SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission file number 0-935
BELL NATIONAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
California 94-1451828
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
900 North Franklin Street, Suite 210, Chicago, IL 60610
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (312) 640-8810
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K. [ ]
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The aggregate market value of the Common Stock held by non-affiliates of
the Company as of March 30, 1999 was $3,112,393 based upon the average bid
and asked prices of shares of the Company's Common Stock, no par value per
share ("Common Stock"), of $0.325 per share as reported in the Electronic
Bulletin Board. The number of shares of Common Stock outstanding as of
March 30, 1999 was 11,982,142.
The following document is incorporated by reference into Part III of this
Form 10-K:
Bell National Corporation Proxy Statement, relating to the 1999
annual meeting of shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Company is a development-stage entity primarily engaged in the
design, development and marketing of a series of instruments, disposables,
and tests to provide "Point of Care" enhanced cervical cancer screening.
The Company also designs, develops and markets software-based systems to
provide analysis of images on microscopic slides and to electronically
exchange images and related data with remote locations.
Bell National Corporation ("Bell National," and together with its
subsidiaries, the "Company") was incorporated in California on October 1,
1958. Through 1985, its principal subsidiary was Bell Savings and Loan
Association ("Bell Savings"), a state-chartered savings and loan
association. On July 25, 1985, the Federal Home Loan Bank Board appointed
the Federal Savings & Loan Insurance Corporation (the "FSLIC") as receiver
of Bell Savings. At the same time, the assets of Bell Savings were
transferred to a new, unrelated, federally chartered mutual savings and
loan association, Bell Federal. The FSLIC's appointment followed shortly
after a determination that Bell Savings had a negative net worth. On
August 20, 1985, the Company filed a voluntary petition under Chapter 11 of
the Bankruptcy Code. A Plan of Reorganization (the "Plan") was approved by
the Bankruptcy Court, and became effective June 29, 1987.
After emerging from bankruptcy proceedings in June 1987, and a vote
by shareholders to continue the operations of the Company in October 1988,
the Company reached an agreement (the "Stock Purchase Agreement") in 1989
with Milley Management Incorporated ("MMI"), a private investment firm,
whereby the Company sold to a group of private investors (including MMI)
Common Stock, no par value (the "Common Stock"), totaling approximately 41%
of the outstanding voting shares on a fully diluted basis.
On June 15, 1990, the Company purchased 100% of the Common Stock of
Payne Fabrics, Inc. a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of
stock appreciation rights ("SAR's").
On August 4, 1997 Payne Fabrics, Inc. sold substantially all of its
assets and most of its liabilities related to the business of designing and
distributing decorative drapery and upholstery fabrics to Westgate Fabrics,
Inc. ("Westgate"), an unaffiliated third party (the "Asset Sale"). The
Asset Sale included the transfer to the buyer of the use and rights to the
Payne Fabrics name, and accordingly, Payne Fabrics, Inc., changed its name
to PFI National Corporation ("PFI"). On August 4, 1997 all of PFI's
operations were ceased. Since that time, the Company and its subsidiaries
PFI, Bell Savings, and Pacific Coast Holdings Insurance Company have had no
business operations, other than administrative activities, or any
substantial assets or liabilities other than cash and investments. At the
beginning of December 1998, the Company had approximately $1 million
dollars in cash and investments.
On December 4, 1998, the Company acquired InPath, LLC ("InPath"), a
development-stage company engaged in the design and development of a
proprietary "Point of Care" system, including sample collection devices and
a series of instruments, used in the cervical cancer screening process. The
system also has applications in other point of care cancer screening
programs. In the acquisition, the Company issued 4,288,790 shares of
Common Stock and warrants to purchase 3,175,850 shares of Common Stock to
the members of InPath in exchange for their units of membership interest in
InPath, and the senior executives of InPath assumed management control of
the Company. The warrants were issued with the right to covert subject to
the authorization by shareholders of an increase in the authorized capital
stock of the Company. In conjunction with the acquisition certain
shareholders of the Company, comprising holders of more than 50% of the
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outstanding Common Stock, agreed to vote their shares in favor of
increasing the authorized shares of Common Stock, to elect a slate of
directors recommended by former InPath members and original Company
shareholders, and to appoint former InPath executive officers to executive
officer positions with the Company. After the transaction, the former
members of InPath held approximately 36% of the Common Stock then
outstanding, and will hold approximately 50% of the Common Stock
outstanding after conversion of all warrants issued in the transaction.
Based upon the terms of the acquisition agreement, for financial reporting
and accounting purposes the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company.
However, the Company is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax filing
purposes. Since the Company was a non-operating public shell company with
nominal assets and InPath was a private operating company, the acquisition
has been recorded as the issuance of stock for the net monetary assets of
the Company accompanied by a recapitalization, and no goodwill or other
intangible assets were recorded.
On December 15, 1998, the Company formed a wholly owned Delaware
subsidiary, Ampersand Medical Corporation ("Ampersand"), for the primary
purpose of reincorporating the Company in Delaware. Subject to approval by
the Company's shareholders, the Company may be merged into Ampersand during
1999, with Ampersand as the surviving corporation. Ampersand would become
the parent corporation of the Company's subsidiaries at the time of
reincorporation.
In December 1998 the Company formed a French limited liability
company subsidiary, Samba Technologies SARL ("Samba Technologies" or
"Samba"), for the purpose of acquiring the automated image cytometry and
telemedicine technology used in the business of the Samba department of
Unilog Regions SA, a French company engaged in the design, development, and
installation of commercial software programs and networks for business
applications. Samba Technologies completed the acquisition of the Samba
department's assets on January 4, 1999, and at the same time entered into
employment arrangements with former Samba department employees. Since the
acquisition, Samba Technologies has continued to develop and market the
cytometry and telemedicine products previously developed and marketed by
the Samba department.
RECENT DEVELOPMENTS
On March 1, 1999, the Company received a $500,000 cash investment from
Seaside Partners, L.P. ("Seaside Partners"), a hedge fund, for a $500,000
convertible note issued by the Company to Seaside Partners. The note will
automatically convert into approximately 1,515,000 shares of Common Stock
if certain conditions are met, including the approval by the Company's
shareholders of an increase in the number of authorized shares of Common
Stock. A director of the Company, Denis M. O'Donnell, is a member and a
manager of Seaside Advisors, L.L.C., a firm which provides investment
management services to Seaside Partners.
In March 1999, the Company signed a Letter of Intent to acquire a
license and certain assets related to the AcCell Automated Cytology System,
a line of automated microscopy workstations and related software that
allows more controlled and precise review of microscopic slides, from
AccuMed International, Inc. The license is to be exclusive for certain
market segments and non-exclusive for others. The licensed products will
consist of the AcCell series 2000 and 2001 instruments and the AcCell 3000
fully integrated instrument, along with the AccuTech microscope frame, a
proprietary computer mouse, and all related technology and documentation.
The Company also agreed to purchase certain assets related to the licensed
technology, including inventories of instruments and related component
parts, and agreed to assume responsibility for AccuMed's current product
user base and any pending installations or open quotations.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment involving medical
devices and supplies. All of the Company's operations during the reporting
period were conducted within this segment. The Samba department of Unilog
Regions SA, which was acquired by the Company on January 4, 1999, has
historically operated in the same industry segment. The Company expects to
continue to focus its operations on this industry segment.
DESCRIPTION OF BUSINESS
The Company believes that improved patient care and reduced
healthcare delivery costs can be achieved by creating "Point of Care"
screening and diagnostic services linked to a patient medical information
system. The Company's goal is to deliver turnkey enterprise solutions,
which improve patient care while providing the healthcare professional with
a financial, profit or cost-control incentive and the opportunity for
better overall patient management. The Company intends to accomplish its
goal through internal product development, strategic partnerships, and
acquisitions of companies or technologies which relate to the Company's
products, markets, or operating model. Management anticipates that the
Company will incur substantial operating losses until it is able to
successfully market its full range of products.
PRODUCTS. The Company's operating subsidiary InPath is focused on
the design, development, and marketing of a series of instruments,
disposables, and tests to provide "Point of Care" enhanced cervical cancer
screening. The products currently under development consist of proprietary
sample collection devices, and a series of in-vitro and in-vivo instruments
used to analyze the collected samples by employing a series of biomolecular
markers or probes to assist in the analysis process. The system may also
be used for specific sampling and analysis of atypical cellular specimens
for the early detection of oral, gastrointestinal, urological, esophageal,
and other forms of cancer. The Company anticipates that it will have
prototypes of its sample collection devices available for testing early in
the second quarter of 1999. The design specifications for the proprietary
in-vitro mapping and analysis instrument have been completed and the
Company expects to award a contract for the design and manufacture of the
instrument during the second quarter of 1999. The Company has completed
work on certain potential biomolecular markers using samples from
approximately 100 patients. The process of marker identification and
refinement of process will continue in parallel with the instrument
development work. The Company anticipates that it will be required to
invest a substantial amount of capital in the research and development
process in order to complete these products and introduce them into the
market. These products are likely to be subject to regulation by the
United States Food & Drug Administration (the "FDA") and by various other
regulatory agencies throughout the world.
The Company's operating subsidiary Samba Technologies designs,
develops and markets software-based systems for clinical and industrial
applications. One software suite package, which can be employed on a
variety of computer, imaging, and automated microscopy platforms, provides
image analysis of material on microscopic slides yielding information on
DNA, cell morphometry, densitometry, karyotyping (chromosome
classification), colony counting, etc. A second software suite allows the
user to share images and related data for research, clinical and
educational purposes. This package has applications in tele-radiology,
tele-pathology and other areas where the need for images is critical to the
analysis process, such as angiography, ultrasound procedures, and endoscopy
procedures. It can be matched to a wide variety of image capture
instruments or devices. The product can employ either static, historical,
or dynamic images. Samba also provides installation, interface, network,
and internet consulting services to the users of its software products.
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BACKLOG ORDERS. At March 26, 1999, Samba had a backlog of contracts
to be completed within the next twelve months amounting to 2,500,000 French
Francs, or approximately $425,000. In addition Samba has been notified that
it was the successful bidder on additional contracts valued at 2,100,000
French Francs, or approximately $350,000. Samba expects to be formally
awarded these contracts during the second quarter of 1999. Samba currently
has contract quotes outstanding of approximately 11,000,000 French Francs,
or approximately $1,800,000. The Company has no assurance that Samba will
be the successful bidder on any of its outstanding quotes.
MARKETS AND DISTRIBUTION. The Company markets or plans to market its
product lines to hospitals, clinics, managed care organizations, office-
based clinicians, and government health organizations on a worldwide basis.
The Company intends to complete development of the InPath "Point of Care"
collection system and the in-vitro screening instrument (as a collection
and cervical tract mapping system only) in time to begin beta site
marketing in selected countries outside the U.S. in late 1999. The Company
intends to introduce the products into the U.S. market, subject to
clearance by the FDA, as soon as practicable, but not before 2000. The
Company intends to have the analysis portion of the in-vitro instrument
ready for distribution in markets outside the U.S. as soon as practicable,
but not before the third quarter of 2000, and in the U.S., as soon as
practicable, but not before the end of year 2000's fourth quarter.
The Company plans to distribute its InPath "Point of Care" products
in the U.S. through a strategic partner relationship with a company having
a significant position in the OB/GYN marketplace and a strong direct sales
organization. Internationally, the Company will seek a distribution
partner that has similar characteristics. The Company is currently in
discussions with several strategic partner candidates. The Company intends
to directly market its InPath products to managed care organizations,
governments, and world health bodies.
The Company currently markets its Samba product line through a direct
sales force in Europe and through a distribution arrangement in the U.S.,
Canada, and Central and South America. The Company is adding to its direct
European sales force and is seeking other distribution partners for
specific territories.
COMPETITION. Historically, competition in the healthcare industry
has been characterized by the search for technological innovations and
efforts to market such innovations. The Company believes that it may
benefit from the technological innovations incorporated in certain of its
products. While competitors may introduce new products which compete with
those the Company sells or intends to sell, the Company believes that its
research and development efforts will permit it to remain or become
competitive in all of the markets in which it presently sells or plans to
sell its products. The competition the Company faces in these markets is
substantial, however, and there can be no assurance that the technological
innovations of the Company's products will afford the Company the
competitive advantages it predicts.
The market for the Company's cancer screening and diagnostic product
line is highly competitive. The Company is unaware of any other companies
that are duplicating its efforts to develop a point-of-care collection,
mapping, and in-vitro analysis and diagnostic system for cervical cancer
screening. There are a number of companies attempting to develop an in-
vivo system to differentiate between cancerous, pre-cancerous and normal
tissue. Potential competition for the Company's InPath "Point of Care"
products includes many companies with financial, marketing, and research
and development resources substantially greater than those of the Company.
Similarly, the image analysis and tele-medicine markets, in which the
Company's Samba products are sold, are highly competitive. Several
American and foreign companies are developing and marketing products that
compete directly with Samba's products and services.
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With regard to all of its products, the Company believes that it must
compete primarily on the basis of functionality, product features and
effectiveness of the product in standard medical practice. The Company
also believes that cost control and cost effectiveness are additional key
factors in achieving or maintaining a competitive advantage. Accordingly,
the Company focuses a significant amount of effort in its product
development process on producing systems and tests which do not add to
overall healthcare cost.
OPERATIONS. The Company currently engages in research and
development work at its facilities in Chicago, Illinois and on a contract
basis at additional locations in Illinois and in Cleveland, Ohio. The
Company does not currently engage directly in manufacturing products and it
intends to utilize the operations of a strategic partner for its future
instrument manufacturing requirements. The Company conducts research and
development work on its Samba software products at its facility in
Grenoble, France. The Samba software products are installed and integrated
with off-the-shelf computer and imaging components at the customer's
location or in the Grenoble facility immediately prior to delivery of the
products. Consulting services are generally performed at the customer's
location or at the Grenoble facility using customer data and communication
access.
INTELLECTUAL PROPERTY. In order to secure its intellectual property
rights, the Company relies on a combination of patents, licensing
arrangements, trade names, trademarks, know-how, proprietary technology,
and policies and procedures for maintaining the secrecy of its trade
secrets, know-how and proprietary technology. The Company considers such
security and protection to be material to the successful marketing of its
products in the U.S. and in most of the foreign markets the Company has
entered or may enter in the future.
The Company has filed three provisional patent applications covering
components of its InPath "Point of Care" cervical cancer screening system.
The Company is the exclusive licensee of AccuMed International, Inc. for an
additional patent application and certain other know-how and trade secrets
covering the "Point of Care" system. The Company purchased this license for
cash, future royalties, and other consideration. The Company is required to
make minimum annual royalty payments beginning in 1999 in order to maintain
its exclusive license to the patent application and related technology.
The Company's Samba software and technology consists primarily of
trade secrets and know-how and technical documentation.
The Company is continuing to prepare additional patent applications.
Since patent applications in the United States are maintained in secrecy
until patents issue, and since publications of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by
several months, the Company cannot be certain whether it or another patent
applicant was the first to create inventions covered by pending patent
applications or the first to file patent applications for such inventions.
Protections relating to portions of technologies covered by such pending
patent applications may be challenged or circumvented by competitors, and
other portions may be in the public domain or protectable only under state
trade secret laws.
Worldwide, all of the Company's important products are or will be
sold under trademarks that the Company considers to be, in the aggregate,
material to the Company's business. The Company owns the Samba trademark
and trade names of Samba, InPath, and Ampersand Medical Group. The Company
may file additional U.S. and foreign trademark applications in the future
and the Company will focus its acquisition efforts on technologies which
have strong patent or trade secret protection.
<PAGE>
There can be no assurance that any patent or trademark registration
issued or which may be issued to the Company will provide the Company with
significant competitive advantages. Further, there can be no assurance
that any patent application which may be applied for by or for the benefit
of the Company will be granted or that challenges will not be instituted
against the validity or enforceability of any such patent application and,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity of a patent or patent application, or to
prevent infringement, could be substantial even if the Company were to
prevail. Furthermore, there can be no assurance that others will not
independently develop similar technologies or products, duplicate the
Company's technology or design around the patented aspects of the Company's
products. The protection afforded by patents depends upon a variety of
factors which may severely limit the value of the patent protection,
particularly in foreign countries. The Company intends to protect much of
the core technology it now possesses or will later develop as trade
secrets, rather than to rely on patents, either because patent protection
is not possible or, in management's opinion, would be less effective than
maintaining secrecy. To the extent that it relies on trade secret
protection, there can be no assurance that the Company's efforts to
maintain secrecy will be successful or that third parties will not be able
to develop the technology independently. The Company expects to register
the various trademarks associated with its collection and diagnostic
system, but there can be no assurance that if registered any such
registration or use of it will not be challenged by third parties, or that
if challenged, such third parties will not prevail.
GOVERNMENT REGULATION. The development, manufacture, sale, and
distribution of the Company's products are regulated by state and federal
authorities, including the FDA and comparable authorities in certain states
and other countries. In the U.S., the Food, Drug, and Cosmetic Act (the
"FD&C Act") and regulations promulgated under it apply to the Company's
product's. The FD&C Act provides that many of the Company's products
cannot be shipped in interstate commerce without prior authorization from
the FDA. Such authorization is based on a review by the FDA of the
product's safety and effectiveness for its intended uses. Medical devices
may be authorized by the FDA for marketing in the U.S. either pursuant to a
pre-market notification under Section 510(k) of the FD&C Act (a "510(k)
Notification") or a pre-marketing approval application (a "PMA"). The
process of obtaining FDA marketing clearance and other applicable
regulatory authorities may be costly and there can be no guaranty that the
process will ultimately be successful. FDA 510(k) Notification
applications and PMA's typically require preliminary internal studies,
field studies, and/or clinical trials, in addition to an FDA submission.
A 510(k) Notification, among other things, requires an applicant to
show that its products are "substantially equivalent" in terms of safety
and effectiveness to an existing FDA-cleared predicate product. An
applicant may only market a product submitted through a 510(k) Notification
after the FDA has issued a written clearance determining the product has
been found to be substantially equivalent.
To obtain a PMA for a device, an applicant must demonstrate,
independently of other like devices, that the device in question is safe
and effective for its intended uses. A PMA must be supported by extensive
data, including pre-clinical and clinical trial data, as well as extensive
literature to prove the safety and effectiveness of the device. It usually
takes the FDA substantially longer to grant a PMA than to grant a 510(k)
Notification. During the review period, the FDA may conduct extensive
reviews of the Company's facilities, deliver multiple requests for
additional information and clarifications, and convene advisory panels to
assist in its determination.
The FD&C Act generally bars advertising, promoting, or otherwise
marketing medical devices that the FDA has not approved or cleared.
Moreover, FDA enforcement policy strictly prohibits the promotion of
learned or approved medical devices for non-approved or "off-label" uses.
In addition, product clearances or approvals may be withdrawn for failure
to comply with regulatory standards.
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The Company's current and prospective overseas operations are also
subject to a significant degree of government regulation. Many countries,
directly or indirectly through reimbursement limitations, control the
selling price of most healthcare products. Furthermore, many developing
countries limit the importation of finished products. International
regulations are having an impact on U.S. regulations as well. The
International Organization for Standardization (the "ISO") sets the
standards regulating medical devices within the European Union. The FDA
recently adopted regulations governing the manufacture of medical devices
that appear to encompass and exceed the ISO's approach to regulating
medical devices. The FDA's adoption of the ISO's approach to regulation
and other changes to the manner in which the FDA regulates medical devices
will increase the cost of compliance with those regulations.
The Company will likely be subject to certain registration, record-
keeping and Medical Device Record reporting requirements, and the Company's
manufacturing facilities, if any, may be obligated to follow the FDA's
Quality System Regulation and may be subject to periodic FDA inspections.
Any failure to comply with the Quality System Regulation or any other FDA
or other government regulations could have a material adverse effect on the
Company's operations.
For sale and use in the United States, the Company's InPath products
will need to be cleared for marketing by the FDA as described above. There
can be no assurance that the FDA or other governmental agencies will clear
the InPath products or the advertising or delivery of those products.
Internationally, the InPath products may be subject to various government
regulations. Such current or potential regulations may delay the
introduction of new products and services and adversely affect the
Company's cost of doing business.
The Company's InPath "Point of Care" products may also be subject to
regulation in the United States under the Clinical Laboratory Improvement
Act (CLIA). Under this Act, diagnostic products are classified into one of
three categories depending on the user skill required to perform and
interpret the test; the potential for the test to produce an incorrect
result; and the potential risks presented by such an incorrect result. Any
laboratory or other site that performs clinical diagnostic testing is
required to be licensed under one of three levels corresponding to the
classification categories. Laboratories or sites are permitted to perform
only those diagnostic tests that are classified at or below the level at
which the laboratory is licensed.
The Company is developing its InPath "Point of Care" products to be
user-friendly, require minimum operator training, and have safety and
operating checks built into the functionality of the instruments. The
Company believes its efforts will result in the lowest possible
classification by the Center for Disease Control (CDC), the agency
responsible for classification of diagnostic devices under CLIA. However,
there can be no assurance that the CDC will assign the InPath "Point of
Care" products to the expected classification. CDC classification of the
products into a higher category may have a significant impact on the
Company's ability to market the product in the United States.
Although the Company currently sells Samba products in the United
States, expanding their sales for use in certain clinical applications may
require FDA clearance. Waiting for such approval would likely delay the
sales of these products into certain clinical applications in the U.S.
market and increase the Company's cost of doing business. Samba currently
has all required regulatory approvals in France, but may have to apply for
regulatory approval in other countries in order to market its products
outside France. There can be no assurance that Samba will be able to
obtain any regulatory approvals necessary to expand its market.
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RESEARCH AND DEVELOPMENT. The Company focuses its research and
development efforts on introducing new products as well as enhancing the
Company's existing products. The Company utilizes both in-house and
contracted research and development efforts. The Company believes that a
commitment to research and development is critical to its ability to
achieve its goals. During the nine and one-half month period between
InPath's inception and December 31, 1998, expenditures for research and
development were approximately $181,000. Research and development
expenditures by the Samba department of Unilog Regions, SA were $163,000
and $128,000 respectively for the two fiscal years ending December 31, 1998
and 1997 prior to its acquisition by the Company on January 4, 1999.
COMPONENTS AND RAW MATERIALS. The Company stresses product
development focused on low-cost, easily accessible product components. The
Company's Samba products are compatible with various off-the-shelf
computers, computer components, microscopes, and imaging equipment.
WORKING CAPITAL PRACTICES. The Company's working capital practices
are comparable to those of other market participants. Collection periods
tend to be longer for sales of Samba products outside France than for sales
of Samba products inside France. Similarly, the Company believes that
collection periods for any future international sales of the Company's
U.S.-made products may prove longer than for domestic sales of such
products.
