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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement / / Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
AMPERSAND MEDICAL CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
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AMPERSAND MEDICAL CORPORATION
414 NORTH ORLEANS - SUITE 510
CHICAGO, ILLINOIS 60610
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Ampersand Medical Corporation (the "Company") will be held at the Holiday Inn,
30 North Orleans, Chicago, Illinois on Thursday, May 24, 2001, at 10:00 a.m.,
Chicago time, for the following purposes:
1. to elect directors;
2. to consider a proposal to amend the Company's Certificate
of Incorporation to effect a one-for-three reverse stock
split of the Company's common stock, as a result of which
holders of common stock will receive one share of
reclassified common stock for every three shares of common
stock owned at the effective time of the amendment (with
cash being paid in lieu of fractional shares);
3. to ratify the appointment of Ernst & Young LLP as
independent auditors for the Company for the year ended
December 31, 2001; and
4. to transact such other business as may properly come
before the meeting.
By order of the Board of Directors,
/s/ Leonard R. Prange
--------------------------------------------
Leonard R. Prange
President, Chief Operating Officer, Chief
Financial Officer, and Secretary
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PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of the Company for use at the
annual meeting of stockholders to be held on May 24, 2001 and at any adjournment
thereof. Only stockholders of record at the close of business on April 6, 2001
will be entitled to notice of and to vote at the meeting. The Company had
outstanding 30,211,457 shares of common stock ("Common Stock") as of the close
of business on March 31, 2001. There are no other voting securities. Each
stockholder is entitled to one vote per share for the election of directors, as
well as on all other matters. If the accompanying proxy form is signed and
returned, the shares represented thereby will be voted; such shares will be
voted in accordance with the directions on the proxy form or, in the absence of
direction as to any proposal, they will be voted for such proposal; and it is
intended that they will be voted for the nominees named herein, except to the
extent authority to vote is withheld. The stockholder may revoke the proxy at
any time prior to the voting thereof by giving written notice of such revocation
to the Company, by executing and duly delivering a subsequent proxy or by
attending the meeting and voting in person.
In case any nominee named herein for election as a director is not
available when the election occurs, proxies in the accompanying form may be
voted for a substitute as well as for the other persons named herein. The
Company expects all nominees to be available and knows of no matters to be
brought before the meeting other than those referred to in the accompanying
notice of annual meeting. If, however, any other matters properly come before
the meeting, it is intended that proxies in the accompanying form will be voted
thereon in accordance with the judgment of the persons voting such proxies.
The presence at the annual meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock shall constitute
a quorum. Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the stockholders
for a vote. If a broker indicates on the proxy that the broker does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
A plurality of the votes of the shares of Common Stock present in
person or represented by proxy at the meeting will be required to elect the
directors. The vote of the majority of the outstanding shares of Common Stock of
the Company is necessary to approve the proposal to amend the Company's
Certificate of Incorporation to effect a one-for-three reverse stock split. The
vote of the majority of the shares of Common Stock present in person or by proxy
and entitled to vote at the meeting is necessary to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for the year ending
December 31, 2001.
In addition to the use of the mails, proxies may be solicited by
directors, officers or regular employees of the Company in person, by
telegraph, by telephone or by other means. The cost of the proxy solicitation
will be paid by the Company.
This Proxy Statement and the form of proxy are first being mailed on
April _____, 2001 to stockholders of the Company.
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PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 2001, with respect to
any person who is known to the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock of the Company, the name and
address of such owner, the number of shares of Common Stock beneficially owned,
the nature of such ownership, and the percentage such ownership is of the
outstanding shares of Common Stock:
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------------------ ------------------ -----
Peter P. Gombrich
414 N. Orleans, Suite 510
Chicago, IL 60610 (1) 5,726,173 18.9%
Alexander M. Milley
Azimuth Corporation
3600 Rio Vista Boulevard, Suite A
Orlando, FL 32805 (2) 5,684,391 17.3%
William J. Ritger
Seaside Partners, L.P.
623 Ocean Avenue 6,172,974 20.0%
Sea Girt, NJ 08750 (3)
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(1) Includes: (i) 838,434 shares owned by Mr. Gombrich's wife; (ii) 479,827
shares owned by The EAG Trust, 479,827 shares owned by The CMC Trust and 479,827
shares owned by The M Trust (collectively, the "Trusts"), for each of which Mrs.
Gombrich serves as sole Trustee; and (iii) 73,333 shares subject to options
granted by the Company to Mr. Gombrich that were exercisable on March 31, 2001
or which have or will become exercisable within sixty days thereafter. Mr.
Gombrich disclaims beneficial ownership of the aforesaid shares held by his wife
and the Trusts for which his wife serves as sole Trustee.
(2) Includes: (i) 503,333 shares owned by Milley Management, Inc. ("MMI"), of
which Mr. Milley is the sole director and executive officer; (ii) 1,494,667
shares owned by Cadmus Corporation ("Cadmus"), of which Mr. Milley is a director
and executive officer; (iii) 506,250 shares owned by Azimuth Corporation
("Azimuth"), of which Mr. Milley is a director and executive officer, 500,000
shares issuable to Azimuth pursuant to a note that was convertible on March 31,
2001 or has or will become convertible within 60 days thereafter, and 2,125,000
shares issuable to Azimuth under warrants granted by the Company that were
exercisable on March 31, 2001 or which have or will become exercisable within
sixty days thereafter; (iv) 148,655 shares owned by Winchester National, Inc.,
of which Mr. Milley is a director; and (v) 70,000 shares subject to options
granted by the Company to Mr. Milley that were exercisable on March 31, 2001 or
which have or will become exercisable within 60 days thereafter.
(3) Includes: (i) 70,000 shares owned by The Research Works, Inc., a corporation
controlled by Mr. Ritger; (ii) 4,207,500 shares owned by Seaside Partners, L.P.
("Seaside"), of which Mr. Ritger is the Managing Partner; and (iii) 531,614
shares issuable under a warrant granted by the Company to Mr. Ritger which was
exercisable on March 31, 2001 or which has or will become exercisable within 60
days thereafter.
The following table sets forth as of March 31, 2001, certain
information concerning the ownership of Common Stock of the Company of each
director, nominee and executive officer named in the Summary Compensation Table
hereof ("Named Executive Officers") and all directors and executive officers of
the Company as a group:
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AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ -------------------- --------
Peter P. Gombrich (1) 5,726,173 18.9%
Alexander M. Milley (2) 5,684,391 17.3%
Robert C. Shaw (3) 570,417 1.7%
John Abeles, M.D. (4) 261,616 0.9%
Denis M. O'Donnell, M. D.(5) 854,901 2.8%
Leonard R. Prange (6) 1,133,355 3.7%
All directors, and executive officers as a group
(6 persons) 14,230,853 41.4%
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(1) Includes: (i) 838,434 shares owned by Mr. Gombrich's wife; (ii) 479,827
shares owned by The EAG Trust, 479,827 shares owned by The CMC Trust, and
479,827 shares owned by The MGD Trust, for each of which Mrs. Gombrich serves as
sole Trustee; and (iii) 73,333 shares subject to options granted by the Company
to Mr. Gombrich that were exercisable on March 31, 2001 or which have or will
become exercisable within 60 days thereafter. Mr. Gombrich disclaims beneficial
ownership of the aforesaid shares held by his wife and the Trusts for which his
wife serves as Trustee.
(2) Includes: (i) 503,333 shares owned by MMI, of which Mr. Milley is the sole
director and executive officer; (ii) 1,494,667 shares owned by Cadmus, of which
Mr. Milley is a director and executive officer; (iii) 506,250 shares owned by
Azimuth, of which Mr. Milley is a director and executive officer, 500,000 shares
issuable to Azimuth pursuant to a note that was convertible on March 31, 2001 or
has or will become convertible within 60 days thereafter, and 2,125,000 shares
issuable to Azimuth under warrants granted by the Company that were exercisable
on March 31, 2001 or have or will become exercisable within 60 days thereafter;
(iv) 148,655 shares owned by Winchester National, Inc., of which Mr. Milley is a
director; and (v) 70,000 shares subject to options granted by the Company to Mr.
