SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY (AS
PERMITTED BY RULE 14A-6
(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
BELL NATIONAL CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
The Board of Directors of Bell National Corporation
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
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5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
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1. Amount Previously Paid:
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<PAGE>
BELL NATIONAL CORPORATION
900 North Franklin Street
Suite 210
Chicago, Illinois 60610
312-640-8810
------------------------------
NOTICE OF ANNUAL MEETING
To the Shareholders of
Bell National Corporation:
You are cordially invited to attend the annual meeting (the "Annual
Meeting") of the holders of Common Stock, no par value, of Bell National
Corporation, a California corporation (the "Company"), to be held on
__________, 1999 at __________, local time, at __________ for the following
purposes:
1. To elect five (5) directors of the Company, each to hold office until
the next annual meeting of the Company's shareholders or otherwise as
provided in the Bylaws of the Company.
2. To ratify the transactions contemplated by the Stock and Membership
Interest Exchange Agreement and the Claims Settlement Agreement, both dated
December 4, 1998, entered into by the Company and other parties, as
described in the attached Proxy Statement.
3. To approve the merger of the Company into Ampersand Medical
Corporation ("Ampersand"), a wholly owned subsidiary of the Company
organized under the laws of the State of Delaware, in order to effect the
change of the Company's state of incorporation from California to Delaware
(the "Reincorporation"), pursuant to an Agreement and Plan of Merger in the
form attached as Appendix C to the accompanying Proxy Statement (the
"Reincorporation Merger Agreement").
4. In connection with the Reincorporation, to approve and adopt a
provision of the Certificate of Incorporation of Ampersand, as amended, in
the form attached as Appendix D to the attached Proxy Statement (the
"Ampersand Certificate"), authorizing 50,000,000 shares of Ampersand Common
Stock, $.001 par value per share.
5. In connection with the Reincorporation, to approve and adopt a
provision of the Ampersand Certificate authorizing 5,000,000 shares of
Ampersand Preferred Stock, $.001 par value per share, issuable by the Board
of Directors of Ampersand from time to time in one or more series having
such designation, relative rights, preferences, qualifications and
limitations as the Board of Directors of Ampersand may determine.
6. To approve an equity incentive plan for officers, directors, key
employees, and consultants of Ampersand in the form attached as Appendix F
to the attached Proxy Statement.
7. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the year ending December 31, 1999.
8. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
<PAGE>
A Proxy Statement and proxy card accompany this Notice of Annual
Meeting.
The Board of Directors of the Company has fixed the close of business
on ______, 1999 as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. All such
shareholders are cordially invited to attend the Annual Meeting in person.
However, TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE URGED
TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE.
A pre-addressed, postage-paid envelope is enclosed for that purpose. Any
shareholder attending the Annual Meeting may vote in person even if he or
she has returned a proxy. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish to vote at
the Annual Meeting, you must obtain from the record holder a proxy issued
in your name.
Sincerely,
/s/ Peter P. Gombrich
------------------------------
Peter P. Gombrich
Chairman of the Board and
Chief Executive Officer
Chicago, Illinois
__________, 1999
The Company's 1998 Annual Report on Form 10-K is being mailed to
shareholders concurrently with this Notice and attached Proxy Statement.
<PAGE>
BELL NATIONAL CORPORATION
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors (the "Board") of Bell
National Corporation (the "Company), for use at the annual meeting of
shareholders of the Company (the "Annual Meeting") scheduled to be held on
__________, 1999, at __________, local time, at __________. The Company
intends to mail this Proxy Statement and the accompanying proxy card to all
shareholders entitled to vote at the Annual Meeting on or about __________,
1999.
At the Annual Meeting, holders of the Company's Common Stock, no par
value (the "Common Stock") will be asked to consider and vote upon the
following proposals (the "Proposals"):
1. To elect five (5) directors of the Company, each to hold office
until the next annual meeting of the Company's shareholders or otherwise as
provided in the Bylaws of the Company.
2. To ratify the transactions contemplated by the Stock and
Membership Interest Exchange Agreement and the Claims Settlement Agreement,
both dated December 4, 1998, entered into by the Company and other parties,
as described in the attached Proxy Statement.
3. To approve the merger of the Company into Ampersand Medical
Corporation ("Ampersand"), a wholly owned subsidiary of the Company
organized under the laws of the State of Delaware, in order to effect the
change of the Company's state of incorporation from California to Delaware
(the "Reincorporation"), pursuant to an Agreement and Plan of Merger in the
form attached as Appendix C to the accompanying Proxy Statement (the
"Reincorporation Merger Agreement").
4. In connection with the Reincorporation, to approve and adopt a
provision of the Certificate of Incorporation of Ampersand, as amended, in
the form attached as Appendix D to the attached Proxy Statement (the
"Ampersand Certificate"), authorizing 50,000,000 shares of Ampersand Common
Stock, $.001 par value per share.
5. In connection with the Reincorporation, to approve and adopt a
provision of the Ampersand Certificate authorizing 5,000,000 shares of
Ampersand Preferred Stock, $.001 par value per share, issuable by the Board
of Directors of Ampersand from time to time in one or more series having
such designation, relative rights, preferences, qualifications and
limitations as the Board of Directors of Ampersand may determine.
6. To approve an equity incentive plan for officers, directors,
key employees, and consultants of Ampersand in the form attached as
Appendix F to the attached Proxy Statement.
7. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the year ending December 31, 1999.
8. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
<PAGE>
RECORD DATE
The Board has fixed the close of business on ________, 1999 as the
record date (the "Record Date") for the determination of holders of Common
Stock entitled to notice of and to vote at the Annual Meeting. As of
__________, 1999, there were [12,000,000] shares of Common Stock issued and
outstanding, held of record by [1,080] persons.
VOTING
Except for the election of directors, each share of Common Stock is
entitled to one vote. Approval of each of Proposals No. 2, 6 and 7
requires the affirmative vote of a majority of the shares represented at
the Annual Meeting and voting, provided that such shares voting
affirmatively also constitute a majority of the number of shares required
for a quorum. Approval of each of Proposals No. 3 through 5 requires the
affirmative vote of a majority of the outstanding shares entitled to vote
at the Annual Meeting. With regard to the election of directors,
shareholders may cumulate votes if the candidates' names have been placed
in nomination before commencement of the voting and a shareholder has given
notice at the meeting, before the voting has begun, of the shareholder's
intention to cumulate votes. If any shareholder has given such a notice,
then all shareholders entitled to vote may cumulate their votes for
candidates in nomination, and may give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which that shareholder's shares are normally entitled, or
distribute the shareholder's votes on the same principle among any or all
of the candidates, as the shareholder thinks fit. The candidates receiving
the highest number of votes, up to the number of directors to be elected,
shall be elected.
The Board is soliciting discretionary authority to cumulate the votes
represented by the proxies in order to assure election of the Board's
nominees in the event nominations are made in opposition to the Board's
nominees. In such event, the Board intends that the persons named on the
enclosed proxy card will cumulate the votes represented by proxies for
individual nominees in accordance with their best judgment in order to
assure the election of the Board's nominees.
The presence, whether in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock as of the Record Date is
necessary to constitute a quorum at the Annual Meeting. Abstentions from
voting and broker non-votes on a particular Proposal will be counted for
purposes of determining the presence of a quorum but will not be counted as
affirmative or negative votes on the Proposals. Abstentions and broker
non-votes will not have any effect on the election of directors, but will
have the effect of voting against the other Proposals.
REVOCABILITY OF PROXIES
When a shareholder has signed and returned a proxy in the form of the
accompanying proxy card, that proxy may be revoked by: (i) a writing
delivered to the Company stating that the proxy is revoked; (ii) by
attendance at the Annual Meeting and voting in person by the shareholder
who executed the proxy; (iii) a subsequent proxy executed by the same
shareholder and presented at the Annual Meeting; or (iv) written notice to
the Company of the death or incapacity of that shareholder.
SOLICITATION
The Company will bear the entire cost of the solicitation of proxies
from its shareholders, including preparation, assembly, printing and
mailing of this Proxy Statement, the proxy card and any additional
information furnished to shareholders. Copies of solicitation materials
will be furnished to banks, brokerage houses, fiduciaries and custodians
holding in their names shares of Common Stock beneficially owned by others
to forward to such beneficial owners. Original solicitation of proxies by
<PAGE>
mail may be supplemented by telephone, facsimile, telegram or personal
solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to these persons for such
services.
Continental Stock Transfer and Trust Co., transfer agent and
registrar for the Common Stock, will be paid its customary fee, estimated
to be $1,500.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FIVE-PERCENT (5%) BENEFICIAL OWNERS. The following table sets forth
the beneficial ownership of Common Stock as of March 31, 1999 by persons
who beneficially owned more than five percent (5%) of the Common Stock.
The number of shares of Common Stock shown for each listed person is based
on information contained in Statements on Schedule 13D filed with the
Securities and Exchange Commission (the "SEC") on behalf of the listed
persons. The percentage of shares of the Common Stock shown for each
listed person is based upon approximately 12,000,000 shares of Common Stock
outstanding as of March 31, 1999.
Number of Shares
Name and Address of Beneficially Owned Percentage of
Beneficial Owner (1)(2) Common Stock
- - ------------------- ------------------ -------------
General Holdings, Inc. 648,485 5.4
and C.G.A. Avakian Co.
Post Office Box 2050
Fair Oaks, California 95628
Alexander M. Milley (3) 2,546,041 21.2
3600 Rio Vista Boulevard, Suite A
Orlando, Florida 32805
Winchester National, Inc. 148,655 1.2
3600 Rio Vista Boulevard, Suite A
Orlando, Florida 32805
Milley Management Incorporated (4) 1,760,900 14.7
3600 Rio Vista Boulevard, Suite A
Orlando, Florida 32805
Cadmus Corporation 1,257,567 10.5
3600 Rio Vista Boulevard, Suite A
Orlando, Florida 32805
Robert C. Shaw 500,417 4.2
1800 Industrial Drive
Libertyville, Illinois 60048
Peter P. Gombrich (5) 2,405,547 20.0
900 North Franklin Street, Suite 210
Chicago, Illinois 60610
Theodore L. Koenig (6) 1,235,484 10.3
55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
<PAGE>
Number of Shares
Name and Address of Beneficially Owned Percentage of
Beneficial Owner (1)(2) Common Stock
- - ------------------- ------------------ -------------
Monroe Investments, Inc. 172,552 1.4
55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
William J. Ritger 15,440 0.1
623 Ocean Avenue
Sea Girt, New Jersey 08750
Fred H. Pearson 107,220 0.9
10 South LaSalle Street
Chicago, Illinois 60603
Walter Herbst 343,103 2.9
355 North Canal Street
Chicago, Illinois 60610
AccuMed International, Inc. 85,776 0.7
900 North Franklin Street, Suite 401
Chicago, Illinois 60610
Northlea Partners Ltd. 107,220 0.9
2365 NW 41st Street
Boca Raton, Florida 33431
1. Unless otherwise noted, each of the shareholders owns the indicated
shares directly and has sole voting and investment power with respect to
such shares. The indicated shares may include shares the named shareholder
holds as trustee.
2. Each of the shareholders other than General Holdings, Inc. and CGA
Avakian Co. may be deemed members of a "group" for purposes of Rule 13d-5
under the Securities Exchange Act of 1934 pursuant to a Stockholders
Agreement dated December 4, 1998 described below under "RATIFICATION OF THE
TRANSACTIONS CONTEMPLATED BY THE EXCHANGE AGREEMENT AND CLAIMS AGREEMENT."
The aggregate number of shares of Common Stock beneficially owned by all
members of such group is 7,346,248, or 61.2% of the outstanding shares of
Common Stock. Each such person disclaims beneficial ownership of all
shares not shown as beneficially owned by such person in this table.
3. Consists of: (i) 626,486 shares owned by Mr. Milley; (ii) 148,655
shares owned by Winchester National Corporation ("WNI"), of which Mr.
Milley is a director; (iii) 503,333 shares owned by Milley Management
Incorporated ("MMI"), of which Mr. Milley is the sole director and
executive officer; (iv) 1,257,567 shares owned by Cadmus Corporation
("Cadmus"), of which Mr. Milley is a director and executive officer; and
(v) 10,000 shares owned by ELXSI Corporation, of which Mr. Milley is a
director and executive officer.
4. Consists of 503,333 shares owned by MMI and 1,257,567 shares owned by
Cadmus, of which MMI is a principal shareholder. MMI has shared voting and
investment power with respect to the 1,257,567 shares owned by Cadmus.
5. Consists of 2,266,590 shares owned by Mr. Gombrich individually and
138,957 shares held by him as Trustee of the InPath, LLC Voting Trust. Mr.
Gombrich has sole voting power but no investment power with respect to the
138,957 shares held by him as Trustee of the InPath, LLC Voting Trust.
<PAGE>
6. Consists of: (i) 275,683 shares held by Mr. Koenig as Trustee of The
EAG Trust; (ii) 275,683 shares held by him as Trustee of The CMC Trust;
(iii) 275,683 shares held by him as Trustee of The MDG Trust; (iv) 235,883
shares held by him as Trustee of The MSD Trust; and (v) 172,552 shares
owned by Monroe, which Mr. Koenig controls. Mr. Koenig disclaims
beneficial ownership of all such shares except those owned by Monroe and
those he holds as Trustee of The MSD Trust.
DIRECTORS, NOMINEES FOR DIRECTOR, AND EXECUTIVE OFFICERS. The
following table sets forth the beneficial ownership of Common Stock as of
March 31, 1999 by: (i) directors of the Company and nominees for director
of the Company, (ii) executive officers of the Company, and (iii) directors
and executive officers of the Company as a group.
Number of Shares
Beneficially Percentage of
Name Owned (1) Common Stock
- - ---- --------------- -------------
Peter P. Gombrich (2) 2,405,547 20.0
Denis M. O'Donnell, M.D. 0 0
Alexander M. Milley (3) 2,546,041 21.2
Thomas R. Druggish 0 0
Robert C. Shaw 500,417 4.2
John H. Abeles, M.D. (4) 107,220 0.9
Leonard R. Prange 0 0
Richard A. Domanik, Ph.D. 0 0
All directors and executive officers
as a group (7 persons) 5,452,005 45.4
1. Unless otherwise noted, each of the shareholders owns the indicated
shares directly and has sole voting and investment power with respect to
such shares. The indicated shares may include shares the named shareholder
holds as trustee.
2. Consists of 2,266,590 shares owned by Mr. Gombrich individually and
138,957 shares held by him as Trustee of the InPath, LLC Voting Trust. Mr.
Gombrich has sole voting power but no investment power with respect to the
138,957 shares held by him as Trustee of the InPath, LLC Voting Trust.
3. Consists of: (i) 626,486 shares owned by Mr. Milley; (ii) 148,655
shares owned by WNI, of which Mr. Milley is a director; (iii) 503,333
shares owned by MMI, of which Mr. Milley is the sole director and executive
officer; (iv) 1,257,567 shares owned by Cadmus, of which Mr. Milley is a
director and executive officer; and (v) 10,000 shares owned by ELXSI
Corporation, of which Mr. Milley is a director and executive officer.
4. Consists of 107,220 shares owned by Northlea, of which Dr. Abeles is
the general partner. Dr. Abeles disclaims beneficial ownership of all of
such shares except 1,072, which number are attributable to his 1% interest
in Northlea as general partner.
SHAREHOLDER PROPOSALS
A shareholder intending to present a proposal for inclusion in the
Company's Proxy Statement and proxy card for the Company's next annual
<PAGE>
meeting of shareholders must deliver such proposal in writing to the
Company's principal executive offices no later than [date 120 days prior to
the date of this Proxy Statement, plus one year].
If a shareholder desires to bring business before that meeting which
is not the subject of a proposal timely submitted for inclusion in the
Company's Proxy Statement and proxy card as provided above, the shareholder
must provide notice of such business to the Company a reasonable time
before the Company mails its proxy materials for that meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board presently has five (5) members. At the Annual Meeting,
shareholders will be asked to elect five (5) directors to serve until the
next annual meeting of the Company's shareholders or until his or her
respective successor is elected and qualified in accordance with the Bylaws
of the Company.
The five (5) persons who are properly nominated and who receive the
highest number of votes at the Annual Meeting will be elected as directors.
Shares represented by signed proxies will be voted for the election of each
of the nominees named below (the "Nominees"), unless authority to vote for
such Nominees is specifically withheld. The Company has no reason to
believe that any Nominee will be unavailable for election, but if a Nominee
is unavailable for election, such shares will be voted for the election of
a substitute nominee proposed by the Board.
The Nominees have been named in accordance with the terms of the
Stock and Membership Interest Exchange Agreement (the "Exchange Agreement")
and the Stockholders Agreement, which are described below under
"RATIFICATION OF THE TRANSACTIONS CONTEMPLATED BY THE EXCHANGE AGREEMENT
AND THE CLAIMS AGREEMENT." The Exchange Agreement is attached to this
Proxy Statement as Appendix A.
The names and ages of the Nominees, their principal occupations, and
other information is set forth below, based upon information furnished to
the Company by the Nominees.
Principal Occupation/Position
Name Age Held with the Company
- - ---- ---- -----------------------------
Peter P. Gombrich 61 Chairman of the Board, Chief Executive
Officer
John H. Abeles, M.D. 54 President of MedVest, Inc.
Denis M. O'Donnell, M.D. 45 Managing Director of Seaside Advisors;
Director of the Company
Alexander M. Milley 45 Chairman of the Board, President and
Chief Executive Officer of
ELXSI Corporation; Director of
the Company
Robert C. Shaw 45 President of Contempo Design;
Director of the Company
<PAGE>
NOMINEES
PETER P. GOMBRICH. Mr. Gombrich has been Chairman of the Board,
Chief Executive Officer and Secretary of the Company since December 1998.
Since March 1998, he has also served as the Chairman of the Board and Chief
Executive Officer of InPath, LLC, a molecular-biology medical device
company which became a subsidiary of the Company pursuant to the Exchange
Agreement (see "RATIFICATION OF THE TRANSACTIONS CONTEMPLATED BY THE
EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT"). In February 1994 Mr.
Gombrich founded AccuMed, Inc., a cytopathology products company, and
served as its Chairman of the Board, President and Chief Executive Officer
until its merger into Alamar Biosciences, Inc., a microbiology products
company, in December 1995. Mr. Gombrich was Acting Chief Executive Officer
and a director of Alamar Biosciences, Inc. from April 1995 until its merger
with AccuMed, Inc., at which time he became Chairman of the Board,
President and Chief Executive Officer of the surviving company, which was
renamed to AccuMed International, Inc. ("AccuMed"), and remained in those
positions until January 1998. Since March 1998, Mr. Gombrich has been a
director of Sunquest Information Systems, Inc., a healthcare systems
company. Mr. Gombrich was a consultant in the cytology and microbiology
industries from August 1990 until forming AccuMed, Inc., serving companies
including Accuron Corporation, a designer of automated Pap smear screening
systems. From July 1985 until September 1989, Mr. Gombrich was the
President and Chief Executive Officer, and from July 1985 until November
1990 was Chairman of the Board, of CliniCom Incorporated, a bedside
clinical information systems company which he founded. From 1982 until
1985, Mr. Gombrich was Executive Vice President of the ventures group of
ADC Telecommunications. From January 1980 until February 1982, Mr.
Gombrich was President of the pacemaker division of St. Jude Medical, Inc.,
a life support medical device company he co-founded in 1976 and of which he
served as Executive Vice President from July 1976 to January 1980. Mr.
Gombrich has more than 28 years of experience in the healthcare industry.
Mr. Gombrich has a B.S. in Electrical Engineering from the University of
Colorado and an M.B.A. from the University of Denver.
JOHN H. ABELES, M.D. Dr. Abeles is President of MedVest, Inc., a
venture capital and medical consulting firm he founded in 1980. Dr. Abeles
has been a director of AccuMed or its predecessor Alamar Biosciences, Inc.
since October 1988. Dr. Abeles is a member of the boards of directors of
I-Flow Corporation, Oryx Technology Corp., Encore Medical Corporation, and
DUSA Pharmaceuticals, Inc. Dr. Abeles received his medical degree and
degree in pharmacology at the University of Birmingham in England and is
currently a director at the Higuchi BioSciences Institute at the University
of Kansas.
DENIS M. O'DONNELL, M.D. Denis M. O'Donnell, M.D. has been a
director of the Company since December 1998. Since 1997, he has been
Managing Director of Seaside Advisors, L.L.C., an investment advisor to
Seaside Partners, LLP, a fund specializing in small capitalization private
placements. Since 1993, Dr. O'Donnell has been a director of Novavax, Inc.
(Novavax), a company engaged in the development of pharmaceutical products.
From 1997 to 1998, he was a Senior Advisor to Novavax. From 1995 to 1997,
he served as President of Novavax. Since 1996, Dr. O'Donnell has been a
director of ELXSI Corporation ("ELXSI"), which owns and operates a chain of
family restaurants in New England and manufactures environmental inspection
equipment incorporating video technology in Orlando, Florida. Since 1999,
Dr. O'Donnell has been a director of Columbia Laboratories, Inc., a
pharmaceutical company.
ALEXANDER M. MILLEY. Mr. Milley was Chairman of the Board, Secretary
and Chief Executive Officer of the Company from November 1989 until
December 1998, and President of the Company from August 1990 until December
1998. He has been a director of the Company since November 1989. Mr.
Milley is the founder, President, and majority shareholder of MMI, a
private investment and consulting firm. Since September 1989, Mr. Milley
has been Chairman of the Board, President and Chief Executive Officer of
ELXSI. Mr. Milley is also Chairman of the Board, President and Chief
Executive Officer of Azimuth Corporation ("Azimuth"), a producer of trade
<PAGE>
show exhibits and a distributor of fuses and aerospace fasteners, and
Chairman of the Board and President of Cadmus, a private investment and
management consulting firm. Mr. Milley is a controlling shareholder of
Cadmus.
ROBERT C. SHAW. Mr. Shaw has been a director of the Company since
November 1989. From that time until December 1998, he was also President
and Treasurer of the Company. From November 1989 until June 1990, he was
also Chief Financial Officer of the Company. Since July 1990, Mr. Shaw has
been President of Contempo Design, a firm specializing in the design of
exhibits and retail environments. Since March 1989 Mr. Shaw has been a
Vice President of MMI. Since November 1990, he has served as an officer or
director, or both, of Azimuth or its subsidiaries, or both. Since January
1992, Mr. Shaw has been a director of Cadmus and since September 1989, he
has been an officer or director, or both, of ELXSI. From September 1987 to
March 1989 he was Vice President of Berkeley Softworks, Incorporated
("Berkeley"). From January 1987 to September 1987 he was Vice President,
and from July 1985 to January 1987 he was Director of Finance and
Operations, at Ansa Software, Incorporated ("Ansa"). Berkeley and Ansa
developed and produced personal computer software.
BOARD MEETINGS AND COMMITTEES
The Board held one (1) meeting during the fiscal year ended
December 31, 1998. All of the directors who were members of the Board at
the time of the meeting were in attendance.
The Board currently has no standing committees. The Board does not
have a nominating committee or any committee performing the function of a
nominating committee.
DIRECTOR COMPENSATION
During 1998 the Company did not compensate directors for their
services as director nor does the Company intend to implement any such
compensation in the immediate future.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND KEY EMPLOYEE
All of the current executive officers and a key employee of the
Company were appointed to their positions in accordance with the terms of
the Exchange Agreement and the Stockholders Agreement. See "RATIFICATION
OF THE TRANSACTIONS CONTEMPLATED BY THE EXCHANGE AGREEMENT AND THE CLAIMS
AGREEMENT."
The following persons currently serve as executive officers or key
employees of the Company:
Principal Occupation/Position
Name Age Held with the Company
- - ---- ---- -----------------------------
Peter P. Gombrich 61 Chairman of the Board, Chief Executive
Officer
Leonard R. Prange 53 President and Chief Financial Officer
Richard A. Domanik, Ph.D. 52 Vice President and Chief Technology
Officer
EXECUTIVE OFFICERS
LEONARD R. PRANGE. Mr. Prange was appointed President and Chief
Technology Officer of the Company in December 1998. From March 1997 until
December 1998, Mr. Prange was Chief Operating Officer, and from September
<PAGE>
1996 until December 1998 Chief Financial Officer, of AccuMed International,
Inc. From September 1996 until March 1997, Mr. Prange was Corporate Vice
President of AccuMed. From July 1995 to September 1996, he served as a
managing director of Lovett International, Inc., an international trading
and consulting firm. Mr. Prange served at Richardson Electronics, Ltd., a
global distributor and manufacturer of electronic components, as Group Vice
President from June 1994 until July 1995, as Chief Financial Officer and
Vice President from December 1984 until July 1995, and as Treasurer from
December 1981 until December 1984. Mr. Prange has a B.S. in Accounting
from DePaul University (1967) and is a certified public accountant.
KEY EMPLOYEE
RICHARD A. DOMANIK, PH.D. Dr. Domanik was appointed Vice President
and Chief Technology Officer of the Company in December 1998. From
December 1995 until May 1996, Dr. Domanik was Vice President of Technology,
and from May 1996 until December 1998, Senior Vice President of Technology,
of AccuMed. From August 1994 until December 1995, Dr. Domanik was Vice
President of Engineering of AccuMed, Inc. From June 1979 until joining
AccuMed, Inc., Dr. Domanik served at Abbott Laboratories in several
positions related to research and development of healthcare products,
including Laboratory Manager and Research and Development Manager. Dr.
Domanik has a B.A. in Chemistry from Ripon College (1968) and a Ph.D. in
Biochemistry from Northwestern University (1974).
For additional information regarding Mr. Gombrich, who is also a
director of the Company and a Nominee, see the discussion above.
SUMMARY COMPENSATION
The following table sets forth certain information regarding the
compensation earned since March 16, 1998 by Peter P. Gombrich, who served
as Chief Executive Officer after the Company acquired InPath on December 4,
1998 (the "Named Executive Officer"). The transaction in which InPath
became a subsidiary of the Company has been accounted for as a reverse
acquisition whereby Inpath is deemed to have acquired the Company.
Accordingly, information is shown since March 16, 1998, the date Inpath was
organized. Historical information for the Company is not reported. None
of the Company's executive officers in 1998 received salaries and bonuses
exceeding $100,000.
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term Other
Name and Compen- Compen-
Principal Position Salary Bonus sation(1) sation
- - ------------------ ------- ----- --------- -------
Peter P. Gombrich (2) 1998 $43,750 Nil Nil $2,250(3)
Chairman of the Board and 1997 -- -- -- --
Chief Executive Officer 1996 -- -- -- --
1 The Company does not have any restricted stock, stock option or
long-term incentive plans at this time.
2. Mr. Gombrich began employment on March 16, 1998, when InPath was
organized. Mr. Gombrich did not take any salary until October 1998.
3. Consists of a car allowance.
STOCK APPRECIATION RIGHTS
The following table sets forth the number and value at the end of
fiscal year 1998 of shares of Common Stock underlying unexercised stock
appreciation rights ("SAR's") held by the Named Executive Officers and a
director.
FISCAL YEAR-END SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money SAR's At
SAR's At Fiscal Year-End Fiscal Year-End
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- - ---- ------------------------ ---------------------
Alexander M. Milley* 450,000/0 $5,625/$0
* Held by Cadmus, which is controlled by Mr. Milley.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's 1998 fiscal year, the Company had no
Compensation Committee and the entire Board participated in deliberations
concerning executive compensation, except that Mr. Gombrich, who held a
position as an executive officer of the Company, did not participate in the
Board's deliberations concerning his own compensation.
Mr. Milley and MMI, of which Mr. Milley is an executive officer, were
both party to certain transactions with the Company during the Company's
1998 fiscal year. These transactions are described below under
"RATIFICATION OF THE TRANSACTIONS CONTEMPLATED BY THE EXCHANGE AGREEMENT
AND THE CLAIMS AGREEMENT--Interest of Officers, Directors and Principal
Shareholders in Approval of this Proposal," and in the Company's 1998
Annual Report on Form 10-K under Item 13.
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Gombrich is employed as Chief Executive Officer and Chairman of
InPath pursuant to an Employment Agreement with InPath, dated May 1, 1998
and amended December 4, 1998. Under the agreement, Mr. Gombrich receives
annual compensation consisting of a $200,000 base salary, a bonus
determined at the discretion of the Board, and a monthly automobile
allowance of $750. The agreement has a term of three (3) years, beginning
May 1, 1998 and ending April 30, 2001. After such period, the agreement
automatically renews for consecutive terms of two (2) years unless either
InPath or Mr. Gombrich elect not to renew it. For two (2) years following
the termination of the agreement, Mr. Gombrich may not participate in a
business that substantially and directly competes with InPath. If there is
a "Change of Control," as defined in the agreement, and InPath thereafter
terminates the agreement without cause or Mr. Gombrich terminates the
agreement for Good Reason, as defined in the agreement, Mr. Gombrich is
entitled to receive a lump-sum severance payment equal to three (3) times
the sum of: his annual base salary, his monthly automobile allowance, and
the highest incentive compensation paid to him in any of the previous (2)
year incentive compensation periods. If Mr. Gombrich is terminated without
cause or resigns for Good Reason, and no Change of Control has occurred, he
is entitled to receive a lump-sum severance payment equal to two (2) times
the sum of the foregoing amounts.
EXECUTIVE COMPENSATION POLICIES
GENERAL. During the Company's 1998 fiscal year, the Company did not
pay compensation to any of the Company's executive officers except that Mr.
