-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OLXimCVrVOvi+bstF5ccKzHi69HkN3tA34wmrV9HCrMvpi5h5dgVdAsjQPyIJb5n KG//75mmFhpBNC+HPDYYkw== 0000892626-00-000157.txt : 20000403 0000892626-00-000157.hdr.sgml : 20000403 ACCESSION NUMBER: 0000892626-00-000157 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPERSAND MEDICAL CORP CENTRAL INDEX KEY: 0000075439 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 364296006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00935 FILM NUMBER: 589272 BUSINESS ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 4078490290 MAIL ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET 1 STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: BELL NATIONAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST HOLDINGS INC DATE OF NAME CHANGE: 19830303 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-K [ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file number 0-935 AMPERSAND MEDICAL CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 36-4296006 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 414 N. Orleans St., Suite 305, Chicago, IL 60610 (Address of Principal Executive Offices) (Zip Code) (312) 222-9550 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ---------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of the Company as of March 28, 2000 was $58,036,450 based upon the average bid and asked prices of shares of the Company's Common Stock, no par value per share ("Common Stock"), of $4.5625 per share as reported in the Electronic Bulletin Board. The number of shares of Common Stock outstanding as of March 28, 2000 is 21,755,937. The following document is incorporated by reference into Part III of this Form 10-K: Ampersand Medical Corporation Proxy Statement, relating to the annual meeting of shareholders. PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS The Company is primarily engaged in the design, development and marketing of a series of instruments, disposables, and tests to provide "Point of Care" enhanced cervical cancer screening. The Company also designs, develops and markets software-based systems to provide analysis of images on microscopic slides and to electronically exchange images and related data with remote locations. Ampersand Medical Corporation ("Ampersand," and together with its subsidiaries, the "Company") was incorporated in Delaware on December 15, 1998. On May 26, 1999 Bell National Corporation ("Bell National"), the former parent of the Company, was merged with and into the Company and Bell National ceased to exist. Bell National was originally incorporated in California on October 1, 1958. Through 1985, its principal subsidiary was Bell Savings and Loan Association ("Bell Savings"), a state-chartered savings and loan association. On July 25, 1985, the Federal Home Loan Bank Board appointed the Federal Savings & Loan Insurance Corporation ("FSLIC") as receiver of Bell Savings. At the same time, the assets of Bell Savings were transferred to a new, unrelated, federally chartered mutual savings and loan association, Bell Federal. The FSLIC's appointment followed shortly after a determination that Bell Savings had a negative net worth. On August 20, 1985, Bell National filed a voluntary petition under Chapter 11 of the Bankruptcy Code. A Plan of Reorganization (the "Plan") was approved by the Bankruptcy Court, and became effective June 29, 1987. After emerging from bankruptcy proceedings in June 1987, and a vote by shareholders to continue the operations of Bell National in October 1988, Bell National reached an agreement (the "Stock Purchase Agreement") in 1989 with Milley Management Incorporated ("MMI"), a private investment firm, whereby Bell National sold to a group of private investors (including MMI) Common Stock, no par value (the "Common Stock"), totaling approximately 41% of the outstanding voting shares on a fully diluted basis. On June 15, 1990, Bell National purchased 100% of the Common Stock of Payne Fabrics, Inc. a designer and distributor of decorative drapery and upholstery fabrics, for a purchase price of $6,493,000 and the issuance of stock appreciation rights ("SAR's"). On August 4, 1997 Payne Fabrics, Inc. sold substantially all of its assets and most of its liabilities related to the business of designing and distributing decorative drapery and upholstery fabrics to Westgate Fabrics, Inc. ("Westgate"), an unaffiliated third party (the "Asset Sale"). The Asset Sale included the transfer to the buyer of the use and rights to the Payne Fabrics name, and accordingly, Payne Fabrics, Inc., changed its name to PFI National Corporation ("PFI"). On August 4, 1997 all of PFI's operations were ceased. Since that time, Bell National and the remaining subsidiaries of the Company, PFI, Bell Savings, and Pacific Coast Holdings Insurance Company have had no business operations, other than administrative activities, or any substantial assets or liabilities other than cash and investments. At the date of the merger with InPath, L.L.C. on December 4, 1998, Bell National had approximately $1 million dollars in cash and investments. On December 4, 1998, Bell National acquired InPath, LLC ("InPath"), a development-stage company engaged in the design and development of a proprietary "Point of Care" system, including sample collection devices and a series of instruments, used in the cervical cancer screening process. The system also has applications in other point of care cancer screening programs. In the acquisition, Bell National issued 4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares of Common Stock to the members of InPath in exchange for their units of membership interest in InPath and the senior executives of InPath assumed management control of Bell National. Based upon the terms of the acquisition agreement, for financial reporting and accounting purposes the acquisition was accounted for as a reverse acquisition whereby InPath was deemed to have acquired Bell National. However, Bell National was, until its merger into Ampersand, the continuing legal entity and registrant for both Securities and Exchange Commission filing purposes and income tax filing purposes. Since Bell National was a non-operating public shell company with nominal assets and InPath was a private operating company, the acquisition was recorded as the issuance of stock for the net monetary assets of Bell National accompanied by a recapitalization, and no goodwill or other intangible assets were recorded. On December 15, 1998 Bell National formed a wholly owned Delaware subsidiary, Ampersand Medical Corporation ("Ampersand"), for the primary purpose of reincorporating Bell National in Delaware. Bell National's stockholders approved the merger of Bell National into Ampersand at the Annual Meeting on May 25, 1999, with Ampersand as the surviving corporation. Ampersand became the parent corporation of Bell National's subsidiaries at the time of the reincorporation. In December 1998 the Company formed a French limited liability company subsidiary, Samba Technologies, SARL ("Samba"), for the purpose of acquiring the automated image cytometry and telemedicine technology used in the business of the Samba department of Unilog Regions, SA, a French company engaged in the design, development, and installation of commercial software programs and networks for business applications. Samba Technologies completed the acquisition of the Samba department's assets on January 4, 1999, and at the same time entered into employment arrangements with former Samba department employees. Since the acquisition, Samba Technologies has continued to develop and market the cytometry and telemedicine products previously developed and marketed by the Samba department. RECENT DEVELOPMENTS In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity at a sales price per share of $1.50. The proceeds of this new offering will be used to fund acquisitions of additional technology, clinical trials, costs to carry the InPath System's disposable and instrument designs through the manufacturing process, and general corporate purposes. As of March 28, 2000, the Company had sold 759,997 shares for a total gross cash proceeds of $1,140,000. On March 29, 2000, to resolve a dispute between InPath and AccuMed International, Inc. (AccuMed) over a Patent and Technology License Agreement (the "License") dated September 4, 1998, including related payments due thereunder, the Company and AccuMed signed a Letter Agreement amending the License between InPath and AccuMed. The License, covering certain "Point of Care" related applications, requires the payment of a license issue fee of $500,000, against which InPath had made payments of $400,000, a 7% royalty rate, and minimum royalty payments. InPath is also required to make minimum royalty payments of $1,000,000 each during the second and third years of the License, $1,500,000 each during the fourth and fifth years, and $2,000,000 each year thereafter. The License may not be cancelled by InPath, without the occurrence of a breach by AccuMed, prior to the payment of $5,000,000 in royalties or 5 years, whichever comes first. InPath may elect to terminate its exclusivity under the License upon written notice to AccuMed at which time its obligation to make the minimum required royalty payments shall cease. InPath would then only be obligated to make royalty payments based on actual sales of products. The new Agreement provides for the assignment of the License to the Company, elimination of the minimum royalty payment schedule, and a reduction in the royalty rate to 4%. The Company has agreed to make cash payments to AccuMed under the new Agreement totaling $600,000, issue a $100,000 convertible promissory note due one year from the date the License Amendment is signed, and issue 128,571 shares of Common Stock to AccuMed. The note is convertible, at AccuMed's option, into Common Stock at a conversion price of $3.50 per share and the Company has agreed to provide AccuMed with price protection equal to $3.50 per share on the 128,571 shares of Common Stock until a measurement date 60 days following the date on which the shares are registered and freely tradable. The cash payments are characterized as the final minimum license payment and advanced non- refundable royalty payments. The $100,000 principal amount of the note and the 128,571 shares of Common Stock to a value of $450,000 are also characterized as advanced non-refundable royalty payments. The amended License is expected to be completed within 30 days. The Company has also agreed to license an additional patent, software and related technology on a non-exclusive basis for use in certain automated screening applications. The Company will pay AccuMed $100,000 as a one time license fee 90 days after signing of the new license or at the time the patent, software, and related technology, is delivered to and accepted by the Company. Since the amendment to the License was not executed as of year end, the Company has continued to expense the minimum royalty payments, including $250,000 in 1999 due under the License. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company operates in one industry segment involving medical devices and supplies. All of the Company's operations during the reporting period were conducted within this segment. The Samba department of Unilog Regions SA, which was acquired by the Company on January 4, 1999 has historically operated in the same industry segment. The Company expects to continue to focus its operations on this industry segment. DESCRIPTION OF BUSINESS The Company believes that improved patient care and reduced healthcare delivery costs can be achieved by creating "Point of Care" screening and diagnostic services linked to a patient medical information system. The Company's goal is to deliver turnkey enterprise solutions, which improve patient care, while at the same time providing the healthcare professional with a financial, profit or cost-control, incentive and the opportunity for better overall patient management. The Company intends to accomplish its goal through internal product development, strategic partnerships, and acquisitions of companies or technologies, which relate to the Company's products, markets, or operating model. Management anticipates that the Company will incur substantial operating losses until it is able to successfully market its full range of products. PRODUCTS. The Company is focused on the design, development, and marketing of a series of instruments, disposables, and tests, the "InPath System" (the "System"), to provide "Point of Care" enhanced cervical cancer screening. The System currently under development consists of proprietary sample collection devices, and a series of in-vitro and in-vivo instruments used to analyze the collected samples by employing a series of biomolecular markers or probes to assist in the analysis process. The System may also be used for specific sampling and analysis of atypical cellular specimens for the early detection of oral, gastrointestinal, urological, esophageal, ovarian, and other forms of cancer. The Company has completed pre-clinical testing of its sample collection device, designed for use directly by medical providers, and anticipates that it will have production models of this sample collection device available to commence a formal clinical trial by the end of March 2000. The Company anticipates submitting the results of this trial to the United States Food & Drug Administration ("the FDA") in the form of a 510(k) Notification by the end of the second quarter of 2000. The design specifications for the proprietary in-vitro mapping and analysis instrument have been completed and prototypes, including instruments to be used for demonstration purposes, have been assembled for final testing. The Company has completed the review and validation work, verification of test sensitivity and specificity levels, on various potential biomolecular markers using samples from approximately 400 patients and encompassing over 20,000 individual data reference points. The initial combination of markers has been selected. However, the research work directed at marker review and validation will continue for the foreseeable future as the Company seeks to refine its current process and to add additional capabilities to the analysis procedure, including but not limited to the identification of additional abnormalities and certain sexually transmitted infectious diseases. The Company anticipates that it will commence a clinical trial of the complete InPath System by the end of the second quarter of 2000, with the results of the trial submitted to the FDA in the form of a PMA following by the end of 2000. The Company anticipates that it will invest a substantial amount of capital in the research and development process, including the cost of clinical trials, in order to complete the System and introduce it into the market. The System may be subject to regulation by various other regulatory agencies throughout the world. The Company's operating subsidiary Samba Technologies designs, develops and markets software based systems for clinical and industrial applications. One software suite package, which can be employed on a variety of computer, imaging, and automated microscopy platforms, provides image analysis of material on microscopic slides yielding information on DNA, cell morphometry, densitometry, karyotyping (chromosome classification), colony counting etc. A second software suite allows the user to share images and related data for research, clinical and educational purposes. This package has applications in tele-radiology, tele-pathology and other areas where the need for images is critical to a process, such as angiography, ultrasound procedures, and endoscopy procedures. It can be matched to a wide variety of image capture instruments or devices. The product can employ either static, historical, or dynamic images. Samba also provides installation, interface, network, and internet consulting services to the users of its software products. BACK-LOG OF ORDERS. At March 28, 2000, Samba had a backlog of contracts to be completed within the next twelve months amounting to 2,173,000 French Francs, or approximately $335,000. Samba currently has contract quotes outstanding of approximately $1,340,000. The Company has no assurance that Samba will be the successful bidder on any of its outstanding quotes MARKETS AND DISTRIBUTION. The Company markets or plans to market its product lines to hospitals, clinics, managed care organizations, office- based clinicians, and government health organizations on a worldwide basis. The Company intends to begin marketing the InPath sample collector in selected countries outside the U.S. in the third quarter of 2000. The Company intends to introduce this product into the U.S. market, subject to clearance by the FDA, as soon as practicable, but not before the fourth quarter of 2000. The Company intends to have the cervical mapping and in - vitro analysis instrument ready for distribution in markets outside the U.S. as soon as practicable, but not before the fourth quarter of 2000 and in the U.S., subject to FDA clearance, as soon as practicable, but not before the beginning of 2001. The Company plans to distribute its InPath "Point of Care" products in the U.S. through a strategic partner relationship with a company having a significant position in the OB/GYN marketplace and a strong direct sales organization. Internationally, the Company will seek a distribution partner that has similar characteristics. The Company is currently in discussions with several strategic partner candidates. The Company intends to directly market its InPath products to managed care organizations, governments, and other world health bodies. The Company currently markets its Samba product line through a direct sales force in Europe and through a distribution arrangement in Central and South America. The Company is adding to its distribution arrangements to cover specific countries in Europe, Asia, the Middle East and North Africa. The Company acts as a direct referral service for Samba sales in the US and anticipates adding a strategic distribution partner for the US market in 2000. COMPETITION. Historically, competition in the healthcare industry has been characterized by the search for technological innovations and efforts to market such innovations. The Company believes that it may benefit from the technological innovations incorporated in certain of its products. While competitors may introduce new products which compete with those the Company sells or intends to sell, the Company believes that its research and development efforts will permit it to remain or become competitive in all of the markets in which it presently sells or plans to sell its products. The competition the Company faces in these markets is substantial, however, and there can be no assurance that the technological innovations of the Company's products will afford the Company the competitive advantages it predicts. The market for the Company's cancer screening and diagnostic product line is highly competitive. The Company is unaware of any other companies that are duplicating its efforts to develop a point-of-care collection, mapping, and in-vitro analysis and diagnostic system for cervical cancer screening. There are a number of companies attempting to develop an in- vivo system to differentiate between cancerous, pre-cancerous and normal tissue. Potential competition for the Company's InPath "Point of Care" products includes many companies with financial, marketing, and research and development resources substantially greater than those of the Company. Similarly, the image analysis and tele-medicine markets, in which the Company's Samba products are sold, are highly competitive. Several American and foreign companies are developing and marketing products that compete directly with Samba's products and services. With regard to all of its products, the Company believes that it must compete primarily on the basis of functionality, product features and effectiveness of the product in standard medical practice. The Company also believes that cost control and cost effectiveness are additional key factors in achieving or maintaining a competitive advantage. Accordingly, the Company focuses a significant amount of effort in its product development process on producing systems and tests which do not add to overall healthcare cost. OPERATIONS. The Company currently engages in research and development work on a contract basis at locations in Chicago, Illinois and Cleveland, Ohio. The Company does not currently engage directly in manufacturing products and it intends to utilize the operations of a strategic partner or partners for its future instrument and disposable component manufacturing requirements. The Company currently has preliminary agreements in place with a medical instrument manufacturer located in the United States and two high volume disposable component manufacturers with production facilities located in the United States and several foreign locations. The Company conducts research and development work on its Samba software products at its own facility and at a contracted facility, both located in Grenoble, France. The Samba software products are installed and integrated with off-the-shelf computer and imaging components at the customer's location or in the Grenoble facility immediately prior to delivery of the products. Consulting services are generally performed at the customer's location or at the Grenoble facility using customer data and communication access. INTELLECTUAL PROPERTY. In order to secure its intellectual property rights, the Company relies on a combination of patents, licensing arrangements, trade names, trademarks, know-how, proprietary technology, and policies and procedures for maintaining the secrecy of its trade secrets, know-how and proprietary technology. The Company considers such security and protection to be material to the successful marketing of its products in the U.S. and in most of the foreign markets the Company has entered or may enter in the future. The Company has filed 12 provisional patent applications covering components of its InPath "Point of Care" cervical cancer screening system. The Company is the exclusive licensee of AccuMed International, Inc. for an additional patent and certain other know-how and trade secrets covering the "Point of Care" system. The Company purchased this license for cash, future royalties, and other considerations. The Company is required to make minimum annual royalty payments beginning in 1999 in order to maintain its exclusive license to the patent and related technology (See discussion under recent developments). The Company's Samba software and technology consists primarily of trade secrets and know-how and technical documentation. The Company is continuing to prepare additional patent applications. Since patent applications in the United States are maintained in secrecy until patents issue, and since publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, the Company cannot be certain whether it or another patent applicant was the first to create inventions covered by pending patent applications or the first to file patent applications for such inventions. Protections relating to portions of technologies covered by such pending patent applications may be challenged or circumvented by competitors, and other portions may be in the public domain or protectable only under state trade secret laws. Worldwide, all of the Company's important products are or will be sold under trademarks that the Company considers to be, in the aggregate, material to the Company's business. The Company owns the Samba trade mark and trade names of Samba, InPath, and Ampersand Medical Group. The Company may file additional U.S. and foreign trademark applications in the future and the Company will focus its acquisition efforts on technologies which have strong patent or trade secret protection. There can be no assurance that any patent or trademark registration issued or which may be issued to the Company will provide the Company with significant competitive advantages. Further, there can be no assurance that any patent application 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 application 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, could be substantial even if the Company 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 the core technology it now possesses or will later develop 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 the various trademarks associated with its collection and diagnostic system, but there can be no assurance that if registered any such registration or use of it will not be challenged by third parties, or that if challenged, such third parties will not prevail. GOVERNMENT REGULATION. The development, manufacture, sale, and distribution of the Company's products are regulated by state and federal authorities, including the FDA and comparable authorities in certain states and other countries. In the U.S., the Food, Drug and Cosmetic Act (the "FD&C Act") and regulations promulgated under it apply to the Company's products. The FD&C Act provides that many of the Company's products cannot be shipped in interstate commerce without prior authorization from the FDA. Such authorization is based on a review by the FDA of the product's safety and effectiveness for its intended uses. Medical devices may be authorized by the FDA for marketing in the U.S. either pursuant to a pre-market notification under Section 510(k) of the FD&C Act (a "501(k) Notification") or a pre-marketing approval (a "PMA"). The process of obtaining FDA marketing clearance and other applicable regulatory authorities may be costly and there can be no guaranty that the process will be ultimately successful. FDA 510(k) Notification applications and PMA's typically require preliminary internal studies, field studies, and/or clinical trials, in addition to an FDA submission. The Company employs a full-time Director of Regulatory Affairs and Quality Assurance and provides supplementary support through the use of consultants and members of its Medical Advisory Board. A 510(k) Notification, among other things, requires an applicant to show that its products are "substantially equivalent" in terms of safety and effectiveness to an existing FDA cleared predicate product. An applicant may only market a product submitted through a 510(k) Notification after the FDA has issued a written clearance determining the product has been found to be substantially equivalent. To obtain a PMA for a device, an applicant must demonstrate, independently of other like devices, that the device in question is safe and effective for its indications for intended uses. A PMA must be supported by extensive data, including pre-clinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. It usually takes the FDA substantially longer to grant a PMA than to grant a 510(k) Notification. During the review period, the FDA may conduct extensive reviews of the Company's facilities or those of its strategic partners, deliver multiple requests for additional information and clarifications, and convene advisory panels to assist in its determination. The FD&C Act generally bars advertising, promoting, or otherwise marketing medical devices that the FDA has not approved or cleared. Moreover, FDA enforcement policy strictly prohibits the promotion of learned or approved medical devices for non-approved or "off-label" uses. In addition, product clearances or approvals may be withdrawn for failure to comply with regulatory standards. The Company's current and prospective overseas operations are also subject to a significant degree of government regulation. Many countries, directly or indirectly through reimbursement limitations, control the selling price of most healthcare products. Furthermore, many developing countries limit the importation of finished products. International regulations are having an impact on U.S. regulations as well. The International Organization for Standardization (the "ISO") sets the standards regulating medical devices within the European Union. The FDA recently adopted regulations governing the manufacture of medical devices that appear to encompass and exceed the ISO's approach to regulating medical devices. The FDA's adoption of the ISO's approach to regulation and other changes to the manner in which the FDA regulates medical devices will increase the cost of compliance with those regulations. The Company will likely be subject to certain registration, record- keeping and Medical Device Record reporting requirements, and the Company's manufacturing facilities, if any, or those of its strategic partners, may be obligated to follow the FDA's Quality System Regulation and may be subject to periodic FDA inspections. Any failure to comply with the Quality System Regulation or any other FDA or other government regulations could have a material adverse effect on the Company's operations. For sale and use in the United States, the Company's InPath System products will need to be cleared for marketing by the FDA as described above. There can be no assurance that the FDA or other governmental agencies will clear the InPath System products or the advertising or delivery of those products. 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 adversely affect the Company's cost of doing business. The Company's InPath System "Point of Care" products may also be subject to regulation in the United States under the Clinical Laboratory Improvement Act (CLIA). Under this Act, diagnostic products are classified into one of three categories depending on the user skill required to perform and interpret the test; the potential for the test to produce an incorrect result; and the potential risks presented by such an incorrect result. Any laboratory or other site that performs clinical diagnostic testing is required to be licensed under one of three levels corresponding to the classification categories. Laboratories or sites are permitted to perform only those diagnostic tests that are classified at or below the level at which the laboratory is licensed. The Company is developing the InPath System "Point of Care" products to be user-friendly, require minimum operator training, and have safety and operating checks built into the functionality of the instruments. The Company believes its efforts will result in the lowest possible classification by the Center for Disease Control (CDC), the agency responsible for classification of diagnostic devices under CLIA. However, there can be no assurance that the CDC will assign the InPath System "Point of Care" products to the expected classification. CDC classification of the products into a higher category may have a significant impact on the Company's ability to market the product in the United States. Although the Company currently sells Samba products in the United States, expanding their sales for use in certain clinical applications may require FDA clearance. Waiting for such approval would likely delay the sales of these products into certain clinical applications in the U.S. market and increase the Company's 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 France. There can be no assurance that Samba will be able to obtain any regulatory approvals necessary to expand its market. RESEARCH AND DEVELOPMENT. The Company focuses its research and development efforts on introducing new products as well as enhancing the Company's existing products. The Company utilizes both in-house and contracted research and development efforts. The Company believes that a commitment to research and development is critical to its ability to achieve its goals. During the year ended December 31, 1999 and the period from March 16, 1998 (inception) through December 31, 1999, consolidated expenditures for research and development, including Samba, were $1,782,000 and $181,000 respectively. Research and development expenditures by the Samba during the year ended December 31, 1999 and for the two previous years ending December 31, 1998 and 1997, when Samba operated as a department of Unilog Regions SA prior to its acquisition by the Company on January 4, 1999, were $320,000, $163,000 and $128,000, respectively. COMPONENTS AND RAW MATERIALS. The Company stresses product development focused on low-cost, easily accessible product components. The Company's Samba products are compatible with various off-the-shelf computers, computer components, microscopes, and imaging equipment. WORKING CAPITAL PRACTICES. The Company's working capital practices are comparable to those of other market participants. Collection periods tend to be longer for sales of Samba products outside France than for sales of Samba products inside France. Similarly, the Company believes that collection periods for any future international sales of the Company's U.S.-made products may prove longer than for domestic sales of such products. EMPLOYEES. As of March 29, 2000, the Company and its subsidiaries employed a total of 19 full-time employees in the United States and France. The Company's employees in France are represented by a national labor union (customary to all French workers), and the Company considers its relations with its employees to be good. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements throughout this report that are not historical facts, including but not limited to statements in this Item 1 and statements contained in material incorporated into this report by reference, are forward-looking statements. These statements are based on the Company's current expectations and involve many risks and uncertainties. Some of these risks and uncertainties are factors that affect all international businesses, while others are specific to the Company and the areas of the medical products industry in which it operates. The factors below in some cases have affected and could affect the Company's actual results, causing results to differ, possibly materially, from those expressed in this report's forward-looking statements. These factors include: economic conditions; technological advances in the medical field; demand and market acceptance risks for new and existing products, technologies, and healthcare services; the impact of competitive products and pricing; manufacturing capacity; new plant start-ups; U.S. and international regulatory, trade, and tax policies; product development risks, including technological difficulties; ability to enforce patents; and unforeseen foreign regulatory and commercialization factors. Currency fluctuations are also a significant variable for global companies, especially fluctuations in local currencies where hedging opportunities are unreasonably expensive or unavailable. If the value of the U.S. dollar strengthens relative to the currencies of the countries in which the Company markets or intends to market its products, the Company's ability to achieve projected sales and net earnings in such countries could be adversely affected. The Company believes that its expectations with regard to forward- looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, but there can be no assurance that the actual results or performance of the Company will conform to any future results or performance expressed or implied by such forward-looking statements. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company's operations outside the U.S. are currently conducted primarily through Samba. Sales by Samba during the year ended December 31, 1999 and by the Samba department of Unilog for the two years ended December 31, 1998 and 1997 prior to its acquisition by the Company on January 4, 1999, outside the U.S. represented approximately 95%, 90%, and 90% of sales for the respective years. The Company's worldwide business is subject to risks of currency fluctuations, governmental actions and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further expansion of its operations abroad. However, the Company closely reviews its methods of operations and adopts strategies responsive to changing economic and political conditions in countries it seeks to operate in. The ongoing integration of the European market continues to offer opportunities to businesses operating within the European Union, and the Company hopes to take advantage of these opportunities to improve the efficiency and productivity of its operations there. ITEM 2. PROPERTIES The Company currently occupies leased space at 414 N. Orleans St., Suite 305, Chicago, Illinois 60610, under a lease which expires September, 2004. This address houses the executive offices of the Company, as well as certain engineering and research staff. Before December 4, 1998 the Company's executive offices were located at 3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805. Samba leases space in a suburb of Grenoble, France, at 53, chemin du Vieux Chene, 38240, Meylan. The lease has a term of nine years expiring in 2008. Samba has the option to terminate the lease at the end of each three year term. The location houses Samba administrative, sales, and research and development activities. The Company considers all of its facilities to be well utilized, well maintained, and in good operating condition. It considers the facilities to be suitable for their intended purposes, and to have capacities and projected capacities adequate to meet current and projected needs for the Company's existing products. