1
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
[LOGO]
AMPERSAND MEDICAL CORPORATION
$5,000,000
1,250,000 SHARES OF SERIES B 10% CONVERTIBLE PREFERRED STOCK -
$0.001 PAR VALUE - STATED VALUE $4.00 PER SHARE
NOVEMBER 1, 2000 (AMENDED JANUARY 30, 2001)
This Offering Memorandum constitutes an offer only to:
Name: ____________________________________
Control Number: ____________________________________
2
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
$5,000,000
[LOGO]
AMPERSAND MEDICAL CORPORATION
1,250,000 SHARES OF SERIES B 10% CONVERTIBLE PREFERRED STOCK -
$0.001 PAR VALUE - STATED VALUE $4.00 PER SHARE
Ampersand Medical Corporation, a Delaware corporation (the "Company"), was
formed in December 1998 as a wholly owned subsidiary of Bell National
Corporation, a California corporation ("Bell"). On May 25, 1999 the stockholders
of Bell approved the merger of Bell with and into the Company, with the Company
as the surviving corporation. The separate existence of Bell ceased.
The Company is hereby offering to sell (the "Offering") to "Accredited
Investors" only, as that term is defined under the Securities Act of 1933, as
amended (the "Securities Act"), up to $5,000,000 (1,250,000 shares) of Series B
10% Convertible Preferred Stock, $0.001 par value, stated value $4.00 per share.
If the Offering is oversubscribed, the Company may at its option, elect to sell
up to an additional 250,000 shares of Series B 10% Convertible Preferred Stock
to cover the oversubscribed amount.
On January 23, 2001, the last reported sale price of Ampersand's Common
Stock on the Over the Counter Bulletin Board (where it is traded under the
symbol "AMPM") was $1.875 per share.
The Offering has no minimum amount. The Company intends to accept, or
reject, Share Purchase Subscription Agreements as they are received and to
process the issuance of Series B 10% Convertible Preferred Shares subscribed
upon receipt by the Company of cleared funds.
The Offering will terminate on February 15, 2001, unless extended in
writing by the Company. The Company reserves the right, in its sole discretion,
to extend, suspend, terminate or rescind the Offering at any time.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES. THESE ARE SPECULATIVE
SECURITIES AND INVOLVE A HIGH DEGREE OF RISK.
2
3
This Confidential Private Offering Memorandum (the "Offering
Memorandum") has been prepared solely for informational purposes from data
deemed reliable by management of the Company, and it supersedes all information,
written or oral, which previously may have been furnished to a potential
investor.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
OFFERING MEMORANDUM OR ENDORSED THE MERITS OF THIS OFFERING. REPRESENTATION TO
THE CONTRARY IS UNLAWFUL. THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED
BY SECTION 4(2) OF THE SECURITIES ACT, REGULATION D THEREUNDER, CERTAIN STATE
SECURITIES LAWS AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO.
THE SHARES MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
Offering Price Proceeds to the Company 1
-------------- -------------------------
Total Maximum Amount Offered 2 $5,000,000 $4,600,000
1. Before deduction of legal, accounting, and printing expenses of the
Offering payable by the Company, estimated to be $25,000. The Company is
offering the Shares directly to investors; no underwriter has been engaged.
The Company has agreed to pay certain representatives a commission based on
services rendered regarding this offering.
2. If the Offering is oversubscribed, the Company may, at its option, elect to
sell up to 250,000 additional shares of Series B Convertible Preferred
Stock to cover the over-subscription.
3
4
HOW TO PURCHASE SHARES
To purchase Shares, a prospective purchaser should read the Confidential
Private Placement Memorandum, the Registration Rights Agreement included as
Exhibit E and the Share Purchase Subscription Agreement included as Exhibit G.
Prospective purchasers should then complete and sign the Signature Page to the
Share Purchase Subscription Agreement and the signature page to the Registration
Rights Agreement included as Exhibits F and H respectively. The completed Share
Purchase Subscription Agreement and Signature Page and the Registration Rights
Agreement Signature Page should be delivered to the Company at the following
address:
Ampersand Medical Corporation
Attn: Leonard R. Prange
414 North Orleans Street
Suite 510
Chicago IL 60610
Payment for Shares can be made by check, payable to Ampersand Medical
Corporation at the address above, or wire transfer to:
Bank One
Chicago, IL
ABA# 071000013
Account Name: Ampersand Medical Corporation
Account No. 1110021478338
The completed Share Purchase Agreement and Signature Pages must be
delivered to the Company and payment received before the Closing Date, unless
extended by the Company. See "Plan of Distribution".
Notwithstanding anything to the contrary herein, the Company is not
obligated to accept payment for or otherwise sell Shares to any prospective
purchaser. Inquiries regarding the procedure for purchasing Shares can be made
to Leonard R. Prange, President of the Company, at (312) 222-9550.
AVAILABLE INFORMATION
Ampersand 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 "SEC"). Such documents should be
available for inspection or copy at the public reference facilities of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Seven World Trade Center, Suite 1300, New York, NY
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. Copies of such information should be obtainable by mail, upon payment of
the SEC's customary charges, by writing to the SEC's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a
4
5
website at http://www.sec.gov that contains various documents relating to
Ampersand and Bell, which have been filed via the SEC's EDGAR System.
