-----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, BQmPrIH5AB/8T0wzo+uAbJ+hYcrRCYH1Zf/sK5mCkPYC6b6NEes+61Pf0uEiCTz1 yfBNjUv3yZ32+olpNFDhaA== /in/edgar/work/0000950137-00-004863/0000950137-00-004863.txt : 20001115 0000950137-00-004863.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950137-00-004863 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPERSAND MEDICAL CORP CENTRAL INDEX KEY: 0000075439 STANDARD INDUSTRIAL CLASSIFICATION: [2200 ] IRS NUMBER: 364296006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00935 FILM NUMBER: 766429 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-Q 1 c58565e10-q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2000 ------------------ 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 Street, Suite 510 Chicago, IL 60610 -------------------------------------------- (Address of principal executive offices) (Zip Code) (312) 222-9550 ------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- 414 N. Orleans Street, Suite 305, Chicago, IL 60610 (Former name, former address and former fiscal year, if changed since last report) 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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes No ---------- ----------- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $0.001 par value per share-----30,056,468 shares as of November 10, 2000 2 INDEX AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 Consolidated Statements of Operations -- Nine months ended September 30, 2000 and September 30, 1999 and three months ended September 30, 2000 and September 30, 1999 Consolidated Statements of Cash flows -- Nine months ended September 30, 2000 and September 30, 1999 Notes to consolidated financial statements - September 30, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure of Market Risk Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults on Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 3 Part I. Financial Information Item 1 Financial Statements AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 21 $ 36 Accounts receivable, net of allowance of $ 22 495 398 Note receivable - related party 750 - Note receivable 300 Inventories 159 62 Refundable taxes 101 131 Deposits 190 - Prepaid expenses 75 54 -------------- -------------- Total current assets 2,091 681 Fixed assets, net 342 177 Other assets: Prepaid royalties 1,016 - License, patent, and technology, net of amortization 1,705 696 Goodwill, net 173 317 -------------- -------------- Total assets $ 5,327 $ 1,871 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,720 $ 1,449 Customer deposits 23 40 Accrued payroll costs 217 450 Accrued royalties - 250 Accrued expenses 307 399 Deferred revenue 58 68 Revolving line of credit 173 134 Current maturities of notes payable - related party 25 125 Current maturities of notes payable 100 970 -------------- -------------- Total current liabilities 2,623 3,885 Notes payable - related party, less current maturities - 26 Stockholders' Equity (deficit) Common stock, $0.001 par value; Authorized 50,000,000 Issued and outstanding, 30,056,468 shares at September 30, 2000, 19,027,570 shares at 30 19 December 31, 1999 Additional paid in capital 13,095 3,039 Accumulated deficit (10,275) (5,015) Accumulated comprehensive loss - Cumulative translation adjustment (146) (83) -------------- -------------- Total stockholder's equity (deficit) 2,704 (2,040) -------------- -------------- Total liabilities and stockholders' equity (deficit) $ 5,327 $ 1,871 ============== ============== The accompanying notes are an integral part of these consolidated financial statements
3 4 AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (Formerly Bell National Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except for per share amounts)
NINE MONTHS THREE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net Sales $ 839 $ 912 $ 298 $ 370 Cost and expenses Cost of goods sold 543 600 194 289 Research and development 2,403 865 1,084 351 Selling, general and administrative 3,366 1,422 712 399 ------------ ------------ ------------ ------------ 6,312 2,887 1,990 1,039 ------------ ------------ ------------ ------------ Operating loss (5,473) (1,975) (1,692) (669) Other income (expense) Interest income 54 -- 27 Interest expense - related party (27) (12) (25) 5 Interest expense (38) (37) (10) (23) Other, net 224 (123) 225 (122) ------------ ------------ ------------ ------------ 213 (172) 217 (140) ------------ ------------ ------------ ------------ Loss before income taxes (5,260) (2,147) (1,475) (809) Income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net loss $ (5,260) $ (2,147) $ (1,475) $ (809) ============ ============ ============ ============ Basic and fully diluted net loss per common share $ (0.19) $ (0.16) $ (0.05) $ (0.05) ============ ============ ============ ============ Weighted average number of common shares outstanding 27,074,026 13,091,814 30,056,468 14,729,534 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 5 AMPERSAND MEDICAL CORPORATION (Formerly Bell National Corporation) CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands) NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER SEPTEMBER 30, 2000 30, 1999 ----------- ----------- Operating activities: Net loss $(5,260) $(2,147) Adjustments to reconcile net loss to net cash used in operating activities: Forgiveness of amounts due to service providers recognized as expense in the prior year (220) -- Depreciation and amortization 284 126 Amortization of debt discount 25 -- Interest expense paid with stock 25 -- Stock, warrants, and options issued to non-employees for services 384 -- Compensation expense related to stock appreciation rights 928 -- Changes in assets and liabilities Accounts receivable (97) (296) Notes receivable (1,050) -- Inventories (97) (57) Prepaid royalties (500) -- Deposits, prepaids and other assets (197) (39) Accounts payable 271 655 Customer deposits (17) 50 Accrued royalties (250) -- Deferred revenue (10) -- Accrued expenses (199) 400 ------- ------- Net cash used in operating activities (5,980) (1,308) Cash used in investing activities Expenditure for license, patent and technology (327) (524) Capitalized software -- (110) Purchase of fixed assets, net of loss on disposal (221) (123) ------- ------- Net cash used in investing activities (548) (757) Cash flows from financing activities Proceeds from issuance of convertible notes 600 1,045 Proceeds from revolving line of credit, net of payments 39 -- Payment of notes payable - related party (26) (10) Proceeds from issuance of common stock, net of costs incurred 5,963 399 ------- ------- Net cash provided by financing activities 6,576 1,434 Effect of exchange rate changes on cash (63) (64) ------- ------- Net increase (decrease) in cash and cash equivalents (15) (695) Cash and cash equivalents at beginning of period 36 700 ------- ------- Cash and cash equivalents at end of period $ 21 $ 5 ======= ======= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 10 $ -- ======= ======= The accompanying notes are an integral part of these consolidated financial statements 5 6 AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited September 30, 2000) NOTE A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Ampersand Medical Corporation and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1999. NOTE B. OVERVIEW 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, the 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, the 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 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. 6 7 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 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. 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. Based upon the terms of the acquisition agreement, for financial reporting and accounting purposes the acquisition has been 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 Bell National was a non-operating public shell company with nominal assets and InPath was a private operating company, the acquisition has been 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 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 application. 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 and assumed the day-to-day operations. Since the acquisition, Samba has continued to develop and market the image cytometry and tele-medicine products previously developed and marketed by the department. On September 22, 2000, the Company signed a Letter of Intent to merge with and into AccuMed International, Inc. Under the terms of the Letter of Intent, the stockholders of the Company will exchange all of their shares for newly issued and registered shares of AccuMed. The Letter of Intent also provides that simultaneous with the merger, AccuMed will change its name to Ampersand Medical Corporation and the current directors and management of the Company will be elected to similar positions with the combined company. The Company anticipates that, as the result of the share exchange, current stockholders of the Company will hold in excess of seventy-five percent (75%) of the combined company. The proposed merger is subject to the completion of Definitive Agreements and approval of the stockholders of both companies. 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 implement its business plan and continue as a going concern unless management obtains additional capital or acquires other sources of financing. Management's plans include continuing efforts to obtain additional capital. During the first nine months of 2000, the Company raised approximately $5,963,000 in new equity to finance its operations. In addition, the holder of a Senior Subordinated Note converted the $50,000 principal and $1,250 in accrued interest due thereon into shares of Common Stock thus reducing the Company's outstanding liabilities. On April 28, 2000 the Company automatically converted $969,600 of 6% Convertible Subordinated Notes Due 2000 plus approximately $61,658 in accrued interest due thereon into Common Stock also reducing the Company's outstanding liabilities. On September 22, 2000 the Company borrowed $500,000 from a related party under a promissory note due on September 21, 2001. There can be no assurance that the Company will continue to be successful in raising capital should the need for such capital arise in the future. If the Company is unable to obtain additional financing, should the need arise, 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. 