Gombrich received $43,750 in base salary. Mr. Gombrich did not take a
salary for the full year. For the Company's 1999 fiscal year, the Board
aims to structure the compensation of the Company's executive officers so
as to attract and retain executives capable of leading the Company to meet
its business objectives and to motivate them to enhance long-term
shareholder value.
COMPENSATION POLICIES. The Company's executive officers receive
annual compensation consisting of a cash salary as well as any other form
of compensation which the Board believes to be in the best interests of the
Company and its shareholders. Examples of such additional compensation are
cash bonuses and automobile allowances. In determining the level of total
compensation to be paid to an executive officer, the Board considers such
factors as the officer's responsibilities, qualifications and contribution
to the Company, and the compensation paid by comparable companies to
individuals in comparable positions. Except in the case of the Board's
evaluation of the Chief Executive Officer, the Board's evaluation of the
Company's executive officers may also be based on the Chief Executive
Officer's assessment of the officer's contribution to the Company.
Although no executive officer's compensation is currently linked to his or
the Company's achievement of pre-established performance goals, the Board
may decide to so link compensation in the future. The Company currently
does not compensate executive officers by means of stock options or any
other type of long-term, equity-based awards, although such awards are
contemplated under the Ampersand 1999 Equity Incentive Plan which is being
submitted for shareholder approval at the Annual Meeting. See "THE
AMPERSAND 1999 EQUITY INCENTIVE PLAN," below.
In selecting new executive officers, the Board considers the specific
needs of the Company and the expertise and special skills offered by a
candidate. The Board then determines starting compensation based on its
assessment of the package needed to attract such an individual to the
Company. Compensation of continuing executive officers is also reviewed
periodically against this assessment.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Peter P. Gombrich has
served as Chief Executive Officer of the Company since March 1998. As
noted above, his initial compensation package consists of an annual base
salary of $200,000, a bonus determined at the discretion of the Board, and
a monthly automobile allowance of $750. Mr. Gombrich did not take a salary
<PAGE>
for the full year. The Board believes that this compensation package is
comparable to those of chief executive officers in peer companies.
POLICIES WITH RESPECT TO DEDUCTIBILITY OF COMPENSATION. Section
162(m) of the Code generally limits the Company to a deduction for federal
income tax purposes of no more than $1,000,000 in a taxable year of
compensation paid to the Chief Executive Officer or to any of the four most
highly compensated officers of the Company other than the Chief Executive
Officer. Compensation above $1,000,000 may be deducted if it is "qualified
performance-based compensation" within the meaning of the Code. The Board
believes that at the present time it is unlikely that the compensation paid
to any officer of the Company in a taxable year will exceed $1,000,000.
Therefore, the Board has not yet established a policy for determining which
forms of incentive compensation awarded to its executive officers shall be
designed to qualify as "qualified performance-based compensation." The
Board intends to continue to evaluate the effects of the statute and
Treasury Regulations and to comply with Section 162(m) of the Code in the
future to the extent consistent with the best interests of the Company.
CERTAIN TRANSACTIONS
On September 1, 1998, the Company's InPath subsidiary issued a
promissory note in the amount of $175,000 to Peter P. Gombrich, Chairman
and Chief Executive Officer of the Company. The note was issued in
exchange for $175,000 in cash advanced to InPath by Mr. Gombrich used to
fund current operating expenses. Interest on the note, which matures on
September 1, 2003, is payable on each anniversary date at the rate of 8%
per annum. On August 28, 1998, Inpath issued a promissory note in the
amount of $75,000 to Holleb & Coff, its outside legal counsel. The note
was issued in lieu of a cash payment for legal services rendered to Inpath.
The note is payable on demand and interest is payable monthly at the rate
of 12% per annum. Theodore L. Koenig, who beneficially owns more than five
percent (5%) of the Common Stock, is a partner at Holleb & Coff.
On March 1, 1999, the Company entered into a Note Purchase Agreement
with Seaside Partners, LLP, under which Seaside Partners paid the Company
$500,000 in cash in exchange for a convertible note issued by the Company.
Denis M. O'Donnell, who is a director and nominee for director of the
Company, is a member and manager of Seaside Advisors, L.L.C., a firm which
provides investment management services to Seaside Partners. The note
issued to Seaside Partners bears interest at the rate of six percent (6%)
per annum and becomes due on January 28, 2000, unless extended by the
Company to June 30, 2000. The terms of the note provide that the principal
amount of the note, as well as any interest earned on the principal will
automatically convert into shares of Common Stock when the Company's
shareholders have approved an increase in the number of authorized shares
of Common Stock, the Company has merged into Ampersand, and the Company has
received at least $5,000,000 from certain debt or equity offerings.
Seaside Partners has the option of converting the note into Common Stock at
any time after a sufficient number of shares of Common Stock have been
authorized for issuance. The conversion price of the note is $0.33 per
share, subject to adjustment in certain events, but in no event less than
$.020 per share.
PERFORMANCE GRAPH
The following graph compares the performance of the Common Stock with
the performance of the NASDAQ Composite (U.S.) Index and the NASDAQ Medical
Devices, Instruments and Supplies, Manufacturers and Distributors Index.
The graph covers the period from November 30, 1998, immediately prior to
the Company's acquisition of InPath on December 4, 1998, when the Company
entered the medical-device industry, to December 31, 1998. This
transaction has been accounted for as a reverse acquisition whereby InPath
is deemed to have acquired the Company. Accordingly, information is shown
as if InPath first became a reporting entity on December 4, 1998.
Historical information for the Company is not reported. During the year-
and-four-month period preceding the InPath acquisition, the Company was not
<PAGE>
engaged in any business, and immediately before this period of inactivity
it was engaged in designing and distributing drapery and upholstery
fabrics. The graph shows the total cumulative return of an investment of
$100 in the Common Stock on December 4, 1998 and the total cumulative
return of an investment of $100 in the group of stocks that comprise each
index. All values assume reinvestment of the full amount of all dividends.
NASDAQ
Bell National NASDAQ Medical
Date Corporation Composite Devices
---- ------------- --------- -------
11/30/98 $100 $100 $100
12/31/98 $157 $113 $108
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Such executive officers,
directors and ten-percent (10%) beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on the Company's review of the copies of such forms it
has received and of written representations from certain reporting persons
concerning their beneficial ownership of the Common Stock, the Company
believes that during the 1998 fiscal year, all of its executive officers,
directors and ten-percent (10%) beneficial owners complied with all
applicable Section 16(a) filing requirements, except that: (i) the
following persons or entities each filed a Form 3 reporting one transaction
a day later than the required filing date: Cadmus; AccuMed; Northlea
Partners Ltd. ("Northlea"); Theodore L. Koenig, as Trustee of the MSD
Trust; Fred H. Pearson, as Trustee of Fred H. Pearson's Trust; Dr. Denis M.
O'Donnell; Fred H. Pearson; Leonard R. Prange; and William J. Ritger; MMI
filed a Form 3 reporting two transactions a day later than the required
filing date; (iii) Peter P. Gombrich reported a December 1998 purchase of
10,000 shares of Common Stock on his year-end Form 5 rather than on a
Form 4 for that month; and (iv) Alexander M. Milley failed to file a Form 4
to report a November 1998 transaction, reporting that transaction instead
on a Form 4 covering the month of December 1998.
ELECTION OF THE NOMINEES
The affirmative vote of a plurality of the shares of Common Stock
entitled to vote at the Annual Meeting is required to elect the Nominees as
directors of the Company. Shareholders possessing the power to vote
approximately 61.2% of the shares of Common Stock outstanding have agreed
to vote all of such shares in favor of electing the Nominees (See "The
Stockholders Agreement" under "RATIFICATION OF THE TRANSACTIONS
CONTEMPLATED BY THE EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT--The
Stockholders Agreement," below).
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" THE NOMINEES.
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF THE TRANSACTIONS
CONTEMPLATED BY THE EXCHANGE AGREEMENT
AND THE CLAIMS AGREEMENT
The Company seeks shareholder ratification of transactions
contemplated by the Stock and Membership Interest Exchange Agreement and
the Claims Settlement Agreement, both dated December 4, 1998 (together, the
"December Agreements"). The Board entered into the December Agreements
entered in the belief that they were in the best interest of the Company
and the Company's shareholders. The following is a summary of the material
provisions of the December Agreements. It is not intended to be a complete
summary and is subject to, and qualified in its entirety by, reference to
the texts of the Stock and Membership Interest Exchange Agreement and the
Claims Settlement Agreement, which are attached to this Proxy Statement as
Appendixes A and B respectively.
THE EXCHANGE AGREEMENT
The Company entered into a Stock and Membership Interest Exchange
Agreement (the "Exchange Agreement") on December 4, 1998 with InPath, LLC
("InPath"), a Delaware limited liability company; Peter P. Gombrich, as an
individual and as Trustee of the InPath, LLC Voting Trust; Theodore L.
Koenig as Trustee of The EAG Trust, The CMC Trust, The MDG Trust, and The
MSD Trust; William J. Ritger; AccuMed International, Inc. ("AccuMed"), a
Delaware corporation; Northlea Partners Ltd. ("Northlea"), a Colorado
limited partnership; Fred H. Pearson, as Trustee of Fred H. Pearson's
Trust; Walter Herbst, as Trustee of the Sandra Herbst Trust; and Monroe
Investments, Inc. ("Monroe"), an Illinois corporation (collectively, the
"InPath Members"). Pursuant to the Exchange Agreement, the InPath Members,
who owned all the units of membership interest in InPath ("Units"),
exchanged all of the Units for shares of the Common Stock and warrants to
purchase shares of the Common Stock (the "Warrants"), causing the Company
to become the sole member of InPath and InPath to become a wholly owned
subsidiary of the Company. InPath is a molecular-biology medical device
company.
The Company's and the InPath Members' aims in entering the Exchange
Agreement were for the Company to acquire the InPath business and to
provide the InPath business with working capital from the Company's funds
in order for the InPath business to grow. Currently, InPath is developing
point-of-care diagnostic products which may be integrated with medical
device technologies developed by the Company's other subsidiaries.
InPath's assets consist of computer equipment, laboratory equipment,
leasehold improvements, office furniture and equipment, telecommunications
equipment, and patents and trademarks.
For their Units, the Company issued to the InPath Members, in the
aggregate, 4,288,790 shares of Common Stock, and Warrants to purchase
3,175,850 shares of Common Stock. The number of shares of Common Stock
each InPath Member received was based upon that InPath Member's percentage
ownership of InPath. In the aggregate, after receiving the shares of
Common Stock, the InPath Members held approximately 35.7% of the shares of
Common Stock outstanding. This issuance of shares to the InPath Members
has diluted the Common Stock ownership of the Company's other shareholders.
Immediately prior to the issuance of the shares to the InPath Members, the
book value of a share of Common Stock was approximately $.05 per share.
Immediately after the issuance of the shares to the InPath Members, the
book value of a share of Common Stock was approximately $.06 per share.
The Warrants received by the InPath Members have an exercise price of
$.001 per share and are not currently exercisable because the Company does
not have a sufficient number of authorized shares of Common Stock to issue
in exchange for them. The Warrants will become exercisable only if the
Company's shareholders approve the proposed Reincorporation, by which the
Company would merge into its Delaware subsidiary Ampersand, together with
<PAGE>
the proposed authorization of 50,000,000 shares of Ampersand Common Stock.
If such proposal is approved, there will be sufficient authorized shares of
Ampersand Common Stock to permit the Warrants to be exercised. See
"INCREASE IN AUTHORIZED COMMON STOCK," below. Upon the exercise of the
Warrants the InPath Members would own 50% of the outstanding Common Stock,
$.001 par value of Ampersand (the "Ampersand Common Stock") on a fully
diluted basis as of December 4, 1998. The exercise of the Warrants would
dilute the stock ownership which the Company's other shareholders would
otherwise have in Ampersand after the merger of the Company into Ampersand.
Based on the value of the net assets of the Company on December 31, 1998,
immediately after the merger into Ampersand but before the exercise of the
Warrants, the book value of a share of Ampersand Common Stock would be
approximately $.06. Immediately after such exercise, the book value of a
share of Ampersand Common Stock would be approximately $.05.
The price paid by the Company for the InPath Units was determined
through arm's-length negotiation between the InPath Members and the Board
(as constituted immediately prior to the Company's entry into the Exchange
Agreement). Specifically, the Board determined that the assets of InPath,
in the aggregate, were appropriate consideration for the shares of Common
Stock and Warrants issued to the InPath Members, given the assets'
intrinsic value as well as the favorable business opportunity which entry
into the medical-device industry offered the Company, which at the time had
no active operations. Before the date of the Exchange Agreement, to the
Company's best knowledge, none of the InPath Members had a material
relationship with the Company, its affiliates, any of its directors or
officers, or any associates of its directors or officers.
In addition to committing the Company to issuing to the InPath
Members the shares of Common Stock and Warrants, the Exchange Agreement
provides that the Company must incorporate Ampersand as a wholly owned
subsidiary in Delaware and call a shareholders meeting early in 1999 for
the purposes of: (i) approving the merger of the Company into Ampersand;
(ii) authorizing additional shares of Common Stock in an amount at least
sufficient to permit the exercise of the Warrants; (iii) authorizing shares
of so-called "blank-check" preferred stock; (iv) electing Mr. Gombrich, Dr.
Abeles, Dr. O'Donnell, Mr. Milley, and an additional person to be agreed
upon by Mr. Gombrich and Mr. Milley, as directors of the Company; (v)
ratifying the transactions contemplated by the December Agreements; and
(vi) considering any other proposals that properly come before the meeting.
Under the Exchange Agreement, the Board on the date of the Exchange
Agreement was required to appoint Mr. Gombrich and Dr. O'Donnell as
directors and the following persons as the Company's officers: (i) Mr.
Gombrich, as Chairman of the Board, Chief Executive Officer and Secretary;
(ii) Leonard R. Prange, as President and Chief Financial Officer; (iii)
Richard A. Domanik, Ph.D., as Vice President and Chief Technology Officer;
and (iv) David M. Doolittle, as Vice President and Treasurer. The Exchange
Agreement requires further that the Board at the time of the required
shareholders meeting recommend to the Company's shareholders that they vote
in favor of each of the proposals required to be presented at the meeting.
THE CLAIMS AGREEMENT
On December 4, 1998, the Company entered into a Claims Settlement
Agreement (the "Claims Agreement") with Alexander M. Milley, Robert C.
Shaw, Cadmus, a Massachusetts corporation, MMI, a Delaware corporation
(collectively, the "Claimants"), and Liberty Associates Limited Partnership
("Liberty"), a Delaware limited partnership. Pursuant to the Claims
Agreement, the Company issued shares of Common Stock to the Claimants in
settlement of debts the Company owed to them. The Company's debts to Mr.
Shaw and Mr. Milley were owed on account of employment compensation under
Employment Agreements with the Company effective November 20, 1989. The
debt owed to MMI were on account of management services to the Company, and
rent and administrative support related to the Orlando, Florida office
space which the Company leased from MMI. The Company's debt to Cadmus was
for management services. The dollar amount of each Claimant's claim and
the number of shares of Common Stock issued to each Claimant in settlement
thereof is shown below.
<PAGE>
Dollar Amount No. of Shares
of Claim Received
------------ ------------
Mr. Milley $63,000 210,000
Mr. Shaw $139,000 463,333
Cadmus $180,000 600,000
MMI $151,000 503,333
Also pursuant to the Claims Agreement, the Company and Liberty agreed
that, effective immediately, warrants owned by Liberty to purchase 957,373
shares of Common Stock would be cancelled.
THE STOCKHOLDERS AGREEMENT
Also on December 4, 1998, pursuant to both the Claims Agreement and
the Exchange Agreement, the Company entered into a Stockholders Agreement
with the InPath Members, the Claimants, and Winchester National, Inc.
("WNI"), a Delaware corporation (collectively, the "Stockholders"). Under
the Stockholders Agreement, all of the Stockholders agreed to, among other
things, vote all of the shares collectively owned by them in favor of
certain of the Proposals to be voted upon at the Annual Meeting. Such
Proposals are: Proposal No. 1, regarding the election of the Nominees;
this Proposal No. 2, regarding ratification of the transactions
contemplated by the Exchange Agreement and the Claims Agreement; Proposal
No. 3, regarding the proposed reincorporation in Delaware; Proposal No. 4,
regarding the authorization of 50,000,000 shares of Ampersand Common Stock;
and Proposal No. 5, regarding the authorization of 5,000,000 shares of
"blank-check" preferred stock. As of __________, 1999, the Stockholders
together owned [61.2]% of the shares of Common Stock entitled to vote at
the Annual Meeting.
CHANGE IN CONTROL
As a result of the Exchange Agreement, the Claims Agreement, and the
Stockholders Agreement, the Stockholders may be deemed to have acquired
control of the Company on December 4, 1998, by virtue of the power to vote
the shares of Common Stock which some of them acquired and their agreement
to vote their shares in a common manner for the purposes described above.
INTEREST OF OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS IN APPROVAL OF
THIS PROPOSAL
Some of the parties to the Exchange Agreement and the Claims
Agreement are also current or former officers or directors of the Company,
Nominees, or beneficially own over five percent (5%) of the outstanding
shares of Common Stock. As parties to the Exchange Agreement or the Claims
Agreement, each of such persons received shares of the Common Stock or
shares of the Common Stock plus Warrants, as described above, and therefore
has an interest in the ratification by the Company's shareholders of the
transactions contemplated by those agreements.
Mr. Gombrich is a party to the Exchange Agreement and is the
Company's Chairman of the Board, Chief Executive Officer and Secretary, and
he beneficially owns approximately 20.0% of the shares of Common Stock
outstanding. Dr. Abeles is General Partner of Northlea, a party to the
Exchange Agreement, and is a Nominee. Mr. Koenig is a party to the
Exchange Agreement and beneficially owns approximately 10.3% of the shares
of Common Stock outstanding. Mr. Milley is a party to the Claims
Agreement, is the former Chairman of the Board, Chief Executive Officer and
Secretary of the Company, is a current director and a Nominee, and
beneficially owns approximately 21.2% of the shares of Common Stock
outstanding. Mr. Shaw is a party to the Claims Agreement and is the former
<PAGE>
President and Treasurer of the Company and a current director. MMI and
Cadmus, which are both controlled by Mr. Milley, are parties to the Claims
Agreement and they beneficially own approximately 14.7% and 10.2%,
respectively, of the shares of Common Stock outstanding.
APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE DECEMBER AGREEMENTS
The affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote is required to approve the ratification of
the transactions contemplated by the December Agreements. Shareholders
possessing the power to vote approximately 61.2% of the shares of Common
Stock outstanding have agreed to vote all of such shares to approve the
ratification of the transactions contemplated by the December Agreements
(see "The Stockholders Agreement," above).
THE BOARD OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE TRANSACTIONS CONTEMPLATED
BY THE DECEMBER AGREEMENTS.
PROPOSAL NO. 3
REINCORPORATION IN DELAWARE
INTRODUCTION
For the reasons set forth below, the Board believes it would be in
the best interests of the Company and its shareholders to change the state
of incorporation of the Company from California to Delaware (the
"Reincorporation"). The Reincorporation would be effected by merging the
Company into Ampersand Medical Corporation ("Ampersand"), an existing
wholly owned subsidiary of the Company incorporated in Delaware (the
"Merger"). Upon completion of the Merger, the Company would cease to exist
and Ampersand would continue to operate the business of the Company and the
Company's subsidiaries under the Ampersand name. SHAREHOLDERS ARE URGED TO
READ CAREFULLY THE FOLLOWING SECTIONS OF THIS PROXY STATEMENT, INCLUDING
THE RELATED APPENDICES, BEFORE VOTING ON THE REINCORPORATION.
Pursuant to the Agreement and Plan of Merger, a copy of which is
attached hereto as Appendix C (the "Merger Agreement"), on the effective
date of the Merger each outstanding share of the Common Stock will
automatically be converted into one share of Ampersand Common Stock. As a
result, the existing shareholders of the Company will automatically become
stockholders of Ampersand, the Company will cease to exist and Ampersand
will continue to operate the business of the Company under the Ampersand
name. Certificates representing Common Stock of the Company will be deemed
to represent the same number of shares of Ampersand Common Stock as were
represented by such Company Common Stock prior to the Reincorporation. IT
WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR COMPANY COMMON
STOCK CERTIFICATES FOR AMPERSAND COMMON STOCK CERTIFICATES. In this
discussion of the Reincorporation and the Proposals that follow, the term
"Company Common Stock" may be used to distinguish the Common Stock from
Ampersand Common Stock.
Under California law, the affirmative vote of a majority of the
outstanding shares of Company Common Stock is required for approval of the
Merger Agreement and the other terms of the Reincorporation. See "Approval
of the Reincorporation in Delaware," below. The Board has unanimously
approved the proposed Reincorporation, and if approved by the shareholders,
it is anticipated that the Merger will become effective as soon as
practicable (the "Effective Date") following the Annual Meeting. However,
pursuant to the Merger Agreement, the Merger may be abandoned or the Merger
Agreement may be amended by the Board (except that the principal terms may
not be amended without shareholder approval) either before or after
shareholder approval has been obtained, and prior to the Effective Date of
the Reincorporation if, in the opinion of the Board of Directors of either
company, circumstances exist which make it inadvisable to proceed under the
original terms of the Merger Agreement.
<PAGE>
Shareholders of the Company will have no dissenters' rights of
appraisal with respect to the Reincorporation. See "Significant
Differences Between the Corporation Laws of California and
Delaware--Dissenters' Rights."
The discussion set forth below is qualified in its entirety by
reference to the Merger Agreement, the Certificate of Incorporation of
Ampersand (the "Ampersand Certificate") and the Bylaws of Ampersand (the
"Ampersand Bylaws"), copies of which are attached hereto as Appendixes C, D
and E, respectively.
APPROVAL BY SHAREHOLDERS OF THE REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE AMPERSAND CERTIFICATE AND THE
AMPERSAND BYLAWS AND ALL PROVISIONS THEREOF.
PRINCIPAL REASONS FOR THE REINCORPORATION
For many years Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy has been a
leader in adopting, construing and implementing comprehensive, flexible
corporate laws responsive to the legal and business needs of corporations
organized under its laws. Many corporations have initially chosen Delaware
for their state of incorporation or have subsequently changed their
corporate domicile to Delaware in a manner similar to that proposed by the
Company. Because of Delaware's prominence as the state of incorporation
for many major corporations, both the legislature and courts in Delaware
have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to corporate legal affairs. For
a detailed discussion of all of the changes in charter and bylaws which
will be implemented as part of the Reincorporation, see "The Charters and
Bylaws of the Company and Ampersand," below. For a discussion of the
differences between the laws of California and Delaware, see "Significant
Differences Between the Corporation Laws of California and Delaware,"
below.
POSSIBLE DISADVANTAGES
Despite the unanimous belief of the Board that the Reincorporation is
in the best interests of the Company and its shareholders, it should be
noted that Delaware law has been criticized by some commentators on the
grounds that it does not afford minority shareholders the same substantive
rights and protections as are available in a number of other states. For a
comparison of shareholders' rights and the powers of management under
Delaware and California law, see "Significant Differences Between the
Corporation Laws of California and Delaware," below. In addition, the
Reincorporation includes certain permitted changes to the Articles of
Incorporation or Bylaws of the Company which alter the relative rights of
shareholders and management and which reduce shareholder participation in
important corporate decisions. See "The Charters and Bylaws of the Company
and Ampersand" and "Anti-Takeover Effects," below.
ANTI-TAKEOVER EFFECTS
Certain Aspects of the Reincorporation would have the effect of
making a takeover more difficult. First, Ampersand is subject to Section
203 of the Delaware General Corporation Law, which is an anti-takeover
statute which makes it more difficult for certain persons, for example
significant stockholders, to obtain control of a corporation. The statute
imposes a three-year (3-year) moratorium on certain "business combinations"
unless certain requirements are met, such as the approval of the
transaction by two-thirds (2/3) of the corporation's stockholders. See
"Significant Differences Between the Corporation Laws of California and
Delaware--The Delaware Anti-Takeover Statute," below.
<PAGE>
Second, unlike the Bylaws of the Company, neither the Ampersand
Certificate nor the Ampersand Bylaws provide for cumulative voting, meaning
that it would be more difficult for minority stockholders to elect a
nominee to the Ampersand Board. Such difficulty could discourage persons
from attempting takeovers because a greater number of shares of Ampersand
Common Stock would have to be acquired in order for such persons to be
assured of electing nominees to the Ampersand Board. See "The Charters and
Bylaws of the Company and Ampersand--Elimination of Cumulative Voting,"
below.
Third, the Ampersand Bylaws, unlike the Bylaws of the Company,
establish advance notice procedures for nominating directors and bringing
certain matters before the annual meeting of Ampersand's stockholders.
Because these procedures require that a stockholder satisfy certain
requirements before being permitted to nominate a director or cause a
matter to be voted upon by stockholders, it may be more difficult for a
stockholder or group of stockholders to acquire control of Ampersand. See
"The Charters and Bylaws of the Company and Ampersand--Nominations of
Director Candidates and Introduction of Business at Ampersand Stockholder
Meetings," below.
These aspects of the Reincorporation may have the effect of limiting
Ampersand Stockholders' opportunities to sell their shares at an increased
price that might result from a takeover attempt, or otherwise to benefit
from a takeover transaction opposed by the Ampersand Board. In addition,
approval of the separate Proposals related to the Reincorporation may have
certain anti-takeover effects. Such effects are described separately
below. See "INCREASE IN AUTHORIZED COMMON STOCK--Anti-Takeover Effect";
"AUTHORIZATION OF BLANK-CHECK PREFERRED STOCK--Anti-Takeover Effects."
NO CHANGE IN THE COMPANY'S BOARD MEMBERS, BUSINESS, MANAGEMENT, OR LOCATION
OF PRINCIPAL FACILITIES
The Reincorporation would effect only a change in the Company's name
and legal domicile, and other changes of a legal nature, certain of which
are described in this Proxy Statement. The Reincorporation would NOT
result in any change in the business, management, fiscal year, assets or
liabilities, or location of the principal facilities of the Company. The
five (5) directors who are elected at the Annual Meeting would become the
directors of Ampersand. The Warrants issued pursuant to the Exchange
Agreement (as described under "RATIFICATION OF THE TRANSACTIONS
CONTEMPLATED BY THE CLAIMS AGREEMENT AND THE CLAIMS AGREEMENT") would be
exercisable, but according to the Merger Agreement, each Warrant would
automatically be converted into a warrant to purchase one share of
Ampersand Common Stock, subject to the terms set forth in the Merger
Agreement. After the Merger, shares of Ampersand Common Stock would be
quoted on the Over-the-Counter Bulletin Board (under the symbol "____") in
the same manner that shares of Company Common Stock are currently quoted on
the Over-the-Counter Bulletin Board.
THE CHARTERS AND BYLAWS OF THE COMPANY AND AMPERSAND
The provisions of the Ampersand Certificate and Bylaws are similar to
those of the Company's Restated Articles of Incorporation (the "Articles")
and Bylaws in many respects. However, the proposed Reincorporation
includes the implementation of certain provisions in the Ampersand
Certificate and Bylaws which alter the rights of shareholders and the
powers of management, and which may affect shareholder participation in
important corporate decisions. These provisions have anti-takeover
implications and are described in detail below.
Approval by shareholders of the Reincorporation will constitute an
approval of the inclusion in the Ampersand Certificate and Bylaws of each
of the provisions described below. In addition, certain other changes
altering the rights of shareholders and powers of management could be
implemented in the future by amendment of the Ampersand Certificate
following stockholder approval, and certain of such changes could be
implemented by amendment of the Ampersand Bylaws without stockholder
approval. For a discussion of such changes, see "Significant Differences
<PAGE>
Between the Corporation Laws of California and Delaware." This discussion
of the Ampersand Certificate and Bylaws is qualified by reference to
Appendixes D and F.
ELIMINATION OF CUMULATIVE VOTING
Unlike the Bylaws of the Company, the Ampersand Certificate and
Bylaws do not provide for cumulative voting. Cumulative voting entitles
each shareholder to cast a number of votes that is equal to the number of
voting shares held by such shareholder multiplied by the total number of
directors to be elected, and to cast all such votes for one nominee or
distribute such votes among up to as many candidates as there are positions
to be filled. (For a further description of the mechanics of cumulative
voting, see the section entitled "Voting" on page 2 of this Proxy
Statement.) Without cumulative voting, a shareholder or group of
shareholders must hold a majority of the voting shares to cause the
election of one or more nominees. Cumulative voting may enable a minority
shareholder or group of shareholders to elect at least one representative
to the Board. For example, in each election of directors, under cumulative
voting rules where five (5) directors are to be elected, a shareholder or
group holding greater than 16.7% of the voting shares is guaranteed the
ability to elect one (1) director. If the Reincorporation proposal is
adopted, in all future elections of the Board of Directors of Ampersand
(the "Ampersand Board"), commencing with the Annual Meeting to be held in
2000, the holders of a majority of the shares actually voted (assuming that
a quorum is present) will be guaranteed the right to elect all of the
directors being elected at that time.
REASONS FOR THE ELIMINATION OF CUMULATIVE VOTING. The Board believes
that each director elected to the Board should represent the interests of
all shareholders. Because cumulative voting makes it easier for a minority
shareholder to elect that shareholder's own director to the Board, the
elimination of cumulative voting should decrease the likelihood that
directors with agendas favorable to only a minority of shareholders will be
elected. The elimination of cumulative voting would not in fact cause a
departure from the manner in which the Company's directors have been
elected in recent years, since such voting has not, to the Company's best
knowledge, recently been used in the election of a director to the Board.