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any material legal proceeding, nor is any of the Company's property the subject of any material legal proceeding. The Company is not aware of any such legal proceeding being contemplated by governmental authorities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Common Stock of the Company is quoted on the Over-the-Counter Bulletin Board under the symbol "AMPM" (Prior to June 1, 1999 as "BLBN"). The following table sets forth the high and low bid quotations per share of Common Stock for the periods indicated, as reported by the National Quotation Bureau, LLC. These quotations represent prices between dealers, do not include retail mark-ups, mark-downs, or commissions, and do not represent actual transactions. Bid Range of Common Stock ------------------------- High Low ------- ----- Year Ended December 31, 1999: - ---------------------------- 1st Quarter $0.6875 $0.25 2nd Quarter $0.7500 $0.25 3rd Quarter $0.6250 $0.25 4th Quarter $0.8125 $0.25 Year Ended December 31, 1998: - ---------------------------- 1st Quarter $0.05 $0.05 2nd Quarter $0.05 $0.05 3rd Quarter $0.05 $0.05 4th Quarter $0.38 $0.05 HOLDERS As of March 28, 2000 there were approximately 1,100 holders of record of the Company's Common Stock. DIVIDENDS The Company has not paid a cash dividend and the Board of Directors is not contemplating paying one at this time. STOCK TRANSFER AGENT The Company's stock transfer agent is Continental Stock Transfer and Trust Co., 2 Broadway, New York, New York 10004, phone (212) 509-4000. RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS On December 4, 1998, pursuant to a Stock and Membership Interest Exchange Agreement of the same date, Bell National, predecessor to the Company, issued 4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares of Common Stock to eight members of InPath in exchange for their units of membership in InPath. Through this transaction Bell National acquired all of the units of membership in InPath and all of the assets consisting of equipment, technology license, patent applications and trademarks. The Bell National Board of Directors determined that these assets, in the aggregate, were appropriate consideration for the shares issued to the InPath members given the assets' intrinsic value as well as the favorable business opportunity which entry into the medical device industry offered to Bell National. In June of 1999, subsequent to the merger of Bell National into the Company, all of the warrants were exercised and the Company issued 3,175,850 shares of Common Stock in exchange for $3,176 in cash. Also on December 4, 1998, pursuant to a Claims Settlement Agreement of the same date, Bell National issued shares of Common Stock to each of two individuals and two corporations in settlement of debts that Bell National owed to them. In the transaction, Bell National issued: 210,000 shares of Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him for services under an Employment Agreement dated November 20, 1989; 463,333 shares of Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him under an Employment Agreement dated November 20, 1989; 600,000 shares of Common Stock to Cadmus Corporation ("Cadmus") to settle a debt of $180,000 owed to it for management services provided to Bell National; and 503,333 shares of Common Stock to MMI to settle a debt of $151,000 owed to it for office space rental and for management services provided to Bell National. In January of 1999, the Board of Directors authorized the Company to raise up to $1,500,000 in new equity or debt in order to provide operating capital for the Company. Between March 1, 1999 and June 30, 1999, the Company issued a series of 6% Convertible Subordinated Notes to a group of accredited investors in exchange for $994,600 in cash. The Notes and accrued interest due thereon will become due on June 30, 2000. The Notes, including accrued interest due thereon, will automatically convert into shares of Common Stock, at a conversion price of $0.33 per share, when the Company has raised at least $5,000,000 in new equity or debt, not including the $1,500,000 in equity or debt, of which the Notes are a part, authorized to be raised by the Board in January 1999. The conversion price of the Notes is subject to a reduction, but never less than $0.20 per share, based on the per share valuation of the new $5,000,000 in equity or debt. The noteholders have the option to convert the Notes and related accrued interest into Common Stock at any time. A noteholder exercised his right to convert a $25,000 Note into 75,758 shares of Common Stock on June 4, 1999. Included in the above series of Notes is a Note issued to Seaside Partners, L.P. in the principal amount of $500,000. Denis M. O'Donnell, who is a director of the Company, is a member and manager of Seaside Advisors, L.L.C., a firm which provides investment management services to Seaside Partners. Also included in the above series of Notes is a Note issued to Leonard R. Prange in the principal amount of $75,000. Mr. Prange is President, COO, CFO, and Secretary of the Company. Both the Seaside and Prange Notes were issued under the same terms and conditions as all of the other Notes in the series. The Board of Directors authorized the Company to raise additional equity during 1999 through Private Placements of the Company's Common Stock in the amounts of $1,500,000 and $500,000. The funds were to be used to meet the working capital and operating needs of the Company. Between July 1,1999 and December 31, 1999 the Company sold 3,989,848 shares of Common Stock to accredited investors under these Private Placements for total gross cash proceeds of $1,001,400. During January 2000, upon receipt of cleared funds received under the 1999 Private Placement, the Company completed the sale of an additional 1,712,120 shares of Common Stock for total gross proceeds of $565,000. The Company has contracted with several advisory groups to assist it in conjunction with the sale of the Notes and Private Placements of Common Stock during 1999. Accordingly, the Company has recorded an accrual for cash commissions amounting to $41,040 due to one of the advisory groups, and is required to issue warrants to purchase 542,474 shares of Common Stock at an average exercise price of $0.25. In addition the Company has recorded an estimated accrual of $50,000 to cover "out of pocket" expenses reimbursable to one group. Denis M. O'Donnell, M.D., a director of the Company, is a member of Westgate Partners, L.L.C, an advisory group entitled to receive $41,040 in commissions, 155,455 warrants to purchase Common Stock at $0.363 per share, and the reimbursement of up to $50,000 in "out of pocket" expenses. In September 1999 the Company converted a note payable and related accrued interest amounting to $101,206 into 306,684 shares of Common Stock. In November 1999, a warrant holder exercised a warrant to purchase 76,000 shares of Common Stock resulting in cash proceeds to the Company of $20,000. On December 10, 1999, the Company issued a Senior Convertible Promissory Note to Azimuth Corporation ("Azimuth"), a company controlled by Alexander M. Milley, a director and significant shareholder of the Company, in exchange for $50,000 in cash. The note bears interest at the rate of 12% per annum and was convertible into Common Stock at a conversion price of $0.20 per share. As additional compensation for the note, the Company issued Azimuth a warrant to purchase 50,000 shares of Common Stock at an exercise price of $0.33 per share. On February 22, 2000 Azimuth exercised its right to convert the note and accrued interest due thereon into 256,250 shares of Common Stock of the Company. In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity at a sales price per share of $1.50. The proceeds of this new offering will be used to fund acquisitions of additional technology, clinical trials, costs to carry the InPath System's disposable and instrument designs through the manufacturing process, and general corporate purposes. As of March 28, 2000, the Company had sold 759,997 shares for total gross cash proceeds of $1,140,000. On March 29, 2000, to resolve a dispute between InPath and AccuMed International, Inc. (AccuMed) over a Patent and Technology License Agreement (the "License") dated September 4, 1998, including related payments due thereunder, the Company and AccuMed signed a Letter Agreement amending the License. The License, covering certain "Point of Care" related applications, requires the payment of license issue fee of $500,000, against which InPath had made payments of $400,000, a 7% royalty rate, and minimum royalty payments. InPath is also required to make minimum royalty payments of $1,000,000 each during the second and third years of the License, $1,500,000 each during the fourth and fifth years, and $2,000,000 each year thereafter. The License may not be cancelled by InPath, without the occurrence of a breach by AccuMed, prior to the payment of $5,000,000 in royalties or 5 years, whichever comes first. InPath may elect to terminate its exclusivity under the License upon written notice to AccuMed at which time its obligation to make the minimum required royalty payments shall cease. InPath would then only be obligated to make royalty payments based on actual sales of products. The new Agreement provides for the assignment of the License to the Company, elimination of the minimum royalty payment schedule, and a reduction in the royalty rate to 4%. The Company has agreed to make cash payments to AccuMed under the new Agreement totaling $600,000, issue a $100,000 convertible promissory note due one year from the date the License Amendment is signed, and issue 128,571 shares of Common Stock to AccuMed. The note is convertible, at AccuMed's option, into Common Stock at a conversion price of $3.50 per share and the Company has agreed to provide AccuMed with price protection equal to $3.50 per share on the 128,571 shares of Common Stock until a measurement date 60 days following the date on which the shares are registered and freely tradable. The cash payments are characterized as the final minimum license payment and advanced non- refundable royalty payments. The $100,000 principal amount of the note and the 128,571 shares of Common Stock to a value of $450,000 are also characterized as advanced non-refundable royalty payments. The amended License is expected to be completed within 30 days. The Company has also agreed to license additional patent, software and related technology on a non-exclusive basis for use in certain automated screening applications. The Company will pay AccuMed $100,000 as a one time license fee 90 days after signing of the new license or at the time the patent, software, and related technology, is delivered to and accepted by the Company. Since the amendment to the License was not executed as of year end. The Company has continued to expense the minimum royalty payments, including $250,000 in 1999, due under the License. In each of the above transactions, the Company was either exempted from registering the issued shares of Common Stock under the Securities Exchange Act of 1933 (the "Securities Act") because each transaction qualified as an offering by an issuer not involving a public offering under Section 4(2) of the Securities Act, or the parties relied upon Regulation D to exempt the sales from registration under the Securities Act. Sales of Notes and Common Stock were made to investors, who represented themselves to the satisfaction of the Company as accredited investors under the Securities Act. The Company did not engage in any general solicitation or advertising in connection with each individual transaction or the transactions as a group. ITEM 6. SELECTED FINANCIAL DATA The selected financial data is derived from, and qualified by reference to, the audited Consolidated Financial Statements and notes included elsewhere in this Annual Report on Form 10-K. The following table sets forth the selected financial data as of the date shown and for the period shown: FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM MARCH 16, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998. (Dollar amounts in thousands, except per-share data) 1999 1998 ---------- ---------- STATEMENT OF OPERATIONS DATA: Net Sales $ 1,040 $ 0 Operating loss $ (4,117) $ (783) Net loss $ (4,226) $ (789) PER SHARE DATA: Net loss $ (0.29) $ (0.07) Weighted average shares outstanding 14,336,667 12,000,000 BALANCE SHEET DATA: Working capital deficit $ (3,204) $ (80) Total assets $ 1,871 $ 1,699 Notes payable: current $ 1,095 $ 75 Notes payable: long-term $ 26 $ 156 Stockholders' equity deficit $ (2,040) $ 728 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW See Note 1 to the Consolidated Financial Statements for background and historical information on the Company. Ampersand was incorporated in Delaware on December 15, 1998, as a wholly owned subsidiary of Bell National Corporation. On May 26, 1999, subsequent to approval by stockholders at the Annual Meeting, Bell National was merged into Ampersand. Prior to the merger with Ampersand, Bell National acquired InPath, L.L.C., a development stage company on December 4, 1998. Based upon the terms of the InPath acquisition agreement, for financial reporting and accounting purposes the acquisition was accounted for as a reverse acquisition whereby InPath was deemed to have acquired Bell National. Since Bell National was a non-operating public shell company with nominal assets and InPath was a private operating company, the acquisition was recorded as the issuance of stock for the net monetary assets of Bell National accompanied by a recapitalization, and no goodwill or other intangible assets were recorded. Accordingly, information presented in the Consolidated Financial Statements includes the operations of InPath from March 16, 1998 (inception) and the operations of the combined Company from December 4, 1998. REVENUE During 1998, the Company was considered a development stage company and had no revenues. On January 4, 1999, the Company's wholly owned subsidiary, Samba Technologies, Sarl ("Samba"), acquired the business of the Samba department of Unilog Regions, SA. Samba designs, develops and markets image analysis and tele-medicine software, and network and internet consulting services covering areas of image capture and transmission. The Company's revenues for 1999 amounting to $1,040,000 were all produced through the sale of Samba products and services. COSTS AND EXPENSES Cost of goods sold for 1999 amounting to $542,000 relate to the Samba revenues and represent the cost of computer and imaging hardware, purchased services and other products, and software engineering labor and related expenses. The Company devotes a substantial amount of its resources to research and development efforts on new products including the InPath System and new Samba software applications. Research and development expenses for 1999 amounted to $1,782,000 (including $320,000 of Samba costs), an increase of 885% over the 1998 amount of $181,000, which covered approximately nine months of very early stage InPath product development. The expenses consisted primarily of contract costs related to scientists and researchers at universities and hospitals under specific development programs, full scale device development contracts undertaken during 1999 with industrial design and manufacturing organizations covering the disposable and instrument components of the InPath System, reimbursements to medical and engineering consultants, and payroll related costs for in-house software engineering, scientific and research management staff. Selling, general and administrative expenses for 1999 were $2,833,000 (including $586,000 of Samba costs) an increase of 371% over the 1998 amount of $602,000, which covered the initial start-up period of approximately nine months. The increase for 1999 is the result of a significant expansion in the scale of operations of the Company. The compensation cost component of this expense pool increased approximately $700,000 as a result of the presence of executive personnel and administrative staff, including those involved with Samba, for a full year. The Company's new publicly held status resulted in a cost increase of $200,000 primarily for professional services and insurance. In addition, the Company charged to administrative expenses approximately $225,000 in costs related to the organization of Samba and amortization of the purchased SAMBA goodwill, $250,000 in royalty expense related to a Patent and Technology License and recorded a compensation charge of approximately $390,000 to reflect the year end value of outstanding SARs, the value of warrants issued for services, and the value of options issued to non- employee consultants. A significant component of the 1998 expenses consisted of legal costs related to the initial establishment of InPath, negotiation of the technology license with AccuMed International, Inc., and the acquisition of InPath by the Company in December 1998 and the related filings with the Securities and Exchange Commission. During 1999 the Company incurred interest expense of $86,000. The amount primarily reflects the interest due on the series of 6% Convertible Subordinated Notes Due 2000 issued during 1999. Interest expense for 1998 was not significant. Other expenses for 1999 amounting to $23,000, net, reflect the write off of $100,000 paid to AccuMed International, Inc., as compensation for a "no shop" clause in a Letter of Intent between AccuMed and the Company, whereby the Company sought to license and purchase certain automated microscopy technology from AccuMed. The Company was unable to reach a final agreement with AccuMed and terminated the negotiations in September 1999. In addition, in accordance with taxation rules in France, the Company's Samba subsidiary has recorded refundable income taxes in the amount of $100,000. These refundable taxes represent a research and development credit against future income taxes or direct cash refund available to Samba. The Company also terminated a lease for office space and wrote off the net remaining value $21,000 of leasehold improvements related to that lease. The net loss for 1999 was ($4,226,000), or ($0.29) per share on 14,336,667 weighted average outstanding shares. The net loss for the period March 16, 1998 through December 31, 1998 was ($789,000), or ($0.07) per share, on 12,000,000 weighted average common shares outstanding. The calculation of net loss per share for 1998 assumes that all shares of the Company were outstanding for the entire period. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash requirements continue to be for research, development, and design expenses of its InPath products and the conversion of those designs through the process of clinical trials and manufacturing. At December 31, 1999 the Company had cash on hand of $36,000. During January of 2000, the Company received an additional $565,000 in funds from the sale of Common Stock as the result of the completion of a 1999 Private Placement Offering. At December 31, 1998, the Company had cash on hand of $700,000. Of this amount, approximately $479,000 was used to make the final payment on the purchase of the Samba department of Unilog Regions SA on January 4, 1999. Samba Technologies SARL, the wholly owned subsidiary of the Company, which assumed the operations of the Samba department, has been cash flow neutral during 1999. In January of 1999, the Board of Directors authorized the Company to raise up to $1,500,000 in new equity or debt in order to provide operating capital for the Company. Between March 1, 1999 and June 30, 1999, the Company issued a series of 6% Convertible Subordinated Notes to a group of accredited investors in exchange for $994,600 in cash. The Notes and accrued interest due thereon will become due on June 30, 2000. The Notes, including accrued interest due thereon, will automatically convert into shares of Common Stock , at a conversion price of $0.33 per share, when the Company has raised at least $5,000,000 in new equity or debt, not including the $1,500,000 in equity or debt, of which the Notes are a part, authorized to be raised by the Board in January 1999. The conversion price of the Notes is subject to a reduction, but never less than $0.20 per share, based on the per share valuation of the new $5,000,000 in equity or debt. The noteholders have the option to convert the Notes and related accrued interest into Common Stock at any time. A noteholder exercised his right to convert a $25,000 Note into 75,758 shares of Common Stock on June 4, 1999. Included in the above series of Notes is a Note issued to Seaside Partners, L.P. in the principal amount of $500,000. Denis. M. O'Donnell, who is a director of the Company, is a member and manager of Seaside Advisors, L.L.C., a firm which provides investment management services to Seaside Partners. Also included in the above series of Notes is a Note issued to Leonard R. Prange in the principal amount of $75,000. Mr. Prange is President, COO, CFO, and Secretary of the Company. Both the Seaside and Prange Notes were issued under the same terms and conditions as all of the other Notes in the series. The Board of Directors authorized the Company to raise additional equity during 1999 through Private Placements of the Company's Common Stock in the amounts of $1,500,000 and $500,000. The funds were to be used to meet the working capital and operating needs of the Company. Between July 1,1999 and December 31, 1999 the Company sold 3,989,848 shares of Common Stock to accredited investors under these Private Placements for gross cash proceeds of $1,001,400. During January 2000, upon receipt of cleared funds received under the 1999 Private Placement, the Company completed the sale of an additional 1,712,120 shares of Common Stock for total gross proceeds of $565,000 (see comments in paragraph one). The Company has contracted with several advisory groups to assist it in conjunction with the sale of the Notes and Private Placements of Common Stock during 1999. Accordingly, the Company has recorded an accrual for cash commissions amounting to $41,040 due to one of the advisory groups, and is required to issue warrants to purchase 542,474 shares of Common Stock at an average exercise price of price of $0.25. In addition the Company has recorded an estimated accrual of $50,000 to cover "out of pocket" expenses reimbursable to one group. Denis M. O'Donnell, M.D., a director of the Company, is a member of Westgate Partners, L.L.C, an advisory group entitled to receive $41,040 in commissions, 155,455 warrants to purchase Common Stock at $0.363 per share, and the reimbursement of up to $50,000 in "out of pocket" expenses. In September 1999 the Company converted a note payable and related accrued interest amounting to $101,206 into 306,684 shares of Common Stock. In November 1999, a warrant holder exercised a warrant to purchase 76,000 shares of Common Stock resulting in cash proceeds to the Company of $20,000. In July 1999, the Company's wholly owned subsidiary, Samba, negotiated a Revolving Credit Line ("Revolver") with Banc National de Paris (BNP). The terms of the Revolver provide that Samba may borrow, in the form of an advance on payment against monthly billings, up to a maximum of 900,000 French Francs, approximately $140,000. The terms of the Revolver require Samba to pay interest at Euribor plus 2.5%, (currently equal to 6.1%) on advances outstanding under the revolver and grant BNP a security interest in Samba accounts receivable. The Revolver is subject to renewal in June 2000. As of December 31, 1999, the outstanding amount under the revolver was $134,000. On December 10, 1999, the Company issued a Senior Convertible Promissory Note to Azimuth Corporation ("Azimuth"), a company controlled by Alexander M. Milley, a director and significant shareholder of the Company, in exchange for $50,000 in cash. The note bears interest at the rate of 12% per annum and was convertible into Common Stock at a conversion price of $0.20 per share. As additional compensation for the note, the Company issued Azimuth a warrant to purchase 50,000 shares of Common Stock at an exercise price of $0.33 per share. On February 22, 2000 Azimuth exercised its right to convert the note and accrued interest due thereon into 256,250 shares of Common Stock of the Company. In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity at a sales price per share of $1.50. The proceeds of this new offering will be used to fund acquisitions of additional technology, clinical trials, costs to carry the InPath System's disposable and instrument designs through the manufacturing process, and general corporate purposes. As of March 28, 2000, the Company has sold 759,997 shares for a total gross cash proceeds of $1,140,000. On March 29, 2000, to resolve a dispute between InPath and AccuMed International, Inc. (AccuMed) over a Patent and Technology License Agreement (the "License") dated September 4, 1998, including related payments due thereunder, the Company and AccuMed signed a Letter Agreement amending the License. The License, covering certain "Point of Care" related applications, requires the payment of a license issue fee of $500,000, against which InPath had made payments of $400,000, a 7% royalty rate, and minimum royalty payments. InPath is also required to make minimum royalty payments of $1,000,000 each during the second and third years of the License, $1,500,000 each during the fourth and fifth years, and $2,000,000 each year thereafter. The License may not be cancelled by InPath, without the occurrence of a breach by AccuMed, prior to the payment of $5,000,000 in royalties or 5 years, whichever comes first. InPath may elect to terminate its exclusivity under the License upon written notice to AccuMed at which time its obligation to make the minimum required royalty payments shall cease. InPath would then only be obligated to make royalty payments based on actual sales of products. The new Agreement provides for the assignment of the License to the Company, elimination of the minimum royalty payment schedule, and a reduction in the royalty rate to 4%. The Company has agreed to make cash payments to AccuMed under the new Agreement totaling $600,000, issue a $100,000 convertible promissory note due one year from the date the License Amendment is signed, and issue 128,571 shares of Common Stock to AccuMed. The note is convertible, at AccuMed's option, into Common Stock at a conversion price of $3.50 per share and the Company has agreed to provide AccuMed with price protection equal to $3.50 per share on the 128,571 shares of Common Stock until a measurement date 60 days following the date on which the shares are registered and freely tradable. The cash payments are characterized as the final minimum license payment and advanced non- refundable royalty payments. The $100,000 principal amount of the note and the 128,571 shares of Common Stock to a value of $450,000 are also characterized as advanced non-refundable royalty payments. The amended License is expected to be completed within 30 days. The Company has also agreed to license additional patent, software and related technology on a non-exclusive basis for use in certain automated screening applications. The Company will pay AccuMed $100,000 as a one time license fee 90 days after signing of the new license or at the time the patent, software, and related technology, is delivered to and accepted by the Company. Since the amendment to the License was not executed as of year end, the Company has continued to expense the minimum royalty payments, including $250,000 in 1999, due under the License. The operation of the Company has been, and will continue to be, dependent upon management's ability to raise operating capital in the form of debt or equity. The Company has incurred significant operating losses since its inception. The Company expects that significant on-going operating expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to obtain additional capital to meet its current operating needs, or to complete pending or contemplated licenses or acquisitions of technologies. If the Company is unable to raise sufficient adequate additional capital, or generate profitable sales revenues, management may be forced to substantially curtail product research and development and other activities and may be forced to cease operations. The Company's internally used computer equipment is Year 2000 compliant. The software suites and systems currently sold by the Samba are also Year 2000 compliant. Older installations of the Samba software suite may not be Year 2000 compliant, and Samba has been contracted by some customers to upgrade their systems to Year 2000 compliance. The Company does not anticipate that it will incur any additional material costs related to compliance with Year 2000 issues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Company's financial statements is the potential loss in fair value arising from adverse changes in interest rates. The Company does not engage in any hedge transactions or use derivative financial instruments to reduce its exposure to interest rate changes since all of the Company's indebtedness is financed at fixed rates. At December 31, 1999, the carrying amount of the Company's debt instruments approximated their fair value. In addition, as of December 31, 1999, the Company was not exposed to any material foreign-currency, commodity-price, equity-price or other type of market or price risk. The Company's wholly owned subsidiary, Samba, conducts the majority of its operations in Europe using EURO and local European currencies. At December 31, 1999 the Company has recorded a negative cumulative translation adjustment of ($83,000) reflecting the current valuation of the Company's investment in and current account with Samba. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company for the year ended December 31, 1999 and the period March 16, 1998 through December 31, 1998, together with the report thereon of Ernst & Young LLP dated March 29, 2000, are filed as part of this report commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required for this item is incorporated by reference to the discussion captioned "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the annual meeting of shareholders. ITEM 11. EXECUTIVE COMPENSATION The information required for this item is incorporated by reference to the discussion captioned "EXECUTIVE COMPENSATION" in the Company's Proxy Statement for the annual meeting of shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required for this item is incorporated by reference to the discussion captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Company's Proxy Statement for the annual meeting of shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In January of 1999, the Board of Directors authorized the Company to raise up to $1,500,000 in new equity or debt in order to provide operating capital for the Company. Between March 1, 1999 and June 30, 1999, the Company issued a series of 6% Convertible Subordinated Notes to a group of accredited investors in exchange for $994,600 in cash. The Notes and accrued interest due thereon will become due on June 30, 2000. The Notes, including accrued interest due thereon, will automatically convert into shares of Common Stock , at a conversion price of $0.33 per share, when the Company has raised at least $5,000,000 in new equity or debt, not including the $1,500,000 in equity or debt, of which the Notes are a part, authorized to be raised by the Board in January. The conversion price of the Notes is subject to a reduction, but never less than $0.20 per share, based on the per share valuation of the new $5,000,000 in equity or debt. The noteholders have the option to convert the Notes and related accrued interest into Common Stock at any time. A noteholder exercised his right to convert a $25,000 Note into 75,758 shares of Common Stock on June 4, 1999. Included in the above series of Notes is a Note issued to Seaside Partners, L.P. in the principal amount of $500,000. Denis. M. O'Donnell, who is a director of the Company, is a member and manager of Seaside Advisors, L.L.C., a firm which provides investment management services to Seaside Partners. Also included in the above series of Notes is a Note issued to Leonard R. Prange in the principal amount of $75,000. Mr. Prange is President, COO, CFO, and Secretary of the Company. Both the Seaside and Prange Notes were issued under the same terms and conditions as all of the other Notes in the series. The Company has contracted with several advisory groups to assist it in conjunction with the sale of the Notes and Private Placements of Common Stock during 1999. Accordingly, the Company has recorded an accrual for cash commissions amounting to $41,040 due to one of the advisory groups, and is required to issue warrants to purchase 542,474 shares of Common Stock at an average exercise price of price of $0.25. In addition the Company has recorded an estimated accrual of $50,000 to cover "out of pocket" expenses reimbursable to one group. Denis M. O'Donnell, M.D., a director of the Company, is a member of Westgate Partners, L.L.C, an advisory group entitled to receive $41,040 in commissions, 155,455 warrants to purchase Common Stock at $0.363 per share, and the reimbursement of up to $50,000 in "out of pocket" expenses. On December 10, 1999, the Company issued a Senior Convertible Promissory Note to Azimuth Corporation ("Azimuth"), a company controlled by Alexander M. Milley, a director and significant shareholder of the Company, in exchange for $50,000 in cash. The note bears interest at the rate of 12% per annum and was convertible into Common Stock at a conversion price of $0.20 per share. As additional compensation for the note, the Company issued Azimuth a warrant to purchase 50,000 shares of Common Stock at an exercise price of $0.33 per share. On February 22, 2000 Azimuth exercised its right to convert the note and accrued interest due thereon into 256,250 shares of Common Stock of the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K Documents Filed as Part of Report Page Index to Financial Statements Number ----------------------------- ------ 1. FINANCIAL STATEMENTS Report of Independent Auditors F-1 Consolidated Balance Sheets at December 31, 1999 and 1998 F-2 to F-3 Consolidated Statements of Operations for the year ended December 31, 1999 and the period March 16, 1998 (inception) through December 31, 1998 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1999 and the period March 16, 1998 (inception) through December 31, 1998 F-5 to F-6 Consolidated Statements of Cash Flows for the year ended December 31, 1999 and for the period March 16, 1998 (inception) through December 31, 1998 F-7 to F-8 Notes to Consolidated Financial Statements F-9 to F-19 2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is filed as part of this report as page F-20; Schedule II - Valuation and Qualifying Accounts. All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. 3. EXHIBITS Exhibit Number Description - ------- ----------- 2.1 Bell National Corporation Plan of Reorganization (Annex I). (Incorporated herein by reference to Item 1 of the Bell National Corporation Annual Report on Form 10-K for the period from August 20, 1985 to December 31, 1985 and for the years ended December 31, 1986 and 1987.) 2.2 Exchange Agreement dated December 4, 1998 among the Company, InPath, and the InPath Members. (Incorporated herein by reference to Appendix A to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 2.3 Agreement and Plan of Merger of Bell National Corporation and the Company. (Incorporated herein by reference to Appendix C to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 3.1 Restated Articles of Incorporation. (Incorporated herein by reference to Exhibit 3.1 of the Bell National Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 3.2 Bylaws of Bell National Corporation. (Incorporated herein by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) 3.3 Certificate of Incorporation of the Company as amended. (Incorporated herein by reference to Appendix D to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 3.4 By-laws of the Company. (Incorporated herein by reference to Appendix E to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 4.1 Form of Common Stock Purchase Warrant, as executed by Bell National Corporation on December 4, 1998 with respect to each of Mr. Gombrich, Theodore L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc. (collectively, the "InPath Members"). (Incorporated herein by reference to Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 4.2 Stockholders Agreement dated December 4, 1998 among the Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr. Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 4.3 Form of Common Stock Purchase Warrant issued to Holleb & Coff on July 4, 1999 representing the right to purchase 250,000 shares of Common Stock of the Company in connection with legal services rendered. 4.4 Form of Common Stock Purchase Warrant issued to The Research Works on October 11, 1999 representing the right to purchase 70,000 shares of Common Stock of the Company in connection with the preparation of an investment research report. Exhibit Number Description - ------- ----------- 4.5 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on December 10, 1999 representing the right to purchase 50,000 shares of Common Stock of the Company as additional consideration for a 12% Convertible Promissory Note issued on the same date. 10.1 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) 10.2 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) 10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990 between the Company and Roy D. Rafalco. (Incorporated herein by reference to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.) 10.4 SAR Agreement Extension dated November 15, 1995 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.5 SAR Agreement Extension dated November 15, 1995 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich and InPath, LLC, as amended on December 4, 1998. (Incorporated herein by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.8 Claims Agreement dated December 4, 1998 among the Company, the Claimants, and Liberty Associates Limited Partnership. (Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 10.9 Ampersand Medical Corporation Equity Incentive Plan established as of June 1, 1999. (Incorporated herein by reference to Appendix F to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, as filed on April 30, 1999.) 10.10 Ampersand Medical Corporation Employee Stock Purchase Plan. (Incorporated herein by reference to Appendix G to the Bell National Corporation Definitive Proxy statement on Schedule 14A, as filed on April 30, 1999.) 10.11 Employment Agreement dated June 1, 1999 between Mr. Prange and the Company. 10.12 Lease Agreement between the Company and O.P., L.L.C. dated September 1, 1999 pertaining to the premises located at suite 305, 414 N. Orleans, Chicago, IL 60610. 10.13 Amendment to Lease Agreement between the Company and O.P., L.L.C. dated November 1, 199 pertaining to the premises at suite 300, 414 N. Orleans, Chicago, IL 60610. Exhibit Number Description - ------- ----------- 10.14 Form of Note purchase Agreements dated between March 1, 1999 and June 29, 1999 between the Company and several purchasers. 10.15 Form of 6% Convertible Subordinated Note Due 2000, dated between March 1, 1999 and June 29, 1999 issued by the Company to several purchasers. 10.16 Schedule of purchasers of 6% Convertible Notes Due 2000, including dates and amount purchased. 10.17 Form of Senior Convertible Promissory Note issued to Azimuth Corporation on December 10, 1999. 10.18 Form of Restricted Stock Award of 50,000 shares of Common Stock issued to David A. Fishman, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated June 1, 1999. 10.19 Form of Restricted Stock award of 50,000 shares of Common Stock issued to Arthur L. Herbst, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated July 1, 1999. 21.1 Subsidiaries of the Company. 27.1 Financial data schedule. REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMPERSAND MEDICAL CORPORATION Date: March 30, 2000 BY: /s/ Peter P. Gombrich ---------------------------------- Peter P. Gombrich Chairman of the Board, Chief Executive Officer and Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Peter P. Gombrich - ----------------------- Peter P. Gombrich Director, Chairman of the Board, Chief Executive Officer (Principal Executive Officer) March 30, 2000 /s/ Alexander M. Milley - ----------------------- Alexander M. Milley Director March 30, 2000 /s/ John Abeles - ----------------------- John Abeles Director March 30, 2000 /s/ Denis M. O'Donnell - ----------------------- Denis M. O'Donnell Director March 30, 2000 /s/ Leonard R. Prange - ----------------------- Leonard R. Prange President, Chief Operating Officer, Chief Financial Officer, and Secretary (Principal Financial Officer and Accounting Officer) March 30, 2000 /s/ Robert C. Shaw - ----------------------- Robert C. Shaw Director March 30, 2000 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Ampersand Medical Corporation and Subsidiaries We have audited the accompanying Consolidated Balance Sheets of Ampersand Medical Corporation and Subsidiaries, formerly Bell National Corporation, as of December 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1999 and the period from March 16, 1998 (inception) through December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements and schedule based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ampersand Medical Corporation and Subsidiaries as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the year ended December 31, 1999 and the period from March 16, 1998 (inception) through December 31, 1998, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred substantial net losses from operations and has limited financial resources. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are described in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result from the outcome of this uncertainty. /S/ ERNST & YOUNG, LLP Chicago, Illinois March 29, 2000 PART I. FINANCIAL INFORMATION AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Balance Sheets (Dollars in thousands, except per share amounts) Balance Balance December 31, December 31, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents. . . . . . . $ 36 700 Accounts receivable, net of allowance of $20 . . . . . . . . . . 398 -- Inventories. . . . . . . . . . . . . . 62 -- Refundable taxes . . . . . . . . . . . 131 -- Prepaid expenses . . . . . . . . . . . 54 35 ---------- ---------- Total current assets . . . . . . . 681 735 Fixed assets, net. . . . . . . . . . . . . 177 88 Other assets: License, patents, and technology, net of amortization. . . . . . . . . . 696 746 Goodwill, net. . . . . . . . . . . . . . 317 -- Acquisition escrow . . . . . . . . . . . -- 100 Other. . . . . . . . . . . . . . . . . . -- 30 ---------- ---------- Total assets . . . . . . . . . . . $ 1,871 1,699 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . $ 1,449 588 Customer deposits. . . . . . . . . . . . 40 -- Accrued payroll costs. . . . . . . . . . 450 81 Accrued royalties. . . . . . . . . . . . 250 -- Accrued expenses . . . . . . . . . . . . 399 71 Deferred revenue . . . . . . . . . . . . 68 -- Revolving line of credit . . . . . . . . 134 -- Current maturities of notes payable - related party. . . . . . . . . . . . . 125 -- Current maturities of notes payable. . . 970 75 ---------- ---------- Total current liabilities. . . . . 3,885 815 AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Balance Sheets - CONTINUED Balance Balance December 31, December 31, 1999 1998 ------------ ------------ Notes payable - related party, less current maturities. . . . . . . . . 26 156 Stockholders' equity (deficit) Preferred Stock, $0.001 par value Authorized 5,000,000 shares; None issued and outstanding Common stock, no par value Authorized and issued 12,000,000 shares in 1998 . . . . . . . . . . . -- 1,517 Common stock, $0.001 par value; Authorized 50,000,000 shares; Issued and outstanding 19,027,570 shares in 1999 . . . . . . . . . . . 19 -- Additional paid in capital . . . . . . . 3,039 -- Accumulated deficit. . . . . . . . . . . (5,015) (789) Accumulated comprehensive loss - Cumulative translation adjustment. . . (83) -- ---------- ---------- Total stockholders' equity (deficit). . . . . . . . . . . . (2,040) 728 ---------- ---------- Total liabilities and stock- holders' equity (deficit). . . . $ 1,871 1,699 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Statements of Operations (Dollars in thousands, except per share amounts) For the Period March 16, 1998 (Inception) Year Ended Through December 31, December 31, 1999 1998 ------------ -------------- Net sales. . . . . . . . . . . . . . . . $ 1,040 -- Cost and expenses Cost of goods sold . . . . . . . . . . 542 -- Research and development expenses. . . 1,782 181 Selling, general and administrative expenses. . . . . . . 2,833 602 ---------- ---------- 5,157 783 ---------- ---------- Operating loss . . . . . . . . . . . . . (4,117) (783) Other income (expense) Interest (expense) - related party . . (14) (8) Interest (expense) . . . . . . . . . . (72) -- Other, net . . . . . . . . . . . . . . (23) 2 ---------- ---------- (109) (6) ---------- ---------- Loss before income taxes . . . . . . . . (4,226) (789) Income taxes . . . . . . . . . . . . . . -- -- ---------- ---------- Net loss . . . . . . . . . . . . . . . . $ (4,226) (789) ========== ========== Basic and fully diluted net loss per common share . . . . . . . . . . . $ (0.29) (0.07) ========== ========== Weighted average number of common share outstanding . . . . . . . 14,336,667 12,000,000 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Statements of Stockholders' Equity (Dollars in thousands) Common Common Stock Addi- Other Total Pre- Stock par tional Accumu- compre- Stock- ferred No par value Paid in lated hensive holder Stock value $0.001 Capital Deficit loss Equity ------- ------- ------- ------- ------- ------- ------- March 16, 1998 (In- ception) $ -- -- -- -- -- -- -- Equity of accounting acquiree 881 881 Contribution of asset in exchange for equity -- 245 -- -- 245 Sale of equity -- 391 -- -- 391 Net loss -- -- (789) -- (789) ------- ------- ------- ------- ------- ------- ------- Decem- ber 31, 1998 -- 1,517 -- -- (789) -- 728 Merger of Bell Nation- al into Ampersand Medical Corporation -- (1,517) 12 1,505 -- -- -- Comprehensive Loss: Net loss -- -- -- (4,226) -- (4,226) Foreign currency transla- tion -- -- -- -- (83) (83) ------ Total compre- hensive loss (4,309) Conversion of notes payable and accrued interest -- -- -- 126 -- -- 126 Exercise of warrants -- -- 3 20 -- -- 23 Warrants issued for services -- -- -- 126 -- -- 126 Sale of common Stock, net of costs incurred -- -- 4 956 -- -- 960 Restricted stock issued for services -- -- -- 21 -- -- 21 AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Statements of Stockholders' Equity - CONTINUED (Dollars in thousands) Common Common Stock Addi- Other Total Pre- Stock par tional Accumu- compre- Stock- ferred No par value Paid in lated hensive holder Stock value $0.001 Capital Deficit loss Equity ------- ------- ------- ------- ------- ------- ------- Options issued to non- employees for services -- -- -- 54 -- -- 54 Compensation expense related to SAR's -- -- -- 231 -- -- 231 ------- ------- ------- ------- ------- ------- ------- Decem- ber 31, 1999 $ -- -- 19 3,039 (5,015) (83) (2,040) ======= ======= ======= ======= ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Statements of Cash Flows (Dollars in thousands) For the Period March 16, 1998 (Inception) Year Ended Through December 31, December 31, 1999 1998 ------------ -------------- Operating Activities: Net loss . . . . . . . . . . . . . . . . $ (4,226) (789) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization. . . . . 292 36 Loss on disposal of equipment. . . . . 21 -- Stock, warrants, and options issued to non-employees for services. . . . 201 -- Compensation expense related to Stock Appreciation Rights. . . . . . 231 -- Changes in assets and liabilities: Accounts receivable, net . . . . . . (398) -- Inventories. . . . . . . . . . . . . (62) -- Refundable taxes . . . . . . . . . . (131) -- Deposits, prepaids and other assets . . . . . . . . . . . . . . 111 (158) Accounts payable . . . . . . . . . . 861 588 Customer deposits. . . . . . . . . . 40 -- Deferred revenue . . . . . . . . . . 68 -- Accrued royalties. . . . . . . . . . 250 -- Accrued expenses . . . . . . . . . . 697 59 ---------- ---------- Net cash used in operating activities. . . (2,045) (264) Cash used in investing activities: Payments for acquisitions. . . . . . . . (500) -- Expenditures for license, patents and technology . . . . . . . . (25) (501) Purchase of fixed assets . . . . . . . . (144) (100) ---------- ---------- Net cash used in investing activities. . . (669) (601) Cash flows from financing activities: Proceeds from issuance of convertible notes payable. . . . . . . 1,146 250 Proceeds from revolving line of credit, net of payments . . . . . . 134 -- Payment of notes payable - related party. . . . . . . . . . . . . (130) (19) Proceeds from issuance of common stock, net of costs incurred . . . . . 983 391 Net cash acquired. . . . . . . . . . . . -- 943 ---------- ---------- Net cash provided by financing activities . . . . . . . . . . 2,133 1,565 Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . (83) -- ---------- ---------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . (664) 700 Cash and cash equivalents at beginning of period. . . . . . . . . . . 700 -- ---------- ---------- Cash and cash equivalents at end of period. . . . . . . . . . . . . . $ 36 700 ========== ========== AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) Consolidated Statements of Cash Flows - CONTINUED For the Period March 16, 1998 (Inception) Year Ended Through December 31, December 31, 1999 1998 ------------ -------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest . . . . . . . . . . . . . . . . $ 5 -- Income taxes . . . . . . . . . . . . . . -- -- ========== ========== The accompanying notes are an integral part of these consolidated financial statements. AMPERSAND MEDICAL CORPORATION (Formerly Bell National Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1. THE COMPANY AND BASIS OF PRESENTATION Ampersand Medical Corporation ("Ampersand" and together with its subsidiaries the "Company") was incorporated in Delaware on December 15, 1998, as a wholly owned subsidiary of Bell National Corporation. At the Annual Meeting of Bell National on May 25, 1999, stockholders approved the merger of Bell National into Ampersand. The merger was affected on May 26, 1999 and Bell National ceased its existence. At the Annual Meeting, stockholders also approved an increase in the authorized shares of Common Stock of the Company from 20,000,000 to 50,000,000 shares. From a historical perspective prior to its merger into the Ampersand, Bell National Corporation ("Bell National") was incorporated in California on October 1, 1958. Through 1985, its principal subsidiary was Bell Savings and Loan Association ("Bell Savings"), a state chartered savings and loan association. On July 25, 1985, the Federal Home Loan Bank Board appointed the Federal Savings & Loan Insurance Corporation ("FSLIC") as receiver of Bell Savings. At the same time, the assets of Bell Savings were transferred to a new, unrelated, federally chartered mutual savings and loan association, Bell Federal. The FSLIC's action followed shortly after a determination that Bell Savings had a negative net worth. On August 20, 1985, Bell National filed a voluntary petition under Chapter 11 of the Bankruptcy Code. A plan of reorganization was approved by the Bankruptcy Court, and became effective June 29, 1987. On June 15, 1990, Bell National purchased 100% of the Common Stock of Payne Fabrics, Inc., a designer and distributor of decorative drapery and upholstery fabrics, for a purchase price of $6,493,000 and the issuance of stock appreciation rights. On August 4, 1997 Payne Fabrics, Inc. sold substantially all of its assets and most of its liabilities related to the business of designing and distributing decorative drapery and upholstery fabrics to Westgate Fabrics, Inc. ("Westgate"), an unaffiliated third party (the "Asset Sale"). The Asset Sale included the transfer to the buyer of the use and rights to the Payne Fabrics name, accordingly, Payne Fabrics, Inc., changed its name to PFI National Corporation ("PFI"). The Asset Sale left PFI without any substantial assets and on August 4, 1997 all operations were ceased. Bell National's other wholly-owned subsidiaries, Bell Savings and Pacific Coast Holdings Insurance Company, had no significant assets or liabilities. After the Asset Sale and before December 1998, the Company had no business operations and its only activities were administrative. On December 4, 1998, Bell National acquired InPath, LLC, a development-stage company engaged in the design and development of medical instruments and related tests. In the acquisition, Bell issued 4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares of Common Stock to the members of InPath in exchange for their units of membership interest in InPath and the senior executives of InPath assumed management control of the Company. Subsequent to the annual meeting of the stockholders on May 25, 1999, all of the warrants were exercised and exchanged for shares of Common Stock in the Company. Also on December 4, 1998, pursuant to a Claims Settlement Agreement of the same date, Bell National issued shares of Common Stock to each of two individuals and two corporations in settlement of debts that Bell National owed to them. In the transaction, the Bell National issued: 210,000 shares of Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him for his services as Chairman of the Board and Secretary of Bell National under an Employment Agreement dated November 20, 1989; 463,333 shares of Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him for his services as President and Treasurer of Bell National under an Employment Agreement dated November, 20 1989; 600,000 shares of Common Stock to Cadmus Corporation ("Cadmus") to settle a debt of $180,000 owed to it for management services provided to Bell National; and 503,333 shares of Common Stock to MMI to settle a debt of $151,000 owed to it as rent for office space and as payment for management services provided to Bell National. Based upon the terms of the acquisition agreement, for financial reporting and accounting purposes the acquisition was accounted for as a reverse acquisition whereby InPath is deemed to have acquired Bell National. However, Bell National was the continuing legal entity and registrant for both Securities and Exchange Commission filing purposes and income tax filing purposes, until its merger into Ampersand in May 1999. Because the Bell National was a non-operating public shell company with nominal assets and InPath was a private operating company, the acquisition was recorded as the issuance of stock for the net monetary assets of Bell National, accompanied by a recapitalization and no goodwill or other intangible assets were recorded. Accordingly, the Consolidated Financial Statements presented hereunder only include the operations of InPath from March 16, 1998 (inception) and the operations of Bell National and the Company from December 4, 1998. In December 1998, the Company formed a French limited liability company subsidiary, Samba Technologies, Sarl ("Samba"), for the purpose of acquiring the automated image cytometry and tele-medicine technology used in the business of the Samba department of Unilog Regions, SA, a French company engaged in the design, development, and installation of commercial software programs and networks for business applications. Samba completed the acquisition of the department's assets on January 4, 1999, and at the same time entered into employment arrangements with the former department employees. Since the acquisition, Samba has continued to develop and market the image cytometry and tele-medicine products previously developed and marketed by the department. The Company has incurred significant net losses since its inception. The Company expects that significant on-going operating expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Implementation of the Company's plans and its ability to continue as a going concern depend upon its acquiring substantial additional financing. Management's plans include efforts to obtain additional capital. If the Company is unable to obtain adequate additional financing or generate profitable sales revenues, management may be required to curtail the Company's product development and other activities and may be forced to cease operations. During January 2000, upon receipt of cleared funds received under the 1999 Private Placement, the Company completed the sale of an additional 1,712,120 shares of Common Stock for total gross proceeds of $565,000. In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity at a sales price per share of $1.50. The proceeds of this new offering will be used to fund acquisitions of additional technology, clinical trials, costs to carry the InPath System's disposable and instrument designs through the manufacturing process, and general corporate purposes. As of March 28, 2000, the Company has sold 759,997 shares for total gross cash proceeds of $1,140,000. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include Ampersand Medical Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. USE OF ESTIMATES. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION. The Company will recognize revenue upon shipment of product to customers, or in the case of sales of software by its wholly owned subsidiary Samba Technologies, Sarl., upon shipment if persuasive evidence of an arrangement exists; sufficient vendor-specific objective evidence exists to support allocating the total fee to all elements of the arrangement; the fee is fixed or determinable; and collection is probable. Revenue from ongoing client maintenance is recognized ratably over the post-contract support term, which is twelve months. Revenue from training services and professional services is recognized when the service is completed. Revenue from implementation and installation services is recognized using the percentage of completion method. The Company calculates percentage of completion based on the estimated total number of hours of service required to complete an implementation project and the number of actual hours of service rendered. Implementation and installation services are completed within 120 days. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. INVENTORY. Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are depreciated using the straight-line method over the assets' estimated useful lives. Principal useful lives are as follows: Furniture and fixtures 5 years Laboratory equipment 5 years Computer and communications equipment 3 years Leasehold improvements Useful life or life of lease, whichever is shorter Normal maintenance and repairs are charged to expense as incurred, significant improvements are capitalized. LICENSE, PATENTS, AND TECHNOLOGY. License, patents, and purchased technology are recorded at their acquisition cost. During 1998, a portion of a license, valued at $245,000, was contributed to the Company in exchange for an equity stake of equal value. Costs to prepare patent filings are recorded when incurred. Costs related to abandoned or denied patent applications are written off at the time of abandonment or denial. Amortization is begun as of the date of acquisition or upon the grant of the final patent. All costs are amortized over a useful life of ten years. GOODWILL. Goodwill is amortized using the straight-line method over three years. Amortization expense for 1999 related to goodwill was approximately $167,000. RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged to operations as incurred. The Company conducts a portion of its research activities under contractual arrangements with scientists, researchers, universities, and other independent third parties. FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's foreign operations is the local currency. Accordingly, all assets and liabilities are translated into U.S. dollars using year-end exchange rates, and all revenues and expenses are translated using weighted-average exchange rates during the year. The amount of foreign currency translation is not material to the results of operations and the financial position of the Company. LOSS PER SHARE. Basic loss per share is calculated based on the weighted-average number of outstanding common shares. Diluted loss per share is calculated based on the weighted-average number of outstanding common shares plus the effect of dilutive potential common shares. The Company's calculation of dilutive net loss per share excludes potential common shares as the effect would be antidilutive. Potential common shares include stock options and warrants. The weighted-average number of options and warrants to purchase common stock using the treasury stock method for 1999 and 1998 were 24,000 and zero shares, respectively. INCOME TAXES. The Company follows the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided against deferred tax assets if it is more likely than not that the deferred tax assets will not be realized. OTHER COMPREHENSIVE INCOME (LOSS). Translation adjustments related to the Company's foreign operations are included in other comprehensive loss and reported separately in stockholders' equity. STOCK COMPENSATION. As permitted by the Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company uses the intrinsic value method to account for stock options as set fourth in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees (APB 25). NOTE 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31 (in thousands): 1999 1998 ------ ------ Furniture and fixtures $ 48 21 Laboratory equipment 91 41 Computer and communications equipment 91 25 Leasehold improvements 0 13 ------ ------ 230 100 Less accumulated depreciation and amortization (53) (12) ------ ------ Total $ 177 88 ====== ====== NOTE 4. OTHER ASSETS Other assets include the following at December 31 (in thousands): 1999 1998 ------ ------ License $ 746 745 Goodwill 475 -- Patent costs 50 25 ------ ------ 1,271 770 Less accumulated amortization (258) (24) ------ ------ Total $1,013 746 ====== ====== NOTE 5. ACCRUED EXPENSES Accrued expenses includes the following December 31 (in thousands): 1999 1998 ------ ------ Accrued payroll and related costs $ 450 81 Accrued royalties 250 -- Accrued interest 52 5 Accrued interest - related party 18 3 Accrued taxes 110 -- Deferred revenue 68 -- Reserve for warranty 28 -- Other accrued expenses 191 63 ------ ------ Total $ 917 152 ====== ====== NOTE 6. NOTES PAYABLE - RELATED PARTIES On September 1, 1998, the Company issued a note payable in the amount of $175,000 to Mr. Peter P. Gombrich, its Chairman and CEO, in payment for funds advanced to the Company. The note is due September 1, 2003 and interest is payable at each anniversary date at the rate of 8% per annum. The note may be repaid at any time without penalty. Principal payments in the amount of $130,000 and $19,000 were made, during 1999 and 1998 respectively. On May 11, 1999, the Company borrowed $75,000 under a 6% Convertible Promissory Note to Leonard R. Prange, President, COO/CFO. The Note was issued under terms identical to all 6% Convertible Promissory Notes issued by the Company (see Note 7). On December 10, 1999, the Company borrowed $50,000 from Azimuth Corporation, a company controlled by Alexander M. Milley, a director and significant shareholder of the Company. The promissory note bears interest at the rate of 12% per annum and the principal along with accrued interest is convertible into the Common Stock of the Company at a conversion price of $0.20 per share. On February 22, 2000, Azimuth Corporation exercised its right to convert the principal amount of the note plus accrued interest due thereon in the amount of $1,250 into 256,250 shares of Common Stock of the Company. The carrying amount of notes payable approximates fair value at December 31, 1999 and 1998. NOTE 7. NOTES PAYABLE On August 28, 1998, the Company issued a note payable in the amount of $75,000 to its former outside legal counsel, Holleb & Coff in payment for legal services. The note is due on demand and interest accrues monthly at the rate of 12% per annum. The outstanding balance, plus accrued interest at December 31, 1999 is $87,000. In January 1999, the Board of Directors authorized the Company to raise up to $1,500,000 in debt or new equity to provide funding for current operations. Subsequently, on various dates between March 1, 1999 and June 29, 1999, the Company issued a series of interest bearing 6% Convertible Promissory Notes totaling $969,600, including a Note in the amount of $500,000 issued to Seaside Partners, L.P., a hedge fund which receives investment management services from Seaside Advisors, L.L.C., of which Dr. Denis M. O'Donnell, a director of the Company, is a member and manager, and a Note in the amount of $75,000 issued to Leonard R. Prange, President, COO/CFO (see Note 6 above), in exchange for cash. The maturity date of the Notes was January 28, 2000, subject to extension by the Company to June 30, 2000. On January 25, 2000, the Company notified the note- holders that it was extending the maturity date of the Notes until June 30, 2000. The Notes and accrued interest due thereon are automatically convertible into shares of Common Stock at a conversion price of $0.33 per share when the Company receives at least $5,000,000 from any additional debt or equity offerings, excluding the original $1,500,000 authorized by the Board. The conversion price may be lowered based on certain circumstances related to the pricing of future debt or equity offerings but may never be lowered below $0.20 per share. At December 31, 1999, the conversion price of the notes is $0.33 per share. In July 1999, the Company's wholly owned subsidiary, Samba, negotiated a Revolving Credit Line ("Revolver") with the Banc National de Paris ("BNP"). The terms of the Revolver provide that Samba may borrow in the form of an advance on payment against monthly billings, up to a maximum of 900,000 French Francs (approximately $140,000). The terms of the Revolver require Samba to pay interest at the rate at Euribor plus 2.5% (currently equal to 6.1%) on advances outstanding under the Revolver and grant BNP a security interest in Samba accounts receivable. The Revolver is subject to renewal in June 2000. As of December 31, 1999 the outstanding amount under the revolver was approximately $134,000. NOTE 8. STOCKHOLDERS' EQUITY InPath, LLC was incorporated in the State of Delaware on March 16, 1998 as a limited liability company. The company sold membership units in the amount of $391,000 and received a contribution of an asset valued at $245,000 in exchange for membership units with a comparable value. On December 4, 1998, InPath was acquired by Bell National, predecessor to the Company in a transaction in which Bell National issued 4,288,790 shares of Common Stock and warrants to purchase an additional 3,175,850 shares of Common Stock to the members of InPath in exchange for their units of membership interest in InPath. The warrants were issued because Bell National did not have a sufficient amount of authorized Common Stock to complete the transaction. Subsequent to approval and ratification of the InPath/Bell National merger transactions, the merger of Bell National into the Company, and the increase in the authorized Common Stock of the Company to 50,000,000 at the Company's Annual Meeting on May 26, 1999, all of the warrants were converted into shares of Common stock of the Company. In conjunction with the InPath/Bell National merger transactions, and the subsequent merger of the Bell National into Ampersand, 696,570 shares of Common Stock, which had been designated "Class 4-B shares" (Class 4-B shares were without value) pursuant to certain legal proceedings, were cancelled. Class 4-B shares did not have voting rights and were not entitled to any distributions from the Company on liquidation or otherwise. As discussed in Note 1, the InPath acquisition was accounted for as a reverse acquisition whereby InPath was deemed to have acquired Bell National. Accordingly, while the number of shares of Common Stock reflects all shares currently outstanding, the amount recorded for Common Stock includes the value of the InPath membership equity of $636,000 and the net equity value of the Bell National and its subsidiaries as of December 4, 1998. The Accumulated deficit reflects the operations of InPath from March 16, 1998 through December 3, 1998 and of Ampersand and the consolidated Company from December 4, 1998 through December 31, 1999. At various dates between July 1, 1999 and December 31, 1999, the Company sold 3,989,848 shares of its Common Stock in Private Placement Offerings to accredited private investors at prices ranging from $0.20 per share to $0.33 per share. The Company received total gross proceeds of $1,001,400. (See Note 12 Subsequent Events) The Company has contracted with several advisory groups to assist it in conjunction with the sale of the 6% Convertible Subordinated Notes Due 2000 (See Note 7 Notes Payable) and Private Placements of Common Stock during 1999. Accordingly, the Company and is required to issue warrants to purchase 542,474 shares of Common Stock at a weighted-average exercise price of $0.25 to the advisory groups for their services. Denis M. O'Donnell, M.D., a director of the Company, is a member of Westgate Partners, L.L.C, an advisory group entitled to receive 155,455 warrants to purchase Common Stock at $0.363 per share. On July 15, 1999, the Company issued a warrant to Holleb & Coff, its former outside legal counsel, entitling the holder to purchase 250,000 shares of Common Stock of the Company. In October 1999 the Company issued a warrant to The Research Works, as consideration for the preparation of an investment research report on the Company, entitling the holder to purchase 70,000 shares of Common Stock at $0.33 per share. On December 10, 1999, the Company issued a $50,000 Promissory Note to Azimuth Corporation, a company controlled by Alexander M. Milley, a director and significant shareholder of the Company, in exchange for $50,000 in cash. The Note bears interest at the rate of 12% per annum and the principle along with accrued interest is convertible into the common stock of the Company at a conversion price of $0.20 per share. As additional compensation for the note, the Company issued Azimuth a warrant to purchase 50,000 shares of Common Stock at an exercise price of $0.33 per share. On February 22, 2000, Azimuth Corporation exercised its right to convert the principal amount of the Note plus accrued interest due thereon in the amount of $1,250 into 256,250 shares of common stock of the Company. The services, related to all of the warrants issued or committed to be issued were performed as of the date of grant or commitment to grant. The warrants are exercisable immediately. The fair value of the warrants, as calculated using the Black-Scholes method, was estimated at $344,000 at the date of the grant. During 1999, the Company recorded $126,000 of compensation expense for warrants issued for services. The Company issued 250,000 options to purchase Common Stock to non- employees during 1999 for consulting services. The options vest over three years and have exercise prices ranging from $0.394 and $0.406. The Company issued these options to consultants as consideration for consulting services that commenced during 1999 and will be completed in 2001. As the measurement date of these options had not been determined at December 31, 1999 the value of these options will be determined at the end of each interim period until the measurement date is determined. Accordingly, a fair value of $85,000 was calculated at December 31, 1999 using the Black- Scholes method. This value is charged to compensation expense over the term of the consulting agreement. The amount of expense to be ultimately recognized will vary depending on the market value of the Common Stock at the end of each period. During 1999, the Company recorded $54,000 of compensation expense. In August 1999, the Company awarded restricted shares of common stock to two outside consultants in accordance with the provisions of the Plan. Each award of 50,000 shares, vests over a period of time, ranging from the date of grant to three years. The consultant must maintain the consulting relationship with the Company, except in the case of change of control or termination by the Company without cause, during the entire vesting period. The measurement date of these shares had not been determined at December 31, 1999 and therefore the value of these shares will be based on the market value of the Common Stock at the end of each interim period until the measurement date is determined. Accordingly, a fair value of $81,000 was calculated at December 31, 1999 using the Black-Scholes method and the Company recorded $11,000 as compensation in 1999. In applying the Black-Scholes method, the Company has used an expected dividend yield of zero, a risk-free interest rate of 5%, a volatility factor of 185% and a fair value of the underlying common shares of $0.8125 for options and restricted stock issued to consultants and the closing market price on the date of grant for warrants issued to consultants. The expected life equaled the term of the warrants, options, or restricted shares. At December 31, 1999 and 1998, the Company had 450,000 stock appreciation rights (SAR's) outstanding. These SAR's, issued in 1989, have an exercise price of $0.30 and can be exercised through November 20, 2001. In general, each SAR entitles the holder to receive upon exercise an amount equal to the excess, if any, of the market value per share of Common Stock at the date of exercise over the exercise price of the SAR, plus any dividends or distributions per share made by the Company prior to the exercise date. In lieu of making cash payments, the Company may elect to issue shares of Common Stock on a one share for one SAR basis. The Company has recorded compensation expense in the amount of $230,625 for the year ended December 31, 1999 to reflect the difference between the closing market price of the Company's common stock at December 31, 1999 and the exercise price of the SAR's. NOTE 9. LEASES The Company currently leases its Chicago, Illinois corporate headquarters and research offices under an operating lease expiring in 2004. The Company's wholly owned subsidiary, Samba Technologies, Sarl., leases office space in a suburb of Grenoble, France. Total rent expense, including expenses related to the Company's previous headquarters location and Samba's previous temporary office space, during the period ended December 31, 1999 was $61,000. Future minimum annual lease payments under the leases as of December 31, 1999 are (in thousands): YEAR AMOUNT ---- ------- 2000 $92 2001 95 2002 84 2003 74 2004 57 NOTE 10. INCOME TAXES Significant components of deferred income taxes consist of the following at December 31 (in thousands): 1999 1998 ------- ------ Deferred tax assets related to: Net operating loss carryforwards $1,647 $ 268 Accrued interest 1 2 Depreciation/amortization 8 8 ------- ------ 1,656 278 Less valuation reserve 1,656 278 ------- ------ Net deferred tax asset $ -- $ -- ======= ====== Prior to the acquisition on December 4, 1998, the Company had significant net operating loss carryforwards (NOLs). These NOLs are not reflected in the Company's financial statements because the restrictions on the Company's ability to use these NOLs makes it highly unlikely the Company will realize any significant future tax benefit related to the NOLs. The NOLs for the year ended December 31, 1999 and the period from March 16, 1998 through December 31, 1998 expire in 2019 and 2018 respectively. NOTE 11. EQUITY INCENTIVE PLAN AND EMPLOYEE STOCK PURCHASE PLAN On May 25, 1999, stockholders approved the establishment of the 1999 Equity Incentive Plan (the "Plan") effective as of June 1, 1999. The Plan provides that the Board may grant various forms of equity incentives to directors, employees, and consultants, including but not limited to Incentive Stock Options, Non - Qualified Stock Options, Stock Appreciation Rights, and Restricted Stock Awards. Grants under the Plan are exercisable at Fair Market Value determined as of the date of grant in accordance with the terms of the Plan. Grants vest to recipients immediately or ratably over periods ranging from two to five years, and expire five to ten years from the date of grant. The Company applies APB Opinion No. 25 and related interpretations in accounting for options granted to employees under the Equity Incentive Plan. No compensation cost was recorded during 1999 for options granted to employees as the exercise price approximated the fair value of the underlying Common Stock on the date of the grant. Had stock options been accounted for under the fair value method recommended by SFAS 123, the Company's net loss for the year ended December 31, 1999 would have been $4,293,000 on a pro forma basis and a net loss per share of $0.30 on a pro forma basis. The fair value for these options used to compute pro forma net loss was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 5%; dividend yield of zero; volatility factor of 185%; the market price of the Company's Common Stock on the date of grant; and a weighted average expected life of the options of 2.5 - 5.0 years. A summary of the Company's stock option activity, and related information for the years ended December 31, 1999 follows: Weighted Average Exercise Options Price -------- -------- Outstanding at beginning of year. -- -- Granted 1,035,000 $0.3964 Exercise -- -- Forfeited -15,000 $0.3937 --------- Outstanding at end of year. 1,020,000 $0.3964 ========= Exercisable at end of year. 373,337 $0.3955 ========= Weighted average fair value of options granted during the year. $0.4461 At the Annual Meeting on May 25, 1999, the stockholders also approved the Employee Stock Purchase Plan. The Plan offers employees the opportunity to purchase shares of Common Stock of the Company, through a payroll deduction plan, at 85% of the fair market value of such shares at specified enrollment measurement dates. The aggregate number of shares available for purchase under the Plan is 200,000. During 1999 there was no activity in the Plan and no shares were purchased. NOTE 12. SUBSEQUENT EVENTS In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity at a sales price per share of $1.50. The proceeds of this new offering will be used to fund acquisitions of additional technology, clinical trials, costs to carry the InPath System disposable and instrument designs through the manufacturing process, and general corporate purposes. As of March 28, 2000, the Company had sold 759,997 shares for a total gross cash proceeds of $1,140,000. See Note 13 Commitments and Contingencies for discussion of the Agreement to amend the Patent and Technology License Agreement between the Company's wholly owned subsidiary InPath, L.L.C., and AccuMed International, Inc. NOTE 13. COMMITMENTS AND CONTINGENCIES On March 29, 2000, to resolve a dispute between InPath and AccuMed International, Inc. (AccuMed) over a Patent and Technology License Agreement (the "License") dated September 4, 1998, including related payments due thereunder, the Company and AccuMed signed a Letter Agreement amending the License. The License, covering certain "Point of Care" related applications, requires the payment of a license issue fee of $500,000, against which InPath had made payments of $400,000, a 7% royalty rate, and minimum royalty payments. InPath is also required to make guaranteed minimum royalty payments of $1,000,000 each during the second and third years of the License, $1,500,000 each during the fourth and fifth years, and $2,000,000 each year thereafter. The License may not be cancelled by InPath, without the occurrence of a breach by AccuMed, prior to the payment of $5,000,000 in royalties or 5 years, whichever comes first. InPath may elect to terminate its exclusivity under the License upon written notice to AccuMed at which time its obligation to make the minimum required royalty payments shall cease. InPath would then only be obligated to make royalty payments based on actual sales of products. The new Agreement provides for the assignment of the License to the Company, elimination of the minimum royalty payment schedule, and a reduction in the royalty rate to 4%. The Company has agreed to make cash payments to AccuMed under the new Agreement totaling $600,000, issue a $100,000 convertible promissory note due one year from the date the License Amendment is signed, and issue 128,571 shares of Common Stock to AccuMed. The note is convertible, at AccuMed's option, into Common Stock at a conversion price of $3.50 per share and the Company has agreed to provide AccuMed with price protection equal to $3.50 per share on the 128,571 shares of Common Stock until a measurement date 60 days following the date on which the shares are registered and freely tradable. The cash payments are characterized as the final minimum license payment and advanced non- refundable royalty payments. The $100,000 principal amount of the note and the 128,571 shares of Common Stock to a value of $450,000 are also characterized as advanced non-refundable royalty payments. The amended License is expected to be completed within 30 days. The Company has also agreed to license an additional patent, software and related technology on a non-exclusive basis for use in certain automated screening applications. The Company will pay AccuMed $100,000 as a one time license fee 90 days after signing of the new license or at the time the patent, software, and related technology, is delivered to and accepted by the Company. Since the amendment to the License was not executed as of year end, the Company has continued to expense the minimum royalty payments, including $250,000 in 1999, due under the License. At December 31, 1999, the Company was contractually committed to pay approximately $467,000 to scientists, researchers, universities, and other independent third parties for services to be performed during 2000. These contractual commitments are cancelable by the Company for non-performance. AMPERSAND MEDICAL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Balance Balance at charged to at end beginning costs and Retire- Other of Description of period expenses ments charges period - ----------- ---------- ---------- ------- ------- -------- RESERVES AND ALLOWANCES DEDUCTED FROM ASSET ACCOUNTS ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS RECEIVABLE Period from March 16, 1998 (inception) through December 31, 1998 $ 0 $ 0 $ 0 $ 0 $ 0 Year ended December 31, 1999 $ 0 $ 20 $ 0 $ 0 $ 20 RESERVES AND ALLOWANCES WHICH SUPPORT BALANCE SHEET CAPTION RESERVES WARRANTY RESERVES Period from March 16, 1998 (inception) through December 31, 1998 $ 0 $ 0 $ 0 $ 0 $ 0 Year ended December 31, 1999 $ 0 $ 28 $ 0 $ 0 $ 28 EXHIBIT INDEX ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K Documents Filed as Part of Report 1. FINANCIAL STATEMENTS Page Index to Financial Statements Number ----------------------------- ------- Report of Independent Auditors F-1 Consolidated Balance Sheets at December 31, 1999 and 1998 F-2 to F-3 Consolidated Statements of Operations for the year ended December 31, 1999 and the period March 16, 1998 (inception) through December 31, 1998 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1999 and the period March 16, 1998 (inception) through December 31, 1998 F-5 to F-6 Consolidated Statements of Cash Flows for the year ended December 31, 1999 and for the period March 16, 1998 (inception) through December 31, 1998. F-7 to F-9 Notes to Consolidated Financial Statements F-9 to F-19 2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is failed as a part of this report as page F-20. Schedule II - Valuation and Qualifying Accounts. All other schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. 