7 8 NOTE C. NOTE RECEIVABLE - RELATED PARTY On April 28, 2000 the Company sold 1,333,333 shares of Common Stock at $1.50 per share for total proceeds of $2,000,000, to Seaside Partners, LP, a hedge fund which receives investment management services from Seaside Advisor, L.L.C., of which Dr. Denis O'Donnell, a director of the Company, is a member and manager, as part of the January 2000 Private Placement Offering. In lieu of cash, the Company agreed to accept payment for the stock in the form of a $2,000,000 Promissory Note (the"Note"). The Note was due July 27, 2000 and bears interest at the rate of 8% per annum. The Note may be prepaid in part or in full without penalty, and the due date may be extended by mutual consent of both parties. In addition the Company retains possession of the stock certificates representing the purchased shares until the Note is paid in full. The Subscription Agreement under which the shares were purchased and the related promise to pay are not voidable or cancelable for any reason or circumstance whatsoever. Seaside has made partial principal payments against the Note amounting to $1,250,000 through September 30, 2000. An additional partial principal payment of $300,000 was received during the month of October 2000. The Company has agreed to extend the term of the Note until November 30, 2000. NOTE D. NOTE RECEIVABLE On September 22, 2000, in conjunction with the signing of the Letter of Intent described in Note B above, the Company loaned AccuMed International, Inc. $300,000. The loan is evidenced by a Promissory Note bearing interest at the rate of 11% per annum. The note is due December 31, 2000 or immediately upon the termination of the merger plan outlined in the Letter of Intent. The note is fully secured by all of the assets of AccuMed and its due date may be extended by written consent of the parties. NOTE E. PREPAID ROYALTIES On June 9, 2000 the Company and AccuMed International, Inc. signed an Amendment to a Patent and Technology License Agreement dated September 4, 1998. Under the Amendment the Company paid AccuMed $500,000 in cash, agreed to issue a Convertible Promissory Note, effective June 9, 2000, in the principal amount of $100,000 and authorized its transfer agent to issue 128,571 shares of Common Stock to AccuMed. The Amendment characterizes the $500,000 cash payment, the $100,000 principal amount of the note (see Note H below), and the fair value of the Common Stock up to a maximum of $450,000, or $3.50 per share, as non-refundable advance royalty payments. The Company had previously recorded a liability and related expense for minimum royalty payments due under the original License totaling $500,000, which was reclassified to prepaid royalties in accordance with the Amendment. The Company recorded a fair value of $385,713 for the shares issued. Under the Amendment, the Company has agreed to price protect the shares up to the maximum fair value level provided. The Company has recorded a liability of $64,287 to reflect the potential cost of the price protection guarantee as of the date of issuance of the shares. For the nine months ended September 30, 2000, the Company charged $34,000 of royalty expense against the prepaid royalty amount. This charge represents the 4% royalty due to AccuMed on all of the Company's revenue for the period. NOTE F. LICENSE, PATENT, AND TECHNOLOGY In June 2000, the Company entered into a License and Technology Agreement with Invirion, Inc. Under the terms of the License, which was approved by the Board of Directors in July 2000, the Company is granted exclusive rights to certain HPV (Human Papillomavirus) detection technology developed and owned by Invirion. The Agreement provides for license payments totaling $500,000 in cash with an initial payment of $100,000 due upon delivery of an HPV probe formula. Three additional cash payments of $150,000, $150,000, and $100,000 respectively are due upon the subsequent delivery of milestones covering certain advanced HPV detection technology and the integration of that technology into the 8 9 Company's product line. In addition Invirion is entitled to receive three warrants to purchase Common Stock at a purchase price of $0.01 per share, two covering the purchase of 150,000 shares and one covering the purchase of 100,000 shares. The warrants are due in conjunction with the milestones mentioned above. Invirion delivered the initial HPV probe formula in August 2000 and delivered the second milestone of advanced HPV technology on September 12, 2000. The Company capitalized $1,016,000 as License fees representing $250,000 in cash payments due to Invirion and $766,000 as the fair value of two of the above mentioned warrants to purchase a total of 250,000 shares of Common Stock issued to Invirion on September 12, 2000. The Company used the Black-Scholes method to determine the fair value of the warrants (see Note I for a further explanation of the Black-Scholes calculation). The Company is amortizing the License fees over a period of 10 years. NOTE G. 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. Principal payments in the amount of $130,000 and $19,000 were made during 1999 and 1998 respectively. The remaining principal balance of $26,000 plus $15,600 in accrued interest over the entire life of the note was repaid during the first quarter of 2000. On May 11, 1999 the Company borrowed $75,000 under a 6% Convertible Subordinated Note to Leonard R. Prange, President, COO/CFO. The note was issued under terms identical to all 6% Convertible Subordinated Notes issued by the Company. The note plus accrued interest due thereon was automatically converted into Common Stock of the Company on April 28, 2000. 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, under a convertible senior subordinated promissory note. 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. On September 22, 2000 the Company borrowed $500,000 from Azimuth Corporation. The note is due on September 21, 2001 and bears interest at the rate of 15%. The Company can prepay the note or Azimuth can convert the note into shares of Common Stock of the Company, at a conversion price equal to $1.00 per share, at any time after the expiration of 180 days from the issue date of the note. On September 22, 2000 the Company borrowed $500,000 from Azimuth Corporation. The note is due on September 21, 2001 and bears interest at the rate of 15%. The Company can prepay the note or Azimuth can convert the note into shares of Common Stock of the Company, at a conversion price equal to $1.00 per share, at any time after the expiration of 180 days from the issue date of the note. As this note has a beneficial conversion feature, a value of $500,000 has been recorded as debt discount and will be amortized as interest expense pro rata over the initial 180 day term of the note. During the three-months ended September 30, 2000 the Company recorded $25,000 as interest expense related to this beneficial conversion feature. NOTE H. 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. In August 2000, the Company signed a settlement agreement with Holleb & Coff under which the note, $18,000 in accrued interest, and all other outstanding indebtedness to Holleb & Coff for legal services totaling $333,000 were settled in full for $200,000. The settlement amount was paid in two equal installments on October 6, 2000 and November 6, 2000. The Company recorded other income of $226,000 during the third quarter representing the amount forgiven by Holleb & Coff that was charged to expense in prior periods. In January 1999, the Board of Directors authorized the Company to raise up to $1,500,000 in new equity or debt to provide funding for current operations. 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. These series included 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. The series also included a note in the amount of $75,000 issued to Leonard R. Prange, President, COO/CFO (see Note G above), in exchange for cash. The maturity date of the notes was January 28, 2000, subject to extension by the Company to June 9 10 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. On April 28, 2000 the notes plus accrued interest due thereon were automatically converted into shares of Common Stock. In July 1999, the Company's wholly owned subsidiary, Samba, negotiated a Revolving Credit Line ("Revolver") with the Banc National de Paris (BNP). In July 2000, the Revolving Credit Line was renewed for an additional one-year period. Under the terms of the renewal, Samba may borrow, in the form of an advance on payment against monthly billings, up to a maximum of 900,000 French Francs, approximately $120,000. In September, BNP increased the borrowing limit by an additional 600,000 French Francs, approximately $80,000, to cover an invoice issued by Samba under a certain government contract. The increased borrowing limit will revert back to its original level upon Samba's receipt of payment for this specific invoice. The terms of the Revolver require Samba to pay interest at Euribor plus 2.5%, (currently equal to 7.7%) on advances outstanding under the Revolver and grant BNP a security interest in Samba accounts receivable. As of September 30, 2000 the amount outstanding under the Revolver was approximately $173,000. On June 9, 2000, the Company agreed to issue a convertible promissory note to AccuMed International, Inc. The note, which is due on March 29, 2001, has a principal amount of $100,000, bears interest at the rate of 11%, and is convertible, at the option of AccuMed, into Common Stock of the Company at the rate of $3.50 per share. The note was issued in conjunction with an Amendment to a Patent and Technology License Agreement between the Company and AccuMed (dated September 4, 1998) dated June 9, 2000. The License Amendment specifies that the principal amount of the note shall be characterized as a prepaid royalty payment (see Note E above). NOTE I. STOCKHOLDERS EQUITY During January 2000, upon receipt of cleared funds received under a 1999 Private Placement Offering, the Company completed the sale of 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 price of $1.50 per share. Between February 7, 2000 and April 30, 2000, the closing date, the Company sold 3,583,333 shares of Common Stock for total proceeds of $5,375,000 under this Private Placement Offering. The 6% Convertible Subordinated Notes issued by the Company during 1999 contained a clause which provided for the automatic conversion of the Notes plus any accrued interest due thereon into Common Stock of the Company when a minimum requirement of $5,000,000 in new equity was met. On April 28, 2000, the Company reached the minimum new equity requirement as a result of the above mentioned Private Placement Offering. Accordingly, on that date the Notes, including $969,600 of principal and $61,658 of accrued interest due thereon, were automatically converted into 5,156,294 shares of Common Stock at a conversion price of $0.20 per share. The conversion price was computed in accordance with the provisions of the Notes and represented an adjustment of the original conversion price. On February 22, 2000 Azimuth Corporation exercised its right to convert the $50,000 principal amount of a Note plus $1,250 in accrued interest due thereon into 256,250 shares of Common Stock of the Company, at a conversion price of $0.20 per share. On April 10, 2000 the Company received $23,100 to exercise a warrant held by The Research Works to purchase 70,000 of Common Stock at an exercise price of $0.33 per share. On June 9, 2000 the Company signed an Amendment to a License and Technology Agreement dated September 4, 1998. Under the Amendment the Company was required to, among other things, issue 128,571 shares of Common Stock to AccuMed International, Inc. A fair value of $385,713 was recorded to equity to cover the issued shares. Under the Amendment the Company has agreed to price protect the value of these shares up to a maximum of $3.50 per share for a period of up to 60 days following the date on which the shares become freely tradable. 