POSSIBLE DISADVANTAGES OF ELIMINATION OF CUMULATIVE VOTING. The
elimination of cumulative voting would make it more difficult for a
minority shareholder or group of shareholders to elect a representative to
the Ampersand Board. In addition, it should be noted that the elimination
of cumulative voting may also have certain anti-takeover effects. It may
under certain circumstances discourage or render more difficult a merger,
tender offer or proxy contest; discourage the acquisition of large blocks
of the Ampersand's stock by persons who would not make such acquisition
without assurance of the ability to place a representative on the Board;
deter or delay the assumption of control by a holder of a large block of
Ampersand's stock; or render more difficult the replacement of incumbent
directors and management.
NOMINATIONS OF DIRECTOR CANDIDATES AND INTRODUCTION OF BUSINESS AT
AMPERSAND STOCKHOLDER MEETINGS
The Ampersand Bylaws establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the
Ampersand Board, of candidates for election as directors (the "Nomination
Procedure") and with regard to certain matters to be brought before an
annual meeting of Ampersand stockholders (the "Business Procedure"). The
Nomination Procedure provides that only persons nominated by or at the
direction of the Ampersand Board or by a stockholder who has given timely
written notice to the Secretary of Ampersand prior to the meeting, will be
eligible for election as directors. The Business Procedure provides that
at an annual meeting, and subject to any other applicable requirements,
only such business may be conducted as has been brought before the meeting
<PAGE>
by or at the direction of the Ampersand Board or by a stockholder who has
given timely written notice to the Secretary of Ampersand of such
stockholder's intention to bring such business before the meeting. To be
timely, notice generally must be given not less than sixty (60) days prior
to the first anniversary of the date of mailing of the notice of the
previous year's annual meeting of shareholders.
Under the Nomination Procedure, a stockholder's notice to Ampersand
must contain information about the nominee, including such information as
would be required to be included in a proxy statement soliciting proxies
for the election of the proposed nominee, and certain information about the
stockholder proposing to nominate that person, including their name and
address and the class and number of shares of Ampersand stock which are
beneficially owned by such stockholder. Under the Business Procedure,
notice relating to the conduct of business at an annual meeting other than
the nomination of directors must contain certain information about the
business and about the stockholder who proposes to bring the business
before the meeting. If the presiding officer at the meeting determines
that a person was not nominated in accordance with the Nomination
Procedure, such person will not be eligible for election as a director, or
if he or she determines that other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will
not be conducted at such meeting. Nothing in the Nomination Procedure or
the Business Procedure will preclude discussion by any stockholder of any
nomination or business properly made or brought before the annual meeting
in accordance with the above-described procedures.
By requiring advance notice of nominations by stockholders, the
Nomination Procedure affords the Ampersand Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform the stockholders about such
qualifications. By requiring advance notice of proposed business, the
Business Procedure provides the Ampersand Board with an opportunity to
inform stockholders of any business proposed to be conducted at a meeting
and the Ampersand Board's position on any such proposal, enabling
stockholders to better determine whether they desire to attend the meeting
or grant a proxy to the Ampersand Board as to the disposition of such
business. In addition, the Business Procedure provides an orderly means
for conducting the annual meeting of stockholders. Although the Ampersand
Bylaws do not give the Ampersand Board any power to approve or disapprove
stockholder nominations for the election of directors or any other business
desired by stockholders to be conducted at an annual meeting, the Ampersand
Bylaws may have the effect of precluding a nomination for the election of
directors or of precluding any other business at a particular annual
meeting if the proper procedures are not followed. In addition, the
procedures may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of Ampersand, even if the conduct of such
business or such attempt might be beneficial to Ampersand and its
stockholders.
INCREASED AUTHORIZED STOCK AND AUTHORIZATION OF PREFERRED STOCK
The Articles of the Company authorize 12,000,000 shares of Common
Stock and do not authorize any other type of stock. The Articles provide
further that the Company is not authorized to issue non-voting securities.
In contrast, the Ampersand Certificate authorizes 50,000,000 shares of
Ampersand Common Stock and 5,000,000 shares of Ampersand Preferred Stock,
$.001 par value per share (the "Preferred Stock"), which Preferred Stock
may, at the discretion of the Ampersand Board, be issued in series that
give holders greater or lesser voting rights holders of Ampersand Common
Stock.
The provisions in the Ampersand Certificate which authorize
50,000,000 shares of Ampersand Common Stock and 5,000,000 shares of
Preferred Stock are presented to the Company's shareholders for their
approval separately from this proposed Reincorporation, and the inclusion
of such provisions in the Ampersand Certificate at the time of the Merger
<PAGE>
is contingent upon such separate approval by shareholders. If the
Company's shareholders approve the Reincorporation but do not separately
approve the provisions of the Ampersand Certificate concerning the
authorization of stock, the Board may choose either not to proceed with the
Reincorporation or to proceed with the Reincorporation, but after causing
the Company, as sole stockholder of Ampersand, to amend the Ampersand
Certificate so that it is in all material respects identical to the
Articles of the Company with regard to the amount and type of securities
authorized for issuance. For a more complete discussion of the effect on
the Company's shareholders of the provisions in the Ampersand Certificate
concerning authorization of stock, see "INCREASE IN AUTHORIZED COMMON
STOCK" and "AUTHORIZATION OF BLANK-CHECK PREFERRED STOCK," below.
MONETARY LIABILITY OF DIRECTORS
The Articles of the Company and the Ampersand Certificate both
provide for the elimination of personal monetary liability of directors to
the fullest extent permissible under the laws of each corporation's
respective state of incorporation.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND
DELAWARE
The General Corporation Laws of California and Delaware differ in
many respects. It is not practical to summarize all of such differences in
this Proxy Statement, but some of the principal differences which could
materially affect the rights of shareholders are discussed below.
SIZE OF THE BOARD OF DIRECTORS
The Bylaws of the Company provide for a Board of from five (5) to
nine (9) members, the exact number of directors to be fixed within those
limits by a resolution of the Board amending the Bylaws. Currently, the
number of directors is fixed at five (5). The Ampersand Bylaws provide
that the Ampersand Board is to have no fewer than five (5) nor more than
seven (7) members, as more precisely fixed by a resolution of the Board
amending the Bylaws. Under California law, although changes in the number
of directors must in general be approved by a majority of the outstanding
shares, the board of directors may fix the exact number of directors within
a stated range set forth in the articles of incorporation or bylaws, if
that stated range has been approved by the shareholders. Delaware law
permits the Board of Directors alone to change the authorized number, or
the range, of directors by amendment to the bylaws, unless the certificate
of incorporation states that the directors may not amend the bylaws, or
unless the number of directors is fixed in the certificate of incorporation
(in which case a change in the number of directors may be made only by
amendment to the certificate of incorporation following approval of such
change by the stockholders). Consistent with Delaware law, the Ampersand
Certificate and Bylaws permit a change in the number of directors by a
majority vote of the entire Ampersand Board. If the Reincorporation is
carried out, the five (5) directors of the Company who are elected at the
Annual Meeting will continue as the five (5) directors of Ampersand after
the Reincorporation is consummated.
CUMULATIVE VOTING
Under California law, if any shareholder has given notice of his or
her intention to cumulate votes for the election of directors, any other
shareholder of the corporation is also entitled to cumulate his or her
votes at such election. Under Delaware law, cumulative voting in the
election of directors is not mandatory. The Ampersand Certificate and
Bylaws do not provide for cumulative voting and, therefore, the
stockholders of Ampersand will not have cumulative voting rights. The
elimination of cumulative voting limits the ability of minority
shareholders to obtain representation on the board of directors. See
"Elimination of Cumulative Voting," above.
<PAGE>
THE DELAWARE ANTI-TAKEOVER STATUTE
In the last several years, a number of states (but not California)
have adopted special laws designed to make certain kinds of "unfriendly"
corporate takeovers, or other transactions involving a corporation and one
or more of its significant shareholders, more difficult. Under Section 203
of the Delaware General Corporation Law ("Section 203"), certain "business
combinations" with "interested stockholders" of Delaware corporations are
subject to a three-year (3-year) moratorium unless specified conditions are
met.
Section 203 prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three (3) years
following the date that such person becomes an interested stockholder.
With certain exceptions, an interested stockholder is a person or group who
or which owns 15% or more of the corporation's outstanding voting stock
(including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion
or exchange rights, and stock with respect to which the person has voting
rights only), or is an affiliate or associate of the corporation and was
the owner of 15% or more of such voting stock at any time within the
previous three (3) years.
For purposes of Section 203, the term "business combination" is
defined broadly to include mergers with, or caused by, the interested
stockholder; sales or other dispositions to the interested stockholder
(except proportionately with the corporation's other stockholders) of
assets of the corporation or a subsidiary equal to ten percent (10%) or
more of the aggregate market value of the corporation's consolidated assets
or its outstanding stock; the issuance or transfer by the corporation or a
subsidiary of stock of the corporation or such subsidiary to the interested
stockholder (except for transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of
the corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary. The
three-year (3-year) moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date on which such shareholder
becomes an interested stockholder the board of directors approves either
the business combination or the transaction which resulted in the person
becoming an interested stockholder; (ii) the interested stockholder owns
85% of the corporation's voting stock upon consummation of the transaction
which made him or her an interested stockholder (excluding from the 85%
calculation shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by two-thirds (2/3) of the voting stock
not owned by the interested stockholder.
Section 203 generally only applies to Delaware corporations which
have a class of voting stock that is listed on a national securities
exchange, authorized for quotation on the Nasdaq Stock Market, or held of
record by more than 2,000 stockholders. Further, a Delaware corporation
may elect not to be governed by Section 203 by a provision in its original
certificate of incorporation or an amendment thereto or to the bylaws,
which amendment must be approved by majority stockholder vote and may not
be further amended by the board of directors. Ampersand has not opted out
of Section 203 and therefore it would apply to Ampersand in the future
should a class of Ampersand voting stock ever be listed on a national
securities exchange, authorized for quotation on the Nasdaq Stock Market,
or held of record by more than 2,000 stockholders.
<PAGE>
REMOVAL OF DIRECTORS
Under California Law, any director or the entire board of directors
may be removed, with or without cause, with the approval of a majority of
the outstanding shares entitled to vote; however, no individual director
may be removed (unless the entire board is removed) if the number of votes
cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director of a corporation that
does not have a classified board of directors or cumulative voting may be
removed with or without cause with the approval of a majority of the
outstanding shares entitled to vote. Since Ampersand does not have a
classified board of directors or cumulative voting, a director may be so
removed.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law, any vacancy on the board of directors other
than one created by removal of a director may be filled by the board. If
the number of directors is less than a quorum, a vacancy may be filled by
the unanimous written consent of the directors then in office, by the
affirmative vote of a majority of the directors at a meeting held pursuant
to notice or waivers of notice, or by a sole remaining director. A vacancy
created by removal of a director may be filled by the board only if so
authorized by a corporation's articles or by a bylaw approved by the
corporation's shareholders. The Company's Bylaws provide that, except for
a vacancy created by the removal of a director, vacancies on the Board may
be filled by a majority of the directors then in office, whether or not
they constitute a quorum, or by a sole remaining director. The Company's
Bylaws provide further that a vacancy created by the removal of a director
may be filled only by the shareholders, except that a vacancy created by
the Board declaring the office of a director vacant when such director has
been convicted of a felony or declared of unsound mind by an order of a
court may be filled by the Board.
Under Delaware law, vacancies and newly created directorships may be
filled by a majority of the directors then in office (even though less than
a quorum) unless otherwise provided in the certificate of incorporation or
bylaws (and unless the certificate of incorporation directs that a
particular class is to elect such director, in which case any other
directors elected by such class, or a sole remaining director, shall fill
such vacancy). The Ampersand Bylaws permit directors to fill vacancies and
newly created directorships.
LOANS TO OFFICERS AND EMPLOYEES
Under California law, any loan or guaranty to or for the benefit of a
director or officer of the corporation or its parent requires approval of
the shareholders unless such loan or guaranty is provided under a plan
approved by shareholders owning a majority of the outstanding shares of the
corporation. In addition, under California law, shareholders of any
corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone to approve loans or guaranties to
or on behalf of officers (whether or not such officers are directors) if
the board determines that any such loan or guaranty may reasonably be
expected to benefit the corporation. Under Delaware law, a corporation may
make loans to, guarantee the obligations of, or otherwise assist its
officers or other employees and those of its subsidiaries (including
directors who are also officers or employees) when such action, in the
judgment of the directors, may reasonably be expected to benefit the
corporation.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws respecting indemnification
by a corporation of its officers, directors, employees and other agents.
The laws of both states also permit corporations to adopt a provision in
their charters eliminating the liability of a director to the corporation
or its equity holders for monetary damages for breach of the director's
fiduciary duty of care. There are nonetheless certain differences between
<PAGE>
the laws of the two states respecting indemnification and limitation of
liability.
The Articles of the Company eliminate the liability of directors to
the corporation to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and
culpable violation of law; (b) acts or omissions that a director believes
to be contrary to the best interests of the corporation or its
shareholders, or that involve the absence of good faith on the part of the
director; (c) receipt of an improper personal benefit; (d) acts or
omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course
of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation and its shareholders;
(f) interested transactions between the corporation and a director in which
a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
The Ampersand Certificate also eliminates the liability of directors
to the fullest extent permissible under Delaware law, as such law exists
currently or as it may be amended in the future. Under Delaware law, such
provision may not eliminate or limit director monetary liability for: (a)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of
unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit.
Such limitation-of- liability provision also may not limit a director's
liability for violation of, or otherwise relieve Ampersand or its directors
from the necessity of complying with, federal or state securities laws, or
affect the availability of non-monetary remedies such as injunctive relief
or rescission.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made without court approval when a
person is adjudged liable to the corporation in the performance of that
person's duty to the corporation and its shareholders, unless a court
determines such person is entitled to indemnity for expenses, and then such
indemnification may be made only to the extent that such court shall
determine, and (b) no indemnification may be made without court approval in
respect of amounts paid or expenses incurred in settling or otherwise
disposing of a threatened or pending action or amounts incurred in
defending a pending action which is settled or otherwise disposed of
without court approval.
Indemnification is permitted by California law only for acts taken in
good faith and believed to be in the best interests of the corporation and
its shareholders, as determined by a majority vote of a disinterested
quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of
the shareholders (excluding shares owned by the indemnified party), or the
court handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law
which requires indemnification relating to a successful defense on the
merits or otherwise).
Delaware law generally permits indemnification of expenses incurred
in the defense or settlement of a derivative or third-party action,
provided there is a determination by a disinterested quorum of the
directors, by independent legal counsel or by a majority vote of a quorum
of the stockholders that the person seeking indemnification acted in good
<PAGE>
faith and in a manner reasonably believed to be in, or (in contrast to
California law) not opposed to, the best interests of the corporation.
Without court approval, however, no indemnification may be made in respect
of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the
merits or otherwise.
California corporations may include in their articles of
incorporation a provision which extends the scope of indemnification
through agreements, bylaws or other corporate action beyond that
specifically authorized by statute. The Articles of the Company include
such a provision.
Delaware law states that the indemnification provided by statute
shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Under Delaware law, therefore, the indemnification agreements entered into
by the Company with its officers and directors may be assumed by Ampersand
upon completion of the proposed Reincorporation. If the Reincorporation is
approved, the indemnification agreements will be amended to the extent
necessary to conform the agreements to Delaware law, and a vote in favor of
the Reincorporation is also approval of such amendments to the
indemnification agreements. In particular, the indemnification agreements
will be amended to include within their purview future changes in Delaware
law which expand the permissible scope of indemnification of directors and
officers of Delaware corporations.
Currently, there are no actions pending against officers or directors
of the Company in their capacities as such.
The indemnification and limitation of liability provisions of
California law, and not Delaware law, will apply to actions of the
directors and officers of the Company made prior to the proposed
Reincorporation.
INSPECTION OF SHAREHOLDERS LIST
Both California and Delaware law allow any shareholder to inspect the
shareholders' list for a purpose reasonably related to such person's
interest as a shareholder. California law provides, in addition, for an
absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of five (5) or more of a corporation's voting
shares, or shareholders holding an aggregate of one percent (1%) or more of
such shares who have filed a Schedule 14A with the SEC relating to the
election of directors. Delaware law does not provide for any such absolute
right of inspection, and no such right is granted under the Ampersand
Certificate or Bylaws. Lack of access to Ampersand stockholder records
even though unrelated to the stockholder's interest as a stockholder, could
result in impairment of the stockholder's ability to coordinate opposition
to management proposals, including proposals with respect to a change in
control of Ampersand.
DIVIDENDS AND REPURCHASES OF SHARES
California law dispenses with the concepts of par value of shares as
well as statutory definitions of capital, surplus and the like. The
concepts of par value, capital and surplus are retained under Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of
its shares) unless either the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the
proposed distribution or, immediately after giving effect to such
distribution, the corporation's assets (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least
equal to 1.25 times its liabilities (not including deferred taxes, deferred
<PAGE>
income and other deferred credits), and the corporation's current assets
would be at least equal to its current liabilities (or 1.25 times its
current liabilities if the average pre-tax and pre-interest expense
earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out
of surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared or for the preceding fiscal year, or
both years, as long as the amount of capital of the corporation following
the declaration and payment of the dividend is not less than the aggregate
amount of the capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. In
addition, Delaware law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation.
To date, the Company has not paid cash dividends on its capital
stock. It is the present policy of the Board to retain earnings for use in
the Company's business, and therefore, the Company does not anticipate
paying cash dividends in the foreseeable future on its Common Stock, or
after the proposed Reincorporation on the Ampersand Common Stock.
SHAREHOLDER VOTING
Both California and Delaware law generally require that a majority of
the equity holders of both acquiring and target corporations approve
statutory mergers. Delaware law does not require a stockholder vote of the
surviving corporation in a merger (unless the corporation provides
otherwise in its certificate of incorporation) if (a) the merger agreement
does not amend the existing certificate of incorporation, (b) each share of
the surviving corporation outstanding before the merger is an identical
outstanding or treasury share after the merger, and (c) the number of
shares to be issued by the surviving corporation in the merger does not
exceed 20% of the shares outstanding immediately prior to the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization, will own immediately after the
reorganization equity securities constituting more than five-sixths (5/6)
of the voting power of the surviving or acquiring corporation or its parent
entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority
of the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be
approved by a majority vote of each class of shares outstanding. In
contrast, Delaware law generally does not require class voting, except in
certain transactions involving an amendment to the certificate of
incorporation which adversely affects a specific class of shares. Should
Ampersand authorize and issue shares of a new class of capital stock, the
holders thereof would vote with the holders of Ampersand Common Stock on
proposals not adversely affecting the Ampersand Common Stock. In such
event the holders of Ampersand Common Stock, if in the minority, would be
unable to control the outcome of a vote, and, if in the majority, would be
able to control the outcome of such a vote.
California law also requires that holders of nonredeemable common
stock receive nonredeemable common stock in a merger of the corporation
with the holder of more than 50% but less than 90% of such common stock or
its affiliate unless all of the holders of such common stock consent to the
transaction. This provision of California law may have the effect of
making a "cash-out" merger by a majority shareholder more difficult to
accomplish. Delaware law does not parallel California law in this respect,
particularly with the opt-out from Section 203 of the Delaware General
Corporation Law.
<PAGE>
California law also provides that, except in certain circumstances,
when a tender offer or a proposal for a reorganization or for a sale of
assets is made by an interested party (generally a controlling or managing
party of the target corporation), an affirmative opinion in writing as to
the fairness of the consideration to be paid to the shareholders must be
delivered to shareholders. This fairness opinion requirement does not
apply to a corporation which does not have shares held of record by at
least 100 persons, or to a transaction which has been qualified under
California state securities laws. Furthermore, if a tender of shares or
vote is sought pursuant to an interested party's proposal and a later
proposal is made by another party at least ten (10) days prior to the date
of acceptance of the interested-party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to
withdraw any vote, consent or proxy, or to withdraw any tendered shares.
Delaware law has no comparable provision, and the stockholders of Ampersand
might, therefore, be deprived of an opportunity to consider such other
proposal.
INTERESTED-DIRECTOR TRANSACTIONS
Under both California and Delaware law, certain contracts or
transactions in which one (1) or more of a corporation's directors has an
interest are not void or voidable because of such interest provided that
certain conditions, such as obtaining the required approval and fulfilling
the requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under California and Delaware law.
Under California and Delaware law, (a) either the equity holders or the
board of directors must approve any such contract or transaction after full
disclosure of the material facts, and in the case of board approval the
contract or transaction must also be "just and reasonable" (in California)
or "fair" (in Delaware) to the corporation, or (b) the contract or
transaction must have been just and reasonable or fair as to the
corporation at the time it was approved. In the latter case, California
law explicitly places the burden of proof on the interested director.
Under California law, if shareholder approval is sought, the
interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction.
If board approval is sought, the contract or transaction must be approved
by a majority vote of a quorum of the directors, without counting the vote
of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum). Under Delaware law, if
board approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even though less than a majority
of a quorum). Therefore, certain transactions that the Company's Board
might not be able to approve because of the number of interested directors,
could be approved by a majority of the disinterested directors of
Ampersand, although less than a majority of a quorum. The Company is not
aware of any plans to propose any transaction involving directors of the
Company which could not be so approved under California law but could be so
approved under Delaware law.
VOTING BY BALLOT
California law provides that the election of directors may proceed in
the manner described in a corporation's bylaws. The Company's Bylaws
provide that the election of directors at a shareholders meeting may be by
voice vote or ballot, unless prior to such vote a shareholder demands a
vote by ballot, in which case such vote must be by ballot. Under Delaware
law, the right to vote by written ballot may be restricted if so provided
in the certificate of incorporation. The Ampersand Certificate provides
that the election of directors need not be by ballot unless the Ampersand
Bylaws so provide, which they do not. Therefore, Ampersand stockholders
would not have the right to demand election by ballot.
<PAGE>
SHAREHOLDER DERIVATIVE SUITS
California law provides that a shareholder bringing a derivative
action on behalf of a corporation need not have been a shareholder at the
time of the transaction in question, provided that certain tests are met.
Under Delaware law, a stockholder may only bring a derivative action on
behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law.
California law also provides that the corporation or the defendant in
a derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
DISSENTERS' RIGHTS
Under both California and Delaware law, a shareholder of a
corporation participating in certain major corporate transactions may,
under varying circumstances, be entitled to dissenters' rights pursuant to
which such shareholder may receive cash in the amount of the fair market
value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Under Delaware law, such dissenters'
rights are not available (a) with respect to the sale, lease or exchange of
all or substantially all of the assets of a corporation, (b) with respect
to a merger or consolidation by a corporation the shares of which are
either listed on a national securities exchange or are held of record by
more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or held of record by more than
2,000 holders, plus cash in lieu of fractional shares, or (c) to
stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger,
and the number of shares to be issued in the merger does not exceed 20% of
the shares of the surviving corporation outstanding immediately prior to
the merger and if certain other conditions are met.
The limitations on the availability of dissenters' rights under
California law are different from those under Delaware law. Shareholders
of a California corporation whose shares are listed on a national
securities exchange or on a list of over-the-counter margin stocks issued
by the Board of Governors of the Federal Reserve System generally do not
have dissenters' rights unless the corporation or any law restricts the
transfer of the shareholders' shares, or holders of at least five percent
(5%) of the outstanding shares of that class claim the right to dissent.
Dissenters' rights are unavailable if the shareholders of a corporation or
the corporation itself, or both, immediately prior to the reorganization
will own immediately after the reorganization equity securities
constituting more than five-sixths (5/6) of the voting power of the
surviving or acquiring corporation or its parent entity. Because this
would be the case in the proposed Reincorporation, under California law
dissenters' rights are not available to shareholders of the Company with
respect to the Reincorporation. California law does in general afford
dissenters' rights in sale of asset reorganizations.
DISSOLUTION
Under California law, shareholders holding 50% or more of the total
voting power may authorize a corporation's dissolution, with or without the
approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation. Under Delaware law, unless the
board of directors initiates the proposal to dissolve, the dissolution must
be approved by stockholders holding 100% of the total voting power of the
corporation. Only if the dissolution is initiated by the board of
directors may it be approved by a simple majority of the corporation's
stockholders. In the event of such a board-initiated dissolution, Delaware
<PAGE>
law allows a Delaware corporation to include in its certificate of
incorporation a supermajority voting requirement in connection with
dissolutions. The Ampersand Certificate contains no such supermajority
voting requirement, however, and a majority of shares voting at a meeting
at which a quorum is present would be sufficient to approve a dissolution
of Ampersand which had previously been initiated and approved by the
Ampersand Board.
COMPLIANCE WITH CALIFORNIA AND DELAWARE LAW
Following the Annual Meeting, if the Reincorporation is approved, the
Company will submit the Merger Agreement to the respective offices of the
Secretaries of State of California and Delaware for filing.
NO DISSENTERS' RIGHTS
Neither California nor Delaware law affords the Company's
shareholders dissenters' rights in connection with the Reincorporation.
See "Significant Differences Between the Corporation Laws of California and
Delaware--Dissenters' Rights," above.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain federal income tax
considerations that may be relevant to holders of Company Common Stock who
would receive Ampersand Common Stock in exchange for their Company Common
Stock as a result of the Reincorporation. The discussion does not address
all the tax consequences of the proposed Reincorporation that may be
relevant to particular shareholders (such as dealers in securities, holders
of stock options or those Company shareholders who acquired their shares
upon the exercise of compensatory stock options) or holders of warrants to
purchase shares of the Company Common Stock. Furthermore, no foreign,
state or local tax considerations are addressed herein. IN VIEW OF THE
VARYING NATURE OF SUCH TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE PROPOSED REINCORPORATION, INCLUDING THE APPLICABILITY OF FEDERAL,
STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications, and exceptions described
herein, the Board believes that the proposed Reincorporation qualifies as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The following tax consequences
should therefore generally result:
(a) No gain or loss should be recognized by holders of Company
Common Stock upon receipt solely of Ampersand Common Stock pursuant to the
proposed Reincorporation;
(b) The aggregate tax basis of the Ampersand Common Stock received
by each Company shareholder in the Reincorporation should be equal to the
aggregate tax basis of the Company Common Stock surrendered in exchange
therefor; and
(c) The holding period of the Ampersand Common Stock received by
each Company shareholder should include the period for which such
shareholder held the Company Common Stock surrendered in exchange therefor,
provided that such Company Common Stock was held by such shareholder as a
capital asset at the time of the Reincorporation.
The Company has not requested a ruling from the Internal Revenue
Service (the "IRS") with respect to the federal income tax consequences of
the proposed Reincorporation under the Code. A successful IRS challenge to
the reorganization status of the Reincorporation would result in a
shareholder recognizing gain or loss with respect to each share of Company
Common Stock exchanged in the Reincorporation equal to the difference
between that shareholder's basis in such share and the fair market value,
<PAGE>
as of the time of the Reincorporation, of the Ampersand Common Stock
received in exchange therefor. In such event, a shareholder's aggregate
basis in the shares of Ampersand Common Stock received in the exchange
would equal such fair market value, and such shareholder's holding period
for such shares would not include the period during which such shareholder
held Company Common Stock.
Even if the proposed Reincorporation qualifies as a reorganization, a
shareholder that exchanges Company Common Stock for Ampersand Common Stock
in the Reincorporation would recognize gain to the extent the shareholder
was treated as receiving (actually or constructively) consideration other
than Ampersand Common Stock in exchange for such shareholder's Company
Common Stock. In that event, the basis of the Ampersand Common Stock
received by such a shareholder would be reduced by an amount equal to the
fair market value of any such consideration received in the Reincorporation
and increased to the extent of any gain recognized in connection therewith.
All or a portion of such gain may be taxable as ordinary income.
APPROVAL OF THE REINCORPORATION
The affirmative vote of a majority of the outstanding shares of
Company Common Stock entitled to vote is required to approve the
Reincorporation, which approval will also constitute approval of the Merger
Agreement, the Ampersand Certificate, and the Ampersand Bylaws.
Shareholders owning approximately 61.2% of the shares of Common Stock
outstanding have agreed to vote all of such shares to approve the
Reincorporation (see "RATIFICATION OF THE TRANSACTIONS CONTEMPLATED BY THE
EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT--The Stockholders Agreement,"
above).
THE BOARD OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE REINCORPORATION AND THE
ADOPTION OF THE MERGER AGREEMENT.
PROPOSAL NO. 4
INCREASE IN AUTHORIZED COMMON STOCK
The Company Articles presently authorize the Company to issue
12,000,000 shares of Company Common Stock, of which all 12,000,000 shares
were issued and outstanding as of March 31, 1999. The Board proposes that
shareholders approve a provision in the Ampersand Certificate authorizing
Ampersand to issue up to 50,000,000 shares of Ampersand Common Stock (the
"Increase in Authorized Common Stock").
REASONS FOR INCREASING AUTHORIZED COMMON STOCK
RAISING ADDITIONAL CAPITAL
The Board believes that the Increase in Authorized Common Stock is
needed to facilitate raising additional capital. In order for the Company
to best realize its business objectives, and thereby best serve the
interests of current shareholders, the Company may require funds for use in
making acquisitions, paying technology licensing fees, conducting research
and development, and covering general and administrative costs. The amount
of funds the Company that may be required for these purposes could exceed
the Company's currently available funds. The authorization of 50,000,000
shares of Ampersand Common Stock would make those shares available for
raising needed funds through stock issuances. Such stock issuances could
be for cash, securities or other property, allowing Ampersand to respond
flexibly to its future financial and capital requirements and to take
advantage of favorable market conditions or business opportunities,
including acquisitions.