EMPLOYEES. As of March 23, 1999, the Company and its subsidiaries
employed a total of 17 full-time employees in the United States and France.
The Company's employees in France are represented by a national labor union
(customary to all French workers), and the Company considers its relations
with its employees to be good.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements throughout this report that are not historical facts,
including but not limited to statements in this Item 1 and statements
contained in material incorporated into this report by reference, are
forward-looking statements. These statements are based on the Company's
current expectations and involve many risks and uncertainties. Some of
these risks and uncertainties are factors that affect all international
businesses, while others are specific to the Company and the areas of the
medical products industry in which it operates.
The factors below in some cases have affected and could affect the
Company's actual results, causing results to differ, possibly materially,
from those expressed in this report's forward-looking statements. These
factors include: economic conditions; technological advances in the
medical field; demand and market acceptance risks for new and existing
products, technologies, and healthcare services; the impact of competitive
products and pricing; manufacturing capacity; new plant start-ups; U.S. and
international regulatory, trade, and tax policies; product development
risks, including technological difficulties; ability to enforce patents;
and unforeseen foreign regulatory and commercialization factors.
Currency fluctuations are also a significant variable for global
companies. If the value of the U.S. dollar strengthens relative to the
currencies of the countries in which the Company markets or intends to
market its products, the Company's ability to achieve projected sales and
net earnings in such countries could be adversely affected.
The Company believes that its expectations with regard to forward-
looking statements are based upon reasonable assumptions within the bounds
of its knowledge of its business and operations, but there can be no
assurance that the actual results or performance of the Company will
conform to any future results or performance expressed or implied by such
forward-looking statements.
<PAGE>
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company's operations outside the U.S. are currently conducted
primarily through Samba Technologies. The Company had no direct foreign
sales or operations in 1998. Sales by the Samba department of Unilog
Regions SA outside the U.S. represented approximately 90% of sales for the
years ended December 31, 1998 and 1997, the two fiscal years prior to its
acquisition by the Company. The Company's worldwide business is subject to
risks of currency fluctuations, governmental actions and other governmental
proceedings abroad. The Company does not regard these risks as a deterrent
to further expansion of its operations abroad. However, the Company
closely reviews its methods of operations and adopts strategies responsive
to changing economic and political conditions in countries it seeks to
operate in. The ongoing integration of the European market continues to
offer opportunities to businesses operating within the European Union, and
the Company hopes to take advantage of these opportunities to improve the
efficiency and productivity of its operations there.
ITEM 2. PROPERTIES
The Company, Ampersand and InPath currently share space leased by
InPath at 900 North Franklin Street, Suite 210, Chicago, Illinois 60610,
under a lease which expires April 30, 2003. This address houses the
executive offices of the Company, Ampersand and InPath, as well as
engineering and research and development facilities of InPath. Before
December 4, 1998 the Company's executive offices were located at 3600 Rio
Vista Avenue, Suite A, Orlando, Florida 32805. Samba leases space in
Grenoble, France, under a temporary arrangement with Unilog Regions SA
which expires June 4, 1999. Samba uses its facility at this address for
administration, marketing and sales, and research and development
activities.
The Company considers all of its facilities to be well utilized, well
maintained, and in good operating condition. It considers the facilities to
be suitable for their intended purposes, and to have capacities and
projected capacities adequate to meet current and projected needs for the
Company's existing products.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal
proceeding, nor is any of the Company's property the subject of any
material legal proceeding. The Company is not aware of any such legal
proceeding being contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter of 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
There is presently no established public trading market for the
Common Stock of the Company and trading activity is limited. The Common
Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
"BLBN."
The following table sets forth the high and low bid quotations per
share of Common Stock for the periods indicated, as reported by the
National Quotation Bureau, LLC. These quotations represent prices between
dealers, do not include retail mark-ups, mark-downs, or commissions, and do
not represent actual transactions.
BID RANGE OF
COMMON STOCK
-----------------
YEAR ENDED DECEMBER 31, 1998: HIGH LOW
- ---------------------------- ---- ---
1st Quarter $.05 $.05
2nd Quarter $.05 $.05
3rd Quarter $.05 $.05
4th Quarter $.38 $.05
YEAR ENDED DECEMBER 31, 1997: HIGH LOW
- ---------------------------- ---- ---
1st Quarter $.05 $.05
2nd Quarter $.05 $.05
3rd Quarter $.05 $.05
4th Quarter $.05 $.05
HOLDERS
As of March 30, 1999 there were approximately 1,082 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid a cash dividend and the Board of Directors
is not contemplating paying one at this time.
<PAGE>
STOCK TRANSFER AGENT
The Company's stock transfer agent is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004, phone (212) 509-4000.
RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
On December 4, 1998, pursuant to a Stock and Membership Interest
Exchange Agreement of the same date, the Company issued a total of
4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares
of Common Stock to eight members of InPath in exchange for their units of
membership interest in InPath. The warrants issued to the InPath members
have a conversion price of $.001 per share and are not currently
exercisable because the Company has an insufficient number of authorized
shares of Common Stock to issue upon their exercise. They will only become
exercisable if shareholders of the Company approve a proposal to increase
the number of authorized shares. In conjunction with the acquisition,
persons holding more than 50% of the outstanding shares of Common Stock
agreed to vote their shares in favor of such a proposal. Through this
transaction the Company acquired all of the units of membership interest in
InPath, whose assets consisted of computer equipment, laboratory equipment,
leasehold improvements, office furniture and equipment, telecommunications
equipment, technology license, patent applications and trademarks. The
Company's Board of Directors determined that these assets, in the
aggregate, were appropriate consideration for the shares issued to the
InPath members, given the assets' intrinsic value as well as the favorable
business opportunity which entry into the medical device industry offers
the Company.
Also on December 4, 1998, pursuant to a Claims Settlement Agreement
of the same date, the Company issued shares of Common Stock to each of two
individuals and two corporations in settlement of debts that the Company
owed them. In the transaction, the Company issued: 210,000 shares of
Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him
for his services as Chairman of the Board and Secretary of the Company
under an Employment Agreement dated November 20, 1989; 463,333 shares of
Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him for
his services as President and Treasurer of the Company under an Employment
Agreement dated November 20, 1989; 600,000 shares of Common Stock to Cadmus
Corporation ("Cadmus") to settle a debt of $180,000 owed to it for
management services provided to the Company; and 503,333 shares of Common
Stock to MMI to settle a debt of $151,000 owed to it as rent for office
space and as payment for management services provided to the Company.
In both the acquisition of InPath and the settlement of the Claims,
the Company was exempted from registering the issued shares of Common Stock
under the Securities Exchange Act of 1933 (the "Securities Act") because
both transactions qualified as offerings by an issuer not involving a
public offering under Section 4(2) of the Securities Act. In both
transactions, the recipients of the shares were accredited investors. In
connection with neither transaction did the Company engage in any general
solicitation or advertising.
On March 1, 1999, the Company sold a 6% Convertible Subordinated Note
Due 2000 to Seaside Partners in the principal amount of $500,000, pursuant
to a Note Purchase Agreement between the Company and Seaside Partners. The
note bears interest at the rate of 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 million from any
debt or equity offerings, excluding the $1,500,000 currently authorized by
the Board of the Company to be raised through debt or equity offerings.
The note provides that Seaside Partners has the option of converting the
note into shares of Common Stock at any time after a sufficient number of
<PAGE>
shares Common Stock have been authorized for issuance. The conversion
price of the note is $0.33 per share, subject to being lowered based on
certain circumstances related to the pricing of future debt or equity
offerings, but in no event lowered below $0.20 per share. Denis M.
O'Donnell, who is a director and a nominee for director of the Company, is
a member and a manager of Seaside Advisors, L.L.C., a firm which provides
investment management services to Seaside Partners. The parties relied
upon Regulation D to exempt the sale of the note to Seaside Partners from
registration under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data is derived from, and qualified by
reference to, the audited Consolidated Financial Statements and Notes
included elsewhere in this Annual Report on Form 10-K.
The following table sets forth the selected financial data as of the
date shown and for the period shown:
For the Period from March 16, 1998 through December 31, 1998
(Dollar amounts in thousands, except per-share data)
STATEMENT OF OPERATIONS DATA:
Net Sales $0
Operating (Loss) ($783)
Net (Loss) ($789)
PER-SHARE DATA:
Net (Loss) ($0.07)
Weighted-average shares outstanding 12,000,000
BALANCE SHEET DATA
Working capital $(80)
Total assets $1,699
Long-term debt $156
Stockholders' equity $728
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- REVENUES AND EXPENSES
See Note 1 to the Consolidated Financial Statements for background
and historical information on the Company. On December 4, 1998, the Company
acquired InPath, LLC, a limited liability company registered in the State
of Delaware. InPath is a development-stage company engaged in the design
and development of medical instruments and related tests. Based upon the
terms of the acquisition agreement, for financial reporting and accounting
purposes the acquisition has been accounted for as a reverse acquisition
whereby InPath is deemed to have acquired the Company. Since the Company
was a non-operating public shell company with nominal assets and InPath was
a private operating company, the acquisition has been recorded as the
issuance of stock for the net monetary assets of the Company accompanied by
a recapitalization, and no goodwill or other intangible assets were
recorded. Accordingly, information presented in the Consolidated Financial
Statements includes the operations of InPath from March 16, 1998 (date of
inception) and the operations of the combined Company from December 4,
1998.
The Company is considered a development-stage company, since it is
engaged in the design and development of new products which have not as yet
been introduced into the market for sale. The Company had no revenue from
sales and no related cost of product sold during 1998.
Research and development expenses for 1998 amounted to $181,000. The
expenses consisted primarily of contract costs related to scientists and
researchers at universities and hospitals under specific development
programs, initial device development contracts with industrial electro-
mechanical design organizations, reimbursements to medical and engineering
consultants, and payroll related costs for in-house scientific and research
management staff.
Selling, general and administrative expenses for 1998 amounted to
$602,000. A significant component of the expenses consisted of legal costs
related to the initial establishment of InPath, negotiation of the
technology license with AccuMed International, Inc., and the acquisition of
InPath by the Company in December 1998 and the related filings with the
Securities and Exchange Commission.
The net loss for the period March 16, 1998 through December 31, 1998
amounted to ($789,000), or ($0.07) per share, on 12,000,000 weighted
average common shares outstanding. The calculation of net loss per share
assumes that all shares of the Company are outstanding for the entire
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for research and
development expenses of its InPath products and to fund the acquisition of
other companies or technologies related to its product strategy. During
1998 those funds were provided by direct equity investments of $391,000 and
the net cash acquired at the time of the acquisition of InPath amounting to
$943,000. In addition, cash required to pay certain operating expenses was
provided through a loan from a stockholder in the amount of $175,000 and a
loan from a related party in the amount of $75,000.
At December 31, 1998, the Company had cash on hand of $700,000. Of
this amount, approximately $479,000 was used to make the final payment on
the purchase of the Samba department of Unilog Regions SA on January 4,
1999. Samba Technologies, the wholly owned subsidiary of the Company, which
assumed the operations of the Samba department, has been cash-flow neutral
during 1999.
<PAGE>
In March 1999, the Company signed a Letter of Intent with AccuMed
International, Inc. to license technology related to the AcCell
Cytopathology System. In addition, the Company agreed to purchase certain
inventories and related manufacturing equipment. The Company has deposited
$100,000 in escrow with AccuMed to bind the agreement, the close of which
is subject to completion of due diligence and final contract documents by
June 7, 1999.
In March 1999, the Company received $500,000 in cash from Seaside
Partners, L.P., a hedge fund, and issued Seaside Partners a $500,000
convertible note which, upon approval by the stockholders of an increase in
the number of authorized shares of common stock of the Company, will
automatically convert into approximately 1,515,000 shares of Common Stock,
subject to certain contingencies having been met. Denis M. O'Donnell, who
is a director of the Company, is a member and a manager of Seaside
Advisors, L.L.C., a firm that provides investment management services to
Seaside Partners.
The Company's Board has authorized the placement of an additional
$1,000,000 in Convertible Promissory Notes under similar terms and
conditions to the Note issued in March 1999. The Board has also authorized
management to seek additional sources of funding through private placements
of either debt or equity instruments.
The operation of the Company has been, and will continue to be,
dependent upon management's ability to raise operating capital in the form
of debt or equity. The Company has incurred a significant operating loss
since its inception. The Company expects that significant on-going
operating expenditures will be necessary to successfully implement its
business plan and develop, manufacture and market its products. These
circumstances raise substantial doubt about the Company's ability to
continue as a going concern. There can be no assurance that the Company
will be able to obtain additional capital to meet its current operating
needs, or to complete pending or contemplated licenses or acquisitions of
technologies. If the Company is unable to raise sufficient additional
capital, or generate profitable sales revenues, management may be forced to
substantially curtail product research and development and other activities
and may be forced to cease operations.
The Company's internally used computer equipment is Year 2000
compliant. The software suites and systems currently sold by Samba
Technologies are also Year 2000 compliant. Older installations of the Samba
software suite may not be Year 2000 compliant, and Samba has been
contracted by some customers to upgrade their systems to Year 2000
compliance. Samba is obligated under maintenance contracts with other
customers to insure that their systems are Year 2000 compliant, and Samba
believes that the revenue derived from those maintenance contracts is
sufficient to cover the cost of bringing the systems into compliance. The
Company does not anticipate that it will incur any material costs related
to compliance with Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any hedge transactions or hold any
derivative financial instruments. As of the end of 1998, the Company was
not exposed to any material interest-rate, foreign-currency, commodity-
price, equity-price or other type of market or price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company for the period
March 16, 1998 through December 31, 1998, together with the report thereon
of Ernst & Young LLP dated March 24, 1999, are filed as part of this report
commencing on page F-1.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since the beginning of 1996: (i) Ernst & Young LLP, the Company's
independent auditor engaged as the principal auditor to audit the Company's
financial statements, has neither resigned (or indicated it has declined to
stand for re-election after the completion of a current audit) or been
dismissed, and (ii) no new independent auditor has been engaged by the
Company as either the principal auditor to audit the Company's financial
statements, or as an independent auditor to audit a significant subsidiary.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required for this item is incorporated by reference
to the discussion captioned "ELECTION OF DIRECTORS" in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference
to the discussion captioned "ELECTION OF DIRECTORS" in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated by reference
to the discussion captioned "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement for the 1999 annual
meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as provided below, the information required for this item is
incorporated by reference to each of the discussions captioned "Interest of
Officers, Directors and Principal Shareholders in Approval of this
Proposal" under Proposals No. 2, No. 4, and No. 5 in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
Immediately prior to the acquisition of InPath, the Company issued
shares of Common Stock to Alexander M. Milley and Robert C. Shaw in
settlement of amounts owed to them under employment agreements between them
and the Company. The employment agreements became effective in November
1989 and expired in November 1992, and provided for annual compensation of
$20,000 to Mr. Milley for his service as the Company's Secretary and
Chairman of the Board, and $50,000 to Mr. Shaw for his service as the
Company's President and Treasurer. Mr. Milley and Mr. Shaw served in these
positions until the date of the InPath acquisition and both are currently
directors of the Company. On December 4, 1998, the Company entered into
the Claims Settlement Agreement, under which Mr. Milley was issued 210,000
shares of Common Stock in settlement of $63,000 owed to him under his
employment agreement, and Mr. Shaw was issued 463,333 shares of Common
Stock in settlement of $139,000 owed to him under his employment agreement.
Until the Company's acquisition of InPath on December 4, 1998, the
Company rented office space in Orlando, Florida from MMI. Rent and
administrative support expenses were approximately $120,000 in each of the
years ended December 3,1 1998, 1997 and 1996. MMI's President, Chairman of
the Board and majority shareholder is Mr. Milley, who is currently a
director of the Company and until the InPath acquisition was Chairman of
the Board and Secretary of the Company. In addition, certain of the other
officers of MMI are persons who were officers of the Company prior to the
Company's acquisition of InPath.
<PAGE>
On September 1, 1998, InPath issued a Promissory Note in the amount
of $175,000 to Peter P. Gombrich, Chairman and CEO 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 5% of the
Common Stock, is a partners at Holleb & Coff.
On March 1, 1999, the Company entered into a Note Purchase Agreement
with Seaside Partners, 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 a nominee for director of the
Company, is a member and a 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 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 million from any debt or equity offerings, excluding the
$1,500,000 currently authorized by the Board of the Company to be raised
through debt or equity offerings. Seaside Partners has the option of
converting the note into shares of Common Stock at any time after a
sufficient number of shares Common Stock have been authorized for issuance.
The conversion price of the note is $0.33 per share, subject to being
lowered based on certain circumstances related to the pricing of future
debt or equity offerings, but in no event lowered below $0.20 per share.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 10-K
DOCUMENTS FILED AS PART OF REPORT
1. Financial Statements
Page
Index to Financial Statements Number
- ----------------------------- ------
Report of Independent Auditors . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1998. . . . . . . F-2
Consolidated Statement of Operations for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-3
Consolidated Statement of Stockholders' Equity for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6 to F-11
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not
required, or because the required information is included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
Exhibit
Number Description
- ------- -----------
2.1 Bell National Corporation Plan of Reorganization (Annex I).
(Incorporated herein by reference to Item 1 of the Company's Annual Report
on Form 10-K for the period from August 20, 1985 to December 31, 1985 and
for the years ended December 31, 1986 and 1987.)
3.1 Restated Articles of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.)
3.2 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.)
4.1 Note Purchase Agreement, dated March 1, 1999, between the
Company and Seaside Partners, L.P.
4.2 6% Convertible Subordinated Note Due 2000, executed by the
Company on March 1, 1999, pursuant to the Note Purchase Agreement dated
March 1, 1999.
4.3 Form of Common Stock Purchase Warrant, as executed by the
Company on December 4, 1998 with respect to each of Mr. Gombrich, Theodore
L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed
International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc.
(collectively, the "InPath Members"). (Incorporated herein by reference to
Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on
December 14, 1998.)
<PAGE>
Exhibit
Number Description
- ------- -----------
4.4 Stockholders Agreement dated December 4, 1998 among the
Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr.
Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated
herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the
InPath Members on December 14, 1998.)
10.1 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.)
10.2 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Nicholas E. Toussaint. (Incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.)
10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Roy D. Rafalco. (Incorporated herein by reference
to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.)
10.4 SAR Agreement Extension dated November 15, 1995 between the
Company and Raymond O'S. Kelly. (Incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.5 SAR Agreement Extension dated November 15, 1995 between the
Company and Nicholas E. Toussaint. (Incorporated herein by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich
and InPath, LLC, as amended on December 4, 1998.
10.7 Patent and Technology License Agreement, dated September 4,
1998, between InPath and AccuMed International, Inc.
10.8 Stock and Membership Interest Exchange Agreement dated
December 4, 1998 among the Company, InPath, and the InPath Members.
(Incorporated herein by reference to Exhibit 1 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
10.9 Claims Settlement Agreement dated December 4, 1998 among the
Company, the Claimants, and Liberty Associates Limited Partnership.
(Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
21.1 Subsidiaries of the Company.
27 Financial data schedule.
<PAGE>
REPORTS ON FORM 8-K
On December 18, 1998, the Company filed a Form 8-K to report the
change of control of the Company and the Company's acquisition of InPath
occurring on December 4, 1998 in connection with Company's entry into the
Stock and Membership Interest Exchange Agreement, Claims Settlement
Agreement and Stockholders Agreement. The financial statements and pro
forma financial information required for this Form 8-K were filed in an
Amendment to Form 8-K filed on February 16, 1999.
On January 19, 1999, the Company filed a Form 8-K to report the
acquisition of the Samba department of Unilog Regions SA by the Company's
Samba Technologies subsidiary. The financial statements and pro forma
financial information required for this Form 8-K were filed in an Amendment
to Form 8-K on March 22, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BELL NATIONAL CORPORATION
Date: March 31, 1999 BY: /s/ Peter P. Gombrich
------------------------------
Peter P. Gombrich
Chairman of the Board,
Chief Executive Officer and
Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ Peter P. Gombrich Director, Chairman of the March 31, 1998
- ----------------------- Board, Chief Executive
Peter P. Gombrich Officer and Secretary
(Principal Executive Officer)
/s/ Alexander M. Milley Director March 31, 1999
- -----------------------
Alexander M. Milley
/s/ Thomas R. Druggish Director March 30, 1999
- -----------------------
Thomas R. Druggish
/s/ Denis M. O'Donnell Director March 31, 1999
- -----------------------
Denis M. O'Donnell
/s/ Leonard R. Prange President and Chief March 31, 1999
- ------------------------ Financial Officer
Leonard R. Prange (Principal Financial
Officer and Accounting Officer)
/s/ Robert C. Shaw Director March 29, 1999
- ------------------------
Robert C. Shaw
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Bell National Corporation and Subsidiaries
We have audited the accompanying Balance Sheet of Bell National
Corporation (a development-state company) as of December 31, 1998, and the
related statements of operations, changes in stockholders' equity and cash
flows for the period from March 16, 1998 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bell National
Corporation and Subsidiaries as of December 31, 1998 and the results of its
operations and its cash flows for the period from March 16, 1998
(inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company had a substantial net loss from
operations and has limited financial resources. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to these matters are described in
Note 1. The financial statements do not include any adjustments to reflect
the possible future effect on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the outcome of this uncertainty.