The Company will make available to each prospective investor and such
investor's representatives and advisors, if any, the opportunity to ask
questions and receive answers concerning the terms and conditions of this
Offering and to obtain any additional information, which the Company may possess
or can obtain without unreasonable effort or expense, that is necessary to
verify the accuracy of the information furnished to such prospective investor.
All such questions should be directed to: Leonard R. Prange, President,
Ampersand Medical Corporation, 414 North Orleans, Suite 510, Chicago, Illinois
60610, telephone number (312) 222-9550.
The following documents, either attached as exhibits to or included with
this Offering Memorandum, are made a part hereof and should be carefully
reviewed prior to reaching an investment decision concerning the purchase of the
Shares offered hereby:
1. Report on Form 10-K of Ampersand for the fiscal year ended
December 31, 1999.
2. Notice and Proxy for Annual Meeting held on May 23, 2000.
3. Report of Form 10Q dated November 14, 2000.
THE ORIGINAL DATE OF THIS CONFIDENTIAL PRIVATE OFFERING MEMORANDUM IS
NOVEMBER 1, 2000 AND THE AMENDED DATE IS JANUARY 30, 2001).
5
6
IMPORTANT INFORMATION
THE INFORMATION CONTAINED IN THE OFFERING MEMORANDUM IS CONFIDENTIAL AND
PROPRIETARY TO THE COMPANY AND IS BEING SUBMITTED TO SELECTED PROSPECTIVE
INVESTORS SOLELY FOR SUCH INVESTORS' CONFIDENTIAL USE WITH THE EXPRESS
UNDERSTANDING THAT, WITHOUT THE PRIOR EXPRESS WRITTEN PERMISSION OF THE COMPANY,
SUCH PROSPECTIVE INVESTORS WILL NOT RELEASE THE OFFERING MEMORANDUM OR DISCUSS
THE INFORMATION CONTAINED HEREIN OR MAKE REPRODUCTIONS OF OR USE THE OFFERING
MEMORANDUM FOR ANY PURPOSE OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE
SHARES OFFERED HEREBY.
A PROSPECTIVE INVESTOR, BY ACCEPTING DELIVERY OF THE OFFERING MEMORANDUM, AGREES
PROMPTLY TO RETURN TO THE COMPANY THE OFFERING MEMORANDUM AND ANY OTHER
DOCUMENTS OR INFORMATION FURNISHED IF THE PROSPECTIVE INVESTOR ELECTS NOT TO
PURCHASE THE SHARES OFFERED HEREBY.
THE INFORMATION PRESENTED HEREIN WAS PREPARED BY THE COMPANY AND IS BEING
FURNISHED SOLELY FOR USE BY PROSPECTIVE INVESTORS IN CONNECTION WITH THIS
OFFERING.
THE OFFERING MEMORANDUM DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL
THE INFORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE IN INVESTIGATING THE
COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED
IN MAKING AN INVESTMENT DECISION WITH RESPECT TO THE SHARES. SEE "RISK FACTORS"
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
THE PURCHASE OF THE SHARES. THE COMPANY WILL MAKE AVAILABLE TO ANY PROSPECTIVE
INVESTOR, PRIOR TO THE CLOSING, THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE COMPANY OR PERSONS ACTING ON BEHALF OF THE COMPANY CONCERNING
THE TERMS AND CONDITIONS OF THE OFFERING, THE COMPANY OR ANY OTHER RELEVANT
MATTERS, AND TO OBTAIN ANY ADDITIONAL INFORMATION TO THE EXTENT THE COMPANY
POSSESSES SUCH INFORMATION.
THE OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE NOTES IN ANY JURISDICTION OR TO ANY INVESTOR
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
EXCEPT AS OTHERWISE INDICATED, THE OFFERING MEMORANDUM SPEAKS AS OF THE DATE
HEREOF. NEITHER THE DELIVERY OF THE OFFERING MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
6
7
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY AFTER THE DATE HEREOF.
THE COMPANY DISCLAIMS ANY AND ALL LIABILITIES FOR REPRESENTATIONS OR
WARRANTIES, EXPRESSED OR IMPLIED, CONTAINED IN, OR OMISSIONS FROM, THE OFFERING
MEMORANDUM OR ANY OTHER WRITTEN OR ORAL COMMUNICATION TRANSMITTED OR MADE
AVAILABLE TO THE RECIPIENT.
JURISDICTIONAL NOTICES
NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION, OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
7
8
TABLE OF CONTENTS
SUMMARY OF THE OFFERING 10
RISK FACTORS 12
USE OF PROCEEDS 15
PRICE RANGE OF COMMON STOCK 16
CAPITALIZATION 17
BUSINESS 18
MANAGEMENT 18
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT 18
DESCRIPTION OF CAPITAL STOCK 19
PLAN OF DISTRIBUTION 20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 23
8
9
EXHIBITS
Annual Report on Form 10-K for Ampersand Medical Corporation
(Year Ended December 31, 1999) A
Notice and Proxy of Annual Meeting of Ampersand Medical Corporation,
(May 23, 2000) B
Quarterly Report on Form 10-Q for Ampersand Medical Corporation
(November 14, 2000) C
Press Releases D
Form of Registration Rights Agreement E
Form of Signature Page to Registration Rights Agreement F
Form of Share Purchase Subscription Agreement G
Form of Signature Page to Share Purchase Subscription Agreement H
9
10
SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in the Confidential
Offering Memorandum, including the exhibits hereto, and incorporated herein by
reference. See the section of the Offering Memorandum entitled "Risk Factors"
below for certain factors that investors should consider prior to purchasing
Shares.