<PAGE>
OTHER REASONS
The Increase in Authorized Common Stock could also be beneficial for
other reasons. Shares of Ampersand Common Stock could be issued in order
to broaden the public ownership of, and enhance the market for, Ampersand
Common Stock, should the Ampersand Board decide these are appropriate
objectives in light of prevailing market conditions. Shares would also be
available to be issued for other corporate purposes including in connection
with stock splits or under employee benefit programs. Presently, neither
the Board of the Company nor the Board of Ampersand has any plans for stock
split or for a merger or other business combination in which shares of
Ampersand Common Stock would be issued.
SHARES ISSUABLE AT AMPERSAND BOARD'S DISCRETION
The shares of Ampersand Common Stock authorized pursuant to this
Proposal would be, subject to the laws of the State of Delaware, issuable
at the discretion of the Ampersand Board without in most cases the delays
and expenses attendant to obtaining stockholder approval. To the extent
required by Delaware law, stockholder approval would be solicited in the
event shares of Ampersand Common Stock were to be issued in connection with
a merger. No Ampersand stockholder will have any pre-emptive rights to
purchase or subscribe for any shares of the Ampersand Common Stock made
available by the Increase in Authorized Common Stock.
EFFECT OF ISSUANCE ON CURRENT SHAREHOLDERS
The issuance of any of the shares of Ampersand Common Stock made
available through the Increase in Authorized Common Stock, otherwise than
on a pro rata basis to all stockholders of Ampersand, would reduce the
proportionate interest in Ampersand that each current shareholder of the
Company would otherwise have after the proposed Merger. On the other hand,
such issuance could increase the book value per share of Ampersand Common
Stock, depending on the terms of issuance. At the present time, except for
the issuance of shares upon conversion of the Warrants issued to the former
InPath Members, the Company does not know the terms under which the shares
made available by the Increase in Authorized Common Stock would be issued.
For a discussion of the effect which exercise of the Warrants would have on
the Company's current shareholders, see "RATIFICATION OF THE TRANSACTIONS
CONTEMPLATED BY THE EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT-The
Exchange Agreement," above.
ANTI-TAKEOVER EFFECT
Although the proposal to authorize 50,000,000 shares of Ampersand
Common Stock is being made for the reasons stated above, the newly
authorized shares also would be available for issuance by the Board of
Directors without further stockholder approval in response to an actual or
threatened takeover bid. The issuance of such shares could have the effect
<PAGE>
of diluting the stock ownership of persons seeking to obtain control of
Ampersand and therefore have the effect of discouraging efforts to gain
control of Ampersand in a manner not approved by the Ampersand Board. At
the present time, the Board is not aware of any plans by any person to
acquire the Company or Ampersand and the Increase in Authorized Common
Stock was not designed or intended by the Board to discourage takeover
efforts. Because the Increase in Authorized Common Stock may discourage
some takeover attempts, Ampersand stockholders could be deprived of
opportunities to sell their shares at an increased price that might result
from a takeover attempt.
INTEREST OF OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS IN APPROVAL OF
THIS PROPOSAL
Because Mr. Gombrich and Northlea received Warrants under the
Exchange Agreement, Mr. Gombrich and Dr. Abeles, who is General Partner of
Northlea, have an interest in the approval by the Company's shareholders of
the Increase in Authorized Common Stock, because its effectuation would
cause the Warrants to become exercisable. See "RATIFICATION OF THE
TRANSACTIONS CONTEMPLATED BY THE EXCHANGE AGREEMENT AND THE CLAIMS
AGREEMENT-The Exchange Agreement," above. Mr. Gombrich is the Chairman of
the Board and Chief Executive Officer of the Company, is a Nominee, and
beneficially owns approximately 20.0% of the shares of Common Stock
outstanding. Dr. Abeles is a Nominee and beneficially owns approximately
.9% of the shares of Common Stock outstanding.
SEPARATE APPROVAL OF THE REINCORPORATION
If the Company's shareholders do not approve this Proposal No. 4 but
approve the Reincorporation, the Board may choose either not to proceed
with the Reincorporation or to proceed with the Reincorporation, but after
causing the Company, as sole stockholder of Ampersand, to amend the
Ampersand Certificate so that the number of authorized shares of Ampersand
Common Stock is the same as the number of authorized shares of Company
Common Stock presently, 12,000,000.
APPROVAL OF THE INCREASE IN AUTHORIZED COMMON STOCK
The affirmative vote of a majority of the outstanding shares of
Company Common Stock entitled to vote is required to approve the Increase
in Authorized Common Stock. Shareholders owning approximately 61.2% of the
shares of Common Stock outstanding have agreed to vote all of such shares
to approve an increase in authorized shares at least sufficient to permit
the exercise of the Warrants issued to the InPath Members pursuant to the
Exchange Agreement (see "RATIFICATION OF THE TRANSACTIONS CONTEMPLATED BY
THE EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT--The Stockholders
Agreement," above).
THE BOARD OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE INCREASE IN
AUTHORIZED COMMON STOCK.
PROPOSAL NO. 5
AUTHORIZATION OF "BLANK-CHECK" PREFERRED STOCK
GENERAL
The Company's Articles presently do not authorize any class of equity
securities other than the Company Common Stock. The proposed Ampersand
Certificate would authorize the issuance by Ampersand of up to 5,000,000
shares of Preferred Stock, $.001 par value per share (the "Preferred
Stock").
<PAGE>
PRINCIPAL REASONS FOR AUTHORIZATION
The Board believes that the authorization of the Preferred Stock
would be in the best interests of Ampersand and its stockholders because
this would make the shares available in connection with possible future
transactions, such as financings, strategic alliances, acquisitions and
other uses not presently determinable and as may be deemed to be feasible
and in the best interests of Ampersand. In addition, the Board believes
that it is desirable that Ampersand have the flexibility to issue shares of
Preferred Stock without further stockholder action, except as otherwise
provided by law.
The Preferred Stock will have such designations, relative rights,
preferences, qualifications, and limitations as may be determined by the
Ampersand Board. Thus, if the Ampersand Certificate is approved, the
Ampersand Board would be entitled to authorize the creation and issuance of
up to 5 million shares of the Preferred Stock in one or more series with
such relative rights, preferences, qualifications, and limitations as may
be determined in the Ampersand Board's sole discretion, without further
authorization by Ampersand's stockholders.
POSSIBLE DISADVANTAGES OF AUTHORIZATION
It is not possible to determine the actual effect that the issuance
of any series of the Preferred Stock would have on the rights of Ampersand
stockholders until the rights of the holders of such series of Preferred
Stock were determined by the Ampersand Board. However, such effects might
include (i) restrictions on the payments of dividends to holders of the
Ampersand Common Stock; (ii) dilution of voting power to the extent that
the holders of shares of Preferred Stock are given voting rights; (iii)
dilution of the equity interests and voting power if the Preferred Stock is
convertible into Ampersand Common Stock; and (iv) restrictions upon any
distribution of assets to the holders of the Ampersand Common Stock upon
liquidation or dissolution and until the satisfaction of any liquidation
preference granted to the holders of Preferred Stock. Stockholders of
Ampersand will not have preemptive rights to subscribe for shares of
Preferred Stock. The Ampersand Board would be required by Delaware law to
make any determination to issue shares of Preferred Stock based upon its
judgment as advisable and in the best interests of the stockholders of
Ampersand.
ANTI-TAKEOVER EFFECTS
The Ampersand Board could issue shares of Preferred Stock (within the
limits imposed by applicable law) that could, depending on the terms of
such series, make more difficult or discourage an attempt to obtain control
of Ampersand by means of a merger, tender offer, proxy contest or other
means, when, in the judgment of the Ampersand Board, such action would be
in the best interests of the stockholders and Ampersand. The issuance of
shares of Preferred Stock could be used to create voting or other
impediments or to discourage persons seeking to gain control of the
Company, for example, by the sale of Preferred Stock to purchasers
favorable to the Ampersand Board. In addition, the Ampersand Board could
authorize holders of a series of Preferred Stock to vote either separately
as a class or with the holders of the Ampersand Common Stock on any merger,
sale or exchange of assets by Ampersand or any other extraordinary
corporate transaction. The existence of the additional authorized shares
could have the effect of discouraging unsolicited takeover attempts. The
issuance of new shares could also be used to dilute the stock ownership of
a person or entity seeking to obtain control of Ampersand should the
Ampersand Board consider the action of such entity or person not to be in
the best interests of the stockholders and Ampersand. Such issuance of
Preferred Stock could also have the effect of diluting the earnings per
share and book value per share of the Ampersand Common Stock. At the
present time, the Board is not aware of any plans by any person to acquire
either the Company or Ampersand.
<PAGE>
SEPARATE APPROVAL OF THE REINCORPORATION
If the Company's shareholders do not approve this Proposal No. 5 but
approve the Reincorporation, the Board may choose either not to proceed
with the Reincorporation or to proceed with the Reincorporation, but after
causing the Company, as sole stockholder of Ampersand, to amend the
Ampersand Certificate so that, like the Articles of the Company, no shares
of preferred stock would be authorized.
APPROVAL OF THE PREFERRED STOCK
The affirmative vote of a majority of the outstanding shares of
Company Common Stock entitled to vote is required to approve and adopt the
authorization of the Preferred Stock. Shareholders possessing the power to
vote approximately 61.2% of the shares of Common Stock outstanding have
agreed to vote all of such shares to approve the authorization of shares of
"blank-check" preferred stock (see "RATIFICATION OF THE TRANSACTIONS
CONTEMPLATED BY THE EXCHANGE AGREEMENT AND THE CLAIMS AGREEMENT--The
Stockholders Agreement," above).
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE AUTHORIZATION OF THE PREFERRED
STOCK.
PROPOSAL NO. 6
THE AMPERSAND 1999 EQUITY INCENTIVE PLAN
GENERAL
The Board has adopted and recommends that the Company's shareholders
approve the Ampersand Medical Corporation 1999 Equity Incentive Plan (the
"Equity Incentive Plan" or "Plan"), a copy of which is attached to this
Proxy Statement as Appendix F. The purpose of the Equity Incentive Plan is
to benefit the Company by enabling it to offer to certain present and
future directors, executives, key personnel and consultants stock-based
incentives and other equity interests in the Company, thereby giving them a
stake in the growth and prosperity of the Company and encouraging them to
continue in the service of the Company or affiliated companies. The Board
believes that the Plan will be of substantial benefit to the Company and
its stockholders because it will allow the Company to reward its key
employees in a manner that closely aligns the interests of management with
the interests of stockholders.
PROVISIONS OF THE PLAN
The Equity Incentive Plan will allow the Company to grant awards of
incentive stock options, nonqualified stock options, restricted stock
(subject to time-based or performance-based vesting), stock appreciation
rights (either freestanding or in tandem with stock options), performance
shares and performance units. Payment of stock appreciation rights and
performance units or performance shares may be made in the form of shares
or cash, as determined by the Compensation and Stock Option Committee (the
"Committee") of the Board, a committee to be appointed after the Plan is
approved.
The Equity Incentive Plan will be administered by the Committee,
which may make awards encompassing a total of not more than 2 million
(2,000,000) shares of Common Stock. Such shares may be either authorized
and unissued shares or shares held in or acquired for the treasury of the
Company. If shares are not issued when an award is exercised or paid
because, for example, the exercise price of an option is paid for by having
shares withheld or a performance award is paid in cash, or if an option
lapses or expires or is forfeited, terminated or canceled unexercised as to
any shares, or if a stock appreciation right or restricted stock award is
made in the form of cash, then such shares will again be available for the
<PAGE>
purpose of new awards under the Equity Incentive Plan. If there is any
change in the capitalization of the Company, such as a stock split or
dividend, or a merger, consolidation, or reorganization with another
company, or any other relevant change in the capitalization of the Company,
the Committee may make an appropriate adjustment in the number and class of
shares available for awards and the number and class of and/or price of
shares subject to outstanding awards, to prevent dilution or enlargement of
rights.
Awards under the Equity Incentive Plan may be made to consultants,
officers, non-employee directors, and certain key employees, of the Company
and its affiliated entities and majority-owned subsidiaries. The maximum
number of shares subject to options that may be granted in a single fiscal
year to an individual is five hundred thousand (500,000). The maximum
number of shares of restricted stock intended to qualify for the
performance-based exception to the tax-deductibility limitations under
I.R.C. Section 162(m) issuable in a single fiscal year to an individual is
four hundred thousand (400,000). The maximum payout with respect to awards
of performance shares or performance units intended to comply with the
performance-based exception that may be granted in a single fiscal year to
an individual is the fair market value of four hundred thousand (400,000)
shares.
The Committee will have the discretion to specify the extent to which
awards expire in the event of voluntary or involuntary termination of
employment or in the event of violation of any duty not to compete or not
to disclose confidential Company information. The Committee also will have
the discretion to make stock options and other awards transferable (for
example, to family members). The Committee may require or permit a
participant to defer receipt of the payment of cash or delivery of shares
that would otherwise be due upon exercise of an option or the satisfaction
of any restrictions or performance requirements.
The exercise price of stock options granted under the Equity
Incentive Plan is determined by the Committee, but it may not be less than
the fair market value of the stock on the date the option is granted.
"Fair market value" is determined on the basis of the average of the
closing bid and asked prices for the Ampersand Common Stock on the Over-
the-Counter Bulletin Board over the ten (10) preceding trading days, unless
the Ampersand Common Stock has become listed on the Nasdaq SmallCap Market
or a comparable market system, in which case it is determined on the basis
of the closing sale price of the Ampersand Common Stock. The Committee
does not have the authority to reduce the exercise price of any option
after the date of grant or to permit the surrender and cancellation of an
option and to grant a replacement option at a lower exercise price without
obtaining stockholder approval. The full exercise price must be paid at
the time of exercise either in cash, by tendering previously acquired
shares, by withholding shares, or by a combination of the above. The
Committee may also allow cash-less exercises. In connection with the
exercise of options, the Committee may make loans to optionees in its
discretion, subject to certain terms and conditions not inconsistent with
the Equity Incentive Plan. Such loans may bear interest at rates
determined by the Committee or may be without interest. No such loan may
exceed the fair market value of the shares covered by the option, or
portion thereof, exercised by the optionee. No loan shall have an initial
term exceeding two (2) years, but such loans may be renewable at the
discretion of the Committee. Such loans shall be secured by a pledge of
shares of the optionee having a fair market value at least equal to 150% of
the principal amount of the loan.
Options granted under the Equity Incentive Plan shall expire at such
time as the Committee shall determine, but not later than the tenth (10th)
anniversary of the date of grant unless otherwise designated by the
Committee at the time of the grant. Options granted under the Equity
Incentive Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall approve, which need not
be the same for each grant or for each participant. The Committee may
impose such restrictions on shares acquired upon the exercise of an option
as it deems advisable.
<PAGE>
The Committee may grant stock appreciation rights at any time it
determines, and has complete discretion in determining the number of stock
appreciation rights to be granted to each participant and in determining
the terms and conditions pertaining to the stock appreciation rights,
subject to the provisions of the Equity Incentive Plan.
Grants of restricted stock may be made by the Committee, subject to
the terms and provisions of the Equity Incentive Plan, at any time in such
amounts as the Committee shall determine. Each such grant shall be subject
to a period of restriction (which shall not be less than three (3) years
for time-based restrictions), and may be subject to other restrictions,
including but not limited to restrictions based on the achievement of
specific performance goals and time-based restrictions on vesting. Voting
rights and rights to receive dividends or other distributions may be
determined by the Committee.
Grants of performance units and performance shares may be granted in
such amounts and upon such terms and at such times as shall be determined
by the Committee, subject to the terms of the Equity Incentive Plan.
Under the Equity Incentive Plan, upon a change in control of the
Company, options and stock appreciation rights shall become immediately
exercisable, and shall remain exercisable throughout their entire term, any
period of restriction and other restrictions on restricted stock shall
lapse, and the maximum payout opportunities attainable under all
outstanding awards of performance units or performance shares shall be
deemed to have been fully earned for the entire performance period as of
the effective date of the change in control, and the vesting of such awards
shall be accelerated as of the effective date of the change in control.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the issuance and exercise of
options under the Equity Incentive Plan depend on the nature of the options
granted. Under the applicable provisions of the Internal Revenue Code, no
tax will be payable by the recipient of a nonqualified option at the time
of grant. Upon exercise of a nonqualified option, the excess of the fair
market value of the shares with respect to which the option is exercised
over the total option price of such shares will be treated for federal tax
purposes as ordinary income. Any profit or loss realized on the sale or
exchange of any share actually received will be treated as a capital gain
or loss. The Company will be entitled to deduct the amount, if any, by
which the fair market value on the date of exercise of the shares with
respect to which the option was exercised exceeds the exercise price. With
respect to an incentive stock option ("ISO"), generally, no taxable gain or
loss will be recognized when the option is exercised (if the appreciation
rights election is not made). ISO's exercised more than three (3) months
after termination of employment will be taxed in the same manner as
nonqualified options described above. Generally, upon exercise of an ISO,
the difference between the fair market value and the exercise price will be
an item of tax preference for purposes of the alternative minimum tax.
If the shares acquired upon the exercise of an ISO are held for at
least one (1) year, any gain or loss realized upon their sale will be
treated as long-term capital gain or loss. The Company will not be
entitled to a deduction. If the shares are not held for the one-year (1-
year) period, ordinary income will be recognized in an amount equal to the
difference between the amount realized on the sale and the price paid for
the shares to the extent the exercise price exceeded the grant price.
Remaining gain, if any, would be capital gain. The Company will be
entitled to a deduction equal to the amount of any ordinary income so
recognized. If the shares are not held for the one-year (1-year) period
and the amount realized upon sale is less than the grant price, such
difference will be a capital loss.
<PAGE>
EFFECTIVE PERIOD OF THE PLAN
Subject to shareholder approval, the Equity Incentive Plan will be
effective as of ________ ___, 1999. No awards may be made under the Plan
on or after _______ ___, 2009.
AMENDMENT OR TERMINATION OF THE PLAN
The Board may amend or terminate the Equity Incentive Plan in whole
or in part at any time, subject to any requirement of stockholder approval
imposed by any applicable law, rule or regulation. No amendment,
modification or termination of the Equity Incentive Plan shall adversely
affect in any material way any award previously granted under the plan,
without the written consent of the holder of the award.
OTHER INFORMATION
On _______ ___, 1999, the closing bid and asked prices of a share of
Common Stock on the Over-the-Counter Bulletin Board, as reported by the
National Quotation Bureau, were $___ and $___, respectively. It is not
possible to determine the amount and type of awards that will be made under
the Equity Incentive Plan, or to state the amount and type of awards which
would have been made in 1998 had the Equity Incentive Plan been in effect,
because such determinations are within the discretion of the Committee,
based on such factors as they deem pertinent in selecting participants
under the Equity Incentive Plan and establishing awards.
APPROVAL OF THE AMPERSAND 1999 EQUITY INCENTIVE PLAN
The affirmative vote of the majority of the outstanding shares of
Common Stock is required to approve the Ampersand 1999 Equity Incentive
Plan.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE AMPERSAND 1999 EQUITY INCENTIVE PLAN.
PROPOSAL NO. 7
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, the Company's independent auditors for
the fiscal year ended December 31, 1998, was selected by the Board to act
in the same capacity for the fiscal year ending December 31, 1999. Neither
the firm nor any of its members has any relationship with the Company or
any of its affiliates except in the firm's capacity as the Company's
auditor. The Board is asking for ratification of such appointment of
auditors by the Company's shareholders.
It is not expected that any representatives of Ernst & Young LLP will
be present at the Annual Meeting. However, in the event that a
representative of Ernst & Young LLP is present at the Annual Meeting, such
representative will have the opportunity to speak if they so desire and to
respond to appropriate questions from shareholders.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
If the Company's shareholders do not approve the appointment of Ernst
& Young LLP, the Board of the Company would reconsider the appointment. In
view of the difficulty and expense involved in changing independent
auditors on short notice, if the appointment is not approved, it is
contemplated the appointment for 1999 will be permitted to stand unless the
Board finds other compelling reasons for making a change. Disapproval of
the appointment will be considered as advice to the Board to select other
independent auditors for the following year.
THE BOARD OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS.
<PAGE>
OTHER MATTERS
To the best of the knowledge of the Board, there are no other matters
which are to be acted upon at the Annual Meeting. If such matters arise,
the signed proxy card confers discretionary authority on the proxy holders
designated therein to vote with respect to such matters.
INCORPORATION OF INFORMATION BY REFERENCE
The information in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, filed with the SEC, is incorporated by
reference in this Proxy Statement.
By Order of the Board
/s/ Peter P. Gombrich
Peter P. Gombrich
Chairman of the Board and
Chief Executive Officer
<PAGE>
PROXY CARD
----------
BELL NATIONAL CORPORATION
900 NORTH FRANKLIN STREET
SUITE 210
CHICAGO, ILLINOIS 60610
312-640-8810
This Proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Stockholders to be held
__________, 1999
The undersigned hereby appoints Peter P. Gombrich and Theodore L.
Koenig and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Bell
National Corporation (the "Company") which the undersigned may be entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at
_________________, Chicago, Illinois _____, on __________, 1999, at 10:00
a.m. local time, and at any and all continuations and adjournments thereof,
with all powers that the undersigned would possess if personally present,
upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all
other matters that may properly come before the meeting.
=====================================================================
I PLAN TO ATTEND THE MEETING Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
YES NO sign. Executors, administrators, trustees,
guardians or attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
DATE: ____________________ title. If signer is a partnership,
please sign in partnership name by
authorized person.
___________________________
SIGNATURE
___________________________
SIGNATURE (if held jointly)
=====================================================================
(Continued, and to be signed on the other side)
<PAGE>
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2-7, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED,
THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR
DIRECTORS LISTED BELOW AND A VOTE FOR PROPOSALS 2-7.
For all
Nominees
Except as
For Withheld Written Below
1. Election of Directors [ ] [ ] [ ]
Nominees: Peter P. Gombrich,
Denis M. O'Donnell, M.D.,
Alexander M. Milley,
Robert C. Shaw, John H. Abeles, M.D.
(Instruction: To withhold authority
to vote for any nominee, write the
nominee's name in the space provided
below.)
- - ----------------------------------------
2. Proposal to ratify the For Against Abstain
transactions contemplated by the [ ] [ ] [ ]
Stock and Membership Interest
Exchange Agreement and the Claims
Settlement Agreement.
3. Proposal to approve the For Against Abstain
Reincorporation Merger Agreement. [ ] [ ] [ ]
4. Proposal to approve the For Against Abstain
provision of the Certificate of [ ] [ ] [ ]
Incorporation of Ampersand
authorizing 50,000,000 shares
of Ampersand Common Stock.
5. Proposal to approve the For Against Abstain
provision of the Certificate of [ ] [ ] [ ]
Incorporation of Ampersand
authorizing 5,000,000 shares
of Ampersand Preferred Stock.
6. Proposal to approve the For Against Abstain
Ampersand Medical Corporation [ ] [ ] [ ]
1999 Equity Incentive Plan.
7. Ratification of appointment For Against Abstain
of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors for 1999.
Please vote, date and promptly return this proxy in the enclosed envelope
which is postage prepaid if mailed in the United States.
<PAGE>
APPENDIX A
----------
STOCK AND MEMBERSHIP INTEREST EXCHANGE AGREEMENT
------------------------------------------------
This Stock and Membership Interest Exchange Agreement (the
"Agreement") is made as of the 4th day of December, 1998, by and among Bell
National Corporation, a California corporation ("Bell"), InPath, LLC, a
Delaware limited liability company ("InPath"), and Peter P. Gombrich, as an
individual and as Trustee of the InPath, LLC Voting Trust ("Gombrich");
Theodore L. Koenig, as Trustee of each of The EAG Trust, The CMC Trust, The
MDG Trust and The MSD Trust; William J. Ritger; AccuMed International,
Inc., a Delaware corporation; Northlea Partners Ltd., a Colorado limited
partnership; and Fred H. Pearson, as Trustee of Fred H. Pearson's Trust;
Walter Herbst, as Trustee of the Sandra Herbst Trust; and Monroe
Investments, Inc., an Illinois corporation (collectively, the "InPath
Members").
W I T N E S S E T H:
WHEREAS, Bell wishes to acquire the business of InPath;
WHEREAS, InPath is in the business of developing and marketing
certain medical diagnostic technology;
WHEREAS, the InPath Members own all of the units of membership
interest (the "Units") of InPath;
WHEREAS, based upon the representations, agreements and warranties
herein made by the parties and subject to the terms and conditions
contained in this Agreement, the InPath Members wish to exchange the Units
of InPath owned by them for shares of no par common stock of Bell (the
"Stock") and warrants to purchase Stock in the form of Exhibit A attached
hereto (the "Warrants"); and
WHEREAS, it is the intent of the parties that after the consummation
of the transactions contemplated herein, the InPath Members will own 50% of
the Stock of Bell computed on a fully diluted basis;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties, intending to be legally bound, agree as follows:
Article I. EXCHANGE.
1.1 EXCHANGE OF UNITS FOR STOCK AND WARRANTS. Subject to the terms
and conditions set forth herein, as of the Closing Date (as defined in
Article II) the InPath Members shall sell, assign and deliver to Bell, free
and clear of any and all claims, liens, pledges, mortgages, security
interests, charges, options, defaults, equities, rights of first refusal
and other restrictions and other adverse claims ("Liens") all of their
Units in InPath in exchange for the shares of Stock and Warrants set forth
next to their names on Schedule 3.4, and Bell shall issue and deliver such
Stock and Warrants free and clear of any and all Liens in exchange for
Units. The number of shares of Stock issuable pursuant to the Warrants
shall be subject to adjustment as provided in Sections 1.2 and 1.4.
<PAGE>
1.2 ANTI-DILUTION PROVISIONS. It is understood and agreed that
after consummation of the transactions contemplated hereby, the InPath
Members will own 50% of the issued and outstanding common stock of Bell
computed on a fully diluted basis, subject to adjustment as set forth in
Section 1.4 and as provided herein. In the event Bell changes (or
establishes a record date for changing) the number of shares of its Stock
issued and outstanding prior to the Closing Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect
to its outstanding Stock and the record date therefor shall be prior to the
Closing Date, the number of shares of Stock and Warrants each InPath Member
is entitled to receive under this Agreement shall be adjusted
proportionately.
1.3 DIRECTORS AND OFFICERS. At and as of the Closing Date, Bell
shall take such actions as may be necessary and appropriate so that the
directors and officers of Bell shall be as follows:
(a) The directors of Bell shall be:
Peter P. Gombrich
Thomas R. Druggish
Denis M. O'Donnell
Alexander M. Milley
Robert C. Shaw
(b) The officers of Bell shall be:
Peter P. Gombrich - Chairman, Chief Executive
Officer and Secretary
Leonard Prange - President and Chief
Financial Officer
Richard Domanik - Vice President and Chief
Technology Officer
David M. Doolittle - Vice President and Treasurer
1.4 ADJUSTMENTS. On or before the date one hundred and twenty
(120) days after the date hereof, Bell will identify all liabilities and
obligations ("Liabilities") that would be required to be reflected on a
balance sheet dated as of the Closing Date prepared in accordance with
generally accepted accounting principles (the "Closing Balance Sheet").
Notwithstanding the foregoing, the Closing Balance Sheet shall specifically
exclude the following Liabilities: (a) all legal and accounting expenses
that relate to the transactions contemplated hereby, (b) all accounting
expenses that relate to the audit of the 1998 calendar year, and (c) all
expenses relating to any underfunding of the Payne Fabrics, Inc. pension
plan or the 401(k) plan. If such liabilities identified on such Closing
Balance Sheet exceed the sum of twenty five thousand dollars ($25,000) in
the aggregate, the number of shares of Stock issuable pursuant to the
Warrants will be increased by an amount equal to the quotient of (i) the
amount of such Liabilities in excess of the sum of twenty five thousand
dollars ($25,000), divided by (ii) nine hundred twenty-five thousand
dollars ($925,000), multiplied by (iii) 7,464,640. The shares of Stock
subject to each Warrant will be increased pro rata, based upon the Stock
issuable to every Warrant holder. If the representation and warranty in
Section 5.12 is not true and correct as of the Closing Date, the amount of
any shortfall in cash and cash equivalents of Bell shall be added to clause
(i) in the formula above.
<PAGE>
Article II. THE CLOSING.
The closing of the issuance of the Stock and Warrants contemplated
herein (the "Closing") will take place on December 4, 1998 at 10:00 a.m.
local time, or such other time as the parties may mutually agree (the
"Closing Date"). The issuance of additional Stock by Bell pursuant to the
Warrants will take place on a date and at a time mutually selected by
Milley and Gombrich, but in no event later than March 30, 1999 or such
later date as is approved by Gombrich.
Article III. REPRESENTATIONS AND WARRANTIES OF INPATH
As a material inducement to Bell to enter into and perform this
Agreement, InPath represents and warrants that:
3.1 INPATH'S ORGANIZATION AND CORPORATE AUTHORITY. InPath is a
limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full power and
authority to carry on its business as now conducted and to consummate the
transactions contemplated by this Agreement. InPath maintains its
principal place of business in Illinois. InPath has not failed to qualify
as a foreign corporation to do business in any jurisdiction where failure
to so qualify would have a material adverse effect on Inpath or its
business.
3.2 CERTIFICATE OF FORMATION AND OPERATING AGREEMENT. The copies
of the Certificate of Formation of InPath and the Limited Liability Company
Agreement of InPath, which have previously been furnished to Bell, are
true, correct and complete copies.