10 11 During 1999, the Company entered into contracts with several non-employee consultants. Under the terms of the contracts, the Company issued options to purchase 250,000 shares of Common Stock to these non-employees for consulting services. The options vest over three years and have exercise prices of $0.394 and $0.406 per share. The Company issued these options to consultants as consideration for services that commenced during 1999 and will be completed in 2002. Several of these contracts were terminated and 70,000 options previously granted were cancelled in accordance with the terms of the contracts. On August 3, 2000, the Company and a consultant agreed to an early termination, without cause, of a consulting contract entered into in 1999. This early termination resulted in the immediate vesting of 50,000 options granted to the consultant under the contract. As a measurement date for these options was determined, the Company recorded consulting expense of $116,000 in the current period to reflect the fair value of the 50,000 options at August 3, 2000, the termination date of the contract. The measurement date for the remaining outstanding options has not been determined as of September 30, 2000. Accordingly, a fair value for these options of $305,000 was calculated at September 30, 2000 using the Black-Scholes method. This value is charged to consulting expense over the term of the consulting agreements. The actual amount of expense ultimately recognized will vary depending on the market value of the Common Stock at the end of each period. For the nine-month period ended September 30, 2000, the Company recorded consulting expense of $74,000 related to these options. During 2000, the Company entered into contracts with several additional non-employee consultants. Under the terms of these new contracts, the Company issued options to purchase 185,000 shares of Common Stock to these non-employees for consulting services. These new options also vest over three years and have exercise prices of $2.6675 and $2.875 per share. These options were issued as consideration for services that commenced during 2000 and will be completed during 2003. The measurement date of all of these outstanding options has not been determined at September 30, 2000. The value of these options will be determined at the end of each interim period until a measurement date is determined. The fair value calculated for these options at September 30, 2000 using the Black-Scholes method was $16,500. The actual amount of expense ultimately recognized over the life of the contracts, will vary depending on the market value of the Common Stock at the end of each period. The Company has recorded consulting expense of less than $1,000 related to these options for the nine-months ended September 30, 2000. The Company has recorded consenting expense of less than $1,000 related to these options for the nine-months ended September 30, 2000. In January 2000 the Company issued options to purchase 25,000 shares of Common Stock to a non-employee for consulting services. The options were for consulting services completed as of the date of the grant. The options vested immediately and have an exercise price of $0.921. The fair value of the options, as calculated using the Black-Scholes method, was estimated at $23,000 at the date of the grant. The Company recorded the entire $23,000 amount as compensation expense for the three-month period ended March 31, 2000. In August 1999, the Company awarded 50,000 shares of restricted Common Stock to a non-employee consultant under the terms of a consulting contract. The award vests equally over the three-year life of the contract. 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. On August 3, 2000 the Company and the consultant agreed to an early termination, without cause, of the consulting contract. This termination resulted in the immediate vesting of the restricted shares awarded under the contract. As a measurement date for these shares was determined, the Company determined that the fair value of the shares at that date was $118,750 based on the closing market price of the Common Stock on that date. This value is charged to expense over the term of the agreement. For the nine-months ended September 30, 2000, the Company recorded consulting expense of $111,000 to reflect the full vesting of these shares and the completion of services under the contract. In August 1999 and July 2000, the Company awarded 50,000 shares of restricted Common Stock each to two non-employee consultants under the terms of consulting contracts. Vesting of the awards varies from the date of grant to the three-year life of the contracts, under terms similar to those outlined above. The measurement date for these restricted stock awards has not been determined as of September 30, 2000. Therefore, the value of these shares will be based on the market value of the Common Stock at the end of 11 12 each interim reporting period until the measurement date is determined. Accordingly, a fair value for these restricted shares of $280,000 was calculated at September 30, 2000 using the Black-Scholes method. This value is charged to expense over the term of the consulting agreements. For the nine-months ended September 30, 2000 the Company recorded consulting expense of $70,000 related to these shares. In June 2000, the Company entered into a License and Technology Agreement with Invirion, Inc. (see Note F above). The Company capitalized $766,000 in license fees and recorded an offsetting amount as additional paid in capital representing the fair value of warrants to purchase 250,000 of Common Stock issued to Invirion on September 12, 2000 under the terms of the Agreement 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 $2.875 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 options or restricted shares. At September 30, 2000 and December 31, 1999, 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 a compensation expense in the amount of $928,000 for the nine-months September 30, 2000 to reflect the difference between the respective closing market prices of the Company's common stock at September 30, 2000 and December 31, 1999 and the exercise price of the SAR's. NOTE J. LITIGATION On October 30, 2000 the Company, its' wholly owned subsidiary InPath, L.L.C. and Peter P. Gombrich, Chief Executive of the Company, filed suit in Cook County, Illinois, against SpectRx, Inc. and Welch Allyn, Inc. The suit seeks injunctive relief and damages from SpectRx, Inc. based on a complaint of fraud and breach of certain confidentiality agreements with regard to the Company's business and marketing plans and its technology related to in-vivo diagnostic devices. The suit also charges SpectRx, Inc. along with Welch Allyn, Inc. with misappropriation of trade secrets belonging to Ampersand and InPath in violation of the Illinois Trade Secrets Act. The Company's suit was filed in response to a suit filed by the defendants in a Georgia court seeking a Declaratory Judgment, but no monetary damages or other relief, that they did not breach the confidentially agreements as the Company has charged in its suit. 12 13 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS OVERVIEW See Note B to the Consolidated Financial Statements for background and historical information on the Company. The Company is primarily engaged in the design and development of new products to serve the market for cancer screening. With the exception of the software products and services marketed by the Company's wholly owned subsidiary, Samba Technologies, Sarl, all other products have not as yet been introduced to the market for sale. REVENUES The Company's revenue of $839,000 for the nine-month period ended September 30, 2000 compared to $912,000 for the nine-month period ended September 30, 1999 were entirely derived during both periods from the sale of Samba products. The average exchange rate between the U.S. Dollar and the Euro (the currency to which Samba's operating currency, the French Franc, is fixed) for the current nine-month period reflects a decline in the value of the Euro to the U.S. Dollar of approximately 14% from the previous year's nine-month period. This decline reduced the translated value of Samba's revenue for the current nine-month period by approximately $115,000. The Company's revenue for the three-months ended September 30, 2000, amounting to $298,000, declined $72,000 from revenues of $370,000 for the three-months ended September 30, 1999. Approximately 65% of the decrease resulted from the decline in the exchange rate with the balance resulting from variability in the completion of customer contract orders from period to period. Revenue for the current year three-month period reflects an increase of approximately 66% compared to revenue for the immediately preceding three-month period. This increase is primarily the result of the variability in the timing of contracts received and completed from period to period offset by a continuing decline in the exchange rate. COST AND EXPENSES COST OF GOODS SOLD Cost of goods sold for the nine months ended September 30, 2000 amounted to $543,000 a decrease of 10% from the $600,000 reported for the nine-months ended September 30, 1999. Cost of goods sold for the three-months ended September 30, 2000 amounting to $194,000 represents a decrease of 33% from the $289,000 reported as cost of goods sold for the three-month period ended September 30, 1999. The variation in both periods is the result of changes in the product mix between services and hardware on contracts completed during the periods. Amounts reported for the current year's nine-month and three-month periods are affected by currency translation issues outlined under revenues. The costs for both periods were entirely related to Samba products and services. Gross margin for the three-months ended September 30, 2000 increased to 35% from the 11% reported for the three-months ended June 30, 2000. This increase is the result of changes in product mix for the quarter and higher quarter revenues versus fixed costs. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were $2,403,000 for the nine-months ended September 30, 2000. These costs represent contracted development and consulting services, manufacturing design services, contract research, and in-house development personnel, laboratory expense, and research administration. R & D costs for the nine-months ended September 30, 1999 were $865,000. The increase of $1,538,000, or 178%, represents increased development cost of the instrument and disposable components of the company's InPath System for cervical cancer screening. The development ramp-up began late in the third 13 14 quarter of 1999 and has continued at a pace intended to get the Company's products into clinical trials as soon as possible. The current period increase also includes $100,000 paid to Invirion under a contract to development applications using Invirion technology on tests and instruments developed by the Company. During the nine-months ended September 30, 2000 the Company also recorded non-cash R & D consulting expense of $361,000 to reflect the current market value of options and restricted stock granted to non-employee consultants during the years 1999 and 2000. The options and stock are related to services performed by the consultants over a three-year period and the charge for the nine-month period reflects the adjusted amortization of their current value over the period. Research and development expenses for the three-months ended September 30, 2000 were $1,084,000 representing an increase of 209% over the $351,000 reported for the three-months ended September 30, 1999. This increase was the result of the ramp-up development efforts and the cost of the Invirion development contract previously described. The R & D expenses for the three-months ended September 30, 2000 increased approximately $571,000 from similar expenses for the three-months ended June 30, 2000. The primary reason for the increase was additional non-cash R&D expense during the current period related to the above options and stock awards and the cost of the Invirion development contract.. The volume of the awards and grants outstanding increased during the current three-month period, including certain options and awards, which reached a measurement date as a result of the early termination of a consulting contract The expenses related to the additional outstanding volume was somewhat offset by a slight decline in the market price of the underlying Common Stock. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $3,366,000 for the nine-months ended September 30, 2000, an increase of $1,944,000, or 137%, over the $1,422,000 reported for the nine-months ended September 30, 1999. During the nine-months ended September 30, 2000 the Company recorded a non-cash compensation charge $928,000 to reflect the value of outstanding SARs at September 30, 2000. The Company also recorded an additional non-cash compensation charge of $23,000 to reflect the fair value of options granted to a non-employee consultant for administrative services already completed. These non-cash charges were offset by the reclassification of $250,000 of previously recorded royalty expense to prepaid royalties. The reclassification was the result of the settlement of a dispute related to a Patent and Technology License Agreement between the Company and AccuMed International, Inc. These three items represent approximately 36% of the total increase for the current nine-month period. The balance of the increase reflects the larger scale of operations of the Company during the period. The following expense categories account for a majority of the increase in costs related to the scale of operations: approximately $373,000 in sales and marketing costs covering additional personnel for both the InPath and Samba product lines and international marketing studies for the InPath product line; $105,000 in personnel recruitment fees; $95,000 in regulatory personnel costs; $115,000 in additional administrative personnel costs; $66,000 in additional travel costs; and public company related costs(such as investor relations, legal, accounting, transfer agent fees, etc.) of $208,000. Selling, general and administrative expenses were $712,000 for the three-months ended September 30, 2000, an increase of $313,000 from the $399,000 for the three-months ended September 30, 1999. This increase was primarily the net result of a reduction in SAR related compensation charges of $338,000 offset by the following: marketing expenses of $206,000; $49,000 in regulatory personnel costs; $29,000 in personnel recruitment fees; $90,000 in travel; $158,000 in legal fees; and $97,000 in public company related costs. Selling, general, and administrative expenses for the three-months ended September 30, 2000 increase $541,000 from similar expenses for the three-months ended June 30, 2000. This increase was primarily the result of a reduced level of expenses in the June 2000 quarter caused by the reclassification of $500,000 in previously recorded royalty expense to prepaid royalty and an additional reduction in compensation expense related to the mark to market value of outstanding SAR's of $85,000 in the current quarter. OTHER INCOME AND EXPENSE 14 15 The Company incurred $65,000 and $49,000 in interest expense during each of the nine-month periods ended September 30, 2000 and 1999. The increase primarily reflects $25,000 in amortization of debt discount related to the Azimuth note payable. During the nine-month period ended September 30, 2000 the Company earned interest income of approximately $54,000 from a note receivable. The Company incurred $35,000 in interest expense for the three-months ended September 30, 2000 compared to $18,000 for the three-months ended September 30, 1999. The increase reflects the above mentioned debt discount offset by a reduction in interest expense due to the conversion of outstanding 6% Notes into Common Stock during the second quarter of 2000. The Company earned $27,000 in interest income from notes receivable during the 2000 period. Interest expense for the three-months ended September 30, 2000 increased by approximately $25,000 over the expense for the three-months ended June 30, 2000 reflecting the above mentioned debt discount amortization. In September 2000, the Company agreed to pay $200,000 in settlement of all amounts owed to its prior legal counsel for services. The settlement covered an outstanding note payable in the amount of $75,000, accrued interest due on the note of $18,000 and unpaid invoices for legal services amounting to $333,000. The Company recorded the $226,000 difference between the total amount owing and the settlement amount as other income for the three and nine-month periods ended September 30, 2000. In September 1999, the Company terminated negotiations to purchase a product line from AccuMed International, Inc. and wrote off a non-refundable deposit of $100,000 made in conjunction with a "no shop" clause included in the Letter of Intent governing the proposed transaction. The company also relocated its corporate offices in September 1999 and wrote off $23,000 representing the unamortized value of leasehold improvements in the former office space. NET LOSS The net loss for the nine-months ended September 30, 2000 was $5,235,000, or $0.19 per share, on 27,074,026 weighted average outstanding shares. The net loss for the nine-months ended September 30, 1999 was $2,147,000, or $0.16 per share, on 13,091,814 weighted average shares outstanding. The net loss for the three-months ended September 30, 2000 was $1,450,000, or $0.05 per share on 30,056,468 weighted average shares outstanding. The net loss for the three-months ended September 30, 1999 was $809,000, or $0.05 per share on 14,729,534 shares outstanding. $1,311,000, or 25%, of the net loss increase in the 2000 nine-month period is directly related to the recording of non-cash compensation and consulting expenses related to options, restricted stock, and outstanding SARs. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash requirements continue to be for research, development and design expenses of its InPath System products and the conversion of those designs through the process of clinical trials and manufacturing. At September 30, 2000 the Company had cash on hand of $21,000, a decrease of $15,000 over cash on hand at the previous year-end. The Company also held notes receivable due November 30, and December 3, 2000 amounting to $1,050,000, plus accrued interest due of $58,000. During January 2000, upon receipt of $565,000 the Company completed the sale of Common Stock under a 1999 Private Placement Offering. In January 2000, the Board of Directors authorized the Company to raise a minimum of $5,000,000 in new equity, at a price of $1.50 per share. The Company completed the Private Placement Offering on April 30, 2000 the Company having received $5,375,000 in proceeds between February and April 2000. On February 22, 2000 Azimuth Corporation exercised its right to convert the $50,000 principal amount of a note plus $1,250 in accrued interest into shares of Common Stock of the Company. On April 10, 2000 the Company received $23,100 to exercise a warrant to purchase Common Stock held by The Research Works. 15 16 As a result of the completion of the above-mentioned January Private Placement Offering, $969,600 in principal of 6% Convertible Subordinated Notes Due 2000 plus $61,658 in accrued interest due thereon was automatically converted into Common Stock of the Company. 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 original License, covering certain "Point of Care" related applications, requires the payment of a minimum license fee of $500,000, against which InPath had made payments of $400,000, and a 7% royalty rate. The original License also required InPath 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 original License cannot 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 occurs first. InPath may elect to terminate its exclusivity under the original License upon written notice to AccuMed at which time its obligation to make the minimum required royalty payments cease. InPath would then only be obligated to make royalty payments based on actual sales of products. The new Amendment provides for the assignment of the License to the Company, elimination of the minimum royalty payment schedule, while retaining the $5,000,000 minimum royalty payment due over the 20-year life of the License, and a reduction in the royalty rate to 4%. Upon signing the Letter Agreement to amend the License, the Company paid AccuMed the remaining $100,000 minimum license fee, and agreed to make additional payments totaling $500,000, 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 additional cash payments are characterized as advanced non-refundable royalty payments. The $100,000 principle 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 Amendment to the License was executed on June 9, 2000, the additional $500,000 cash payment was made, the Company agreed to issue the $100,000 note payable, and the 128,571 shares of Common Stock were issued. At the same time the Company reclassified minimum royalty payments previously expensed, including $250,000 during the three-months ended March 31, 2000 and $250,000 during the final quarter of 1999, due under the License to prepaid royalties in accordance with the terms of the License Amendment. On September 22, 2000 the Company signed a Letter of Intent to merge with and into AccuMed. The proposed merger is subject to completion of a Definitive Agreement, and the approval of the stockholders of both companies. Under the terms of the Letter of Intent, the Company loaned AccuMed $300,000 evidenced by a promissory note bearing interest at 11% per annum. The note, which is secured by all of the assets of AccuMed, is due on December 31, 2000 or earlier in the event that merger negotiations are terminated. In June 2000, the Company entered into a License and Technology Agreement with Invirion, Inc. granting the Company exclusive rights to certain HPV detection technology developed and owned by Invirion. The agreement provides for license payments totaling $500,000. The timing of the license payments is based on technology delivery milestones specified in the agreement. During the third quarter Invirion delivered the technology specified under the first and second milestones entitling Invirion to license payments totaling $250,000. Invirion agreed to accept payment of the amount due at the rate of $25,000 per month for 10 months. The Company made the initial $25,000 payment on September 12, 2000. In addition to the cash payments, due under the license, Invirion is also entitled to receive warrants to purchase 450,000 shares of Common Stock at a price of $0.01 per share. The issuance of the warrants is dependent on the delivery of technology under the above milestones. On September 12, 2000 the Company issued warrants to purchase 250,000 shares of Common Stock upon the delivery of technology specified under the first and 16 17 second milestones. The Company capitalized a fair value of $766,000 for these warrants, as determined using the Black-Scholes, as license fees and additional paid in capital. The Company also entered into a separate development agreement with Invirion to develop applications of Invirion technology for use in Ampersand's tests and instruments. In August 2000, the Company paid Invirion $100,000 to cover the full development costs of these applications. In September 2000 the Company borrowed $500,000 from Azimuth Corporation. The note is due on September 21, 2001 and bears interest at the rate of 15% per annum. The Company may prepay the note or Azimuth may convert the note into shares of Common Stock of the Company, at a conversion price of $1.00 per share, at any time after the expiration of 180 days from the issue date of the note. This note has a beneficial conversion feature. The Company recorded a value of $500,000 as debt discount to reflect this beneficial conversion feature. The amount will be amortized as interest expense pro rata over the initial 180 day term of the Note. During the three-months ended September 30, 2000 the Company recorded $25,000 of interest expense related to the beneficial conversion feature. In September 2000, the Company's wholly owned subsidiary, Samba Technologies, Sarl, negotiated an increase in its revolving credit line from approximately $140,000 to approximately $200,000. Samba's outstanding borrowings under the revolver at September 30, 2000 amounted to $173,000, an increase of $39,000 over the amount outstanding at December 31, 1999. 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 implement its business plan and continue as a going concern unless management obtains additional capital or acquires other sources of financing. Management's plans include continuing efforts to obtain additional capital. The Company has been successful in raising new equity and reducing debt through the conversion of notes and accrued interest into Common Stock as outlined above. However, there can be no assurance that the Company will continue to be successful in raising capital should the need for such capital arise in the future. If the Company is unable to obtain additional financing, should the need arise, 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. 17 18 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Certain statements throughout this report are forward looking. 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. Item 3. 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 September 30, 2000, the carrying amount of the Company's debt instruments approximated their fair value. In addition, as of September 30, 2000, 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 September 30, 2000 the Company has recorded a negative cumulative translation adjustment of ($146,000) reflecting the current valuation of the Company's investment in and current account with Samba. 