Milley that were exercisable on March 31, 2001 or which have or will become
exercisable within 60 days thereafter.
(3) Includes 70,000 shares subject to options granted by the Company to Mr. Shaw
that were exercisable on March 31, 2001 or which have or will become exercisable
within 60 days thereafter.
(4) Includes: (i) 191,616 shares owned by Northlea Partners, Ltd. ("Northlea"),
of which Dr. Abeles is the general partner; and (ii) 70,000 shares subject to
options granted by the Company to Dr. Abeles which were exercisable on March 31,
2001 or have or will be exercisable within 60 days thereafter. Dr. Abeles
disclaims beneficial ownership of all shares owned by Northlea except 2,616
shares, which shares are attributable to his 1% interest in Northlea as general
partner.
(5) Includes: (i) 784,901 shares subject to warrants granted by the Company to
Dr. O'Donnell which were exercisable on March 31, 2001 or which have or will be
exercisable within 60 days thereafter; and (ii) 70,000 shares subject to options
granted by the Company to Dr. O'Donnell which were exercisable on March 31, 2001
or have or will be exercisable with in 60 days thereafter.
(6) Includes 436,667 shares subject to options granted by the Company to Mr.
Prange that were exercisable on March 31, 2001 or which have or will become
exercisable within 60 days thereafter.
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NOMINEES FOR ELECTION AS DIRECTORS
Five directors are to be elected at the meeting to hold office until
the annual meeting of stockholders in 2002 and until their respective successors
are elected and qualified. All of the nominees have been previously elected
directors by the stockholders.
NAME OFFICES AND POSITIONS, IF ANY, HELD WITH THE COMPANY; AGE
- ---- ---------------------------------------------------------
Peter P. Gombrich Chairman of the Board, Chief Executive Officer and Director
of the Company; Age 63
Alexander M. Milley Director of the Company; Age 47
Robert C. Shaw Director of the Company; Age 47
John Abeles, M.D. Director of the Company; Age 56
Denis M. O'Donnell, M.D. Director of the Company; Age 47
NOMINEES
PETER P. GOMBRICH has been Chairman of the Board and Chief Executive
Officer of the Company and a director since December 1998. Mr. Gombrich has
served as Chairman of the Board and Chief Executive Officer of InPath, L.L.C.
("InPath"), a bio-molecular medical testing company, since Mr. Gombrich founded
that company in March 1998. InPath was acquired by the Company in December 1998.
In 1994, Mr. Gombrich founded AccuMed International, Inc. ("AccuMed"), a
cytopathology products company, and served as Chairman, President and Chief
Executive Officer of AccuMed until January 1998. From 1990 until he founded
AccuMed in 1994, Mr. Gombrich was a consultant in the cytology and microbiology
industries. From July 1985 until September 1989, Mr. Gombrich was President and
Chief Executive Officer, and from July 1985 until November 1990 was Chairman of
the Board of CliniCom Incorporated, a bedside clinical information systems
company, which he founded. In 1976, Mr. Gombrich co-founded St. Jude Medical,
Inc., a life support medical device company, in which he served as Executive
Vice President until 1980, when he became President of the pacemaker division of
that company, serving in that position until 1982. Mr. Gombrich has a Bachelor
of Science degree in Electrical Engineering from the University of Colorado and
a Masters in Business Administration from the University of Denver.
ALEXANDER M. MILLEY has been a director of the Company since 1989.
Mr. Milley is President and Chairman of the Board of ELXSI Corp., a holding
company with subsidiaries operating in the restaurant and environmental
inspection equipment industries. He is also President and Chairman of the Board
of Azimuth, a holding company with subsidiaries operating in the trade show
exhibit and retail environment design and the distribution of electrical
components and fasteners industries. Mr. Milley was Chairman of the Board and
Chief Executive Officer of Bell National Corporation, a predecessor of the
Company ("Bell"), until December 1998 and was President of Bell from August 1990
until December 1998. Mr. Milley is the founder, President, sole director and
majority shareholder of MMI, a private investment and management-consulting
firm. Mr. Milley is also the President of Cadmus, a private investment and
management-consulting firm. Mr. Milley was Senior Vice President-Acquisitions
from December 1983 until July 1986 of the Dyson-Kissner-Moran Corporation, a
private investment company.
DENIS M. O'DONNELL, M.D. has been a director of the Company since
December 1998. Since 1997, he has been Managing Director of Seaside Advisors,
L.L.C., an investment advisor to Seaside Partners, L.L.P., a fund specializing
in small capitalization private placements. Prior to joining Seaside Advisors,
L.L.C., Dr. O'Donnell was President of Novavax, Inc. ("Novavax"), a company
engaged in the development of pharmaceutical products, from its inception in
1995 to 1997. Dr. O'Donnell currently serves as a director and Chairman of
Novavax. From 1991 to 1995, Dr. O'Donnell served as Corporate Vice President of
Medical Affairs of IGI, Inc., a clinical drug testing company. Prior to
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joining IGI, Inc. in 1991, Dr. O'Donnell was Director of the Clinical Research
Center at MTRA, Inc. a company engaged as investigator in human clinical trails.
Dr. O'Donnell has been a director of ELXSI Corporation since 1996 and of
Columbia Laboratories, Inc., a pharmaceutical company, since 1999. Dr. O'Donnell
is a Fellow of the American College of Clinical Pharmacology and serves on the
Scientific Advisory Board of the Associates of Clinical Pharmacology.
JOHN H. ABELES, M.D. has been a director of the Company since May
1999. Dr. Abeles is President of MedVest, Inc., a venture capital and consulting
firm he founded in 1980. He is also General Partner of Northlea Partners, Ltd.,
a family investment partnership. Dr. Abeles was a senior medical executive at
Sterling Drug, Pfizer, and Revlon Healthcare, Inc. and subsequently was a
medical analyst at Kidder, Peabody & Co. Dr. Abeles is a director of a number of
companies operating in the medical device or healthcare fields, including I-Flow
Corporation, Oryx Technology Corp., Encore Medical Corporation, and DUSA
Pharmaceuticals, Inc. Dr. Abeles received his medical degree and degree in
pharmacology at the University of Birmingham in England and is currently a
director at the Higuchi BioSciences Institute at the University of Kansas.
ROBERT C. SHAW has been a Director of the Company since November
1989. Mr. Shaw is President of Contempo Design, Inc., a firm specializing in the
design of exhibits and retail environments. Mr. Shaw was Chief Financial Officer
of Bell from November 20, 1989 to December 1998. Mr. Shaw has been a Vice
President of MMI since March 1989, an officer or director of Azimuth or certain
of its subsidiaries since November 1990, a director of Cadmus since January 1992
and an officer or director of ELXSI since September 1989. Mr. Shaw was Vice
President of Berkeley Softworks, Incorporated ("Berkeley") from September 1987
to March 1989. From January 1987 to September 1987, he was Vice President, and
from July 1985 until January 1987, he was Director of Finance and Operations, at
Ansa Software, Incorporated ("Ansa"). Berkeley and Ansa developed and produced
personal computer software.
EXECUTIVE OFFICER
LEONARD R. PRANGE has been President, Chief Operating Officer and
Chief Financial Officer of the Company since December 1998. Mr. Prange was
elected Secretary of the Company in January 2000. From March 1997 until December
1998 Mr. Prange was Corporate Vice President and Chief Operating Officer, and
from September 1996 until December 1998 he was Corporate Vice President and
Chief Financial Officer of AccuMed. From July 1995 until September 1996, Mr.
