exhibits included as part of this Registration Statement
is set forth in the Exhibit Index which immediately precedes such exhibits and
is incorporated herein by reference.
Item 17. Undertakings
1. Except to the extent that the information is contained in
periodic reports filed by the Company pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 and incorporated by reference into this
registration statement, the undersigned registrant hereby undertakes to file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement (i) to include any prospectus required
by Section 10(a)(3) of the Securities Act of 1933 and (ii) to reflect in the
prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities offered (if the
total value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
2. The undersigned registrant hereby undertakes: (a) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement, (b) 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
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof, and (c) to remove from registration by
means of a post-effective amendment any of the securities which remain unsold at
the termination of the offering.
3. 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 this
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.
4. The undersigned registrant hereby undertakes that 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 registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 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 its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company 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 Southfield, State of Michigan on the 6th day of July,
1998.
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ Eugene E. Jennings
-----------------------------
Eugene E. Jennings, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Eugene E. Jennings and Alan S.
Ker, and each of them, jointly and severally his attorneys-in-fact and agents,
with full power of substitution, and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any amendments to the
Registration Statement (including post-effective amendments), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 6, 1998.
Signature
---------
/s/ Eugene E. Jennings
- -----------------------------------
Eugene E. Jennings
Chairman, Chief Executive Officer,
President and Director (Principal
Executive Officer)
/s/ Alan S. Ker
- ---------------
Alan S. Ker
Vice President - Finance, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
- -----------------
Eduardo Bohorquez
Director
13
<PAGE> 15
/s/ Anthony A. Bonelli
- ----------------------
Anthony A. Bonelli
Director
/s/ Robert P. DeCresce
- ----------------------
Robert P. DeCresce
Director
- -----------------
Thomas R. Donahue
Director
/s/ Thomas W. Gorman
- --------------------
Thomas W. Gorman
Director
/s/ P. Thomas Hirsch
- --------------------
P. Thomas Hirsch
Director
- -------------------
Joseph J. Vadapalas
Director
14
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
5.1 Opinion of Dykema Gossett PLLC
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Dykema Gossett PLLC (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page)
15
<PAGE> 1
EXHIBIT 5.1
July 6, 1998
Universal Standard Healthcare, Inc.
26500 Northwestern Highway
Southfield, MI 48076
Re: Registration Statement on Form S-3
----------------------------------
Gentlemen:
We have acted as counsel for Universal Standard Healthcare, Inc.,
a Michigan corporation (the "Company"), in connection with the preparation of
the Registration Statement on Form S-3 (the "Registration Statement") filed by
the Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act"), registering for sale in the manner described in
the Registration Statement up to 500,000 shares of the Company's Common Stock
(the "Common Stock") on behalf of a certain shareholder of the Company.
We have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, it is our opinion that (1) the Company
has been duly incorporated and is in good standing under the laws of the State
of Michigan and (2) the Common Stock has been legally issued, and is fully paid
and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement. We further consent to the reference to our firm under
the heading "Legal Matters" in the Registration Statement. In giving such
consent, we do not concede that we are experts within the meaning of the Act or
the rules or regulations thereunder or that this consent is required by Section
7 of the Act.
Very truly yours,
DYKEMA GOSSETT PLLC
/S/ Mark A. Metz
-------------------------
By Mark A. Metz, a Member
of the firm
16
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Universal Standard Healthcare, Inc.
Southfield, Michigan
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated February
20, 1998 except for Note 7 which is as of March 12, 1998 relating to the
consolidated financial statements and schedule of Universal Standard Healthcare,
Inc. ("the Company") appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Troy, Michigan
July 6, 1998
17