18 19 Part II. Other Information Item 1 Legal Proceedings On October 30, 2000 the Company, its' wholly owned subsidiary InPath, L.L.C. and Peter P. Gombrich, Chief Executive of the Company, filed suit in Cook County, Illinois, against SpectRx, Inc. and Welch Allyn, Inc. The seeks injunctive relief and damages from SpectRx, Inc. based on a complaint of fraud and breach of certain confidentiality agreements with regard to the Company's business and marketing plans and its technology related to in-vivo diagnostic devices. The suit also charges SpectRx, Inc. along with Welch Allyn, Inc. with misappropriation of trade secrets belonging to Ampersand and InPath in violation of the Illinois Trade Secrets Act. The Company's suit was filed in response to a suit filed by the defendants in a Georgia court seeking a Declaratory Judgment, but no monetary damages or other relief, that they did not breach the confidentially agreements as the Company has charged in its suit. Item 2 Changes in Securities None Item 3 Defaults on Senior Securities None Item 4 Submission of Matters to Vote of Security Holders None Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K Exhibits The following exhibits are filed herewith: Exhibit Number Description 10.20 License and Development Agreement for Specific Medical Technology for detection of Oncogenic HPV Virus, between Invirion and the Company dated June 23, 2000. 27 Financial Data Schedule Reports on Form 8-K None 19 20 SIGNATURES Pursuant to the requirements 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 /s/ Leonard R. Prange --------------------- Leonard R. Prange ------------------------------------ President, Chief Operating Officer, Chief Financial Officer and Secretary Principal Accounting Officer Date: November 14, 2000 20 EX-10.20 2 c58565ex10-20.txt LICENSE AND DEVELOPMENT AGREEMENT 1 EXHIBIT 10.20 LICENSE AND DEVELOPMENT AGREEMENT FOR SPECIFIC MEDICAL TECHNOLOGY FOR THE DETECTION OF ONCOGENIC HPV VIRUS This Agreement, effective as of the 23rd day of June, 2000, by and between INVIRION, a United States corporation organized and existing under the laws of the State of Illinois, having a place of business at 2350 Pilgrim Highway, Frankfort, Michigan 49635 (hereinafter "Invirion") and AMPERSAND, an Illinois corporation, having a place of business at 414 North Orleans, Chicago, Illinois 60610 (hereinafter "Ampersand"). WHEREAS, Invirion possesses, and Ampersand recognizes and acknowledges, that Invirion has developed and possesses extensive technical information and knowledge, is able to provide certain technical assistance and services, and is the owner of medical technology; all relating to viral detection concerning human papilloma virus ("HPV") using a unique and proprietary in-vitro hybridization technique and marker(s); and WHEREAS, Ampersand desires to acquire and Invirion is willing to grant, transmit to and provide Ampersand the medical technology, technical assistance, technical information and knowledge and services as hereinafter provided. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, it is hereby agreed as follows: ARTICLE I - DEFINITIONS As used herein unless the context otherwise requires: 1.1 "MEDICAL TECHNOLOGY" means technical information or knowledge now possessed by Invirion, including information heretofore disclosed to Ampersand in anticipation of this Agreement, relating only to a HPV detection method using fluorescence oligonucleotide detection with 1 2 simultaneous antibody staining and an identification of the necessary reagent or reagents to perform the HPV detection. 1.2 "PRODUCT" means any probes, markers, formulations, chemicals, compounds, reagents, procedures, processes, methods, tests, formulas, and processing or devices designed, made, assembled, converted, processed, used or sold by Ampersand for use in utilizing, in accordance with, or embodying said MEDICAL TECHNOLOGY. 1.3 "NET SALES" means the total price invoiced or received, for any test performed or product made, sold, or produced to Ampersand's customers less charges for transportation and packaging, taxes, commissions, with credit given for return. ARTICLE II - LICENSE GRANT 2.1 Invirion grants to Ampersand the worldwide and exclusive right and license to assemble, make, convert, process, use, and sell PRODUCT utilizing the MEDICAL TECHNOLOGY. 2.2 Except as specifically provided herein, no right or license is granted hereby, by implication or otherwise, under any patent, patent application, technical information, know-how, trade secret, medical technology, copyright, trademark, trademark application or registration or trade name of Invirion. Specifically excluded from this Agreement is any technology owned, developed, or created by Invirion concerning other viral detection products and related products. 2.3 No right or license is granted by Ampersand to Invirion or by implication for any patent, patent application, technical information, know-how, trade secret, medical technology, copyright, trademark, trademark application or registration or trade name owned by Ampersand. 2 3 ARTICLE III - ROYALTY & PAYMENTS 3.1 Ampersand agrees to pay Invirion a license fee of five hundred thousand dollars ($500,000) in addition to the funds set forth in the Development Agreement set forth in Exhibit A, which is incorporated herein by reference, as follows according to the following benchmarks: 1. an initial payment of $100,000 upon the execution of the Agreement, and upon confirmation by Ampersand's attorneys that: (a) Invirion technology is not in violation and/or conflict with any known third party's patents and, (b) that Invirion has full ownership of such medical technology (Paragraph 9.2 below);and (c) Invirion shall also deliver to Ampersand a formulation with sample of a HPV cocktail containing approximately 400 probes. 2. $150,000 after Invirion provides Ampersand with a HPV probe containing less than 200 different probes that is capable of detecting all known oncogenic serotypes. Upon the completion of this benchmark, Ampersand will also deliver to Invirion a warrant to purchase 150,000 shares of Ampersand stock. A copy of the warrant and its terms and conditions is attached hereto as Exhibit B, which are incorporated herein by reference. 3. $150,000 after Invirion provides Ampersand with a new HPV probe that detects HPV in Caski cells. 4. $100,000 after Invirion demonstrates that the new HPV probe format is compatible with Ampersand's detection equipment and provides Ampersand with complete documentation required for regulatory compliance. Upon the completion of this benchmark, Ampersand will also deliver to Invirion a warrant to purchase 150,000 3 4 shares of Ampersand stock. A copy of the warrant and its terms and conditions is attached hereto as Exhibit C, which are incorporated herein by reference. A description of the work to be performed, a specification for implementing HPV detection, and a time line setting forth the completion dates for the above referenced benchmarks is set forth in the attached Exhibit D. 3.2 In the event that Ampersand is sold or merged with another entity, or Ampersands rights in the License Agreement are assigned, transferred, or conveyed to another entity, the warrants identified in Exhibits B and C shall fully vest to Invirion. 3.3 A royalty of seven percent (7%) on NET SALES received by Ampersand of HPV related products using the MEDICAL TECHNOLOGY. In the event that Invirion is late in meeting the benchmarks set forth above, for each two month period that lapses, the royalty rate set forth in Paragraph 3.3 shall be reduced by one quarter percent (1/4%). This penalty shall not be assessed if Invirion establishes that the delay is the result of or is caused by circumstances beyond its control. ARTICLE IV - RECORDS AND REPORTS 4.1 Ampersand shall keep complete and proper records of all said PRODUCTS assembled, converted, processed, made, used, sold or sold for use or otherwise used or disposed of or transferred by Ampersand with credit shown for returns for which credit is given to customers as well as all tests performed, such records to show separately the quantity of PRODUCTS assembled, made, converted, processed for or sold to each customer or otherwise used or disposed of as well as tests performed, net price totals, all amounts invoiced for or associated with or related to any processing or processing charge and the date of invoice and shipment. Sales shall be considered as made on the date of invoice or shipment, whichever shall first occur. On or before the last day of 4 5 January, April, July and October of each year during the term hereof and the thirtieth (30th) day after termination hereof, Ampersand shall send Invirion a report, in writing, certified by the chief financial officer of Ampersand as to its correctness, showing separately the Net Sales or Process Charge of said PRODUCT assembled, converted, processed, made, used, sold or otherwise used or disposed of or transferred by Ampersand under or utilizing rights granted hereunder and computing the amount due Invirion for the preceding calendar quarter. Unless Ampersand shall be otherwise directed in writing by Invirion, each such report shall be accompanied by the proper amount then payable to Invirion as shown in such report. 4.2 Invirion shall have the right, during reasonable business hours, to have the correctness of any such report audited, at its expense, by an independent public accountant chosen by Invirion who shall examine Ampersand's records only on material pertinent to this Agreement. Such records of Ampersand shall be kept available by Ampersand for at least four (4) years after termination of the calendar year in which they are made. 4.3 Unless Ampersand shall be otherwise directed in writing by Invirion, all payments called for under this Agreement shall be in United States currency payable to Invirion (to an account from time to time identified by Invirion in writing) without deduction for taxes of any kind. 4.4 Ampersand shall pay Invirion interest at the rate of ten percent (10%) per annum compounded quarterly on any remuneration that is more than forty-five (45) days overdue hereunder from the earliest date such payment is due to the date of payment. This interest payment shall be in addition to any other remedy provided by Invirion by law or this Agreement. ARTICLE V - TECHNICAL ASSISTANCE 5.1 Ampersand agrees that said MEDICAL TECHNOLOGY is confidential and agrees not to disclose or use said MEDICAL TECHNOLOGY to the extent that it is not generally known, in the 5 6 trade, except to the extent provided or required by the applicable laws. 5.2 Invirion shall retain and own the rights in any improvements conceived, introduced, or developed relating to the PRODUCTS and/or MEDICAL TECHNOLOGY relating to non-HPV technology and Ampersand shall be the owner of all rights concerning HPV technology. 5.3 All expenses and research necessary to complete the benchmarks set forth in Paragraph 3.1 will be at Invirion's expense. Invirion also agrees to provide Ampersand with bi-monthly status reports as to the progress made with respect to the benchmarks set forth in Paragraph 3.1. ARTICLE VI - TERM AND TERMINATION 6.1 As to all grants, obligations and provisions relating to said MEDICAL TECHNOLOGY, this Agreement shall continue in full force and effect, unless otherwise provided or sooner terminated as herein provided. 6.2 Invirion may terminate this Agreement forthwith upon written notice to Ampersand if: (1) Ampersand remains in default in making any payment or report required hereunder, or fails to comply with any other provision hereof for a period of thirty (30) days after written notice of such default or failure is given by Invirion to Ampersand. (2) Ampersand shall become insolvent, make an assignment for the benefit of creditors or the like, or commit any act of bankruptcy or the like, or if any order for the compulsory liquidation, reorganization or the like of Ampersand shall be made by any court, governmental agency or the like. 6.3 Any termination of this Agreement shall not relieve Ampersand of liability for any payments accrued prior to the effective date of such termination, or for any payments on PRODUCT manufactured, used or sold under this Agreement prior to the effective date of such termination and sold 6 7 thereafter. 