THE COMPANY
The Company, a Delaware corporation, was organized in December of 1998 as a
wholly owned subsidiary of Bell. On May 25, 1999 the stockholders of Bell
approved the merger of Bell with and into the Company, with the Company as the
surviving corporation. The separate existence of Bell ceased.
Bell acquired InPath, LLC, a wholly owned Delaware limited liability
company ("InPath"), as a Subsidiary in December of 1998. InPath, a Chicago based
Company, was developing the "InPath System" a bimolecular based medical device
and related test performed at the point-of-care for both in-vitro and in-vivo
screening and diagnosis of cancer. The Company has assumed direct development of
the InPath System.
The Company currently has one wholly owned operating subsidiary SAMBA
Technologies, Sarl., a French company ("SAMBA"), which acquired the "SAMBA"
business unit of Unilog Regions, a French public company on January 4, 1999.
SAMBA focuses its business on biology and healthcare applications for image
analysis and image management with Internet and telecommunications capabilities.
On September 26, 2000 the Company signed a Letter of Intent to merge with
and acquire control of AccuMed International, Inc. ("AccuMed"), a Delaware
corporation listed on the Nasdaq Small Cap Market. The Letter of Intent was
terminated on December 7, 2000. The Company is currently negotiating a new
Definitive Agreement with AccuMed under terms approved by the Board of Directors
of the Company. These terms provide that Ampersand would acquire 100% of the
outstanding Series A Convertible Preferred Stock of AccuMed (with a current
stated value of approximately $2.6 million) in exchange for a new Series A
Convertible Preferred Stock of the Company, and 100% of the outstanding common
stock of AccuMed in exchange for Common Stock of the Company. Holders of AccuMed
Preferred Stock would receive one share of the Company's new Series A
Convertible Preferred Stock for each AccuMed preferred share held. Each share of
the Company's Series A Convertible Preferred Stock is convertible into
approximately .43 shares of Common Stock of the Company. Holders of AccuMed
common stock would receive approximately .65 shares of the Company's Common
Stock for each AccuMed share held. The total number of shares of Common Stock
anticipated to be issued in the transaction, including the shares of Common
Stock underlying the Series A Convertible Preferred Stock, is 4,000,000. The
Definitive Agreement is subject to approval by the AccuMed Board of Directors
(the AccuMed Board has approved draft terms as outlined above) and the AccuMed
shareholders. The Company is seeking to close the acquisition transaction by
March 31, 2001.
10
11
AccuMed is an advanced diagnostics and information solutions company that
designs, builds and supplies cytology and histology products to improve the
quality of cell-based specimen analysis. AccuMed's product lines include
computer-aided microscopes, electronic imaging systems and image analysis
software. The Company and AccuMed are parties to a Patent and Technology License
Agreement, including a recent Amendment thereto, under which the Company is
currently obligated to pay AccuMed a royalty of 4% of all revenue of the
Company, with a minimum amount due over the life of the license of $5,000,000.
Ampersand and AccuMed operate in similar markets and the integration of the
product portfolios of the two companies will improve service to their respective
customers and create opportunities for expanded revenue producing contracts.
THE OFFERING
Securities Offered Hereby $5,000,000 (1,250,000 shares)
of Series B 10% Convertible
Preferred Stock -- $0.001 par value,
stated value $4.00 per share share.
Risk Factors For a discussion of certain factors
that should be considered in
connection with an investment in the
shares, see "Risk Factors."
Listing The Series B Convertible Preferred
Stock is not listed on any exchange.
The Common Stock underlying the
Series B Convertible Preferred Stock
is listed on "Over The Counter"
Bulletin Board Market (See
restrictive Legend).
Common Stock outstanding
and fully diluted As of December 31, 2000 the Company
had 30,111,457 shares of Common
Stock outstanding. As of December
31, 2000 fully diluted shares of
Common Stock amounted to
34,641,659. This amount includes
the above outstanding shares of
Common Stock, 1,161,669 shares
underlying vested options to
purchase Common Stock, 3,368,533
shares underlying currently
exercisable warrants to purchase
Common Stock. Fully diluted
shares do not include 1,000,000
shares underlying convertible
promissory notes, which are not
subject to conversion until 2001;
1,098,331 shares underlying
unvested options to purchase Common
Stock; 513,334 shares underlying
un-exercisable warrants to purchase
Common Stock; shares of Common
11
12
Stock, which may be issued in the
AccuMed acquisition; shares of
Common Stock underlying the Series A
Convertible Preferred Stock which
may be issued in the AccuMed
acquisition; and shares of Common
Stock underlying the Series B 10%
Convertible Preferred Stock
contemplated in this offering.