3.3 NO VIOLATION. Neither the execution and delivery by InPath of
this Agreement or other agreements and instruments required by the
provisions of this Agreement, nor consummation of the transactions herein
or therein contemplated, nor compliance with the terms, conditions and
provisions hereof or thereof will conflict with or violate any provision of
law applicable to InPath or its Certificate of Formation or Limited
Liability Company Agreement, or result in a violation or default in any
provision of any regulation, order, writ, injunction or decree of any court
or governmental agency or authority or except for a lease of office space,
of any agreement or instrument to which InPath is party or by which InPath
or any of its property is bound or to which InPath or any of its property
is subject, or constitute a default thereunder or result in the imposition
of any Lien whatsoever upon any of InPath's property pursuant to the terms
of any such agreement or instrument.
3.4 CAPITALIZATION. InPath has authorized 200,000 Units, of which
100,000 Units are presently issued and outstanding. There are no other
classes of InPath equity securities, or rights to convert or to exercise
into InPath equity securities, currently outstanding. There are no
outstanding rights to purchase or pre-emptive rights of any kind affecting
any Units, whether or not outstanding. Schedule 3.4, attached hereto, is a
true and complete list of all holders of InPath Units.
3.5 FINANCIAL STATEMENTS. InPath has heretofore delivered to Bell
copies of InPath's unaudited balance sheet as of November 30, 1998 (the
"InPath Financials"). The InPath Financials were prepared in accordance
with generally accepted accounting principles applied on a consistent
basis, and fairly present in all material respects the financial position
<PAGE>
of InPath as at the date thereof, subject to normal year-end adjustments
and any other adjustments described therein except that the InPath
Financials do not contain footnote disclosure. As of the date of the
InPath Financials, there were no material liabilities of InPath of any
kind, contingent or otherwise, other than liabilities disclosed or provided
for in the InPath Financials. The InPath Financials reflect or provide for
all claims against and all debts and liabilities of InPath as of the date
hereof, whether absolute, accrued, contingent or otherwise in accordance
with generally accepted accounting principles. InPath has no knowledge of
any circumstance, condition, event or arrangement that may hereafter give
rise to any other liability of InPath, other than in the ordinary course of
business.
3.6 NO ADVERSE CHANGE. Since October 31, 1998, (a) there has been
no material adverse change in the financial condition, results of
operation, assets, liabilities or business of InPath, and InPath is not
aware of any fact or condition particularly related to InPath which it
reasonably believes is likely to cause any such change at any time in the
future; (b) there have been no distributions with respect to Units paid or
declared by InPath; (c) the physical properties owned or leased by InPath
have not suffered any destruction or damage, regardless of whether or not
the loss suffered was insured, that would materially and adversely affect
InPath's business; and (d) there has been no incurrence of any material
liability other than in the ordinary course of business consistent with
past practice.
3.7 SUBSIDIARIES. InPath has no subsidiaries. InPath does not
own, directly or indirectly, any of the capital stock of any corporation,
association, trust or similar entity, any interest in the equity of any
partnership, limited liability company or similar entity, any share in any
joint venture, or any other equity or proprietary interest in any entity or
enterprise, however organized and however such interest may be denominated
or evidenced.
3.8 TAXES. InPath has filed all federal, state, local and other
tax returns which are required to be filed by it and which were due prior
to the date of this Agreement and has paid all taxes shown thereon,
including without limitation all taxes on properties, income, licenses,
sales and payrolls. All federal, state, local and other taxes accruable
since the end of the respective periods covered by such returns and up to
the date hereof and the Closing Date have or will have been paid or accrued
on the books of InPath. Any tax returns of InPath delivered to Bell are
true, accurate and complete, and fairly present the information purported
to be shown therein, and reflect all the tax liabilities of InPath for the
periods covered thereby. The amount reflected in the InPath Financials as
a provision for taxes as of the date thereof is sufficient for the payment
of all accrued and unpaid federal, state and local taxes of InPath, whether
or not disputed, for such period stated and for all periods prior thereto
or arising out of transactions entered into or any state of facts existing
on or prior to such date.
No federal income tax returns of InPath have been audited by the
Internal Revenue Service. No federal or state tax liabilities have been
assessed or proposed which remain unpaid. There is no basis upon which any
assessment for any amount of additional taxes could be made.
The present taxes which InPath is required by law to withhold or
collect have been withheld or collected and have been paid over to the
proper governmental authorities or are properly held by InPath for such
payment, and all withholdings, collections or other payments due in
connection therewith as of the date of the InPath Financials, are fully
reflected in the InPath Financials as at such date and for the period then
<PAGE>
ended. All such taxes are and will be so withheld, collected, paid over or
held for payment as of the date of this Agreement and the Closing. No
waivers of statutes of limitations with respect to any tax returns of
InPath nor extensions of time for the assessment of any tax have been given
which are now in effect.
Neither InPath nor any InPath Member has taken or will take any
action other than in the ordinary course of business and other than the
transactions to occur pursuant to this Agreement which would create a tax
liability of InPath that would become such on or after the Closing Date.
3.9 INTERESTS OF OFFICERS. Except as previously disclosed to Bell,
and except for normal advances for business expenses incurred in the
ordinary course of business, no officer, director, or InPath Member nor any
affiliate of any of the foregoing parties has any loan or other obligation
outstanding to or from InPath or for which InPath is or may be liable under
guaranty or otherwise, or has any material interest in any firm, person or
entity with which InPath has entered into any contract or lease, or with
which InPath does business.
3.10 PROPERTY. InPath has good and marketable title to its
interests in all real and personal property owned by it and reflected on
the InPath Financials, and property leased or licensed by InPath, free and
clear of all Liens.
All leases and licenses to which InPath is a party are in good
standing and are valid and effective in accordance with their respective
terms, and except for the need to obtain certain insurance under a lease
for office space, there is not under any such lease or license any existing
default or event which with notice or lapse of time or both would become a
default. All personal property of InPath has been properly maintained and
is in good order and repair and is operable and fit to be used for its
intended purposes.
3.11 INTELLECTUAL PROPERTY. InPath owns or has a valid license to
use all of its intellectual property rights disclosed in Schedule 3.11 and
is not infringing on intellectual property rights of others. Without
limiting the generality of the foregoing: InPath's point-of-care
diagnostic products currently being developed or contemplated are within
"LICENSEE'S PROTECTED BUSINESS," and excluded from "ACCUMED'S PROTECTED
BUSINESS," within the meaning of InPath's Patent and Technology License
Agreement with AccuMed International, Inc.
3.12 MATERIAL CONTRACTS; DEFAULTS. Inpath has previously delivered
to Bell a list of all of InPath's Material Contracts. Each such Material
Contract is in full force and effect and constitutes a valid and binding
obligation of InPath and to InPath's knowledge, each other party thereto.
InPath has delivered a true and complete copy of each Material Contract to
Bell. InPath has not breached any of its Material Contracts, and InPath
has no knowledge of any default by any other party to any such Material
Contract or any condition which, with the giving of notice or passage of
time, or both, could reasonably be expected to constitute a default by any
party thereto. For purposes hereof, "Material Contract" shall mean any
agreement, contract, arrangement, commitment or understanding (wither
written or oral) (i) that is a "material contract" within the meaning of
Item 601(b)(10) of SEC Regulation S-K, or (ii) that materially restricts
the conduct of business by InPath, or (iii) any other contract, agreement,
commitment, lease or other instrument that cannot be terminated within one
year or that involves an amount in excess of $10,000.
<PAGE>
3.13 LITIGATION. There are no actions, suits or proceedings,
pending, or, to the knowledge of InPath, after due inquiry, threatened
before any court, arbitrator, commission, agency or other administrative
authority against, or affecting, InPath or its businesses or properties, or
which would interfere with the marketing of InPath's services or products
or the transactions contemplated by this Agreement, and InPath is not the
subject of any order or decree.
3.14 EMPLOYEE BENEFIT PLANS. InPath maintains, sponsors and/or
contributes to no Employee Benefit Plans, as defined in Section 3(3) of
ERISA, nor has it ever done so.
3.15 FINDER'S FEE. Neither InPath nor any InPath Member has
incurred any obligation of any kind whatsoever to any party for a finder's
or broker's fee in connection with the transactions contemplated by this
Agreement.
3.16 NO PRACTICES IN VIOLATION OF LAW. Neither InPath nor any
InPath Member by, on behalf of or for the benefit of InPath, has engaged in
or is now engaging in any act, conspiracy or course of conduct in violation
of any applicable federal or state law which is likely to result in a
materially adverse change in the financial condition, results of operation,
assets, liabilities or business of InPath, and has not received any notice,
claim or protest that it is now or has heretofore been so engaged.
3.17 AUTHORITY. InPath has full right, power and authority to
execute, deliver and perform this Agreement, all other proper corporate
actions of InPath's Board of Directors, Managers and Members authorizing
the execution, delivery and performance hereof and thereof having been
taken. This Agreement has been duly executed and delivered by InPath and
constitutes a valid and legally binding obligation of InPath, enforceable
against InPath in accordance with its terms, subject, as to enforcement, to
bankruptcy, reorganization and other laws affecting the enforcement of
creditors' rights generally from time to time in effect and to judicial
discretion in accordance with general equitable principles. There are
pending no proceedings or actions to dissolve or liquidate InPath.
3.18 CONSENTS AND APPROVALS. No consents or approvals of, or
filings or registrations with, any governmental authority or with any third
party are required to be made or obtained by InPath in connection with the
execution, delivery or performance by InPath of this Agreement or to enter
into this Agreement or consummate any of the transactions contemplated
herein.
3.19 ENVIRONMENTAL MATTERS.
(a) InPath has complied at all times with applicable
Environmental Laws; (i) no real property (including buildings or other
structures) currently or formerly owned, leased or operated by it has been
contaminated with, or has had any release of, any Hazardous Substance;
(ii) InPath is not subject to liability for any Hazardous Substance
disposal or contamination on any third party property; (iii) InPath has not
received any notice, demand letter, claim or request for information
alleging any violation of, or liability under, any Environmental Law;
(iv) InPath is not subject to any order, decree, injunction or other
agreement with any governmental authority or any third party relating to
any Environmental Law; (v) to the best of InPath's knowledge, there are no
<PAGE>
circumstances or conditions (including the presence of asbestos,
underground storage tanks, lead products, polychlorinated biphenyls, prior
manufacturing operations, dry-cleaning, or automotive services) involving
InPath, or any currently or formerly owned or operated property, that could
reasonably be expected to result in any claims, liability or investigations
against InPath or result in any restrictions on the ownership, use, or
transfer of any property pursuant to any Environmental Law; and (vi) InPath
has delivered to Bell copies of all environmental reports, studies,
sampling data, correspondence, filings and other environmental information
in its possession or reasonably available to it relating to itself and any
currently or formerly owned, leased or operated property.
(b) As used herein, the term "Environmental Law" means any
federal, state or local law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to:
(i) the protection or restoration of the environment, health, safety, or
natural resources, (ii) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (iii) noise, odor,
wetlands, indoor air, pollution, contamination or any injury or threat of
injury to persons or property in connection with any Hazardous Substance
and the term "Hazardous Substance" means any substance in any concentration
that is: (i) listed, classified or regulated pursuant to any Environmental
Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is or
may be the subject of regulatory action by any governmental authority in
connection with any Environmental Law.
Article IV. REPRESENTATIONS OF THE INPATH MEMBERS.
As a material inducement to Bell to enter into and perform this
Agreement, the InPath Members represent and warrant that:
4.1 TITLE TO UNITS. Each InPath Member owns the number of Units
listed opposite his name in Schedule 3.4, free and clear of any and all
Liens. Such Units in the aggregate constitute all of the issued and
outstanding Membership Interests in InPath.
4.2 AUTHORITY. The InPath Members have full legal capacity, right,
power and authority to execute, deliver and perform this Agreement and to
cause InPath to approve the execution of this Agreement. This Agreement
has been duly executed and delivered by the InPath Members and constitutes
the valid and legally binding obligation of each of them, enforceable
against each of them in accordance with its terms, subject, as to
enforcement, to bankruptcy, reorganization and other laws affecting the
enforcement of creditors' rights generally from time to time in effect and
to judicial discretion in accordance with general equitable principles.
4.3 NO VIOLATION. Neither the execution and delivery by the InPath
Members of this Agreement or other agreements and instruments required by
the provisions of this Agreement, nor consummation of the transactions
herein or therein contemplated, nor compliance with the terms, conditions
and provisions hereof or thereof will conflict with or violate any
provision of law applicable to any of the InPath Members or if applicable,
their organizational documents, or result in a violation or default in any
<PAGE>
provision of any regulation, order, writ, injunction or decree of any court
or governmental agency or authority or of any agreement or instrument to
which any of the InPath Members is party or by which any of the InPath
Members or any of their property is bound or to which any of the InPath
Members or any of their property is subject, or constitute a default
thereunder or result in the imposition of any Lien upon any of the InPath
Members' property pursuant to the terms of any such agreement or
instrument.
4.4 INVESTMENT REPRESENTATIONS. (i) The Stock and Warrants to be
issued to the InPath Members hereunder (the "InPath Members Securities")
are being acquired for the InPath Members' own account for investment
purposes only and without any present intention to sell, transfer or
otherwise dispose of the same (except in compliance with clause (v)
hereof); (ii) the InPath Members have such knowledge and experience in
financial matters that they are capable of evaluating the merits and risks
of their investment in the InPath Members Securities; (iii) the InPath
Members understand that the InPath Members Securities have not been
registered or qualified under the Securities Act of 1933, as amended (the
"Securities Act") or any securities laws of any state of the United States
("Blue Sky Laws"); (iv) the InPath Members are fully informed as to the
applicable limitations upon any distribution or resale of the InPath
Members Securities under such Securities Act and Blue Sky Laws and that the
InPath Members Securities may not be distributed or resold if such
distribution or resale would constitute a violation of the Securities Act
or Blue Sky Laws; and (v) the InPath Members will not sell, transfer,
assign, pledge or otherwise distribute any of the InPath Members Securities
unless (a) there is an effective registration statement under the
Securities Act and Blue Sky Laws covering such InPath Members Securities,
(b) such sale, transfer, assignment, pledge or other distribution is exempt
from the registration or qualification requirements of the Securities Act
and Blue Sky Laws or (c) the Securities Act and Blue Sky Laws are
inapplicable to such transaction. In connection with the foregoing, the
InPath Members agree and consent to the inclusion on the certificate(s)
representing the InPath Members Securities of the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN TAKEN BY THE ISSUEE
FOR INVESTMENT PURPOSES. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED
(a) UNLESS THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (b) UNLESS SUCH
REGISTRATION IS EXPRESSLY WAIVED BY THE COMPANY, OR THE TRANSFER AGENT (OR
THE COMPANY, IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH A
WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER."
The foregoing may be relied upon by Bell and also by: (i) Bell's
counsel on the date hereof, Berlack, Israels and Liberman LLP, New York,
New York, in connection with any opinion or other letter that they may
deliver in respect of the issuance and delivery of any of the InPath
Members Securities, and (ii) the Company's transfer agent, Continental
Stock Transfer & Trust Company, in connection with their effectuation of
such issuance and delivery.
<PAGE>
Article V. REPRESENTATIONS AND WARRANTIES OF BELL.
As a material inducement to InPath and the InPath Members to enter
into and perform this Agreement, Bell represents and warrants that:
5.1 BELL'S ORGANIZATION AND CORPORATE AUTHORITY. Bell is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, with full power and authority to carry on
its business as now conducted and to consummate the transactions
contemplated by this Agreement. Bell maintains its principal place of
business in Florida. Bell has not failed to qualify as a foreign
corporation to do business in any jurisdiction where failure to so qualify
would have a material adverse effect on the business of Bell.
5.2 CHARTER AND BYLAWS. Bell has heretofore delivered to InPath,
true, correct and complete copies of the Articles of Incorporation of Bell
and the Bylaws of Bell.
5.3 NO VIOLATION. Neither the execution and delivery by Bell of
this Agreement or other agreements and instruments required by the
provisions of this Agreement, nor consummation of the transactions herein
or therein contemplated, nor compliance with the terms, conditions and
provisions hereof or thereof will conflict with or violate any provision of
law or the Articles of Incorporation or Bylaws of Bell, or result in a
violation or default in any provision of any regulation, order, writ,
injunction or decree of any court or governmental agency or authority or of
any agreement or instrument to which Bell is party or by which Bell or any
of its property is bound or to which Bell or any of its property is
subject, or constitute a default thereunder or result in the imposition of
any lien, charge, encumbrance or security interest of any nature whatsoever
upon any of Bell's property pursuant to the terms of any such agreement or
instrument.
5.4 CAPITALIZATION. Bell has authorized capital stock consisting
of 12,000,000 shares of common stock, no par value, of which 7,711,210
shares are issued and outstanding (except for 17,858 shares due to Rafalco)
and all such outstanding shares of capital stock are duly authorized, fully
paid and nonassessable. Except for 450,000 Stock Appreciation Rights with
an exercise price of $.30 per right issued in 1989 (the "1989 SARs"), there
are no other classes of Bell equity securities, or rights to convert or to
exercise into Bell equity securities, currently outstanding, and there are
no outstanding rights to purchase, warrants, stock appreciation rights,
options or pre-emptive rights of any kind affecting any shares of the
capital stock of Bell. Schedule 5.4 attached hereto is a true and complete
list of all holders holding 5% or more of the issued and outstanding Stock,
excluding the InPath Members, as of the Closing Date.
The 696,570 shares of Stock designated by the Debtors Plan of
Reorganization dated December 30, 1986 filed in the US Bankruptcy Court for
the Northern District of California in Case No. 3-85-01696-LK as the "4-B
Shares" have no voting, dividend, liquidation, preference or other rights
of any nature whatsoever. After the consummation of the issuance of Stock
and Warrants, as contemplated herein, the InPath Members will collectively
own 4,228,790 shares of Stock, as listed on Schedule 3.4, free and clear of
all Liens (excluding any arising through or under any Inpath Member). Upon
exercise of the Warrants and the issuance by Bell of the shares of Stock to
satisfy the Warrants, the InPath Members will collectively own 7,464,640
shares of Stock, free and clear of all Liens, (excluding any arising
through or under any InPath Member) constituting 50% of the issued and
outstanding capital stock of Bell, computed on a fully diluted basis,
without giving effect to the "4-B Shares" or any transactions approved by
the Board of Directors of Bell, which shall include the affirmative Vote of
Gombrich, after the date hereof. All of the Stock to be issued to the
InPath Members pursuant hereto has been and will be duly authorized, and
upon issuance will be fully paid and nonassessable.
<PAGE>
5.5 FINANCIAL STATEMENTS. Included in Bell's Annual Report on Form
10-K for the year ended December 31, 1997 (the "10-K") and Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and September
30, 1998 (collectively, with the 10-K, the "SEC Filings") are copies of
Bell's audited consolidated financial statements for the fiscal year ended
1997, and unaudited interim financial statements as of September 30, 1998
(together, the "Bell Financials"). The Bell Financials were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except as may be indicated therein or on the notes
thereto, and fairly present in all material respects the financial position
of Bell as at the dates thereof and the results of its operations and cash
flows for the periods then ended, subject to normal year-end adjustments
and any other adjustments described therein. As of the date of the Bell
Financials, there were no material liabilities of Bell of any kind,
contingent or otherwise, other than liabilities disclosed or provided for
in the Bell Financials or set forth elsewhere in the SEC Filings. The Bell
Financials reflect or provide for all claims against and all debts and
liabilities of Bell as of the dates thereof whether absolute, accrued,
contingent or otherwise in accordance with generally accepted accounting
principles, consistently applied. Bell has no knowledge of any
circumstance, condition, event or arrangement that may hereafter give rise
to any other liability of Bell, other than in the ordinary course of
business.
5.6 NO ADVERSE CHANGE. Since September 30, 1998, (a) there has
been no material adverse change in the financial condition, results of
operation, assets, liabilities or business of Bell, and Bell is aware of no
fact or condition particularly related to the business of Bell which it
reasonably believes is likely to cause any such change at any time in the
future; (b) there have been no distributions with respect to Stock paid or
declared by Bell; (c) except pursuant to this Agreement or the Claims
Settlement Agreement (the "Claims Settlement Agreement") dated as of the
date hereof, among Bell and certain claimholders, pursuant to which Bell
will issue 1,776,666 shares of common stock, Bell has not issued or sold
any Stock or any rights to purchase, warrants, stock appreciation rights,
options or pre-emptive rights of any kind affecting any shares of the
capital stock of Bell, whether or not outstanding; (d) the physical
properties owned or leased by Bell have not suffered any destruction or
damage, regardless of whether or not the loss suffered was insured, that
would materially and adversely affect Bell's business; and (e) there has
been no incurrence of any material liability other than in the ordinary
course of business consistent with past practice.
5.7 REPORTS. Bell has filed all required forms, reports and
documents (including all prospectuses and all registration statements) with
the Securities and Exchange Commission required to be filed by it pursuant
to the federal securities laws and the Securities and Exchange Commission
rules and regulations promulgated thereunder, all of which have complied in
all material respects with all applicable requirements including those of
the Securities Act of 1933 and the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder. None of the SEC Filings,
including the financial statements included therein, at the time filed,
contained any untrue statement of material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
<PAGE>
5.8 SUBSIDIARIES. Bell has no subsidiaries not disclosed in the
SEC Filings. Bell does not own, directly or indirectly, other than for
investment purposes, any of the capital stock of any corporation,
association, trust or similar entity, any interest in the equity of any
partnership, limited liability company or similar entity, any share in any
joint venture, or any other equity or proprietary interest in any entity or
enterprise, however organized and however such interest may be denominated
or evidenced not disclosed in the SEC Filings.
5.9 TAXES. Bell has filed all federal, state, local and other tax
returns which are required to be filed by it and which were due prior to
the date of this Agreement and has paid all taxes shown thereon, including
without limitation all taxes on properties, income, licenses, sales and
payrolls. All federal, state, local and other taxes accruable since the
end of the respective periods covered by such returns and up to the date
hereof and the Closing Date have or will have been paid or accrued on the
books of Bell. Any tax returns of Bell delivered to the InPath Members are
true, accurate and complete, and fairly present the information purported
to be shown therein, and reflect all the tax liabilities of Bell for the
periods covered thereby. The amount reflected in the Bell Financials as a
provision for taxes as of the dates thereof are sufficient for the payment
of all accrued and unpaid federal, state and local taxes of Bell, whether
or not disputed, for the year stated and for all fiscal periods prior
thereto or arising out of transactions entered into or any state of facts
existing on or prior to such dates.
No federal income tax returns of Bell have been audited by the
Internal Revenue Service. No federal or state tax liabilities have been
assessed or proposed which remain unpaid. There is no basis upon which any
assessment for a material amount of additional taxes could be made.
The present taxes which Bell is required by law to withhold or
collect have been withheld or collected and have been paid over to the
proper governmental authorities or are properly held by Bell for such
payment, and all withholdings, collections or other payments due in
connection therewith as of the dates of the Bell Financials, are fully
reflected in the balance sheets included as a part of the Bell Financials
as at such dates and for the periods then ended. All such taxes are and
will be so withheld, collected, paid over or held for payment as of the
date of this Agreement and the Closing. No waivers of statutes of
limitations with respect to any tax returns of Bell nor extensions of time
for the assessment of any tax have been given which are now in effect.
Bell has not taken and will not take any action other than in the
ordinary course of business and other than the transactions to occur
pursuant to this Agreement or the Claims Settlement Agreement which would
create a tax liability of Bell that would become such on or after the
Closing Date.
5.10 INTERESTS OF OFFICERS. Except for the Claims (as defined in
the Claims Settlement Agreement), and except for normal advances for
business expenses incurred in the ordinary course of business, no officer,
director, or stockholder nor any affiliate of any of the foregoing parties
has any loan or other obligation outstanding to or from Bell or for which
Bell is or may be liable under guaranty or otherwise, or has any material
interest in any firm, person or entity with which Bell has entered into any
contract or lease, or with which Bell does business. All of the agreements
and arrangements which are the subject of the Claims Settlement Agreement
are terminated as of the date hereof.
<PAGE>
5.11 PROPERTY. Bell has good and marketable title to its interests
in all real and personal property owned by it and reflected on the Bell
Financials, and property leased or licensed by Bell, free and clear of any
and all Liens.
All leases and licenses to which Bell is a party are in good standing
and are valid and effective in accordance with their respective terms, and
there is not under any such lease any existing default or event which with
notice or lapse of time or both would become a default. All personal
property of Bell has been properly maintained and is in good order and
repair and is operable and fit to be used for its intended purposes.
5.12 CASH ON DEPOSIT. Bell has cash or cash equivalents of not less
than $1,000,000 on deposit at the financial institutions listed on Schedule
5.12 hereto, after applying $150,000 towards the discharge of a liability
for the underfunding of the Payne Fabrics pension plan.
5.13 INTELLECTUAL PROPERTY. Bell owns or has a valid license to use
all intellectual property rights disclosed in Schedule 5.13 and is not
infringing on intellectual property rights of others.
5.14 MATERIAL CONTRACTS; DEFAULTS. Set forth on Schedule 5.14 is a
list of all of Bell's Material Contracts. Each such Material Contract is
in full force and effect and constitutes a valid and binding obligation of
Bell and to Bell's knowledge, each other party thereto. Bell has delivered
a true and complete copy of each Material Contract to InPath. Bell has not
breached any Material Contract, and Bell has no knowledge of any default by
any other party to any such Material Contract or any condition which, with
the giving of notice or passage of time, or both, could reasonably be
expected to constitute a default by any party thereto.
5.15 LITIGATION. There are no actions, suits or proceedings,
pending, or, to the knowledge of Bell, after due inquiry, threatened before
any court, arbitrator, commission, agency or other administrative authority
against, or affecting, Bell or its business or properties, or which would
interfere with the marketing of Bell's services or products or the
transactions contemplated by this Agreement, and Bell is not the subject of
any order or decree.
5.16 EMPLOYEE BENEFIT PLANS. Schedule 5.16 lists all "Employee
Benefit Plans" as defined in Section 3(3) of ERISA existing on the date
hereof or within three (3) years prior to the Closing Date that are
maintained, sponsored or contributed to by Bell. Schedule 5.16 also lists
all "Employee Benefit Plans" of any of Bell's current or former
subsidiaries or affiliates (including for this purpose and for the purpose
of all of the representations in this Section 5.16 all entities (whether or
not incorporated) which by reason of common control are treated together
with Bell as a single employer under Section 414 of the Code) to the extent
that Bell has any liability with respect to such plans. For a period
commencing six years prior to the Closing Date, neither Bell nor any of its
commonly controlled entities has sponsored or made any contributions to a
multiemployer plan within the meaning of 3(37) of ERISA.
True and correct copies of each Employee Benefit Plan listed on
Schedule 5.16 have been delivered to the InPath Members prior to the
Closing Date along with, where applicable, the most recent summary plan
description, actuarial report, standard or distress termination filing with
<PAGE>
the Pension Benefit Guaranty Corporation and all subsequent correspondence
relating thereto, Tax Form 5310 filing with the IRS and all subsequent
correspondence relating thereto, the most recent determination letter
issued by the IRS with respect to each Employee Benefit Plan which purports
to be a "qualified plan" as defined under Code Section 401(a), and the most
recent Tax Form 5500 Series Annual Return (including, but not limited to
all schedules thereto and financial statements with attached opinions of
independent accountants). Except as set forth on Schedule 5.16, all
Employee Benefit Plans listed on Schedule 5.16 (i) are currently in
compliance and have in the past complied in all material respects with all
applicable requirements of law and regulations and (ii) have been
maintained and funded in all material respects in accordance with its terms
and with all applicable provisions of ERISA and of the Code applicable
thereto. Except as set forth on Schedule 5.16, there are no accumulated
funding deficiencies within the meaning of Section 412 of the Code under
any such Employee Benefit Plan which is a defined benefit plan within the
meaning of Code Section 414(j). Other than with respect to the Payne
Fabrics, Inc. Pension Plan, Bell has no liability with respect to unfunded
benefits to employees and/or the Pension Benefit Guaranty Corporation which
respect to any defined benefit plan within the meaning of Section 414(j) of
the Code. The Payne Fabrics, Inc. Pension Plan is in the process of being
terminated, and information concerning the liability with respect to such
plan to Bell or any of its subsidiaries or affiliates with respect to
unfunded benefits has been fully disclosed.
All Form 5500 series returns filed within the last three years
relating to such Employee Benefit Plans and any actuarial reports relating
to such Employee Benefit Plans are true and correct in all material
respects. No excise tax or payment to the Pension Benefit Guaranty
Corporation is due or owing from Bell relating to any such Employee Benefit
Plan, other than regular PBGC premium payments on account of the current
plan year. Neither Bell nor any of its subsidiaries or affiliates is aware
of the occurrence of a prohibited transaction (under Section 4975(c)(1) of
the Code) with respect to any Employee Benefit Plan. No reportable event
as described in ERISA Section 4043, for which the 30 day or advance
reporting requirement has not been waived, has occurred with respect to any
such Employee Benefit Plan.
Except as set forth herein or on Schedule 5.16, Bell has no liability
to any Employee Benefit Plan. None of the plans or arrangements listed in
Schedule 5.16 are the subject of any lawsuit or other proceeding concerning
any benefit claims (other than routine claims for benefits). With respect
to any severance pay arrangement, the consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment,
vesting or increase the amount of compensation due to an individual covered
by a severance pay agreement. Bell has no obligation to provide any
"retiree medical benefits" to any employee or former employee and has no
unfunded liability with respect to any such "retiree medical benefits."
5.17 FINDER'S FEE. Neither Bell nor any stockholder of Bell has
incurred any obligation of any kind whatsoever to any party for a finder's
or broker's fee in connection with the transactions contemplated by this
Agreement.