6.4 Upon termination for breach by Ampersand or otherwise pursuant to Section 7.2, Ampersand shall have no right or license in or to said MEDICAL TECHNOLOGY and hereby agrees to cease and desist using said MEDICAL TECHNOLOGY. ARTICLE VII - ASSIGNMENT 7.1 This Agreement may, at any time, be assigned by Invirion without such assignment operating to terminate, impair or in any way change any of the obligations or rights which Ampersand would have had, or any of the obligations or rights which Invirion would have had if such assignment had not occurred. From, and after, the making of any such assignment by Invirion, the assignee shall be substituted for Invirion as a party hereto and Invirion shall no longer be bound hereby. The Agreement may not be assigned to a competitor of Ampersand's. 7.2 This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of both parties. ARTICLE VIII - MISCELLANEOUS 8.1 All notices or communications which either party may desire, or be required, to give to the other shall be in writing and shall be deemed to have been duly served if and when forwarded by registered or certified mail to such address as shall have been designated by notice from the addressee for addressing of notices to it, or if no such designation shall have been made, then to the address of the party appearing above. 8.2 The failure to act upon any default hereunder shall not be deemed to constitute a waiver of such default. 8.3 The validity, legality and enforceability of any provision hereof shall not be affected or impaired in any way by any holding that any other provision contained herein is invalid, illegal or 7 8 unenforceable in any respect. 8.4 All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or several arbitrators appointed according to said Rules. The arbitrator(s) shall apply substantive State of Illinois (USA) law to any dispute in accordance with international conventions. The arbitration shall take place in the State of Illinois (USA). ARTICLE IX INDEMNIFICATION AND WARRANTY 9.1 Ampersand hereby releases and agrees to hold Invirion harmless and indemnify and defend Invirion from any and all claims, including, but not limited to, product liability claims, actions, losses, damages and liability resulting from or arising out of the manufacture, use or sale by Ampersand of the PRODUCT. 9.2 To the best of Invirion's knowledge and belief, the manufacture, use, and sale of the PRODUCTS and/or MEDICAL TECHNOLOGY will not infringe any valid and enforceable patents owned by others and that it is the lawful owner of the MEDICAL TECHNOLOGY and has the full right to transfer and/or convey the MEDICAL TECHNOLOGY to Ampersand free from any claims from others. IN WITNESS WHEREOF, the parties have executed Agreement as of the date first written above. INVIRION CORPORATION AMPERSAND MEDICAL By By --------------------------- ------------------------- Its Its -------------------------- ------------------------ Dated: Dated: ----------------------- --------------------- 8 9 EXHIBIT "A" DEVELOPMENT AGREEMENT This Agreement, effective as of the 23rd day of June, 2000, by and between INVIRION, a United States corporation organized and existing under the laws of the State of Illinois, having a place of business at 2350 Pilgrim Highway, Frankfort, Michigan 49635 (hereinafter "Invirion") and AMPERSAND, an Illinois corporation, having a place of business at 414 North Orleans, Chicago, Illinois 60610 (hereinafter "Ampersand"). WHEREAS, Invirion possesses, and Ampersand recognizes and acknowledges, that Invirion has developed and possesses extensive technical information and knowledge, is able to provide certain technical assistance and services, and is the owner of medical technology; all relating to viral detection concerning human papilloma virus ("HPV") using a unique and proprietary in-vitro hybridization technique and marker(s); and WHEREAS, Ampersand desires to acquire and financially assist Invirion in developing Invirion's Medical Technology; WHEREAS, Ampersand and Invirion have entered into an Agreement entitled LICENSE AND DEVELOPMENT AGREEMENT FOR SPECIFIC MEDICAL TECHNOLOGY FOR THE DETECTION OF ONCOGENIC HPV VIRUS; and NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, it is hereby agreed as follows: 1. Upon the execution of the this Development Agreement, Ampersand will pay Invirion a non-refundable payment of $100,000. 10 EXHIBIT "A" 2. Invirion agrees to devote the funds provided towards research and development directed at achieving the benchmarks set forth in Paragraph 3.1 of the LICENSE AND DEVELOPMENT AGREEMENT FOR SPECIFIC MEDICAL TECHNOLOGY FOR THE DETECTION OF ONCOGENIC HPV VIRUS. 3. Any additional expenses incurred by Invirion in achieving the benchmarks set forth on Paragraph 3.1 shall be at Invirion's own expense. 3. The terms and conditions set forth in the LICENSE AND DEVELOPMENT AGREEMENT FOR SPECIFIC MEDICAL TECHNOLOGY FOR THE DETECTION OF ONCOGENIC HPV VIRUS are herein incorporated by reference. IN WITNESS WHEREOF, the parties have executed this development Agreement as of the date first written above. INVIRION CORPORATION AMPERSAND MEDICAL By By --------------------------- ------------------------- Its Its -------------------------- ------------------------ Dated: Dated: ----------------------- --------------------- 11 EXHIBIT "B" THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER WARRANT TO PURCHASE SHARES OF COMMON STOCK OF AMPERSAND MEDICAL CORPORATION WARRANT NO. I-EXHIBIT B DATED: PER SECTION 3.1, 2 OF LICENSE AND DEVELOPMENT AGREEMENT ATTACHED This certifies that INVIRION (the "HOLDER") for value received, is entitled, subject to the terms set forth below to purchase from AMPERSAND MEDICAL CORPORATION, a Delaware corporation (the "COMPANY"), one hundred and fifty thousand shares (150,000) fully paid and nonassessable shares (the "WARRANT SHARES") of the Company's Common Stock, par value $0.001 per share (the "STOCK") at a price of one cent ($0.01) per share (the "STOCK PURCHASE PRICE") at any time but not earlier than the Commencement Date (as defined below) or later than 5:00 pm (New York Time) on the Expiration Date (as defined below), upon surrender to the Company at its principal office at 414 N. Orleans St.. Suite 510, Chicago, Illinois 60610, Attention: President (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the form of Exercise Notice attached hereto duly completed and signed upon payment in cash or cashier's check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of Warrant Shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant and all rights hereunder to the extent not exercised in the manner set forth herein shall terminate and become null and void on the Expiration Date (as defined below). "COMMENCEMENT DATE" shall mean the date of this Warrant. Expiration date shall mean the third anniversary of the Commencement Date. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES PAYMENT FOR WARRANT SHARES (a) This Warrant is exercisable by payment of the Stock Purchase Price by cash payment, certified check or wire transfer, in the manner set forth above at the option of Holder at any time but not earlier than the Commencement Date or later than 5:00 p.m. (New York Time) on the Expiration Date for all or a portion of the shares of Stock subject to this Warrant. The Company agrees that the Warrant Shares purchased under this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares (unless the Conversion Right is exercised). Subject to the provisions of Section 2, certificates for the Warrant Shares so purchased shall be delivered to holder by the Company's transfer agent at the Company's expense within a reasonable time after the rights represented by this Warrant have been exercised. 1 12 EXHIBIT "B" The stock certificate(s) so delivered shall be in such denominations of Stock requested by Holder and shall be registered in the name of the Holder or such other name as shall be designated by the Holder, subject to the limitations contained in Section 2. If, upon exercise of this Warrant, fewer than all of the shares of Stock evidenced by this Warrant are purchased prior to the Expiration Date of this Warrant, one or more new warrants substantially in the form of, and on the terms of, this Warrant will be issued for the remaining number of shares of Stock not purchased upon exercise of this Warrant. (b) In lieu of the payment of the Stock Purchase Price, the Holder may require the Company to convert this Warrant into shares of Stock (the "CONVERSION RIGHT") as provided for in this SECTION 1(b). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any of the Stock Purchase Price) that number of shares of Stock equal to the quotient obtained by dividing (x) the value of the Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Stock Purchase Price in effect immediately prior to the exercise of the Conversion Right from the aggregate Market Value (as defined in SECTION 1(d) below), for the Warrant Shares immediately prior to the exercise of the Conversion Right) by (y) the Market Value. (c) The Conversion Right may be exercised by the Holder by delivering the Warrant Certificate with a duly executed Exercise Notice in the form attached hereto with the conversion section completed to the Company. (d) For the sole purpose of determining the number of Warrant Shares which shall be delivered to the Holder by the Company pursuant to the Conversion Right as set forth in SECTION 1(b) above, "Market Value") shall mean the average daily closing price of a share of the Stock as listed on the exchange or quotation system of which the Stock may then be listed for the ten (10) consecutive days of trading ending on the third business day immediately preceding the date of exercise of such Conversion Right, or in the event the Stock is not then publicly traded, the Market Value shall be determined in good faith by the Company and the Holder. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that the Warrant Shares will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes (other than income taxes, which may be applicable to Holder, liens and charges with respect to the issue thereof. The Company covenants that it will reserve and keep available a sufficient number of shares of its authorized but unissued Stock for such exercise. The Company will take all such reasonable action as may be necessary to assure that such shares of Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange or automated quotation system upon which the Stock may be listed. 3. ADJUSTMENT OF STOCK PURCHASE PRICE PAID NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this SECTION 3. 2 13 EXHIBIT "B" 3.1 SUBDIVISION OR CONTINUATION OF STOCK AND STOCK DIVIDEND. In case the Company shall at any time subdivide its outstanding shares of Stock into a greater number of shares or declare a dividend upon its Stock payable solely in shares of Stock, the Stock Purchase Price in effect immediately prior to such subdivision or declaration shall be proportionately reduced, and the number of shares issuable upon exercise of the Warrant shall be proportionately increased. Conversely, in case the outstanding shares of Stock of the Company shall be combined into a smaller number of shares the Stock Purchase Price in effect immediately prior to such combination shall he proportionately increased and the number of shares issuable upon exercise of the Warrant shall be proportionately reduced. 