Document:

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                                                                     Exhibit 4.2

                          REGISTRATION RIGHTS AGREEMENT

                                  BY AND AMONG

                           PACKAGING INVESTORS, L.P.,

                             DCBS INVESTORS, L.L.C.,

                              CB INVESTORS, L.L.C.,

                                       AND

                         PACKAGING DYNAMICS CORPORATION

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                                TABLE OF CONTENTS

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<S>                                                                                                     <C>
1.   SECURITIES SUBJECT TO THIS AGREEMENT................................................................1
     1.1   Definitions...................................................................................1
     1.2   Registrable Securities........................................................................2
     1.3   Holders of Registrable Securities.............................................................2

2.   SHELF REGISTRATION..................................................................................2
     2.1   Request for Shelf Registration................................................................2
     2.2   Effective Shelf Registration and Expenses.....................................................3
     2.3   Underwriting Procedures.......................................................................3
     2.4   Selection of Underwriters.....................................................................4

3.   DEMAND REGISTRATION.................................................................................4
     3.1   Request for Demand Registration...............................................................4
     3.2   Effective Demand Registration and Expenses....................................................4
     3.3   Underwriting Procedures.......................................................................5
     3.4   Selection of Underwriters.....................................................................5

4.   PIGGY-BACK REGISTRATION OF COMMON STOCK.............................................................5

5.   HOLDBACK AGREEMENTS.................................................................................6

6.   REGISTRATION PROCEDURES.............................................................................7

7.   REGISTRATION EXPENSES..............................................................................11

8.   INDEMNIFICATION; CONTRIBUTION......................................................................11
     8.1   Indemnification by Packaging Dynamics........................................................11
     8.2   Indemnification by Each Holder...............................................................12
     8.3   Conduct of Indemnification Proceedings.......................................................12
     8.4   Contribution.................................................................................13

9.   PARTICIPATION IN UNDERWRITTEN REGISTRATIONS........................................................14

10.  COVENANT OF HOLDERS OF REGISTRABLE SECURITIES......................................................14

11.  RULE 144...........................................................................................14

12.  MISCELLANEOUS......................................................................................14
     12.1  Recapitalization, Exchanges, etc., Affecting Packaging Dynamics' Capital Stock...............14
     12.2  No Inconsistent Agreements...................................................................15
     12.3  Remedies.....................................................................................15
     12.4  Amendments and Waivers.......................................................................15
     12.5  Notices......................................................................................15
</TABLE>

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<TABLE>
<S>                                                                                                     <C>
     12.6  Successors and Assigns.......................................................................16
     12.7  Counterparts.................................................................................17
     12.8  Headings.....................................................................................17
     12.9  Governing Law................................................................................17
     12.10 Severability.................................................................................17
     12.11 Entire Agreement.............................................................................17
</TABLE>

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                          REGISTRATION RIGHTS AGREEMENT

           REGISTRATION RIGHTS AGREEMENT, dated July 1, 2002 (this "Agreement"),
among Packaging Dynamics Corporation, a Delaware corporation ("Packaging
Dynamics"), Packaging Investors, L.P., a Delaware limited partnership
("Packaging Investors"), DCBS Investors, L.L.C., a Delaware limited liability
company ("DCBS Investors"), and CB Investors, L.L.C., a Delaware limited
liability company ("CB Investors"). Packaging Investors, DCBS Investors and CB
Investors are sometimes hereinafter referred to as the "Holders" and each of
them, individually, as a Holder.

           Packaging Dynamics and the Holders are entering into this Agreement
with respect to the Registrable Securities (as hereinafter defined) in
accordance with paragraph 2 of that certain letter agreement, dated March 18,
2002 (the "Letter Agreement"), among the Holders and Ivex Packaging Corporation,
a Delaware corporation ("Ivex") of which Packaging Dynamics was an indirect
wholly-owned subsidiary at the time of the execution thereof.

           The parties hereby agree as follows:

1.   SECURITIES SUBJECT TO THIS AGREEMENT

     1.1   Definitions

           1.1.1 "Common Stock" means Packaging Dynamics' common stock, par
value $.01 per share, as constituted on the date hereof, any stock into which
such common stock shall have been changed or any stock resulting from any
reclassification of such common stock, and all other stock of any class or
classes (however designated) of the Company, the holders of which have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions of any shares entitled to preference, and any shares
of capital stock issued or issuable with respect to any of the foregoing as a
result of any stock split, stock dividend, reorganization, merger,
recapitalization, exchange or similar event or otherwise.