5.18 NO PRACTICES IN VIOLATION OF LAW. Neither Bell nor any
stockholder thereof, by, on behalf of or for the benefit of Bell, has
engaged in or is now engaging in any act, conspiracy or course of conduct
in violation of any applicable federal or state law which is likely to
result in a materially adverse change in the financial condition, results
of operation, assets, liabilities or business of Bell, and has not received
any notice, claim or protest that it is now or has heretofore been so
engaged.
<PAGE>
5.19 AUTHORITY. Bell has full right, power and authority to
execute, deliver and perform this Agreement, all other proper corporate
actions of Bell's Board of Directors authorizing the execution, delivery
and performance hereof and thereof having been taken. This Agreement has
been duly executed and delivered by Bell and constitutes a valid and
legally binding obligation of Bell enforceable against Bell in accordance
with its terms, subject, as to enforcement, to bankruptcy, reorganization
and other laws affecting the enforcement of creditors' rights generally
from time to time in effect and to judicial discretion in accordance with
general equitable principles. There are pending no proceedings or actions
to dissolve or liquidate Bell.
5.20 CONSENTS AND APPROVALS. No consents or approvals of, or
filings or registrations with, any governmental authority or with any third
party are required to be made or obtained by Bell in connection with the
execution, delivery or performance by Bell of this Agreement or to enter
into this Agreement or consummate any of the transactions contemplated
herein.
5.21 ENVIRONMENTAL MATTERS. Bell has complied at all times with
applicable Environmental Laws; (i) no real property (including buildings or
other structures) currently or formerly owned, leased or operated by it has
been contaminated with, or has had any release of, any Hazardous Substance;
(ii) Bell is not subject to liability for any Hazardous Substance disposal
or contamination on any third party property; (iii) Bell has not received
any notice, demand letter, claim or request for information alleging any
violation of, or liability under, any Environmental Law; (iv) Bell is not
subject to any order, decree, injunction or other agreement with any
governmental authority or any third party relating to any Environmental
Law; (v) to the best of Bell's knowledge, there are no circumstances or
conditions (including the presence of asbestos, underground storage tanks,
lead products, polychlorinated biphenyls, prior manufacturing operations,
dry-cleaning, or automotive services) involving Bell, any currently or
formerly owned or operated property, that could reasonably be expected to
result in any claims, liability or investigations against Bell or result in
any restrictions on the ownership, use, or transfer of any property
pursuant to any Environmental Law; and (vi) Bell has delivered to InPath
copies of all environmental reports, studies, sampling data,
correspondence, filings and other environmental information in its
possession or reasonably available to it relating to itself and any
currently or formerly owned, leased or operated property.
Article VI. COVENANTS OF INPATH.
6.1 GOMBRICH LOANS. Inpath agrees that it will not utilize any of
the funds of Bell on deposit as of the date hereof to repay indebtedness of
Inpath to Gombrich or his affiliates without the unanimous written consent
of the Board of Directors of Bell.
Article VII. COVENANTS OF BELL.
7.1 TRANSFER OF WORKING CAPITAL. At the Closing, Bell shall
transfer to InPath's bank account or otherwise make available to InPath all
cash and cash equivalents of Bell for InPath's use as working capital.
<PAGE>
7.2 DELIVERY OF STOCK. At the Closing, Bell shall deliver to each
InPath Member stock certificates representing the number of shares of Stock
as set forth on Schedule 3.4.
7.3 DELIVERY OF WARRANTS. At the Closing, Bell shall deliver to
each InPath Member a Warrant in the form of Exhibit A attached hereto, to
be redeemed by Bell on the date of the Stockholders' Meeting to be held
pursuant to Section 7.4(b), in the amounts of Stock opposite each InPath
Member's name on Schedule 3.4.
7.4 POST-CLOSING ACTIONS.
(a) Promptly after the Closing, but in no event later than
March 30, 1999, or such later date as is approved by Gombrich, Bell shall
take all actions necessary to incorporate a wholly-owned subsidiary, to be
named (if available) Ampersand Medical Corporation ("Ampersand"), under the
laws of the State of Delaware.
(b) Promptly after the Closing, Bell shall call a stockholder
meeting to be held no later than March 30, 1999 or such later date as is
agreed upon by Gombrich, for the purpose of (i) approving the merger of
Bell with and into Ampersand, with Ampersand as the surviving corporation;
(ii) authorizing additional shares of Stock in an amount at least
sufficient to permit the issuance of Stock issuable upon exercise of the
Warrants; (iii) authorizing shares of so-called "blank check" preferred
stock; (iv) electing a slate of directors of Peter P. Gombrich, John
Abeles, Denis O'Donnell, Alexander Milley and an additional director to be
selected by Gombrich and Milley; (v) ratifying the transactions
contemplated by this Agreement and the Claims Settlement Agreement; and
(vi) considering such other proposals as may come before the meeting.
(c) The existing members of Bell's Board of Directors shall
recommend that the stockholders vote in favor of proposals (i), (ii),
(iii), (iv) and (v) listed in Subsection (b) above.
(d) Promptly after the Closing Date, Bell shall prepare and file
all documents and forms and amendments to forms which are or will be
required to be filed or delivered under applicable federal and state laws
and regulations, including without limitation the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as a result of the consummation
of the transactions contemplated by this Agreement and the Claims
Settlement Agreement.
(e) Promptly after the date hereof, the directors of Bell shall
appoint the directors listed in Subsection 1.3(a) above to the Board of
Directors of the Bell. Peter P. Gombrich shall serve as Chairman of the
Board.
(f) Effective as of the date hereof, the Board of Directors shall
appoint the officers listed in Subsection 1.3(b) above as the officers of
Bell.
(g) From and after the date hereof, until the Warrants have been
redeemed for the Stock issuable in respect thereof, Bell will not issue any
capital stock, securities convertible into capital stock, warrants, rights
to purchase, stock appreciation rights, options or exemptive rights of any
kind unless such issuance has been approved by Gombrich, or Leonard Prange
if Gombrich is not able to act.
<PAGE>
Article VIII. COVENANTS OF THE INPATH MEMBERS.
8.1 ASSIGNMENT OF UNITS. At the Closing, each of the InPath
Members shall assign his or its Units to Bell, free and clear of any and
all Liens, causing InPath to become a wholly-owned subsidiary of Bell.
8.2 APPROVAL. At the Closing, the InPath Members shall cause the
Board of Directors of InPath to grant its consent to the transfer of Units
described above.
8.3 VOTING OF STOCK. The InPath Members agree that they will vote
their Stock and take all actions necessary or desirable to effect and
consummate each of the transactions contemplated by this Agreement.
Article IX. CONDITIONS PRECEDENT TO INPATH'S AND THE INPATH MEMBERS'
OBLIGATIONS.
All obligations of InPath and the InPath Members under this Agreement
are subject to the fulfillment and satisfaction, prior to or at the
Closing, of each of the following conditions, any one or more of which may
be waived by it or them in regard to its or their obligations,
respectively:
9.1 BELL'S CERTIFICATE. Bell shall have delivered a certificate,
duly executed by its President, dated as of the date of the Closing
certifying that (i) since the delivery of Bell's Articles of Incorporation
and Bylaws pursuant to Section 5.2, there have been no amendments or other
modifications thereof; (ii) true, complete and accurate copies of the
minutes of meetings of the Board of Directors (or consents in lieu thereof)
approving this Agreement and the transaction contemplated herein have been
delivered to InPath; and (iii) the officers of Bell are those persons named
in the certificate.
9.2 OTHER DOCUMENTS. The appropriate parties shall have executed
and delivered:
(a) A Stockholders Agreement in the form of Exhibit 9.2; and
(b) All other documents required by this Agreement or otherwise
necessary to effectuate the transaction contemplated by this Agreement.
9.3 CANCELLATION. Bell shall have cancelled or there shall have
expired all rights to purchase, warrants, stock appreciation rights,
options or pre-emptive rights of any kind affecting any shares of the
capital stock of Bell (other than the 1989 SARs), outstanding prior to the
date hereof and delivered evidence thereof to InPath in form and substance
reasonably satisfactory to InPath.
9.4 APPROVALS. Any consent, approval, authorization or order of
any court, governmental agency, administrative body or other person or
entity required for the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in effect on the
Closing Date.
9.5 BELL'S PERFORMANCE. The representations and warranties made by
Bell in this Agreement shall be true and correct in all material respects
<PAGE>
as of the Closing Date, and its obligations to be performed on or before
the Closing Date pursuant to the terms of this Agreement shall have been
duly performed on or before the Closing Date and Bell shall have delivered
to InPath a certificate dated the Closing Date, certifying as to the
foregoing.
9.6 APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, and other documents shall be reasonably satisfactory in all
respects to InPath, the InPath Members and its or their counsel.
9.7 EXAMINATION OF BOOKS AND RECORDS. For purposes of compliance
with and performance of this Agreement, InPath and the InPath Members,
acting through itself or themselves or through counsel, accountants, or
other representatives designated by it or them, shall have been afforded
full and complete opportunity to examine and investigate all aspects of
Bell's business and affairs and assets and liabilities, including without
limitation, its minute books and stock transfer records, financial books
and records, the workpapers of Bell's independent public accountants,
titles and leases to properties, loan and other agreements, the condition
of its facilities and equipment, and the collectability of accounts
receivable.
Article X. CONDITIONS PRECEDENT TO BELL'S OBLIGATIONS.
All obligations of Bell under this Agreement are subject to the
fulfillment and satisfaction, prior to or at the Closing, of each of the
following conditions, any one or more of which may be waived by it in
regard to its obligations:
10.1 INPATH'S CERTIFICATE. InPath shall have delivered a
certificate, duly executed by its President, dated as of the date of the
Closing certifying that (i) since the delivery of InPath's Certificate of
Formation and Limited Liability Company Agreement pursuant to Section 3.2,
there have been no amendments or other modifications thereof; (ii) true,
complete and accurate copies of the minutes of meetings of the Board of
Directors and Members (or consents in lieu thereof) approving this
Agreement and the transaction contemplated herein have been delivered to
Bell; and (iii) that the officers of InPath are those persons named in the
certificate.
10.2 OTHER DOCUMENTS. The appropriate parties shall have executed
and delivered:
(a) A Stockholders Agreement in the form of Exhibit 9.2;
(b) A revised Employment Agreement between InPath and Gombrich in
the form of Exhibit 10.2;
(c) The Claims Settlement Agreement; and
(d) All other documents required by this Agreement or otherwise
necessary to effectuate the transaction contemplated by this Agreement.
10.3 APPROVALS. Any consent, approval, authorization or order of
any court, governmental agency, administrative body or other person or
entity required for the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in effect on the
Closing Date.
<PAGE>
10.4 INPATH'S AND THE INPATH MEMBERS' PERFORMANCE. The
representations and warranties made by InPath and the InPath Members in
this Agreement shall be true and correct in all material respects as of the
Closing Date, and their respective obligations to be performed on or before
the Closing Date pursuant to the terms of this Agreement shall have been
duly performed on or before the Closing Date and InPath and Gombrich shall
have delivered a certificate, dated as of the Closing Date, certifying as
to the foregoing.
10.5 APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates, and other documents shall be reasonably
satisfactory in all respects to Bell and its counsel.
10.6 EXAMINATION OF BOOKS AND RECORDS. For purposes of compliance
with and performance of this Agreement, Bell, acting through itself,
counsel, accountants, or other representatives designated by it, shall have
been afforded full and complete opportunity to examine and investigate all
aspects of InPath's business and affairs and assets and liabilities,
including without limitation, its minute books and stock transfer records,
financial books and records, the workpapers of InPath's independent public
accountants, titles and leases to properties, loan and other agreements,
the condition of its facilities and equipment, and the collectability of
accounts receivable.
Article XI. POST-CLOSING COVENANTS.
11.1 FURTHER ASSURANCES. From time to time after the Closing at the
request of any party, and without further consideration, the other parties
shall execute and deliver any further instruments and take such other
action as may reasonably be required to consummate the transactions
contemplated herein. To the extent that the transactions contemplated
herein requires the consent of any person in order to avoid a breach of the
terms of any lease, contract or commitment to which any party hereto is a
party or by which any party hereto is bound, and such consent is not
obtained satisfactorily prior to the Closing, the party with respect to
which the failure to obtain consent applies shall use their best efforts to
assure the other parties hereto of the benefits of such leases, contracts,
commitments and rights. Nothing in this section shall be deemed a waiver
by any party hereto of its or his rights under this Agreement.
Article XII. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE INPATH MEMBERS. Subject to all of the
limitations and provisions of this Article XII, the InPath Members agree to
indemnify Bell, on a pro-rata basis proportionate with their membership
interests in InPath, from and against any and all demands, claims, actions,
causes of action, assessments, damages, liabilities, losses, expenses,
fees, judgments and deficiencies of any nature whatsoever (including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action or proceeding) incurred or sustained by Bell
which shall arise out of or result from: (i) any breach of any
representation or warranty by Inpath or any Inpath Member hereunder or (ii)
any non-fulfillment of any covenant or obligation of InPath or any Inpath
Member under this Agreement.
12.2 INDEMNIFICATION BY BELL. Subject to all of the limitations and
provisions of this Article 12, Bell agrees to indemnify each InPath Member
from and against any and all demands, claims, actions, causes of action,
assessments, damages, liabilities, losses, expenses, fees, judgments and
<PAGE>
deficiencies of any nature whatsoever (including, without limitation,
reasonable attorneys' fees and other costs and expenses incident to any
suit, action or proceeding) incurred or sustained by any InPath Member
which shall arise out of or result from: (i) any breach of any
representation or warranty by Bell hereunder or (ii) any non-fulfillment of
any covenant or obligation of Bell under this Agreement.
12.3 LIMITATIONS ON INDEMNITY; PAYMENT. Anything herein to the
contrary notwithstanding, none of the parties hereto shall be obligated to
provide indemnification hereunder unless and until the indemnified party's
indemnifiable damages exceed $25,000, and the maximum amount of
indemnification any party shall be responsible for shall be $925,000. If
Bell is the indemnifying party it shall issue additional Stock to the
Inpath Members in satisfaction of its obligation and if the Inpath Members
are the indemnifying party they shall have the option of paying cash or
Stock to Bell in satisfaction of their obligations. For purposes hereof,
the Stock shall be valued at $.30 per share. There shall be no
indemnification hereunder for (i) any breach of the representation in
Section 5.16 (absent fraud) with respect to liabilities arising from any
underfunding of the Payne Fabrics Pension Plan, or (ii) any Liability for
which additional Stock is issued under Section 1.4 (so as not to compensate
the Inpath Members twice for such Liability). This Article 12 shall be
parties' sole remedy for any dispute arising under this Agreement.
Article XIII. GENERAL.
13.1 ENTIRE AGREEMENT. All exhibits and schedules shall be deemed
to be incorporated into and made part of this Agreement. This Agreement,
together with its exhibits and schedules, contains the entire agreement
among the parties and there are no agreements, representations, or
warranties by any of the parties which are not set forth herein. This
Agreement may not be amended or revised except by a writing signed by all
parties.
13.2 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns;
provided, however, this Agreement and all rights hereunder may not be
assigned by any party except by prior written consent of all parties.
13.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties set forth in this Agreement
and referred to in Articles III, IV, V and VI above shall survive the
Closing for a period of one (1) year.
13.4 SEPARATE COUNTERPARTS. This Agreement may be executed in
several identical counterparts, all of which when taken together shall
constitute but one instrument, and it shall not be necessary in any court
of law to introduce more than one executed counterpart in proving this
Agreement.
13.5 CONSISTENT ACCOUNTING. The parties to this Agreement shall
consult with each other for the purpose of arriving at consistent
accounting, tax and reporting treatment, whether public or private, of the
transaction contemplated hereby.
13.6 NOTICES. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if
personally delivered, delivered by reputable overnight courier, or
telecopied with confirmation, or mailed by registered or certified mail,
return receipt requested, to the party to be notified at the party's
address shown below. Notices which are hand delivered shall be effective
on delivery. Notices which are mailed shall be effective on the third day
after mailing.
<PAGE>
(i) If to InPath or the InPath Members:
InPath, LLC
900 North Franklin Street
Suite 210
Chicago, Illinois 60610
Attention: Peter Gombrich
Telecopier: (312) 640-1994
with a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Theodore L. Koenig, Esq.
Telecopier: (312) 807-3900
(ii) If to Bell:
Bell National Corporation
3600 Rio Vista Avenue
Suite A
Orlando, Florida 32805
Attention: President
Telecopier:
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Claude A. Baum, Esq.
Telecopier: (212) 704-0196
unless and until notice of another or different address shall be given as
provided herein.
13.7 SEVERABILITY. The provisions of this Agreement are severable
and the invalidity of any provision shall not affect the validity of any
other provision.
<PAGE>
13.8 CAPTIONS. The captions have been inserted solely for
convenience of reference and in no way define, limit or describe the scope
or substance of any provision of this Agreement.
13.9 GENDER. All pronouns used herein shall include the masculine,
feminine and neuter gender, as the context requires.
13.10 GOVERNING LAW. The execution, interpretation, and performance
of this Agreement shall be governed by the laws of the State of Illinois.
[Signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a document under seal as of the date first above written.
BELL NATIONAL CORPORATION
By: /s/ Thomas R. Druggish
__________________________________
Its: __________________________________
Attest: ________________________________
INPATH, LLC
By: /s/ Peter P. Gombrich
____________________________________
Its: ____________________________________
Attest: __________________________________
/s/ Peter P. Gombrich
__________________________________________
Peter P. Gombrich, as an individual and as
Trustee of the InPath, LLC Voting Trust
/s/ Theodore L. Koenig
__________________________________________
Theodore L. Koenig, as Trustee of each of
The EAG Trust, The CMC Trust, The MDG
Trust and The MSD Trust
/s/ William J. Ritger
_________________________________________
William J. Ritger
ACCUMED INTERNATIONAL, INC.
By: /s/ Peter F. Lavallee
_______________________________________
Its: CEO
_______________________________________
Attest: /s/ Caryn J. Sosu
____________________________________
<PAGE>
NORTHLEA PARTNERS LTD.
By: /s/ John H. Abeles, M.D.
______________________________________
Its: General Partner
Attest: ___________________________________
/s/ Fred H. Pearson
__________________________________________
Fred H. Pearson, as Trustee of
Fred H. Pearson's Trust
/s/ Walter Herbst
__________________________________________
Walter Herbst, as Trustee of the
Sandra Herbst Trust
MONROE INVESTMENTS, INC.
By: /s/ Theodore L. Koenig
______________________________________
Its: ______________________________________
Attest: ___________________________________
<PAGE>
SCHEDULE 3.4
- - ------------
Number
of Amount of Amounts of % of
Units Bell Stock Warrants Bell
InPath Member Owned to Receive to Receive Owned
- - ------------- ------- ---------- ---------- -----
Peter P. Gombrich 52,616 2,256,590 1,671,005 26.31%
Peter P. Gombrich,
as Trustee of the
Inpath, LLC Voting
Trust 3,240 138,957 102,897 1.62%
Theodore L. Koenig,
as Trustee of
The EAG Trust 6,428 275,683 204,144 3.21%
Theodore L. Koenig,
as Trustee of
The CMC Trust 6,428 275,683 204,144 3.21%
Theodore L. Koenig,
as Trustee of
The MDG Trust 6,428 275,683 204,144 3.21%
Theodore L. Koenig,
as Trustee of
The MSD Trust 5,500 235,883 174,672 2.75%
William J. Ritger 360 15,440 11,433 0.18%
AccuMed International, Inc. 2,000 85,776 63,517 1.00%
Northlea Partners Ltd. 2,500 107,220 79,396 1.25%
Fred H. Pearson,
as Trustee of Fred H.
Pearson's Trust 2,500 107,220 79,396 1.25%
Walter Herbst, as
Trustee of the
Sandra Herbst Trust 8,000 343,103 254,068 4.00%
Monroe Investments, Inc. 4,000 171,552 127,034 2.00%
-------- --------- --------- ------
TOTAL: 100,000 4,288,790 3,175,850 50.00%
======== ========= ========= ======
<PAGE>
APPENDIX B
----------
THIS CLAIMS SETTLEMENT AGREEMENT, dated as of December 4, 1998 (this
"Agreement"), is made by and among: (1) Bell National Corporation, a
California corporation ("Bell"); (2) each of the persons and entities
identified in Annex A hereto (each individually, a "Claimant"; and
collectively, the "Claimants"); and (3) Liberty Associates Limited
Partnership, a Delaware limited partnership ("Liberty").
BACKGROUND
Bell owes to each Claimant, on account of employment compensation,
management fees and/or other amounts payable, the dollar amounts specified
in Annex A hereto (the "Claims"). Bell and the Claimants wish to settle the
Claims in shares of Common Stock, no par value, of Bell ("Common Stock").
Substantially simultaneously with the execution and delivery of this
Agreement, Bell is executing and delivering a Stock and Membership Interest
Exchange Agreement (the "InPath Agreement"), pursuant to which (among other
things): (i) Bell will acquire all of the outstanding equity interests in
InPath, LLC, a Delaware limited liability company, from the holders of such
equity interests (the "InPath Members"); (ii) Bell will issue and deliver
to each InPath Member shares of Common Stock and Warrants to purchase
Common Stock; and (iii) Bell and the InPath Members will enter into a
Stockholders Agreement in the form of Exhibit 9.2 to the InPath Agreement
(the "Stockholders Agreement"), under which (among other things) Bell will
grant registration rights covering the shares of Common Stock held by the
other parties thereto and such other parties will make certain agreements
with respect to the voting of such shares.
Liberty is the beneficial and record owner of 957,373 Warrants to
Purchase Common Stock originally issued by Bell on November 20, 1989 (the
"Liberty Warrants"). It is a condition precedent to the Closing under (and
as defined in) the InPath Agreement that the Liberty Warrants be cancelled.
It is a condition precedent to the consummation of transactions under to
Article I of this Agreement (the "Main Transactions") that such Closing
shall have occurred. It is the intent of the parties hereto and to the
InPath Agreement that such Closing and the consummation of the Main
Transactions occur substantially simultaneously.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and commitments set forth below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
by each of the parties hereto, it is hereby agreed as follows:
ARTICLE I: MAIN TRANSACTIONS
SECTION 1.1 CLAIMS SETTLEMENT. (A) Effective automatically upon and
simultaneously with the Closing:
(i) each Claimant does hereby sell, assign, transfer and deliver to Bell,
free and clear of any and all claims, liens, pledges, mortgages, security
interests, charges, options, equities, rights of first refusal and other
restrictions and other adverse claims ("Liens"), all of such Claimant's
right, title and interest in and to such Claimant's Claims, with the result
that such Claims shall be cancelled and extinguished; and
<PAGE>
(ii) in consideration thereof, Bell does hereby issue and deliver to each
Claimant, free and clear of any and all Liens, the number of shares of
Common Stock set forth opposite such Claimant's name on Annex A attached
hereto (or one (1) share of Common Stock per thirty cents ($.30) of
Claims). The shares of Common Stock issued to any particular Claimant are
hereinafter sometimes referred to as "its Claimant Shares"; and the shares
of Common Stock issued to all Claimants hereunder are hereinafter
collectively referred to as "the Claimant Shares.
(B) In order to evidence and further effect the issuance and delivery
provided for under the foregoing subsection (A)(ii), on the Closing Date
(as defined in the InPath Agreement) Bell shall issue and deliver (or cause
to be issued and delivered) to each Claimant a certificate or certificates
registered in its name and representing its Claimant Shares.
(C) The transactions contemplated by this Section 1.1 are hereinafter
sometimes referred to as the "Claims Settlement".
SECTION 1.2. LIBERTY WARRANTS TERMINATION. Liberty and Bell
hereby agree that, effective automatically upon and simultaneously with the
Closing, the Liberty Warrants shall be cancelled, terminated and of no
further force or effect. The transactions contemplated by this Section 1.2
are hereinafter sometimes referred to as the "Liberty Warrants
Termination".
SECTION 1.3. STOCKHOLDERS AGREEMENT. On the Closing Date, Bell
and each Claimant shall execute and deliver the Stockholders Agreement.
SECTION 1.4. CONDITIONS. It is a condition precedent to the
obligations of each party hereto to effect and consummate the Main
Transactions to be effected and consummated by such party:
(A) in the case of all parties with respect to all Main Transactions,
that the Closing under the InPath Agreement shall have occurred (or shall
substantially simultaneously be occurring);
(B) in the case of Bell with respect to the Claims Settlement, that the
representations and warranties of the Claimants set forth herein shall be
true and correct in all material respects on and as of the Closing Date;
(C) in the case of Bell with respect to the Liberty Warrants Termination,
that the representations and warranties of Liberty set forth herein shall
be true and correct in all material respects on and as of the Closing Date;
(D) in the case of the Claimants with respect to the Claims Settlement,
that: (i) the representations and warranties of Bell set forth herein shall
be true and correct in all material respects on and as of the Closing Date,
and Oil Bell shall have delivered to the Claimants the Common Stock
certificates called for under Section 1.1(B);
<PAGE>
(E) in the case of Liberty with respect to the Liberty Warrants
Termination, that the representations and warranties of Bell set forth
herein shall be true and correct in all material respects on and as of the
Closing Date; and
(F) in the case of Bell and the Claimants with respect to the
Stockholders Agreement, that all of the InPath Members shall have executed
and delivered the Stockholders Agreement.
ARTICLE II: REPRESENTATIONS AND WARRANTIES
SECTION 2.1. ALL PARTIES. Each of the parties hereto hereby
represents and warrants, with respect to itself, that:
(A) in the case of each corporate and partnership party hereto, such
party has the full corporate and/or partnership power and authority to
enter into this Agreement and the other agreement(s) and instrument(s)
contemplated hereby to which it is or is to be a party and to carry out its
obligations hereunder and thereunder;
(B) in the case of each corporate and partnership party hereto, the
execution and delivery by such party of this Agreement and other
agreement(s) and instrument(s) contemplated hereby to which it is or is to
be a party and the consummation by such party of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate and/or partnership action on its part;
(C) this Agreement and other agreement(s) and instrument(s) contemplated
hereby to which it is a party have been, and (upon the execution and
delivery thereof) the other agreement(s) and instrument(s) contemplated
hereby to which it is to be a party will be, duly executed and delivered by
such party and constitute the legal, valid and binding obligations of such
party, enforceable against such party in accordance with their respective
terms;
(D) the compliance by such party with all of the provisions of this
Agreement and other agreement(s) and instrument(s) contemplated hereby to
which it is or is to be a party, and the consummation by such party of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (or an event which, with notice or lapse of time or
both would constitute a default) under, or result in the termination or
amendment of, or accelerate the performance required by, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which such party is a party or by which such party is bound,
or to which any of the property or assets of such party are subject, nor
result in any violation of the provisions of the certificate or articles of
incorporation or the bylaws of such party (if it be a corporation) or the
partnership agreement of such party (if it be a partnership), or any
statute, order, judgment, rule or regulation of any court or governmental
agency or body having jurisdiction over such party or the property or
assets of such party; and
<PAGE>
(E) no authorization, consent or approval of, or filing with, or notice
to, any public body, court, authority or any other person or entity is
necessary for the execution and delivery by such party of this Agreement or
the other agreement(s) or instrument(s) contemplated hereby to which it is
or is to be a party or for the consummation by such party of the
transactions contemplated herein or therein, other than, in each case, such
authorizations, consents, approvals, filings and notices as have been or
will be obtained, made or given on or prior to the Closing Date.
SECTION 2.2. LIBERTY. Liberty hereby additionally represents and
warrants that it has good and marketable title to the Liberty Warrants,
free and clear of any and all Liens.
SECTION 2.3. CLAIMANTS. (A) Each Claimant hereby additionally
represents and warrants, with respect to itself, that:
(i) he has good and marketable title to the Claims set forth opposite its
name in Annex A hereto, free and clear of any and all Liens; and
(ii) other than the Claims, which will be extinguished as a result of the
Claims Settlement, it has no rights or claims for the payment of money or
the delivery of other value from Bell, or any contracts, agreements or
commitments which may give rise to the same.
(B) Each Claimant hereby additionally represents and warrants, with
respect to itself, that:
(i) its Claimant Shares are being acquired for such Claimant's own
account for investment purposes only and without any present intention to
sell, transfer or otherwise dispose of the same (except in compliance with
clause (v) hereof);
(ii) such Claimant has such knowledge and experience in financial matters
that it is capable of evaluating the merits and risks of its investment in
its Claimant Shares;
(iii) such Claimant understands that its Claimant Shares have not been
registered or qualified under the Securities Act of 1933, as amended (the
"Securities Act") or the securities laws of any state of the United States
("Blue Sky Laws");
(iv) such Claimant is fully informed as to the applicable limitations upon
any distribution or resale of its Claimant Shares under the Securities Act
and Blue Sky Laws and that its Claimant Shares may not be distributed or
resold if such distribution or resale would constitute a violation of the
Securities Act or Blue Sky Laws; and
(v) such Claimant will not sell, transfer, assign, pledge or otherwise
distribute any of its Claimant Shares unless: (a) there is an effective
registration statement under the Securities Act and Blue Sky Laws covering
its Claimant Shares, (b) such sale, transfer, assignment, pledge or other
distribution is exempt from the registration or qualification requirements
of the Securities Act and Blue Sky Laws or (c) the Securities Act and Blue
Sky Laws are inapplicable to such transaction.