/s/ Ernst & Young LLP
---------------------
Chicago, Illinois
March 24, 1999
<PAGE>
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Dollars in thousands)
Balance
----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 700
Prepaid expenses . . . . . . . . . . . . . . . . . . 35
-------
Total current assets. . . . . . . . . . . . . . . 735
Fixed assets, net. . . . . . . . . . . . . . . . . . . 88
Other assets:
License, patents, and technology, net. . . . . . . . 746
Acquisition escrow . . . . . . . . . . . . . . . . . 100
Other. . . . . . . . . . . . . . . . . . . . . . . . 30
-------
Total assets. . . . . . . . . . . . . . . . . . . $ 1,699
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 588
Accrued expenses . . . . . . . . . . . . . . . . . . 152
Current maturities of notes payable -- related
party. . . . . . . . . . . . . . . . . . . . . . . 75
-------
Total current liabilities . . . . . . . . . . . . 815
Notes payable--related party, less current
maturities . . . . . . . . . . . . . . . . . . . . . 156
Stockholders' equity:
Common Stock, no par value; authorized issued
and outstanding 12,000,000 shares. . . . . . . . . 1,517
Deficit accumulated in the development stage . . . . (789)
-------
Total stockholders' equity. . . . . . . . . . . . 728
-------
Total liabilities and stockholders' equity. . . . $ 1,699
=======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
(Dollars in thousands, except per-share amounts)
Balance
----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ --
Cost and expenses
Cost of goods sold . . . . . . . . . . . . . . . . . . --
Research and development . . . . . . . . . . . . . . . 181
Selling, general, and administrative expenses. . . . . 602
----------
783
----------
Operating loss . . . . . . . . . . . . . . . . . . . . . (783)
Other income (expense)
Interest (expense) -- related party. . . . . . . . . . (8)
Other, net . . . . . . . . . . . . . . . . . . . . . . 2
----------
(6)
----------
Loss before income taxes . . . . . . . . . . . . . . . . (789)
Income taxes . . . . . . . . . . . . . . . . . . . . . . --
----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (789)
==========
Basic and fully diluted net loss per common share. . . . $ (0.07)
==========
Weighted average number of common share outstanding. . . 12,000,000
==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Total
Common Accumulated Stockholders'
Stock Deficit Equity
------- ----------- -------------
March 16, 1998 (inception) . . $ -- $ -- $ --
Equity of accounting
acquiree. . . . . . . . . . . 881 -- 881
Contribution of asset
in exchange for equity. . . . 245 -- 245
Sale of equity . . . . . . . . 391 -- 391
Net loss . . . . . . . . . . . (789) (789)
------- ------- -------
Balances, December 31, 1998. . $ 1,517 $ (789) $ 728
======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
(Dollars in thousands)
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (789)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . 36
Changes in assets and liabilities:
Deposits and other assets. . . . . . . . . . . . . (158)
Accounts payable . . . . . . . . . . . . . . . . . 588
Accrued expenses . . . . . . . . . . . . . . . . . 59
-------
Net cash used in operating activities. . . . . . . . . . (264)
Cash used in investing activities:
License, patents, and technology . . . . . . . . . . . (501)
Purchase of fixed assets . . . . . . . . . . . . . . . (100)
-------
Net cash used in investing activities. . . . . . . . . . (601)
Cash flows from financing activities:
Proceeds from notes payable. . . . . . . . . . . . . . 250
Payment of notes payable . . . . . . . . . . . . . . . (19)
Proceeds from sale of equity . . . . . . . . . . . . . 391
Net cash acquired. . . . . . . . . . . . . . . . . . . 943
-------
Net cash provided by financing activities. . . . . . . . 1,565
-------
Net increase in cash and cash equivalents. . . . . . . . 700
Cash and cash equivalents at beginning of period . . . . --
-------
Cash and cash equivalents at end of period . . . . . . . $ 700
=======
Supplemental disclosure of cash-flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ --
Income taxes . . . . . . . . . . . . . . . . . . . . $ --
======
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
BELL NATIONAL CORPORATION
Notes To Consolidated Financial Statements
December 31, 1998
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
Bell National Corporation ("Bell National" and together with its
subsidiaries the "Company") was incorporated in California on October 1,
1958. Through 1985, its principal subsidiary was Bell Savings and Loan
Association ("Bell Savings"), a state chartered savings and loan
association. On July 25, 1985, the Federal Home Loan Bank Board appointed
the Federal Savings & Loan Insurance Corporation ("FSLIC") as receiver of
Bell Savings. At the same time, the assets of Bell Savings were transferred
to a new, unrelated, federally chartered mutual savings and loan
association, Bell Federal. The FSLIC's action followed shortly after a
determination that Bell Savings had a negative net worth. On August 20,
1985, Bell National filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. A plan of reorganization was approved by the Bankruptcy
Court, and became effective June 29, 1987.
On June 15, 1990, Bell National purchased 100% of the Common Stock of Payne
Fabrics, Inc., a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of
stock appreciation rights. On August 4, 1997 Payne Fabrics, Inc. sold
substantially all of its assets and most of its liabilities related to the
business of designing and distributing decorative drapery and upholstery
fabrics to Westgate Fabrics, Inc. ("Westgate"), an unaffiliated third party
(the "Asset Sale"). The Asset Sale included the transfer to the buyer of
the use and rights to the Payne Fabrics name, accordingly, Payne Fabrics,
Inc., changed its name to PFI National Corporation ("PFI"). The Asset Sale
left PFI without any substantial assets and on August 4, 1997 all
operations were ceased. Bell National's other wholly-owned subsidiaries,
Bell Savings and Pacific Coast Holdings Insurance Company, had no
significant assets or liabilities. After the Asset Sale and before December
1998, the Company had no business operations and its only activities were
administrative.
On December 4, 1998, the Company acquired InPath, LLC, a development-stage
company engaged in the design and development of medical instruments and
related tests. In the acquisition, Bell issued 4,288,790 shares of Common
Stock and warrants with an exercise price of $.001 per share to purchase
3,175,850 shares of Common Stock to the members of InPath in exchange for
their units of membership interest in InPath and the senior executives of
InPath assumed management control of the Company. The warrants were issued
with the right to convert subject to approval by stockholders' of an
increase in the authorized Common Stock of the Company. In conjunction with
the acquisition, certain stockholders of the Company, comprising holders of
more than 50% of the currently outstanding Common Stock of the Company,
agreed to vote their shares in favor of the proposal to increase the number
of authorized shares of Common Stock of the Company, to elect a slate of
directors recommended by former InPath members and original Company
stockholders, and to appoint former InPath executive officers to executive
officer positions of the Company. After the transaction, the former members
of InPath held approximately 36% of the Common Stock then outstanding, and
will hold approximately 50% of the Common Stock outstanding after
conversion of all warrants issued in the transaction.
Also on December 4, 1998, pursuant to a Claims Settlement Agreement of the
same date, the Company issued shares of Common Stock to each of two
individuals and two corporations in settlement of debts that the Company
owed them. In the transaction, the Company issued: 210,000 shares of
Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him
for his services as Chairman of the Board and Secretary of the Company
under an Employment Agreement dated November 20, 1989; 463,333 shares of
Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him for
<PAGE>
his services as President and Treasurer of the Company under an Employment
Agreement dated November 20, 1989; 600,000 shares of Common Stock to Cadmus
Corporation ("Cadmus") to settle a debt of $180,000 owed to it for
management services provided to the Company; and 503,333 shares of Common
Stock to MMI to settle a debt of $151,000 owed to it as rent for office
space and as payment for management services provided to the Company.
Based upon the terms of the acquisition agreement, for financial reporting
and accounting purposes the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company. However,
the Company is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax filing
purposes. Because the Company was a non-operating public shell company
with nominal assets and InPath was a private operating company, the
acquisition has been recorded as the issuance of stock for the net monetary
assets of the Company, accompanied by a recapitalization and no goodwill or
other intangible assets were recorded. Accordingly, the Consolidated
Financial Statements presented hereunder only include the operations of
InPath from March 16, 1998 (date of inception) and the operations of the
Company from December 4, 1998.
The Company has incurred a significant operating loss since its inception.
The Company expects that significant on-going operating expenditures will
be necessary to successfully implement its business plan and to develop,
manufacture and market its products. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern.
Implementation of the Company's plans and its ability to continue as a
going concern depend upon its acquiring substantial additional financing.
Management's plans include efforts to obtain additional capital. As
discussed in Note 10, the Company was recently successful in raising
$500,000 to finance its operations. However, there can be no assurance
that the Company's efforts to raise additional capital will be successful.
If the Company is unable to obtain adequate additional financing or
generate profitable sales revenues, management may be required to curtail
the Company's product development and other activities and may be forced to
cease operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include
Bell National and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
REVENUE RECOGNITION. The Company recognizes revenue upon shipment of
product to customers.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of three months or less at the time of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line method over the assets' estimated
useful lives. Principal useful lives are as follows:
Furniture and fixtures 5 years
Laboratory equipment 5 years
Computer and communications equipment 3 years
Leasehold improvements Useful life or life of lease,
whichever is shorter
Normal maintenance and repairs are charged to expense as incurred,
significant improvements are capitalized.
<PAGE>
LICENSE, PATENTS, AND TECHNOLOGY. License, patents, and purchased
technology are recorded at their acquisition cost. During 1998, a portion
of a license, valued at $245,000, was contributed to the Company in
exchange for an equity stake of equal value. Costs to prepare patent
filings are recorded when incurred. Costs related to abandoned or denied
patent applications are written off at the time of abandonment or denial.
Amortization is begun as of the date of acquisition or upon the grant of
the final patent. All costs are amortized over a useful life of ten years.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged
to operations as incurred. The Company conducts a portion of its research
activities under contractual arrangements with scientists, researchers,
universities, and other independent third parties.
INCOME TAXES. The Company follows the liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using tax rates and laws that
are expected to be in effect when the differences are expected to reverse.
Valuation allowances are provided against deferred tax assets if it is more
likely than not that the deferred tax assets will not be realized.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1998
----
Furniture and fixtures $ 21
Laboratory equipment 41
Computer and communications equipment 25
Leasehold improvements 13
----
100
Less accumulated depreciation
and amortization (12)
----
Total $ 88
====
NOTE 4. LICENSE, PATENTS, AND TECHNOLOGY
License, patents, and technology includes the following at December 31:
1998
----
License $745
Patent costs 25
----
770
Less accumulated amortization (24)
----
Total $746
====
<PAGE>
NOTE 5. ACCRUED EXPENSES
Accrued expenses includes the following at December 31:
1998
----
Accrued payroll and related costs $81
Accrued professional fees 43
Accrued interest -- related party 8
Other accrued expenses 20
----
Total $152
====
NOTE 6. NOTES PAYABLE -- RELATED PARTIES
On August 28, 1998, the Company issued a note payable in the amount of
$75,000 to its outside legal counsel, Holleb & Coff in payment for legal
services. The note is due on demand and interest is payable monthly at the
rate of 12% per annum.
On September 1, 1998, the Company issued a note payable in the amount of
$175,000 to Mr. Peter P. Gombrich, its Chairman and CEO, in payment for
funds advanced to the Company. The note is due September 1, 2003 and
interest is payable at each anniversary date at the rate of 8% per annum.
The note may be repaid at any time without penalty. Payments in the amount
of $19,000 were made during the period to reduce the principal.
The carrying amount of notes payable approximates fair value at
December 31, 1998.
NOTE 7. STOCKHOLDERS' EQUITY
InPath, LLC was incorporated in the State of Delaware on March 16, 1998 as
a limited liability company. The company sold membership units in the
amount of $391,000 and received a contribution of an asset valued at
$245,000 in exchange for membership units with a comparable value. On
December 4, 1998, InPath was acquired by the Company in a transaction in
which the Company issued 4,288,790 shares of Common Stock and warrants to
purchase an additional 3,175,850 shares of Common Stock to the members of
InPath in exchange for their units of membership interest in InPath. The
warrants were issued because the Company did not have a sufficient amount
of authorized Common Stock to complete the transaction. The warrants were
issued with the right to convert subject to the approval by the
stockholders of an increase in the authorized number of shares of Common
Stock. In conjunction with the acquisition, certain stockholders of the
Company, comprising holders of more than 50% of the currently outstanding
Common Stock of the Company, agreed to vote their shares in favor of the
proposal to increase the number of authorized shares of Common Stock of the
Company.
As discussed in Note 1, the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company.
Accordingly, while the number of shares of Common Stock reflects all shares
currently outstanding, the amount recorded for Common Stock includes the
value of the InPath membership equity of $636,000 and the net equity value
of the Company as of December 4, 1998. The Accumulated deficit reflects the
operations of InPath from March 16, 1998 through December 3, 1998 and of
the consolidated Company from December 4, 1998 through December 31, 1998.
<PAGE>
At December 31, 1998, the Company had 450,000 stock appreciation rights
(SAR's) outstanding. These SAR's have an exercise price of $0.30 and can be
exercised through November 20, 2001. In general, each SAR entitles the
holder to receive upon exercise an amount equal to the excess, if any, of
the market value per share of Common Stock at the date of exercise over the
exercise price of the SAR, plus any dividends or distributions per share
made by the Company prior to the exercise date. In lieu of making cash
payments, the Company may elect to issue shares of Common Stock on a one
share for one SAR basis.
Included in the common shares outstanding are 696,570 shares of Common
Stock which have been designated "Class 4-B shares" (Class 4-B shares are
without value) pursuant to certain legal proceedings. Class 4-B shares do
not have voting rights and are not entitled to any distributions from the
Company on liquidation or otherwise.
NOTE 8. LEASES
The Company leases space for its Chicago, Illinois corporate headquarters
and research facilities under an operating type lease expiring in 2003.
Total rental expense for the facilities during the period ended
December 31, 1998 was $21,000.
Future minimum annual lease payments under the lease as of December 31,
1998 are:
Year Amount
---- -------
1999 $43,476
2000 $50,846
2001 $52,106
2002 $53,554
2003 $18,014
NOTE 9. INCOME TAXES
Significant components of deferred income taxes consist of the following at
December 31, 1998:
Deferred tax assets related to:
Net operating loss carryforwards $268,260
Accrued interest 2,492
Depreciation/amortization 7,748
Other --
--------
278,499
Less valuation allowance 278,499
--------
Net deferred tax asset $ --
========
Prior to the acquisition on December 4, 1998, the Company had significant
net operating loss carryforwards (NOL's). These NOL's are not reflected in
the Company's financial statements because the restrictions on the
Company's ability to use these NOL's makes it highly unlikely the Company
will realize any significant future tax benefit related to the NOL's.
The net operating loss carryforward for the period from March 16, 1998
through December 31, 1998 expires in 2018.
NOTE 10. SUBSEQUENT EVENTS
On January 4, 1999, the Company's wholly owned French subsidiary, Samba
Technologies SARL completed the acquisition of the Samba department of
Unilog Regions SA. The Samba department designs, develops and markets
software-based products used in automated image cytometry and tele-medicine
<PAGE>
applications including tele-pathology and tele-radiology. The purchase
price was approximately $580,000, of which $100,000 was paid as a deposit
on December 15, 1998. At the time of the closing, Samba Technologies
entered into employment arrangements with the former Samba department
employees and assumed the day-to-day operations. Since the acquisition,
Samba has continued to develop and market the full line of Samba products.
In January, the Board of Directors authorized the Company to raise up to
$1,500,000 in debt or new equity to provide funding for current operations.
On March 1, 1999, the Company received $500,000 in cash from Seaside
Partners, LP in exchange for the issuance of a convertible note due
January 28, 2000 bearing interest at the rate of 6% per annum. The
maturity date of the Note may be extended by the Company to June 30, 2000.
The Note and any accrued interest due thereon shall be automatically
converted by the Company into shares of Common Stock at a conversion price
of $0.33 per share. The conversion price may be lowered based on certain
circumstances related to the pricing of future debt or equity offerings but
may never be lowered below $0.20 per share. The automatic conversion
provision of the Note is subject to the Company completing a reverse merger
into its wholly owned subsidiary Ampersand Medical Corporation, a Delaware
company, and the Company's receipt of at least $5,000,000 from any
additional debt or equity offerings, excluding the $1,500,000 currently
authorized by the Board. Denis M. O'Donnell, who is a director of the
Company, is a member and a manager of Seaside Advisors, L.L.C., a firm that
provides investment management services to Seaside Partners.
On March 8, 1999, the Company signed a Letter of Intent with AccuMed
International, Inc., to license the technology and intellectual property
related to the AcCell Cytopathology System, a series of automated
microscopy workstations, and to purchase certain related inventories and
manufacturing equipment. The License will provide the Company with the
exclusive right to use, manufacture and sell products utilizing the
technology and IP in certain market segments and non-exclusive rights in
others. The Company deposited $100,000 in earnest money with AccuMed.
Closing of the transaction, which must take place within ninety days, is
subject to due diligence, the drafting and preparation of the terms and
conditions of the License and purchase agreement, and approval of the
Boards of Directors of both companies. The final purchase price will be
determined based on the quantities and valuation of the physical inventory
of instruments and materials.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is the licensee under a Patent and Technology License between
the Company and AccuMed International, Inc., covering certain patent
applications and technology related to the Company's subsidiary InPath's
"Point of Care" products. In addition to the initial cash payment for the
license, the Company is obligated to make royalty payments to AccuMed equal
to 7% of all sales of products employing the licensed technology. In order
to maintain its exclusive right to the licensed technology, the Company is
required to make minimum guaranteed royalty payments to AccuMed amounting
to $1,000,000 during the second and third years of the license, $1,500,000
during the third, forth and fifth years of the license, and $2,000,000 in
each subsequent year thereafter. The license may not be terminated for
five years or until $5,000,000 in minimum royalty payments have been made,
whichever is earlier. The Company may elect to terminate its exclusivity
under the license upon written notice at which time its obligation to make
the minimum required annual royalty payments shall cease. The Company
would then be only obligated to make royalty payments based on actual sales
of products.
At December 31, 1998, the Company was contractually committed to pay
approximately $155,000 to scientists, researchers, universities, and other
independent third parties for services to be performed during 1999. These
contractual commitments are cancelable by the Company for non-performance.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Bell National Corporation Plan of Reorganization (Annex I).
(Incorporated herein by reference to Item 1 of the Company's Annual Report
on Form 10-K for the period from August 20, 1985 to December 31, 1985 and
for the years ended December 31, 1986 and 1987.)
3.1 Restated Articles of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.)
3.2 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.)
4.1 Note Purchase Agreement, dated March 1, 1999, between the
Company and Seaside Partners, L.P.
4.2 6% Convertible Subordinated Note Due 2000, executed by the
Company on March 1, 1999, pursuant to the Note Purchase Agreement dated
March 1, 1999.
4.3 Form of Common Stock Purchase Warrant, as executed by the
Company on December 4, 1998 with respect to each of Mr. Gombrich, Theodore
L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed
International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc.
(collectively, the "InPath Members"). (Incorporated herein by reference to
Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on
December 14, 1998.)
4.4 Stockholders Agreement dated December 4, 1998 among the
Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr.
Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated
herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the
InPath Members on December 14, 1998.)
10.1 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.)
10.2 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Nicholas E. Toussaint. (Incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.)
10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Roy D. Rafalco. (Incorporated herein by reference
to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.)
10.4 SAR Agreement Extension dated November 15, 1995 between the
Company and Raymond O'S. Kelly. (Incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
<PAGE>
Exhibit
Number Description
- ------- -----------
10.5 SAR Agreement Extension dated November 15, 1995 between the
Company and Nicholas E. Toussaint. (Incorporated herein by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich and
InPath, LLC, as amended on December 4, 1998.
10.7 Patent and Technology License Agreement, dated September 4,
1998, between InPath and AccuMed International, Inc.
10.8 Stock and Membership Interest Exchange Agreement dated
December 4, 1998 among the Company, InPath, and the InPath Members.
(Incorporated herein by reference to Exhibit 1 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
10.9 Claims Settlement Agreement dated December 4, 1998 among the
Company, the Claimants, and Liberty Associates Limited Partnership.
(Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
21.1 Subsidiaries of the Company.
27 Financial data schedule.
EXHIBIT 4.1
- -----------
BELL NATIONAL CORPORATION
NOTE PURCHASE AGREEMENT
This note purchase agreement (this "Agreement") is made as of the
Closing Date (as defined below) by and between Bell National Corporation, a
California corporation (the "Company"), with its principal office at 900
North Franklin Street, Suite 210, Chicago, Illinois 60610 and Seaside
Partners, L.P., a Delaware limited partnership with its principal offices
at c/o Seaside Advisors, L.L.C., 623 Ocean Avenue, Sea Girt, New Jersey
08750 ("Purchaser").
RECITALS
--------
The Company is undertaking the placement and sale (the "Offering") of
up to $1,500,000 principal amount of 6% Convertible Subordinated Notes due
2000, convertible into shares of the Company's common stock, no par value
(the "Common Stock") at a conversion price (the "Conversion Price") as
described in said notes. The notes will be sold by the Company to
Purchaser pursuant to Regulation D under the Securities Act of 1933, as
amended (the "Act") (the "Regulation D Purchasers").
AGREEMENT
---------
In consideration of the mutual promises, representations, warranties
and conditions set forth in the Agreement, the Company and Purchaser agree
as follows:
1. PURCHASE AND SALE OF NOTE.
1.1 ISSUE OF NOTE.
(a) The Company has authorized the issuance and sale to
Purchaser, in reliance upon the Purchaser's representations and warranties
contained in Section 4 and subject to the terms and conditions set forth
herein, a 6% Convertible Subordinated Note in the principal amount of
$500,000 (the "Note"), convertible into up to 2,500,000 shares of Common
Stock (the "Conversion Shares") pursuant to the exchange of the Note.
(b) In reliance upon the representations and warranties
of the Company contained herein, and subject to the terms and conditions
set forth herein, Purchaser agrees to purchase the Note.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING. The closing of the sale and purchase of the
Note under this Agreement (the "Closing") shall be held at 11:00 a.m.
(Eastern Standard Time) on a date mutually agreeable to the Company and
Purchaser, but in no event later than February 26, 1999 (the "Closing
Date"), at the offices of Buchanan Ingersoll Professional Corporation, 500
College Road East, Princeton, New Jersey 08540, or at such other place as
the Company decides.
2.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to Purchaser the Note
subscribed for by Purchaser, dated as of the Closing Date, against payment
of the purchase price therefor by wire transfer, unless other means of
payment shall have been agreed upon by the Purchaser and the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Subject to and except as disclosed by the Company in the Confidential
Private Offering Memorandum of its wholly-owned subsidiary, Ampersand
Medical Corporation (the "Offering Memorandum"), the Company represents and
warrants to Purchaser as of the date hereof as follows, and all such
representations and warranties shall be true and correct as of the Closing
Date as if then made and shall survive the Closing:
3.1 ORGANIZATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of
California. The Company has all requisite power and authority to own or
lease its properties and to conduct its businesses as now conducted. The
Company holds all licenses and permits required for the conduct of its
business as now conducted, which, if not obtained, would have a material
adverse effect on the business, financial condition or results of
operations of the Company taken as a whole. The Company is qualified as
foreign or domestic corporations and is in good standing in all states
where the conduct of its business or its ownership or leasing of property
requires such qualification, except where failure to so qualify would not
have a material adverse effect on the business, financial condition or
results of operations of the Company taken as a whole.
3.2 CAPITALIZATION. As of the date hereof, taking into
account the transaction contemplated hereby, the authorized capital stock
of the Company consists of 12,000,000 shares of Common Stock, all of which
are issued and outstanding, warrants for the purchase of an additional
3,175,850 shares of Common Stock, stock appreciation rights for an
additional 450,000 shares of Common Stock, and a subordinated note
convertible into up to 2,5000,000 shares of Common Stock as set forth in
the Note. All of the issued and outstanding shares of Common Stock have
been duly authorized, validly issued and are fully paid and non-assessable.