Use of Proceeds Costs and funding requirements of
the proposed acquisition, repayment
of debt, transition of developed
products to manufacturing processes
including dies and tooling, Clinical
study and clinical trial costs, and
general corporate purposes. "Use of
Proceeds."
12
13
RISK FACTORS
The offering entails the raising of risk capital for investment in Shares
issued by the Company. The following factors make an investment in the Shares
risky and speculative. Each of such risks should be considered carefully by each
prospective investor and his advisors.
1. Limited Operating History. The Company has limited operating history.
The Company has been engaged, previous to July 1999 through its subsidiary,
InPath, exclusively in organizational and research and development
activities and in developing a customer base for its intended products
since its inception. Because of the early commercialization stage of the
InPath System, the Company has not to date generated any sales revenues
from the products. The Company is subject to various risks inherent in the
start-up and development of a new business enterprise, and the failure rate
for companies at this stage is quite high. No assurance can be given that
InPath System products and services developed by the Company will receive
general commercial acceptance and, there can be no assurance that the
Company will ever operate at a profit.
AccuMed has been in engaged in the development and sale of its current
product lines since 1994. Prior to 1999, AccuMed was also engaged in a
microbiology testing business, which it sold in early 1999. During 2000,
AccuMed entered into an commenced delivery on initial contracts to deliver
diagnostic equipment and related testing products. These products and tests
are delivered to third parties, who provide them to the healthcare
marketplace under there own auspices. There can be no assurances that the
Company will be able to continue to support or expand the AccuMed
contracts.
2. Competition. The cellular collection cancer diagnostic market in which
the Company primarily operates is highly competitive. The Company is
unaware of any other companies duplicating its efforts to develop a
point-of-care collection and in-vitro diagnostic system, although a number
of companies are attempting to develop an in-vivo system to differentiate
between cancerous, pre-cancerous and normal tissue. The Company's potential
competition for the InPath System includes many companies with financial,
research and development and marketing resources substantially greater than
those of the Company.
Similarly, the computer imaging and telemedicine markets in which SAMBA
operates are highly competitive. Several American and foreign companies are
developing and marketing products that compete directly with SAMBA's
products and services.
AccuMed operates in a similar market to that of the Company, cancer
diagnostics, and it experiences the same issues as the Company in terms of
competition.
3. Dependence on Key Employees; Limited Management Resources. The success
of the Company's business is dependent largely upon the services of Peter
P. Gombrich and Leonard R. Prange and the loss of Mr. Gombrich's or Mr.
Prange's services could adversely affect the Company. The Company also
relies heavily on the services of Ramon Marti Batlle and Didier Adelh,
respectively Managing Director and Technical Director of SAMBA.
13
14
Although certain members of the Company's management have experience in
managing or operating medical technology and other businesses, the Company
has had limited operations to date. Therefore, there can be no assurance
that management will be able to operate the Company profitably once it and
its Subsidiaries begin selling products other than those currently sold by
Samba, if ever.
Additionally, in order to expand the operations and develop new business
opportunities, the Company may be required to hire, train and retain
additional management and other personnel. There can be no assurance that
the Company will be able to attract additional experienced executives,
management personnel and employees necessary for profitable operations.
4. Limited Trading Market; Restrictions on Transferability. The trading
market for Ampersand's common stock that currently exists is extremely
limited, and it is not likely that an active trading market will develop in
the future. The Common Stock received under the Offering may not be resold
or transferred unless registered under applicable federal and state
securities laws or exempt from such registration requirements. Accordingly,
any purchaser of the Shares should consider the Common Stock to be illiquid
and should be prepared to hold such Common Stock for an indefinite period
of time.
5. Patents, Trade Secrets and Trademarks. The Company has applied for a
variety of patents with the United States Patent & Trademark Office and
several foreign patent authorities. There can be no assurance that any
patents that may be issued to or for the benefit of the Company in the
future will provide the Company with significant competitive advantages,
that patent applications which may be applied for by or for the benefit of
the Company will be granted or that challenges will not be instituted
against the validity or enforceability of any such patent applications and,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity of a patent or patent application, or to
prevent infringement, can be substantial even if InPath were to prevail.
Furthermore, there can be no assurance that others will not independently
develop similar technologies or products, duplicate the Company's
technology or design around the patented aspects of the Company's products.
The protection afforded by patents depends upon a variety of factors, which
may severely limit the value of the patent protection, particularly in
foreign countries. The Company intends to protect much of its core
technology which it now possess or later develops as trade secrets rather
than to rely on patents, either because patent protection is not possible
or, in management's opinion, would be less effective than maintaining
secrecy. To the extent that it relies on trade secret protection, there can
be no assurance that the Company's efforts to maintain secrecy will be
successful or that third parties will not be able to develop the technology
independently. The Company expects to register various trademarks
associated with its collection and diagnostic system, however, no assurance
can be given that if registered any such registration or use thereof will
not be challenged by third parties, or that if challenged the Company will
be prevail. AccuMed is the holder of an extensive portfolio of patents,
patent applications, trade secrets, trademarks, and technology. AccuMed
has continued to add to this portfolio with newly developed products, which
it will continue to protect through the use of patents and trade secrets.