Prange served as a Managing Director of Lovett International, Inc., an
international trading and consulting firm. Mr. Prange was Group Vice President
from June 1994 until July 1995, Vice President and Chief Financial Officer from
December 1984 until June 1994, and Treasurer from December 1981 until December
1984, of Richardson Electronics, Ltd., a global electronics manufacturing and
distribution company. Mr. Prange has a Bachelor of Science degree in Accounting
from DePaul University and is a certified public accountant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 24, 2000, the Company granted Dr. O'Donnell a warrant to
purchase 629,446 shares of Common Stock, exercisable at $.01 per share, as
compensation as a finder in a private offering of Common Stock that occurred
in 2000 and 2001. Said warrant expires five years from the date of grant.
On January 6, 2000 and April 28, 2000, the Company sold 200,000
shares and 1,333,333 shares, respectively, of Common Stock to Seaside in a
private offering. The shares were sold to Seaside under the same terms and
conditions as those of the other participants in the private offering, including
the purchase prices of $0.33 per share and $1.50 per share, respectively. Dr.
O'Donnell is a member and manager of Seaside Advisors, L.L.C., which provides
investment management services to Seaside.
On April 28, 2000, the Company received a Promissory Note in the
amount of $2,000,000 evidencing the purchase price paid by Seaside for the
1,333,333 shares of Common Stock referred to in the prior paragraph. That Note
bears interest at the rate of 8% per annum and the original due date was July
28, 2000. The Company agreed to extend the due date of that Note until November
30, 2000. Seaside has made principal payments of $1,550,000 under the Note. The
Note is currently in default and the Company is negotiating revised terms with
Seaside, including a new due date
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and penalties for the default. As of March 31, 2001, an additional $72,000 is
due from Seaside, representing accrued interest on the Note to that date.
On September 22, 2000, the Company issued a Convertible Promissory
Note, with a maturity date of one year, to Azimuth in exchange for $500,000 in
cash. That Note bears interest at the rate of 15% per annum and is convertible
into Common Stock at a conversion price of $1.00 per share after February 22,
2001. The conversion price was less than the market price of the Common Stock at
the date of issuance of the Note. Therefore, the holder is considered to have a
beneficial conversion feature. The Company determined the value of this
beneficial conversion feature to be $125,000. This value was recorded as a
reduction to the debt and is being amortized as additional interest expense over
the life of the Note. The majority of the proceeds of the Note were used to make
a loan to AccuMed in accordance with the terms of an agreement under which
AccuMed will merge into a subsidiary of the Company. Mr. Milley, a director of
the Company, is a director and executive officer of Azimuth.
On December 4, 2000, the Company issued a Promissory Note, with
maturity date of December 31, 2000, to Azimuth, in exchange for $200,000 in
cash. That Note bore interest at the rate of 12% per annum. As additional
consideration, the Company granted Azimuth a warrant to purchase 50,000 shares
of Common Stock of the Company at an exercise price of $0.937 per share, the
approximate market price of the Common Stock on the date the warrant was
granted. That warrant expires five years from the date of grant. The Company
repaid the Note and accrued interest on February 20, 2001. In that the Note was
not repaid when due, the Company was obligated by the terms of the Note to grant
Azimuth a warrant to purchase an additional 25,000 shares of Common Stock at an
exercise price of $0.01 per share, representing a two month late payment
penalty. That warrant expires five years from the date of grant. The proceeds of
the Note were used for general working capital and to pay license fees.
On December 11, 2000, the Company issued a Promissory Note, with the
maturity date 180 days from the date of issue, to Azimuth, in exchange for
$100,000 in cash. That Note bore interest at the rate of 12% per annum. As
additional consideration, the Company granted Azimuth a warrant to purchase
1,000,000 shares of Common Stock at an exercise price of $1.25 per share, an
approximate 15% premium over the market price of the Common Stock at the date
that the warrant was issued. That warrant expires five years after the date of
grant. The Company repaid the Note and accrued interest on February 20, 2001.
The proceeds of the Note were used to repay a convertible promissory note of the
Company held by AccuMed.
On February 1, 2001 and February 7, 2001, the Company issued
Promissory Notes to Azimuth in exchange for $25,000 and $470,000, respectively,
in cash. Those Notes bore interest at the rate of 15% per annum. Those Notes are
required to be repaid from the proceeds of any new offering of debt or equity
undertaken by the Company subsequent to the dates of the Notes. As additional
consideration for the Note issued on February 7, 2001, the Company granted
Azimuth a warrant to purchase 1,000,000 shares of Common Stock of the Company at
an exercise price of $0.25 per share, an approximate discount of 83% from the
market price of the Common Stock on the date the warrant was issued. That
warrant expires five years after the date of grant. The Company repaid both
Notes and accrued interest on February 20, 2001. The proceeds of the Notes were
used to fund a $470,000 loan to AccuMed upon the signing of the agreement on
February 7, 2001, pursuant to which AccuMed will merge into a subsidiary of the
Company.
BOARD MEETINGS AND COMMITTEES
The Board held nine meetings during the fiscal year ended December
31, 2000. No director attended fewer than 75% of the total number of meetings of
the Board of Directors and Committees of the Board of Directors of which such
director was a member.
On May 23, 2000, the Board voted to establish an Audit Committee
consisting of three outside directors, Mr. Shaw, Mr. Milley and Dr. O'Donnell.
The Committee elected Mr. Shaw to serve as Chairman. The Committee adopted a
charter for its overview of the financial operations and management of the
Company, including a required review process for all quarterly, annual and
special filings with the Securities and Exchange Commission, and meetings with
the Company's independent accountants. A copy of that charter is attached to
this Proxy Statement as Exhibit A.
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Except for Mr. Shaw, the members of the Audit Committee are not independent as
that term is defined under the National Association of Securities Dealers, Inc.
listing standards. The Audit Committee met once in 2000.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process, including
the systems of internal controls. In fulfilling its oversight responsibilities,
the Audit Committee reviewed the audited financial statements in the Annual
Report on Form 10-K, including the quality and acceptability of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Chairman of the Audit Committee reviewed with the independent
auditors, who are responsible for expressing an opinion on the conformity of the
Company's audited financial statements with generally accepted accounting
principles, their judgments as to the quality and acceptability of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards. In
addition, the Chairman of the Audit Committee has discussed with the independent
auditors the auditors' independence from management and the Company, including
the matters of written disclosures required by the Independence Standards Board.
The independent auditors provided limited tax services during the year.
The Chairman of the Audit Committee discussed with the independent
auditors the overall scope and plan of the audit, the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The Committee held one
meeting during 2000. Prior to filing, the Chairman of the Committee reviewed the
financial statements and other information included in the Company's Quarterly
Reports on Form 10-Q filed for the quarters ended June 30, 2000 and September
30, 2000.
In reliance on the reviews and discussions referred to above, the
Audit Committee recommended to the Board of Directors (and the Board of
Directors has approved) that the audited financial statements be included in the
Annual Report on Form 10-K for the year ended December 31, 2000 for filing with
the Securities and Exchange Commission. The Audit Committee and the Board of
Directors have also recommended, subject to stockholder approval, the selection
of Ernst & Young LLP as the Company's independent auditors for the year ending
December 31, 2001.
Robert C. Shaw, Chairman
Alexander M. Milley
Denis M. O'Donnell, M.D.
OTHER COMMITTEES OF THE BOARD
The Board currently has no other standing committees. The Board does
not have a nominating committee or any committee performing the function of a
nominating committee. The functions related to nomination and compensation
structures are undertaken by the Board as a group.