Except as stated in the Offering Memorandum and in this Section 3.2, there
are no existing subscriptions, options, warrants, calls, commitments,
agreements, conversion or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from the Company at any time,
or upon the happening of any stated event, any shares of the capital stock
of the Company, respectively.
3.3 AUTHORITY. The Company has all requisite corporate power
and authority to enter this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
and upon its execution and delivery by the Company, such document will
constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, and subject as to
enforceability to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditor's rights from
time to time in effect and subject to general equity principles.
3.4 ISSUANCE OF THE NOTE. The Note, when issued against
payment therefor pursuant to the terms of this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable.
3.5 NO CONFLICT WITH LAW OR DOCUMENTS. The execution,
delivery and consummation of this Agreement and the transactions
contemplated hereby will not: (a) conflict with any provisions of the
certificate of incorporation of the Company, as amended to date, or the
bylaws of the Company, as amended to date; or (b) result in any violation
of or default or loss of a benefit under, or permit the acceleration of any
obligation under (in each case, upon the giving of notice, the passage of
time, or both) any mortgage, indenture, lease, agreement or other
instrument, permit, franchise, license, judgement, order, decree, law,
ordinance, rule or regulation applicable to the Company or its properties.
3.6 CONSENTS, APPROVALS AND PRIVATE OFFERING. Except for any
filings required under federal and applicable state securities laws, all of
which shall have been made as of the Closing Date to the extent required as
of such time, no consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state, local or
foreign governmental authority is required to be made or obtained by the
Company in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
3.7 ABSENCE OF CERTAIN DEVELOPMENTS. Except as described in
the Offering Memorandum, since September 30, 1998, the Company has not:
(a) incurred or become subject to any material liabilities (absolute or
contingent) except current liabilities incurred, and liabilities under
contracts entered into, in the ordinary course of business, consistent with
past practices; (b) mortgaged, pledged or subjected to any lien, charge or
other encumbrance any of its assets, tangible or intangible; (c) sold,
assigned or transferred any of its assets or canceled any debts or
obligations except in the ordinary course of business, consistent with past
practices; (d) suffered any extraordinary losses, or waived any rights of
substantial value; (e) entered into any material transaction other than in
the ordinary course of business, consistent with past practices; or (f)
otherwise had any change in its condition, financial or otherwise, except
as shown on or reflected in the consolidated balance sheet as of September
30, 1998 that is included in the Company's 1998 Third Quarter Form 10-Q,
except for changes in the ordinary course of business, consistent with past
practices, none of which individually or in the aggregate has been
materially adverse.
3.8 LITIGATION. There are no actions, suits, proceedings or
investigations pending, or to the Company's knowledge, threatened against
or affecting the Company that in the aggregate could reasonably be
anticipated to result in any material adverse effect on the Company.
3.9 DISCLOSURE. The Offering Memorandum does not contain any
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
3.10 YEAR 2000 COMPLIANCE. The Company has reviewed its
products, business and operations which could be adversely affected by the
risk that computer applications developed, marketed, sold and delivered or
used by the Company may be unable to recognize and properly perform date-
sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem"). The Company's products and services provided or
delivered to its customers and the Company's internal information and
business systems will be able to perform properly date-sensitive functions
for all dates before and after January 1, 2000. In addition, the Company
has surveyed those vendors, suppliers and other third parties
(collectively, the "Outside Parties") with which the Company does business
and whose failure to adequately address the Year 2000 Problem could have a
material adverse effect on the business, financial condition or results of
operations of the Company taken as a whole. Based upon the aforementioned
internal review and surveys of the Outside Parties, the Year 2000 Problem
has not resulted in, and is not reasonably expected to have, a material
adverse effect on the business, financial condition or results of
operations of the Company taken as a whole.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser represents, warrants and covenants with the Company
as follows:
4.1 LEGAL POWER. Purchaser has the requisite power and
authority to enter into this Agreement, to purchase the Note hereunder, and
to carry out and perform its obligations under the terms of this Agreement.
4.2 DUE EXECUTION. This Agreement has been duly authorized,
executed and delivered by the Purchaser and, upon due execution and
delivery by the Company, this Agreement will be a valid and binding
agreement of the Purchaser.
4.3 INVESTMENT REPRESENTATIONS.
(a) Purchaser is acquiring the Note for its own
account, not as nominee or agent, for investment and not with a view to or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Act, except pursuant to an effective registration
statement under the Act.
(b) Purchaser understands that: (i) neither the Note
nor the Conversion Shares have been registered under the Act by reason of a
specific exemption therefrom, and may not be transferred or resold except
pursuant to an effective registration statement or exemption from
registration; (ii) each certificate representing the Conversion Shares will
be endorsed with the following legends:
A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM AND UPON
DELIVERY TO THE ISSUER OF THESE SECURITIES AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS; and
B) Any legend required to be placed thereon by applicable
federal or state securities laws;
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Conversion Shares unless the conditions specified in
the foregoing legends are satisfied.
(c) Purchaser has received and reviewed the Offering
Memorandum. In addition, Purchaser has been furnished with such materials
and has been given access to such information relating to the Company as it
or its qualified representative has requested and has been afforded the
opportunity to ask questions regarding the Company and the Note, all as
Purchaser has found necessary to make an informed investment decision.
(d) Purchaser is an "accredited investor" as such term
is defined in Rule 501 of Regulation D under the Act and was not formed for
the specific purpose of acquiring the Note.
(e) Purchaser is not a resident of Canada or any
territory thereof.
5. COVENANTS OF THE COMPANY.
5.1 INFORMATION. The Company shall deliver to the Purchaser
all annual, quarterly or other reports furnished to the public security
holders; provided that if the Company is not subject to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company will promptly furnish to the Purchaser: (i)
as soon as available, and in any event within 90 days after the end of each
fiscal year of the Company, a consolidated balance sheet of the Company and
its consolidated subsidiaries, if any, as of the end of such fiscal year
and the related consolidated statements of income, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all prepared in accordance
with generally accepted accounting principles and reported on by
independent certified public accountants of recognized national standing;
and (ii) as soon as available, and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such quarter and the related
consolidated statements of income and stockholders' equity (together with
any other quarterly financial statements being prepared by the Company at
such time), setting forth in each case in comparative form the figures for
<PAGE>
the corresponding quarter and the corresponding portion of the Company's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
5.2 CONDUCTING THE OFFERING. The Company will conduct the
Offering under Regulation D of the Act, and the Company represents as
follows:
(a) SALES TO ACCREDITED INVESTORS. The Company will
only make offers and sales of notes through the Offering to Regulation D
Purchasers or potential Regulation D Purchasers it reasonably believes to
be "accredited investors" as that term is defined in Rule 501(a) of
Regulation D under the Act;
(b) REGULATION D COMPLIANCE. Offers and sales of notes
through the Offering will be made in compliance with Regulation D, and the
Company has not and shall not offer to sell notes through the Offering by
any form of general solicitation or general advertising that is prohibited
by Rule 502(c) of Regulation D under the Act.
(c) COMPLIANCE GENERALLY. The Company has and will
observe all securities laws and regulations applicable to it in any
jurisdiction in which it has or may offer, sell or deliver notes through
the Offering and it will not, directly or indirectly, offer, sell or
deliver notes through the Offering or distribute or publish any prospectus,
circular, advertisement or other offering material in relation to notes
through the Offering in or from any state in the United States or country
or jurisdiction except under circumstances that will result in compliance
with any applicable laws and regulations.
(d) BLUE SKY COMPLIANCE. The Company will comply with
the state securities or blue sky laws of each state in which notes are
offered through the Offering.
5.3 ADDITIONAL COVENANTS.
(a) The Company shall timely file all such documents
required to be filed by it pursuant to the Exchange Act in order to permit
sales under Rule 144 of the Act.
(b) During any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company shall make
available information required to be provided by Rule 144(d)(4), upon
request.
(c) Upon the request of the Purchaser and the
certification of the Purchaser that it qualifies under Rule 144(k) of the
Act, the Company shall, without further requirement, remove all restrictive
legends from the Purchaser's securities, insofar as such restrictions
relate to the transfer of such securities under the Act.
(d) The Company shall, before June 30, 1999, effect a
merger with and into Ampersand Medical Corporation or amend its Articles of
Incorporation such that a sufficient number of shares of Common Stock are
available for the conversion of the Note.
(e) The Company shall, as soon as practicable, take all
actions necessary to return to "in good standing" status in the State of
California, including the filing of past due franchise tax returns and
payment of past due franchise taxes, if any.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The
Purchaser's obligation to purchase the Note at the Closing is subject to
the fulfillment, at or prior to such Closing, of all of the following
conditions:
<PAGE>
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of
said date; except as described in or contemplated by the Offering
Memorandum, the business, assets, financial condition and results of
operations of the Company shall not have been adversely affected in any
material way prior to the Closing Date; and the Company shall have
performed all obligations and conditions herein required to be performed by
it on or prior to the Closing Date.
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the Note pursuant to
this Agreement shall have been duly obtained and shall be effective on and
as of the Closing Date. No stop order or other order enjoining the sale of
the Note shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the SEC, or
any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale
and issuance of the Note shall be legally permitted by all laws and
regulations to which the Purchaser and the Company are subject.
(d) COMPLIANCE CERTIFICATE. The Purchaser shall have
received a certificate dated as of the date of the Closing executed by the
President of the Company certifying that the conditions specified in this
Section 6 have been fulfilled.
(e) SECRETARY'S CERTIFICATE. The Purchaser shall have
received a certificate dated as of the date of Closing executed by the
Secretary of the Company attesting to the incumbency of the Company's
officers and the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement and the organizational
documents of the Company.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Note at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by the Purchaser in Section 4 shall be
true and correct at the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have
performed and complied with all agreements and conditions required to be
performed or complied with by it on or before the Closing Date, and
Purchaser shall have delivered payment to the Company in respect of its
purchase of Note.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the Note pursuant to
this Agreement shall have been duly obtained and shall be effective on and
as of the Closing Date. No stop order or other order enjoining the sale of
the Note shall have been issued and no proceedings for such purpose shall
be pending or threatened by the SEC or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At
the time of the Closing, the sale and issuance of the Note shall be legally
permitted by all laws and regulations to which Purchaser and the Company
are subject.
<PAGE>
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Illinois as applied to agreements
among Illinois residents, made and to be performed entirely within the
State of Illinois without regard to principles of conflict of laws.
7.2 INDEMNIFICATION. The Company agrees to indemnify the
Purchaser and each officer, director, employee, agent, partner, stockholder
and affiliate of the Purchaser (collectively, the "Indemnified Parties")
for, and hold each Indemnified Party harmless from and against: (i) any
and all damages, losses, claims and other liabilities of any and every
kind, including, without limitation, judgments and costs of settlement, and
(ii) any and all out-of-pocket costs and expenses of any and every kind,
including, without limitation, reasonable fees and disbursements of counsel
for such Indemnified Parties (all of which expenses periodically shall be
reimbursed as incurred), in each case, arising out of or suffered or
incurred in connection with any of the following: (a) any
misrepresentation or any breach of any warranty made by the Company herein
or in the Note, (b) any breach or non-fulfillment of any covenant or
agreement made by the Company herein or in the Note, and (c) any claim
relating to or arising out of a violation of applicable federal or state
securities laws by the Company in connection with the sale of the Note by
the Company.
7.3 SURVIVAL. All representations, warranties, covenants and
agreements contained in or made pursuant to this Agreement or contained in
any certificate delivered pursuant to this Agreement, shall remain
operative and in full force and effect, regardless of any investigation
made by or on behalf of any party hereto, and shall survive the transfer
and payment for the Note and the consummation of the transactions
contemplated hereby.
7.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators
of the parties.
7.5 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically
set forth herein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly
provided.
7.6 SEPARABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and
to retain as nearly as practicable the intent of the parties, and the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
7.7 AMENDMENT AND WAIVER. Except as otherwise provided, any
term of this Agreement may be amended, and the observance of any term of
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of
time or indefinitely), with the written consent of the Company and
Purchaser. Any amendment or waiver effected in accordance with this
section shall be binding upon each future holder of any security purchased
under this Agreement (including securities into which such securities have
been converted) and the Company.
<PAGE>
7.8 NOTICES. All required or permitted notices and other
communications shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by
overnight courier, or on the fifth day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company and Purchaser at the respective addresses included herein.
7.9 FEES AND EXPENSES. The Company shall pay its own
expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby and shall pay the
reasonable and documented legal fees and expenses of the Purchaser incurred
on its behalf with respect to this Agreement and the transactions
contemplated hereby.
7.10 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
BELL NATIONAL CORPORATION:
By: /s/ Peter P. Gombrich
------------------------------
Its: Chairman, CEO
------------------------------
ATTEST:
By: /s/ Leonard R. Prange
------------------------------
Its: President, CFO
------------------------------
SEASIDE PARTNERS, L.P.
By: Seaside Advisors, L.L.C.,
its general partner
By: /s/ William J. Ritger
---------------------------
Its:
---------------------------
EXHIBIT 4.2
- -----------
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
BELL NATIONAL CORPORATION
6% CONVERTIBLE SUBORDINATED NOTE DUE 2000
$500,000 CSN-101
February 26, 1999
1. PRINCIPAL AND INTEREST. BELL NATIONAL CORPORATION, a corporation
duly organized and existing under the laws of the State of California (the
"Company", which term includes any successor), for value received, hereby
promises to pay to the order of Seaside Partners, L.P., or any successor in
interest registered on the books of the Company (the "Holder") in lawful
money of the United States at the address of the Holder set forth below,
the principal sum of Five Hundred Thousand and 00/100 Dollars ($500,000) on
January 28, 2000 (the "Maturity Date") which date may be extended by the
Company to June 30, 2000 (the "Extended Maturity Date"), together with
simple interest from the date hereof, computed on the basis of a 360-day
year of twelve 30-day months in arrears from the date of original issuance
hereof until the Maturity Date or the Extended Maturity Date to Holders of
record of the Notes at the rate set forth in the following paragraph until
the principal hereof is paid or made available for payment.
The interest rate on this Note will be 6% per annum from the date of
original issuance. On the Maturity Date or the Extended Maturity Date, the
Company will pay, in lieu of the payment in whole or in part of interest in
cash on this Note, pay interest on this Note through the issuance of
additional shares of Common Stock of the Company at a conversion price as
defined in subsection 2(a) below in an aggregate principal amount equal to
the amount of interest that would be payable with respect to this Note, if
such interest were paid in cash.
This Note is one of a series of Notes that the Company contemplates
issuing to holders pursuant to a plan to raise no more than One Million
Five Hundred Thousand and 00/100 ($1,500,000.00) of proceeds currently
being undertaken by the Company, convertible into Common Stock at a
Conversion Price defined in subsection 2(a) below (the "$1,500,000 Debt
Offering).
2. CONVERSION.
(a) CONVERSION PRICE. Subject to and upon compliance with the
provisions of this Section 2, the principal amount of this Note (or any
portion hereof that is a multiple of $1,000 or a whole multiple thereof)
shall be convertible into shares of the Company's common stock, no par
value per share (the "Common Stock") at the conversion price (the
"Conversion Price") per each share of Common Stock that is the lesser of
(i) $0.33; (ii) 40% of the lowest conversion price established by the
Company in the contemplated offering by its subsidiary, Ampersand Medical
Corporation ("Ampersand") of $17,000,000 of 6% Convertible Subordinated
Notes due 1999 (the "1999 Debt Offering"); (iii) 40% of the lowest
conversion price below $0.75 in any other offering of debt securities of
the Company in substitution for the 1999 Debt Offering; or (iv) 40% of the
lowest price below $0.75 in any offering of equity securities of the
Company in substitution for the 1999 Debt Offering; provided, however, that
<PAGE>
(x) under no circumstances shall the Conversion Price be less than $0.20
per share, (y) provisions (iii) and (iv) of this subsection shall not apply
to the $1,500,000 Debt Offering, and (z) all prices contemplated by (i)
through (iv) and (x) of this subsection shall be appropriately adjusted for
any combination, consolidation stock split or other recapitalization of the
Company.
(b) AUTOMATIC CONVERSION. This Note shall be automatically
converted by the Company into shares of Common Stock at the Conversion
Price immediately upon the satisfaction of the following conditions:
(i) the closing of the merger of the Company with and into Ampersand (the
"Merger"), wherein Ampersand shall be the surviving corporation and the
separate existence of the Company shall cease; and (ii) the Company's
receipt of at least Five Million and 00/100 Dollars ($5,000,000) as part of
the 1999 Debt Offering or any other offering of debt or equity securities
of the Company, such minimum amount not to include the $1,500,000 Debt
Offering.
(c) OPTIONAL CONVERSION. The Holder may, upon notice to the
Company, convert this Note into shares of Common Stock at the Conversion
Price at any time after a sufficient number of shares of Common Stock has
been authorized by the Company's Articles of Incorporation.
(d) MECHANICS OF CONVERSION. No conversion notice shall be
necessary in the event of an automatic conversion pursuant to Section 2(b).
In the case of an automatic conversion pursuant to Section 2(b), such
conversion shall be deemed to have been made immediately following the
later to occur of (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and (ii) the receipt by the
Company of a minimum amount of $5,000,000 in accordance with Section 2(b)
above, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as
the record holders of such shares of Common Stock on such date.
(d) RECLASSIFICATION, ETC. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities into which this Note is convertible into the
same or a different number of securities of any class or classes, the
shares of Common Stock or other securities into which this Note is
convertible shall thereafter be convertible into the kind and number of
shares of stock or other securities or property of the Company or otherwise
to which the Holder would have been entitled if immediately prior to such
change the Holder had acquired the shares of Common Stock or other
securities into which this Note is convertible. If shares of the Company's
Common Stock or other securities purchasable hereunder are subdivided or
combined into a greater or smaller number of shares, the Conversion Price
under this Note shall be proportionately reduced in case of subdivision of
shares or proportionately increased in the case of combination of shares.
No adjustment on account of cash dividends or interest on the Company's
Common Stock or other securities into which this Note is convertible will
be made to the Conversion Price under this Note.
(e) NOTICE OF ADJUSTMENT. Upon any adjustment of the
securities issuable upon conversion of this Note, the Conversion Price for
the shares, and/or any increase or decrease in the number of shares into
which this Note is convertible upon conversion of this Note, the Company
shall give written notice thereof, by first class mail, postage prepaid,
addressed to the Holder at the address of the Holder as shown on the books
of the Company.
(f) FRACTIONAL SHARES. The Company shall not be required to
issue fractions of shares of Common Stock upon conversion of this Note. In
lieu of any fractional shares to which the Holder of this Note would
otherwise be entitled, the Company shall pay cash equal to such fraction
multiplied by the fair market value of the Common Stock as determined by
the Board of Directors of the Company, whose determination shall be
conclusive.
<PAGE>
(g) NO RIGHTS AS STOCKHOLDER. This Note does not entitle the
Holder to any voting rights or other rights as a stockholder of the Company
prior to the conversion hereof.
3. SUBORDINATION.
(a) "Senior Indebtedness" means the principal of and premium, if
any, and interest on indebtedness of the Company for money borrowed from
commercial banks, equipment lessors, government instrumentalities or other
financial institutions under a secured or unsecured line of credit, term
loan or equipment lease.
(b) The Company agrees and the Holder, by acceptance of this Note,
agrees, expressly for the benefit of the present and future holders of
Senior Indebtedness, that, except as otherwise provided herein, upon: (i)
an event of default under any Senior Indebtedness; or (ii) any dissolution,
winding up or liquidation of the Company, whether or not in bankruptcy,
insolvency or receivership proceedings, the Company shall not pay, and the
Holder of this Note shall not be entitled to receive, any amount in respect
of the principal and interest of this Note unless and until the Senior
Indebtedness shall have been paid or otherwise discharged. Upon: (1) an
event of default under any Senior Indebtedness; or (2) any dissolution,
winding up or liquidation of the Company, any payment or distribution of
assets of the Company, which the Holder of this Note would be entitled to
receive but for the provisions hereof, shall be paid by the liquidating
trustee or agent or other person making such payment or distribution
directly to the holders of Senior Indebtedness ratably according to the
aggregate amounts remaining unpaid on Senior Indebtedness after giving
effect to any concurrent payment or distribution to the holders of Senior
Indebtedness. Subject to the payment in full of the Senior Indebtedness
and until this Note is paid in full, the Holder of this Note shall be
subrogated to the rights of the holders of the Senior Indebtedness (to the
extent of payments or distributions previously made to the holders of
Senior Indebtedness pursuant to this paragraph 3(b) to receive payments or
distributions of assets of the Company applicable to the Senior
Indebtedness).
(c) This Section 3 is not intended to impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and
the Holder of this Note, the unconditional and absolute obligation of the
Company to pay the principal of and interest on this Note or to affect the
relative rights of the Holder of this Note and the other creditors of the
Company, other than the holders of Senior Indebtedness. Nothing in this
Note shall prevent the Holder of this Note from exercising all remedies
otherwise permitted by applicable law upon default under this Note, subject
to the rights, if any, of the holders of Senior Indebtedness in respect to
cash, property or securities of the Company received upon the exercise of
any such remedy.
4. REDEMPTION. This Note may not be redeemed prior to the Maturity
Date. Should the Company elect to extend the term of this Note, the Note
may not be redeemed prior to the Extended Maturity Date.
5. PLACE OF PAYMENT. All payments due to the Holder hereunder shall
be paid to the Holder at the address that the Holder shall have given
written notice to the Company.
6. EVENTS OF DEFAULT AND REMEDIES. If any of the following events
of default (individually, an "Event of Default") shall occur for any reason
whatsoever (and whether it shall be voluntary or involuntary or occur or be
affected by operation of law or otherwise):
<PAGE>
(a) The Company fails to make payment when due of any principal or
interest payable under this Note, and such failure continues for a period
of ten days after written notice that such payment is due and unpaid;
(b)The Company defaults in the observance or performance of any material
agreement or condition under this Note or the Note Purchase Agreement dated
of even date herewith, between the Company and Purchaser (the "Note
Purchase Agreement"), and such default continues for a period of 30 days
after written notice of such default is given to the Company by the Holder;
(c) Any representation or warranty made by the Company in the Note
Purchase Agreement shall prove to have been false in any material respect
in the date when made;
(d) The Company shall default under any material agreement for
borrowed money that causes the other party thereto to accelerate such
obligation;
(e) The Company shall: (i) file, or consent by answer or otherwise
to the filing against it of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency law of any
jurisdiction; (ii) make an assignment for the benefit of its creditors;
(iii) consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers of itself or of any substantial part of its
property; (iv) be adjudicated insolvent or be liquidated; or (v) take
appropriate action for the purpose of any of the foregoing; or
(f)A court or governmental authority of competent jurisdiction shall enter
an order appointing a custodian, receiver, trustee or other officer with
similar powers with respect to the Company or any substantial amount of its
properties, or if an order for relief with respect to the Company shall be
entered in any case or proceeding for liquidation or reorganization or
otherwise to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding up or liquidation of the
Company, or if any petition for any such relief shall be filed against the
Company, and such order or petition shall not be dismissed or stayed within
60 days after the date of such filing, then automatically upon the
occurrence of such Event of Default the entire unpaid principal amount of,
and the unpaid accrued interest on, this Note shall become immediately due
and payable.