AccuMed's business strategy has been to license the use of specific patents
and technology into very narrow and limited use applications. The Company
intends to continue to follow this strategy, should the proposed merger be
consummated.
14
15
6. Government Regulation. For sale and use in the United States, the InPath
System products will need to be approved for marketing by the Food and Drug
Administration (the "FDA"). There can be no assurance that the FDA or other
governmental agencies will approve the InPath System products and services
and the advertising and delivery of those services. Internationally, the
InPath System products may be subject to various government regulations.
Such current or potential regulations may delay the introduction of new
products and services and increase the Company's cost of doing business.
Additionally, certain of SAMBA's products may require FDA approval prior to
any sale or use within the U.S., which would likely delay the introduction
of these products to the U.S. market and increase the cost of doing
business. SAMBA currently has all required regulatory approvals in France,
but may have to apply for regulatory approval in other countries in order
to market its products outside of France. There can be no assurance that
SAMBA will be able to obtain any regulatory approvals necessary to expand
its market.
AccuMed has certain products, which require FDA clearance and has obtained
FDA clearance for two applications of a specific product. AccuMed also
relies on third party users of its tests and technology to obtain
regulatory clearances when required.
7. Manufacturing and Marketing. The Company's ability to operate profitably
in the cellular collection cancer diagnostic market will depend on the
successful transfer of its proprietary technology to commercial-scale
creation of both product and process of the InPath System. There can be no
assurance that the Company will not incur substantial cost overruns and
delays in preparing product for the marketplace. Additionally, there can be
no assurance that the Company's proprietary technology can or will be
successfully commercialized.
AccuMed currently manufactures instruments for delivery to several
customers in a small scale manufacturing facility. AccuMed has no intention
to ramp up the scale of this facility at this time. Should the proposed
acquisition be consummated, the Company may continue with the current scale
of manufacturing. If volume requirements were to dictate expansion, such
activity would be outsourced to an approved third party supplier.
8. Product Liability and Insurance. The marketing and sale of products of
the type proposed to be manufactured and sold as the InPath System entails
a risk of product liability claims by consumers and other users of the
Company's products. The Company currently has no product liability
insurance and does not intend to obtain such insurance until it commences
the marketing and sale of commercial products. There is no assurance that
the Company will be able to obtain a policy that is sufficient to cover the
Company against all possible liabilities or that the policy can be obtained
and maintained in force at an acceptable cost to the Company. In the event
of a successful product liability claim against the Company, lack or
insufficiency of insurance coverage could have a material adverse effect on
the Company.
9. Speculative Nature of Investment. THE SHARES OFFERED HEREBY ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. The offering price per SHARE
has been determined unilaterally by the Company and does not constitute a
representation that the SHARES could be resold for that price.
15
16
10. Lack of Independent Broker-Dealer. The SHARES are not being offered
through an independent underwriter. Accordingly, Holders will not have the
advantage of an independent underwriter's "due diligence" investigation of
the merits of the Offering.
17. Risk if Less Than All the Shares are Sold. If the Company sells less
than all of the SHARES, it may not be able to fund the items described in
the section of this Offering Memorandum entitled "Use of Proceeds."
Furthermore, should the Company sell all of the Shares, there are no
assurances that the Company will not be required to seek additional
financing, either debt or equity.
USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering to fund
costs related to the acquisition, repayment of debt, transition of products
from development to manufacturing including tooling and die costs, clinical
study and clinical trial costs, general working capital and operations, and
other general corporate purposes. Pending such uses, the Company intends to
invest the net proceeds from this Offering in short-term, investment grade,
interest bearing securities.
16
17
PRICE RANGE OF COMMON STOCK
Ampersand's common stock is quoted on the Over the Counter Bulletin Board
under the symbol "AMPM". As of December 31, 2000 there were approximately 1,130
holders of record of the Company's Common Stock. The following table sets forth
the high and low sales prices per share of Ampersand's common stock for the
periods indicated. These quotations and sales prices do not include retail
mark-ups, mark-downs or commissions.
Price Range of Common Stock
----------------------------
Year Ending December 31, 2000: High Low
------------------------------ --------- ---------
1st Quarter $5.5625 $1.0000
2nd Quarter $4.1250 $2.3750
3rd Quarter $3.5000 $1.9375
4th Quarter $2.8750 $0.7500
On January 23, 2001 the reported last sale price for Ampersand's common
stock was $1.875 per share.
The Company currently intends to retain its earnings to finance future
growth and therefore has no present intention of paying dividends. The dividend
policy will be reviewed regularly by the Company's Board of Directors in light
of, among other things, its results of operations and capital requirements and
any contractual restrictions.
17
18
CAPITALIZATION
The following table sets forth the total capitalization of Ampersand on an
un-audited pro forma fully diluted basis.