COMPENSATION
COMPENSATION OF DIRECTORS
The Company compensates its non-management directors through the
grant of an annual option to purchase shares of Common Stock. The options are
granted at the first directors meeting following the Annual Meeting of
Stockholders. The exercise price of the option is set at the fair market value
determined by the closing price of the Common Stock as reported on the
Over-the-Counter Bulletin Board on the date of the grant. Non-management
directors were granted options to purchase 50,000 shares and 20,000 shares for
the years 2000 and 1999, respectively. The
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Company also reimburses directors for expenses incurred in connection with their
attendance at meetings of the Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted
Stock
Name and Principal Position Year Salary Bonus (3) Other (4)(5) Awards Options
- --------------------------- ---- ------ --------- ------------ ------ -------
Peter P. Gombrich, Chairman of
the Board and Chief Executive
Officer 2000 $225,000 $ 50,000 $ 35,153 Nil 200,000
1999 $200,000 $ 50,000 $ 9,000 Nil Nil
1998 $ 43,750 (1) Nil $ 2,250 Nil Nil
Leonard R. Prange, President,
Chief Operating Officer, Chief Financial
Officer and Secretary 2000 $175,000 $ 25,000 $ 24,270 Nil 100,000
1999 $139,583 $ 25,000 $ 3,500 Nil 400,000
1998 -- (2) -- -- -- --
- ----------
(1) Compensation received in 1998 from InPath, which was acquired by the Company
in December 1998.
(2) Mr. Prange was elected President of the Company in December 1998 but did not
receive any salary from the Company until January 1999.
(3) The Employment Agreements of Mr. Gombrich and Mr. Prange provide that they
are each entitled to receive bonus compensation at the discretion of the Board
of Directors. In May 2000 and February 2001, the Board authorized 1999 and 2000
bonus payments, respectively, to Mr. Gombrich and Mr. Prange.
(4) Company policy provides that an employee may receive cash compensation in
lieu of unused vacation time or defer unused vacation time for use in future
periods. Mr. Gombrich took cash compensation of $26,153 and Mr. Prange took cash
compensation of $18,270 to offset portions of their respective unused vacation
time.
(5) The Employment Agreements of Mr. Gombrich and Mr. Prange provide that they
are to receive monthly automobile allowances of $750 and $500, respectively.
STOCK OPTIONS
OPTION GRANTS IN 2000
The following table sets forth certain information with respect to
stock options granted to the Named Executive Officers during 2000 under the 1999
Equity Incentive Plan.
In addition to providing the number of shares subject to options
granted to the Named Executive Officers, the following table discloses the range
of potential realizable values at various assumed appreciation rates. The table
discloses for the Named Executive Officers the gain or "spread" that would be
realized at the end of the option term for
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the options granted during 2000, if the price of the Common Stock appreciates
annually by the percentage levels indicated from the market price on the date of
grant.
OPTION GRANTS IN 2000
Potential Realizable Value
Number of At Assumed Annual Rates
Securities Percent of of Stock Price Appreciation
Underlying Total Exercise For Option Term
Options Options In Price Per Expiration ---------------------------
Name Granted Fiscal Year Share Date 5% ($) 10% ($)
---- ------- ----------- ----- ---- ------ -------
Peter P. Gombrich 200,000 13.2% $2.875 5/23/05 $345,890 $876,557
Leonard R. Prange 100,000 6.6% $2.875 5/23/10 $172,946 $438,275
The following table sets forth information with respect to the value
of all stock options held at December 31, 2000 by the Named Executive Officers.
No options were exercised by the Named Executive Officers in 2000.
FISCAL YEAR END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options/SARs
At Fiscal Year End At Fiscal Year End
------------------ ------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Peter P. Gombrich Nil 200,000 Nil Nil(2)
Leonard R. Prange (1) 400,000 100,000 $248,760 Nil(2)
- ----------
(1) On May 27, 1999, Mr. Prange was granted an option to purchase 400,000 shares
of Common Stock at an exercise price of $0.3937 per share, the fair market value
as of the date of the grant determined in accordance with the provisions of the
1999 Equity Incentive Plan. One-third of the option vested on the date of grant,
one-third on May 27, 2000, and the remainder is scheduled to vest on May 27,
2001. Mr. Prange's Employment Agreement provides that upon a change in control
of the Company all unvested options outstanding shall immediately vest and
become exercisable. See "Employment Agreements" below.
(2) Options granted to Mr. Gombrich and Mr. Prange during 2000 vest at the rate
of 20% per year beginning on May 23, 2001, and have exercise prices of $2.875
per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee. The entire Board
of Directors participates in deliberations concerning executive compensation.
Mr. Gombrich, Chairman of the Board and Chief Executive Officer, does not
participate in any of the Board's deliberations concerning his own compensation.
Other than Mr. Gombrich and Messrs. Milley and Shaw, who were officers and
directors of Bell, a predecessor of the Company, no member of the Board of
Directors is a current or former officer or employee of the Company or any of
the Company's subsidiaries. None of the Company's executive officers has served
on the board of directors or on the compensation committee of any other entity
that had an executive officer serving on the Company's Board of Directors.
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EMPLOYMENT AGREEMENTS
MR. GOMBRICH is employed as Chairman of the Board and Chief Executive
Officer of the Company pursuant to an Employment Agreement (the "Gombrich
Agreement" ) with InPath dated May 1, 1998. The Gombrich Agreement was amended
on December 4, 1998 to reflect changes related to the acquisition of InPath by
the Company. Under the Gombrich Agreement, Mr. Gombrich receives annual
compensation consisting of a base salary, a bonus determined at the discretion
of the Board of Directors, and a monthly automobile allowance of $ 750. Mr.
Gombrich's base salary may be increased at the discretion of the Board of
Directors. His base salary was $225,000 in 2000 and will be $250,000 in 2001.
The Gombrich Agreement has a term of three years, beginning May 1, 1998 and
ending April 30, 2001. Thereafter, the Gombrich Agreement automatically renews
for consecutive terms of two years unless either Mr. Gombrich or the Company
elects not to renew it. For two years following the termination of the Gombrich
Agreement, Mr. Gombrich may not participate in a business that substantially and
directly competes with the Company. If there is a Change of Control, as defined
in the Gombrich Agreement, and the Company thereafter terminates the Gombrich
Agreement without cause, or Mr. Gombrich terminates the Agreement for Good
Reason, as defined in the Gombrich Agreement, Mr. Gombrich is entitled to a
lump-sum severance payment equal to three times the sum of his annual base
salary, his annualized monthly automobile allowance, and the highest incentive
compensation paid to him in any of the previous year incentive compensation
periods. If Mr. Gombrich is terminated without cause or resigns for Good Reason,
and no Change of Control has occurred, he is entitled to a lump-sum severance
payment equal to two times the sum of the foregoing amounts.
MR. PRANGE is employed as President of the Company under an Employment
Agreement (the "Prange Agreement") dated June 1, 1999. Under the Prange
Agreement, Mr. Prange receives annual compensation consisting of a base salary,
a bonus as determined at the discretion of the Board of Directors, and a monthly
automobile allowance of $500. Mr. Prange's base salary may be increased at the
discretion of the Board of Directors. His base salary was $175,000 in 2000 and
will be $200,000 in 2001. The Prange Agreement has a term of three years,
beginning June 1, 1999 and ending May 31, 2002. Thereafter, the Prange Agreement
automatically renews for additional one-year terms unless either Mr. Prange or
the Company elects not to renew it. For two years following the termination of
the Prange Agreement, Mr. Prange may not actively participate in the management
of a business that substantially or directly competes with the Company. If there
is a Change of Control as defined in the Prange Agreement and the Company
terminates the Prange Agreement or Mr. Prange resigns after a Change of Control
or for Good Reason, as defined in the Prange Agreement, Mr. Prange is entitled
to receive a lump-sum severance payment equal to the sum of his annual base
salary, twelve times his monthly automobile allowance, and the highest incentive
compensation paid to him in any of two consecutive annual incentive compensation
periods. In addition, any unvested stock options, restricted stock awards, or
other equity-based incentives held by or owed to Mr. Prange vest fully and
become immediately exercisable.