(g) The Company fails, before June 30, 1999, to effect the Merger
or amend its Articles of Incorporation such that a sufficient number of
shares of Common Stock are available for the conversion of this Note.
7. ADDITIONAL REMEDIES. If any Event of Default hereunder shall
have occurred, the Holder may proceed to protect and enforce its rights
under this Note by exercising such remedies as are available to it in
respect thereof under the terms of this Note or applicable law, either by
suit in equity or by action at law, or both, whether for specific
performance of any agreement contained in this Note or in aid of the
exercise of any power granted in this Note. No remedy is intended to be
exclusive and each such remedy shall be cumulative.
8. TRANSFER.
(a) The transfer of this Note is registrable by the Holder hereof
in person or by his attorney duly authorized in writing on the books of the
Company. Upon surrender and cancellation of this Note upon any such
transfer, a new Note for the same aggregate principal amount will be issued
to the transferee in exchange herefor.
(b) The Company and any transfer or conversion agent may deem and
treat the person in whose name this Note shall be registered upon the books
of the Company as the absolute owner of this Note (whether or not his Note
shall be overdue and notwithstanding any notation of ownership or other
writing hereon) for all other purposes, and neither the Company nor any
transfer or conversion agent shall be affected by any notice to the
contrary. All such payments shall be valid and effectual to satisfy and
discharge the liability on this Note to the extent of the sum or sums so
paid.
<PAGE>
9. REGISTRATION RIGHTS. The Company shall register all of the
shares of Common Stock held by Holder and all of the shares of Common Stock
received pursuant to the conversion of this Note by filing a registration
statement on Form S-3 (or any successor form thereto or any other forms
then available to the Company for registration of securities), and cause
such registration statement to be declared effective on or prior to the
twelve-month anniversary date of the issuance of this Note. The Company
shall cause such registration statement to remain effective for five years
following the initial registration. If the Company fails to fails to
register Holder's Common Stock pursuant to this Section 9, the Company
shall pay to Holder liquidated damages in an amount equal to five percent
(5%) per month (or any part thereof), compounded monthly, on the amount of
the face value of this Note, until such time as the Company is no longer in
breach of this Section 9. Any payments due to Holder pursuant to this
Section 9 shall be made no later than the fifteenth day of the month
following the month in which such liquidated damages were incurred.
10. ATTORNEY FEES.
(a) If the indebtedness represented by this Note or any part
thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for
collection after default, the Company agrees to pay, in addition to the
principal and interest payable hereunder, reasonable attorneys' fees and
costs incurred by the Holder.
(b) The Company shall pay all of the reasonable and documented
legal fees incurred by the original purchaser of this Note for the review
of the terms of this Note and for any associated legal services.
11. NOTICES. All notices, reports and other communications required
or permitted hereunder shall be in writing and may be delivered in person,
by telecopy with written confirmation, overnight delivery service or U.S.
mail, in which event it may be mailed by first-class, certified or
registered, postage prepaid, addressed to the Holder at its address as
shown on the books of the Company or to the Company at 900 North Franklin
Street, Suite 210, Chicago, Illinois 60610, Attention: Chief Executive
Officer.
Each such notice, report or other communication shall for all
purposes under this Note be treated as effective or having been given when
delivered if delivered personally or, if sent by mail, at the earlier of
its receipt or five days after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed
and mailed as aforesaid or, if sent by telecopier with written
confirmation, at the earlier of: (i) 24 hours after confirmation of
transmission by the sending telecopier machine; or (ii) delivery of written
confirmation.
12. AMENDMENTS, CONSENTS AND WAIVERS. This Note may be amended at
any time and from time to time to add to, eliminate or modify the terms and
provisions hereof and the rights of the Holder hereunder with the written
consent of the Company and the Holder; provided, however, that no such
change shall terminate or impair the subordination provisions of this Note
without the prior written consent of the holders of Senior Indebtedness.
Any amendment, waiver or consent by the Holder of this Note shall be
conclusive and binding upon such Holder and any future Holder of this Note
and of any Note issued in exchange or substitution herefor, irrespective of
whether or not any notation of such amendment, waiver or consent is made
upon this Note or such exchanged or substituted Note. The Company hereby
waives presentment, demand for performance, notice of non-performance,
protest, notice of protest and notice of dishonor. No delay on the part of
the Holder in exercising any right hereunder shall operate as a waiver of
such right or any other right.
<PAGE>
13. NO RECOURSE. No recourse shall be had for the payment of the
principal or interest on this Note, or any claim based hereon, or otherwise
in respect hereof, this Note, against any incorporator, stockholder,
officer or director, as such, past, present or future, of the Company or
any successor Company, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part
of the consideration for the issue hereof, expressly waived and released.
14. PAYMENT DUE ON HOLIDAYS. If the principal of or interest on
this Note falls due on a Saturday, Sunday or legal holiday at the place of
payment, such payment shall be made on the next succeeding business day and
such extended time shall be included in computing interest.
15. SEVERABILITY. If any provision of this Note shall be held
invalid under any applicable laws, such invalidity shall not affect any
other provision of this Note that can be given effect without the invalid
provision and, to this end, the provisions hereof are severable.
16. GOVERNING LAW. This Note is being delivered in and shall be
construed in accordance with the laws of the State of Illinois, without
regard to the conflicts of laws provisions thereof.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Company has caused this Note to be executed and delivered by its proper and
duly authorized officers as of the date first above written.
BELL NATIONAL CORPORATION
BY: /s/ Peter P. Gombrich
_________________________________
NAME: Peter P. Gombrich
TITLE: Chief Executive Officer
Attest:
BY: /s/ LEONARD R. PRANGE
------------------------------
NAME: Leonard R. Prange
TITLE: Assistant Secretary
EXHIBIT 10.6
- ------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into as of the
first day of May, 1998 by and between InPath, LLC, a Delaware Limited
Liability Company ("InPath"), and Peter P. Gombrich ("Employee").
RECITALS
--------
InPath desires to have the benefits of Employee's knowledge and
experience as a full time senior executive without distraction by
employment-related uncertainties and considers such employment a vital
element of protecting and enhancing the best interests of InPath and its
shareholders.
Employee desires to be employed full time with InPath.
InPath desires to assure itself of the continued services of
Employee, and Employee desires to render services to InPath.
In consideration of the mutual covenants and other good and valuable
consideration, the parties agree as follows:
1. TERM. InPath shall employ Employee for a five (5) year period
commencing May 1, 1998 (the "Effective Date") and ending April 30, 2003,
unless terminated as provided in Sections 5 or 6. This Agreement shall
automatically renew for additional one (1) year terms unless either party
delivers to the other written notice of non-renewal at least 60 days prior
to the end of the term. In addition, if a Change of Control as defined in
section 7(d) occurs when less than one (1) year remains prior to the
expiration of this Agreement, this Agreement shall be automatically
extended until the first anniversary of the date on which the Change of
Control occurred. The period during which Employee is employed by InPath
is the "Employment Period."
2. DUTIES. Employee shall serve as the Chief Executive Officer and
Chairman and shall exercise the authority and assume the responsibilities
typically given to the chief executive officer of a corporation similar in
size and nature to InPath, and shall assume any other duties and
responsibilities as the Board of Directors may prescribe that are
consistent with the duties of the chief executive officer of a company
similar in size and nature to InPath. Throughout the Employment Period,
Employee shall devote substantially all of his time, attention and efforts
during normal business hours to the performance of his duties. Employee
shall not render any services as a director, trustee, officer, employee or
consultant to any other organization without the prior approval of the
Board of Directors.
3. COMPENSATION. During the Employment Period, InPath shall
compensate Employee as follows:
(a) A base annual salary determined by the Board of Directors
consistent with its practices for executive officers of InPath, but not
less than $200,000 per year, payable in accordance with InPath's customary
payroll practices;
(b) Bonuses as determined by the Board of Directors, but with a
minimum annual bonus of not less than 25% of the Employee's base annual
salary applicable in that year;
(c) If Employee's base annual salary is increased at any time, it
shall not thereafter be decreased;
(d) A monthly automobile allowance of $750.
<PAGE>
4. EMPLOYEE BENEFITS.
(a) Employee shall be entitled, on a basis commensurate with
Employee's position with InPath, to full participation in, and service
credit for benefits as provided under, all life, accident, medical payment,
health and disability insurance, retirement pension, salary continuation,
expense reimbursement and other employee benefit and perquisite policies,
plans, programs and arrangements that generally are made available to
executive officers of InPath, except for such arrangements that the Board
of Directors, in its discretion, shall adopt for select employees to
compensate them for special or extenuating circumstances.
(b) Employee shall be entitled to five (5) weeks of annual vacation
leave at full pay.
(c) Employee shall be entitled to participate in all bonus,
incentive, profit-sharing, stock option, stock purchase, stock
appreciation, discretionary pay and similar policies, plans programs and
arrangements that generally are made available to executive officers of
InPath.
(d) Nothing in this Agreement shall limit in any way Employee's
participation in any other benefit plans or arrangements as are from time
to time approved by InPath.
5. TERMINATION BY INPATH. InPath may terminate this Agreement
without entitling Employee to the severance benefits provided by Sections 7
and 8 only under the following circumstances:
(a) DEATH, TOTAL DISABILITY OR RETIREMENT. This Agreement
shall be terminated upon Employee's death or retirement. This Agreement
shall be terminated if, as a result of Employee's incapacity resulting from
physical or mental illness or disease that is likely to be permanent,
Employee is unable to perform his duties for a period of more than 120
consecutive days during any twelve (12) month period and Employee is
qualified and eligible to receive disability benefits under the long-term
disability plan then in effect for executive officers of InPath; and
(b) CAUSE. InPath may terminate this Agreement for cause,
which means:
(i) the repeated, willful and continued failure by
Employee to follow the reasonable instructions of the Board of Directors of
InPath after Employee has been given written notice of the failure and a
period of at least thirty (30) days to cure the failure;
(ii) the willful commission by Employee of acts that are
dishonest and materially injurious to InPath;
(iii) the conviction of Employee of a felony; or
(iv) drug addiction.
InPath's termination of this Agreement for any reason other than
those specified in this Section 5 shall be a termination without cause. No
breach or default by Employee shall be deemed to have occurred unless
written notice is given to Employee within sixty (60) days after InPath
first learns of the breach or default and it is not cured within thirty
(30) days after notice is given to Employee.
6. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement,
and shall be entitled to severance compensation and benefits as provided in
Sections 7 and 8 if:
(a) at any time more than 120 days after the occurrence of a
Change of Control, for any reason or no reason at all; or
<PAGE>
(b) for Good Reason, provided that Employee terminates this
Agreement no later than ninety (90) days following the occurrence of an
event constituting Good Reason. "Good Reason" means the occurrence of any
of the following:
(i) The assignment of duties to Employee that are
materially inconsistent with Employee's position, duties and status as
contemplated by this Agreement (without the express written consent of
Employee);
(ii) Any action by InPath that results in a material
adverse change in the nature or scope of the position, duties, authorities,
responsibilities or functions of Employee as contemplated by this
Agreement, except for strategic reallocations of the personnel reporting to
Employee;
(iii) Employee's base annual salary, as may be increased
from time to time, is reduced, Employee's right to participate in any
policy, plan, program or arrangement of the type referred to in Section
4(c) is changed or terminated, or Employee's right to benefits of the type
referred to in Section 4(a) is changed, terminated or denied;
(iv) InPath relocates its principal executive offices,
or requires Employee to change his principal location of work to any
location that is more than fifty 50 miles from his principal location of
work on the Effective Date, or requires Employee to travel away from his
office in the course of discharging Employee's responsibilities or duties
significantly more (in terms of either consecutive days or aggregate days
in any calendar year) than was required of Employee prior to the Effective
Date, in either case without Employee's prior written consent; provided,
however, that InPath has the right to make temporary assignments for a
reasonable period of time at other locations where InPath has a special
need for Employee's services;
(v) Employee is not re-elected or is removed as a
member of the Board of Directors; or
(vi) Without limiting the generality or effect of the
foregoing, InPath fails to comply with any of its obligations in any
material respect.
7. SEVERANCE PAYMENT AFTER CHANGE OF-CONTROL.
(a) If, following the occurrence of a Change of Control,
InPath terminates this Agreement without cause or Employee resigns for Good
Reason, Employee shall receive a lump sum severance payment equal to three
(3) times Employee's Base Amount, as defined in subsection (b) below.
(b) "Base Amount" means the sum of:
(i) Employee's annual base salary in effect immediately
prior to the termination of this Agreement; plus
(ii) the highest incentive compensation paid to Employee
in any of the two consecutive annual incentive compensation periods ending
immediately prior to the termination of this Agreement; plus
(iii) the monthly automobile allowance Employee is
entitled to receive pursuant to Section 3(d), multiplied by 12.
<PAGE>
(c) If a Change of Control occurs, despite the terms of any
applicable plan or arrangement to the contrary,
(i) Employee's unit options and unit appreciation
rights shall immediately vest and be immediately exercisable,
(ii) any risk of forfeiture included in restricted unit
grants made to Employee shall immediately lapse, and
(iii) Employee's rights in all other employee benefit and
compensation plans shall immediately vest, provided that Employee's rights
under any plan or arrangement of InPath described in Section 28OG(b)(6) of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereto (the "Code"), shall not be altered as a result of this subsection
(c).
(d) A "Change of Control" shall be deemed to have taken place
if:
(i) if, prior to the date InPath becomes a publicly
held corporation, any outside person(s) or entity(ies) directly or
indirectly acquire fifteen percent (15%) or more of the units or the
combined voting power of InPath;
(ii) if InPath becomes a publicly held corporation, and
if any person, as that term is used in Section 13(d) and Section 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
except the unitholders of record immediately prior to the initial public
offering (IPO), becomes, is discovered to be, or files a report on Schedule
13D or 14D-1 disclosing that he is the beneficial owner, as defined in Rule
l3d-3 under the Exchange Act, directly or indirectly, of securities
representing 20% or more of the combined voting power of InPath's then
outstanding securities entitled to vote generally in the election of
directors (unless such person is known by Employee to already be a
beneficial owner on the date of this Agreement;
(iii) InPath is merged, consolidated or reorganized into
or with another corporation or other legal person, or securities of InPath
are exchanged for securities of another corporation or other legal person,
and, immediately after such merger, consolidation, reorganization or
exchange, less than a majority of the combined voting power of the then
outstanding securities of the corporation or person immediately after the
transaction are held, directly or indirectly, in the aggregate by the
unitholders of InPath immediately prior to such transaction;
(iv) InPath, in any transaction or series of related
transactions, sells all or substantially all of its assets, and less than a
majority of the combined voting power of the then outstanding securities of
the purchaser immediately after the sale or sales are held, directly or
indirectly, in the aggregate by the unitholders of InPath immediately prior
to the sale;
(v) InPath sells or disposes of (in any transaction or
series of related transactions) business operations that generated
two-thirds of its consolidated revenues immediately prior thereto,
determined on the basis of InPath's four most recently completed fiscal
quarters;
(vi) InPath files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing,
in response to Form 8-K or Schedule 14A, that a change in control of InPath
may have occurred or may occur pursuant to any then-existing contract or
transactions;
<PAGE>
(vii) any other transaction or series of related
transactions occurs that has substantially the effect of a transaction
specified in any of the preceding clauses in this subsection (d); or
(viii) Employee is terminated by InPath, or removed from
Employee's office or position without cause within ninety (90) days before
a Change of Control occurs.
(e) Notwithstanding any contrary provision in this Agreement,
if any amount or benefit to be paid or provided would be an "Excess
Parachute Payment", within the meaning of Section 280G of the Code but for
the application of this Subsection 7(e), then the payments and benefits
shall be reduced to the minimum extent necessary, but in no event to less
than zero, so that no portion of any payment or benefit, as reduced,
constitutes an Excess Parachute Payment. The determination of whether any
reduction in the payments or benefits is required pursuant to this Section
7(e) shall be made at the expense of InPath. If any payments or benefits
intended to be provided must be reduced pursuant to this subsection (e),
Employee may designate the payments or benefits to be reduced. InPath
shall provide Employee with all reasonably requested information for
Employee to make the designation. If Employee fails to make such
designation within ten (10) business days of the termination of this
Agreement, InPath may effect reduction in any manner it deems appropriate.
(f) Notwithstanding the provisions of Section 7(d)(i), (ii)
and (v), unless otherwise determined in a specific case by majority vote of
the Board of Directors, a Change of Control shall not be deemed to have
occurred solely because an entity in which InPath directly or indirectly
beneficially owns 50% or more of the voting securities, or any InPath
sponsored employee stock ownership plan or other employee benefit plan
files or becomes obligated to file a report or a proxy statement in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A under
the Exchange Act, disclosing beneficial ownership by it of units of InPath,
or because InPath reports that a change in control may have occurred or may
occur in the future by reason of such beneficial ownership.
(g) If this Agreement is not terminated as provided in
Section 7(a), then the rights and obligations of the parties for the
balance of the Employment Period shall be governed by this Agreement
exclusive of the provisions contained in this Section 7, except this
Section 7 shall continue and become applicable if a subsequent Change of
Control occurs during the Employment Period.
8. OTHER SEVERANCE BENEFITS.
(a) If Employee is terminated without cause or Employee
resigns for Good Reason, and no Change of Control has occurred, Employee
shall receive a severance payment equal to two (2) times Employee's Base
Amount as defined in Section 7(b).
(b) If Employee is terminated without cause or Employee
resigns for Good Reason or as provided in Section 6(a), InPath shall
continue to provide, at no cost to Employee, basic employee group benefits
referred to in Section 4(a) that are welfare benefits, but not pension,
retirement or similar compensatory benefits, for Employee and Employee's
dependents and are substantially similar to those they were receiving or to
which they were entitled immediately prior to the termination of this
Agreement for the lesser of one year after termination or until Employee
secures new employment. Employee's unit option agreements shall provide
for a continuance of
<PAGE>
the option exercise period for at least two (2) years from the date
of Employee's termination without cause and at least one (1) year from the
date of Employee's resignation for Good Reason, except that if Employee
dies, continuance of the option exercise period shall be at least two (2)
years and the exercise period of an option shall not be extended beyond the
date on which it would have terminated had Employee continued to be
employed by the Company. The preceding sentence shall not apply to any
"incentive stock option," as that term is defined in Section 411 of the
Code.
(c) If Employee is terminated without cause or Employee
resigns for Good Reason or as provided in Section 6(a), InPath shall
promptly, within five (5) business days after a request by Employee, pay or
reimburse Employee for the costs and expenses of any executive outplacement
firm selected by Employee; provided that InPath's liability under this
Subsection (e) shall be limited to $20,000. Employee shall provide InPath
with reasonable documentation of outplacement costs and expenses.
9. TIMING OF PAYMENT. Any severance or other payment under this
Agreement shall be paid within thirty (30) days after the event giving rise
to Employee's entitlement to the payment or at any other date as the
parties agree.
10. OTHER BENEFITS. The provisions of Sections 7 and 8 shall not
affect Employee's participation in or terminate distributions and vested
rights under any pension, profit sharing, insurance or other employee
benefit plan to which Employee is entitled pursuant to the terms of the
plans, except for the acceleration of vested benefits in certain employee
benefits pursuant to Section 7(c) and as provided in Section 8(b).
11. NO MITIGATION OBLIGATION. InPath recognizes that it will be
difficult, and may be impossible, for Employee to find reasonable
comparable employment following the termination of this Agreement. The
non-competition covenant contained in Section 13 further limits the
employment opportunities for Employee. In addition, InPath's severance pay
policy applicable in general to its salaried employees does not provide for
mitigation, offset or reduction of any severance payment. Accordingly, the
payment of severance compensation under this Agreement will be liquidated
damages, and that Employee shall not be required to seek other employment
or otherwise mitigate any payment.
12. NO RIGHT TO SET OFF. InPath shall not set off against amounts
payable to Employee any amounts earned by Employee in other employment, or
otherwise, after termination of this Agreement, or any amounts which might
have been earned by Employee in other employment had he sought such other
employment.
13. COMPETITIVE ACTIVITY. For two (2) years following the
termination of this Agreement, if Employee receives payments and benefits
under this Agreement, Employee shall not, without the prior written consent
of the Board of Directors, engage in any Competitive Activity.
"Competitive Activity" means Employee's participation in the management of
any business if it engages in substantial and direct competition with
InPath and the business' sales of any competing product or service amounted
to 25% or more of its net sales for its most recently completed fiscal
year, and if InPath's net sales of a competing product or service amounted
to 25% or more of InPath's net sales for its most recently completed fiscal
year. "Competitive Activity" shall not include
(a) the mere ownership of securities in any business and the
exercise of rights appurtenant thereto, or
(b) participation in the management of any business other
than in connection with that business' operations competitive with InPath.
<PAGE>
14. NON-DISCLOSURE OF INFORMATION.
(a) During the Employment Period, and at all times
thereafter, except in the performance of Employee's obligations to InPath,
Employee shall not, directly or indirectly, use or authorize the use of any
confidential or other proprietary information ("Confidential Information")
of InPath including but not limited to trade secrets, product
specifications and ideas, manuals, systems, procedures, confidential
reports, customer lists, sales or distribution methods, patentable
information and data and financial information concerning InPath, which
Confidential Information has been made known, whether or not with the
knowledge and permission of InPath, and whether or not developed, devised
or otherwise created in whole or in part by the efforts of Employee, to
Employee by reason of Employee's activities on behalf of InPath. Employee
shall not reveal, divulge or make known any Confidential Information to any
individual or business organization whatsoever except in performance of
Employee's obligations to InPath, with the express permission of the Board
of Directors, or as required by operation of law.