Pro forma Shares Pro forma Amounts
Outstanding 1 (In thousands)
---------------- ------------------
Preferred Stock, $0.001 par value
Authorized 5,000,000 shares;
None issued and outstanding
Series A Convertible Preferred Stock 2
Series B 10% Convertible Preferred Stock 3
Common Stock, $0.001 par value
Authorized 50,000,000 shares
Issued & outstanding at Sept. 30, 2000 30,056,468 $ 30
Additional shares issued in 4rd quarter 54,989
Additional paid in Capital at Sept. 30, 2000 $13,095
Accumulated deficit at Sept. 30, 2000 ($10,275)
Assumed exercise of vested stock options 1,161,669 $ 1,153
Assumed exercise of vested warrants 3,368,533 $ 1,580
Promissory notes with a conversion clause 1,000,000 $ 1,000
--------------- ----------------
Totals 35,641,659 $ 6,583
1 Excludes 450,000 stock appreciation rights payable in Common Stock at the
Company's option, and 1,098,331 unvested options to purchase Common Sock
and 513,334 un-exercisable warrants to purchase Common Stock. No effect has
been given to any equity transaction related to the proposed acquisition or
this Offering.
2 Approximately 590,000 shares of Series A Convertible Preferred Stock are
anticipated to be issued at the closing of the AccuMed acquisition
transaction.
3 Shares represented by this Offering.
18
19
BUSINESS
A complete description of the business of Ampersand Medical Corporation is
included in the Annual Report of Form 10-K filed by the Company for the year
ended December 31, 1999 included as Exhibit A herewith.
AccuMed is an advanced diagnostics and information solutions company that
designs, builds and supplies cytology and histology products to improve the
quality of cell-based specimen analysis. AccuMed's product lines, including
AcCell TM computer-aided microscopes and AcCell Savant TM, encompass electronic
imaging systems and image analysis software. AccuMed has most recently focused
on the customization of these products for specific testing applications to
detect the presence of abnormal cellular material including cancer.
The Company's products and those of AccuMed are complimentary to each
other. The proposed acquisition, if consummated, will focus on the integration
of these technologies to offer more dynamic and cost effective solutions for the
combined base of customers.
The Company is entering the dynamic healthcare sector at a critical moment in
its revolutionary development as an industrialized service sector industry. With
its experienced and proven management team, growing stable of proprietary
technologies, core competencies to support integration of product lines, and a
strong commitment to comprehensive disease management for improved patient
outcomes, the Company is well positioned for rapid and sustained market
penetration.
MANAGEMENT
A complete listing of officers and directors can be found in the Proxy for
the Annual Meeting held on May 23, 2000 included as Exhibit B herewith.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
A complete listing of the beneficial ownership of Common Stock that is held
by each (i) director of the Company, (ii) each executive officer of the Company,
(iii) all executive officers and directors as a group and (iv) each stockholder
who is known to the Company to be the beneficial owner, as defined in Rule 13d-3
under the Exchange Act, of more than 5% of the outstanding Common Stock can be
found in the Proxy for the Annual Meeting of Stockholders held on May 23, 2000
included herewith as Exhibit B.
19
20
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $.001 par value per share ("Common Stock"), and 5,000,000
shares of so called "blank check" Preferred Stock, $.001 par value per share
("Preferred Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of the Company's stockholders, including the election of
directors. Except as otherwise required by law or as provided in any resolution
adopted by the Board of Directors with respect to any series of Preferred Stock,
the holders of such shares will exclusively possess all voting power. Holders of
Common Stock do not have the right of cumulative voting for the election of
directors. Subject to the preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock will be entitled to such dividends
as may be declared from time to time by the Board of Directors from funds
legally available therefor, and will be entitled to receive pro rata all assets
of the Company available for distribution to such holders upon liquidation. No
shares of the Common Stock have any preemptive or conversion rights, or the
benefits of any sinking fund. All of the shares will be, when issued and sold,
validly issued, fully paid and non-assessable.
The Bylaws provide that any action that can be taken at a meeting of the
stockholders may be taken by written consent in lieu of meeting if the Company
receives consents signed by stockholders having the minimum number of votes that
would be necessary to approve the action at a meeting at which all shares
entitled to vote on the matter were present.
The Certificate of Incorporation (the "Certificate") and the Bylaws provide
that the number of directors of the Company will be fixed from time to time
exclusive by the Board of Directors, (currently fixed at 5 directors), and
subject to any rights of holders of Preferred Stock of the Company, if any, and
unless the Board of Directors otherwise determines, a majority of the directors
then in office may fill any vacancies on the Board of Directors.
The provisions of Delaware law, the Certificate and the Bylaws summarized
above may tend to deter any potential unsolicited or hostile takeover attempt or
other efforts to obtain control of the Company and thereby deprive some
stockholders of opportunities to sell shares of the Company at higher than
market prices.
PREFERRED STOCK
The Company's Certificate also authorizes 5,000,000 shares of Preferred
Stock.
In conjunction with the acquisition of AccuMed, the Company will file a
Certificate of Designation covering up to 600,000 shares of Series A Convertible
20
21
Preferred Stock, par value $0.001 per share, stated value $4.50 per share, which
will be exchanged for shares of AccuMed Series A Convertible Preferred Stock.
The preferential rights of the Company's Series A Convertible Preferred Stock
will be limited to liquidation rights in certain circumstances; the right to
convert each share of Series A Convertible Preferred Stock into approximately
.43 shares of the Company's Common Stock; and, an automatic conversion into
Common Stock of the Company if the trading price of the Common Stock reaches
$13.50 per share.