EXECUTIVE COMPENSATION POLICIES
The Board's intent is to structure the compensation of the Company's
executive officers so as to attract and retain executives capable of leading the
Company to meet its business objectives and to motivate the executives to
enhance long-term shareholder value. The Company's executive officers receive
annual compensation consisting of cash salary as well as other forms of
compensation, which the Board believes to be in the best interests of the
Company and the stockholders. Examples of such additional compensation are cash
bonuses and automobile allowances. In determining the level of total
compensation to be paid to an executive officer, the Board considers such
factors as the officer's responsibilities, qualifications and contribution to
the Company, and the compensation paid by comparable companies to individuals in
comparable positions. The Board's evaluation of executive officers, except the
Chief Executive Officer, may also be based on the Chief Executive Officer's
assessment of the officer's contribution to the Company. The Board also
compensates executive officers and other key employees by means of stock options
or other types of long-term, equity based awards, primarily under the terms of
the 1999 Equity Incentive Plan, with respect to which the Board acts as the
Compensation Committee.
In selecting new executive officers, the Board considers the specific
needs of the Company and the expertise and special skills offered by the
candidates. The Board then determines starting compensation based on its
assessment
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of the package needed to attract such an particular individual to the Company.
Compensation of continuing officers is also reviewed periodically against this
assessment.
The Gombrich Agreement and the Prange Agreement each provide for incentive
compensation payments at the discretion of the Board. Since the Company's
ultimate financial performance is directly related to its primary products,
which are still in development and have not yet been introduced into the market,
the Board evaluated the performance of the Company and its principal executives
during the year 2000, based on development accomplishments and cost controls.
These development accomplishments included the initiation of a clinical trial
for one of the Company's products, the development of a laboratory test version
of the Company's InPath System, the signing of a license to allow the
incorporation of HPV detection technology into the InPath System, and the
finalization of the bio-molecular assay development for the InPath System. In
addition, management's ability to complete various capital funding programs,
complete preliminary negotiations to merge AccuMed into a subsidiary of the
Company, and the maintenance of spending controls focused on getting products to
market were also considered. Based on the Board's evaluation of the overall
performance of the Company, including the above specific points, the Board
awarded Mr. Gombrich a bonus of $50,000, equal to approximately 22% of his base
salary, and awarded Mr. Prange a bonus of $25,000, equal to approximately 14% of
his base salary.
The Board has established specific financial and product performance goals
for 2001, which will be used to measure each executive's performance and
eligibility for incentive payments.
The Gombrich Agreement and the Prange Agreement each provide for annual
increases in base compensation at the discretion of the Board. In determining
base compensation increases, the Board considered general market factors, which
influence the compensation level of similar executives. In addition, the Board
also took account of the facts that the size and development stage of the
Company dictate that the duties of each executive encompass a much broader and
more detailed range of responsibilities and related time commitments than would
be required in a Company able to support a larger executive staff. Based on the
Board's evaluation of all of these factors, the Board voted to increase the base
compensation of each of Messrs. Gombrich and Prange for the year 2001 by
$25,000.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally limits the Company to a deduction, for federal income tax
purposes, of no more than $ 1,000,000 in a taxable year with respect to
compensation paid to the Chief Executive Officer, or to any of the four most
highly compensated officers of the Company other than the Chief Executive
Officer. Compensation above $1,000,000 may be deducted if it is "qualified
performance-based compensation" within the meaning of the Code. The Board
believes that at the present time it is unlikely that the compensation paid to
any officer of the Company in a taxable year will exceed $1,000,000. Therefore,
the Board has not yet established a policy for determining which forms of
incentive compensation awarded to its executive officers shall be designed to
qualify as "qualified performance-based compensation." The Board intends to
continue to evaluate the effects of the statute and Treasury Regulations and to
comply with Section 162(m) of the Code in the future to the extent consistent
with the best interests of the Company.
Peter Gombrich
Alexander M. Milley
Robert C. Shaw
John Abeles M.D.
Denis O'Donnell M.D.
PERFORMANCE GRAPH
The following graph compares the performance of the Common Stock with the
performance of the NASDAQ Composite (U.S.) Index and the NASDAQ Medical Devices,
Instruments and Supplies, Manufacturers and Distribution Index. The graph covers
the period from November 30, 1998, immediately prior to the Company's
acquisition of InPath on December 4, 1998, when the Company entered into the
medical-device industry, to December 31, 2000. The acquisition of InPath was
accounted for as a reverse acquisition whereby InPath was deemed to have
acquired the Company. Accordingly, information is shown as if the Company first
became a reporting entity on December 4, 1998. Historical information for the
Company prior to December 1998 is not reported. During the sixteen-month period
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preceding the acquisition of InPath, the Company was not engaged in any
business, and immediately before this period of inactivity it was engaged in
designing and distributing drapery and upholstery fabrics. The graph shows the
total cumulative return of an investment of $100 in the group of stocks that
comprise each index. All values assume reinvestment of the full amount of
dividends.
PERFORMANCE GRAPH
[LINE GRAPH]
RAW DATA OF INDICES AND PRICES
11/30/98 12/31/98 12/31/99 12/31/00
Ampersand (Bell 1998) 0.05 0.3125 0.8125 1.0156
NASDAQ Composite 188.075 212.509 394.942 237.676
NASDAQ Medical Devices 111.354 119.212 144.377 149.827
CONVERTED TO $100 INITIAL VALUE
Initial Shares NOV-98 DEC-98 DEC-99 DEC-00
AMPM 2000 100 625 1625 2031
NASDAQ Comp 0.154 100 112.99 209.99 126.37
NASDAQ MD 0.249 100 107.06 129.66 134.55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who beneficially own
more than 10% of the outstanding shares of the Common Stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of all reports they file.
Based solely on the Company's review of copies of such reports it has
received and on written representations from certain reporting persons
concerning their beneficial ownership of Common Stock, the Company believes
that during 2000 all reports were timely filed, except that Mr. Milley filed
four late Form 4s to report four separate transactions, and Mr. Ritger filed a
late Form 3 upon becoming a reporting person.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO PROVIDE FOR A REVERSE STOCK SPLIT
The Board of Directors has declared advisable, authorized and approved,
and recommends to stockholders that they consider and approve, an amendment to
the Company's Certificate of Incorporation to effect a one-for-three reverse
stock split (the "Reverse Stock Split") of the Company's Common Stock (the
"Reclassification Amendment") as soon as practicable. The text of Article FOURTH
of the Certificate of Incorporation of the Company, as amended to include the
Reclassification Amendment, is attached as Exhibit B.
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BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT
The Board believes the Reverse Stock Split is desirable for several
reasons. It is intended to increase the acceptance of the Company's Common Stock
by the financial community and the investing public and, accordingly, could
enhance stockholder value. Moreover, the Company will require additional
authorized but unissued shares to effect future acquisitions and for issuance of
shares pursuant to options granted or to be granted by the Company.
On April _____, 2001, the closing sale price of a share of the Company's
Common Stock on the Over-the-Counter Bulletin Board was $_______ __. Many
investors look upon low-priced stocks, such as those quoted on the
Over-the-Counter Bulletin Board, as unduly speculative in nature and, as a
matter of policy, avoid investment in such stocks. These investors may believe
that low stock prices reflect companies that are of low quality or poor
performers. Accordingly, the Board of Directors believes that the per share
price of the Company's Common Stock reduces the marketability of the shares
because of the reluctance of many brokerage firms to recommend low-priced stock
to their clients. Further, various brokerage house policies and practices tend
to discourage individual brokers from dealing in low-priced stocks. Some of
those policies and practices pertain to the payment of brokers' commissions and
to time-consuming procedures which function to make the handling of low-priced
stocks unattractive to brokers from an economic standpoint. Further, several
institutional investors have policies prohibiting them from holding low-priced
stock in their own portfolios. In addition, the structure of trading commissions
also tends to have an adverse impact upon holders of low-priced stock because
the brokerage commission on a sale of low-priced stock generally represents a
higher percentage of the sales price than the commission on higher-priced
issues.