<PAGE>
(C) In connection with the foregoing, each Claimant agrees and consents
to the inclusion on the certificate(s) representing its Claimant Shares of
the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN TAKEN BY THE
ISSUEE FOR INVESTMENT PURPOSES. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED (A) UNLESS THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
UNLESS SUCH REGISTRATION IS EXPRESSLY WAIVED BY THE COMPANY, OR THE
TRANSFER AGENT (OR THE COMPANY, IF THEN ACTING AS ITS TRANSFER AGENT) IS
PRESENTED WITH A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
(D) The representations, warranties and agreements in the foregoing
Section 2.3(B) and (C) may be relied upon by Bell and also by: (i) Bell's
counsel on the date hereof, Berlack, Israels & Liberman LLP, New York, New
York, in connection with any opinion or other letter that they may deliver
in respect of the issuance and delivery of the Claimant Shares, and (ii)
the Company's transfer agent, Continental Stock Transfer & Trust Company,
in connection with their effectuation of such issuance and delivery.
ARTICLE III: MISCELLANEOUS
SECTION 3.1. FURTHER ACTIONS. From time to time after the date
hereof, as and when requested by any party hereto, each other party hereto
shall execute and deliver, or cause to be executed and delivered, such
other and further documents and instruments and shall take, or cause to be
taken, such other and further as such requesting party may reasonably deem
necessary or desirable to further effect or evidence the transactions
contemplated hereby and to otherwise carry out the intent and purposes of
this Agreement.
SECTION 3.2. COMPLETE AGREEMENT. This Agreement (which includes
the Annex A hereto) contains the entire agreement among the parties hereto
with respect to subject matter hereof and supersedes all prior written or
oral agreements and understandings among the parties with respect to such
matters.
SECTION 3.3. GOVERNING LAW. Consistent with the InPath
Agreement, the execution, interpretation and performance of this Agreement
shall be governed by the laws of State of Illinois.
SECTION 3.4. HEADINGS. The Article, Section and Annex headings
in this Agreement are for convenience of reference purposes only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
<PAGE>
SECTION 3.5. WAIVERS AND AMENDMENTS. This Agreement may not be
modified or amended, nor may compliance with any of its terms and
conditions be waived, except in a writing executed by each of the parties
hereto.
SECTION 3.6. GENDER AND PLURAL TERMS. In this Agreement: (i)
words of gender or neuter may be read as masculine, feminine or neuter, as
required or permitted by the context, and (ii) singular and plural forms of
defined and other terms herein may be read as singular or plural, as
required or permitted by the context.
[the remainder of this page is intentionally blank]
<PAGE>
SECTION 3.7. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, which, taken together, shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
Bell: Claimants:
BELL NATIONAL CORPORATION CADMUS CORPORATION
By: /s/ Alexander M. Milley By: /s/ Alexander M. Milley
----------------------- -------------------------
Alexander M. Milley Alexander M. Milley
President President
ATTEST: MILLEY MANAGEMENT INCORPORATED
By: /s/ Thomas R. Druggish By: /s/ Alexander M. Milley
----------------------- -------------------------
Thomas R. Druggish Alexander M. Milley
Assistant Secretary President
/s/ Alexander M. Milley
-------------------------
ALEXANDER M. MILLEY
/s/ Robert C. Shaw
-------------------------
ROBERT C. SHAW
Liberty:
LIBERTY ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ Alexander M. Milley
-------------------------
Alexander M. Milley
Sole General Partner
<PAGE>
ANNEX A
- - -------
Dollar Amount No. of
Claimant of Claims Claimant Shares
- - -------- ------------ ---------------
Alexander M. Milley $63,000 210,000
Robert C. Shaw $139,000 463,333
Cadmus Corporation $180,000 600,000
Milley Management
Incorporated $151,000 503,333
<PAGE>
APPENDIX C
----------
AGREEMENT AND PLAN OF MERGER
OF BELL NATIONAL CORPORATION,
A CALIFORNIA CORPORATION
AND
AMPERSAND MEDICAL CORPORATION,
A DELAWARE CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of _________ ___, 1999
(the "Agreement") is between Bell National Corporation, a California
corporation ("Bell National"), and Ampersand Medical Corporation, a
Delaware corporation ("Ampersand"). Bell National and Ampersand are
sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. Bell National is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
12,000,000 shares, all of which are designated "Common Stock," no par
value. As of ________ ___, 1999, __________ shares of Common Stock were
issued and outstanding.
B. Ampersand is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of
55,000,000 shares, 50,000,000 of which are designated "Common Stock," $.001
par value per share, and 5,000,000 of which are designated "Preferred
Stock," $.001 par value per share. As of _________ ___, 1999, 1000 shares
of Common Stock were issued and outstanding, all of which were held by Bell
National.
C. The Board of Directors of Bell National has determined that,
for the purpose of effecting the reincorporation of Bell National in the
State of Delaware, it is advisable and in the best interests of Bell
National that Bell National merge with and into Ampersand upon the terms
and conditions herein provided.
D. The respective Boards of Directors of Bell National and
Ampersand have approved this Agreement and have directed that this
Agreement be submitted to a vote of their respective security holders and
executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Bell National and Ampersand hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation
Law, Bell National shall be merged with and into Ampersand (the "Merger"),
the separate existence of Bell National shall cease and Ampersand shall be,
and is herein sometimes referred to as, the "Surviving Corporation", and
the name of the Surviving Corporation shall be "Ampersand Medical
Corporation."
<PAGE>
1.2 FILING AND EFFECTIVENESS. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the security holders of each Constituent Corporation in
accordance with the requirements of the Delaware General Corporation Law
and the California General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly waived
by the party entitled to satisfaction thereof; and
(c) An executed Agreement and Plan of Merger meeting the
requirements of the Delaware General Corporation Law shall have been filed
with the Secretary of State of the State of Delaware.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Bell National shall cease and Ampersand, as the
Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the
Effective Date of the Merger, (ii) shall be subject to all actions
previously taken by its and Bell National's Board of Directors, (iii) shall
succeed, without other transfer, to all of the assets, rights, powers and
property of Bell National in the manner more fully set forth in Section 259
of the Delaware General Corporation Law, (iv) shall continue to be subject
to all of the debts, liabilities and obligations of Ampersand as
constituted immediately prior to the Effective Date of the Merger, and (v)
shall succeed, without other transfer, to all of the debts, liabilities and
obligations of Bell National in the same manner as if Ampersand had itself
incurred them, all as more fully provided under the applicable provisions
of the Delaware General Corporation Law and the California General
Corporation Law.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Ampersand as in effect immediately prior to the Effective Date of the
merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with the provisions thereof and applicable law.
2.2 BY-LAWS. The By-laws of Ampersand as in effect immediately prior
to the Effective Date of the Merger shall continue in full force and effect
as the By-laws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Bell
National immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided
by law, the Certificate of Incorporation of the Surviving Corporation or
the By-laws of the Surviving Corporation.
<PAGE>
III. MANNER OF CONVERSION OF SECURITIES
3.1 BELL NATIONAL COMMON SHARES. Upon the Effective Date of the
Merger, each share of Bell National Common Stock, no par value, issued and
outstanding immediately prior thereto shall by virtue of the Merger and
without any action by the Constituent Corporations, the holder of such
shares or any other person, be converted into and exchanged for one fully
paid and nonassessable share of Common Stock, $.001 par value, of the
Surviving Corporation.
3.2 BELL NATIONAL WARRANTS AND OTHER SECURITIES CONVERTIBLE INTO
COMMON STOCK.
(a) Upon the Effective Date of the Merger, each outstanding and
unexercised warrant or other right to purchase Bell National Common Stock
("Right") and each security convertible into Bell National Common Stock
("Convertible Security") shall become, subject to the provisions in
paragraph (c) hereof, a warrant or other right to purchase the Surviving
Corporation's Common Stock, or a security convertible into the Surviving
Corporation's Common Stock, as the case may be, on the basis of one share
of the Surviving Corporation's Common Stock for each share of Bell National
Common Stock, issuable pursuant to any such Right or Convertible Security,
on the same terms and conditions and at an exercise price or conversion
price equal to the exercise price or conversion price applicable to any
such Bell National Right or Convertible Security at the Effective Date of
the Merger. This paragraph 3.2(a) shall not apply to Bell National Common
Stock. Such Common Stock is subject to paragraph 3.1 hereof.
(b) A number of shares of the Surviving Corporation's Common Stock
shall be reserved for issuance upon the exercise or conversion of the
Rights or Convertible Securities equal to the number of shares of Bell
National Common Stock issuable pursuant to Rights or Convertible Securities
immediately prior to the Effective Date of the Merger.
(c) Ampersand shall assume the due and punctual observance and
performance of the covenants and conditions to be performed and observed by
Bell National under any agreements in effect at the Effective Date of the
Merger providing for stock appreciation rights respecting Bell National
Common Stock, including any provisions in any such agreements providing for
adjustment in connection with transactions such as the Merger in the number
and kind of securities the value of which determines any amount payable
upon exercise of such stock appreciation rights and in the kind of
securities which may be delivered in satisfaction of any such amount
payable.
3.3 AMPERSAND COMMON STOCK. Upon the Effective Date of the Merger,
each share of Common Stock, $.001 par value per share, of Ampersand issued
and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by Ampersand, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.
3.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the
Merger, each holder of an outstanding certificate representing shares of
Bell National Common Stock will be asked to surrender the same for
cancellation to an exchange agent, whose name will be delivered to holders
prior to any requested exchange (the "Exchange Agent"), and each such
holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving
Corporation's Common Stock into which the surrendered shares were converted
as herein provided. Until so surrendered, each outstanding certificate
theretofore representing shares of Bell National Common Stock shall be
deemed for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock into which such shares of Bell National Common
Stock were converted in the Merger.
<PAGE>
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate
shall, until such certificate shall have been surrendered for transfer or
conversion or otherwise accounted for to the Surviving Corporation or the
Exchange Agent, have and be entitled to exercise any voting and other
rights with respect to and to receive dividends and other distributions
upon the shares of Common Stock of the Surviving Corporation represented by
such outstanding certificate as provided above. Each certificate
representing Common Stock of the Surviving Corporation so issued in the
merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Bell National so
converted and given in exchange therefore, unless otherwise determined by
the Board of Directors of the Surviving Corporation in compliance with
applicable laws.
If any certificate for shares of the Surviving Corporation's stock is
to be issued in a name other than that in which the certificate surrendered
in exchange therefor is registered, it shall be a condition of issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, that such transfer otherwise be
proper and comply with applicable securities laws and that the person
requesting such transfer pay to the Exchange Agent any transfer or other
taxes payable by reason of issuance of such new certificate in a name other
than that of the registered holder of the certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax
has been paid or is not payable.
IV. GENERAL
4.1 COVENANTS OF AMPERSAND. Ampersand covenants and agrees that it
will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law.
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Ampersand of all of the franchise tax
liabilities of Bell National.
(c) Take such other actions as may be required by the California
General Corporation Law.
4.2 FURTHER ASSURANCES. From time to time, as and when required by
Ampersand or by its successors or assigns, there shall be executed and
delivered on behalf of Bell National such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other
actions as shall be appropriate or necessary in order to vest or perfect in
or conform of record or otherwise by Ampersand the title to and possession
of all the property, interests, assets, rights, privileges, immunities,
powers, franchises and authority of Bell National and otherwise to carry
out the purposes of this Agreement, and the officers and directors of
Ampersand are fully authorized in the name and on behalf of Bell National
or otherwise to take any and all such action and to execute and deliver any
and all such deeds and other instruments.
<PAGE>
4.3 ABANDONMENT. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned
for any reason whatsoever by the Board of Directors of either Bell National
or Ampersand, or both, notwithstanding the approval of this Agreement by
the shareholders of Bell National or the sole stockholder of Ampersand, or
both.
4.4 AMENDMENT. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of
this Agreement (or certificate in lieu thereof) with the Secretaries of
State of the States of Delaware and California, provided that an amendment
made subsequent to the adoption of this Agreement by the security holders
of either Constituent Corporation shall not: (1) alter or change the
amount or kind of shares, securities, cash, property, or rights to be
received in exchange for or on conversion of all or any of the shares of
any class or series thereof of such Constituent Corporation, (2) alter or
change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
4.5 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware is 1209 Orange Street, Wilmington,
County of New Castle, Delaware 19801, and The Corporation Trust Company is
the registered agent of the Surviving Corporation at such address.
4.6 AGREEMENT. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Corporation at 900 North
Franklin Street, Suite 210, Chicago, Illinois 60610, and copies thereof
will be furnished to any security holder of either Constituent Corporation,
upon request and without cost.
4.7 GOVERNING LAW. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the
laws of the State of Delaware and, so far as applicable, the merger
provisions of the California General Corporation Law.
4.8 COUNTERPARTS. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together
shall constitute one and the same instrument.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been approved by the
resolutions of the Boards of Directors and security holders of Bell
National and Ampersand, is hereby executed on behalf of each of such two
corporations and attested by their respective officers thereunto duly
authorized.
BELL NATIONAL CORPORATION, a California corporation
By: ____________________________________________________
Its: ____________________________________________________
ATTEST:
____________________________________________________
AMPERSAND MEDICAL CORPORATION, a Delaware corporation
By: ____________________________________________________
Its: ____________________________________________________
ATTEST:
____________________________________________________
<PAGE>
APPENDIX D
----------
CERTIFICATE OF INCORPORATION
OF
AMPERSAND MEDICAL CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is: Ampersand Medical
Corporation.
SECOND: The registered office of the Corporation is to be located at
1209 Orange Street, in the City of Wilmington, in the County of New Castle,
in the State of Delaware, 19801. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is Twenty Million (20,000,000) shares of common stock,
$.001 par value per share.
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
---- -------
Gayle D. Grocke 55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided in, the
by-laws. Election of directors need not be by ballot unless the by-laws so
provide.
<PAGE>
(2) The Board of Directors shall have power without the assent or
vote of the stockholders to make, alter, amend, change, add to or repeal
the by-laws of the Corporation; to fix and vary the amount to be reserved
for any proper purpose; to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the Corporation; to determine
the use and disposition of any surplus or net profits; and to fix the time
for the declaration and payment of dividends.
(3) The directors in their discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders
or at any meeting of the stockholders called for the purpose of considering
any such act or contract, and any contract or act that shall be approved or
be ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding
upon the Corporation and upon all stockholders as though it had been
approved or ratified by every stockholder of the Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(4) In addition to the powers and authorities herein or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation; subject nevertheless, to the
provisions of the statutes of Delaware, of this Certificate, and to any
by-laws from time to time made by the stockholders; provided, however, that
no by-laws so made shall invalidate any prior act of the directors which
would have been valid if such by-law had not been made.
<PAGE>
SEVENTH: The Corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time
to time, indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware, may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code order a meeting
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders of this Corporation, as the case
may be, and also on this Corporation.
NINTH: The personal liability of directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented, but no such
subsequent amendment or supplement shall, unless otherwise required by law,
diminish the extent of personal liability eliminated hereby.
<PAGE>
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to
this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 15th
day of December, 1998.
/s/ Gayle D.Grocke
----------------------------------------
Gayle D. Grocke, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE
OF INCORPORATION BEFORE PAYMENT OF
ANY PART OF THE CAPITAL
OF
AMPERSAND MEDICAL CORPORATION
-----------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Ampersand Medical Corporation.
2. The Corporation has not received any payment for any of its
stock.
3. The certificate of incorporation of the Corporation is hereby
amended by striking out Article Fourth thereof any by substituting in lieu
of said Article Fourth the following new Article Fourth:
"FOURTH: AUTHORIZED STOCK.
Section 4.1 The total number of shares of stock which the Corporation
is authorized to issue is Thirty-Five Million (35,000,000), comprised of
Thirty Million (30,000,000) shares of Common Stock, $.001 par value per
share, and Five Million (5,000,000) of Preferred Stock, $.001 par value per
share.
Section 4.2 The Board of Directors is authorized, subject to the
limitations prescribed by law and the provisions of this Section 4.2 to
adopt one or more resolutions to provide for the issuance from time to time
in one or more series of any number of shares of Preferred Stock, up to a
maximum of Five Million (5,000,000) shares, and to establish the number of
shares to be included in each such series, and to fix the designation,
relative rights, preferences, qualifications and limitations of the shares
of each such series.
4. The amendment of the certificate of incorporation of the
Corporation herein certified was duly adopted, pursuant to the provisions
of Section 241 of the General Corporation Law of the State of Delaware, by
the sole incorporator, no directors having been named in the certificate of
incorporation and no directors having been elected.
Signed on December 22, 1998.
/s/ Gayle D. Grocke
----------------------------------------
Gayle D. Grocke, Sole Incorporator
<PAGE>
APPENDIX E
----------
BY-LAWS
OF
AMPERSAND MEDICAL CORPORATION
ARTICLE I
OFFICES
The registered office shall be in the City of Wilmington, County of
Dover, State of Delaware. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders shall
be held each year at the hour of 10 o'clock in the morning on the fourth
Friday in May, if not a legal holiday, and if a legal holiday, then on the
next succeeding business day not a legal holiday, or held at such other
date and time as determined by the Board of Directors.
SECTION 2. DIRECTOR NOMINATIONS. Only persons who are nominated in
accordance with the following procedures shall be eligible to serve as
Directors. Nominations of persons for election to the Board of Directors
of the Corporation at a meeting of stockholders may be made (i) by or at
the direction of the Board of Directors, or (ii) by any stockholder of the
Corporation entitled to vote in the election of Directors at the meeting
who complies with the notice procedures set forth in this Article II,
Section 2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received by, the Secretary of
the Corporation at the principal executive offices of the Corporation not
less than sixty (60) days prior to the first anniversary of the date of the
mailing of the notice of the previous year's annual meeting of
stockholders; provided, however, that if no annual meeting of stockholders
was held in the previous year or if the date of the annual meeting is
advanced by more than thirty (30) days prior to, or delayed by more than
sixty (60) days after, such anniversary date, to be timely a stockholder's
notice must be so delivered, or mailed and received, not later than the
close of business on the later of (a) the sixtieth (60th) day prior to such
annual meeting or (b) the tenth (10th) day following the day on which the
date of such meeting has been first "publicly disclosed" (in the manner
provided in the last sentence of this Article II, Section 2) by the
Corporation. Any stockholder's notice pursuant to this Article II, section
2 shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of Directors or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as Director if elected); and
(ii) as to the stockholder giving notice the name and address, as they
appear on the Corporation's books, of such stockholder and the class and
number of shares of the Corporation which are beneficially owned by such
<PAGE>
stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth
herein. The presiding officer shall, if the facts so warrant, determine
and declare to the meeting that a nomination was not made in accordance
with the procedures prescribed by the By-laws, and if such officer should
so determine, such officer shall so declare to the meeting, and the
defective nomination shall be disregarded. For purposes of these By-laws,
"publicly disclosed" or "public disclosure" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission.
SECTION 3. ANNUAL MEETING AGENDA ITEMS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board of
Directors, or (ii) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Article II, Section 3, in the time
herein provided. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must deliver written notice to,
or mail such written notice so that it is received by, the Secretary of the
Corporation, at the principal executive offices of the Corporation, not
less than sixty (60) days prior to the first anniversary of the date of the
mailing of the notice of the previous year's annual meeting of
stockholders; provided, however, that if no annual meeting of stockholders
was held in the previous year or if the date of the annual meeting is
advanced by more than thirty (30) days prior to, or delayed by more than
sixty (60) days after, such anniversary date, to be timely notice by the
stockholder must be so delivered, or mailed and received, not later than
the close of business on the later of (a) the sixtieth (60th) day prior to
such annual meeting or (b) the tenth (10th) day following the day on which
the date of the meeting has been first "publicly disclosed" (in the manner
provided in Article II, Section 2 above) by the Corporation. Any
stockholder's notice pursuant to this Article II, Section 3 shall set forth
as to each matter the stockholder proposes to bring before the annual
meeting (A) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (B) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (C) the
class and number of shares of the Corporation which are beneficially owned
by the stockholder and (D) any material interest of the stockholder in such
business. At an annual meeting, the presiding officer shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of
this Article, Section 3, and if such officer should so determine, such
officer shall so declare to the meeting, and any such business not properly
brought before the meeting shall not be transacted. Whether or not the
foregoing procedures are followed, no matter which is not a proper matter
for stockholder consideration shall be brought before the meeting.
<PAGE>
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders
of the Corporation, for any purpose or purposes, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may be called
by the Chairman of the Board and shall be called by the Chief Executive
Officer or Secretary pursuant to a resolution adopted by a majority of the
total number of authorized Directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption).
If a special meeting is called by the Chairman of the Board, the
Chairman shall personally deliver or send by registered mail or by
telegraphic or other facsimile transmission to the Secretary of the
Corporation a written request specifying the general nature of the business
proposed to be transacted. No business may be transacted at such special
meeting otherwise than as specified in such notice. The Board of Directors
shall determine the time and place of such special meeting, which shall be
held not less than thirty-five (35) nor more than one hundred twenty (120)
days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the Secretary shall cause notice to be
given to the stockholders entitled to vote, in accordance with the
provisions of Section 6 of this Article II. If the notice is not given
within sixty (60) days after the receipt of the request, the Chairman may
set the time and place of the meeting and give the notice.
If a special meeting is called by a majority of the authorized
Directors, such meeting shall be on such date and at such time as such
majority of authorized Directors shall fix.
SECTION 5. PLACE OF MEETING. All meetings of the stockholders for
the election of Directors shall be held in the City of Chicago, State of
Illinois, at such places as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any
other purposes may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
SECTION 6. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice stating the place, date and hour of the meeting, and in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder entitled to vote at such meeting
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by
any stockholder by his attendance thereat in person or by proxy, except
when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof
had been given.
SECTION 7. VOTING LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered
<PAGE>
in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who
is present.
SECTION 8. QUORUM AND MANNER OF ACTING. At all meetings of
stockholders, except where otherwise provided by statute or by the
Certificate of Incorporation, or by the By-laws, the presence, in person or
by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the
transaction of business. In the absence of a quorum, any meeting of
stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Except as otherwise provided by law, the Certificate
of Incorporation or the By-laws, all action taken by the holders of a
majority of the votes cast, excluding abstentions, at any meeting at which
a quorum is present shall be valid and binding upon the Corporation;
provided, however, that Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of Directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
the By-laws, a majority of the outstanding shares of such class or classes
or series, present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to that vote on that matter
and, except where otherwise provided by the statute or by the Certificate
of Incorporation or the By-laws, the affirmative vote of the majority
(plurality, in the case of the election of Directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
SECTION 9. VOTING OF STOCK. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the Corporation on the record date, as provided in Article
VI of these By-laws, shall be entitled to vote at any meeting of
stockholders. Every person entitled to vote shall have the right to do so
either in person or by an agent or agents authorized by a proxy granted in
accordance with Delaware law. An agent so appointed need not be a
stockholder. No proxy shall be voted after three (3) years from its date
of creation unless the proxy provides for a longer period.
SECTION 10. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise
provided in the Certificate of Incorporation, any action required to be
taken at any annual or special meeting of stockholders of the Corporation,
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
<PAGE>
shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business of the Corporation shall be managed
by or under the direction of its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation or by the By-laws
directed or required to be exercised or done by the stockholders.
SECTION 2. NUMBER, TENURE, AND QUALIFICATIONS. The number of
Directors which shall constitute the whole Board of Directors shall be no
fewer than five (5) nor more than seven (7), as more precisely fixed from
time to time within these limits by amendments to the By-laws by resolution
adopted by the Board of Directors. The exact number of Directors until
amended by such resolution shall be five (5). The Directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 8 of this Article III, and each Director elected shall hold office
until his successor is elected and qualified. Directors need not be
stockholders.
SECTION 3. ANNUAL MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
The first meeting of each newly elected Board of Directors shall be
held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected Directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of such first meeting of the
newly elected Board of Directors, or in the event such meeting is not held
at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the Directors.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on
two (2) days' notice to each Director, either personally or by mail or by
telegram; special meetings shall be called by the Chairman of the Board,
the President or Secretary in like manner and on like notice on the written
request of two Directors unless the Board consists of only one Director; in
which case special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of the sole
Director.
SECTION 6. QUORUM. At all meetings of the Board of Directors a
majority of Directors shall constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
<PAGE>
SECTION 7. MANNER OF ACTING. The act of a majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation.
SECTION 8. VACANCIES. Vacancies, and newly created directorships
resulting from any increase in the authorized number of Directors, may be
filled by a majority of the Directors then in office, though less than a
quorum, or by a sole remaining Director, and the Directors so chosen shall
hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
Directors in office, then an election of Directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the Directors then in office shall constitute
less than a majority of the whole Board (as constituted immediately prior
to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such Directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the Directors
chosen by the Directors then in office.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or the By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if all members
of the Board or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of
the Board or committee.
SECTION 10. PARTICIPATION BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise restricted by the Certificate of Incorporation or the By-laws,
members of the Board of Directors, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute
presence in person at the meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member.
<PAGE>
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation
to be affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the Certificate
of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no
such committee shall have the power or authority to declare a dividend or
to authorize the issuance of stock. Such committee or committees shall
have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
SECTION 12. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation or the By-laws, the Board of Directors shall
have the authority to fix the compensation of Directors. The Directors may
be paid their expenses, if any, of attendance at each meeting of the Board
of Directors, may be granted stock options or other interests in the
Corporation and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or a stated salary as Director. No such payment
shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending
committee meetings.
SECTION 13. REMOVAL. Unless otherwise restricted by the Certificate
of Incorporation or the By-laws, and subject to the rights of the holders
of any series of preferred stock, any Director or the entire Board of
Directors may be removed, with or without cause, by the holders of a
majority of shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
SECTION 1. NOTICE OF MEETING. Whenever, under provisions of statute
or of the Certificate of Incorporation or of the By-laws, notice is
required to be given to any Director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing,
by mail, addressed to such Director or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall
be deposited in the United States mail. Notice to Directors may also be
given by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under provisions of statute or of the Certificate of Incorporation or
of the By-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
<PAGE>
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be the
Chairman of the Board, the Chief Executive Officer, the President, the
Secretary, the Chief Financial Officer, and the Treasurer. The Corporation
may also have, at the discretion of the Board of Directors, one or more
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other subordinate officers as the Board of Directors
may from time to time determine are required by the business of the
Corporation. Any number of offices may be held by the same person.
SECTION 2. ELECTION OF OFFICERS. The officers of the Corporation
shall be chosen by the Board of Directors, and shall serve at the pleasure
of the Board of Directors.
SECTION 3. REMOVAL AND RESIGNATION OF OFFICERS. Any officer may be
removed at any time, with or without cause or notice, by the Board of
Directors. Officers may be employed for a specified term under a contract
of employment if authorized by the Board of Directors. Such officers under
a contract of employment may be removed from office at any time under this
Section 4, and shall have no claim against the Corporation or individual
officers or Board members because of the removal except any right to
monetary compensation to which the officer may be entitled under such
contract of employment.
Any officer may resign at any time by giving written notice to the
Corporation. Resignations shall take effect on the date of receipt of the
notice, unless a later time is specified in the notice. Unless otherwise
specified in the notice, acceptance of the resignation is not necessary to
make it effective. Any resignation is without prejudice to the rights, if
any, of the Corporation to monetary damages under any contract of
employment to which the officer is a party.
SECTION 4. VACANCIES IN OFFICES. A vacancy in any office resulting
from an officer's death, resignation, removal, disqualification, or from
any other cause shall be filled in the manner prescribed in the By-laws for
regular election or appointment to that office.
SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board, when
present, shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman of the Board shall perform other duties commonly
incident to his office and shall also perform such other duties and have
such other powers as the Board of Directors shall designate from time to
time.
SECTION 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be responsible for the executive affairs of the Corporation and shall
have general management and control of the business and affairs of the
Corporation. He shall report only to the Chairman of the Board and to the
Board of Directors, and shall, in the absence of the Chairman of the Board,
preside at all meetings of the stockholders and Directors.
SECTION 7. PRESIDENT. The President shall have such duties as shall
be assigned by the Board of Directors and, unless some other person has
been elected as Chief Executive Officer, shall be the Chief Executive
Officer of the Corporation and have the powers and duties prescribed in
Section 6 of this Article V. In the absence of both the Chairman of the
Board and the Chief Executive Officer, the President shall preside at all
meetings of the stockholders or the Directors.
<PAGE>
SECTION 8. VICE-PRESIDENTS. If desired, one or more Vice-Presidents
may be chosen by the Board of Directors. In the absence or disability of
the President, the President's duties and responsibilities shall be carried
out by the highest ranking available Vice-President if Vice-Presidents are
ranked, or if not ranked, by a Vice-President designated by the Board of
Directors. When so acting, a Vice-President shall have all the powers of
and be subject to all the restrictions on the President.
SECTION 9. SECRETARY. The Secretary shall be present at all
stockholders' meetings and all Board meetings and shall take the minutes of
the meeting. If the Secretary is unable to be present, the Secretary or
the presiding officer of the meeting shall designate another person to take
the minutes of the meeting.
The Secretary shall keep, or cause to be kept, at the principal
executive office or such other place as designated by the Board of
Directors, a book of minutes of all meetings and actions of the
stockholders, of the Board of Directors, and of committees of the Board.
The minutes of each meeting shall state: the time and place the meeting
was held; whether it was regular or special; if special, how it was called
or authorized; the names of Directors present at Board or committee
meetings; the number of shares present or represented at stockholders'
meetings; and an accurate account of the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the transfer agent or registrar, a
record or duplicate record of stockholders. This record shall show the
names of all stockholders and their addresses, the number and classes of
shares held by each, the number and date of share certificates issued to
each stockholder, and the number and date of cancellation of any
certificates surrendered for cancellation.