3.2 NOTICE OF ADJUSTMENT. Promptly after adjustment of the Stock Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, 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 (the notice shall be signed by an authorized officer of the Company and shall state the effective date of the adjustment and the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3.3 CHANGES IN STOCK. In case at any time prior to the Expiration Date, the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets or recapitalization of the Stock) in which the previously outstanding Stock shall be changed into or exchanged for different securities of the Company or common stock or other securities of another corporation or interests in a noncorporate entity or other property (including cash) or the Company shall make a distribution on its shares, other than regular cash dividends on its outstanding stock, or any combination of any of the foregoing (each such transaction being herein called the "TRANSACTION" and the date of consummation of the Transaction being herein called the "CONSUMMATION DATE"), then, as a condition of the consummation of the Transaction, lawful and adequate provisions shall be made so that each Holder, upon the exercise hereof at any time on or after the Consummation Date, shall be entitled to receive, and this Warrant shall thereafter represent the right to receive, in lieu of the Stock issuable upon such exercise prior to the Consummation Date, the highest amount of securities or other property to which the Holder would actually have been entitled as a stockholder upon the consummation of the Transaction if the Holder had exercised such Warrant immediately prior thereto. The provisions of this SECTION 3.3 shall similarly apply to successive Transactions. 4. INVESTMENT REPRESENTATIONS. By receipt of this Warrant, and by its execution the Holder represents to the Company the following: (a) the Holder understands that this Warrant and any Stock purchased upon its exercise are securities, the issuance of which requires compliance with Federal and state securities laws, and 3 14 EXHIBIT "B" (b) the Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire this Warrant; and (c) the Holder is acquiring this Warrant for investment for the Holder's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "ACT"), and (d) the Holder acknowledges and understands that the securities constitute "restricted securities" under the Act and must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. 5. ISSUE TAX The issuance of certificates for shares of Stock upon the exercise of the Warrant shall be made without charge to the holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may he payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then holder of the Warrant being exercised. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY, 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 in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company in addition if the Holder of the Warrant does not exercise this Warrant or convert this Warrant pursuant to SECTION 1(b) above prior to the occurrence of an event described above, except as provided in SECTION 3.1 AND 3.5, the Holder shall not be entitled to receive the benefits accruing to existing holders of the Stock pursuant to such event. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof in the absence of affirmative action by the Holder to purchase shares of Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof shall give rise to any liability of the Holder for the Stock Purchase Price or as a stockholder of the Company whether such liability is asserted by the Company or by its creditors. 7. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS. 7.1 RESTRICTIONS ON TRANSFERABILITY. This Warrant and the Warrant Shares shall not be transferable in the absence of the effectiveness of a registration statement with respect to such securities under the Act, or an exemption therefrom. This Warrant and the Warrant Shares may be transferred in any manner in compliance with applicable law. 7.2 RESTRICTIVE LEGEND. In the absence of the effectiveness of registration under the Act or an exemption therefrom as contemplated by SECTION 7.1, each certificate representing the Warrant Shares or any other securities issued in respect to the Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or 4 15 EXHIBIT "B" otherwise imprinted with a legend substantially IN the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SA1D ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. 7.3 REGISTRATION RIGHTS. Should a Holder exercise his rights, in whole or in part, to purchase Warrant Shares, and provided that more than one year has elapsed from the date of issuance of this Warrant then the Company shall honor a request to register such Warrant Shares pursuant to a 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 Common Stock during the 30 calendar days immediately following Holder's request to register the Warrant Shares 8. MODIFICATION AND WAIVER. Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 9. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified or registered mail postage prepaid, to each the Holder at its address as shown on the books of the Company or to the Company at the address indicated therefore in the first paragraph of this Warrant. 10 DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by the laws of the State of Illinois without reference to the principles of conflicts of laws. 11. LOST WARRANTS OF STOCK CERTIFICATES. The Company represents and warrants to the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant or stock certificate representing the Warrant Shares and in the case of any such loss, theft, destruction or mutilation, upon receipt of an indemnity and, if requested, bond reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of such Warrant or stock certificate, the 5 16 EXHIBIT "B" Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 12. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share pay the holder entitled to such fraction a sum in cash equal to the fair market value of any such fractional interest as it shall appear on the public market, or if there is no public market for such shares, then as shall be reasonably determined by the Company * * * * * * * IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer, thereunto duly authorized as of the date first written above. AMPERSAND MEDICAL CORPORATION By: -------------------------------------- Name -------------------------------------- Title 6 17 EXHIBIT "B" FORM OF EXERCISE NOTICE (To be signed and delivered upon exercise of Warrant) AMPERSAND MEDICAL CORPORATION 414 N Orleans St., Suite 510 Chicago, Illinois 60610 The undersigned, the holder of the within Warrant (Warrant Certificate Number - I Exhibit B), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ______________ shares of Common Stock, par value $0.001 per share (the "STOCK"), of AMPERSAND MEDICAL CORPORATION (the "COMPANY"), and subject to the following paragraph, herewith makes payment of ______________ Dollars ($______) therefor and requests that the certificates for such shares be issued in the name of, and delivered to, ___________________________whose address is ______________________________________. The undersigned does/does not (circle one) request the exercise of the within Warrant pursuant to the "Conversion Right" set forth in SECTION 1(b) of the Warrant. DATED: --------------------- ----------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ---------------------------------- ---------------------------------- (Address) 7 18 EXHIBIT "C" THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER WARRANT TO PURCHASE SHARES OF COMMON STOCK OF AMPERSAND MEDICAL CORPORATION WARRANT NO. II-EXHIBIT C DATED: PER SECTION 3.1, 4 OF LICENSE AND DEVELOPMENT AGREEMENT ATTACHED This certifies that INVIRION (the "HOLDER") for value received, is entitled, subject to the terms set forth below to purchase from AMPERSAND MEDICAL CORPORATION, a Delaware corporation (the "COMPANY"), one hundred and fifty thousand shares (150,000) fully paid and nonassessable shares (the "WARRANT SHARES") of the Company's Common Stock, par value $0.001 per share (the "STOCK") at a price of one cent ($0.01) per share (the "STOCK PURCHASE PRICE") at any time but not earlier than the Commencement Date (as defined below) or later than 5:00 pm (New York Time) on the Expiration Date (as defined below), upon surrender to the Company at its principal office at 414 N. Orleans St.. Suite 510, Chicago, Illinois 60610, Attention: President (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the form of Exercise Notice attached hereto duly completed and signed upon payment in cash or cashier's check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of Warrant Shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant and all rights hereunder to the extent not exercised in the manner set forth herein shall terminate and become null and void on the Expiration Date (as defined below). "COMMENCEMENT DATE" shall mean the date of this Warrant. Expiration date shall mean the third anniversary of the Commencement Date. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES PAYMENT FOR WARRANT SHARES (a) This Warrant is exercisable by payment of the Stock Purchase Price by cash payment, certified check or wire transfer, in the manner set forth above at the option of Holder at any time but not earlier than the Commencement Date or later than 5:00 p.m. (New York Time) on the Expiration Date for all or a portion of the shares of Stock subject to this Warrant. The Company agrees that the Warrant Shares purchased under this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares (unless the Conversion Right is exercised). Subject to the provisions of Section 2, certificates for the Warrant Shares so purchased shall be delivered to holder by the Company's transfer agent at the Company's expense within a reasonable time after the rights represented by this Warrant have been exercised. The stock 1 19 EXHIBIT "C" certificate(s) so delivered shall be in such denominations of Stock requested by Holder and shall be registered in the name of the Holder or such other name as shall be designated by the Holder, subject to the limitations contained in Section 2. If, upon exercise of this Warrant, fewer than all of the shares of Stock evidenced by this Warrant are purchased prior to the Expiration Date of this Warrant, one or more new warrants substantially in the form of, and on the terms of, this Warrant will be issued for the remaining number of shares of Stock not purchased upon exercise of this Warrant. (b) In lieu of the payment of the Stock Purchase Price, the Holder may require the Company to convert this Warrant into shares of Stock (the "CONVERSION RIGHT") as provided for in this SECTION 1(b). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any of the Stock Purchase Price) that number of shares of Stock equal to the quotient obtained by dividing (x) the value of the Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Stock Purchase Price in effect immediately prior to the exercise of the Conversion Right from the aggregate Market Value (as defined in SECTION 1(d) below), for the Warrant Shares immediately prior to the exercise of the Conversion Right) by (y) the Market Value. (c) The Conversion Right may be exercised by the Holder by delivering the Warrant Certificate with a duly executed Exercise Notice in the form attached hereto with the conversion section completed to the Company. (d) For the sole purpose of determining the number of Warrant Shares which shall be delivered to the Holder by the Company pursuant to the Conversion Right as set forth in SECTION 1(b) above, "Market Value") shall mean the average daily closing price of a share of the Stock as listed on the exchange or quotation system of which the Stock may then be listed for the ten (10) consecutive days of trading ending on the third business day immediately preceding the date of exercise of such Conversion Right, or in the event the Stock is not then publicly traded, the Market Value shall be determined in good faith by the Company and the Holder. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that the Warrant Shares will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes (other than income taxes, which may be applicable to Holder, liens and charges with respect to the issue thereof. The Company covenants that it will reserve and keep available a sufficient number of shares of its authorized but unissued Stock for such exercise. The Company will take all such reasonable action as may be necessary to assure that such shares of Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange or automated quotation system upon which the Stock may be listed. 