3. EXHIBITS Exhibit Number Description - ------- ----------- 2.1 Bell National Corporation Plan of Reorganization (Annex I). (Incorporated herein by reference to Item 1 of the Bell National Corporation Annual Report on Form 10-K for the period from August 20, 1985 to December 31, 1985 and for the years ended December 31, 1986 and 1987.) 2.2 Exchange Agreement dated December 4, 1998 among the Company, InPath, and the InPath Members. (Incorporated herein by reference to Appendix A to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 2.3 Agreement and Plan of Merger of Bell National Corporation and the Company. (Incorporated herein by reference to Appendix C to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) Exhibit Number Description - ------- ----------- 3.1 Restated Articles of Incorporation. (Incorporated herein by reference to Exhibit 3.1 of the Bell National Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 3.2 Bylaws of Bell National Corporation. (Incorporated herein by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) 3.3 Certificate of Incorporation of the Company as amended. (Incorporated herein by reference to Appendix D to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 3.4 By-laws of the Company. (Incorporated herein by reference to Appendix E to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.) 4.1 Form of Common Stock Purchase Warrant, as executed by Bell National Corporation on December 4, 1998 with respect to each of Mr. Gombrich, Theodore L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc. (collectively, the "InPath Members"). (Incorporated herein by reference to Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 4.2 Stockholders Agreement dated December 4, 1998 among the Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr. Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 4.3 Form of Common Stock Purchase Warrant issued to Holleb & Coff on July 4, 1999 representing the right to purchase 250,000 shares of Common Stock of the Company in connection with legal services rendered. 4.4 Form of Common Stock Purchase Warrant issued to The Research Works on October 11, 1999 representing the right to purchase 70,000 shares of Common Stock of the Company in connection with the preparation of an investment research report. 4.5 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on December 10, 1999 representing the right to purchase 50,000 shares of Common Stock of the Company as additional consideration for a 12% Convertible Promissory Note issued on the same date. 10.1 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) 10.2 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) Exhibit Number Description - ------- ----------- 10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990 between the Company and Roy D. Rafalco. (Incorporated herein by reference to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.) 10.4 SAR Agreement Extension dated November 15, 1995 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.5 SAR Agreement Extension dated November 15, 1995 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich and InPath, LLC, as amended on December 4, 1998. (Incorporated herein by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.8 Claims Agreement dated December 4, 1998 among the Company, the Claimants, and Liberty Associates Limited Partnership. (Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.) 10.9 Ampersand Medical Corporation Equity Incentive Plan established as of June 1, 1999. (Incorporated herein by reference to Appendix F to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, as filed on April 30, 1999.) 10.10 Ampersand Medical Corporation Employee Stock Purchase Plan. (Incorporated herein by reference to Appendix G to the Bell National Corporation Definitive Proxy statement on Schedule 14A, as filed on April 30, 1999.) 10.11 Employment Agreement dated June 1, 1999 between Mr. Prange and the Company. 10.12 Lease Agreement between the Company and O.P., L.L.C. dated September 1, 1999 pertaining to the premises located at suite 305, 414 N. Orleans, Chicago, IL 60610. 10.13 Amendment to Lease Agreement between the Company and O.P., L.L.C. dated November 1, 199 pertaining to the premises at suite 300, 414 N. Orleans, Chicago, IL 60610. 10.14 Form of Note purchase Agreements dated between March 1, 1999 and June 29, 1999 between the Company and several purchasers. 10.15 Form of 6% Convertible Subordinated Note Due 2000, dated between March 1, 1999 and June 29, 1999 issued by the Company to several purchasers. 10.16 Schedule of purchasers of 6% Convertible Notes Due 2000, including dates and amount purchased. 10.17 Form of Senior Convertible Promissory Note issued to Azimuth Corporation on December 10, 1999. 10.18 Form of Restricted Stock Award of 50,000 shares of Common Stock issued to David A. Fishman, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated June 1, 1999. Exhibit Number Description - ------- ----------- 10.19 Form of Restricted Stock award of 50,000 shares of Common Stock issued to Arthur L. Herbst, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated July 1, 1999. 21.1 Subsidiaries of the Company. 27.1 Financial data schedule. EX-4.3 2 EXHIBIT 4.3 - ----------- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AMPERSAND MEDICAL CORPORATION WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK No. W - 1999-1 250,000 Shares FOR VALUE RECEIVED, AMPERSAND MEDICAL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (the "Company," which term includes any successor), with its principal office at 900 North Franklin Street, Suite 210, Chicago, Illinois 60610, hereby certifies that Holleb & Coff, an Illinois general partnership (the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time before 5:00 p.m. (Eastern Standard Time) on July 14, 2009 (the "Expiration Date"), the number of fully paid and nonassessable shares of Common Stock of the Company set forth above, subject to adjustment as hereinafter provided. The Holder may purchase such number of shares of Common Stock at a purchase price per share (as appropriately adjusted pursuant to Section 6 hereof) of $.33 (the "Exercise Price"). The term "Common Stock" shall mean the aforementioned Common Stock of the Company, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor as provided herein. The number of shares of Common Stock to be received upon the exercise or exchange of this Warrant and the price to be paid for a share of Common Stock are subject to adjustment from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise or exchange, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares." Section 1. Exercise of and Payment for Warrant. (a) Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant at the principal office of the Company, located at the address set forth herein, accompanied by the form of Notice of Cash Exercise attached hereto as Exhibit A-1, and by the payment to the Company, by cash or by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate Exercise Price of the shares being purchased. If this Warrant should be exercised in part only, the Company shall, upon surrender of the Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. (b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 1(a), the Holder may elect to receive shares equal to the value of this Warrant (or of any portion thereof remaining unexercised) determined in the manner described below, by surrender of this Warrant at the principal office of the Company together with the form of Notice of Cashless Exercise attached hereto as Exhibit A-2, in which event the Company shall issue to the Holder a number of shares of the Company's Common Stock computed using the following formula: X = Y (A-B) A Where: X = the number of shares of Common Stock to be issued to the Holder. Y = the number of shares of Common Stock purchasable under this Warrant (at the date of such calculation) elected to be purchased. A = the Fair Market Value (as hereinafter defined) of one share of the Company's Common Stock (at the date of such calculation). B = Exercise Price (as adjusted to the date of such calculation). (c) Fair Market Value. "Fair Market Value" of one share of the Company's Common Stock shall mean: (i) if the Common Stock is traded in the Over The Counter Market, on the NASDAQ National Market, on the NASDAQ SmallCap Market, or on an exchange, the average of the Quoted Prices (as hereinafter defined) of the Common Stock for the thirty (30) consecutive trading days prior to the date in question, or (ii) if the Common Stock is not traded in the Over The Counter Market, on the NASDAQ National Market, on the NASDAQ SmallCap Market, or on an exchange, the fair value per share as determined by mutual agreement of the Company and the Holder; provided, however, that if such agreement cannot be reached within thirty (30) calendar days, such value shall be determined by an independent appraiser appointed in good faith by the Company's Board of Directors, the cost of which appraisal shall be borne by the Company. The "Quoted Price" of the Common Stock is the last reported sales price, or the average of the bid and asked price, as the case may be, of the Common Stock as reported by NASDAQ or the primary national securities exchange on which the Common Stock is then quoted; provided, however, that if quotes for the Common Stock are not reported by NASDAQ or such primary national securities exchange, the "Quoted Price" of the Common Stock shall be the last reported sales price, or the average of the bid and asked price, as the case may be, of the Common Stock as reported by the National Quotation Bureau, Inc. or any organization performing a similar function. (d) Miscellaneous. Upon receipt by the Company of this Warrant and the applicable exercise form, together with proper payment of the Exercise Price, if appropriate, at such office, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Section 2. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise or exchange of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise or exchange of this Warrant. All such shares shall be duly authorized and, when issued upon the exercise or exchange of the Warrant in accordance with the terms hereof, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than as provided in the Company's certificate of incorporation and any restrictions on sale set forth herein or pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights. Section 3. Fractional Interest. The Company will not issue a fractional share of Common Stock upon exercise or exchange of this Warrant. Instead, the Company will deliver its check for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the Fair Market Value (as hereinbefore defined) of a full share by the fraction of a share and rounding the result to the nearest cent. Section 4. Assignment or Loss of Warrant. (a) Except as provided in Section 9, the Holder of this Warrant shall be entitled, without obtaining the consent of the Company, to assign its interest in this Warrant, or any of the Warrant Shares, in whole or in part to any bona fide officer, director or partner of Holder, provided, however, that the transferee, prior to any such transfer, agrees in writing, in form and substance satisfactory to the Company, to be bound by the terms of this Agreement and provides the Company with an opinion of counsel in such form reasonably acceptable to the Company, that such transfer would not be in violation of the Act or any applicable state securities or blue sky laws. Subject to the provisions hereof and of Section 9, upon surrender of this Warrant to the Company or at the office of its stock transfer agent or warrant agent, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be canceled. (b) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those set forth in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised or exchanged in accordance with its terms. Section 6. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon the exercise or exchange of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Adjustment for Change in Capital Stock. If at any time after the date hereof, the Company: (A) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (B) subdivides its outstanding shares of Common Stock into a greater number of shares; (C) combines its outstanding shares of Common Stock into a smaller number of shares; (D) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (E) issues by reclassification of its Common Stock any shares of its capital stock; then the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder may receive, upon exercise or exchange of this Warrant and payment of the same aggregate consideration, the number of shares of capital stock of the Company which the Holder would have owned immediately following such action if the Holder had exercised or exchanged the Warrant immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. (b) Adjustment for Lower-Priced Stock Issuances. If at any time after the date hereof the Company issues Common Stock or securities convertible into Common Stock at a price less than $.33 per share, the Exercise Price shall simultaneously therewith be deemed adjusted to equal such lower price, which adjustment shall be permanent, except that whenever the Company thereafter issues Common Stock or securities convertible into Common Stock at a price lower than the current Exercise Price as established by this Section 6(b), the Exercise Price shall simultaneously therewith be deemed further adjusted to equal such price lower than such current Exercise Price. (c) Deferral of Issuance or Payment. In any case in which an event covered by this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date, the Company may elect to defer until the occurrence of such event: (i) issuing to the Holder, if this Warrant is exercised after such record date, the shares of Common Stock and other capital stock of the Company, if any, issuable upon such exercise over and above the shares of Common Stock or other capital stock of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; and (ii) paying to the Holder by check any amount in lieu of the issuance of fractional shares pursuant to Section 3. (d) When No Adjustment Required. No adjustment need be made for a change in the par value or no par value of the Common Stock. (e) No Adjustment Upon Exercise of Warrants. No adjustments shall be made under any Section herein in connection with the issuance of Warrant Shares upon exercise or exchange of the Warrants. (f) Common Stock Defined. Whenever reference is made in Section 6(a) to the issue of shares of Common Stock, the term "Common Stock" shall include any equity securities of any class of the Company hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the right of the holders thereof to participate in dividends or distributions of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. Subject to the provisions of Section 8 hereof, however, shares issuable upon exercise or exchange hereof shall include only shares of the class designated as Common Stock of the Company as of the date hereof or shares of any class or classes resulting from any reclassification or reclassifications thereof or as a result of any corporate reorganization as provided for in Section 8 hereof. Section 7. Officers' Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 6, the Company shall forthwith file in the custody of its secretary or an assistant secretary at its principal office an officers' certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers' certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officers' certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section 4 hereof. Section 8. Reclassification, Reorganization, Consolidation or Merger. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise or exchange of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise or exchange of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale or conveyance. Any such provision shall include provisions for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. Section 9. Transfer to Comply with the Securities Act of 1933; Registration Rights. (a) No sale, transfer, assignment, hypothecation or other disposition of this Warrant or of the Warrant Shares shall be made unless any such transfer, assignment or other disposition will comply with the rules and statutes administered by the Securities and Exchange Commission and: (i) a Registration Statement under the Act including such shares is currently in effect; or (ii) in the opinion of counsel, which counsel and which opinion shall be reasonably satisfactory to the Company, a current Registration Statement is not required for such disposition of the shares. Each stock certificate representing Warrant Shares issued upon exercise or exchange of this Warrant shall bear the following legend (unless, in the opinion of counsel, which counsel and which opinion shall be reasonably satisfactory to the Company, such legend is not required): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. (b) The Holder of this Warrant is entitled to the benefits of the Registration Rights Agreement, of even date herewith, a copy of which is on file at the offices of the Company. EXHIBIT A-1 NOTICE OF CASH EXERCISE To be executed by the Holder if the Holder desires to exercise warrants evidenced by the foregoing Warrant. To: Ampersand Medical Corporation The undersigned hereby irrevocably elects to exercise _______________ warrants evidenced by the foregoing Warrant, purchasing thereunder the same number of shares of Common Stock, and delivers $______________ in cash for the aggregate Exercise Price of such warrants plus any applicable taxes payable by the undersigned pursuant to such Warrant. The undersigned requests that certificates for such shares be issued in the name of: _________________________________ _________________________________ _________________________________ (Please print name and address) SSN:_____________________________ If said number of warrants shall not be all the warrants evidenced by the foregoing Warrant certificate, the undersigned requests that a new Warrant certificate evidencing the warrants not so exercised be issued in the name of and delivered to: _________________________________ _________________________________ _________________________________ (Please print name and address) Dated: ________________,________ Name of Holder: (Print) By: __________________________________ Name: Title: EXHIBIT A-2 NOTICE OF CASHLESS EXERCISE To be executed by the Holder if the Holder desires to exercise warrants evidenced by the foregoing Warrant. To: Ampersand Medical Corporation The undersigned hereby irrevocably elects to effect a net issue exercise of ______________ warrants evidenced by the foregoing Warrant, purchasing thereunder ______________ shares of Common Stock calculated according to the formula contained in Section 1(b) of the foregoing Warrant, and delivers herewith in cash any amount necessary to pay any applicable taxes payable by the undersigned pursuant to such Warrant. The undersigned requests that certificates for such shares be issued in the name of: _________________________________ _________________________________ _________________________________ (Please print name and address) SSN:_____________________________ If said number of warrants shall not be all the warrants evidenced by the foregoing Warrant certificate, the undersigned requests that a new Warrant certificate evidencing the warrants not so exercised be issued in the name of and delivered to: _________________________________ _________________________________ _________________________________ (Please print name and address) Dated: ________________,________ Name of Holder: (Print) By: __________________________________ Name: Title: EXHIBIT B ASSIGNMENT FORM Dated: _____________, _____ FOR VALUE RECEIVED, ______________________hereby sells assigns and transfers unto ______________________________ (the "Assignee"), (please type or print in block letters) its right to purchase up to _____ shares of Common Stock represented by this Warrant and does hereby irrevocably constitute and appoint _____________________ Attorney, to transfer the same on the books of the Company. with full power of substitution in the premises. Signature _________________________________ EX-4.4 3 EXHIBIT 4.4 - ----------- AMPERSAND MEDICAL CORPORATION STOCK PURCHASE WARRANT THE WARRANT EVIDENCED HEREBY AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR REGULATIONS PROMULGATED THEREUNDER. WARRANT TO PURCHASE SHARES OF COMMON STOCK AS DESCRIBED HEREIN Date: October 11, 1999 Warrant Number RW-1 This certifies that, for value received, The Research Works, Inc. ("RW"), a New Jersey corporation having its principal office at 623 Ocean Avenue, Sea Girt, New Jersey 08750, or its registered assigns are entitled to purchase during the period described in Section 4 below, expiring at the date and time described in Section 3, from Ampersand Medical Corporation (the "Company"), a Delaware corporation, having its principal office at 414 North Orleans, #305, Chicago, Illinois 60610, that number of shares of fully paid and nonassessable common stock of the Company (the "Stock") as are described in Section 1, at the exercise price described in Sections 2 and 8 (the "Exercise Price"), subject to the terms set forth herein. The holder(s) of this Warrant and/or a registered assign or assigns, shall be referred to herein as the "Warrantholder." This Warrant is being issued in consideration of services to be performed by "RW", as set forth in that certain agreement between the Company and "RW" executed effective October 11, 1999 (the "Agreement"), a copy of which is attached hereto. 1. Stock Purchasable. The number of shares of Stock purchasable upon the exercise of this Warrant is seventy thousand (70,000). 2. Exercise Price. The price at which this Warrant is exercisable, unless such price is adjusted as described in Section 7, is thirty-three cents ($0.33) per share, in lawful funds of the United States of America. 3. Expiration of Warrant. This Warrant shall expire and be no longer exercisable after 5:00 p.m. Eastern Time on October 11, 2004 (the "Expiration Date"). 4. Exercise of Warrants. This Warrant shall vest immediately and may be exercised as to one hundred percent (100%) of the total number of shares covered by this Warrant at anytime after the issuance date of this Warrant. The purchase rights represented by this Warrant may be exercised in whole or in part (but not as to a fractional share of Stock), by the Warrantholder or its duly authorized attorney or representative at any time and from time to time while this Warrant is exercisable, upon presentation of this Warrant at the principal office of the Company, with the purchase form attached hereto duly completed and signed, and upon payment to the Company in cash or by certified check or bank draft of an amount equal to the number of shares being so purchased multiplied by the Exercise Price; or, at the option of the Warrantholder, this Warrant may be surrendered to the Company and the Company shall issue to the Warrantholder for no additional cash consideration a number of shares of common stock determined by dividing the product of the maximum number of shares of common stock the Warrantholder is entitled to purchase hereunder times the difference between the closing price per share on the date of surrender for exercise and the Exercise Price, by the closing price per share on the date of surrender for exercise date of surrender for exercise, as follows: Number of shares to be issued = ((maximum # of shares purchasable under terms of the Warrants) X ((closing price per share on the date of surrender for exercise) - (Exercise Price))) / (closing price per share on the date of surrender for exercise) Should Warrantholder elect to so surrender this Warrant, this Warrant shall be terminated thereafter, and the Warrantholder shall have no other rights hereunder. 5. Registration Rights. Should a Warrantholder exercise his rights, in whole or in part, to purchase common shares (the "Warrant Shares"), and provided that more than three years have elapsed from the date of issuance of this Warrant, then the Company shall honor a request to register such Warrant Shares pursuant to an S-3 filing under the Act, to the extent requisite to permit the sale by such holder of such Warrant Shares. The Company shall make such filing in timely fashion, but in no case more than 30 days from the time of such request. Any expenses relating to such filing shall be paid by the Company. Should the Company fail to make such filing within a 30 day period from the time of such request, the Company shall be obligated to purchase such Warrant Shares for a cash payment per Warrant Share equal to the difference between the Exercise Price and average closing price of the Company's common stock during the 30 calendar days immediately following Warrantholder's request to register the Warrant Shares. 6. Procedures. The Company agrees that the Warrantholder shall be deemed the record owner of the Stock as of the close of business on the date on which the Warrant shall have been presented and payment shall have been made for the Stock as aforesaid. Certificates for the shares of Stock so purchased shall be delivered to the Warrantholder within a reasonable time, not exceeding 15 days, after the exercise in full of the rights represented by this Warrant. If the Warrant is exercised in part only, the Company, upon surrender of this Warrant for cancellation, shall deliver a new Warrant evidencing the rights of the Warrantholder to purchase the balance of the shares of Stock which the Warrantholder is entitled to purchase hereunder. 7. Exchange of Warrants. Subject to the provisions of Section 11, (i) this Warrant is exchangeable at the option of the Warrantholder at the principal office of the Company for other Warrants of different denominations entitling the Warrantholder to purchase the same aggregate number of shares of Stock as are purchasable hereunder; and (ii) this Warrant may be divided or combined with other warrants that carry the same rights. In either case, any alterations shall be made upon presentation, at the principal office of the Company, of the Warrant(s), together with a written notice signed by the Warrantholder specifying the names and denominations in which any new Warrants are to be issued and the payment of any transfer tax due in connection therewith. 8. Anti-Dilution Provisions. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Stock in shares of Stock, (ii) subdivide or reclassify its outstanding shares of Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of this Warrant, exercised after such date, shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2-for-i stock distribution in which one share of Stock is distributed for each share outstanding and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. (b) If any consolidation or merger of the Company with or into another entity, or the sale of all or substantially all of its assets to another entity shall be effected, or in case of any capital reorganization or reclassification of the capital stock of the Company, then lawful and adequate provision shall be made whereby each holder of Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Stock of the Company immediately theretofore receivable upon the conversion of such Warrants, such shares of Stock, securities, interests or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Stock equal to the number of shares of Stock immediately theretofore so receivable by such holder had such consolidation, merger, sale, reorganization or reclassification not taken place, and, in any such case, appropriate provision shall be made with respect to the rights and interests of the holder to the end that the provisions hereof (including without limitation provisions for adjustment of the applicable Exercise Price) shall thereafter be applicable, as nearly as may be in relation to any shares of Stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. (c) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (a) or (b) above, the number of shares of Stock purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (d) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Exercise Price and adjusted number of shares of Stock issuable upon exercise of each Warrant to be mailed to the holders, at their last addresses appearing in the warrant register, and shall cause a certified copy thereof to be mailed to its transfer agent. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section 8, and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. 9. Covenants. The Company covenants and agrees as follows: (a) Reservation of Stock. During the period within which the rights represented by the Warrant may be exercised, the Company shall, at all times, reserve and keep available, free from preemptive rights out of the aggregate of its authorized but unissued Stock, for the purpose of enabling it to satisfy any obligation to issue shares of Stock upon the exercise of this Warrant, the number of shares of Stock deliverable upon the exercise of this Warrant. If at any time the number of shares of authorized Stock shall not be sufficient to effect the exercise of this Warrant, the Company shall take such corporate action as may be necessary to increase its authorized but unissued Stock to such number of shares as shall be sufficient for such purpose. The Company shall have analogous obligations with respect to any other securities or properties issuable upon exercise of this Warrant. (b) No Liens, etc. All Stock that may be issued upon exercise of the rights represented by this Warrant shall, upon issuance, be validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) Taxes. All original issue taxes payable with respect to the issuance of shares upon the exercise of the rights represented by this Warrant shall be borne by the Company, but in no event shall the Company be responsible or liable for income taxes or transfer taxes upon the transfer of any Warrant. (d) Notice of Events. The Company shall give prior written notice to the Warrantholder of (i) any tender offer that is being made for any of the Company's Stock; (ii) any offers to holders of Stock for subscription or purchase by them of any shares of stock of any class; (iii) any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, the sale, lease or transfer of all or substantially all of the property or assets of the Company to another corporation or the voluntary or involuntary dissolution, liquidation or winding up of the Company and (iv) any event of the type described in Section 8 hereof (any such event in clauses (i)-(iv) above is referred to as an "Event"). Upon becoming aware of any pending or proposed Event, the Company shall deliver notice at least five business days before the day of the occurrence of any Event and shall describe the Event, the date it is to take place and when the holders of the Company's Stock will be entitled to exchange their shares for securities or other properties deliverable upon such Event. 10. Voting Rights. Until exercised, this Warrant shall not entitle the Warrantholder to any voting rights or other rights as a Stockholder of the Company. 11. Transfer Restrictions. A Warrantholder may transfer its beneficial interest or any portion thereof in the Warrant only to the Warrantholder's spouse, lineal descendants or ancestors (and their spouses) or the trustee of a trust for the principal benefit of such persons. Any transfer of ownership or control of a corporation or other entity which is a Warrantholder shall be deemed a transfer of this Warrant which must comply with the terms of this Section 11. In addition, neither this Warrant nor the Stock issuable upon the exercise hereof may be sold, transferred, pledged or hypothecated unless the Company shall have been supplied with evidence reasonably satisfactory to it that such transfer is not in violation of the Act, and any applicable state laws. The Company may place a legend to that effect on this Warrant or any replacement Warrant and on each certificate representing shares issuable upon exercise of this Warrant. Subject to the satisfaction of the aforesaid conditions, this Warrant shall be transferable by the Warrantholder. If this Warrant is transferred, in whole or in part, upon surrender of this Warrant to the Company, the Company shall deliver to each transferee a Warrant evidencing the rights of such transferee to purchase the number of shares of Stock that such transferee is entitled to purchase pursuant to such transfer. 12. Lost, Stolen Warrants. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such terms as the Company may reasonably impose, including a requirement that the Warrantholder obtain a bond, issue a new Warrant of like denomination, tenor and date. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 13. Provisions of New Warrants. Any Warrant issued pursuant to the provisions of Section 14, or upon transfer, exchange, division or partial exercise of this Warrant or combination thereof with another Warrant or Warrants, shall set forth each provision set forth in Sections 1 through 24, inclusive, of this Warrant as each such provision is set forth herein, and shall be executed on behalf of the Company by a duly authorized officer. 14. Cancellation of Warrant. Upon surrender of this Warrant for transfer or exchange or upon the exercise hereof, this Warrant shall be canceled by the Company, shall not be reissued by the Company, and, except as provided in Section 11 in case of a transfer, no Warrant shall be issued in lieu hereof. Any new Warrant certificate shall be issued promptly but no later than seven days after receipt of the old Warrant certificate; provided, however, that the obligation of the Company to transfer the Warrant or issue the shares of Stock upon the exercise of this Warrant shall be subject to compliance with Section 11. 15. Complete Agreement; Modifications. This Warrant and any documents referred to herein or executed contemporaneously herewith constitute the parties' entire agreement with respect to the subject matter hereof and supersede all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof. This Warrant may not be amended, altered or modified except by a writing signed by the parties. 16. Notices. All notices under this Warrant shall be in writing and shall be delivered by certified mail, postage prepaid, to such address as may be designated from time to time by the relevant party. Any notice sent by certified mail will be deemed to have been given three (3) days after the date on which it is mailed. Notices will be addressed as set forth on the last page hereof or to such other addresses as the party to whom the same is directed will have specified. 17. Successor and Assigns. Except as provided herein to the contrary, this Warrant shall be binding upon and inure to the benefit of the parties, their respective successors and permitted assigns. 18. Governing Law; Jurisdiction. This Warrant has been negotiated and entered into in the State of New Jersey, and all questions with respect to the Warrant and the rights and liabilities of the parties shall be governed by the laws of that state, regardless of the choice of law provisions of New Jersey or any other jurisdiction. Any and all disputes between the parties which may arise pursuant to this Warrant shall be heard and determined before the appropriate federal or state court located in New Jersey. The parties hereto acknowledge that such court has jurisdiction to interpret and enforce the provisions of this Warrant, and the parties waive any and all objections that they may have as to venue in any of the above courts. 19. Construction. No term or provision of this Warrant shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Warrant and any present or future statute, law, ordinance, or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the provision of this Warrant so affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 20. Waivers Strictly Construed. With regard to any power, remedy or right provided herein or otherwise available to any party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or other indulgence. 21. Severability. If one or more of the provisions of this Warrant shall be held to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remainder of this Warrant shall not be affected. 21. Headings. The headings in this Warrant are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Warrant or of any particular provision. 