The Secretary shall give notice, or cause notice to be given, of all
stockholders' meetings, Board meetings, and meetings of committees of the
Board for which notice is required by statute or by the By-laws. If the
Secretary or other person authorized by the Secretary to give notice fails
to act, notice of any meeting may be given by any other officer of the
Corporation.
The Secretary shall keep the seal of the Corporation, if any, in safe
custody. The Secretary shall have such other powers and perform other
duties as prescribed by the Board of Directors or by the By-laws.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept adequate and correct books and records of
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings, and shares. The books of
account shall at all reasonable times be open to inspection by any
Director.
In addition, the Chief Financial Officer shall: (1) deposit
corporate funds and other valuables in the Corporation's name and to its
credit with depositaries designated by the Board of Directors; (2) make
disbursements of corporate funds as authorized by the Board of Directors;
<PAGE>
(3) render a statement of the Corporation's financial condition and an
account of all transactions conducted as Chief Financial Officer whenever
requested by the Chief Executive Officer or the Board of Directors; (4)
have other powers and perform other duties as prescribed by the Board of
Directors or the By-laws.
SECTION 11. TREASURER. The Treasurer shall have powers and duties as
prescribed by the By-laws or the Board of Directors.
SECTION 12. SUBORDINATE OFFICERS. The powers and duties of
subordinate officers who are from time to time appointed by the Board of
Directors shall be as specified by the By-laws or the Board of Directors.
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation represented by certificates, and upon request every holder of
stock in the Corporation not represented by certificates, shall be entitled
to have a certificate, signed by, or in the name of the Corporation by, the
Chairman of the Board, or the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid
therefor, and the amount paid thereon shall be specified.
If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights
of each class of stock or series thereof and the qualification, limitations
or restrictions of such preferences and/or rights shall be set forth in
full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
<PAGE>
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 3. TRANSFER OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its books.
SECTION 4. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion or
exchange of stock for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to vote as such
owner, and to hold liable for calls and assessments a person registered on
its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
<PAGE>
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as
a reserve or reserves to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the Corporation, or for
such other purpose as the Directors shall think conducive to the interest
of the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
SECTION 2. ANNUAL STATEMENT. The Board of Directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
SECTION 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January and end on the last day of December.
SECTION 5. SEAL. The corporate seal, if any, shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6. INDEMNIFICATION. The Corporation shall indemnify its
officers, Directors, employees and agents to the fullest extent permitted
by the General Corporation Law of Delaware.
ARTICLE VIII
AMENDMENTS
The By-laws may be altered, amended or repealed or new By-laws may be
adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the Certificate of
Incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of
new By-laws be contained in the notice of such special meeting. If the
power to adopt, amend or repeal By-laws is conferred upon the Board of
Directors by the Certificate of Incorporation it shall not divest or limit
the power of the stockholders to adopt, amend or repeal By-laws.
<PAGE>
APPENDIX F
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AMPERSAND MEDICAL CORPORATION
1999 EQUITY INCENTIVE PLAN
ESTABLISHED AS OF _______ __, 1999
<PAGE>
AMPERSAND MEDICAL CORPORATION
1999 EQUITY INCENTIVE PLAN
ESTABLISHED AS OF ______ __, 1999
Page
----
Article 1. Establishment, Objectives and Duration . . . . . . . . . . . 1
Article 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 3. Administration . . . . . . . . . . . . . . . . . . . . . . . 4
Article 4. Shares Subject to the Plan and Maximum Awards. . . . . . . . 5
Article 5. Eligibility and Participation. . . . . . . . . . . . . . . . 6
Article 6. Stock Options. . . . . . . . . . . . . . . . . . . . . . . . 6
Article 7. Stock Appreciation Rights. . . . . . . . . . . . . . . . . . 8
Article 8. Restricted Stock . . . . . . . . . . . . . . . . . . . . . . 9
Article 9. Performance Units and Performance Shares . . . . . . . . . .10
Article 10. Performance Measures . . . . . . . . . . . . . . . . . . . .12
Article 11. Beneficiary Designation. . . . . . . . . . . . . . . . . . .12
Article 12. Deferrals. . . . . . . . . . . . . . . . . . . . . . . . . .13
Article 13. Retention Rights . . . . . . . . . . . . . . . . . . . . . .13
Article 14. Amendment, Modification, Termination
and Adjustments. . . . . . . . . . . . . . . . . . . . . . .13
Article 15. Payment of Plan Awards and Conditions Thereon. . . . . . . .14
Article 16. Change in Control. . . . . . . . . . . . . . . . . . . . . .14
Article 17. Withholding. . . . . . . . . . . . . . . . . . . . . . . . .16
Article 18. Indemnification. . . . . . . . . . . . . . . . . . . . . . .16
Article 19. Successors . . . . . . . . . . . . . . . . . . . . . . . . .16
Article 20. Legal Construction . . . . . . . . . . . . . . . . . . . . .17
<PAGE>
ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Ampersand Medical Corporation, a
Delaware corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Ampersand
Medical Corporation 1999 Equity Incentive Plan" (hereinafter referred to
as the "Plan"), as set forth in this document. The Plan permits the grant
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall
become effective as of _____ __, 1999 (the "Effective Date") and shall
remain in effect as provided in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to
optimize the profitability and growth of the Company through incentives
which are consistent with the Company's goals and which link the personal
interests of Participants to those of the Company's stockholders; to
provide Participants with an incentive for excellence in individual
performance; and to promote teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain the services of Participants
who make significant contributions to the Company's success and to allow
Participants to share in the success of the Company.
1.3. DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, as described in Section 1.1 hereof, and shall remain in effect,
subject to the right of the Board of Directors to amend or terminate the
Plan at any time pursuant to Article 14 hereof, until all Shares subject to
it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may an Award be granted under the Plan on
or after _______ __, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the
meanings set forth below, and when the meaning is intended, the initial
letter of the word shall be capitalized:
2.1. "AFFILIATE" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations of the Exchange Act.
2.2. "AWARD" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance
Units.
2.3. "AWARD AGREEMENT" means an agreement entered into by the
Company and each Participant setting forth the terms and provisions
applicable to Awards granted under this Plan.
2.4. "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such terms in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
<PAGE>
2.5. "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.6. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.7. "COMMITTEE" means any committee appointed by the Board to
administer the Plan, as specified in Article 3 herein.
2.8. "COMPANY" means Ampersand Medical Corporation, a Delaware
corporation, including any and all Subsidiaries and Affiliates, and any
successor thereto as provided in Article 19 herein.
2.9. "CONSULTANT" means a consultant or advisor who provides bona
fide services to the Company as an independent contractor. Service as a
Consultant shall be considered employment for all purposes of the Plan,
except for purposes of an ISO grant under Article 6.
2.10. "COVERED EMPLOYEE" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.11. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate.
2.12. "DISABILITY" shall have the meaning ascribed to such term in
the Participant's governing long-term disability plan, or if no such plan
exists, at the discretion of the Committee.
2.13. "EFFECTIVE DATE" shall have the meaning ascribed to such term
in Section 1.1 hereof.
2.14. "EMPLOYEE" means any full-time, active employee of the Company
or its Subsidiaries or Affiliates. Directors or Consultants who are not
employed by the Company shall not be considered Employees under this Plan.
2.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.16. "FAIR MARKET VALUE" shall be determined on the basis of the
average of the closing bid and asked prices for a share of Company common
stock on the Over the Counter Bulletin Board (as reported by the National
Quotation Bureau, LLC or a comparable quotation service) over the ten
trading days occurring immediately prior to the relevant date, unless the
Company common stock has become listed on the Nasdaq SmallCap Market or a
comparable market system, in which case "Fair Market Value" shall be
determined on the basis of the closing sale price at which a share of
Company common stock has been sold the regular way on the Nasdaq SmallCap
Market or comparable market system, or if there is no such sale on the
relevant date, then on the last previous day on which there was such a
sale.
<PAGE>
2.17. "FREESTANDING SAR" means an SAR that is granted independently
of any Options, as described in Article 7 herein.
2.18. "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase
Shares granted under Article 6 herein and which is designated as an
Incentive Stock Option and which is intended to meet the requirements of
Code Section 422.
2.19. "INSIDER" shall mean an individual who is, on the relevant
date, an officer, director or ten percent (10%) beneficial owner of any
class of the Company's equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the
Exchange Act.
2.20. "NON-EMPLOYEE DIRECTOR" shall mean a Director who is not also
an Employee. Service as a Non-Employee Director shall be considered
employment for all purposes of the Plan, except for purposes of an ISO
grant under Article 6.
2.21. "NON-QUALIFIED STOCK OPTION" OR "NQSO" means an option to
purchase Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.22. "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option, as described in Article 6 herein.
2.23. "OPTION PRICE" means the price at which a Share may be
purchased by a Participant pursuant to an Option.
2.24. "PARTICIPANT" means an Employee, Non-Employee Director or
Consultant who has been selected to receive an Award or who has outstanding
an Award granted under the Plan.
2.25. "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.26. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.27. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.28. "PERIOD OF RESTRICTION" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on
the passage of time, the achievement of performance goals or upon the
occurrence of other events as determined by the Committee, at its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 8 herein.
2.29. "PERSON" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
<PAGE>
2.30. "RESTRICTED STOCK" means an Award granted to a Participant
pursuant to Article 8 herein.
2.31. "RETIREMENT" shall have the meaning ascribed to such term in
the Company's tax-qualified retirement plan.
2.32. "SHARES" means the shares of common stock of the Company.
2.33. "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted
alone or, in connection with a related Option, designated as an SAR,
pursuant to the terms of Article 7 herein.
2.34. "SUBSIDIARY" means any corporation, partnership, joint venture
or other entity in which the Company has a majority voting interest
(including all divisions, affiliates and related entities).
2.35. "TANDEM SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which shall
require forfeiture of the right to purchase a Share under the related
Option (and when a Share is purchased under the Option, the Tandem SAR
shall similarly be canceled).
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by the
Compensation Committee of the Board consisting of not less than two (2)
Directors who meet the "outside director" requirements of Rule 16b-3
promulgated by the Securities and Exchange Commission under the Exchange
Act and the requirements of Code Section 162(m), or by any other committee
appointed by the Board, provided the members of such committee meet such
requirements.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select
individuals who shall participate in the Plan; determine the sizes and
types of Awards; determine the terms and conditions of Awards in a manner
consistent with the Plan; construe and interpret the Plan and any
agreement or instrument entered into under the Plan; establish, amend or
waive rules and regulations for the Plan's administration; and (subject to
the provisions of Article 14 herein) amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the
Committee may delegate its authority as identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its stockholders, Employees, Participants
and their estates and beneficiaries.
<PAGE>
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to Sections 4.2
and 4.3 herein, the maximum number of Shares with respect to which Awards
may be granted to Participants under the Plan shall be two million
(2,000,000). Shares issued under the Plan may be either authorized but
unissued Shares, treasury Shares or any combination thereof.
Unless and until the Committee determines that an Award to a Covered
Employee shall not be designed to comply with the Performance-Based
Exception, the following rules shall apply to grants of such Awards under
the Plan, subject to Sections 4.2 and 4.3.
(a) STOCK OPTIONS AND SARS: The maximum aggregate number
of Shares that may be subject to Stock Options, with or without Tandem
SARs, or Freestanding SARs, granted in any one fiscal year to any one
Participant shall be five hundred thousand (500,000).
(b) RESTRICTED STOCK: The maximum aggregate grant with
respect to Awards of Restricted Stock which are intended to qualify for the
Performance-Based Exception, and which are granted in any one fiscal year
to any one Participant shall be four hundred thousand (400,000) Shares.
(c) PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum
aggregate payout (determined as of the end of the applicable performance
period) with respect to Awards of Performance Shares or Performance Units
which are intended to comply with the Performance-Based Exception, and
which are granted in any one fiscal year to any one Participant shall be
equal to the Fair Market Value of four hundred thousand (400,000) Shares.
4.2. LAPSED AWARDS. If any Award granted under this Plan is
canceled, terminates, expires or lapses for any reason (with the exception
of the termination of a Tandem SAR upon exercise of the related Option, or
the termination of a related Option upon exercise of the corresponding
Tandem SAR), any Shares subject to such Award again shall be available for
the grant of an Award under the Plan. The foregoing notwithstanding, the
aggregate number of Shares that may be issued under the Plan upon the
exercise of ISOs shall not be increased when Restricted Stock or other
Shares are forfeited.
4.3. ADJUSTMENTS. In the event of any change in corporate
capitalization such as a stock split, or a corporate transaction such as
any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization
(whether or not such reorganization comes within the definition of such
term in Code Section 368) or any partial or complete liquidation of the
Company, such adjustment shall be made in the number and class of Shares
which may be delivered under Section 4.1, in the number and class of and/or
price of Shares subject to outstanding Awards granted under the Plan, and
in the Award limits set forth in subsections 4.1(a), 4.l(b) and 4.l(c), as
may be determined to be appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall always be a
whole number.
<PAGE>
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan
include Consultants, Non-Employee Directors and officers and certain key
salaried Employees of the Company with potential to contribute to the
success of the Company or its Subsidiaries, including Employees who are
members of the Board.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan,
the Committee may, from time to time, select from all eligible Participants
those to whom Awards shall be granted, and shall determine the nature and
amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Participants in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an
Award Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Award Agreement also
shall specify whether the Option is intended to be an ISO within the
meaning of Code Section 422, or an NQSO, whose grant is intended not to
fall under the provisions of Code Section 422.
6.3. OPTION PRICE. The Option Price for each grant of an Option
under this Plan shall be at least equal to one hundred percent (100%) of
the Fair Market Value of a Share on the date the Option is granted.
6.4. DURATION OF OPTIONS. Each Option granted to a Participant
shall expire at such time as the Committee shall determine at the time of
grant; provided, however, that no Option shall be exercisable later than
the tenth anniversary date of its grant and provided further that no Option
shall be exercisable later than the fifth anniversary date of its grant for
an ISO granted to a Participant, who at the time of such grant, owns stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not
be the same for each grant or for each Participant.
6.6. PAYMENT. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to
be exercised, accompanied by full payment for the Shares.
<PAGE>
The Option Price upon exercise of any Option shall be payable to the
Company in full in a form as determined by the Committee either: (a) in
cash or its equivalent; (b) by tendering previously acquired Shares having
an aggregate Fair Market Value at the time of exercise equal to the total
Option Price (provided that the Shares which are tendered must have been
held by the Participant for at least six (6) months prior to their tender
to satisfy the Option Price); (c) by withholding Shares which otherwise
would be acquired on exercise having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price; (d) by promissory note of
the Participant; or (e) by any combination of the foregoing methods of
payment.
The Committee may also allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable
after receipt of a written notification of exercise and full payment, the
Company shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares
purchased under the Option(s).
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of
an Option granted under this Article 6 as it may deem advisable including,
without limitation, restrictions under applicable federal securities laws,
under the requirements of any stock exchange or market upon which such
Shares are then listed and/or traded, and under any blue sky or state
securities laws applicable to such Shares.
6.8. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each
Option Award Agreement shall set forth the extent to which the Participant
shall have the right to exercise the Option following termination of the
Participant's employment or consulting arrangement with the Company. Such
provisions shall be determined in the sole discretion of the Committee,
shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for
termination of employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the
Plan may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant or
the Participant's legal representative (to the extent permitted under Code
Section 422).
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise
provided in a Participant's Award Agreement, no NQSO granted under this
Article 6 may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article 6
shall be exercisable during his or her lifetime only by such Participant or
the Participant's legal representative.
<PAGE>
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS. Subject to the terms and conditions of the
Plan, SARs may be granted to Participants at any time and from time to time
as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the
number of SARs granted to each Participant (subject to Article 4 herein)
and, consistent with the provisions of the Plan, in determining the terms
and conditions pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market
Value of a Share on the date of grant of the SAR. The grant price of
Tandem SARs shall equal the Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all
or part of the Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related Option. A
Tandem SAR may be exercised only with respect to the Shares for which its
related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO: (i) the
Tandem SAR will expire no later than the expiration of the underlying ISO;
(ii) the value of the payout with respect to the Tandem SAR may be for no
more than one hundred percent (100%) of the difference between the Option
Price of the underlying ISO and the Fair Market Value of the Shares subject
to the underlying ISO at the time the Tandem SAR is exercised; and (iii)
the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the ISO exceeds the Option Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.5. TERM OF SARS. The term of an SAR granted under the Plan shall
be determined by the Committee, in its sole discretion; provided, however,
that such term shall not exceed ten years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant
shall be entitled to receive payment from the Company in an amount
determined by multiplying:
<PAGE>
(a) the difference between the Fair Market Value of a
Share on the date of exercise over the grant price; by
(b) the number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value or in some combination thereof.
The Committee's determination regarding the form of SAR payout shall be set
forth in the Award Agreement pertaining to the grant of the SAR.
7.7. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each SAR
Award Agreement shall set forth the extent to which the Participant shall
have the right to exercise the SAR following termination of the
Participant's employment or consulting arrangement with the Company and/or
its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement
entered into with Participants, need not be uniform among all SARs issued
pursuant to the Plan and may reflect distinctions based on the reasons for
termination of employment.
7.8. NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
except as otherwise provided in a Participant's Award Agreement, all SARs
granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant or the Participant's legal
representative.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time to time, may grant
Shares of Restricted Stock to Participants in such amounts as the Committee
shall determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall
be evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted
and such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8, the
Shares of Restricted Stock granted under the Plan may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated until
the end of the applicable Period of Restriction established by the
Committee and specified in the Restricted Stock Award Agreement, or upon
earlier satisfaction of any other conditions, as specified by the Committee
in its sole discretion and set forth in the Restricted Stock Award
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime
only to such Participant or the Participant's legal representative.
8.4. OTHER RESTRICTIONS. Subject to Article 10 herein, the
Committee shall impose such other conditions and/or restrictions on any
Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, a requirement that Participants
pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional and/or individual), time-based restrictions on
vesting following the attainment of the performance goals and/or
restrictions under applicable federal or state securities laws.
<PAGE>
The Company may retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all
conditions and/or restrictions applicable to such Shares have been
satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall
become freely transferable by the Participant after the last day of the
applicable Period of Restriction.
8.5. VOTING RIGHTS. Participants holding Shares of Restricted Stock
granted hereunder may be granted the right to exercise full voting rights
with respect to those Shares during the Period of Restriction.
8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted
hereunder may be credited with regular cash dividends paid with respect to
the underlying Shares while they are so held. The Committee may apply any
restrictions to the dividends that the Committee deems appropriate.
Without limiting the generality of the preceding sentence, if the grant or
vesting of Restricted Shares granted to a Covered Employee is designed to
comply with the requirements of the Performance-Based Exception, the
Committee may apply any restrictions it deems appropriate to the payment of
dividends declared with respect to such Restricted Shares, such that the
dividends and/or the Restricted Shares maintain eligibility for the
Performance-Based Exception.
8.7. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each
Restricted Stock Award Agreement shall set forth the extent to which the
Participant shall have the right to receive unvested Restricted Shares
following termination of the Participant's employment or consulting
arrangement with the Company. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan and may reflect distinctions
based on the reasons for termination of employment; provided, however, that
except in the cases of terminations by reason of death or Disability, the
vesting of Shares of Restricted Stock which qualify for the
Performance-Based Exception and which are held by Covered Employees shall
occur at the time they otherwise would have, but for the employment
termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the
Plan, Performance Units and/or Performance Shares may be granted to
Participants in such amounts and upon such terms, and at any time and from
time to time, as shall be determined by the Committee.
<PAGE>
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall
have an initial value that is established by the Committee at the time of
grant. Each Performance Share shall have an initial value equal to the
Fair Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance
Units/Shares that will be paid out to the Participant. For purposes of
this Article 9, the time period during which the performance goals must be
met shall be called a "Performance Period."
9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of
this Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number
and value of Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES.
Payment of earned Performance Units/Shares shall be made in a single lump
sum following the close of the applicable Performance Period. Subject to
the terms of this Plan, the Committee, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable
Performance Period. Such Shares may be granted subject to any restrictions
deemed appropriate by the Committee. The determination of the Committee
with respect to the form of payout of such Awards shall be set forth in the
Award Agreement pertaining to the grant of the Award.
At the discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Shares which have been
earned in connection with grants of Performance Units and/or Performance
Shares, but not yet distributed to Participants (such dividends shall be
subject to the same accrual, forfeiture and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth
in Section 8.6 herein). In addition, Participants may, at the discretion
of the Committee, be entitled to exercise their voting rights with respect
to such Shares.
9.5. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT DUE TO
DEATH, DISABILITY OR RETIREMENT. Unless determined otherwise by the
Committee and set forth in the Participant's Award Agreement, in the event
the employment or consulting arrangement of the Participant is terminated
by reason of death, Disability or Retirement during a Performance Period,
the Participant shall receive a payout of the Performance Units/Shares
which is prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time
specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect
to Covered Employees who retire during a Performance Period, payments shall
be made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
9.6. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT FOR OTHER
REASONS. In the event the Participant's employment or consulting
arrangement terminates for any reason other than those reasons set forth in
Section 9.5 herein, all Performance Units/Shares shall be forfeited by the
Participant to the Company unless determined otherwise by the Committee, as
set forth in the Participant's Award Agreement.
<PAGE>
9.7. NONTRANSFERABILITY. Except as otherwise provided in a
Participant's Award Agreement, Performance Units/Shares may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
except as otherwise provided in a Participant's Award Agreement, a
Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Committee proposes for stockholder vote and
stockholders approve a change in the general performance measures set forth
in this Article 10, the attainment of which may determine the degree of
payout and/or vesting with respect to Awards to Covered Employees which are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from
among net income either before or after taxes, market share, customer
satisfaction, profits, share price, earnings per share, total stockholder
return, return on assets, return on equity, operating income, return on
capital or investments, or economic value added (including, but not limited
to, any or all of such measures in comparison to the Company's competitors,
the industry or some other comparator group).
The Committee shall have the discretion to adjust the determinations
of the degree of attainment of the preestablished performance goals;
provided, however, that Awards which are designed to qualify for the
Performance-Based Exception, and which are held by Covered Employees, may
not be adjusted upward (the Committee shall retain the discretion to adjust
such Awards downward).
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, the Committee shall
have sole discretion to make such changes without obtaining stockholder
approval. In addition, in the event that the Committee determines that it
is advisable to grant Awards which shall not qualify for the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of
his or her death before he or she receives any or all of such benefit.
Each such designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company
during the Participant's lifetime. In the absence of any such designation,
the Participant's beneficiary shall be paid to the Participant's estate.
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ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with
respect to Performance Units/Shares. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
ARTICLE 13. RETENTION RIGHTS
13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit
in any way the right of the Company to terminate the services of any
Participant at any time, nor confer upon any Participant any right to
continue as an Employee, Non-Employee Director or Consultant.
13.2. PARTICIPATION. No Participant shall have the right to be
selected to receive an Award under this Plan or, having been so selected,
to be selected to receive a future Award.
ARTICLE 14. AMENDMENT, MODIFICATION, TERMINATION AND ADJUSTMENTS
14.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms
of the Plan, the Board, upon recommendation of the Committee, may at any
time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part.
14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, the events
described in Section 4.3 hereof) affecting the Company or the financial
statements of the Company or of changes in applicable laws, regulations or
accounting principles, whenever the Committee determines that such
adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan; provided that unless the Committee determines otherwise, no such
adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan or Awards meeting the requirements of Code
Section 162(m), as from time to time amended.
14.3. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision
of the Plan to the contrary (but subject to Section 14.2 hereof), no
termination, amendment or modification of the Plan shall adversely affect
in any material way any Award previously granted under the Plan without the
written consent of the Participant holding such Award.
14.4. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code
Section 162(m) is applicable, all Awards granted under this Plan shall
comply with the requirements of Code Section 162(m); provided, however,
that in the event the Committee determines that such compliance is not
desired with respect to any Award or Awards available for grant under the
Plan, then compliance with Code Section 162(m) will not be required. In
addition, in the event that changes are made to Code Section 162(m) to
permit greater flexibility with respect to any Award or Awards available
under the Plan, the Committee may, subject to this Article 14, make any
adjustments it deems appropriate.
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ARTICLE 15. PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON
15.1. EFFECT OF COMPETITIVE ACTIVITY. Anything contained in the Plan
to the contrary notwithstanding, if the employment of any Participant who
is an Employee shall terminate, for any reason other than death, while any
Award to such Participant is outstanding hereunder, and such Participant
has not yet received the Shares covered by such Award or otherwise received
the full benefit of such Award, such Participant, if otherwise entitled
thereto, shall receive such Shares or benefit only if, during the entire
period from the date of such Participant's termination to the date of such
receipt, such Participant shall have earned out such Award by: (i) making
himself or herself available, upon request, at reasonable times and upon a
reasonable basis, to consult with, supply information to, and otherwise
cooperate with the Company or any Subsidiary or Affiliate thereof with
respect to any matter that shall have been handled by him or her or under
his or her supervision while he or she was in the employ of the Company or
of any Subsidiary or Affiliate thereof; and (ii) refraining from engaging
in any activity that is directly or indirectly in competition with any
activity of the Company or any Subsidiary or Affiliate thereof.
15.2. NONFULFILLMENT OF COMPETITIVE ACTIVITY CONDITIONS; WAIVERS
UNDER THE PLAN. In the event of a Participant's nonfulfillment of any
condition set forth in Section 15.1 hereof, such Participant's rights under
any Award shall be forfeited and canceled forthwith; provided, however,
that the nonfulfillment of such condition may at any time (whether before,
at the time of, or subsequent to termination of employment) be waived by
the Committee upon its determination that in its sole judgment there shall
not have been and will not be any substantial adverse effect upon the
Company or any Subsidiary or Affiliate thereof by reason of the
nonfulfillment of such condition.
15.3. EFFECT OF INIMICAL CONDUCT. Anything contained in the Plan to
the contrary notwithstanding, all rights of a Participant under any Award
shall cease on and as of the date on which it has been determined by the
Committee that such Participant at any time (whether before or subsequent
to termination of such Participant's employment in the case of a
Participant who is an Employee) acted in manner inimical to the best
interests of the Company or any Subsidiary or Affiliate thereof.
ARTICLE 16. CHANGE IN CONTROL
16.1. DEFINITION. For purposes of this Plan, a "Change in Control"
of the Company is deemed to have occurred as of the first day that any one
or more of the following conditions shall have been satisfied:
(a) the "Beneficial Ownership" of securities representing more
than thirty-three percent (33%) of the combined voting power of the Company
is acquired by any "person" as defined in Section 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company); or
<PAGE>
(b) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another
corporation or to sell or otherwise dispose of all or substantially all of
its assets, or adopt a plan of liquidation; or
(c) during any period of three (3) consecutive years,
individuals who at the beginning of such period were members of the Board
cease for any reason to constitute at least a majority thereof (unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of such
period or whose election or nomination was previously so approved).
16.2. TREATMENT OF OUTSTANDING AWARDS. Subject to Section 16.3
herein, upon the occurrence of a Change in Control:
(a) any and all Options and SARs granted hereunder shall become
immediately exercisable and shall remain exercisable throughout their
entire term;
(b) any restriction periods and restrictions imposed on
Restricted Stock which are not performance-based shall lapse; and
(c) the target payout opportunities attainable under all
outstanding Awards of performance-based Restricted Stock, Performance Units
and Performance Shares shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change in
Control. The vesting of all Awards denominated in Shares shall be
accelerated as of the effective date of the Change in Control, and there
shall be paid out to Participants within thirty (30) days following the
effective date of the Change in Control a pro rata number of Shares (or
their cash equivalents) based upon an assumed achievement of all relevant
targeted performance goals and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control.
Awards denominated in cash shall be paid pro rata to Participants in cash
within thirty (30) days following the effective date of the Change in
Control, with the proration determined as a function of the length of time
within the Performance Period which has elapsed prior to the Change in
Control, and based on an assumed achievement of all relevant targeted
performance goals.
16.3. TERMINATION, AMENDMENT AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 16 may not be
terminated, amended or modified on or after the date of an event which is
likely to give rise to a Change in Control to affect adversely any Award
theretofore granted under the Plan without the prior written consent of the
Participant with respect to said Participant's outstanding Awards.
<PAGE>
16.4. POOLING OF INTEREST ACCOUNTING. Notwithstanding anything
contained in the Plan to the contrary, in the event that the consummation
of a Change in Control is contingent on using pooling of interests
accounting methodology, the Board may, in its discretion, take any action
necessary to preserve the use of pooling of interests accounting.
ARTICLE 17. WITHHOLDING
17.1. TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state and local taxes,
domestic or foreign, required by law or regulation to be withheld with
respect to any taxable event arising as a result of this Plan.
17.2. SHARE WITHHOLDING. With respect to withholding required upon
the exercise of Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of
Awards granted hereunder, Participants may elect, subject to the approval
of the Committee, to satisfy the withholding requirement, in whole or in
part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total
tax which could be imposed on the transaction. All such elections shall be
irrevocable, made in writing, and signed by the Participant, and shall be
subject to any restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
ARTICLE 18. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or
of the Board, shall be indemnified and held harmless by the Company against
and from any loss, cost, liability or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by him or
her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit or proceeding
against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or
she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of law or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
ARTICLE 19. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation or otherwise, of all or substantially all
of the business or assets of the Company.
<PAGE>
ARTICLE 20. LEGAL CONSTRUCTION
20.1. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine,
the plural shall include the singular, and the singular shall include the
plural.
20.2. SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
20.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance
of Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
20.4. SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
20.5. GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of California.