The Reverse Stock Split will decrease the number of shares outstanding and
presumably increase the per-share market price for the New Common Stock (as
defined below). Although the Company's Common Stock is currently quoted on the
Over-the-Counter Bulletin Board, an increase in the per share market price may
meet criteria to allow the Company's New Common Stock to be listed on the NASDAQ
National Market, the NASDAQ SmallCap Market or the American Stock Exchange.
There is no assurance, however, that any such listing will or can be effected.
Although there can be no assurance that the price of the New Common Stock
after the Reverse Stock Split will actually increase in an amount proportionate
to the decrease in the number of outstanding shares, the proposal is intended to
result in a price level for the New Common Stock that will broaden investor
interest and provide a market that will reflect more closely the Company's
underlying value.
There can be no assurance that any or all of these results will occur,
including, without limitation, that the market price per share of New Common
Stock after the Reverse Stock Split will be three times the market price per
share of the Company's Common Stock before the Reverse Stock Split, or that the
new price will either exceed or remain in excess of the current market price.
Further, there is no assurance that the market for the New Common Stock will
reflect more closely the Company's underlying value. Stockholders should note
that the Board cannot predict how the Reverse Stock Split will affect the market
price of the New Common Stock.
RECOMMENDATION
If the Reclassification Amendment is approved by the stockholders and the
Company's Certificate of Incorporation is amended, each three shares of the
Company's Common Stock, par value $.001 per share, issued and outstanding
immediately prior to the effective time of the Reclassification Amendment (the
"Old Common Stock"), will be reclassified and converted into one share of the
Company's Common Stock, par value $ .001 per share (the "New Common Stock").
Fractional shares will not be issued. Instead, stockholders who hold the
Company's share certificates will be entitled to receive a cash distribution,
without interest, in lieu thereof. See "---- Exchange of Stock Certificates."
Stockholders have no appraisal rights under Delaware law or under the
Company's Certificate of Incorporation or By-laws in connection with the Reverse
Stock Split.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT A
ONE-FOR-THREE REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK AS SOON AS
PRACTICABLE.
EFFECTS OF THE REVERSE STOCK SPLIT
The principal effect of the Reverse Stock Split will be to decrease the
number of outstanding shares from 30,211,457 shares of Old Common Stock to
approximately 10,070,485 shares of New Common Stock based on share information
as of March 31, 2001. The Reverse Stock Split would not affect the proportionate
equity interest in the Company of any holder of Common Stock, except as may
result from the provisions for the elimination of fractional shares. The Reverse
Stock Split will not affect the registration of the Common Stock under the
Securities Exchange Act of 1934, as amended. The Company expects to have
approximately the same number of record holders after giving effect to the
Reverse Stock Split as before the Reverse Stock Split. The relative rights and
preferences of the New Common Stock will be identical to the relative rights and
preferences of the Old Common Stock.
In order to avoid the expense and inconvenience of issuing and
transferring fractional shares of New Common Stock to stockholders who hold Old
Common Stock certificates and would otherwise be entitled to receive fractional
shares of New Common Stock (the "Fractional Stockholders"), the Company will
cause cash to be paid to such Fractional Stockholders in lieu of fractional
shares of New Common Stock. See "-----Exchange of Stock Certificates."
The Company is authorized under its Certificate of Incorporation to issue
up to 50,000,000 shares of Common Stock. The Company is not proposing to reduce
the amount of its authorized Common Stock. If the Reverse Stock Split takes
effect, the New Common Stock issued and outstanding will represent approximately
20.1% of the Company's authorized Common Stock, whereas the Old Common Stock
currently issued and outstanding represents approximately 60.4% of the
authorized Common Stock.
Unissued and unreserved New Common Stock will enable the Board to issue
shares to persons friendly to current management. This could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management and possibly deprive the stockholders of
opportunities to sell their shares of the Company at prices higher than
prevailing market prices. The Company has no present plans to issue unreserved
shares of Common Stock except in connection with employee benefit plans and in
connection with the merger of AccuMed into a subsidiary of the Company. However,
any such issuance likely will have the effect of diluting the proportionate
interest of current stockholders in the Company.
If approved and implemented, the proposal is likely to leave some
stockholders with "odd lots" of New Common Stock (i.e., stock in amounts of less
than 100 shares). These odd lots may be more difficult to sell, or require
greater transaction costs per share to sell, than shares in even multiples of
100.
The Company's outstanding stock options, warrants and convertible debt
securities will be adjusted so that each would thereafter evidence the right to
purchase one-third of the number of shares of Old Common Stock previously
covered thereby and the exercise or conversion price per share would be three
times the previous exercise or conversion price.
The following table illustrates the principal effects of the Reverse Stock
Split, based on share information as of March 31, 2001, discussed in the
preceding paragraphs:
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PRIOR TO UPON
NUMBER OF SHARES OF COMMON STOCK REVERSE STOCK SPLIT REVERSE STOCK SPLIT
- -------------------------------- ------------------- -------------------
Authorized 50,000,000 50,000,000
Issued and Outstanding 30,211,457 10,070,485
Treasury 5,335,424 1,778,474
Reserved for Issuance under Outstanding
Options, Warrants or Convertible Debt 7,953,187(1) 3,055,178
Available for Future Issuance or Sale
by Action of the Board of Directors 6,499,932(2) 35,095,863
- ------------
(1) Options for 1,212,347 shares were granted by the Company but are not
exercisable unless additional authorized but unissued shares are available.
(2) Approximately 5,800,000 shares of Old Common Stock will be issued or
reserved for issuance in connection with the merger of AccuMed into a subsidiary
of the Company.
TAX CONSEQUENCES
The following summary of the material U.S. federal income tax consequences
of the Reverse Stock Split is based on current law, including the Code and
applicable Treasury Regulations promulgated thereunder. The tax treatment of a
stockholder may vary depending upon the particular facts and circumstances of
the stockholder. Certain stockholders, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, nonresident aliens,
foreign corporations and persons who do not hold the Common Stock as a capital
asset, may be subject to special rules not discussed below. Further, no foreign,
state or local tax consequences are discussed below.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE REVERSE
STOCK SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL OR
FOREIGN INCOME TAX AND OTHER LAWS.
The receipt of shares of New Common Stock (except to the extent that cash
is received in lieu of fractional shares of New Common Stock) in the Reverse
Stock Split will be a nontaxable transaction under the Code for U.S. federal
income tax purposes. Consequently, except with respect to cash received in lieu
of fractional shares of New Common Stock, a stockholder receiving shares of New
Common Stock will not recognize either gain or loss with respect to shares of
New Common Stock received as a result of the Reverse Stock Split. In addition,
the aggregate tax basis (reduced by the portion of such basis allocable to
fractional shares of New Common Stock) of such stockholder's shares of Old
Common Stock immediately prior to the Reverse Stock Split will carry over as the
tax basis of the stockholder's shares of New Common Stock. Each stockholder will
be required to allocate such stockholder's basis in such stockholder's shares of
Old Common Stock ratably among the total number of shares of New Common Stock
owned following the Reverse Stock Split. The holding period of the shares of New
Common Stock will also include the holding period during which the stockholder
held the Old Common Stock, provided that such Old Common Stock was held by the
stockholder as a capital asset at the effective date of the Reverse Stock Split.