23. Counterparts. This Warrant may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one or the same instrument. WITNESS the signature of a duly authorized officer. AMPERSAND MEDICAL CORPORATION By: _______________________________ (name) _______________________________ (title) Date:_______________________________ PURCHASE FORM To Be Executed Upon Exercise of Warrant The undersigned hereby exercises the right to purchase ____________________ shares of Stock, evidenced by the within Warrant, according to the terms and conditions thereof, and herewith (makes payment of the purchase price in full) (or requests that the Company exchange the Warrant as provided for under terms of the Warrant). The undersigned requests that certificate(s) for such shares shall be issued in the name set forth below: Dated:__________________________ THE RESEARCH WORKS INC. By: ______________________ (Signature) Name:______________________ (Please print) Address:____________________ _______________________ _______________________ Employer Identification Number, Social Security Number or other identifying number: _______________________ If said number of shares shall not be all the shares purchasable under the within Warrant, the Warrantholder hereby requests that a new Warrant for the unexercised portion shall be registered in the name set forth below and delivered to the address set forth below. Name:______________________ (Please print) Address:____________________ _______________________ _______________________ Employer Identification Number, Social Security Number or other identifying number: _______________________ EX-4.5 4 EXHIBIT 4.5 - ----------- AMPERSAND MEDICAL CORPORATION STOCK PURCHASE WARRANT THE WARRANT EVIDENCED HEREBY AND THE SHARES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR REGULATIONS PROMULGATED THEREUNDER. WARRANT TO PURCHASE SHARES OF COMMON STOCK AS DESCRIBED HEREIN Date: December 10, 1999 Warrant Number AC-I This certifies that, for value received, Azimuth Corporation, having its principal office at 3600 Rio Vista Ave., Orlando, Florida 32805, or its registered assigns are entitled to purchase during the period described in Section 4 below, expiring at the date and time described in Section 3, from Ampersand Medical Corporation (the "Company"), having its principal office at 414 N. Orleans, Suite 305, Chicago, Illinois 60610, that number of fully paid and nonassessable common stock of the Company (the "Stock") as are described in Section 1, at the exercise price described in Section 2 and 8 (the "Exercise Price"), subject to the terms set forth herein. The holder(s) of the Warrant and/or a registered assign or assigns, shall be referred herein as the "Warrantholder." This warrant is issued as additional consideration for a Senior Convertible Promissory Note dated December 10, 1999 (the "Note"), a copy of which is attached hereto. 1. Stock Purchasable. The number of shares of Stock purchasable upon exercise of this Warrant is fifty thousand (50,000). 2. Exercise Price. The price at which this warrant is exercisable, unless such price is adjusted as described in Section 7, is the lesser of thirty-three cents ($0.33) per share or 85% of the closing price of Ampersand Medical Corporation common stock as quoted on the OTC Bulletin Board on December 10, 1999. 3. Expiration of Warrant. This Warrant shall expire and be no longer exercisable after 5:00 P.M. Central Standard Time on December 10, 2004 (the "Expiration Date"). 4. Exercise of Warrants. This Warrant shall vest immediately upon receipt by Ampersand of funds under the Note and may be exercised as to one hundred percent (100%) of the total number of shares covered by this Warrant at anytime after the issuance date of this Warrant The purchase rights represented by this Warrant may be exercised in whole or in part (but not as to a fractional share of Stock), by the Warrantholder or its duly authorized attorney or representative at any time and from time to time while this Warrant is exercisable, upon presentation of this Warrant at the principal office of the Company, with the purchase form attached hereto duly completed and signed, and upon payment to the Company in cash or by certified check or bank draft of an amount equal to the number of shares being so purchased multiplied by the Exercise Price; or, at the option of the Warrantholder, this Warrant may be surrendered to the Company and the Company shall issue to the Warrantholder for no additional cash consideration a number of shares of common stock determined by dividing the product of the maximum number of shares of common stock the Warrantholder is entitled to purchase hereunder times the difference between the closing price per share on the date of surrender for exercise and the Exercise Price, by the closing price per share on the date of surrender for exercise date of surrender for exercise, as follows: Number of shares to be issued = ((maximum # of shares purchasable under terms of the Warrants) X ((closing price per share on the date of surrender for exercise) - (Exercise Price))) / (closing price per share on the date of surrender for exercise) Should Warrantholder elect to so surrender this Warrant, this Warrant shall be terminated thereafter, and the Warrantholder shall have no other rights hereunder. 5. Registration Rights. Should a Warrantholder exercise his rights, in whole or in part, to purchase common shares (the "Warrant Shares"), and provided that more than three years have elapsed from the date of issuance of this Warrant, then the Company shall honor a request to register such Warrant Shares pursuant to an S-3 filing under the Act, to the extent requisite to permit the sale by such holder of such Warrant Shares. The Company shall make such filing in timely fashion, but in no case more than 30 days from the time of such request. Any expenses relating to such filing shall be paid by the Company. Should the Company fail to make such filing within a 30 day period from the time of such request, the Company shall be obligated to purchase such Warrant Shares for a cash payment per Warrant Share equal to the difference between the Exercise Price and average closing price of the Company's common stock during the 30 calendar days immediately following Warrantholder's request to register the Warrant Shares. 6. Procedures. The Company agrees that the Warrantholder shall be deemed the record owner of the Stock as of the close of business on the date on which the Warrant shall have been presented and payment shall have been made for the Stock as aforesaid. Certificates for the shares of Stock so purchased shall be delivered to the Warrantholder within a reasonable time, not exceeding 15 days, after the exercise in full of the rights represented by this Warrant. If the Warrant is exercised in part only, the Company, upon surrender of this Warrant for cancellation, shall deliver a new Warrant evidencing the rights of the Warrantholder to purchase the balance of the shares of Stock which the Warrantholder is entitled to purchase hereunder. 7. Exchange of Warrants. Subject to the provisions of Section 11, (i) this Warrant is exchangeable at the option of the Warrantholder at the principal office of the Company for other Warrants of different denominations entitling the Warrantholder to purchase the same aggregate number of shares of Stock as are purchasable hereunder; and (ii) this Warrant may be divided or combined with other warrants that carry the same rights. In either case, any alterations shall be made upon presentation, at the principal office of the Company, of the Warrant(s), together with a written notice signed by the Warrantholder specifying the names and denominations in which any new Warrants are to be issued and the payment of any transfer tax due in connection therewith. 8. Anti-Dilution Provisions. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Stock in shares of Stock, (ii) subdivide or reclassify its outstanding shares of Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of this Warrant, exercised after such date, shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised by such holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2-for-i stock distribution in which one share of Stock is distributed for each share outstanding and the Exercise Price immediately prior to such event was $2.00 per share, the adjusted Exercise Price immediately after such event would be $1.00 per share. Such adjustment shall be made successively whenever any event listed above shall occur. (b) If any consolidation or merger of the Company with or into another entity, or the sale of all or substantially all of its assets to another entity shall be effected, or in case of any capital reorganization or reclassification of the capital stock of the Company, then lawful and adequate provision shall be made whereby each holder of Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Stock of the Company immediately theretofore receivable upon the conversion of such Warrants, such shares of Stock, securities, interests or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Stock equal to the number of shares of Stock immediately theretofore so receivable by such holder had such consolidation, merger, sale, reorganization or reclassification not taken place, and, in any such case, appropriate provision shall be made with respect to the rights and interests of the holder to the end that the provisions hereof (including without limitation provisions for adjustment of the applicable Exercise Price) shall thereafter be applicable, as nearly as may be in relation to any shares of Stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. (c) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (a) or (b) above, the number of shares of Stock purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (d) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Exercise Price and adjusted number of shares of Stock issuable upon exercise of each Warrant to be mailed to the holders, at their last addresses appearing in the warrant register, and shall cause a certified copy thereof to be mailed to its transfer agent. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section 8, and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. 9. Covenants. The Company covenants and agrees as follows: (a) Reservation of Stock. During the period within which the rights represented by the Warrant may be exercised, the Company shall, at all times, reserve and keep available, free from preemptive rights out of the aggregate of its authorized but unissued Stock, for the purpose of enabling it to satisfy any obligation to issue shares of Stock upon the exercise of this Warrant, the number of shares of Stock deliverable upon the exercise of this Warrant. If at any time the number of shares of authorized Stock shall not be sufficient to effect the exercise of this Warrant, the Company shall take such corporate action as may be necessary to increase its authorized but unissued Stock to such number of shares as shall be sufficient for such purpose. The Company shall have analogous obligations with respect to any other securities or properties issuable upon exercise of this Warrant. (b) No Liens, etc. All Stock that may be issued upon exercise of the rights represented by this Warrant shall, upon issuance, be validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) Taxes. All original issue taxes payable with respect to the issuance of shares upon the exercise of the rights represented by this Warrant shall be borne by the Company, but in no event shall the Company be responsible or liable for income taxes or transfer taxes upon the transfer of any Warrant. (d) Notice of Events. The Company shall give prior written notice to the Warrantholder of (i) any tender offer that is being made for any of the Company's Stock; (ii) any offers to holders of Stock for subscription or purchase by them of any shares of stock of any class; (iii) any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, the sale, lease or transfer of all or substantially all of the property or assets of the Company to another corporation or the voluntary or involuntary dissolution, liquidation or winding up of the Company and (iv) any event of the type described in Section 8 hereof (any such event in clauses (i)-(iv) above is referred to as an "Event"). Upon becoming aware of any pending or proposed Event, the Company shall deliver notice at least five business days before the day of the occurrence of any Event and shall describe the Event, the date it is to take place and when the holders of the Company's Stock will be entitled to exchange their shares for securities or other properties deliverable upon such Event. 10. Voting Rights. Until exercised, this Warrant shall not entitle the Warrantholder to any voting rights or other rights as a Stockholder of the Company. 11. Transfer Restrictions. A Warrantholder may transfer its beneficial interest or any portion thereof in the Warrant only to the Warrantholder's spouse, lineal descendants or ancestors (and their spouses) or the trustee of a trust for the principal benefit of such persons. Any transfer of ownership or control of a corporation or other entity which is a Warrantholder shall be deemed a transfer of this Warrant which must comply with the terms of this Section 11. In addition, neither this Warrant nor the Stock issuable upon the exercise hereof may be sold, transferred, pledged or hypothecated unless the Company shall have been supplied with evidence reasonably satisfactory to it that such transfer is not in violation of the Act, and any applicable state laws. The Company may place a legend to that effect on this Warrant or any replacement Warrant and on each certificate representing shares issuable upon exercise of this Warrant. Subject to the satisfaction of the aforesaid conditions, this Warrant shall be transferable by the Warrantholder. If this Warrant is transferred, in whole or in part, upon surrender of this Warrant to the Company, the Company shall deliver to each transferee a Warrant evidencing the rights of such transferee to purchase the number of shares of Stock that such transferee is entitled to purchase pursuant to such transfer. 12. Lost, Stolen Warrants. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such terms as the Company may reasonably impose, including a requirement that the Warrantholder obtain a bond, issue a new Warrant of like denomination, tenor and date. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 13. Provisions of New Warrants. Any Warrant issued pursuant to the provisions of Section 14, or upon transfer, exchange, division or partial exercise of this Warrant or combination thereof with another Warrant or Warrants, shall set forth each provision set forth in Sections 1 through 24, inclusive, of this Warrant as each such provision is set forth herein, and shall be executed on behalf of the Company by a duly authorized officer. 14. Cancellation of Warrant. Upon surrender of this Warrant for transfer or exchange or upon the exercise hereof, this Warrant shall be canceled by the Company, shall not be reissued by the Company, and, except as provided in Section 11 in case of a transfer, no Warrant shall be issued in lieu hereof. Any new Warrant certificate shall be issued promptly but no later than seven days after receipt of the old Warrant certificate; provided, however, that the obligation of the Company to transfer the Warrant or issue the shares of Stock upon the exercise of this Warrant shall be subject to compliance with Section 11. 15. Complete Agreement; Modifications. This Warrant and any documents referred to herein or executed contemporaneously herewith constitute the parties' entire agreement with respect to the subject matter hereof and supersede all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof. This Warrant may not be amended, altered or modified except by a writing signed by the parties. 16. Notices. All notices under this Warrant shall be in writing and shall be delivered by certified mail, postage prepaid, to such address as may be designated from time to time by the relevant party. Any notice sent by certified mail will be deemed to have been given three (3) days after the date on which it is mailed. Notices will be addressed as set forth on the last page hereof or to such other addresses as the party to whom the same is directed will have specified. 17. Successor and Assigns. Except as provided herein to the contrary, this Warrant shall be binding upon and inure to the benefit of the parties, their respective successors and permitted assigns. 18. Governing Law; Jurisdiction. This Warrant has been negotiated and entered into in the State of Florida, and all questions with respect to the Warrant and the rights and liabilities of the parties shall be governed by the laws of that state, regardless of the choice of law provisions of Florida or any other jurisdiction. Any and all disputes between the parties which may arise pursuant to this Warrant shall be heard and determined before the appropriate federal or state court located in Florida. The parties hereto acknowledge that such court has jurisdiction to interpret and enforce the provisions of this Warrant, and the parties waive any and all objections that they may have as to venue in any of the above courts. 19. Construction. No term or provision of this Warrant shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Warrant and any present or future statute, law, ordinance, or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the provision of this Warrant so affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 20. Waivers Strictly Construed. With regard to any power, remedy or right provided herein or otherwise available to any party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or other indulgence. 21. Severability. If one or more of the provisions of this Warrant shall be held to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remainder of this Warrant shall not be affected. 21. Headings. The headings in this Warrant are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Warrant or of any particular provision. 23. Counterparts. This Warrant may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one or the same instrument. WITNESS the signature of a duly authorized officer. AMPERSAND MEDICAL CORPORATION By: _______________________________ (name) _______________________________ (title) Date:_______________________________ PURCHASE FORM To Be Executed Upon Exercise of Warrant The undersigned hereby exercises the right to purchase __________________ shares of Stock, evidenced by the within Warrant, according to the terms and conditions thereof, and herewith (makes payment of the purchase price in full) (or requests that the Company exchange the Warrant as provided for under terms of the Warrant). The undersigned requests that certificate(s) for such shares shall be issued in the name set forth below: Dated:___________________________ AZIMUTH CORPORATION By: ______________________ (Signature) Name:______________________ (Please print) Address: ---------------------- ---------------------- ______________________ Employer Identification Number, Social Security Number or other identifying number: _______________________ If said number of shares shall not be all the shares purchasable under the within Warrant, the Warrantholder hereby requests that a new Warrant for the unexercised portion shall be registered in the name set forth below and delivered to the address set forth below. Name:_______________________ (Please print) Address:______________________ _______________________ _______________________ Employer Identification Number, Social Security Number or other identifying number: _______________________ EX-10.11 5 EXHIBIT 10.11 - ------------- EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of the first day of _____, 2000 by and between Ampersand Medical Corporation, a Delaware corporation ("Ampersand"), and __________________________ ("Employee"). RECITALS Ampersand desires to have the benefits of Employee's knowledge and experience as a full time senior executive without distraction by employment-related uncertainties and considers such employment a vital element of protecting and enhancing the best interests of Ampersand and its shareholders. Employee desires to be employed full time with Ampersand. Ampersand desires to assure itself of the continued services of Employee, and Employee desires to render services to Ampersand. In consideration of the mutual covenants and other good and valuable consideration, the parties agree as follows: 1. Term. Ampersand shall employ Employee for a ______ (__) year period commencing __________________ (the "Effective Date") and ending ________________, unless terminated as provided in Sections 5 or 6. This Agreement shall automatically renew for additional one (1) year terms unless either party delivers to the other written notice of non-renewal at least 60 days prior to the end of the term. In addition, if a Change of Control as defined in section 7(d) occurs when less than one (1) year remains prior to the expiration of this Agreement, this Agreement shall be automatically extended until the first anniversary of the date on which the Change of Control occurred. The period during which Employee is employed by Ampersand is the "Employment Period." 2. Duties. Employee shall serve as the ___________________________________ and shall exercise the authority and assume the responsibilities typically given to the ________________________________________ of a corporation similar in size and nature to Ampersand, and shall assume any other duties and responsibilities as the Board of Directors may prescribe that are consistent with the duties of the president and chief financial officer of a company similar in size and nature to Ampersand. Throughout the Employment Period, Employee shall devote substantially all of his time, attention and efforts during normal business hours to the performance of his duties. Employee shall not render any services as a director, trustee, officer, employee or consultant to any other organization without the prior approval of the Board of Directors. 3. Compensation. During the Employment Period, Ampersand shall compensate Employee as follows: (a) A base annual salary determined by the Board of Directors consistent with its practices for executive officers of Ampersand, but not less than $_______________ per year, payable in accordance with Ampersand's customary payroll practices; (b) Bonuses as determined by the Board of Directors; (c) If Employee's base annual salary is increased at any time, it shall not thereafter be decreased; (d) A monthly automobile allowance of $___________________. 4. Employee Benefits- (a) Employee shall be entitled, on a basis commensurate with Employee's position with Ampersand, to full participation in, and service credit for benefits as provided under, all life, accident, medical payment, health and disability insurance, retirement pension, salary continuation, expense reimbursement and other employee benefit and perquisite policies, plans, programs and arrangements that generally are made available to executive officers of Ampersand, except for such arrangements that the Board of Directors, in its discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. (b) Employee shall be entitled to _______ (__) weeks of annual vacation leave at full pay. (c) Employee shall be entitled to participate in all bonus, incentive, profit-sharing, stock option, stock purchase, stock appreciation, discretionary pay and similar policies, plans programs and arrangements that generally are made available to executive officers of Ampersand. (d) Nothing in this Agreement shall limit in any way Employee's participation in any other benefit plans or arrangements as are from time to time approved by Ampersand. 5. Termination by Ampersand. Ampersand may terminate this Agreement without entitling Employee to the severance benefits provided by Sections 7 and 8 only under the following circumstances: (a) Death, Total Disability or Retirement. This Agreement shall be terminated upon Employee's death or retirement. This Agreement shall be terminated if, as a result of Employee's incapacity resulting from physical or mental illness or disease that is likely to be permanent, Employee is unable to perform his duties for a period of more than 120 consecutive days during any twelve (12) month period and Employee is qualified and eligible to receive disability benefits under the long-term disability plan then in effect for executive officers of Ampersand; and (b) Cause. Ampersand may terminate this Agreement for cause, which means: (i) the repeated, willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors of Ampersand after Employee has been given written notice of the failure and a period of at least thirty (30) days to cure the failure; (ii) the willful commission by Employee of acts that are dishonest and materially injurious to Ampersand; (iii)the conviction of Employee of a felony; or (iv) drug addiction. Ampersand's termination of this Agreement for any reason other than those specified in this Section 5 shall be a termination without cause. No breach or default by Employee shall be deemed to have occurred unless written notice is given to Employee within sixty (60) days after Ampersand first learns of the breach or default and it is not cured within thirty (30) days after notice is given to Employee. 6. Termination by Employee. Employee may terminate this Agreement, and shall be entitled to severance compensation and benefits as provided in Sections 7 and 8 if: (a) at any time more than 120 days after the occurrence of a Change of Control, for any reason or no reason at all; or (b) for Good Reason, provided that Employee terminates this Agreement no later than ninety (90) days following the occurrence of an event constituting Good Reason. "Good Reason" means the occurrence of any of the following: (i) The assignment of duties to Employee that are materially inconsistent with Employee's position, duties and status as contemplated by this Agreement (without the express written consent of Employee); (ii) Any action by Ampersand that results in a material adverse change in the nature or scope of the position, duties, authorities, responsibilities or functions of Employee as contemplated by this Agreement, except for strategic reallocations of the personnel reporting to Employee; (iii) Employee's base annual salary, as may be increased from time to time, is reduced, Employee's right to participate in any policy, plan, program or arrangement of the type referred to in Section 4(c) is changed or terminated, or Employee's right to benefits of the type referred to in Section 4(a) is changed, terminated or denied; (iv) Ampersand relocates its principal executive offices, or requires Employee to change his principal location of work to any location that is more than fifty 50 miles from his principal location of work on the Effective Date, or requires Employee to travel away from his office in the course of discharging Employee's responsibilities or duties significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of Employee prior to the Effective Date, in either case without Employee's prior written consent; provided, however, that Ampersand has the fight to make temporary assignments for a reasonable period of time at other locations where Ampersand has a special need for Employee's services; or (v) Without limiting the generality or effect of the foregoing, Ampersand fails to comply with any of its obligations in any material respect. 7. Severance Payment After Change of Control. (a) If, following the occurrence of a Change of Control, Ampersand terminates this Agreement without cause or Employee resigns for Good Reason, Employee shall receive a lump sum severance payment equal to Employee's Base Amount, as defined in subsection (b) below. (b) "Base Amount" means the sum of: (i) Employee's annual base salary in effect immediately prior to the termination of this Agreement; plus (ii) the highest incentive compensation paid to Employee in any of the two consecutive annual incentive compensation periods ending immediately prior to the termination of this Agreement; plus (iii) the monthly automobile allowance Employee is entitled to receive pursuant to Section 3(d), multiplied by 12. (c) If a Change of Control occurs, despite the terms of any applicable plan or arrangement to the contrary, (i) Employee's stock options and stock appreciation rights shall immediately vest and be immediately exercisable, (ii) any risk of forfeiture included in restricted stock grants made to Employee shall immediately lapse, and (iii) Employee's rights in all other employee benefit and compensation plans shall immediately vest, provided that Employee's rights under any plan or arrangement of Ampersand described in Section 28OG(b)(6) of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Code"), shall not be altered as a result of this subsection (c). (d) A "Change of Control" shall be deemed to have taken place if: (i) if Peter P. Gombrich shall cease to be the Chief Executive Officer of the Company and the termination of his employment is a direct result of any of the events set forth in paragraph (d)(ii) through (d)(viii); (ii) if any person, as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except the stockholders of record immediately prior to the date hereof, becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 disclosing that he is the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities representing 20% or more of the combined voting power of Ampersand's then outstanding securities entitled to vote generally in the election of directors (unless such person is known by Employee to already be a beneficial owner on the date of this Agreement); (iii) Ampersand is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of Ampersand are exchanged for securities of another corporation or other legal person, and, immediately after such merger, consolidation, reorganization or exchange, less than a majority of the combined voting power of the then outstanding securities of the corporation or person immediately after the transaction are held, directly or indirectly, in the aggregate by the stockholders of Ampersand immediately prior to such transaction; (iv) Ampersand, in any transaction or series of related transactions, sells all or substantially all of its assets, and less than a majority of the combined voting power of the then outstanding securities of the purchaser immediately after the sale or sales are held, directly or indirectly, in the aggregate by the stockholders of Ampersand immediately prior to the sale; (v) Ampersand sells or disposes of (in any transaction or series of related transactions) business operations that generated two- thirds of its consolidated revenues immediately prior thereto, determined on the basis of Ampersand's four most recently completed fiscal quarters; (vi) Ampersand files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing, in response to Form 8-K or Schedule 14A, that a change in control of Ampersand may have occurred or may occur pursuant to any then-existing contract or transactions; (vii) any other transaction or series of related transactions occurs that has substantially the effect of a transaction specified in any of the preceding clauses in this subsection (d); or (viii) Employee is terminated by Ampersand, or removed from Employee's office or position without cause within ninety (90) days before a Change of Control occurs. (e) Notwithstanding any contrary provision in this Agreement, if any amount or benefit to be paid or provided would be an "Excess Parachute Payment", within the meaning of Section 280G of the Code but for the application of this Subsection 7(e), then the payments and benefits shall be reduced to the minimum extent necessary, but in no event to less than zero, so that no portion of any payment or benefit, as reduced, constitutes an Excess Parachute Payment. The determination of whether any reduction in the payments or benefits is required pursuant to this Section 7(e) shall be made at the expense of Ampersand. If any payments or benefits intended to be provided must be reduced pursuant to this subsection (e), Employee may designate the payments or benefits to be reduced. Ampersand shall provide Employee with all reasonably requested information for Employee to make the designation. If Employee fails to make such designation within ten (10) business days of the termination of this Agreement, Ampersand may effect reduction in any manner it deems appropriate. (f) Notwithstanding the provisions of Section 7(d)(i), (ii) and (v), unless otherwise determined in a specific case by majority vote of the Board of Directors, a Change of Control shall not be deemed to have occurred solely because an entity in which Ampersand directly or indirectly beneficially owns 50% or more of the voting securities, or any Ampersand sponsored employee stock ownership plan or other employee benefit plan files or becomes obligated to file a report or a proxy statement in response to Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A under the Exchange Act, disclosing beneficial ownership by it of units of Ampersand, or because Ampersand reports that a change in control may have occurred or may occur in the future by reason of such beneficial ownership. (g) If this Agreement is not terminated as provided in Section 7(a), then the rights and obligations of the parties for the balance of the Employment Period shall be governed by this Agreement exclusive of the provisions contained in this Section 7, except this Section 7 shall continue and become applicable if a subsequent Change of Control occurs during the Employment Period. 8. Other Severance Benefits. (a) If Employee is terminated without cause or Employee resigns for Good Reason, and no Change of Control has occurred, Employee shall receive a severance payment equal to Employee's Base Amount as defined in Section 7(b). (b) If Employee is terminated without cause or Employee resigns for Good Reason or as provided in Section 6(a), Ampersand shall continue to provide, at no cost to Employee, basic employee group benefits referred to in Section 4(a) that are welfare benefits, but not pension, retirement or similar compensatory benefits, for Employee and Employee's dependents and are substantially similar to those they were receiving or to which they were entitled immediately prior to the termination of this Agreement for the lesser of one year after termination or until Employee secures new employment. Employee's stock option agreements shall provide for a continuance of the option exercise period for at least two (2) years from the date of Employee's termination without cause and at least one (1) year from the date of Employee's resignation for Good Reason, except that if Employee dies, continuance of the option exercise period shall be at least two (2) years and the exercise period of an option shall not be extended beyond the date on which it would have terminated had Employee continued to be employed by the Company. The preceding sentence shall not apply to any "incentive stock option," as that term is defined in Section 411 of the Code. (c) If Employee is terminated without cause or Employee resigns for Good Reason or as provided in Section 6(a), Ampersand shall promptly, within five (5) business days after a request by Employee, pay or reimburse Employee for the costs and expenses of any executive outplacement firm selected by Employee; provided that Ampersand's liability under this Subsection (e) shall be limited to $20,000. Employee shall provide Ampersand with reasonable documentation of outplacement costs and expenses. 9. Timing of Payment. Any severance or other payment under this Agreement shall be paid within thirty (30) days after the event giving rise to Employee's entitlement to the payment or at any other date as the parties agree. 10. Other Benefits. The provisions of Sections 7 and 8 shall not affect Employee's participation in or terminate distributions and vested rights under any pension, profit sharing, insurance or other employee benefit plan to which Employee is entitled pursuant to the terms of the plans, except for the acceleration of vested benefits in certain employee benefits pursuant to Section 7(c) and as provided in Section 8(b). 11.No Mitigation Obligation. Ampersand recognizes that it will be difficult, and may be impossible, for Employee to find reasonable comparable employment following the termination of this Agreement. The non- competition covenant contained in Section 13 further limits the employment opportunities for Employee. In addition, Ampersand's severance pay policy applicable in general to its salaried employees does not provide for mitigation, offset or reduction of any severance payment. Accordingly, the payment of severance compensation under this Agreement will be liquidated damages, and that Employee shall not be required to seek other employment or otherwise mitigate any payment. 12. No Right to Set Off. Ampersand shall not set off against amounts payable to Employee any amounts earned by Employee in other employment, or otherwise, after termination of this Agreement, or any amounts which might have been earned by Employee in other employment had he sought such other employment. 13. Competitive Activity. For two (2) years following the termination of this Agreement, if Employee receives payments and benefits under this Agreement, Employee shall not, without the prior written consent of the Board of Directors, engage in any Competitive Activity. "Competitive Activity" means Employee's participation in the management of any business if it engages in substantial and direct competition with Ampersand and the business' sales of any competing product or service amounted to 25% or more of its net sales for its most recently completed fiscal year, and if Ampersand's net sales of a competing product or service amounted to 25% or more of Ampersand's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (a) the mere ownership of securities in any business and the exercise of rights appurtenant thereto, or (b) participation in the management of any business other than in connection with that business' operations competitive with Ampersand. 14. Non-Disclosure of Information. (a) During the Employment Period, and at all times thereafter, except in the performance of Employee's obligations to Ampersand, Employee shall not, directly or indirectly, use or authorize the use of any confidential or other proprietary information ("Confidential Information") of Ampersand including but not limited to trade secrets, product specifications and ideas, manuals, systems, procedures, confidential reports, customer lists, sales or distribution methods, patentable information and data and financial information concerning Ampersand, which Confidential Information has been made known, whether or not with the knowledge and permission of Ampersand, and whether or not developed, devised or otherwise created in whole or in part by the efforts of Employee, to Employee by reason of Employee's activities on behalf of Ampersand. Employee shall not reveal, divulge or make known any Confidential Information to any individual or business organization whatsoever except in performance of Employee's obligations to Ampersand, with the express permission of the Board of Directors, or as required by operation of law. (b) All Confidential Information is the exclusive property of Ampersand. All business records, papers and documents kept or made by Employee relating to the business of Ampersand shall be and remain the property of Ampersand and shall remain in the possession of Ampersand. Upon the termination of this Agreement or upon the request of Ampersand at any time, Employee shall promptly deliver to Ampersand, and shall retain no copies of any written materials, records or documents made by Employee or in Employee's possession concerning the business and affairs of Ampersand that contain Confidential Information. (c) Without limiting the remedies available to Ampersand, Employee acknowledges that a breach of any of the covenants contained in Section 13 and this Section 14 may result in material irreparable injury to Ampersand for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of a breach or threatened breach, Ampersand may obtain a temporary restraining order and a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by Section 13 or this Section 14 or any other relief as may be required to specifically enforce any of the covenants in such Sections. 