In conjunction with this Offering the Company will file a Certificate of
Designation covering up to 1,500,000 shares of Series B 10% Convertible
Preferred Stock, par value $0.001, stated value $4.00. The preferential rights
of the Company's Series B 10% Convertible Preferred Stock will be limited to a
dividend equal to 10% per annum, payable in cash or shares of common stock at
the option of the Company; the sole right of the Holder to convert each share of
Series B Convertible Preferred Stock into 4 shares of the Company's Common Stock
at any time; an automatic conversion into Common Stock of the Company at a point
in time when the price of the Common Stock has been at or above $4.00 per share
for forty (40) consecutive trading days; and, certain rights regarding
registration (see the attached Registration Rights Agreement).
The designation and rights of the remaining authorized Preferred Stock are
presently unspecified and will be set by the Company's Board of Directors at a
later date.
STOCK OPTIONS
The Ampersand Medical Corporation 1999 Equity Incentive Plan including Amendment
No.1 as approved by a vote of the stockholders authorizes the Board of Directors
to issue grants of restricted stock, stock appreciation rights, incentive stock
options, and non- qualified stock options. The Board of Directors of the Company
may authorize the issuance of up to a total of 3,000,000 shares of Common Stock
under the various provisions of the amended plan. To date, awards of 227,000
shares of restricted Common Stock and options to purchase 2,260,000 shares of
Common Stock have been granted to officers, directors, employees and
consultants.
The Ampersand Medical Corporation Employee Stock purchase Plan approved by a
vote of stockholders authorizes the Board of Directors to make available, for
purchase by Company employees, up to a maximum of 200,000 shares of Common
Stock. The Plan provides that employees may purchase shares of Common Stock at
85% of the average closing market price of shares on specific measurement dates
specified by the Plan. The first accumulation purchase period under the Plan
ended on December 31, 2000. The Company is obligated to issue 21,989 shares of
Common Stock to employees, out of the total pool of available shares, based on
the payroll deductions made from participating employee wages during the
accumulation period.
TRANSFER AGENT AND REGISTRAR
21
22
The Company will act as transfer agent and registrar for the Series A
Convertible Preferred Stock and the Series B 10% Convertible Preferred Stock.
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York, 10004.
PLAN OF DISTRIBUTION
The Company has not set an offering minimum amount. The Company intends to
accept, or reject, Share Purchase Subscription Agreements as they are received
until February 15, 2001, the termination date of the Offering, and to process
the issuance of Series B 10% Convertible Preferred Shares subscribed upon
receipt by the Company of cleared funds. The Company reserves the right, in its
sole discretion, to extend, suspend, terminate, or rescind the Offering at any
time.
The Offering is being made pursuant to exemptions from registration
provided by Section 4(2) of the Securities Act, Regulation D promulgated
thereunder, and exemptions available under applicable state securities laws and
regulations. The Shares will be offered for sale only to Accredited Investors
(as defined below). The Company, in its sole and absolute discretion, reserves
the right to approve or disapprove each investor.
REGISTRATION RIGHTS
None of the Shares, or underlying Common Stock, have been registered under
the Securities Act. Where required the Company will comply with applicable state
securities "Blue Sky" laws. None of the Shares, or underlying Common Stock, may
be transferred in the absence of an effective registration statement under the
Securities Act and any applicable state securities laws or an opinion of counsel
acceptable to the Company and its counsel that such registration is not
required.
The shares of Common Stock underlying the Series B 10% Convertible
Preferred Stock shall be entitled to the registration rights provided by a
Registration Rights Agreement in substantially the form included as Exhibit A.
The Registration Rights Agreement provides, among other things that prior to
April 1, 2002, the Company has no obligation to register any of the shares of
Common Stock, except that in the case of the conversion of Series B 10%
Convertible Preferred Stock, whether at the election of the Holder or under the
automatic conversion provisions, the Company shall be obligated to register the
shares of Common Stock issued in such conversion within thirty (30) days.
Thereafter, parties to the Registration Rights Agreement holding 51% or more of
the Common Stock, underlying the Series B 10% Convertible Preferred Stock sold
in the Offering shall be entitled to one demand registration and two piggyback
registrations.
22
23
CONDITIONS OF THE OFFERING
The termination date of the Offering is February 15, 2001, unless extended
by the Company in writing.
The Company reserves the right, in its absolute and sole discretion, to
reject any subscription for any reason.
SUBSCRIPTION PROCEDURE
It is anticipated that the sale of the Shares may take place at one or more
closings in Chicago, Illinois, or such other place as shall be decided by the
Company. Each prospective purchaser desiring to subscribe for Shares will be
required to execute and return to the Company the Signature Page of the
Registration Rights Agreement and the Share Purchase Subscription Agreement and
related Signature Page, included as Exhibits F,G, and H respectively.