The receipt by a Fractional Stockholder of cash in lieu of a fractional
share of New Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu of
fractional shares of New Common Stock will generally result in gain or loss to
the Fractional Stockholder measured by the difference between the amount of
cash received and the adjusted basis of the fractional share. Assuming that the
Old Common Stock was held by the Fractional Stockholder as a capital asset at
the date of the
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Reverse Stock Split, any such gain or loss will be capital gain or loss, and
will be long-term capital gain or loss if at the effective date of the Reverse
Stock Split the shares of Old Common Stock have been held by the Fractional
Shareholder for more than one year.
EXCHANGE OF STOCK CERTIFICATES
If the proposal to implement the Reverse Stock Split is adopted,
stockholders who hold physical stock certificates will be required to exchange
their stock certificates to receive new certificates representing shares of New
Common Stock. Stockholders of record at the effective date of the Reverse Stock
Split ("Effective Time") will be furnished the necessary materials and
instructions for the surrender and exchange of stock certificates at the
appropriate time by the Company's transfer agent (the "Transfer Agent").
Stockholders will not have to pay a transfer fee or other fee in connection with
the exchange of certificates. STOCKHOLDERS SHOULD NOT SUBMIT ANY CERTIFICATES
UNTIL REQUESTED TO DO SO.
As soon as practicable after the Effective Time, the Transfer Agent will
send a letter of transmittal to each stockholder that holds physical stock
certificates advising such holder of the procedure for surrendering stock
certificates in exchange for new certificates representing the ownership of New
Common Stock. No certificates representing fractional shares shall be issued. In
lieu thereof, the aggregate of all fractional shares otherwise issuable shall be
issued to the Transfer Agent, as agent for the accounts of all holders of record
of Old Common Stock otherwise entitled to have a fraction of a share issued to
them in connection with the Reverse Stock Split. Sales of fractional interests
will be effected by the Transfer Agent as soon as practicable on the basis of
prevailing market prices of the New Common Stock on the Over-the-Counter
Bulletin Board at the time of sale. After the Effective Time, the Transfer Agent
will pay to such stockholders their pro rata share of the net proceeds derived
from the sale of their fractional interests upon surrender of their stock
certificates. No service charges or brokerage commissions will be payable by
stockholders in connection with the sale of fractional interests, all of which
costs will be borne by the Company.
Upon the surrender of certificates representing Old Common Stock or as
soon as possible thereafter, any cash payment for a fractional share will be
paid (without interest).
Any stockholder whose certificate for Old Common Stock has been lost,
destroyed or stolen will be entitled to issuance of a certificate representing
the shares of New Common Stock into which such shares will have been converted
upon compliance with such requirements as the Company and the Transfer Agent
customarily apply in connection with lost, stolen or destroyed certificates.
RATIFICATION OF INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since
1998 and has been appointed by the Board to continue as the Company's
independent auditors for the Company's fiscal year ending December 31, 2001.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
auditing firm at any time during the year if the Board believes that such a
change would be in the best interests of the Company and its stockholders.
A representative of Ernst & Young LLP is expected to be present at the
annual meeting and will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
Ernst & Young LLP continues to perform audit professional services for and
on behalf of the Company. During 2000, the audit services included examination
of the consolidated financial statements of the Company, examination of the
financial statements of subsidiaries and a review of certain filings with the
Securities and Exchange Commission. Ernst & Young LLP's opinion of the
consolidated financial statements, along with the consolidated financial
statements of the Company, are included in the Company's annual report to
stockholders which accompanies this Proxy Statement.
AUDIT FEES. The aggregate fees and expenses for professional services by
Ernst & Young LLP in connection with the audit of the Company's annual financial
statements as of and for the years ended December 31, 1999 and 2000 and for the
required review of the Company's financial information included in the Company's
Securities and Exchange Commission filings for the year 2000 was
$107,454.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were
no fees incurred for these services for the year 2000.
ALL OTHER FEES. The aggregate fees and expenses for all other professional
services rendered by Ernst & Young LLP for all other services rendered to the
Company during the year ended December 31, 2000 was $6,420.
The Audit Committee, after consideration of the matter, does not believe
that the rendering of these services by Ernst & Young LLP is incompatible with
maintaining Ernst & Young LLP's independence as the Company's principal
accountant.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next annual meeting of stockholders, any stockholder proposal to take action
at such meeting must be received by the Company prior to December , 2001. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act of 1934, as amended. In addition, if any
business should properly come before such Annual Meeting other than that which
is stated in such proxy materials, then, if the Company does not receive notice
of such matter by March , 2002, the persons designated in the form of proxy
will have discretionary authority to vote or refrain from voting on such matter.
Pursuant to the Company's By-Laws, nominations by stockholders must be delivered
in writing to the Secretary of the Company not less than 60 days prior to the
first anniversary of the date of
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the previous year's annual meeting of stockholders, which would be February ,
2001 with respect to the next Annual Meeting of Stockholders.
OTHER MATTERS
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and employees of the Company may solicit proxies personally
or by telegraph or telephone without additional compensation.
FORM 10-K
UPON WRITTEN REQUEST AND WITHOUT CHARGE, THE COMPANY WILL PROVIDE EACH
STOCKHOLDER OF RECORD ON APRIL 6, 2001 A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000. STOCKHOLDERS MAY, UPON WRITTEN
REQUEST AND UPON PAYMENT OF A REASONABLE FEE, ALSO OBTAIN COPIES OF THE EXHIBITS
TO THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000. REQUESTS
SHOULD BE MADE IN WRITING TO: AMPERSAND MEDICAL CORPORATION, 414 NORTH ORLEANS,
SUITE 510, CHICAGO, ILLINOIS 60610, ATTENTION: LEONARD R. PRANGE.
IMPORTANT
All stockholders are cordially invited to attend the Annual Meeting in
person.
If you cannot be present at the meeting, please sign and date the enclosed
Proxy and mail it PROMPTLY in the enclosed self-addressed envelope. No postage
need be affixed if mailed in the United States.
17
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EXHIBIT A
AUDIT COMMITTEE CHARTER
ADOPTED MAY 23, 2000
ORGANIZATION
The audit committee of the board of directors shall be comprised of at least
three directors who are independent of management and the Company. Members of
the audit committee shall be considered independent if they have no relationship
to the Company that may interfere with the exercise of their independence from
management and the Company. All audit committee members will be financially
literate, and at least one member will have accounting or related financial
management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling the
irresponsibility to the stockholders, potential stockholders, and investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of financial reports of the company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication between the directors, the independent auditors, the internal
auditors, and the financial management of the company.
RESPONSIBILITIES
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and stockholders that the corporate
accounting and reporting practices of the company are in accordance with all
requirements and are of the highest quality. In carrying out these
responsibilities, the audit committee will:
- - Obtain the full board of directors' approval of this Charter and review
and reassess this Charter as conditions dictate (at least annually).
- - Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the company and its
divisions and subsidiaries.
- - Have a clear understanding with the independent auditors that they are
ultimately accountable to the board of directors and the audit committee,
as the stockholders' representatives, who have the ultimate authority in
deciding to engage, evaluate, and if appropriate, terminate their
services.
- - Meet with the independent auditors and financial management of the Company
to review the proposed scope of the annual audit and timely quarterly
reviews for the current year and the procedures to be utilized, the
adequacy of the independent auditor's compensation, and at the conclusion
thereof to review such audit or review, including any comments or
recommendations of the independent auditors.
- - Review with the independent auditors, the company's financial and
accounting personnel, the adequacy and effectiveness of the accounting and
financial controls of the company, and elicit any recommendations for the
improvement of such internal controls or particular areas where new or
more detailed controls or procedures are desirable. Particular emphasis
should be given to the adequacy of internal controls to expose any
payments, transactions, or procedures that might be deemed illegal or
otherwise improper.