15. Inventions. (a) Employee shall promptly and fully disclose to Ampersand any and all ideas, improvements, discoveries and inventions, whether or not they are believed to be patentable ("Inventions"), which Employee conceives or first actually reduces to practice, either alone or with others, during the Employment Period, and which relate to the business now or hereafter carried on or contemplated by Ampersand, or which result from any work performed by Employee for Ampersand. (b) All Inventions shall be the sole and exclusive property of Ampersand, and during the Employment Period and at all times thereafter, Employee shall, upon request, execute and assign any and all applications, assignments and other instruments that Ampersand shall deem necessary or appropriate to apply for or obtain a United States patent, trademark or copyright and/or any foreign patent, trademark or copyright for any Inventions. Employee shall assign and convey to Ampersand or its nominee the sole and exclusive right, title and interest in and to any Inventions. (c) The provisions of this Section 15 do not apply to an invention for which no equipment, supplies, facility or Confidential Information of Ampersand was used, that was developed entirely on Employee's own time, and (i) that does not relate directly to the business of Ampersand or to Ampersand's actual or anticipated research or development, or (ii) that does not result from any work performed by Employee for Ampersand. 16. Binding Arbitration: Legal Fees and Expenses. (a) Any dispute or controversy arising under or in connection with this Agreement prior to the occurrence of a Change of Control shall be resolved exclusively by binding arbitration in Cook County, Illinois, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party shall bear his or its own costs and expenses of arbitration, but if Employee is the prevailing party in such arbitration, in whole or in part, Ampersand shall pay as part of the award all attorney's and related fees, costs and expenses incurred by Employee in connection with the arbitration. (b) If a Change of Control occurs and Employee determines, in good faith, that Ampersand has failed to comply with any of its obligations under this Agreement, or Ampersand or any other person takes or threatens to take any action to declare this Agreement void or unenforceable or institutes any litigation, arbitration proceeding or other action or proceeding designed to deny or recover from Employee the benefits provided or intended to be provided to Employee, Ampersand shall pay for, as provided below, counsel selected and retained by Employee, to represent Employee in connection with the initiation or defense of any litigation, arbitration or other legal action, whether by or against Ampersand or any director, officer, stockholder or other person affiliated with Ampersand, in any jurisdiction. Within ten (10) business days after receipt of Employee's request referencing this Section 16(b), Ampersand shall pay or reimburse Employee for fees and expenses incurred, or reasonably anticipated to be incurred, in accordance with the request and this Section 16(b). Ampersand shall pay and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee in connection with any of the foregoing, excluding any fees and expenses related to an unsuccessful appeal filed by Employee of an adjudication on the merits, any motion for a new trial filed by Employee that is denied or any other motion filed by Employee for reconsideration or review that is denied. 17. Withholding of Taxes. Ampersand may withhold from any amounts payable under this Agreement federal, state, city or other taxes as required by law or government regulation. 18. Notices. All notices, requests, demands and other communications called for or contemplated by this Agreement shall be in writing and shall be deemed given when delivered personally or when mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the parties, their successors in interest or assignees at the following addresses or such other addresses as the parties may designate: If to Ampersand: Ampersand Medical Corporation 414 N. Orleans, Suite 305 Chicago, Illinois 60610 Attn: Secretary If to Employee: ___________________________ ___________________________ ___________________________ ___________________________ 19. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to Illinois' principles of conflict of laws. Venue will be solely in the state or federal courts located in Cook County, Illinois, subject only to Section 16(a). 20. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision of this Agreement held to be invalid or unenforceable shall be reformed only to the extent necessary to make it valid and enforceable. 21. Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter, and supersedes all negotiations, prior discussions, preliminary agreements and employment arrangements between Employee and Ampersand. This Agreement may not be amended, nor may any of its provisions be waived, except in a writing executed by the parties. 22. Effect on Successors In Interest. This Agreement shall inure to the benefit of and be binding upon the heirs, administrators, executors and successors of each of the parties, including without limitation any person acquiring, directly or indirectly, all or substantially all of the business and/or assets of Ampersand by purchase, merger, consolidation, reorganization or otherwise, and such successor shall thereafter be deemed "Ampersand" for purpose of this Agreement. This Agreement is personal in nature and neither of the parties shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations except as expressly provided in this Section. Without limiting the generality of the foregoing, Employee's fight to receive payments shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by bequest or devise or by the laws of descent and distribution and, upon any attempt to assign or transfer contrary to this Section, Ampersand shall have no liability to pay any amount attempted to be assigned, transferred or delegated. 23. Effectiveness. This Agreement shall be effective upon the Effective Date. 24. Captions. The captions and headings of the sections are inserted only as a convenience and do not define, limit or otherwise describe the scope of this Agreement or the intent of any of its provisions. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMPERSAND MEDICAL CORPORATION By: _____________________________ Peter P. Gombrich _____________________________ (Employee) EX-10.12 6 EXHIBIT 10.12 - ------------- 414 N.ORLEANS, CHICAGO, ILLINOIS OFFICE BUILDING LEASE Ampersand Medical Corporation, Inc. TABLE OF CONTENTS OFFICE BUILDING LEASE Page Section 1 LEASE OF PREMISES 3 Section 2 DEFINITIONS 3 Section 3 EXHIBITS AND ADDENDA 4 Section 4 DELIVERY OF POSSESSION 4 Section 5 RENT 4 Section 6 INTEREST AND LATE CHARGES 9 Section 7 SECURITY DEPOSIT 10 Section 8 TENANTS USE OF THE PREMISES 10 Section 9 SERVICES AND UTILITIES 11 Section 10 PREPARATION AND CONDITION OF THE PREMISES 12 Section 11 CONSTRUCTION, REPAIRS AND MAINTENANCE 12 Section 12 ALTERATIONS AND ADDITIONS 13 Section 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY 14 Section 14 CERTAIN RIGHTS RESERVED BY LANDLORD 14 Section 15 ASSIGNMENT AND SUBLETTING 15 Section 16 HOLDING OVER 17 Section 17 SURRENDER OF PREMISES 17 Section 18 DESTRUCTION OR DAMAGE 18 Section 19 EMINENT DOMAIN 19 Section 20 INDEMNIFICATION 19 Section 21 TENANT'S INSURANCE 20 Section 22 WAIVER OF SUBROGATION 21 Section 23 SUBORDINATION AND ATTORNMENT 21 Section 24 ESTOPPEL CERTIFICATES 22 Section 25 TRANSFER OF LANDLORDS INTEREST 23 Section 26 DEFAULT 23 Section 27 BROKERAGE FEES 26 Section 28 NOTICES 26 Section 29 GOVERNMENT ENERGY OR UTILITY CONTROLS 26 Section 30 INTENTIONALLY OMITTED 26 Section 31 QUIET ENJOYMENT 26 Section 32 OBSERVANCE OF LAW 26 Section 33 FORCE MAJEURE 27 Section 34 SIGN CONTROL 27 Section 35 RULES AND REGULATIONS 27 Section 36 MISCELLANEOUS 30 414 N. ORLEANS CHICAGO. ILLINOIS OFFICE BUILDING LEASE This Lease between OP., L.L.C., an Illinois limited liability company ("Landlord"), and Ampersand Medical Corporation , Inc. ("Tenant"), is dated September 1, 1999. 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5(c)) and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A," and further described at Section 2(h). The Premises are located within the Building and Project described in Section 2(i). Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as defined at Section 2(d)). 2. DEFINITIONS. As used in this Lease, the following terms shall have the following meanings: (a) Base Rent: See Base Rent Schedule attached hereto as Exhibit "E". Base Year: 1999 (b) Broker(s): Landlord's: Spectrum Real Estate Services, Inc. Tenants: N/A (c) Commencement Date: October 1, 1999 (d) Common Areas: The building lobbies, common corridors and hallways, restrooms, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas. (e) Expiration Date: September 30, 2004, unless otherwise sooner terminated in accordance with the provisions of this Lease. (f) Landlord's Mailing Address: 414 N. Orleans, Suite 610, Chicago, Illinois 60610. Tenant's Mailing Address: 414 N. Orleans, Suite 305, Chicago, Illinois 60610 (g) Monthly Installments of Base Rent: See Base Rent Schedule. (h) Premises: That portion of the Building containing approximately 2,700 square feet of Rentable Area, shown by diagonal lines on Exhibit "A," located on the third floor of the Building and known as Suite 305. (i) Project: The building of which the Premises are a part (the "Building") and any other buildings or improvements on the real property (the "Property") located at 414 N. Orleans, Chicago, Illinois and further described on Exhibit "B." (j) Rentable Area: As to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. (k) Security Deposit (Section 7): Four Thousand Three Hundred- eighty seven Dollars and 00/100 ($4,387.00) (l) State: The State of Illinois. (m) Tenant's Proportionate Share: 1 .5% Such share is a fraction, the numerator of which is the Rentable Area of the Premises, and the denominator of which is the Rentable Area of the Project, as determined by Landlord from time to time. The Project consists of one building(s) containing a total Rentable Area of 186,000 square feet. (n) Tenant's Use Clause (Section 8): general office use. (o) Term: The period commencing on the Commencement Date and expiring at midnight on the Expiration Date. (p) Lease Year: The twelve (12) month period commencing on the Commencement Date and expiring on the first anniversary thereof and each subsequent twelve (12) month period during the Term. 3. EXHIBITS AND ADDENDA. The exhibits listed below are incorporated by reference in this Lease: (a) Exhibit "A" - Floor Plan showing the Premises. (b) Exhibit "B" - Legal Description of Project. (c) Exhibit "C" - (intentionally omitted). (d) Exhibit "D" - (intentionally omitted). (e) Exhibit "E" - Base Rent Schedule. 4. DELIVERY OF POSSESSION. "As Is" 5. RENT. (a) Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises in accordance with those monthly installments specified on the Base Rent Schedule. Monthly Installments of Base Rent shall be payable in advance on the first day of each calendar month of the Term in the amount specified on the Base Rent Schedule for that particular month. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when Tenant executes the Lease. (b) Project Operating Costs. (1) In addition to its obligation to pay Monthly Installments of Base Rent, Tenant shall also be obligated to pay, as Additional Rent for each Lease Year Tenant's Proportionate Share of Project Operating Costs (defined below) to the extent such costs exceed Project Operating Costs for the Base Year. The Additional Rent payable hereunder for the years in which the Term begins and ends shall be prorated to correspond to that portion of the applicable calendar year occurring within the term of this Lease. (2) The term "Project Operating Costs" shall include all those items described in the following Sections 5(b)(2)(A) and (B). (A) All federal, state, county, and local governmental taxes, assessments, water and sewer charges and other similar governmental charges of every kind or nature (collectively, "Taxes"), which Landlord shall pay, or become obligated to pay, because of, in connection with the ownership, management, control or operation of the Building, Property or Project, or of the personal property, fixtures, machinery, equipment, systems and apparatus located therein or used in connection therewith, including, without limitation Ii) real property taxes or assessments levied or assessed against the Building or Project, (ii) any expenses (including, but not limited to, legal fees) incurred by Landlord in any contest of real estate taxes or assessments or the assessed value of the Building, Property or the Project, however, there shall be no attorneys' fees charged if there are no savings in excess of all fees, legal fees and costs expended, (iii) assessments or charges levied or assessed against the Building or Project by any redevelopment agency, and (iv) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that if, at any time during the Term, any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or Other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received wider any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases of space In the Building or Project, or 143 any Occupancy, use, per capita or other tax, assessment, levy or charge based directly pr indirectly upon the use or occupancy of the Premises or other leased premises within the Building or Project, then any and all of such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs. For purposes hereof, Taxes for any year shall be Taxes which are due for payment or paid in that year, rather than Taxes which are assessed or become a lien during such year, It, at any time during the Term, the assessed valuation of, or taxes on, the Project are riot based on a completed Project having at least eighty-five percent (85%) of the Rentable Area iii the Budding occupied, then the 'Taxes' component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least eighty-five percent (85%) of the Rentable Area in the Building occupied. However, the taxes assessed shall be the lesser of the actual taxes assessed and the adjustment as made by the Landlord above. (B) Operating costs (incurred by Landlord in maintaining and Operating the Building and Project, including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including, but not limited to, public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building arid Project) as required by Landlord or its tenders for the Project; (4) services of independent contractors; (5) compensation (Including employment taxes and fringe benefits) of all persons who perform duties connected with the operational, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, including, without limitation, engineers, janitors, painters, floor waxers, window washers, security and parking personnel and gardeners but excluding persons performing services not uniformly available to or performed for substantially all Budding or Project tenants); (6) operation and maintenance of a room for delivery and distribution of mail to tenants of the Building or Project as required by the U.S. Postal Service (Including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Budding or Project, whether managed by Landlord or an independent contractor (including, without limitation, an amount equal to the fair market rental value of any on-site manager's office); (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; 491 costs, expenditures or charges (whether capitalized or not) due to requirements of any governmental or quasi-governmental authority; (C) amortization of capital expenses (including financing costs) (i) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by landlord with the reasonable intent to reduce Project Operating Costs; (11) legal, accounting end other professional fees incurred in connection with the operation, maintenance and management pf the Building or Project; arid (12) any other costs or expenses incurred by Landlord under this Lease or with respect to the Building or Project and not otherwise. reimbursed by specific tenants of the Project, which are properly allocable to the operation and maintenance of the Building or Project in accordance with generally accepted accounting principles. If at any time during the Term, less than eighty-five percent (85%) of the Rentable Area of the Project is occupied, the "operating costs' component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred if the Project had been at least eighty-five percent (85%) occupied. (3) Estimated Payments and Operating Statements. (A) Estimated Payments. Landlord or its agent shall furnish to Tenant, prior to the Commencement Date and prior to the commencement of each calendar year after the Base Year, a written statement setting forth Landlord's estimate of Tenant's Proportionate Share of the Project Operating Costs (the "Estimated Operating Statement") for such ensuing calendar year. Tenant shall pay to Landlord, on the first day of each month, as Additional Rent, an amount equal to one-twelfth (1/12th) at Landlord's estimate of Tenant's Proportionate Share of such Project Operating Costs If, however, Landlord shall fail to furnish any such estimated Operating Statement subsequent to the commencement of any calendar year during the term of this Lease, than until the first day of the month following the month in which such Estimated Operating Statement is furnished to Tenant, Tenant shell pay to Landlord, on the first day of each month, an amount equal to the monthly installment of estimated Project Operating Costs payable under this section with respect to the last month of the immediately preceding calendar year. Upon furnishing such Estimated Operating Statement to Tenant, Landlord shall give notice to Tenant stating whether the Monthly installments of Project Operating Costs which Tenant has paid to date during the current calendar year are more or less than the estimated sums which Tenant should have been paying to Landlord for the current calendar year, based on that Estimated Operating Statement. In the event there is a deficiency with respect to the estimated amounts paid by Tenant to date in the current calendar year, Tenant shall pay the amount of such deficiency within ten (10) days after demand therefore; in the event there shall have been an over-payment, Landlord shall permit Tenant to credit the amount thereof against the subsequent payments of Additional Rent next due during the calendar year in which Landlord notifies Tenant of such over-payment. If there shall be any increase or decrease in the estimated Project Operating Costs for any Lease Year, whether during or after such year, Landlord may furnish to Tenant a revised interim Estimated Operating Statement and the Additional Rent shall be adjusted and paid, or refunded by way of credits against future payments, as the case may be, or Landlord may wait and make such adjustments as per subparagraph (2) below. Notwithstanding the foregoing, Landlord may adjust its estimate for Taxes at such time as actual tax bills become available. (B) Operating Statement. Within one hundred twenty (120) days after the end of each calendar year, or as soon thereafter as possible, Landlord shall furnish to Tenant a statement pertaining to the actual payments made by Landlord for Project Operating Costs for that immediately preceding year (the "Operating Statement"). If the Operating Statement shows that the sums paid by Tenant, pursuant to the Estimated Operating Statement, or any revision thereof, exceed Tenant's Proportionate Share of the actual Project Operating Costs for the calendar year in question, Landlord shall permit Tenant to credit the amount of such excess in installments, against the subsequent payments of Additional Rent next due during the remainder of the calendar year in which such Operating Statement is furnished pursuant to this section; and if such Operating Statement shows that the aggregate amount of the estimated sums paid by Tenant were less than the Tenant's Proportionate Share of the actual Project Operating Costs, Tenant shall pay the amount of such deficiency within thirty (30) days after demand therefore. Failure of Landlord to submit the written Operating Statement referred to herein shall not constitute a waiver of any rights of Landlord. (C) Disputes. Each Operating Statement given by Landlord shall be conclusive and binding upon Tenant, unless within thirty (30) days after the receipt thereof, Tenant shall notify Landlord that Tenant disputes the accuracy of said Operating Statement, specifying the particular respects in which the Operating Statement is claimed to be incorrect. Notwithstanding any such notice disputing the Operating Statement, any amount due to Landlord, as shown on any such Operating Statement, shall be paid by Tenant within thirty (30) days after Landlord's demand, as provided above, but without prejudice to any such written objection. Tenant or its authorized representative shall have the right to examine Landlord's books and records with respect to the items in the Operating Statement during normal business hours and upon reasonable notice at any time within forty-five (45) days following submission of the Operating Statement by Landlord. If, within twenty-one (21) days after Landlord's receipt of Tenant's notification of dispute of said Operating Statement, Landlord and Tenant fail to agree, in writing, upon the actual amount of Project Operating Costs and Tenant's Proportionate Share thereof, then Landlord and Tenant shall jointly select an independent, certified public accountant, licensed in the State of Illinois, who shall prepare a report addressing the objections raised by Tenant. The fees and costs of said accountant shall be paid one-half by Landlord and one-half by Tenant, and the determination of said accountant shall be conclusive and binding on Landlord and Tenant. Any sums owed by Landlord to Tenant based on the accountant's report shall be paid to Tenant in the form of a credit against those subsequent payments of Additional Rent next due during the remainder of the calendar year in which the determination of such overpayment is made. (c) Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease (except with respect to Base Rent) shall be deemed "Additional Rent" (which, together with the Base Rent, is sometimes referred to as the "Rent"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefore and without deduction or offset, in lawful money of the United States of America. (d) Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. (e) Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to Ii) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than the Work, regardless of whether title to such improvements is held by Tenant or Landlord; (ii) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (iii) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (iv) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any tax or other charge upon landlord as would have been payable to Landlord but for the reimbursement being unlawful. 6. INTEREST AND LATE CHARGES. If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at lesser of (I) two percent (2.0%) in excess of the "prime" or "reference" or "base" rate of interest announced as such, from time to time, by the First National Bank of Chicago ("Prime") and (ii) the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including, without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest (as described above in this Section 6), if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of such delinquent installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. 7. SECURITY DEPOSIT. (a) Tenant agrees to deposit with Landlord the Security Deposit set forth at Section 2(k) above upon execution of this Lease, as security for Tenant's faithful performance of its obligations under this Lease. Landlord and Tenant agree that the Security Deposit may be commingled with funds of Landlord and Landlord shall have no obligation or liability for payment of interest on such deposit. Tenant shall not mortgage, assign, transfer or encumber the Security Deposit without the prior written consent of Landlord (which may be withheld in Landlord's sole discretion), and any attempt by Tenant to do so shall be void, without force or effect and shall not be binding upon Landlord. (b) If Tenant fails to pay any Rent or other amount when due and payable under this Lease, or fails to perform any of the terms hereof, Landlord may appropriate and apply or use all or any portion of the Security Deposit for Rent payments or any other amount then due and unpaid; for Payment of any amount for which Landlord has become obligated as a result of Tenant's default or breach; and for any loss or damage sustained by Landlord as a result of Tenant's default or breach; and Landlord may so apply or use this Security Deposit without prejudice to any other remedy Landlord may have by reason of Tenant's default or breach. If Landlord so uses any of the Security Deposit, Tenant shall, within ten (10) days after written demand therefore, restore the Security Deposit to the full amount originally deposited. Tenant's failure to do so shall constitute an act of default hereunder and Landlord shall have the right to exercise any remedy provided for at Section 26 hereof. Within fifteen (1 5) days after the Term (or any extension thereof) has expired or Tenant has vacated the Premises, whichever shall last occur, and provided Tenant is not then in default on any of its obligations hereunder, Landlord shall return the Security Deposit to Tenant, or, if Landlord has permitted Tenant to assign its interest under this Lease, to the last assignee of Tenant. If Landlord sells its interest in the Premises, Landlord may deliver this Security Deposit to the purchaser of Landlord's interest and thereupon be relieved of any further liability or obligation with respect to the Security Deposit. 8. TENANTS USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be conclusive determination of that fact as between Landlord and Tenant,Tenant shall not do, or permit to be done, anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Section 8. Tenant shall not do, or permit anything to be done, in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion (which are presently from 9:00 a.m. to 5:00 p.m. on weekdays and from 9:00 a.m. to 1:00 p.m. on Saturdays, with Sundays and holidays excluded), and subject to the Rules and Regulations of the Building or Project, heating, ventilation and air conditioning ("HVAC") as required, in Landlord's judgment, for the comfortable use and occupancy of the Premises. It is specifically understood and agreed that Landlord shall cause the Premises to be separately metered for the provision of electrical current service, at Landlord's expense, and, if Landlord so requires, Tenant shall cause the electrical utility to establish a separate account, in Tenant's name, for the provision of electricity to the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges therefore on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use, or interruption of use, of any equipment in connection with the furnishing of any of the foregoing services; (ii) failure to furnish, or delay in furnishing, any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project; or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring through or in connection with or incidental to faihze to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the costs thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume any water or electric current in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. Landlord shall furnish elevator service, lighting replacement for building standard lights, restroom supplies, window washing and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area. 10. PREPARATION AND CONDITION OF THE PREMISES. (a) The Work and Workletter Agreement. The Premises is completed and is prepared for Tenant's occupancy "as is". Obligations. Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building. (b) Tenant's Obligations. (1) Tenant, at Tenant's sole expense, shall, except for services furnished by Landlord pursuant to Section 9 hereof, maintain the Premises in good order, condition and repair, including, but not limited to, the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all Plumbing, pipes and fixtures, electrical wiring, switches and fixtures, furnishings that are part of the Work and special items and equipment installed by or at the expense of Tenant. (2) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of Ii) Tenant's use or occupancy of the Premises, (ii) the installation, removal, use or operation of Tenant's Property (as defined in Section 1 3 below) in the Premises, (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. (3) If Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds, at the expense of Tenant, as are reasonably required to perform such work. Any amount so expended by landlord shall be paid by Tenant promptly after demand with interest at the rate set forth in Section 6 above from the date of such work. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work. (c) Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein. (d) Load and Equipment Limits. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineering shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants. (e) Interference. Except as otherwise expressly provide in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever, by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises, including, but not limited to, the buildout of the remaining tenant space(s) and incomplete base building areas in the Building. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises. (f) Return of Premises. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use, or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13(b) below, shall be repaired by Tenant at Tenant's expense. 12. ALTERATIONS AND ADDITIONS. (a) Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. (b) Tenant shall pay the costs of any work done on the Premises pursuant to Section 12(a) above, and shall keep the Premises, Building and Project free and clear of liens of any kind or nature. Tenant hereby indemnifies, defends against and keeps Landlord free and harmless from and against any and all liability, loss, damage, costs, attorneys' fees (of counsel selected by Landlord) and any other expense incurred by Landlord on account of, or as a result of, or due to, claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold interest, and any additions or improvements, which are, or become, the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and landlord shall have the right to enter the Premises and post such notices at any reasonable time. (c) Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one-half (1 1/2) times the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanics and material men's liens and to insure timely completion of the work. Nothing contained in this Section 12(c) shall relieve Tenant of its obligation under Section 12(b) above to keep the Premises, Building and Project free of all liens. (d) Unless their removal is required by Landlord, as provided in Section 12(a) above, all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant's equipment, machinery and trade fixtures which may be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Section 1 3(b) below. 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY. (a) All fixtures, equipment, improvements and appurtenances attached to, or built into, the Premises at the commencement of or during the Term, whether or not by, or at the expense of, Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises; shall be the property of Landlord; and shall not be removed by Tenant, except as expressly provide in Section 13(b). (b) All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building or the Premises, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall promptly repair, at its sole cost and expense, and to Landlord's satisfaction, any and all damage to the Premises or to the Building resulting from such removal. 14. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (i) damage or injury to property, person or business, (ii) causing an actual or constructive eviction from the Premises, or (iii) disturbing Tenant's use or possession of the Premises: (a) To name the Building and Project and to change the name or street address of the Building or Project; (b) To install and maintain all signs on the exterior and interior of the Building and Project; (c) To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; (d) At any time during the Term, and on a reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six (6) months of the Term, to show the Premises to prospective tenants thereof; and (e) To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its reasonable, good faith efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. 15. ASSIGNMENT AND SUBLETTING. Tenant acknowledges that Landlord has entered into this Lease in reliance on Tenant's creditworthiness, reputation and ability to operate the Premises for the purposes set forth in Section 8 above. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as specifically provided in this Section 15. Landlord acknowledges that the Tenant subleases space to several related companies and shall continue to do so and, as far as this paragraph is concerned all of these related entities shall be included within the definition of "Tenant". (a) Tenant shall not, without the prior consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. (b) If, at any time or from time to time during the Term, Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give written notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall have the option, exercisable by notice given to Tenant within twenty (20) days after Tenant's notice is given, either to sublet such space from Tenant at the rental and on the other terms set forth in this Lease for the term set forth in Tenant's notice, or, in the case of an assignment, to terminate this Lease. If Landlord does not exercise such option, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1) Landlord shall have the right to approve such proposed assignee or subtenant, which approval shall not be unreasonably withheld, and Tenant shall furnish sufficient information to Landlord so that Landlord may make a reasonable determination as to the creditworthiness and reputation of the proposed assignee or subtenant; (2) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord and true and correct copies of all documentation proposed to evidence any such assignment or sublease shall be furnished to Landlord; (3) No assignment or sublease shall be valid and no assignee or sublessees shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord; (4) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; and (5) Any sums or other economic consideration received by Tenant as a result of such assignment or subletting, however, denominated under the assignment or sublease, which exceed, in the aggregate, (i) the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) any real estate brokerage commissions or fees payable in connection with such assignment or subletting, shall be paid to Landlord as Additional Rent under this Lease without affecting or reducing any other obligations of Tenant hereunder. (6) Any such assignment or sublease shall be specifically subject to all of the terms and conditions of this Lease, and, in the event of an assignment, such assignee shall specifically assume, in writing and in a form satisfactory to Landlord, all of Tenant's rights and obligations hereunder. (c) Notwithstanding the provisions of Sections 15(a) and 15(b) above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord (pursuant to Section 1 5(bI above), to any corporation which controls, is controlled by, or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (1) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease; (2) Tenant remains fully liable under this Lease; (3) the use of the Premises under Section 8 above remains unchanged; and (4) any successor to Tenant's interest resulting from merger or consolidation has a net worth which is equal to, or greater than, that of the Tenant immediately before such merger or consolidation. (d) No subletting or assignment shall release Tenant of Tenant's obligations under this Lease or alter or modify the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease, sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. (e) If Tenant assigns the Lease or sublets the Premises or requests the consent of Landlord to any assignment or subletting, or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, then Tenant shall, upon demand pay Landlord an administrative fee of Two Hundred Fifty and No/100 Dollars ($250.00), plus any attorneys' fees (of counsel selected by Landlord), reasonably incurred by Landlord in connection with such act or request. 16. HOLDING OVER. If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of the Tenant's right to possession (a) Tenant shall be deemed a tenant at will; (b) Tenant shall pay two hundred percent (200%) of the Base Rent and Additional Rent last prevailing hereunder, and also shall pay all damages sustained by Landlord, consequential as well as direct, by reason of such remaining in possession after the expiration or termination of this Lease; (C) there shall be no renewal or extension of this Lease by operation of law; and (d) the tenancy at will may be terminated upon thirty (30) days' notice from Landlord; or, at the sole option of Landlord, expressed by written notice to Tenant, but not otherwise, such holding over shall constitute a renewal of this Lease for a period of one (1) year on the same terms and conditions as provided in this Lease. The provisions of this Section 16 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by law. 17. SURRENDER OF PREMISES. (a) Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (1) reasonable wear and tear, (2) loss by fire or other casualty, and (3) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal, (b) If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date, Tenant shall surrender all keys to the Premises. 