(b) All Confidential Information is the exclusive property of
InPath. All business records, papers and documents kept or made by
Employee relating to the business of InPath shall be and remain the
property of InPath and shall remain in the possession of InPath. Upon the
termination of this Agreement or upon the request of InPath at any time,
Employee shall promptly deliver to InPath, and shall retain no copies of
any written materials, records or documents made by Employee or in
Employee's possession concerning the business and affairs of InPath that
contain Confidential Information.
(c) Without limiting the remedies available to InPath,
Employee acknowledges that a breach of any of the covenants contained in
Section 13 and this Section 14 may result in material irreparable injury to
InPath for which there is no adequate remedy at law, that it may not be
possible to measure damages for such injuries precisely and that, in the
event of a breach or threatened breach, InPath may obtain a temporary
restraining order and a preliminary or permanent injunction restraining
Employee from engaging in activities prohibited by Section 13 or this
Section 14 or any other relief as may be required to specifically enforce
any of the covenants in such Sections.
15. INVENTIONS.
(a) Employee shall promptly and fully disclose to InPath any
and all ideas, improvements, discoveries and inventions, whether or not
they are believed to be patentable ("Inventions"), which Employee conceives
or first actually reduces to practice, either alone or with others, during
the Employment Period, and which relate to the business now or hereafter
carried on or contemplated by InPath, or which result from any work
performed by Employee for InPath.
(b) All Inventions shall be the sole and exclusive property
of InPath, and during the Employment Period and at all times thereafter,
Employee shall, upon request, execute and assign any and all applications,
assignments and other instruments that InPath shall deem necessary or
appropriate to apply for or obtain a United States patent, trademark or
copyright and/or any foreign patent, trademark or copyright for any
Inventions. Employee shall assign and convey to InPath or its nominee the
sole and exclusive right, title and interest in and to any Inventions.
<PAGE>
(c) The provisions of this Section 15 do not apply to an
invention for which no equipment, supplies, facility or Confidential
Information of InPath was used, that was developed entirely on Employee's
own time, and
(i) that does not relate directly to the business of
InPath or to InPath's actual or anticipated research or development, or
(ii) that does not result from any work performed by
Employee for InPath.
16. BINDING ARBITRATION: LEGAL FEES AND EXPENSES.
(a) Any dispute or controversy arising under or in connection
with this Agreement prior to the occurrence of a Change of Control shall be
resolved exclusively by binding arbitration in Cook County, Illinois, in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Each party shall bear his or its own costs and expenses of
arbitration, but if Employee is the prevailing party in such arbitration,
in whole or in part, InPath shall pay as part of the award all attorney's
and related fees, costs and expenses incurred by Employee in connection
with the arbitration.
(b) If a Change of Control occurs and Employee determines, in
good faith, that InPath has failed to comply with any of its obligations
under this Agreement, or InPath or any other person takes or threatens to
take any action to declare this Agreement void or unenforceable or
institutes any litigation, arbitration proceeding or other action or
proceeding designed to deny or recover from Employee the benefits provided
or intended to be provided to Employee, InPath shall pay for, as provided
below, counsel selected and retained by Employee, to represent Employee in
connection with the initiation or defense of any litigation, arbitration or
other legal action, whether by or against InPath or any director, officer,
unitholder or other person affiliated with InPath, in any jurisdiction.
Within ten (10) business days after receipt of Employee's request
referencing this Section 16(b), InPath shall pay or reimburse Employee for
fees and expenses incurred, or reasonably anticipated to be incurred, in
accordance with the request and this Section 16(b). InPath shall pay and
shall be solely responsible for any and all attorneys' and related fees and
expenses incurred by Employee in connection with any of the foregoing,
excluding any fees and expenses related to an unsuccessful appeal filed by
Employee of an adjudication on the merits, any motion for a new trial filed
by Employee that is denied or any other motion filed by Employee for
reconsideration or review that is denied.
17. WITHHOLDING OF TAXES. InPath may withhold from any amounts
payable under this Agreement federal, state, city or other taxes as
required by law or government regulation.
18. NOTICES. All notices, requests, demands and other
communications called for or contemplated by this Agreement shall be in
writing and shall be deemed given when delivered personally or when mailed
by United States certified or registered mail, return receipt requested,
postage prepaid, addressed to the parties, their successors in interest or
assignees at the following addresses or such other addresses as the parties
may designate:
If to InPath: InPath, LLC
900 N. Franklin Street, Suite 210
Chicago, Illinois 60610
Attn: Secretary
<PAGE>
If to Employee: Peter P. Gombrich
1705 N. Dayton Street
Chicago, Illinois 60614
19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without
giving effect to Illinois' principles of conflict of laws. Venue will be
solely in the state or federal courts located in Cook County, Illinois,
subject only to Section 16(a).
20. VALIDITY. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect. Any provision of this Agreement held to be
invalid or unenforceable shall be reformed only to the extent necessary to
make it valid and enforceable.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter, and
supersedes all negotiations, prior discussions, preliminary agreements and
employment arrangements between Employee and InPath. This Agreement may
not be amended, nor may any of its provisions be waived, except in a
writing executed by the parties.
22. EFFECT ON SUCCESSORS IN INTEREST. This Agreement shall inure to
the benefit of and be binding upon the heirs, administrators, executors and
successors of each of the parties, including without limitation any person
acquiring, directly or indirectly, all or substantially all of the business
and/or assets of InPath by purchase, merger, consolidation, reorganization
or otherwise, and such successor shall thereafter be deemed "InPath" for
purpose of this Agreement. This Agreement is personal in nature and
neither of the parties shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations except as
expressly provided in this Section. Without limiting the generality of the
foregoing, Employee's right to receive payments shall not be assignable,
transferable or delegable, whether by pledge, creation of a security
interest or otherwise, other than by bequest or devise or by the laws of
descent and distribution and, upon any attempt to assign or transfer
contrary to this Section, InPath shall have no liability to pay any amount
attempted to be assigned, transferred or delegated.
23. EFFECTIVENESS. This Agreement shall be effective upon the
Effective Date.
24. CAPTIONS. The captions and headings of the sections are
inserted only as a convenience and do not define, limit or otherwise
describe the scope of this Agreement or the intent of any of its
provisions.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
INPATH, LLC
By: /s/ Peter P. Gombrich
----------------------------------------
Authorized Representative of the
Board of Directors
By: /s/ Peter P. Gombrich
----------------------------------------
Peter P. Gombrich
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This is Amendment No. 1, dated as of December 4, 1998, to that
certain Employment Agreement (the "Original Agreement") dated as of May 1,
1998 between InPath, LLC, a Delaware limited liability company ("InPath"),
and Peter P. Gombrich ("Employee").
RECITALS:
---------
Inpath and the members of Inpath are contemporaneously herewith
entering into a Stock and Membership Interest Exchange Agreement with Bell
National Corporation and Alexander M. Milley (the "Exchange Agreement"),
and it is a condition to the closing of the transactions contemplated by
such agreement that the Original Agreement be amended to modify the term of
the Employee's employment, clarify certain circumstances under which the
Employee may be terminated and clarify that the transactions contemplated
thereby shall not constitute a "Change of Control" for purposes of the
Original Agreement.
In consideration of the mutual covenants and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
COVENANTS
---------
1. AMENDMENTS TO ORIGINAL AGREEMENT. The Original Agreement is
hereby amended as follows:
(a) Paragraph 1 of the Original Agreement is hereby amended
by deleting the first two sentences thereof and inserting in their place:
InPath shall employ Employee for a three (3) year period,
commencing May 1, 1998 (the "Effective Date") and ending April 30, 2001,
unless terminated as provided in Sections 5 or 6. This Agreement shall
automatically renew for additional two (2) year terms unless either party
delivers to the other written notice of non-renewal at least sixty (60)
days prior to the end of the term.
(b) Section 3(b) of the Original Agreement is hereby amended
by deleting the comma after the word "Directors", by adding the words "of
Bell National Corporation" after "Directors, and deleting the words "but
with a minimum annual bonus of not less than 25% of the Employee's base
annual salary applicable in that year".
(c) Section 5(b) of the Original Agreement is hereby amended
by deleting the word "or" at the end of clause (iii), by deleting the
period at the end of clause (iv) and inserting a semicolon and by inserting
the following after clause (iv):
(v) InPath materially deviates from its business and financial
plan as from time to time approved by the Board of Directors of Bell
National Corporation, and such deviation directly results in a material and
adverse change in or to the business of InPath.
2. CHANGE IN CONTROL. Employee agrees that the transactions
contemplated by the Exchange Agreement will not constitute a "Change of
Control," as defined in Section 7(d) of the Original Agreement.
3. REAFFIRMATION OF ORIGINAL AGREEMENT. Except as otherwise
specifically set forth herein, the Original Agreement shall remain in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No.
1 to the Original Agreement as of the date first set forth above.
/s/ Peter P. Gombrich
------------------------------
Peter P. Gombrich
InPath, LLC
By: /s/ Peter P. Gombrich
------------------------
Its: CEO
------------------------
EXHIBIT 10.7
- ------------
PATENT AND TECHNOLOGY LICENSE AGREEMENT
This PATENT AND TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is
made as of this 4th day of September 1998 by and between ACCUMED
INTERNATIONAL, INC., a Delaware corporation ("ACCUMED"), and INPATH, LLC, a
Delaware limited liability company ("LICENSEE").
WHEREAS, ACCUMED, by reason of an assignment from certain individual
inventors, has the right to grant patent licenses under certain "Patents"
(as defined in Section 1);
WHEREAS, ACCUMED owns certain "Technology" (as defined in Section 1)
comprised of, among other things, valuable trade secrets and know-how and,
accordingly, has the right to grant licenses under the same; and
WHEREAS, LICENSEE wishes to obtain a license under the Patents and
under the Technology upon and subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, ACCUMED and LICENSEE hereby
agree as follows:
SECTION 1
DEFINITIONS
The following capitalized terms used in this Agreement shall have the
respective meanings ascribed to them below in this Section unless otherwise
expressly defined in this Agreement (such definitions shall be equally
applicable to both the singular and plural forms of the defined terms). The
words "hereof," "herein" and "hereunder" and words of like import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section references are to this
Agreement unless otherwise specified.
"ACCUMED" has the meaning set forth in the introductory paragraph of
this Agreement.
"Accumed Improvement" means any redesign, enhancement, or
modification, of the Licensed Products, whether or not patentable,
developed by ACCUMED or any third party on ACCUMED's behalf.
"Affiliated Person" means, (i) with respect to an individual, (a)
each other member of such individual's family; (b) any Person that is
directly or indirectly controlled by such individual or one or more members
of such individual's family; (c) any Person in which such individual or
members of such individual's family hold (individually or in the aggregate)
a Material Interest; and (d) any Person with respect to which such
individual or one or more members of such individual's family serves as a
director, officer, manager, partner, executor, or trustee (or in a similar
capacity); and (ii) with respect to a specified Person other than an
individual, (a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under
common control with such specified Person; (b) any Person that holds a
Material Interest in such specified Person; (c) each Person that serves as
a director, officer, manager, partner, executor, or trustee of such
specified Person (or in a similar capacity); (d) any Person in which such
specified Person holds a Material Interest; (e) any Person with respect to
which such specified Person serves as a general partner or a trustee (or in
a similar capacity); and (f) any Affiliated Person of any individual
described in clause (b) or (c).
<PAGE>
"ACCUMED's Protected Business" has the meaning set forth in Section
6.2.
"Claim" means a patent claim made in a pending patent application or
in an issued patent.
"Copyrighted Work" means ACCUMED's copyrighted works which relate to
the Patent Rights or Technology and which are delivered to and accepted by
LICENSEE pursuant to Section 2.7.
"Foreign Patents" means, collectively, the letters patent, if any,
covering Claims of the U.S. Patents which are applied for by ACCUMED or
issued to ACCUMED in a country other than the United States, subject to the
provisions of Section 5.1 governing the prosecution thereof.
"Guaranteed License Issue Fee" has the meaning set forth in Section
3. 1.
"Licensed Product" means any device, apparatus, instrument,
equipment, consumables, data, system, or component thereof, or method or
process or embodiments thereof which are covered by the LICENSEE Protected
Business or which are covered by the Claims of the Patents or the subject
matter of the Technology.
"LICENSEE" has the meaning set forth in the introductory paragraph of
this Agreement.
"LICENSEE Improvement" means any redesign, enhancement, or
modification, of the Licensed Products, whether or not patentable,
developed by LICENSEE or any third party on LICENSEE's behalf
"LICENSEE's Protected Business" has the meaning set forth in Section
6.2.
"Material Interest" means direct or indirect beneficial ownership of
voting securities or other voting interests representing more than 5% of
the outstanding voting power of a Person or equity securities or other
equity interests representing more than 5% of the outstanding equity
securities or equity interests in a Person.
"Minimum Guaranteed Payment" has the meaning set forth in Section
3.2.
"Non-Cancellation Period" has the meaning set forth in Section 9.3.
"Non-Competition Agreement" means that certain Non-Competition and
Confidentiality Agreement of even date herewith made by Peter P. Gombrich
in favor of ACCUMED.
"Outside Country" has the meaning set forth in Section 5.1.
"Patents" means, collectively, the U.S. Patents and the Foreign
Patents.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, governmental authority, or any other entity.
"Proprietary Information" has the meaning set forth in Section 6.1.
"Related Party" means Peter P. Gombrich or any other party to a
Related Party Agreement.
"Related Party Agreements" means, collectively, this Agreement, the
Settlement Agreement, the Non-Competition Agreement, and the other
agreements, documents, and instruments executed and delivered in connection
therewith.
<PAGE>
"Required Royalty" has the meaning set forth in Section 3.2.
"Sales" means the gross amount of all sales, revenues, receipts,
cash, monies, fees, other amounts invoiced or collected by LICENSEE
(whether on its own or through its distributors or agents) in any currency
or denominations (whether in cash or by way of other benefit, advantage, or
concession (in which case the applicable revenue will be the monetary
equivalent or value of same)) from the manufacture, use, sale, offer to
sell, rental, lease or other transfer of any Licensed Product.
"SAMBA Transaction" has the meaning set forth in Section 6.2.
"Settlement Agreement" means that certain Settlement Agreement of
even date herewith among Peter P. Gombrich, ACCUMED, and LICENSEE.
"Technology" means product designs, models, prototypes, schematics,
copyrighted works, know-how, technical information, and trade secrets
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to
practice), manufacturing and production processes and techniques, research
and development information, drawings, blue prints, specifications,
designs, bills of material, computer software, and documentation), and
embodiments thereof (in whatever form or medium) of ACCUMED which directly
relate to "collection," "imaging," or "analysis" as defined in the next
sentence. For the purposes of this definition, (i) "collection" means
collection which involves the use of any apparatus, device, consumable,
method, or process that conveys a priori information in connection with the
specimen or sample collection process, whether or not used in conjunction
with any collection device capable of conveying a priori information, (ii)
"imaging" means imaging or optical sensing which involves the use of (a)
fluorescence, (b) spectral (including color, amplitude, or ratio
spectrometry) measurement from an imaging sensor, or (c) the detection of
abnormal tissue by the application of a chemical or pharmaceutical agent,
and (iii) "analysis" means analysis which involves any apparatus, device,
consumable, method, or process using "imaging" (as defined in clause (ii))
information to select tissue or patients in need of point-of-care follow-up
including therapy or if it involves any collection, sampling, screening, or
diagnosis based upon "imaging" (as defined in clause (ii)).
"Termination Default" has the meaning set forth in Section 8.1.
"Territory" means the United States and any other country throughout
the world.
"U.S. Patents" means (i) the Application for Letters Patent
identified as Case No. 96,242 titled "A Method and Apparatus for Imaging
and Sampling Diseased Tissue Using Autofluorescence" as filed under United
States Patent Application Serial No. 08/845,261 on April 23, 1997, (ii)
Case No. 96,242-A, which is a continuation in part thereof, as filed under
United States Patent Application Serial No. 08/951,018 on October 15, 1997,
(iii) the continuations, continuations-in-part or divisions thereof, (iv)
the letters patent issuing therefrom by the United States Patent and
Trademark Office, and (v) the extensions, renewals or reissues of such
letters patent.
SECTION 2
LICENSE OF PATENTS AND TECHNOLOGY
2.1 GRANT OF LICENSE IN PATENTS. ACCUMED hereby grants to LICENSEE,
and LICENSEE accepts from ACCUMED, an exclusive, non-transferable,
non-divisible license to make, have, made, use, offer to sell, and sell
Licensed Products covered by the Claims of the Patents throughout the
Territory on the terms and provisions hereof.
<PAGE>
2.2 GRANT OF LICENSE IN TECHNOLOGY. ACCUMED hereby grants to
LICENSEE, and LICENSEE accepts from ACCUMED, an exclusive,
non-transferable, non-divisible license to make, have made, use, offer to
sell, and sell Licensed Products covered by the subject matter of the
Technology throughout the Territory on the terms and provisions hereof.
2.3 GRANT OF LICENSE IN COPYRIGHTS. ACCUMED hereby grants to
LICENSEE, and LICENSEE accepts from ACCUMED, an exclusive, nontransferable,
non-divisible license to use and copy the Copyrighted Works on the terms
and provisions hereof.
2.4 SCOPE OF GRANT. The licenses in the Patents, the Technology,
and the Copyrighted Works granted hereunder are not transferable (except as
expressly permitted by Section 10.8) and no right to sublicense is extended
by this Agreement. LICENSEE acknowledges that no license or right is hereby
granted by implication, estoppel, or otherwise, under any patent or patent
right, know-how, or trade secret not expressly identified in this
Agreement. LICENSEE shall not make, have made, use, offer to sell, sell, or
otherwise commercially exploit any Licensed Products outside the scope of
the licenses granted hereunder. ACCUMED reserves all rights not expressly
granted herein. The license in the Copyrighted Works granted hereunder
shall be coincident and coterminous with the licenses in the Patents and
the Technology hereunder. Without limiting the foregoing, the licenses
granted hereunder shall not be interpreted to limit or derogate ACCUMED's
right or ability to make, have made, use, offer to sell, sell, or to
otherwise commercially exploit for its own benefit the Patents, the
Technology, and the Copyrighted Works in any manner in connection with any
products, systems, or processes within the scope of the definition of, and
coincident to LICENSEE' s restrictions with respect to, "ACCUMED's
Protected Business" under and as defined in Section 6. 1.
2.5 IMPROVEMENTS. LICENSEE Improvements will be owned by LICENSEE.
ACCUMED Improvements will be owned by ACCUMED. LICENSEE hereby grants to
ACCUMED a non-exclusive license to use LICENSEE Improvements outside the
scope of the LICENSEE Protected Business, solely to the extent LICENSEE
shall have rights therein and coterminous with the licenses granted to
LICENSEE hereunder. ACCUMED Improvements shall be covered by the license
grants under this Agreement solely to the extent ACCUMED shall have rights
therein and solely to the extent necessary to enable LICENSEE to
manufacture, use, and sell Licensed Products in accordance with this
Agreement (e.g. if ACCUMED develops an ACCUMED Improvement and obtains a
patent thereon which would otherwise block LICENSEE's ability to
manufacture, use, and sell Licensed Products in accordance with this
Agreement, then the license grants hereunder shall include such patent,
whereas if such ACCUMED Improvement patent would not otherwise block
LICENSEE's rights hereunder, such ACCUMED Improvement patent will not be
covered by the license grants under this Agreement). Each party shall keep
the other party fully apprised of any improvements it may develop for the
Licensed Product and shall give the other party prompt written notice of
any of the same, which shall be given, in any event, not later than ten
(10) business days after such party becomes aware of the same.
2.6 DUTY TO MARKET. LICENSEE hereby covenants and agrees that
during the term of this Agreement it will use its best efforts to design,
develop, manufacture, sell, market, and support the Licensed Products.
2.7 DULY TO DELIVER DOCUMENTATION. ACCUMED shall at its sole cost
and expense, within forty-five (45) days after execution of this Agreement
by LICENSEE, deliver to LICENSEE a tangible and/or electronic copy of all
of ACCUMED's documentation of the Patents and the Technology.
<PAGE>
SECTION 3
ROYALTIES, RECORDS, AND REPORTS
3.1 GUARANTEED LICENSE ISSUE FEE. LICENSEE shall pay ACCUMED a
guaranteed license issue fee equal to Five Hundred Thousand Dollars
($500,000) (the "Guaranteed License Issue Fee"), of which One Hundred
Thousand Dollars ($100,000) shall be payable by LICENSEE to ACCUMED on the
date hereof (and shall be a condition precedent to the effectiveness of the
license grants hereunder) and the remainder of which shall be payable in
quarterly installments in accordance with the following payment schedule:
One Hundred Thousand Dollars ($100,000) on December 4, 1998;
One Hundred Thousand Dollars ($100,000) on March 4, 1999;
One Hundred Thousand Dollars ($100,000) on June 4, 1999; and
One Hundred Thousand Dollars ($100,000) on September 4, 1999.
The Guaranteed License Issue Fee shall be deemed to be a license issue fee
and shall neither be (i) refundable nor (ii) (except as expressly provided
in paragraph (b) of Section 5.1, in Section 5.2, and in Section 5.3) in any
circumstance credited or recoupable against any of the Required Royalty
payments due ACCUMED under this Agreement.
3.2 REQUIRED ROYALTY; MINIMUM GUARANTEED PAYMENTS. For the rights
and privileges granted to LICENSEE under this Agreement, LICENSEE (subject
to paragraph (b) of Section 5.1, Section 5.2, and Section 5.3) shall pay to
ACCUMED from and after the date hereof until the licenses hereunder are
terminated in accordance with this Agreement, a royalty rate equal to seven
percent (7%) of all Sales of any Licensed Product (the "Required Royalty").
A product is considered subject to a Sale hereunder when invoiced or when
payment is collected, whichever shall occur first. Notwithstanding the
amount of any Sales or Required Royalty, LICENSEE shall pay ACCUMED the
minimum guaranteed payments in accordance with the schedule set forth below
(the "Minimum Guaranteed Payments"). The Minimum Guaranteed Payments paid
by LICENSEE to ACCUMED with respect to the royalty period from and after
the second (2nd) anniversary of this Agreement shall be credited and
recoupable against Required Royalty payments accruing hereunder with
respect to the same royalty period.