A-1
21
- - Review reports received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements and
related company compliance therewith.
- - Inquire of management and the independent auditors about significant risks
or exposures and assess the steps management has taken to minimize such
risks to the Company.
- - Review the quarterly financial statements with financial management and
the independent auditors prior to the filing of the Form 10-Q (or prior to
the press release of results, if possible) to determine that the
independent auditors do not take exception to the disclosure and content
of the financial statements, and discuss any other matters required to be
communicated to the committee by the auditors. The chair of the committee
may represent the entire committee for purposes of this review.
- - Review the financial statements contained in the annual report to
stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the stockholders.
Review with financial management and the independent auditors the results
of their timely analysis of significant financial reporting issues and
practices, including changes in, or adoptions of, accounting principles
and disclosure practices, and discuss any other matters required to be
communicated to the committee by the auditors. Also review with financial
management and the independent auditors their judgments about the quality,
not just acceptability, of accounting principles and the clarity of the
financial disclosure practices used or proposed to be used, and
particularly, the degree of aggressiveness or conservatism of the
organization's accounting principles and underlying estimates, and other
significant decisions made in preparing the financial statements.
- - Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the company's financial and accounting, and the
cooperation that the independent auditors received during the course of
audit.
- - Review accounting and financial human resources and succession planning
within the Company.
- - Report the results of the annual audit to the board of directors. If
requested by the board, invite the independent auditors to attend the full
board of directors meeting to assist in reporting the results of the
annual audit or to answer other directors' questions (alternatively, the
other directors, particularly the other independent directors, may be
invited to attend the audit committee meeting during which the results of
the annual audit are reviewed).
- - On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In addition, review with
the independent auditors the nature and scope of any disclosed
relationships or professional services and take, or recommend that the
board of directors take, appropriate action to ensure the continuing
independence of the auditors.
- - Review the report of the audit committee in the annual report to
stockholders and the Annual Report on Form 10-K disclosing whether or not
the committee had reviewed and discussed with management and the
independent auditors, as well as discussed within the committee (without
management or the independent auditors present), the financial statements
and the quality of accounting principles and significant judgments
affecting the financial statements. In addition, disclose the committee's
conclusion on the fairness of presentation of the financial statements in
conformity with GAAP based on those discussions.
- - Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each committee meeting with, the board of
directors.
- - Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
A-2
22
- - Review the Company's disclosure in the proxy statement for its annual
meeting of stockholders that describes that the Committee has satisfied
its responsibilities under this Charter for the prior year. In addition,
include a copy of this Charter in the annual report to stockholders or the
proxy statement at least triennially or the year after any significant
amendment to the Charter.
A-3
23
EXHIBIT B
ARTICLE FOURTH OF THE
CERTIFICATE OF INCORPORATION OF
THE COMPANY, AS AMENDED FOR
THE RECLASSIFICATION AMENDMENT
Section 4.1. The total number of shares of stock which the Corporation is
authorized to issue is Fifty-Five Million (55,000,000) comprised of Fifty
Million (50,000,000) shares of Common Stock, $.001 par value per share, and Five
Million (5,000,000) of Preferred Stock, $.001 par value per share.
Upon this Certificate of Amendment to the Certificate of Incorporation of
the Corporation becoming effective in accordance with the General Corporation
Law of the State of Delaware (the "Effective Time"), each three (3) shares of
Common Stock, par value $.001 per share, of the Corporation ("Old Common Stock")
issued immediately prior to the Effective Time shall be automatically
reclassified as and converted into one (1) share of Common Stock, par value
$.001 per share, of the corporation ("New Common Stock").
Notwithstanding the immediately preceding sentence, no fractional shares
of New Common Stock shall be issued to the holders of record of Old Common Stock
in connection with the foregoing reclassification of shares of Old Common Stock.
In lieu thereof, the aggregate of all fractional shares otherwise issuable to
the holders of record of Old Common Stock shall be issued to the transfer agent
for the Company's Common Stock as agent for the accounts of all holders of
record of Old Common Stock otherwise entitled to have a fraction of a share
issued to them. The sale of all of the fractional interests will be effected by
the transfer agent as soon as practicable after the Effective Time on the basis
of prevailing market prices of the New Common Stock on the Over-the-Counter
Bulletin Board at the time of sale. After such sale and upon the surrender of
the stockholders' stock certificates, the transfer agent will pay to such
holders of record their pro rata share of the net proceeds derived from the sale
of the fractional interests.
Each stock certificate that, immediately prior to the Effective Time,
represented shares of Old Common Stock shall, from and after the Effective Time,
automatically and without the necessity of presenting the same for exchange,
represent that number of whole shares of New Common Stock into which the shares
of Old Common Stock represented by such certificate shall have been reclassified
(as well as the right to receive cash in lieu of any fractional shares of New
Common Stock); provided, however, that each holder of record of a certificate
that represented shares of Old Common Stock shall receive, upon surrender of
such certificate, a new certificate representing the number of whole shares of
New Common Stock into which the shares of Old Common Stock represented by such
certificate shall have been reclassified, as well as any cash in lieu of
fractional shares of New Common Stock to which such holder may be entitled
pursuant to the immediately preceding paragraph..
Section 4.2. The Board of Directors is authorized, subject to the
limitations prescribed by law and the provisions of this Section 4.2 to adopt
one or more resolutions to provide for the issuance from time to time in one or
more series of any number of shares of Preferred Stock, up to a maximum of Five
Million (5,000,000) shares, and to establish the number of shares to be included
in each such series, and to fix the designation, relative rights, preferences,
qualifications and limitations of the shares of each such series.
B-1
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PROXY
AMPERSAND MEDICAL CORPORATION
FOR SHARES OF COMMON STOCK SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON MAY 24, 2001
The undersigned hereby appoints PETER P. GOMBRICH and LEONARD R.
PRANGE, and each of them, proxies with power of substitution and revocation,
acting unanimously if both are present and voting, or if only one is present and
voting then that one, to vote, as designated on this Proxy, all of the shares of
common stock of AMPERSAND MEDICAL CORPORATION which the undersigned is entitled
to vote, at the annual meeting of stockholders to be held at the Holiday Inn,
350 North Orleans, Chicago, Illinois 60610 on May 24, 2001 at 10:00 a.m.,
Chicago time, and at any adjournment thereof, with all the powers the
undersigned would possess if present.
PLEASE VOTE, SIGN AND DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
PLEASE MARK VOTE BELOW / /
For All
Nominees
For Withheld Except
1. Election of Directors
Nominees: Peter P. Gombrich, Alexander M. Milley, Robert C. Shaw,
John Abeles M.D. and Denis M. O'Donnell, M.D. / / / / / /
=================================================================
Nominee Exceptions
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED ABOVE AND MARK THE OVAL
"FOR ALL NOMINEES EXCEPT")
For Against Abstain
2. To approve a proposal to amend the Company's Certificate of / / / / / /
Incorporation to effect a one-for-three reverse stock split of the
Company's common stock, as a result of which holders of common stock
will receive one share of reclassified common stock for every three
shares of common stock owned at the effective time of the amendment
(with cash being paid in lieu of fractional shares)
For Against Abstain
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the year ended December 31, 2001 / / / / / /
25
For Against Abstain
4. In accordance with their discretion upon all other matters that may
properly come before said meeting and any adjournment thereof / / / / / /
Dated:___________________________________________, 2001
Signature______________________________________________
Signature______________________________________________
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. FOR JOINT ACCOUNTS, BOTH
OWNERS SHOULD SIGN. WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE
OR GUARDIAN, ETC., PLEASE SIGN YOUR FULL TITLE.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES LISTED UNDER
ITEM 1 AND FOR THE PROPOSALS IN ITEMS 2 AND 3.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such shares at said meeting or at any adjournment thereof.