18. DESTRUCTION OR DAMAGE. (a) If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements or other casualty, Landlord shall, subject to the provisions of this Section 18, promptly repair the damage, if such repairs can, in Landlord's opinion, be completed within ninety (90) days of the date on which such casualty occurred. If Landlord determines that repairs can be completed within ninety (90) days, this Lease shall remain in full force and effect, and, provided that such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Section 18(d) below. (b) If in Landlord's opinion, such repairs to the Premises or portion of the Building necessary for Tenant's occupancy cannot be completed within ninety (90) days of the date on which such casualty occurred, Landlord may elect, upon notice to Tenant given within (30) days after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect, but the Base Rent shall be partially abated as provided in Section 18(a) above, If Landlord does not so elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty. (c) If any other portion of the Building or Project is totally destroyed or damaged to the extent that, in Landlord's opinion, repair thereof cannot be completed within ninety (90) days of the date on which such casualty occurred, Landlord may elect, upon notice to Tenant, given within thirty (30) days after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect, but the Base Rent shall be partially abated as provided in Section 18(a) above. If Landlord does not elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty. (d) If the Premises are to be repaired under this Section 1 8, Landlord shall repair, at its cost, any injury or damage to the Building and the Work in the Premises, and Tenant shall be responsible, at its sole cost and expense, for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration of any portion of the Premises. Building or Project as a result of any damage from fire or other casualty. (e) This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement, shall have no application. 19. EMINENT DOMAIN. (a) If the whole of the Building or Premises is condemned or in any other manner taken for any public purpose, this Lease shall terminate as of the date of such condemnation and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (1) Tenant shall have the right to terminate this lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (2) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rent shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project. (b) In the event of any taking, partial or whole, all the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's Property. (c) In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as reasonably practicable to its condition prior to the condemnation or taking, but only to the extent of the Work. Tenant shall be responsible, at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. 20. INDEMNIFICATION. (a) Tenant shall and hereby does indemnify, defend and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person, or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or contractors. Tenant shall, at Tenant's expense, and by counsel selected by Landlord, defend Landlord in any action or proceeding arising from any such claim and shall, and hereby does indemnify, defend and hold Landlord harmless from and against all costs, attorneys' fees, expert witness fees and any other expenses incurred in such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. (b) Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. 21. TENANT'S INSURANCE. (a) All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and, at Landlord's request, any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (1) a cross-liability endorsement, (2) a provision that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (3) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payments under such policy or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefore. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder, No such policy shall be cancellable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with evidence of renewal of any such policy (together with evidence of the payment of the premium for such renewal), at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out Sand maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums incurred therefore, together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. (b) Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration or termination of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (1) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Section 1 2 above), and (2) trade fixtures, merchandise and other personal property from time to time in, or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant. (c) Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration or termination of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal injury and broad form property damage for not less than One Million and No/i 00 Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. (d) Not less than every three (3) years during the Term, Landlord and Tenant shall mutually agree to increases in all of Tenant's insurance policy limits for all insurance to be carried by Tenant as set forth in this Section 21. 22. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by, or damage to, the waiving party of its property or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease, 23. SUBORDINATION AND ATTORNMENT. (a) Subordination of Lease. This Lease, and all rights of Tenant hereunder are and shall be subject and subordinate to all ground leases of the Property now or hereafter existing and to all mortgages, or trust deeds in the nature of a mortgage (both collectively referred to hereafter as "mortgages"), which may now or hereafter affect or encumber the Property and/or the Building and/or any of such ground leases (whether or not such mortgages shall also cover other lands and/or buildings and/or leases). This subordination shall likewise apply to each and every advance made, or hereafter to be made, under such mortgages; to all renewals, modifications, replacements and extensions of such leases and such mortgages; and to spreaders and consolidations of such mortgages. This Section 23 shall be self-operative and no further instrument of subordination shall be required. However, in confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such ground lease or the holder of any such mortgage (or their respective successors-in-interest), may request in order to evidence such subordination. If Tenant fails to execute, acknowledge or deliver any such instrument within ten (10) days after request therefore, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, which appointment is agreed to be coupled with an interest, to execute and deliver any such instruments for and on behalf of Tenant. Any lease to which this Lease is subject and subordinate is hereinafter referred to as a "Superior Lease" and the lessor of a Superior Lease is hereinafter referred to as a "Superior Lessor"; and any mortgage to which this Lease is subject and subordinate is hereinafter referred to as a "Superior Mortgage" and the holder of a Superior Mortgage is hereinafter referred to as a "Superior Mortgagee." Notwithstanding the foregoing, at Landlord's election, this Lease may be made senior to the lien of any mortgage, if the mortgagee thereunder so requests. (b) Notice in the Event of Default. Upon any default of Landlord, including, but not limited to, any act or omission which would give Tenant any right, immediately or after the lapse of a period of time, to cancel or terminate this Lease, to claim a partial or total eviction, or to take any other action hereunder, Tenant shall send, by registered or certified mail, return receipt requested, written notice of such default to Landlord and to each Superior Mortgagee and Superior Lessor whose name and address shall previously have been furnished to Tenant. Tenant shall not exercise any such right until a thirty (30) day period for remedying such default shall have elapsed following the giving of such notice; provided, however, that if such default cannot reasonably be cured within such thirty (30) day period, then Landlord shall have such additional time to cure such default as is reasonably necessary under the circumstances. If Landlord fails to cure such default, within the time provided in the immediately preceding sentence, then Tenant shall not exercise any such right until Tenant shall have given, after the expiration of such time, an additional notice of default in the manner described in the immediately preceding sentence, to each such Superior Mortgagee and Superior Lessor, and each such Superior Mortgagee and Superior Lessor shall have had an additional thirty (30) days after such additional notice to cure such default; provided that if such default cannot reasonably be cured within such thirty (30) day period, then such Superior Mortgagee or Superior Lessor shall have such additional time to cure such default as is reasonably necessary under the circumstances. (c) Successor Landlord. If any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord hereunder, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then, at the request of such party (hereinafter referred to as "Successor Landlord"), Tenant shall attorn to, and recognize, each Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument such Successor Landlord may reasonably request to further evidence such attornment. 24. ESTOPPEL CERTIFICATES. Each party agrees, at any time and from time to time, as requested by the other party, to execute and deliver to the other land to any existing or prospective mortgage lender, ground lessor, or purchaser designated by Landlord), within ten (10) days after the written request therefor, a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); certifying the dates to which the Base Rent and Additional Rent have been paid; stating whether or not the other party is in default in performance of any of its obligations under this Lease; and, if so, specifying each such default; and stating whether or not any event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default, and, if so, specifying each such event. Any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by the party requesting the certificate and by others with whom such party may be dealing, regardless of independent investigation. Tenant also shall include in any such statements such other information concerning this Lease as Landlord may reasonably request including, but not limited to, the amount of Base Rent and Additional Rent under this Lease, and whether Landlord has completed all improvements to the Premises required under this Lease. If Tenant fails to execute, acknowledge or deliver any such statement within ten (10) days after request therefore, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact (which appointment is agreed to be coupled with an interest), to execute and deliver any such statements for and on behalf of Tenant. 25. TRANSFER OF LANDLORD'S INTEREST. In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or this Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any Security Deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the Security Deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. 26. DEFAULT. (a) Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: (1) If Tenant abandons or vacates the Premises; or (2) If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for five (5) days after such payment is due and payable; or (3) If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or (4) If a writ of attachment or execution is levied on this Lease or on any of Tenant's Property; or (5) If Tenant makes a general assignment for the benefit of creditors; or (6) If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within sixty (60) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of sixty (60) days; or (7) If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or (8) If Tenant is a partnership or consists of more than one (1) person or entity, if any general partner of the partnership or other person or entity is involved in any of the acts or events described in Sections 26(a)(4) through (7) above. (b) Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following: (1) Terminate this Lease and Tenant's right to possession of the Premises and re-enter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or (2) Continue this Lease in effect, re-enter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or (3) Re-enter the Premises under the provisions of Section 26(b)(2) above, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. (4) In addition to (1) through (3) above, Landlord shall also have the right to collect from Tenant any and all Base Rent that, but for the existence of the Abatement Period, Tenant would have been required to pay to Landlord prior to the occurrence of Tenant's default hereunder, If Landlord re-enters the Premises under the provisions of Sections 26(b)(2) and 26(b)(3) above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In the event of any re-entry or retaking of possession by landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant, If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Tenant shall also pay to Landlord, as soon as determined, any cost and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. (c) Damages. Should Landlord elect to terminate this Lease under the provisions of Sections 26(b)(1) or 26(b)(3) above, Landlord may recover as damages from Tenant the following: (1) Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus (2) Rent Prior to Award. The worth at the time of the award by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (3) Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus (4) Proximately Caused Damages. Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (i) retaking possession of the Premises, (ii) maintaining the Premises after Tenant's default, (iii) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (iv) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in Sections 26(c)(1) and 26(c)(2) above, is to be computed by allowing interest at the rate of Prime plus two percent (2.0%) per annum. "The worth at the time of the award" as used in Section 26(c)(3) above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1 %). (d) Not a Waiver. The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any other breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless or Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. (e) Curing Tenant's Defaults. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to), without waiving such default, perform the same for the account and at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefore, together with interest at the rate set forth in Section 6 above. (f) Landlord's Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease, subject to the notice and cure provisions of Section 23(b) above, then Landlord shall be liable to Tenant for any actual damages sustained by Tenant as a direct result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (Or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice by Tenant of default, as provided in Section 23(b) above, Landlord and each Superior Mortgagee and Superior lessor fails to cure the default in the time provided for in Section 23(b) above, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. 27. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except for Tenant's Broker, as identified in Section 2(b) above. Tenant hereby indemnifies. defends and hold Landlord harmless from any cost, expense or liability (including costs of Suit and reasonable attorneys' fee of counsel selected by Landlord) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. 28. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, return receipt requested, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building Manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. If mailed, notices shall be deemed given two (2) business days after mailing. 29. GOVERNMENT ENERGY OR UTILITY CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 30. INTENTIONALLY OMITTED 31. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate. 32. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will, in any way, conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. 33. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Section 33 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease. 34. SIGN CONTROL. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as Additional Rent hereunder, payable within ten (10) days of written demand by Landlord. 35. RULES AND REGULATIONS. It is the intention of Landlord that the Building shall be operated at all times as a first-class office building, and Tenant covenants that it will not engage in, or permit, any activities which are not consistent with such standard. In furtherance of this purpose, but not in limitation thereof, Tenant agrees to abide by the following rules and regulations, and further agrees that Landlord may make such reasonable changes or additions to such rules and regulations as it may deem necessary or advisable so long as such additions or changes do not discriminate against Tenant, are applied uniformly against all other tenants of the Building, and a copy of any such changes or additions is delivered to Tenant: (a) Any sign, lettering, picture, notice or advertisement installed within the Premises which is visible from the public corridors within the Building shall be installed in such manner, and be of such character and style, as Landlord shall approve, in writing, in its reasonable discretion. No sign, lettering, picture, notice or advertisement shall be placed on any outside window or door or in a position to be visible from outside the Building, (b) Sidewalks, entrances, passages, courts, corridors, halls, elevators and stairways in and about the Building shall not be obstructed nor shall objects be placed against glass partitions, doors or windows which would be unsightly from the Building's corridors or from the exterior of the Building. (c) Except as otherwise provided herein, no animals, pets, bicycles or any other vehicles shall be brought, or permitted to be, in the Building or the Premises. (d) Room to room canvasses to solicit business from other tenants of the Building are not permitted. (e) Tenant shall not waste electricity, water or air conditioning. All controls shall be adjusted only by authorized Building personnel. (f) Tenant shall not utilize the Premises in any manner which would overload the standard heating, ventilating or air conditioning systems of the Building. (g) Tenant shall not Permit the use of any apparatus for sound production or transmission in such manner that the sound so transmitted or produced shall be audible or vibrations shall be detectable beyond the Premises. (h) Tenant shall not utilize any electronic, radiowave. microwave or other transmitting, receiving or amplification device which would disturb or interfere with any other tenant of the Building or the operation of the Building generally. (i) Tenant shall not utilize any equipment or apparatus in such manner as to create any magnetic fields or waves which adversely affect or interfere with the operation of any systems or equipment in the Building. (j) Tenant shall keep all electrical and mechanical apparatus owned by Tenant free of vibration, noise and air waves which may be transmitted beyond the Premises. (k) All corridor doors shall remain closed at all times. (l) No locks or similar devices shall be attached to any door except by Landlord and Landlord shall have the right to retain a key to all such locks. (m) Except in the case of Landlord's or Landlord's employees', agents', or contractors' intentional or, to the extent permitted by law, negligent acts or omissions, Tenant assumes full responsibility of protecting the Premises from theft, robbery and pilferage. Except during Tenant's normal business hours, Tenant shall keep all doors to the Premises locked and other means of entry to the Premises closed and secured, (n) Only machinery or mechanical devices of a nature directly related to Tenant's ordinary use of the Premises shall be installed, placed or used in the Premises and the installation and use of all such machinery and mechanical devices is subject to the other rules contained in this Lease. (o) Except with the prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed, all cleaning, repairing, janitorial, decorating, painting or other services and work in and about the Premises shall be performed only by authorized Building personnel. (p) Except as otherwise specifically provided herein, safes, furniture, equipment, machines and other large or bulky articles shall be brought to the Building, and into and out of the Premises, at such times, and in such manner, as Landlord shall direct (including the designation of elevator), and at Tenant's sole risk and costs. Prior to Tenant's removal of such articles form the Building, Tenant shall obtain written authorization of the office of the Building and shall present such authorization to a designated employee of Landlord. (q) Tenant shall not in any manner deface or damage the Building. (r) Inflammables such as gasoline, kerosene, naphtha and benzene, or explosives or any other articles of an intrinsically dangerous nature are not permitted in the Building or the Premises without landlord's prior written consent. (s) Landlord shall advise the Tenant as to the maximum amount of electrical current which can safely be used in the Premises, and shall provide Tenant with a copy of the final electrical drawings for the Premises, taking into account the capacity of the electrical wiring of Building and the Premises and the needs of other tenants, and Tenant shall not use more than such safe capacity. Landlord's consent to the installation of electrical equipment shall, unless Tenant has actual knowledge to the contrary, be deemed to be a determination that said equipment is within such safe capacity. (t) To the extent permitted by law, Tenant shall not permit picketing or other union activity involving its employees in the Building, except in those locations and subject to time and other constraints as to which Landlord may give its prior written consent, which consent may be withheld in Landlord's sole discretion. (u) Tenant shall not enter into or upon the roof or basement of the Building or any storage, heating, ventilation, air-conditioning, mechanical or elevator machinery housing areas, (v) Tenant shall not distribute literature, flyers, handouts or pamphlets of any type in any of the common areas of the Building. (w) Tenant shall not cook, otherwise prepare or sell any food or beverages in or from the Premises, other than as is reasonably necessary in order to accommodate Tenant's employees. (x) Tenant shall not permit objectionable odors or vapors to emanate from the Premises, (y) Except as otherwise specifically provided with respect to the Safe, Tenant shall not place a load upon any floor of the Premises exceeding the floor load capacity for which such floor was designed or allowed by law to carry. (z) No floor coverings other than those provided for in the plans and specifications for the original space improvements, shall be affixed to any floor in the Premises by means of glue or other adhesive without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. (aa) The directories of the Building shall be used exclusively for the display of the name and suite number of the tenants only and will be provided at the expense of the Landlord. Additional names requested by Tenant to be displayed in the directories must be approved by the Landlord and, if approved, will be provided at the expense of the Landlord. Changes in the directory listings requested by the Tenant after the Commencement Date will be submitted to the Landlord for approval, which approval shall not be unreasonably withheld or delayed, and, if approved, will be provided at the expense of the Tenant. (bb) Landlord and Tenant shall comply with all applicable laws, ordinances, governmental orders or regulations and applicable orders or directions from any public office or body having jurisdiction, with respect to the Premises, the Building, the Property and their respective use or occupancy thereof. Neither Landlord nor Tenant shall make or permit any use of the Premises, the Building or the Property, respectively which is directly or indirectly forbidden by law, ordinance, governmental regulation or order, or direction of applicable public authority, or which may be dangerous to person or property. (cc) Tenant shall not take or permit to be taken in or out of other entrances of the Building, or take or permit on other elevators, any item normally taken in or out through service doors or in or on freight elevators; and Tenant shall not, whether temporarily, accidentally or otherwise, allow anything to remain in place or store anything in, or obstruct in any way, any sidewalk, court, passageway, entrance or shipping area. Tenant shall lend its full cooperation to keep such areas free from all obstruction and in a clean and sightly condition, and move all supplies, furniture and equipment as soon as received directly to the Premises, and shall move all such items and waste (other than waste customarily removed by Building employees) that are at any time being taken from the Premises directly to the areas designated for disposal, All courts, passageways, entrances, exits, elevators, escalators, stairways, corridors, halls and roofs are not for the use of the general public and Landlord shall, in all cases, retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants; provided, however, that nothing herein contained shall be construed to prevent such access to persons with whom Tenant deals within the normal course of Tenant's business unless such persons are engaged in illegal activities, Neither Tenant nor any employee or invitee of Tenant shall enter into areas reserved for the exclusive use of Landlord, its employees or invitees. (dd) Service requirements of Tenant will be attended to only upon application at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their duties unless under special instructions from Landlord. (ee) The toilet rooms, urinals, wash bowls and other apparatus located in the Building shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if Tenant, or its employees or invitees, shall have caused it. (ff) Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. (gg) Except for the exclusive use of Tenant, its employees and invitees, no vending machines of any description shall be installed, maintained or operated without the written consent of Landlord. Landlord hereby consents to Tenant's use of a commercial coffee service vendor of its choice. 36. MISCELLANEOUS. (a) Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right, in its sole discretion, to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. (b) Addenda. If any provision contained in any addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. (c) Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to, or arising out of, this Lease, the finally prevailing party shall be entitled to recover all costs and expenses, including, but not limited to, reasonable attorneys' fees, incurred on account of such action or proceeding. (d) Captions; Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Section numbers refer to Sections in this Lease. (e) Changes Requested by Lender. Neither Landlord nor Tenant shall unreasonably withhold or delay its respective consent to changes or amendments to this Lease requested by the lender on Landlord's interest, so long as such changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights, or materially increase any obligations, of the party from whom consent to such charge or amendment is requested. (f) Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State. (g) Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefore shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, approval or statement of satisfaction. (h) Corporate Authority. If Tenant is a corporation, each individual signing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation, and that this Lease is binding on Tenant in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. (i) Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. (j) Execution of Lease. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation, of or option for, Tenant to (ease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Notwithstanding the foregoing, execution of this Lease by Tenant and its return to Landlord shall be binding upon Tenant but shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this Lease to Tenant. (k) Furnishing of Financial Statements: Tenant's Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all material respects. (l) Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. (m) Prior Agreements: Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. (n) Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. (o) Severability. A final determination by a court of competent jurisdiction that any provision of this Lease is invalid shall not affect the validity of any other provision, and any provision so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect. (p) Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties. (q) Time of the Essence. Time is of the essence of this Lease. (r) Acceptance of Surrender: Consent. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term; Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of, any act by Tenant requiring Landlord's consent or approval shall not be deemed to waiver or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. LANDLORD: OP., L.L.C., an Illinois limited liability company By: SPECTRUM REAL ESTATE SERVICES, INC. By: ___________________________________ Its: ___________________________________ TENANT: By: Ampersand Medical Corporation, Inc By: __________________________________ Its: __________________________________ EXHIBIT "A" FLOOR PLAN OF PREMISES EXHIBIT "B" LEGAL DESCRIPTION Lots 15, 16, 17, and 18 in Block 10 in Higgins Law and Company's Addition to Chicago, in the East Half of the North West Quarter of Section 9, Township 39 North, Range 14 East of the Third Principal Meridian, in Cook County, Illinois. Exhibit "E" Base Rent and Other Provisions 1. Base Rent schedule shall be as follows: Monthly Year 1: 10/1/99 - 9/30/00 $4,387.50 Year 2: 10/1/00 - 9/30/01 $4,563.00 Year 3: 10/1/01 - 9/30/02 $4,745.52 Year 4: 10/1/02 - 9/30/03 $4,935.34 Year 5: 10/1/03 - 9/30/04 $5,132.75 EX-10.13 7 EXHIBIT 10.13 - ------------- AMENDMENT TO LEASE WITH AMPERSAND MEDICAL, INC. AND O.P., LLC Tenant: Ampersand Medical, Inc. Building: 414 N. Orleans, Chicago, IL Premises: Expansion to Suite 300, consisting of 795 square feet Commencement Date: November 1, 1999 Term: November 1, 1999 - September 30, 2004 (coterminous with existing Lease for Suite 305) Base Rent: $1,066 per month with four percent (4%) annual escalation Free Rent: November, 1999 and one-half (1/2) December, 1999 Common Area Rent: Base Year 1999 Security Deposit: Waived Electricity: Tenant will be directly metered for consumption of electricity from overhead lights and wall outlets. Agreed: Agreed: __________________________ _________________________________ Ampersand, Inc. Spectrum Real Estate Services, Inc. As agent for O.P., LLC Landlord. EX-10.14 8 EXHIBIT 10.14 - ------------- AMPERSAND MEDICAL CORPORATION NOTE PURCHASE AGREEMENT This note purchase agreement (this "Agreement") is made as of the Closing Date (as defined below) by and between Ampersand Medical Corporation, a Delaware corporation (the "Company"), with its principal office at 414 North Orleans Street, Suite 305, Chicago, Illinois 60610 and _________________________________________________ ("Purchaser"). RECITALS The Company is undertaking the placement and sale (the "Offering") of up to $1,500,000 principal amount of 6% Convertible Subordinated Notes due 2000, convertible into shares of the Company's common stock, no par value (the "Common Stock") at a conversion price (the "Conversion Price") as described in said notes. The notes will be sold by the Company to Purchaser pursuant to Regulation D under the Securities Act of 1933, as amended (the "Act") (the "Regulation D Purchasers"). AGREEMENT In consideration of the mutual promises, representations, warranties and conditions set forth in the Agreement, the Company and Purchaser agree as follows: 1. PURCHASE AND SALE OF NOTE. 1.1 Issue of Note. (a) The Company has authorized the issuance and sale to Purchaser, in reliance upon the Purchaser's representations and warranties contained in Section 4 and subject to the terms and conditions set forth herein, a 6% Convertible Subordinated Note in the principal amount of $100,000 (the "Note"), convertible into up to 500,000 shares of Common Stock (the "Conversion Shares") pursuant to the exchange of the Note. (b) In reliance upon the representations and warranties of the Company contained herein, and subject to the terms and conditions set forth herein, Purchaser agrees to purchase the Note. 2. CLOSING DATE; DELIVERY. 2.1 Closing. The closing of the sale and purchase of the Note under this Agreement (the "Closing") shall be held at 11:00 am. (Central Standard Time) on a date mutually agreeable to the Company and Purchaser, but in no event later than June 4, 1999 (the "Closing Date"), at the offices of the Company, or at such other place as the Company decides. 2.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to Purchaser the Note subscribed for by Purchaser, dated as of the Closing Date, against payment of the purchase price therefor by wire transfer, unless other means of payment shall have been agreed upon by the Purchaser and the Company. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Subject to and except as disclosed by the Company in the Confidential Private Offering Memorandum (the "Offering Memorandum"), the Company represents and warrants to Purchaser as of the date hereof as follows, and all such representations and warranties shall be true and correct as of the Closing Date as if then made and shall survive the Closing: 3.1 Organization. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of Delaware. The Company has all requisite power and authority to own or lease its properties and to conduct its businesses as now conducted. The Company holds all licenses and permits required for the conduct of its business as now conducted, which, if not obtained, would have a material adverse effect on the business, financial condition or results of operations of the Company taken as a whole. The Company is qualified as foreign or domestic corporations and is in good standing in all states where the conduct of its business or its ownership or leasing of property requires such qualification, except where failure to so qualify would not have a material adverse effect on the business, financial condition or results of operations of the Company taken as a whole. 3.2 Capitalization. As of the date hereof, taking into account the transaction contemplated hereby, the authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, 12,000,000 of which are issued and outstanding, warrants for the purchase of an additional 3,175,850 shares of Common Stock, stock appreciation rights for an additional 450,000 shares of Common Stock, and subordinated notes convertible into 4,545,455 shares of Common Stock, (subject to adjustment in certain circumstances). All of the issued and outstanding shares of Common Stock have been duly authorized, validly issued and are hilly paid and non-assessable. Except as stated in the Offering Memorandum and in this Section 3.2, there are no existing subscriptions, options, warrants, calls, commitments, agreements, conversion or other rights of any character (contingent or otherwise) to purchase or otherwise acquire from the Company at any time, or upon the happening of any stated event, any shares of the capital stock of the Company, respectively. 3.3 Authority. The Company has all requisite corporate power and authority to enter this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, and upon its execution and delivery by the Company, such document will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, and subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditor's rights from time to time in effect and subject to general equity principles. 3.4 Issuance of the Note. The Note, when issued against payment therefor pursuant to the terms of this Agreement, will be duly and validly authorized and issued, hilly paid and nonassessable. 3.5 No Conflict with Law or Documents. The execution, delivery and consummation of this Agreement and the transactions contemplated hereby will not: (a) conflict with any provisions of the certificate of incorporation of the Company, as amended to date, or the bylaws of the Company, as amended to date; or (b) result in any violation of or default or loss of a benefit under, or permit the acceleration of any obligation under (in each case, upon the giving of notice, the passage of time, or both) any mortgage, indenture, lease, agreement or other instrument, permit, franchise, license, judgment, order, decree, law, ordinance, rule or regulation applicable to the Company or its properties. 3.6 Consents, Approvals and Private Offering. Except for any filings required under federal and applicable state securities laws, all of which shall have been made as of the Closing Date to the extent required as of such time, no consent, approval, order or authorization of, or registration, declaration or filing with, any federal, state, local or foreign governmental authority is required to be made or obtained by the Company in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 3.7 Absence of Certain Developments. Except as described in the Offering Memorandum, since September 30, 1998, the Company has not: (a) incurred or become subject to any material liabilities (absolute or contingent) except current liabilities incurred, and liabilities under contracts entered into, in the ordinary course of business, consistent with past practices; (b) mortgaged, pledged or subjected to any lien, charge or other encumbrance any of its assets, tangible or intangible; (c) sold, assigned or transferred any of its assets or canceled any debts or obligations except in the ordinary course of business, consistent with past practices; (d) suffered any extraordinary losses, or waived any rights of substantial value; (e) entered into any material transaction other than in the ordinary course of business, consistent with past practices; or (f) otherwise had any change in its condition, financial or otherwise, except as shown on or reflected in the consolidated balance sheet as of March 31, 1999 that is included in the Company's 1999 First Quarter Form 10-Q, except for changes in the ordinary course of business, consistent with past practices, none of which individually or in the aggregate has been materially adverse. 3.8 Litigation. There are no actions, suits, proceedings or investigations pending, or to the Company's knowledge, threatened against or affecting the Company that in the aggregate could reasonably be anticipated to result in any material adverse effect on the Company. 