3. ADJUSTMENT OF STOCK PURCHASE PRICE PAID NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this SECTION 3. 3.1 SUBDIVISION OR CONTINUATION OF STOCK AND STOCK DIVIDEND. In case the Company shall at any time subdivide its outstanding shares of Stock into a greater number of shares or declare 2 20 EXHIBIT "C" a dividend upon its Stock payable solely in shares of Stock, the Stock Purchase Price in effect immediately prior to such subdivision or declaration shall be proportionately reduced, and the number of shares issuable upon exercise of the Warrant shall be proportionately increased. Conversely, in case the outstanding shares of Stock of the Company shall be combined into a smaller number of shares the Stock Purchase Price in effect immediately prior to such combination shall he proportionately increased and the number of shares issuable upon exercise of the Warrant shall be proportionately reduced. 3.2 NOTICE OF ADJUSTMENT. Promptly after adjustment of the Stock Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, 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 (the notice shall be signed by an authorized officer of the Company and shall state the effective date of the adjustment and the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3.3 CHANGES IN STOCK. In case at any time prior to the Expiration Date, the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets or recapitalization of the Stock) in which the previously outstanding Stock shall be changed into or exchanged for different securities of the Company or common stock or other securities of another corporation or interests in a noncorporate entity or other property (including cash) or the Company shall make a distribution on its shares, other than regular cash dividends on its outstanding stock, or any combination of any of the foregoing (each such transaction being herein called the "TRANSACTION" and the date of consummation of the Transaction being herein called the "CONSUMMATION DATE"), then, as a condition of the consummation of the Transaction, lawful and adequate provisions shall be made so that each Holder, upon the exercise hereof at any time on or after the Consummation Date, shall be entitled to receive, and this Warrant shall thereafter represent the right to receive, in lieu of the Stock issuable upon such exercise prior to the Consummation Date, the highest amount of securities or other property to which the Holder would actually have been entitled as a stockholder upon the consummation of the Transaction if the Holder had exercised such Warrant immediately prior thereto. The provisions of this SECTION 3.3 shall similarly apply to successive Transactions. 4- INVESTMENT REPRESENTATIONS. By receipt of this Warrant, and by its execution the Holder represents to the Company the following: (a) the Holder understands that this Warrant and any Stock purchased upon its exercise are securities, the issuance of which requires compliance with Federal and state securities laws, and (b) the Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and 3 21 EXHIBIT "C" knowledgeable decision to acquire this Warrant; and (c) the Holder is acquiring this Warrant for investment for the Holder's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "ACT"), and (d) the Holder acknowledges and understands that the securities constitute "restricted securities" under the Act and must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. 5. ISSUE TAX The issuance of certificates for shares of Stock upon the exercise of the Warrant shall be made without charge to the holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may he payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then holder of the Warrant being exercised. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY, 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 in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company in addition if the Holder of the Warrant does not exercise this Warrant or convert this Warrant pursuant to SECTION 1(b) above prior to the occurrence of an event described above, except as provided in SECTION 3.1 AND 3.5, the Holder shall not be entitled to receive the benefits accruing to existing holders of the Stock pursuant to such event. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof in the absence of affirmative action by the Holder to purchase shares of Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof shall give rise to any liability of the Holder for the Stock Purchase Price or as a stockholder of the Company whether such liability is asserted by the Company or by its creditors. 7. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS. 7.1 RESTRICTIONS ON TRANSFERABILITY. This Warrant and the Warrant Shares shall not be transferable in the absence of the effectiveness of a registration statement with respect to such securities under the Act, or an exemption therefrom. This Warrant and the Warrant Shares may be transferred in any manner in compliance with applicable law. 7.2 RESTRICTIVE LEGEND. In the absence of the effectiveness of registration under the Act or an exemption therefrom as contemplated by SECTION 7.1, each certificate representing the Warrant Shares or any other securities issued in respect to the Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend substantially IN the following form (in addition to any legend required under applicable state securities laws): 4 22 EXHIBIT "C" THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SA1D ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. 7.3 REGISTRATION RIGHTS. Should a Holder exercise his rights, in whole or in part, to purchase Warrant Shares, and provided that more than one year has elapsed from the date of issuance of this Warrant then the Company shall honor a request to register such Warrant Shares pursuant to a 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 Common Stock during the 30 calendar days immediately following Holder's request to register the Warrant Shares 8. MODIFICATION AND WAIVER. Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 9. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified or registered mail postage prepaid, to each the Holder at its address as shown on the books of the Company or to the Company at the address indicated therefore in the first paragraph of this Warrant. 10. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by the laws of the State of Illinois without reference to the principles of conflicts of laws. 11. LOST WARRANTS OF STOCK CERTIFICATES. The Company represents and warrants to the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant or stock certificate representing the Warrant Shares and in the case of any such loss, theft, destruction or mutilation, upon receipt of an indemnity and, if requested, bond reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 5 23 EXHIBIT "C" 12. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share pay the holder entitled to such fraction a sum in cash equal to the fair market value of any such fractional interest as it shall appear on the public market, or if there is no public market for such shares, then as shall be reasonably determined by the Company. * * * * * * * IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer, thereunto duly authorized as of the date first written above. AMPERSAND MEDICAL CORPORATION By: ------------------------------------- Name ------------------------------------- Title 6 24 EXHIBIT "C" FORM OF EXERCISE NOTICE (To be signed and delivered upon exercise of Warrant) AMPERSAND MEDICAL CORPORATION 414 N Orleans St., Suite 510 Chicago, Illinois 60610 The undersigned, the holder of the within Warrant (Warrant Certificate Number - I Exhibit B), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ______________ shares of Common Stock, par value $0.001 per share (the "STOCK"), of AMPERSAND MEDICAL CORPORATION (the "COMPANY"), and subject to the following paragraph, herewith makes payment of ______________ Dollars ($______) therefor and requests that the certificates for such shares be issued in the name of, and delivered to, ___________________________whose address is ______________________________. The undersigned does/does not (circle one) request the exercise of the within Warrant pursuant to the "Conversion Right" set forth in SECTION 1(b) of the Warrant. DATED: -------------------- ----------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ---------------------------------- ---------------------------------- (Address) 7 25 EXHIBIT "D" GENERAL This license and development agreement calls for the research and development and testing for a proprietary oncogenic fluorescence HPV viral system utilizing in-vitro hybridization and unique probe(s). This system shall be designed to be employed at POC in a desktop instrument capable of detection of specific HPV related viral probes using fluorescence and shall be based around the POC analyzer being developed by Ampersand Medical. SPECIFICATION REQUIREMENTS - - Detection time of 1 hour (desired), 2 hours maximum - - Sensitivity of 99.0% - - Specificity of 90.0% - - Detection in solution of no greater than .5 ml. - - A single fluorescence recorder dye at an excitation (532 or 635nm) - - SNR > TBD (>10:1) - - Maximum number of reagents not to exceed 6 - - Maximum temperature 37(degree)C HPV TEST SPECIFICATIONS COMPONENTS: - - Wash solution 1 - - Wash solution 2 - - Hybridization solution - - Probe cocktail - - Stringency wash 1 - - Stringency wash 2 Can be combined with antibodies that are applied prior to wash solution 1. Excludes all antibodies labeled with PerCP (Becton-Dickinson). Washes 1 and 2 will be performed at room temperature. Hybridization temperature will be less than 37(degree) C. Hybridization will take less than 2 hours. 1 26 EXHIBIT "D" WORKSCOPE All development work will be performed under the supervision of Dr. Bruce K. Patterson by a senior level scientist. The majority of work will be performed in laboratory space rented by INVIRION. The work will proceed as follows: 1. Probe reconfiguration using gene sequence analysis software. 2. Virtual hybridization performed. 3. Presumptive probe cocktail synthesized. 4. Individual probes (<200) tested on normal squamous cells for non-specific hybridization. 5. First generation probe cocktail pooled (generated) based on results from 4. 6. Initial testing on Caski cells with normal squamous cells as controls. 7. Generate signal to noise data. 8. Reconfigure probe pool if necessary. 9. Freeze probe formula. 10. Convert fluorochrome labeling of oligonucleotides based on Ampersand instrument specifications. 11. Sign off on final probe configuration, test reagents and processes. TIMELINE Steps 1 - 3 4 months Steps 4 - 7 6 months Steps 8 -11 2 months 2 27 PERSONAL GUARANTEE I, Bruce Patterson, personally state and guarantee that Invirion is the lawful owner of the MEDICAL TECHNOLOGY described in the LICENSE AND DEVELOPMENT AGREEMENT FOR SPECIFIC MEDICAL TECHNOLOGY FOR THE DETECTION OF ONCOGENIC HPV VIRUS entered into between Invirion and Ampersand Medical Corporation ("Ampersand") and that Invirion has the full right to transfer and/or convey the MEDICAL TECHNOLOGY to ampersand free from any claims from others. ----------------------------------- Bruce Patterson 1 EX-27 3 c58565ex27.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary information extracted from the Ampersand Medical Corporation Consolidated Balance Sheet (Unaudited) for September 30, 2000 and the Consolidated Statement of Operations (Unaudited) for the Nine-Months ended September 30, 2000 and is qualifed in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-2000 SEP-30-2000 21 0 517 22 159 2091 451 109 5327 2623 0 30 0 0 13095 5327 839 839 543 543 5769 0 65 (5260) 0 (5260) 0 0 0 (5260) (0.19) (0.19)
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