Prospective purchasers must also wire transfer United States funds directly to
the Company's bank or deliver a check to the Company in the amount of the
purchase price of the Shares. Purchasers who pay by personal check should take
appropriate steps to ensure that the check is received by the bank sufficiently
far in the advance of the Offering termination date to allow the check to clear
before that date. Purchasers who subscribe on a date approaching that of a
scheduled closing should consider paying by wire, by certified check or by other
appropriate means sufficient to ensure that the funds are in the escrow account
in advance of the scheduled closing date. Purchasers who pay by checks which
fail to clear the banking system before the scheduled termination date may not
be permitted to participate in the Offering at the sole discretion of the
Company.
MINIMUM SUBSCRIPTION
Each investor must subscribe for a minimum of $100,000 (25,000 shares),
provided, however, that the Company may, in its sole discretion, accept
subscriptions for smaller amounts.
SUITABILITY STANDARDS
Investment in the Shares involves a high degree of risk and is suitable
only for persons of adequate financial means who have no need for liquidity in
their investments. Therefore, the Company has adopted a general investor
suitability standard whereby each subscriber for Shares represents, by means of
such subscription, that: (a) the investor is acquiring the Shares for investment
and not with a view to resale or distribution; (b) the investor can bear the
economic risk of losing his entire investment; (c) the investor's overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth and his investment in the Shares will not
cause such overall commitment to become excessive; (d) the investor has adequate
means of providing for his current needs and personal contingencies and has no
need of liquidity in his investment in the Shares; and (e) the investor has
substantial experience in making
23
24
investment decisions of this type or is relying on his own purchaser
representative in making this investment decision. See "Risk Factors."
ACCREDITED INVESTORS
In addition, all subscribers for Shares must be "Accredited Investors" as
defined in Rule 501 of Regulation D under the Securities Act, each of whom must
meet one of the following conditions:
(i) if a natural person, have an individual income in excess of $200,000
in each of the two most recent years or joint income with spouse in
excess of $300,000 in each of those years, and have a reasonable
expectation of reaching that same income level in the current year;
or
(ii) if a natural person, have an individual net worth, or a joint net
worth with a spouse, at the time of purchase, in excess of $1,000,000
(net worth for purposes of this Offering unless otherwise noted
includes home, home furnishings and automobiles;
(iii) is an organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, limited liability company, Massachusetts
or similar business trust, partnership or trust (if the trust's
purchase of securities is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D under the Securities
Act), not formed for the specific purpose of acquiring the securities
offered, with assets in excess of $5,000,000 and has the power and
authority to execute and comply with the terms of the Offering; or
(iv) other categories of investors included within the definition of
Accredited Investor which may subscribe for Securities include the
following: certain institutional investors, including certain banks,
whether acting in their individual or fiduciary capacities;
registered securities broker-dealers; certain insurance companies;
federally registered investment companies; business development
companies (as defined under the Investment Company Act of 1940);
Small Business Investment Companies licensed by the U.S. Small
Business Administration under the Small Business Investment Act of
1958; certain employee benefit plans; private business development
companies (as defined in the Investment Advisors Act of 1940); and
certain directors, executive officers and other policy-making
officers of the Company and/or their Affiliates. (An "Affiliate" with
respect to any specified person or entity means any other person or
entity directly or indirectly controlling, controlled by or under
common control with such specified person or entity. For purposes of
this definition, the term "control" with respect to any specified
person or entity means the power to direct the management and
policies of such person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, the term Affiliate does not apply to
any person or entity who serves solely as an independent director,
24
25
trustee, managing member or partner of the Company or an Affiliate of
the Company.); or
(v) is an entity in which all the equity owners are "Accredited
Investors" as described in (i), (ii), (iii) or (iv) above.
The suitability standards set forth above represent minimum suitability
requirements for prospective investors. The satisfaction of such standards by a
prospective investor does not necessarily mean that the Shares are suitable
investments for such prospective investor. The Company may make or cause to be
made such further inquiry and obtain such additional information as it deems
appropriate with regard to the suitability of prospective investors.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of United States Federal ("Federal") income tax
considerations to an initial purchaser of shares is based on the Internal
Revenue Code of 1986, as amended (the "Code"), regulations promulgated
thereunder, and judicial and administrative interpretations thereof as currently
in effect, all of which are subject to change, and is for general information
only. The tax treatment of a holder of Shares may vary depending upon his
particular situation. This discussion assumes that holders will hold the Shares
as capital assets. In addition, this discussion does not purport to deal with
all aspects of Federal income taxation that may be relevant to an investor and
is not intended to be applicable to all categories of investors, some of which
may be subject to special rules (for example, life insurance companies,
tax-exempt investors and financial institutions). This discussion does not
describe any tax consequences arising out of the laws of any state, locality or
foreign jurisdiction.
All participants in this offering are advised to consult their tax advisors
regarding the federal, state and local tax consequences of their participation
in this offering, ownership and disposition, and the effect that a Holder's
particular circumstances may have on such tax consequences.
OWNERSHIP OF THE SHARES
Sale or Exchange of the Shares. If Shares are sold or exchanged in a
taxable transaction, a holder will generally recognize gain or loss equal to the
difference between the amount of cash and the fair market value of property
received and his adjusted tax basis in the Shares. Such gain or loss will
generally be capital gain or loss and will be long-term gain or loss if the
Shares have been held for more than one year as of the date of their
disposition.
25