3.9 Disclosure. The Offering Memorandum does not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.10 Year 2000 Compliance. The Company has reviewed its products, business and operations which could be adversely affected by the risk that computer applications developed, marketed, sold and delivered or used by the Company may be unable to recognize and properly perform date-sensitive functions involving dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The Company's products and services provided or delivered to its customers and the Company's internal information and business systems will be able to perform properly date-sensitive functions for all dates before and after January 1, 2000. In addition, the Company has surveyed those vendors, suppliers and other third parties (collectively, the "Outside Parties") with which the Company does business and whose failure to adequately address the Year 2000 Problem could have a material adverse effect on the business, financial condition or results of operations of the Company taken as a whole. Based upon the aforementioned internal review and surveys of the Outside Parties, the Year 2000 Problem has not resulted in, and is not reasonably expected to have, a material adverse effect on the business, financial condition or results of operations of the Company taken as a whole. 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser represents, warrants and covenants with the Company as follows: 4.1 Legal Power. Purchaser has the requisite power and authority to enter into this Agreement, to purchase the Note hereunder, and to carry out and perform its obligations under the terms of this Agreement. 4.2 Due Execution. This Agreement has been duly authorized, executed and delivered by the Purchaser and, upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of the Purchaser. 4.3 Investment Representations. (a) Purchaser is acquiring the Note for its own account, not as nominee or agent, for investment and not with a view to or for resale in connection with, any distribution or public offering thereof within the meaning of the Act, except pursuant to an effective registration statement under the Act. (b) Purchaser understands that: (i) neither the Note nor the Conversion Shares have been registered under the Act by reason of a specific exemption therefrom, and may not be transferred or resold except pursuant to an effective registration statement or exemption from registration; (ii) each certificate representing the Conversion Shares will be endorsed with the following legends: A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM AND UPON DELIVERY TO THE ISSUER OF THESE SECURITIES AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS; and B) Any legend required to be placed thereon by applicable federal or state securities laws; and (iii) the Company will instruct any transfer agent not to register the transfer of any of the Conversion Shares unless the conditions specified in the foregoing legends are satisfied. (c) Purchaser has received and reviewed the Offering Memorandum. In addition, Purchaser has been furnished with such materials and has been given access to such information relating to the Company as it or its qualified representative has requested and has been afforded the opportunity to ask questions regarding the Company and the Note, all as Purchaser has found necessary to make an informed investment decision. (d) Purchaser is an "accredited investor" as such term is defined in Rule 501 of Regulation D under the Act and was not formed for the specific purpose of acquiring the Note. (e) Purchaser is not a resident of Canada or any territory thereof. 5. COVENANTS OF THE COMPANY. 5.1 Information. The Company shall deliver to the Purchaser all annual, quarterly or other reports furnished to the public security holders; provided that if the Company is not subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company will promptly furnish to the Purchaser: (i) as soon as available, and in any event within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its consolidated subsidiaries, if any, as of the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all prepared in accordance with generally accepted accounting principles and reported on by independent certified public accountants of recognized national standing; and (ii) as soon as available, and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its consolidated subsidiaries, if any, as of the end of such quarter and the related consolidated statements of income and stockholders' equity (together with any other quarterly financial statements being prepared by the Company at such time), setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation and consistency by the chief financial officer or the chief accounting officer of the Company. 5.2 Conducting the Offering. The Company will conduct the Offering under Regulation D of the Act, and the Company represents as follows: (a) Sales to Accredited Investors. The Company will only make offers and sales of notes through the Offering to Regulation D Purchasers or potential Regulation D Purchasers it reasonably believes to be "accredited investors" as that term is defined in Rule 501(a) of Regulation D under the Act; (b) Regulation D Compliance. Offers and sales of notes through the Offering will be made in compliance with Regulation D, and the Company has not and shall not offer to sell notes through the Offering by any form of general solicitation or general advertising that is prohibited by Rule 502(c) of Regulation D under the Act. (c) Compliance Generally. The Company has and will observe all securities laws and regulations applicable to it in any jurisdiction in which it has or may offer, sell or deliver notes through the Offering and it will not, directly or indirectly, offer, sell or deliver notes through the Offering or distribute or publish any prospectus, circular, advertisement or other offering material in relation to notes through the Offering in or from any state in the United States or country or jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. (d) Blue Sky Compliance. The Company will comply with the state securities or blue sky laws of each state in which notes are offered through the Offering. 5.3 Additional Covenants. (a) The Company shall timely file all such documents required to be filed by it pursuant to the Exchange Act in order to permit sales under Rule 144 of the Act. (b) During any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company shall make available information required to be provided by Rule 144(d)(4), upon request. (c) Upon the request of the Purchaser and the certification of the Purchaser that it qualifies under Rule 144(k) of the Act, the Company shall, without further requirement, remove all restrictive legends from the Purchaser's securities, insofar as such restrictions relate to the transfer of such securities under the Act. 6. CONDITIONS TO CLOSING. 6.1 Conditions to Obligations of the Purchaser. The Purchaser's obligation to purchase the Note at the Closing is subject to the fulfillment, at or prior to such Closing, of all of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date; except as described in or contemplated by the Offering Memorandum, the business, assets, financial condition and results of operations of the Company shall not have been adversely affected in any material way prior to the Closing Date; and the Company shall have performed all obligations and conditions herein required to be performed by it on or prior to the Closing Date. (b) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchaser. (c) Qualifications, Legal Investment. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Note pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing Date. No stop order or other order enjoining the sale of the Note shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Note shall be legally permitted by all laws and regulations to which the Purchaser and the Company are subject. 6.2 Conditions to Obligations of the Company. The Company's obligation to issue and sell the Note at the Closing is subject to the fulfillment to the Company's satisfaction, on or prior to the Closing, of the following conditions: (a) Representations and Warranties True. The representations and warranties made by the Purchaser in Section 4 shall be true and correct at the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. (b) Performance of Obligations. Purchaser shall have performed and complied with all agreements and conditions required to be performed or complied with by it on or before the Closing Date, and Purchaser shall have delivered payment to the Company in respect of its purchase of Note. (c) Qualifications, Legal Investment. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Note pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing Date. No stop order or other order enjoining the sale of the Note shall have been issued and no proceedings for such purpose shall be pending or threatened by the SEC or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Note shall be legally permitted by all laws and regulations to which Purchaser and the Company are subject. 7. MISCELLANEOUS. 7.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Illinois as applied to agreements among Illinois residents, made and to be performed entirely within the State of Illinois without regard to principles of conflict of laws. 7.2 Indemnification. The Company agrees to indemnify the Purchaser and each officer, director, employee, agent, partner, stockholder and affiliate of the Purchaser (collectively, the "Indemnified Parties") for, and hold each Indemnified Party harmless from and against: (1) any and all damages, losses, claims and other liabilities of any and every kind, including, without limitation, judgments and costs of settlement, and (ii) any and all out-of-pocket costs and expenses of any and every kind, including, without limitation, reasonable fees and disbursements of counsel for such Indemnified Parties (all of which expenses periodically shall be reimbursed as incurred), in each case, arising out of or suffered or incurred in connection with any of the following: (a) any misrepresentation or any breach of any warranty made by the Company herein or in the Note, (b) any breach or non-fulfillment of any covenant or agreement made by the Company herein or in the Note, and (c) any claim relating to or arising out of a violation of applicable federal or state securities laws by the Company in connection with the sale of the Note by the Company. 7.3 Survival. All representations, warranties, covenants and agreements contained in or made pursuant to this Agreement or contained in any certificate delivered pursuant to this Agreement, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any party hereto, and shall survive the transfer and payment for the Note and the consummation of the transactions contemplated hereby. 7.4 Successors and Assigns. Except as otherwise expressly provided, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. 7.5 Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants or agreements except as specifically set forth herein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided. 7.6 Separability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.7 Amendment and Waiver. Except as otherwise provided, any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), with the written consent of the Company and Purchaser. Any amendment or waiver effected in accordance with this section shall be binding upon each future holder of any security purchased under this Agreement (including securities into which such securities have been converted) and the Company. 7.8 Notices. All required or permitted notices and other communications shall be in writing and shall be deemed effectively given upon personal delivery, on the first business day following mailing by overnight courier, or on the fifth day following mailing by registered or certified mail, return receipt requested, postage prepaid, addressed to the Company and Purchaser at the respective addresses included herein. 7.9 Fees and Expenses. The Company shall pay its own expenses and legal fees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby and shall pay the reasonable and documented legal fees and expenses of the Purchaser incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. 7.10 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. AMPERSAND MEDICAL CORPORATION By: _______________________________ Its: _______________________________ ATTEST: By: _______________________________ Its: _______________________________ PURCHASER: By: ________________________________ Its: ________________________________ EX-10.15 9 EXHIBIT 10.15 - ------------- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AMPERSAND MEDICAL CORPORATION 6% CONVERTIBLE SUBORDINATED NOTE DUE 2000 $100,000 June 4, 1999 1. Principal and Interest. AMPERSAND MEDICAL CORPORATION, a corporation duly organized and existing under the laws of the State Of Delaware (the "Company", which term includes any successor), for value received, hereby promises to pay to the order of ____________________, or any successor in interest registered on the books of the Company (the "Holder") in lawful money of the United States at the address of the Holder set forth below, the principal sum of One Hundred Thousand and 00/100 Dollars ($100,000) on January 28, 2000 (the "Maturity Date") which date may be extended by the Company to June 30, 2000 (the "Extended Maturity Date"), together with simple interest from the date hereof, computed on the basis of a 360-day year of twelve 30-day months in arrears from the date of original issuance hereof until the Maturity Date or the Extended Maturity Date to Holders of record of the Notes at the rate set forth in the following paragraph until the principal hereof is paid or made available for payment. The interest rate on this Note will be 6% per annum from the date of original issuance. On the Maturity Date or the Extended Maturity Date, the Company will pay, in lieu of the payment in whole or in part of interest in cash on this Note, pay interest on this Note through the issuance of additional shares of Common Stock of the Company at a conversion price as defined in subsection 2(a) below in an aggregate principal amount equal to the amount of interest that would be payable with respect to this Note, if such interest were paid in cash. This Note is one of a series of Notes that the Company contemplates issuing to holders pursuant to a plan to raise no more than One Million Five Hundred Thousand and 00/1 00 ($1,500,000.00) of proceeds currently being undertaken by the Company, convertible into Common Stock at a Conversion Price defined in subsection 2(a) below (the "$1,500,000 Debt Offering). 2. Conversion. (a) Conversion Price. Subject to and upon compliance with the provisions of this Section 2, the principal amount of this Note (or any portion hereof that is a multiple of $1,000 or a whole multiple thereof) shall be convertible into shares of the Company's common stock, no par value per share (the "Common Stock") at the conversion price (the "Conversion Price") per each share of Common Stock that is the lesser of (i) $0.33; (ii) 40% of the lowest conversion price established by the Company in the contemplated offering by its subsidiary, Ampersand Medical Corporation ("Ampersand") of $17,000,000 of 6% Convertible Subordinated Notes due 1999 (the "1999 Debt Offering"); (iii) 40% of the lowest conversion price below $0.75 in any other offering of debt securities of the Company in substitution for the 1999 Debt Offering; or (iv) 40% of the lowest price below $0.75 in any offering of equity securities of the Company in substitution for the 1999 Debt Offering; provided, however, that (x) under no circumstances shall the Conversion Price be less than $0.20 per share, (y) provisions (iii) and (iv) of this subsection shall not apply to the $1,500,000 Debt Offering, and (z) all prices contemplated by (i) through (iv) and (x) of this subsection shall be appropriately adjusted for any combination, consolidation stock split or other recapitalization of the Company. (b) Automatic Conversion. This Note shall be automatically converted by the Company into shares of Common Stock at the Conversion Price immediately upon the satisfaction of the following condition: (i) the Company's receipt of at least Five Million and 00/100 Dollars ($5,000,000) as part of the 1999 Debt Offering or any other offering of debt or equity securities of the Company, such minimum amount not to include the $1,500,000 Debt Offering. (c) Optional Conversion. The Holder may, upon notice to the Company, convert this Note into shares of Common Stock at the Conversion Price at any time. (d) Mechanics of Conversion. No conversion notice shall be necessary in the event of an automatic conversion pursuant to Section 2(b). In the case of an automatic conversion pursuant to Section 2(b), such conversion shall be deemed to have been made immediately following the later to occur of (i) the receipt by the Company of a minimum amount of $5,000,000 in accordance with Section 2(b) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holders of such shares of Common Stock on such date. (d) Reclassification, etc. If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities into which this Note is convertible into the same or a different number of securities of any class or classes, the shares of Common Stock or other securities into which this Note is convertible shall thereafter be convertible into the kind and number of shares of stock or other securities or property of the Company or otherwise to which the Holder would have been entitled if immediately prior to such change the Holder had acquired the shares of Common Stock or other securities into which this Note is convertible. If shares of the Company's Common Stock or other securities purchasable hereunder are subdivided or combined into a greater or smaller number of shares, the Conversion Price under this Note shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares. No adjustment on account of cash dividends or interest on the Company's Common Stock or other securities into which this Note is convertible will be made to the Conversion Price under this Note. (e) Notice of Adjustment. Upon any adjustment of the securities issuable upon conversion of this Note, the Conversion Price for the shares, and/or any increase or decrease in the number of shares into which this Note is convertible upon conversion of this Note, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the Holder at the address of the Holder as shown on the books of the Company. (f) Fractional Shares. The Company shall not be required to issue fractions of shares of Common Stock upon conversion of this Note. In lieu of any fractional shares to which the Holder of this Note would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the fair market value of the Common Stock as determined by the Board of Directors of the Company, whose determination shall be conclusive. (g) No Rights as Stockholder. This Note does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the conversion hereof. 3. Subordination. (a) "Senior Indebtedness" means the principal of and premium, if any, and interest on indebtedness of the Company for money borrowed from commercial banks, equipment lessors, government instrumentalities or other financial institutions under a secured or unsecured line of credit, term loan or equipment lease. (b) The Company agrees and the Holder, by acceptance of this Note, agrees, expressly for the benefit of the present and future holders of Senior Indebtedness, that, except as otherwise provided herein, upon: (1) an event of default under any Senior Indebtedness; or (ii) any dissolution, winding up or liquidation of the Company, whether or not in bankruptcy, insolvency or receivership proceedings, the Company shall not pay, and the Holder of this Note shall not be entitled to receive, any amount in respect of the principal and interest of this Note unless and until the Senior Indebtedness shall have been paid or otherwise discharged. Upon: (1) an event of default under any Senior Indebtedness; or (2) any dissolution, winding up or liquidation of the Company, any payment or distribution of assets of the Company, which the Holder of this Note would be entitled to receive but for the provisions hereof, shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holders of Senior Indebtedness ratably according to the aggregate amounts remaining unpaid on Senior Indebtedness after giving effect to any concurrent payment or distribution to the holders of Senior Indebtedness. Subject to the payment in full of the Senior Indebtedness and until this Note is paid in full, the Holder of this Note shall be subrogated to the rights of the holders of the Senior Indebtedness (to the extent of payments or distributions previously made to the holders of Senior Indebtedness pursuant to this paragraph 3(b) to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness). (c) This Section 3 is not intended to impair, as between the Company, its creditors (other than the holders of Senior Indebtedness) and the Holder of this Note, the unconditional and absolute obligation of the Company to pay the principal of and interest on this Note or to affect the relative rights of the Holder of this Note and the other creditors of the Company, other than the holders of Senior Indebtedness. Nothing in this Note shall prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, of the holders of Senior indebtedness in respect to cash, property or securities of the Company received upon the exercise of any such remedy. 4. Redemption. This Note may not be redeemed prior to the Maturity Date. Should the Company elect to extend the term of this Note, the Note may not be redeemed prior to the Extended Maturity Date. 5. Place of Payment. All payments due to the Holder hereunder shall be paid to the Holder at the address that the Holder shall have given written notice to the Company. 6. Events of Default and Remedies. If any of the following events of default (individually, an "Event of Default") shall occur for any reason whatsoever (and whether it shall be voluntary or involuntary or occur or be affected by operation of law or otherwise): (a) The Company fails to make payment when due of any principal or interest payable under this Note, and such failure continues for a period of ten days after written notice that such payment is due and unpaid; (b) The Company defaults in the observance or performance of any material agreement or condition under this Note or the Note Purchase Agreement dated of even date herewith, between the Company and Purchaser (the "Note Purchase Agreement"), and such default continues for a period of 30 days after written notice of such default is given to the Company by the Holder; (c) Any representation or warranty made by the Company in the Note Purchase Agreement shall prove to have been false in any material respect in the date when made; (d) The Company shall default under any material agreement for borrowed money that causes the other party thereto to accelerate such obligation; (e) The Company shall: (i) file, or consent by answer or otherwise to the filing against it of a petition for relief or reorganization or arrangement or any other petition in bankruptcy or insolvency law of any jurisdiction; (ii) make an assignment for the benefit of its creditors; (iii) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property; (iv) be adjudicated insolvent or be liquidated; or (v) take appropriate action for the purpose of any of the foregoing; or (f) A court or governmental authority of competent jurisdiction shall enter an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any substantial amount of its properties, or if an order for relief with respect to the Company shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of the Company, or if any petition for any such relief shall be filed against the Company, and such order or petition shall not be dismissed or stayed within 60 days after the date of such filing, then automatically upon the occurrence of such Event of Default the entire unpaid principal amount of, and the unpaid accrued interest on, this Note shall become immediately due and payable. 7. Additional Remedies. If any Event of Default hereunder shall have occurred, the Holder may proceed to protect and enforce its rights under this Note by exercising such remedies as are available to it in respect thereof under the terms of this Note or applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any agreement contained in this Note or in aid of the exercise of any power granted in this Note. No remedy is intended to be exclusive and each such remedy shall be cumulative. 8. Transfer. (a) The transfer of this Note is registrable by the Holder hereof in person or by his attorney duly authorized in writing on the books of the Company. Upon surrender and cancellation of this Note upon any such transfer, a new Note for the same aggregate principal amount will be issued to the transferee in exchange herefor. (b) The Company and any transfer or conversion agent may deem and treat the person in whose name this Note shall be registered upon the books of the Company as the absolute owner of this Note (whether or not his Note shall be overdue and notwithstanding any notation of ownership or other writing hereon) for all other purposes, and neither the Company nor any transfer or conversion agent shall be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability on this Note to the extent of the sum or sums so paid. 9. Registration Rights. The Company shall register all of the shares of Common Stock held by Holder and all of the shares of Common Stock received pursuant to the conversion of this Note by filing a registration statement on Form S-3 (or any successor form thereto or any other forms then available to the Company for registration of securities), and cause such registration statement to be declared effective on or prior to the twelve-month anniversary date of the issuance of this Note. The Company shall cause such registration statement to remain effective for five years following the initial registration. If the Company fails to fails to register Holder's Common Stock pursuant to this Section 9, the Company shall pay to Holder liquidated damages in an amount equal to five percent (5%) per month (or any part thereof), compounded monthly, on the amount of the face value of this Note, until such time as the Company is no longer in breach of this Section 9. Any payments due to Holder pursuant to this Section 9 shall be made no later than the fifteenth day of the month following the month in which such liquidated damages were incurred. 10. Attorney Fees. (a) If the indebtedness represented by this Note or any part thereof is collected in bankruptcy, receivership or other judicial proceedings or if this Note is placed in the hands of attorneys for collection after default, the Company agrees to pay, in addition to the principal and interest payable hereunder, reasonable attorneys' fees and costs incurred by the Holder. 11. Notices, All notices, reports and other communications required or permitted hereunder shall be in writing and may be delivered in person, by telecopy with written confirmation, overnight delivery service or U.S. mail, in which event it may be mailed by first-class, certified or registered, postage prepaid, addressed to the Holder at its address as shown on the books of the Company or to the Company at 414 North Orleans Street, Suite 305, Chicago, Illinois 60610, Attention: Chief Executive Officer. Each such notice, report or other communication shall for all purposes under this Note be treated as effective or having been given when delivered if delivered personally or, if sent by mail, at the earlier of its receipt or five days after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by telecopier with written confirmation, at the earlier of: (i) 24 hours after confirmation of transmission by the sending telecopier machine; or (ii) delivery of written confirmation. 12. Amendments. Consents and Waivers. This Note may be amended at any time and from time to time to add to, eliminate or modify the terms and provisions hereof and the rights of the Holder hereunder with the written consent of the Company and the Holder; provided, however, that no such change shall terminate or impair the subordination provisions of this Note without the prior written consent of the holders of Senior Indebtedness. Any amendment, waiver or consent by the Holder of this Note shall be conclusive and binding upon such Holder and any future Holder of this Note and of any Note issued in exchange or substitution herefor, irrespective of whether or not any notation of such amendment, waiver or consent is made upon this Note or such exchanged or substituted Note. The Company hereby waives presentment, demand for performance, notice of non-performance, protest, notice of protest and notice of dishonor. No delay on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or any other right. 13. No Recourse. No recourse shall be had for the payment of the principal or interest on this Note, or any claim based hereon, or otherwise in respect hereof, this Note, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 14. Payment Due on Holidays. If the principal of or interest on this Note falls due on a Saturday, Sunday or legal holiday at the place of payment, such payment shall be made on the next succeeding business day and such extended time shall be included in computing interest. 15. Severability. If any provision of this Note shall be held invalid under any applicable laws, such invalidity shall not affect any other provision of this Note that can be given effect without the invalid provision and, to this end, the provisions hereof are severable. 16. Governing Law. This Note is being delivered in and shall be construed in accordance with the laws of the State of Illinois, without regard to the conflicts of laws provisions thereof. IN WITNESS WHEREOF, and intending to be legally bound hereby, the Company has caused this Note to be executed and delivered by its proper and duly authorized officers as of the date first above written. AMPERSAND MEDICAL CORPORATION BY: _________________________________ NAME: Peter P. Gombrich TITLE: Chief Executive Officer Attest: BY:_______________________________ NAME: Leonard Prange TITLE: President EX-10.16 10 EXHIBIT 10.16 - ------------- SCHEDULE OF HOLDERS OF 6% CONVERTIBLE SUBORDINATED NOTES DUE 2000 Principal Base Date of Amount Conv. Note of Note Shs Name -------- ---------- ---------- -------------------- 3/1/99 $500,000 1,515,152 Seaside Partners 4/7/99 $100,000 303,030 Suzanne Musikantow 4/19/99 $33,000 100,000 Univest Mgt. E.P.S.P., c/o Frank Gerondi 5/11/99 $75,000 227,273 Leonard R. Prange 5125/99 $6,600 20,000 Kathleen B. Hanley 5/31/99 $50,000 151,515 D. Craig Wright 6/3/99 $100,000 303,030 Howard A. Hackett 6/3/99 $30,000 90,909 Gregory A. Booth 6/4/99 $25,000 75,758 Robert Cecchini 6/4/99 $25,000 75,758 Andrew K. Strange -------- --------- $969,600 2,938,183 ======== ========= EX-10.17 11 EXHIBIT 10.17 - ------------- SENIOR CONVERTIBLE PROMISSORY NOTE Date: December 10, 1999 (Evidenced by receipt of wired funds to the account of Ampersand Medical Corporation) Borrower: Ampersand Medical Corporation Lender: Azimuth Corporation Type: Senior Convertible Promissory Note, senior to all currently outstanding debt. Principle: $50,000.00 Term: 75 days from date. Interest Rate: 12% per annum, payable on the due date of the note Conversion: At the option of the noteholder, the principle amount of the note and any accrued interest due thereon may be converted into shares of common stock of the Company at a conversion rate of $0.20 per share. Such conversion election may be made at any time during the 75- day term of the note. Penalty Provision: If the Company fails to pay the note and accrued interest in full on the due date, the Company shall be deemed to be in default on the note. The Company shall have a thirty-day cure period to remedy such default. Immediately following such default, the following adjustments shall be made to the terms of the note: (1) the interest rate on the unpaid principle amount of the note shall increase from 12% to 15%, and (2) the noteholders option to convert the principle amount of the note and any accrued interest due thereon into shares of common stock of the Company shall be adjusted to reflect a conversion rate of $0.10 per share. Al the conclusion of the 30-day cure period, the note and any accrued interest thereon shall become immediately due and payable in full. Other Conditions: Ampersand will issue Azimuth Corporation a warrant to purchase 50,000 shares of common stock at a strike price equal to $0.33 per share or 85% of the market price of Ampersand common stock as quoted on the OTC Bulletin Board on December 10, 1999. For Ampersand Medical Corporation - -------------------- ---------- Leonard R. Prange Date President EX-10.18 12 EXHIBIT 10.18 - ------------- RESTRICTED STOCK AWARD AGREEMENT 1. Award Subject to the terms and conditions of the Ampersand Medical Corporation 1999 Equity Incentive Plan (the "Plan"), a copy of which has been attached hereto, the Board of Directors of the company hereby grants to David A. Fishman, M.D. a restricted stock award of 50,000 shares of common stock 2. Grant Date The grant date of the award is August 10,1999. 3. Valuation The Board has determined that the fair market value of the award is $0.4063 per share representing a total value of $20,315.00 for the 50,000 shares granted. 4. Restrictions One-half (25,000 shares) of the award shall vest on August 16, 1999; the remaining one-half (25,000 shares) of the award shall vest on May 31, 2000. The Company shall retain the certificates representing the unvested restricted shares and shall transfer to Dr. Fishman certificates representing the respective number of shares, which immediately vest. The Company shall transfer the certificates representing the unvested shares to Dr. Fishman at the end of the vesting period. 5. Transferability Except as provided in Article 8 of the Plan, the shares of stock granted hereunder may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of each applicable period of restriction specified in Section 4 of this Award Agreement, or upon the earlier occurrence or satisfaction of any other condition, as specified by the Board in Section 7 of this Award Agreement Shares of restricted stock shall become freely transferable, subject to registration requirements of the Securities Act of 1933 (the "Act"), after the last day of the applicable restriction period. 6. Registration The restricted shares granted under this Award Agreement have not been registered under the Act, as amended, or under the securities laws of any state. The shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Act and applicable state securities laws pursuant to registration or exemption therefrom. The Company will use its best efforts to file a registration statement under the Act covering the granted shares as soon as practicable, but in no case later then April 1, 2001. 7. Other Provisions In the event that the Company is sold or undergoes a change in control, as defined in Section 5 of the Consulting Agreement (the "Consulting Agreement") between Ampersand Medical Corporation and David A Fishman, M.D. effective as of June 1, 1999, at any time prior to the end of the vesting periods specified in Section 4, all remaining unvested restricted stock shall become fully vested. The Company will immediately transfer the certificates representing such shares to Dr. Fishman. SIGNATURES _____________________________ 9/1/99 _______________________ 10/12/99 Ampersand Medical Corporation Date David A. Fishman, M.D. Date Leonard R. Prange President By signing a copy of this agreement, I acknowledge that I have read the Plan, and that I fully understand all of my rights under the Plan, as well as all of the terms and conditions, which may limit my eligibility to exercise this grant. EX-10.19 13 EXHIBIT 10.19 - ------------- RESTRICTED STOCK AWARD AGREEMENT 1. Award Subject to the terms and conditions of the Ampersand Medical Corporation 1999 Equity Incentive Plan (the "Plan"), a copy of which has been attached hereto, the Board of Directors of the company hereby grants to Arthur L. Herbst, M.D. a restricted stock award of 50,000 shares of common stock. 2. Grant Date The grant date of the award is August 10, 1999. 3. Valuation The Board has determined that the fair market value of the award is $0.4063 per share representing a total value of $20,315.00 for the 50,000 shares granted. 4. Restrictions One-third (16,666 shares) of the award shall vest on July 1, 2000; one-third (16,667 shares) of the award shall vest on July 1, 2001; and the final one-third (16,666 shares) of the award shall vest on June 30, 2002. The Company shall retain the certificates representing the unvested restricted shares and shall transfer to Dr. Herbst certificates representing the respective number of shares in accordance with the aforementioned vesting schedule. 5. Transferability Except as provided in Article 8 of the Plan, the shares of stock granted hereunder may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of each applicable period of restriction specified in Section 4 of this Award Agreement, or upon the earlier occurrence or satisfaction of any other condition, as specified by the Board in Section 7 of this Award Agreement Shares of restricted stock shall become freely transferable, subject to registration requirements of the Securities Act of 1933 (the "Act"), after the last day of the applicable restriction period. 6. Registration The restricted shares granted under this Award Agreement have not been registered under the Act, as amended, or under the securities laws of any state. The shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Act and applicable state securities laws pursuant to registration or exemption therefrom. The Company will use its best efforts to file a registration statement under the Act covering the granted shares as soon as practicable, but in no case later then April 1, 2001. 7. Other Provisions In the event that the Company is sold or undergoes a change in control, as defined in Section 5 of the Consulting Agreement (the "Consulting Agreement") between Ampersand Medical Corporation and Arthur L. Herbst, M.D. effective as of July 1, 1999, at any time prior to the end of the vesting periods specified in Section 4, all remaining unvested restricted stock shall become fully vested. The Company will immediately transfer the certificates representing such shares to Dr. Herbst. If the Consulting Agreement is terminated by the Company without cause, as defined in the Consulting Agreement, all remaining unvested restricted shares shall become fully vested. The Company will immediately transfer the certificates representing such shares to Dr. Herbst. SIGNATURES _____________________________ 8/20/99 _______________________ 8/23/99 Ampersand Medical Corporation Date Arthur L. Herbst, M.D. Date Leonard R. Prange President By signing a copy of this agreement, I acknowledge that I have read the Plan, and that I fully understand all of my rights under the Plan, as well as all of the terms and conditions, which may limit my eligibility to exercise this grant. EX-21.1 14 EXHIBIT 21.1 - ------------ SUBSIDIARIES OF BELL NATIONAL CORPORATION 1. Bell Savings and Loan Association, a savings and loan association chartered in the state of California. 2. Pacific Coast Holdings Insurance Company, an insurance company organized under the laws of the state of California. 3. PFI National Corporation, a Delaware corporation. 4. InPath, LLC, a Delaware limited liability company. 5. Samba Technologies, SARL, a limited liability company organized under the laws of France. EX-27 15
5 12-MOS DEC-31-1999 DEC-31-1999 36 0 418 22 62 681 230 53 1,871 3,885 0 19 0 0 (2,059) 1,871 1,040 1,040 542 542 4,615 23 86 (4,226) 0 (4,226) 0 0 0 (4,226) (.29) (.29)
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