MINIMUM
ROYALTY GUARANTEED
PERIOD PAYMENTS MINIMUM INSTALLMENTS
- ------- ---------- --------------------
from the first $1,000,000 payable in installments
anniversary of of $500,000 each on
the date hereof September 4, 1999 and
on March 4, 2000
from the second $1,000,000 payable in quarterly
anniversary of installments of $250,000
the date hereof each on September 4, 2000,
through the on December 4, 2000, on
third anniversary March 4, 2000, on March 4,
of the date hereof 2001, and on June 4, 2001
<PAGE>
ROYALTY
PERIOD PAYMENTS MINIMUM INSTALLMENTS
- ------- ---------- --------------------
from the third $1,500,000 payable in quarterly
anniversary of installments of $375,000
the date hereof each on September 4, 2001,
through the fifth on December 4, 2001, on
anniversary of March 4, 2002, on June 4,
the date hereof 2002, on September 4,
2002, on December 4, 2002
on March 4, 2003, and on
June 4, 2003
from the fifth $2,000,000 payable in quarterly
anniversary of the installments of $500,000
date hereof through each on each September 4,
the sixth anniversary December 4, March 4, and
of the date hereof and June 4 of each year
for each one year period
ending on the anniversary
dates thereafter
3.3 SCOPE OF ROYALTY. Sales subject to royalty shall not in any way
be limited by territorial limitations or by the source of those revenues,
and will include any revenues which LICENSEE directs to be paid to any
other Person. The calculation of Sales will be carried out in accordance
with generally accepted accounting principles applied on a consistent
basis. LICENSEE will take all reasonable and prudent steps necessary to
collect monies payable on account of Licensed Products.
3.4 AFFILIATED PERSON SALES. If LICENSEE sells, rents, or offers
for use a Licensed Product or otherwise makes a Sale to any Affiliated
Person, then the Sales with respect thereto shall be the price or terms at
which LICENSEE should have made the same Licensed Product available to a
bona fide third party on an arms length basis. No deductions or allowances
whatsoever shall be made for collections, or for commissions to LICENSEE's
employees, officers, or directors or any other Affiliated Person.
3.5 PERIOD REPORTS. LICENSEE, on the first day of each calendar
quarter, beginning with the calendar quarter in which LICENSEE commences
any actual Sales of Licensed Products, shall deliver to ACCUMED a true and
accurate written report certified by LICENSEE's chief financial officer of
all of its Sales activities relating to the Licensed Product for the
immediately preceding calendar quarter to facilitate the proper computation
of the Required Royalty and Minimum Guaranteed Payments. These reports
shall include the following:
(a) true and correct copies of all current product catalogues
and price lists of LICENSEE;
(b) identification of the quantity and type of any Licensed
Products sold, leased or rented upon which royalties are due;
(c) gross receipts for such sale, lease or rental; and
(d) royalty due ACCUMED.
In addition to the periodic reports described above, LICENSEE shall provide
ACCUMED with copies of LICENSEE's annual audited financial statements
within one hundred twenty (120) days after the end of LICENSEE's fiscal
year.
<PAGE>
3.6 FINANCIAL RECORDS. LICENSEE shall keep full, true, and accurate
books of account containing all particulars which may be necessary for the
purpose of showing the royalty amounts payable to ACCUMED hereunder. These
books of account shall be kept by LICENSEE at the usual place where its
other books are kept. These books and their supporting data will be open at
reasonable times, for a period of three (3) years following the end of the
calendar year to which they pertain, for inspection by an independent
certified public accountant retained by ACCUMED for the purpose of
verifying LICENSEE's royalty statements or LICENSEE's compliance with other
provisions of this Agreement pursuant to Section 3.7. LICENSEE shall
prepare or cause the preparation of annual audited financial statements for
the purposes of reporting under Section 3.5.
3.7 AUDIT RIGHTS. ACCUMED shall have the right to have periodic
audits of LICENSEE performed on not less than fifteen (15) days' advance
written notice by ACCUMED to LICENSEE for the purposes of verifying royalty
payments under this Agreement. ACCUMED shall be permitted to perform such
audits not more often than once in any calendar year. ACCUMED may, in its
discretion, retain the services of an independent certified public
accountant to perform any such audit. ACCUMED shall pay for the services of
any such independent certified public accountant, except as provided in
this Section below. ACCUMED will notify LICENSEE if ACCUMED's independent
certified public accountant determines that LICENSEE has understated the
royalties due ACCUMED by five percent (5%) or more over a calendar quarter
(a "Royalty Understatement"). If LICENSEE notifies ACCUMED within fifteen
(15) days of such notice that LICENSEE's own independent certified public
accountant disputes the determination of ACCUMED's certified public
accountant as to any Royalty Understatement (a "LICENSEE Dispute Notice"),
then the parties shall mutually designate a third independent certified
public accountant to audit the royalty payments hereunder. The
determination of such third accountant shall be binding on the parties. If
LICENSEE does not make a LICENSEE Dispute Notice or if any such third
accountant also determines that there has been a Royalty Understatement,
then LICENSEE shall pay to ACCUMED, within fifteen (15) days after notice
of a Royalty Understatement by ACCUMED or such third accountant, as
applicable, (i) the balance of such Royalty Understatement as determined by
ACCUMED's accountant, but if there is a third accountant, as determined by
such third accountant, (ii) a penalty fee equal to five percent (5%) of any
such Royalty Understatement plus interest thereon at a rate equal to one
percent (1%) per month or such lesser amount as required by law, computed
from the day on which such royalties were due and owing to ACCUMED, and
(iii) the reasonable fees of ACCUMED's accountant for its services and, if
applicable, any third accountant for its services. If any such third
accountant determines that there has not been a Royalty Understatement,
then ACCUMED shall pay for the services of such third accountant.
3.8 INTEREST. LICENSEE shall pay ACCUMED interest on all royalty
amounts which are past due under this Agreement at an interest rate equal
to one percent (1%) per month (or such lesser amount as required by law).
Interest under this Section shall be computed from the day the royalty
amounts are due and payable under this Agreement.
3.9 CURRENCY. All payments from LICENSEE to ACCUMED shall be in
U.S. dollars (U.S.$), unless LICENSEE has been paid by any purchaser of the
Licensed Products in some other currency and ACCUMED elects to be paid by
LICENSEE with regard to that transaction in the same currency.
3.10 TAXES. The payment to ACCUMED of the royalties, fees,
compensation, and other payments provided for in this Agreement shall be
free of any taxes, charges, or remittance fees, whether levied by the
federal, state, or municipal governments in the Territory, or by other
authorities, except for such income tax which may be expressly required by
the laws of the governments in the Territory to be paid for the account of
ACCUMED. The payment of any such income taxes levied upon or withheld from
royalties, fees, compensations, or other payments due to ACCUMED, and the
filing of any information or tax returns with respect thereto, shall be the
responsibility of LICENSEE, who shall be liable to ACCUMED with respect to
any amounts, fines, or penalties arising out of or resulting from any
failure, delay, or error in discharging the aforesaid obligation.
<PAGE>
SECTION 4
VALIDITY AND MARKING
4.1 VALIDITY. If LICENSEE or another challenges the validity of any
of the Patents once issued, LICENSEE agrees and is obligated to continue
paying all royalties due before such time as a final determination of
invalidity and during the pendency of any such validity challenge, and
LICENSEE is not entitled to any refund or credit for any such past royalty
or Guaranteed License Issue Fee or Guaranteed Minimum Payments. If LICENSEE
challenges the validity of any of the Patents, LICENSEE agrees to pay
ACCUMED's reasonable attorneys fees and all associated costs in defending
such action, unless all of the Claims of each challenged patent are held
invalid or unenforceable. LICENSEE agrees and is obligated to continue
paying royalty payments during the pendency of any challenge to the
validity of any of the Patents. If final judgments that are beyond further
right of appeal are entered which finally invalidate all issued Patents,
thereafter LICENSEE's sole remedy shall be the reduction in the rate of the
Required Royalty in accordance with Section 9.2; and LICENSEE shall
continue thereafter to be obligated to pay such reduced Required Royalty
and any unpaid Guaranteed License Issue Fees and any unpaid Guaranteed
Minimum Payments. LICENSEE shall not challenge the validity of any of the
Technology or the Copyrighted Works.
4.2 MARKING. If any Patent issues, LICENSEE shall mark all Licensed
Products covered by the Claims of such Patent with the following statement,
with the bracketed language completed, as appropriate, or, if any Foreign
Patent issues, such other similar statement as may be required under the
laws applicable to the marking of any such Foreign Patent:
"Licensed by InPath, LLC under one or more of the
following patents: United States Patent Nos. [insert the applicable patent
numbers for the Patents which have issued]."
SECTION 5
PROSECUTION; PROTECTION; AND INFRINGEMENT
5.1 PROSECUTION AND PROTECTION.
(a) ACCUMED shall diligently and in a commercially reasonable
manner prosecute the application for and the issuance of the U.S. Patents
and Foreign Patents in Canada and the European Community. ACCUMED shall
have authority, in its discretion, to decide whether to prosecute the
application for and the issuance of Foreign. Patents in countries other
than those described in the first sentence of this paragraph (the "Outside
Countries"). If ACCUMED shall elect to prosecute a Foreign Patent in an
Outside Country under this Section, it shall be at the sole cost and
expense of ACCUMED.
(b) LICENSEE shall notify ACCUMED in writing of LICENSEE's
sale of Licensed Products in any Outside Country upon or prior to the date
on which LICENSEE first sells Licensed Products in such Outside Country. If
a Foreign Patent shall not already be pending or issued in such Outside
Country, ACCUMED shall have twenty-one (21) days from such written notice
to notify LICENSEE in writing whether or not ACCUMED will commence the
prosecution of a Foreign Patent in such Outside Country. If ACCUMED elects,
in such notice, to prosecute a Foreign Patent in such Outside Country,
ACCUMED will promptly commence the prosecution thereof. If ACCUMED elects,
in such notice, not to prosecute a Foreign Patent in such Outside Country
or if ACCUMED fails to make a timely election, then LICENSEE may elect to
prosecute such Foreign Patent, at LICENSEE's sole cost and expense, for and
on behalf of and in the name of ACCUMED. LICENSEE may deduct all reasonable
<PAGE>
out-of-pocket costs and expenses, including without limitation, attorneys'
fees and filing costs, incurred by LICENSEE for its prosecution (in
accordance its election under with this paragraph) of Foreign Patents in
any Outside Country from the Required Royalties (but not the Guaranteed
License Issue Fee or any Minimum Guaranteed Payments) applicable to that
Outside Country under Section 3.2. ACCUMED will provide to LICENSEE all
information, papers, instruments or affidavits required to apply for and
obtain Foreign Patents in ACCUMED's name and will provide reasonable
assistance to LICENSEE in LICENSEE's efforts to prosecute any Foreign
Patents in accordance with its election under this paragraph. Any such
Foreign Patents prosecuted by LICENSEE for and on behalf of ACCUMED shall
be the sole and exclusive property of ACCUMED, but LICENSEE shall be
granted a license thereunder coincident with the grant under Section 2.1
for all Foreign Patents.
(c) Except as provided in this Section, for and on behalf of
ACCUMED, LICENSEE shall not prosecute any letters patent in any foreign
country covering any of the Claims of the U.S. Patents or any Foreign
Patents. As requested by ACCUMED from time to time, LICENSEE shall provide
reasonable assistance to ACCUMED (at ACCUMED's sole cost and expense for
the U.S. Patents and the Foreign Patents in Canada and the European
Community but otherwise at the equal cost and expense of ACCUMED and
LICENSEE or LICENSEE's sole expense as determined in accordance with
paragraph (b) of this Section) in ACCUMED's prosecution of the Patents in
accordance with this Section. ACCUMED shall maintain any issued Patents in
a commercially reasonable manner. ACCUMED shall use commercially reasonable
efforts to maintain the secrecy of its trade secrets comprising any of the
Technology. To the extent LICENSEE becomes aware of any matters or events
which may affect the validity of the Patents or protection of the
Technology, LICENSEE shall inform ACCUMED of such matters or events within
ten (10) business days after LICENSEE becomes aware of any such matter's or
events.
(d) Nothing in this Section shall (i) require either ACCUMED
or LICENSEE to prosecute patents in any Outside Country or (ii) restrict
LICENSEE from exercising its exclusive license rights under this Agreement
in any Outside Country or throughout the Territory, regardless of whether
LICENSEE or ACCUMED elects to prosecute any application for Foreign Patents
therein.
5.2 INFRINGEMENT BY THIRD PARTIES. Each party shall inform the
other party of any infringement or suspected infringement of the Patents or
infringement (including any misappropriation) of the Technology of which
such party becomes aware within ten (10) business days after such party
becomes aware of any such infringement or suspected infringement. For a
period of thirty (30) days after receipt by ACCUMED of, or ACCUMED's
sending of, such notice of infringement, ACCUMED will have the exclusive
right to commence an action and otherwise assert rights in the Patents and
the Technology against any such infringers or suspected infringers and
pertain all proceeds of such action or proceeding brought by it and will
have the right at its, sole discretion to make any settlement or compromise
with the third-party infringer. If ACCUMED shall elect to prosecute any
such infringer, LICENSEE shall take such steps as are reasonably requested
by ACCUMED to enable it to protect its rights under the Patents and under
the Technology against any such infringement or suspected infringement. If
(i) ACCUMED fails to commence an action or otherwise assert its rights in
the Patents and the Technology against any such infringers or suspected
infringers within such thirty (30) day period and (ii) LICENSEE provides
ACCUMED with the opinion of patent counsel mutually acceptable to the
parties stating that there is a likelihood of infringement or
misappropriation by such suspected infringers (an "Infringement Opinion"),
then LICENSEE may bring an action or proceeding (including any alternative
dispute resolution process) to enjoin the infringement, to recover damages
for it, or both and ACCUMED grants LICENSEE the right to use ACCUMED's name
<PAGE>
in connection therewith and will have the right at LICENSEE's sole
discretion to make any settlement or compromise with the third-party
infringer, in accordance with and subject to the provisions set forth
below. If an Infringement Opinion is delivered to ACCUMED and, accordingly,
LICENSEE is permitted to bring such action, then LICENSEE may elect to
deduct a percentage of its out-of-pocket costs and expenses (but otherwise
will bear all other costs and expenses), which includes without limitation
court costs and attorneys' fees for such action up to a maximum deduction
of fifty percent (the "Fee Percentage") and shall notify ACCUMED of such
election and the applicable Fee Percentage when the Infringement Opinion is
delivered by LICENSEE to ACCUMED. LICENSEE shall be permitted to deduct
from future Guaranteed License Issue Fees, Minimum Guaranteed Payments, and
Required Royalties, as they become due under this Agreement, that portion
of its out-of-pocket expenses in an amount equal to the Fee Percentage
thereof. All proceeds of such action or proceeding brought by LICENSEE (if
any) shall be shared between ACCUMED and LICENSEE pro rata in accordance
with the Fee Percentage (i.e. ACCUMED shall receive the Fee Percentage of
such proceeds and LICENSEE shall receive the remainder). If LICENSEE shall
be permitted to bring an action pursuant to this Section, ACCUMED shall
take such steps as are reasonably requested by LICENSEE to enable it to
protect its licensee rights under the Patents and under the Technology
against any such infringement or suspected infringement.
5.3 INFRINGEMENT OF THIRD PARTY RIGHTS. If LICENSEE makes or incurs
any out-of-pocket payments for settlements, damages, and/or royalties owing
to third parties (exclusive of one-half of LICENSEE's court costs,
attorneys' fees and other expenses of defense) as result of any claim by a
third party that the Patents or Technology incorporated in any Licensed
Products infringe or violate any third party patent, copyright, trademark,
trade secret or other proprietary right, then LICENSEE may deduct an amount
equal to such out-of-pocket payments from future Guaranteed License Issue
Fees, Minimum Guaranteed Payments or Required Royalties as they become due
under this Agreement. The foregoing remedy will be the exclusive remedy of
LICENSEE for any third-party claim of infringement or misappropriation.
SECTION 6
CONFIDENTIALITY; NON-COMPETITION; NON-SOLICITATION
6.1 CONFIDENTIALITY.
(a) PROPRIETARY INFORMATION. Each party will exercise all
reasonable precaution to retain in confidence and not disclose proprietary
information relating to (i) the Patents (except to the extent that the
Patents become issued patents) and the Technology, (ii) product designs,
prototypes, schematics, trade secrets (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or
not reduced to practice), know-how, manufacturing and production processes
and techniques, research and development information, drawings,
specifications, designs, bills of material, and technical data), and
embodiments thereof (in whatever form or medium), (iii) information
concerning unsuccessful tests and ideas and technologies which have not
worked. as well as information concerning successful technologies, (iv)
information concerning either party's and its affiliates' and subsidiaries'
business plans, (v) information which either party compiles and maintains
in databases for its affiliates' and subsidiaries' internal business
purposes, (vi) information disclosed to either party in documents marked
"confidential," (vii) any software, firmware, documents (including, without
limitation, manuals, manuscripts, drawings, blueprints, schematics,
engineering logbooks, and laboratory notebooks), and methodologies, and
(viii) other things and ideas which one party may disclose to the other
party in connection with this Agreement or which one party may commission
the other party to create, improve or develop, and any other information
which a party is informed that the other party regards as confidential
("Proprietary Information"); provided however that, notwithstanding
anything contained herein to the contrary, (a) such Proprietary Information
<PAGE>
shall only include such information (1) that each party actually treats as
confidential and (2) with respect to which each party takes appropriate
steps to safeguard from disclosure to others and (b) such Proprietary
Information described in clauses (ii) through (viii) above shall only
include such information which one party may disclose to and which is
received by the other party,
(b) NON-DISCLOSURE. Each party shall receive, develop and
hold Proprietary Information in confidence and shall use its best efforts
to preserve the confidentiality of such Proprietary Information consistent
with the manner in which it protects its own most confidential business
information. Disclosures of Proprietary Information to a party's personnel
shall be limited to "designated employees" with a need to know same and
made solely as necessary to enable them to exercise their employment or
fiduciary duties. Each party shall require each of its designated employees
to sign a confidentiality agreement prior to the time such individual is
first allowed access to Proprietary Information.
(c) REMEDIES. Each party acknowledges that its breach of the
foregoing confidentiality obligations would cause the other party
irreparable injury for which there would be no adequate remedy at law.
Accordingly, each party agrees that if such breach or threatened breach is
proved by the other party, the other party shall be entitled to appropriate
injunctive relief and such other relief as the court deems equitable in the
circumstances.
(d) DURATION. The parties' confidentiality obligations under
this Section shall remain in effect until the later of (i) two (2) years
after the termination of this Agreement and (ii) so long as such
information remains protectable as a trade secret under applicable law,
even if dealings between LICENSEE and ACCUMED have ceased.
(e) PUBLIC DOMAIN. This Section shall not restrict the rights
of a party to disclose information that:
(i) is requested or consented to be disclosed by the
owner thereof in writing;
(ii) is or becomes generally available to the public
other than by breach of this Agreement or other obligation of
confidentiality; or
(iii) one party is required by law to disclose provided,
however, prior to any such disclosure, such party shall immediately notify
the other party in writing if such party believes that there will be a
legal requirement to disclose, to enable the other party to determine a
more appropriate means of disclosure and so that the other party is
provided the opportunity to contest such disclosure requirement through
legal means.
6.2 NON-COMPETITION.
(a) LICENSEE COVENANT. LICENSEE shall not, anywhere in the
world, without the prior written approval of ACCUMED, until the termination
of this Agreement, engage, directly or indirectly, in ACCUMED's Protected
Business, whether as a sole proprietor, partner, corporate officer,
employee, director, shareholder, consultant, agent, independent contractor,
trustee, or in any other manner by which LICENSEE could hold any beneficial
interest in ACCUMED's Protected Business or could provide any service or
product to ACCUMED's Protected Business. LICENSEE shall not, directly or
indirectly, until the termination of this Agreement, without the prior
written approval of ACCUMED, call upon, cause to be called upon, solicit or
assist in the solicitation of, any customer or potential customer of
ACCUMED for the purpose of diverting any existing or future business of
such customers from ACCUMED's Protected Business. LICENSEE shall not engage
in any disparagement, whether direct or indirect, through innuendo or
otherwise, of ACCUMED or any of its employees, agents, officers, directors,
shareholders or affiliates.
<PAGE>
(b) LICENSEE EXCEPTIONS. The restrictions of paragraph (a) of
this Section 6.2 shall not apply to: (i) the SAMBA Transaction, (ii)
LICENSEE's ownership of less than five percent (5%) of the outstanding
stock of a publicly-traded corporation or a privately held limited
partnership, limited liability company, or corporation engaged in ACCUMED's
Protected Business, or (iii) LICENSEE's acquisition of a minority equity
interest in a third party which is already engaged in ACCUMED's Protected
Business and not an Affiliated Person at the time of such acquisition.
(c) ACCUMED'S PROTECTED BUSINESS. "ACCUMED's Protected
Business" means the design, development, manufacture, marketing, sale, or
support of products or services that relat-1 to in vitro cytological and/or
histological specimen and/or sample fixation, staining, labeling,
processing, deposition, and/or analysis by any means and for any purpose,
except (a) to the extent the foregoing takes place at the point-of-care and
concurrent with a patient's physical examination, no restriction under this
Section shall apply to LICENSEE and (b) to the extent the foregoing is not
at the point-of-care and concurrent with a patient's physical examination,
no restriction under this Section shall apply to LICENSEE so long as where
(1) any imaging or optical sensing is involved, it is made at a sensor
resolution greater than 100 microns, (2) any processing, collection,
analysis, or review of specimens or samples is involved, it is not based
upon slides or slide based methods, and (3) any imaging or optical sensing
is involved, it is not based upon microscopic imaging, morphological
processing, or morphological analysis, and it is not nucleic acid (e.g.
DNA) probe-based. For the purposes of this definition, "concurrent" means
an event taking place wholly within the same period as any given visit to a
physician by a patient.
(d) SAMBA TRANSACTION. "SAMBA Transaction" means an agreement
or technology joint venture between LICENSEE and Unilog, S.A., a
corporation organized under the laws of France ("Unilog"), with respect to
Unilog's current SAMBA technology.
(e) ACCUMED COVENANT . ACCUMED shall not, anywhere in the
world, without the prior written approval of LICENSEE, until the
termination of this Agreement, engage, directly or indirectly, in
LICENSEE's Protected Business, whether as a sole proprietor, partner,
corporate officer, employee, director, shareholder, consultant, agent,
independent contractor, trustee, or in any other manner by which ACCUMED
could hold any beneficial interest in LICENSEE's Protected Business or
could provide any service or product to LICENSEE's Protected Business.
ACCUMED shall not, directly or indirectly, until the termination of this
Agreement, without the prior written approval of LICENSEE, call upon, cause
to be called upon, solicit or assist in the solicitation of, any customer
or potential customer of LICENSEE for the purpose of diverting any existing
or future business of such customers from LICENSEE's Protected Business.
ACCUMED shall not engage in any disparagement, whether direct or indirect,
through innuendo or otherwise, of LICENSEE or any of its employees, agents,
officers, directors, shareholders or affiliates.
(f) ACCUMED EXCEPTIONS. The restrictions of paragraph (e) of
this Section 6.2 shall not apply to: (i) ACCUMED's ownership of less than
five percent (5%) of the outstanding stock of a publicly-traded corporation
or a privately held limited partnership, limited liability company, or
corporation engaged in LICENSEE's Protected Business or (ii) ACCUMED's
acquisition of a minority equity interest in a third party which is already
engaged in LICENSEE's Protected Business and not an Affiliated Person at
the time of such acquisition.
(g) LICENSEE'S PROTECTED BUSINESS. "LICENSEE's Protected
Business" means (i) the design, development, manufacture, marketing, sale,
or support of products or services that relate to in vivo analysis by any
means and for any purpose or (ii) the design, development, manufacture,
marketing, sale, or support of products or services that relate to in vitro
<PAGE>
cytological and/or histological specimen and/or sample fixation, staining,
labeling, processing, deposition, and/or analysis: (A) concurrent with a
patient's physical examination or (B) not concurrent with a patient's
examination provided that if any processing of specimens or examples is
involved, it is not based on slides. For the purposes of this definition,
"concurrent" means an event taking place wholly within the same period as
any given visit to a physician by a patient.
6.3 NON-SOLICITATION.
(a) LICENSEE COVENANT. LICENSEE shall not, directly or
indirectly, until the termination of this Agreement, without the prior
written approval of ACCUMED, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of ACCUMED.
(b) LICENSEE EXCEPTIONS. The restrictions of paragraph (a) of
this Section 6.3 shall not apply to LICENSEE's solicitation of. (i) an
employee of ACCUMED who is not a party to a noncompetition agreement in
favor of ACCUMED and (ii) Leonard Prange and Richard Domanik, Ph.D.;
provided that LICENSEE shall not contact or communicate with Messrs. Prange
or Domanik unless (A) such communications are carried out and done in a
discrete and professional manner and well outside -the vicinity of
ACCUMED's offices and in privacy from any employee, consultant, contractor,
vendor or supplier of ACCUMED; (B) any persons communicating with Messrs.
Prange or Domanik will strictly maintain the confidentiality of said
communications; and (C) LICENSEE shall advise ACCUMED immediately
concerning the nature and quality of the response of either Messrs. Prange
or Domanik to any offers made by LICENSEE. Should either Messrs. Prange or
Domanik accept employment with LICENSEE, LICENSEE shall give ACCUMED at
least ninety (90) days prior notice thereof and for the ninety (90) day
period ending after either Messrs. Prange or Domanik leave their employment
with ACCUMED and accept employment with LICENSEE, ACCUMED shall be entitled
to engaging the services of either such person (at rates not greater than
LICENSEE's cost for the same services) in order to complete current
projects of ACCUMED.
(c) LICENSEE WARRANTY. LICENSEE represents and warrants to
ACCUMED as of the date hereof the neither Messrs. Prange nor Domanik have
accepted any offer of employment or other position with LICENSEE or any
consulting or independent contractor opportunity with LICENSEE.
(d) ACCUMED COVENANT. ACCUMED shall not, directly or
indirectly, until the termination of this Agreement, without the prior
written approval of LICENSEE, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of LICENSEE.
(e) ACCUMED EXCEPTIONS. The restrictions of paragraph (d) of
this Section 6.3 shall not apply to (i) ACCUMED's solicitation of an
employee of LICENSEE who is not a party to a noncompetition agreement in
favor of LICENSEE and (ii) Leonard Prange and Richard Domanik, Ph.D. if
either shall become an employee of LICENSEE.
SECTION 7
GENERAL RE, PRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS OF LICENSEE. LICENSEE hereby represents and
warrants to ACCUMED, as of the date hereof, as follows:
(a) LICENSEE: (i) is a limited liability company duly formed
and validly existing under the laws of the State of Delaware; (ii) has the
power and authority to own its property and to carry on its business as now
conducted or as presently contemplated; and (iii) has the power and
authority to execute, deliver and perform this Agreement.
<PAGE>
(b) The execution, delivery and performance by LICENSEE of
this Agreement: (i) have been duly authorized by all requisite action on
the part of LICENSEE, including any requisite approval of its managers and
members; (ii) do not violate any provision of law, the articles of
formation or operating agreement of LICENSEE, or any applicable order of
any court or other governmental agency; (iii) do not breach of the terms of
any agreement, document, or instrument to which Licensee is a party or
which is binding upon LICENSEE or its property; and (iv) do not require the
approval, consent, authorization or act of, or the making of any
declaration, filing or registration with, any person or entity (other than
such notifications or filings required under applicable state securities
laws, if any, which shall be made by LICENSEE on a timely basis).
(c) This Agreement constitutes a legal, valid and binding
obligation of LICENSEE, enforceable against LICENSEE in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy,
reorganization, insolvency and similar laws affecting creditors' rights
generally and to moratorium laws from time to time in effect and to the
extent that such enforcement is subject to the principles of equity in a
proceeding at law or in equity.
7.2 REPRESENTATIONS OF ACCUMED. ACCUMED hereby represents and
warrants to LICENSEE, as of the date hereof, as follows:
(a) ACCUMED: (i) is a corporation duly organized and validly
existing under the laws of the State of Delaware; (ii) has the power and
authority to own its property and to carry on its business as now conducted
or as presently contemplated; and (iii) has the power and authority to
execute, deliver and perform this Agreement.
(b) The execution, delivery and performance by ACCUMED of
this Agreement: (i) have been duly authorized by all requisite corporate
action on the part of ACCUMED, including any requisite approval of its
board of directors; (ii) do not violate any provision of law, the
certificate of incorporation of ACCUMED, or any applicable order of any
court or other governmental agency; (iii) do not breach of the terms of any
agreement, document, or instrument to which Licensee is a party or which is
binding upon ACCUMED or its property; and (iv) do not, subject to
LICENSEE's obligations under Section 10.2, require the approval, consent,
authorization or act of, or the making of any declaration, filing or
registration with, any person or entity (other than such notifications or
filings required under applicable state securities laws, if any, which
shall be made by ACCUMED on a timely basis).
(c) This Agreement constitutes a legal, valid and binding
obligation of ACCUMED, enforceable against ACCUMED in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy,
reorganization, insolvency and similar laws affecting creditors' rights
generally and to moratorium laws from time to time in effect and to the
extent that such enforcement is subject to the principles of equity in a
proceeding at law or in equity.
SECTION 8
DEFAULT AND REMEDIES
8.1 TERMINATION DEFAULT. The occurrence of any of the following
events shall constitute a "Termination Default" under this Agreement:
(a) LICENSEE fails to pay to ACCUMED any of the Guaranteed
License Issue Fee, the Guaranteed Minimum Payments, the Required Royalty,
or any other royalty payments, interest, fees, or other amounts due and
owing to ACCUMED and any such failure to pay shall continue for more than
sixty (60) days after written notice thereof from ACCUMED to Licensee; or
(b) the material breach by LICENSEE of any of the restrictive
covenants of Sections 6.2 or 6.3 and such breach shall be determined by a
court or arbitration body of competent jurisdiction.
<PAGE>
8.2 REMEDIES. If any Termination Default occurs, ACCUMED may elect,
at its option, any or all of the following: (a) to terminate or suspend any
or all of the licenses granted under this Agreement; or (b) convert any or
all of the licenses granted under this Agreement to non-exclusive licenses.
This Agreement and the licenses granted by ACCUMED to LICENSEE hereunder
cannot be terminated for any default of any term or condition of this
Agreement other than a Termination Default. If a default hereunder other
than a Termination Default occurs, the non-defaulting or non-breaching
party may not terminate this Agreement but may seek monetary damages or
appropriate injunctive relief (other than termination of the licenses
hereunder) from the defaulting or breaching party in a court or arbitration
body of competent jurisdiction.
8.3 CUMULATION. Each party shall have, in addition to any other
rights and remedies contained in this Agreement or in the Related Party
Agreements, all of the rights and remedies available under applicable laws,
all of which rights and remedies shall be cumulative, and nonexclusive, to
the extent permitted by law.
8.4 EFFECTS OF WAIVER. The failure of either party to exercise any
of its rights hereunder shall not constitute a waiver of any of such
rights, or other rights or remedies available to that party hereunder or
under applicable law.
8.5 NO WAIVER. No delay or omission of either party to exercise any
right under this Agreement or any Related Party Agreement shall impair such
right or be construed to be a waiver of any Default or an acquiescence
therein, and any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions
or provisions of this Agreement or any of Related Party Agreement
whatsoever shall be valid unless in a writing signed by that party and then
only to the extent in such writing specifically set forth. All remedies
contained in this Agreement, the Related Party Agreements or by law
afforded shall be cumulative.
SECTION 9
TERM AND TERMINATION
9.1 TERM. Unless earlier terminated by ACCUMED pursuant to Section
8.2 or by LICENSEE pursuant to Section 9.3, this Agreement and the licenses
granted herein shall terminate upon the later of (a) twenty (20) years from
the effective date hereof and (b) if any Patent shall issue, the expiration
or termination of the last issued Patent, including any modifications,
extensions, or reissues thereof.
9.2 EFFECT OF PATENT INVALIDATION. If any Patents shall issue and,
thereafter, if all Claims of all of the Patents should be finally
determined to be invalid by a decision of a court of competent jurisdiction
that is final beyond further right of appeal, then the rate of the Required
Royalty shall be reduced from seven percent (7%) to six and one-half
percent (6.5%). LICENSEE acknowledges that the licenses hereunder in the
Technology independent of any issued and valid Patent are valuable and
reasonable consideration for the Required Royalty and Minimum Guaranteed
Payments. LICENSEE shall pay (subject to paragraph (b) of Section 5. 1,
Section 5.2, and Section 5.3) all Required Royalties (at the seven percent
(7%) rate) due and payable before any such final determination of
invalidity and during the pendency of any validity challenge, and LICENSEE
is not entitled to any refund or credit for any past Minimum Guaranteed
Payments, Required Royalties, or the Guaranteed License Issue Fee payments.
LICENSEE shall pay all royalty payments accruing during the pendency of any
challenge to the validity of any of the Patents.
<PAGE>
9.3 TERMINATION BY LICENSEE. LICENSEE shall not be entitled to
terminate its obligations under this Agreement until the earlier to occur
of (i) the fifth anniversary date of this Agreement and (ii) ACCUMED's
receipt of Minimum Guaranteed Payments in an aggregate amount of at least
Five Million Dollars ($5,000,000) (the period from and after the date of
execution of this Agreement and ending upon the earlier event described in
the immediately preceding sentence is the "Non-Cancellation Period"). After
the commencement of the Non-Cancellation Period, LICENSEE may, at its
election, (x) if LICENSEE shall have notified ACCUMED after the
Non-Cancellation Period that in LICENSEE's reasonable determination the
commercial exploitation of the Licensed Product is not commercially viable,
terminate the exclusivity of the licenses granted hereunder upon thirty
(30) days' written notice to ACCUMED or (y) terminate this Agreement. If
LICENSEE shall elect to terminate the exclusivity in accordance with clause
(x) above, then LICENSEE's obligation to pay the Minimum Guaranteed
Payments shall terminate immediately; provided, however, that LICENSEE
shall continue to be obligated to make payments to ACCUMED of any Required
Royalties. LICENSEE shall pay all Minimum Guaranteed Payments due and
payable before any such election to terminate the exclusivity in accordance
with clause (x) above and LICENSEE is not entitled to any refund or credit
for any past Minimum Guaranteed Payments, Required Royalties, or the
Guaranteed License Issue Fee payments.
9.4 EFFECT OF TERMINATION. Upon any termination of this Agreement
becoming effective, LICENSEE shall be relieved of all duties and
obligations, except that LICENSEE shall in any event be obligated to pay to
ACCUMED (i) royalties and interest accrued and unpaid up to that time and
royalties and interest subsequently due on Licensed Products used, sold,
leased or rented for use in connection with the rights granted under this
license prior to termination becoming effective and (ii) the Guaranteed
License Issue Fee (if not already paid) and the Minimum Guaranteed Payments
and any unpaid Required Royalties accrued and unpaid as of the time of such
termination. LICENSEE shall under no circumstances be entitled to a return
of monies theretofore paid or to anabatement of royalties and interest
accrued and unpaid on the effective date of termination, including
royalties and interest on Licensed Products used, rented or sold in
connection with the rights granted under this license prior to the
effective date of termination. If this Agreement shall terminate, then
LICENSEE shall, upon request of ACCUMED, promptly return to ACCUMED (or, at
ACCUMED's discretion, destroy and certify to ACCUMED the destruction of)
the originals and all copies of any and all materials in its possession or
under its control to the extent they are Copyrighted Works. Upon any
election by LICENSEE in accordance with this Agreement to convert the
licenses hereunder to non-exclusive licenses, then LICENSEE shall, upon
request of ACCUMED, promptly return to ACCUMED copies of any and all
materials and documents in its possession or under its control to the
extent, these materials relate in any manner to the Licensed Product.
9.5 SURVIVAL OF CERTAIN TERMS. Notwithstanding the termination of
this Agreement as provided above, Sections 2.5, 5.3, 6.1, 8.1, 8.2, 8.3,
8.4, 8.5, 9.1, 9.2, 9.3, 9.4, 9.5, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10,
10.7, 10.8 10.9, and 10. 10 shall survive the termination of this
Agreement. All representations, warranties, indemnities and covenants
contained in this Agreement shall continue in full force and effect and
shall survive notwithstanding the final payments of all amounts due
hereunder or the termination of this Agreement in any manner whatsoever.
SECTION 10
MISCELLANEOUS PROVISIONS
10.1 NON-USE OF NAMES. Neither party grants to the other party and
each party agrees that it will not use any trademarks or service marks of
the other party, whether registered or common law, nor make reference to
the Patents or the Licensed Product under which this license is granted in
a disparaging manner in any advertising, promotional, or sales literature.
This provision is not intended to prevent lawful comparative advertising,
but to protect each party's good name and goodwill.
<PAGE>
10.2 GOVERNMENT AUTHORIZATION. LICENSEE assumes the obligation at
all times, and at its own expense, of complying with all laws,
requirements, and regulations of the government of the Territory affecting
or relating to this Agreement or the Licensed Product.
10.3 LIMITATION OF LIABILITY AND WARRANTIES; INDEMNIFICATION.
(a) (a) ACCUMED DISCLAIMS ANY WARRANTIES, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, FOR ANY INFORMATION OR THE RESULTS OF USING ANY
INTELLECTUAL PROPERTY LICENSED UNDER THIS AGREEMENT WITH RESPECT TO
LICENSEE OR ANY PURCHASER OF LICENSED PRODUCTS, OR (EXCEPT AS EXPRESSLY
PROVIDED IN SECTION 5.3) INTELLECTUAL PROPERTY INFRINGEMENT RELATED IN ANY
WAY TO THIS AGREEMENT.
(b) Notwithstanding anything to the contrary contained
herein, no party shall, under any circumstances, be liable to any other
party for consequential, incidental, or special damages of the other party,
including but not limited to, lost profits, even if such party has been
apprised of the likelihood of such damages.
(c) LICENSEE shall fully protect, indemnify and hold harmless
ACCUMED and its subsidiaries, affiliates and their officers, directors, and
employees from and against any and all costs, expenses, liabilities, or
claims of whatsoever nature or kind of any injury or damage, including,
without limitation, consequential damages, to third persons or property of
third persons, based upon or arising directly out of or resulting directly
from:
(i) Any breach by LICENSEE of any of its obligations or
covenants contained herein;
(ii) LICENSEE's or its agent's manufacture, use,
servicing, maintenance, or sales of the Licensed Products, or parts
thereof,
(iii) Any claims alleging product liability, false or
misleading advertising, disease or death of any person, negligence or other
tortious acts or omissions based on the design and application of the
Licensed Products; or
(iv) Any claims for LICENSEE's negligent or willful acts
or omissions.
(d) If LICENSEE or any of its customers, distributors,
agents, or dealers is charged with or sued for infringement of any patent
by reason of having manufactured, used, offered to sell, or sold any of the
Licensed Products within the scope of this Agreement herein granted,
LICENSEE shall have the sole responsibility for the investigation of each
such charge or suit of infringement, the defense of each such charge or
suit, and the settlement of each charge or suit.
(e) From and after the date of any first Sale of any Licensed
Product and during the term of this Agreement, LICENSEE shall maintain at
its own expense comprehensive general liability insurance for claims for
damages arising from bodily injury (including death) and property damages
caused by, or arising out of, acts or omissions of its employees and shall
name ACCUMED as an additional insured thereon. The minimum limits of such
insurance will be $ 1,000,000 per individual; $ 2,000,000 per accident
involving bodily injury; and $ 1,000,000 per accident involving property
damage. Maintenance of such insurance coverage shall not relieve LICENSEE
of any responsibility under this Agreement for damages in excess of such
insurance limits. LICENSEE shall name ACCUMED as an additional insured on
its general commercial liability insurance policies, and LICENSEE shall
furnish or cause to be furnished to ACCUMED a certificate of such insurance
promptly upon request by ACCUMED. Any such insurance policy shall provide
that the insurer shall give ACCUMED at least thirty days prior written
notice of any impending cancellation, nonrenewal, expiration, or reduction
in coverage of the insurance.
<PAGE>
10.4 ENTIRE AGREEMENT. This Agreement, together with the Schedules
incorporated by reference herein, constitutes the entire agreement between
ACCUMED and LICENSEE relating to the subject matter hereof There are no
terms, obligations, covenants, representations, statements, or conditions
other than those contained herein. No variation or modification of this
Agreement or waiver of any of the terms or provisions hereof shall be
deemed valid unless made in a writing signed by all parties hereto.
10.5 NOTICES. All notices and other communications required or
desired to be served, given, or delivered hereunder shall be made in
writing or by a telecommunications device capable of creating a written
record and shall be addressed
if to ACCUMED, at
900 North Franklin Street
Suite 401
Chicago, Illinois 60610
Attention: Paul F. Lavallee,
to the party to be notified as follows:
Chairman, President, and Chief Executive Officer
Telephone Number: (312) 642-9200
Telecopy Number: (312) 642-3 101
if to LICENSEE, at
InPath, LLC
900 North Franklin Street
Suite 210
Chicago, Illinois, 60610
Attention: Peter P. Gombrich, Chairman and CEO
Telephone Number: (312) 640-8810
Telecopy Number: (312) 640-1994
or, as to each party, at such other address as designated by such party in
a written notice to the other party. Notices shall be deemed to have been
duly given (i) if delivered personally or otherwise actually received, (ii)
if sent by overnight delivery service, (iii) if mailed by first class
United States mail, postage prepaid, registered or certified, with return
receipt requested, or (iv) if sent by telecopy. Notice mailed as provided
in clause (iii) above shall be effective upon the expiration of three (3)
business days after its deposit in the United States mail and notice sent
as provided in clause (iv) above shall be effective upon transmission.
Notice given in any other manner described in this paragraph shall be
effective upon receipt by the addressee thereof-, provided, however , that
if any notice is tendered to an addressee and delivery thereof is refused
by such addressee, such notice shall be effective upon such tender.
10.6 HEADINGS. The headings appearing at the beginning of the
numbered articles and sections hereof have been inserted for convenience
only and do not constitute any part of this Agreement.
10.7 INVALID SECTIONS. Should any one section, or portion thereof,
of this Agreement be held invalid or invalidated by reason of any law,
statute or regulation existing now or in the future in any jurisdiction by
any court of competent jurisdiction or by a legally enforceable directive
of any governmental body, such section or portion thereof shall be validly
reformed so as to approximate the intent of the parties as nearly as
possible, and, if unenforceable, shall be divisible and deleted in such
jurisdiction; and otherwise this Agreement shall not be affected.
<PAGE>
10.8 SUCCESSION. This Agreement shall be binding upon and inure to
the benefit of LICENSEE and its successors and assignees permitted
hereunder and ACCUMED and its successors and assignees permitted hereunder.
LICENSEE shall not assign this Agreement, except in a sale of substantially
all of the assets or equity shares of LICENSEE, to, or through a merger of
LICENSEE into, another entity which agrees in writing to be bound by this
Agreement. ACCUMED shall not assign this Agreement, except in a sale of
substantially all of the assets or equity shares of ACCUMED to, or through
a merger of ACCUMED into, another entity which agrees in writing to be
bound by this Agreement.
10.9 GOVERNING LAW, JURISDICTION. This Agreement shall be considered
as having been made in the United States of America and shall be construed
and the respective rights of the parties determined in accordance with the
laws of the State of Illinois. Each party hereto agrees that any legal
action or proceeding arising hereunder shall be brought either in federal
or state courts located in Cook County, Illinois and irrevocably submit
themselves to the jurisdiction of those courts.
10.10 INDEPENDENT CONTRACTORS. Each party hereto acknowledges that it is
and will be an independent contractor and under no circumstances shall such
be considered an agent, employee, partner or joint venturer of or with any
other party hereto. No authority or right is granted to any party to assume
or create any obligation or responsibility, express or implied, on behalf
of or in the name of any other party.
-<Signature Page Immediately Follows>
<PAGE>
<Signature Page to Patent and Technology License Agreement>
IN WITNESS WBEREOF, the parties hereto have caused this Patent and
Technology License Agreement to be executed as of the day and year first
above written.
ACCUMED INTERNATIONAL, INC.
By: /s/ Paul F. Lavallee
-----------------------------
Name: Paul F. Lavallee
-----------------------------
Title: CEO
-----------------------------
INPATH, LLC
By: /s/ Peter P. Gombrich
-----------------------------
Name: Peter P. Gombrich
-----------------------------
Title: CEO
-----------------------------
EXHIBIT 21.1
- ------------
SUBSIDIARIES OF BELL NATIONAL CORPORATION
1. Bell Savings and Loan Association, a savings and loan association
chartered in the state of California.
2. Pacific Coast Holdings Insurance Company, an insurance Company
organized under the laws of California.
3. PFI National Corporation, a Delaware corporation.
4. InPath, LLC, a Delaware limited liability company.
5. Ampersand Medical Corporation, a Delaware corporation.
6. Samba Technologies, SARL, a limited liability company organized under
the laws of France.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE PERIOD MARCH 16, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 735
<PP&E> 100
<DEPRECIATION> (12)
<TOTAL-ASSETS> 1,699
<CURRENT-LIABILITIES> 815
<BONDS> 0
<COMMON> 1,517
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,699
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