           1.1.2 "Registrable Securities" means, subject to Section 1.2, any
shares of Common Stock issued to a Holder in the transaction described in
paragraph 2 of that certain letter agreement, dated March 18, 2002, among Ivex
Packaging Corporation, a Delaware corporation, DCBS Investors, CB Investors and
Packaging Investors or acquired by a Holder thereafter and any securities issued
or issuable with respect to any Common Stock referred to above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.

           1.1.3 "Stockholders Agreement" means that certain Stockholders
Agreement, dated as of July 1, 2002, among Packaging Dynamics, Packaging
Investors, DCBS Investors and CB Investors.

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     1.2   Registrable Securities. Only Registrable Securities shall be eligible
for registration pursuant to the terms hereof. For purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act of 1933, as amended (the "Act"), by the
Securities and Exchange Commission (the "SEC"), and such Registrable Securities
have been disposed of pursuant to such effective registration statement or (ii)
the entire amount of Registrable Securities proposed to be sold in a single sale
is, or, in the opinion of counsel to Packaging Dynamics, may be distributed to
the public pursuant to Rule 144 (or any successor provision then in force) under
the Act or otherwise without registration under the Act.

     1.3   Holders of Registrable Securities. A person is deemed to be a holder
of Registrable Securities whenever such person owns of record or beneficially
Registrable Securities. If Packaging Dynamics receives conflicting instructions,
notices or elections from two or more persons with respect to the same
Registrable Securities, Packaging Dynamics shall act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.

2.   SHELF REGISTRATION

     2.1   Request for Shelf Registration. Packaging Dynamics shall file as soon
as reasonably practicable upon the written request of the holder or holders of
Registrable Securities constituting one percent (1.0%) or more of the aggregate
outstanding shares of Common Stock as of the date hereof, one or more "shelf"
registration statements on Form S-3 (or any successor thereto) under the Act
with respect to the Registrable Securities pursuant to Rule 415 under the Act
and/or any similar rule that may be adopted by the SEC (the "Shelf
Registration"). Notwithstanding the immediately preceding sentence or any other
provision of this Agreement, Packaging Dynamics shall have no obligation to
register Registrable Securities under this Section 2.1 on more than three
occasions with respect to any holder of Registrable Securities and shall have no
obligation to register, or to commence any registration of, Registrable
Securities under this Section 2.1 (a) until after the sixtieth (60th) day
following the date of the distribution of Common Stock pursuant to the
Distribution Agreement, dated March 18, 2002, between Ivex and Packaging
Dynamics (the "Distribution"), (b) if any such registration does not have an
aggregate offering price of more than $1 million or (c) at any time when
Packaging Dynamics is not eligible to use Form S-3 (or any successor thereto)
under the Act to register the Registrable Securities covered by such written
request.

           Each Holder may offer its Registrable Securities under any Shelf
Registration pursuant to this Section 2.1. At least fifteen (15) business days
prior to the first anticipated filing date of each Shelf Registration, Packaging
Dynamics shall notify each holder of Registrable Securities of the information
Packaging Dynamics reasonably requires from each such holder if they elect to
have any of their Registrable Securities included in the Shelf Registration (the
"Requested Information"). Packaging Dynamics shall include the Registrable
Securities of any Holder that provides such information in such Shelf
Registration. If within five (5) business days prior to the first anticipated
filing date, Packaging Dynamics has not received the Requested Information in
writing

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from any of such holders (the "Non-Responsive Holders"), Packaging Dynamics may
file the Shelf Registration without including the Registrable Securities of the
Non-Responsive Holders. At any time subsequent to the date of the first filing
of the Shelf Registration and up to the date that is ten (10) days prior to the
first anticipated effective date of such Shelf Registration, a Non-Responsive
Holder may notify Packaging Dynamics in writing that it elects to have all or
part of its Registrable Securities included in the Shelf Registration and
Packaging Dynamics shall so include such Registrable Securities in such Shelf
Registration; provided, however, that such Non-Responsive Holders shall have
furnished to Packaging Dynamics in writing all Requested Information on or prior
to the tenth (10th) day prior to the first anticipated effective date of such
Shelf Registration.

     2.2   Effective Shelf Registration and Expenses. Packaging Dynamics shall
use its best efforts to have the Shelf Registration declared effective as soon
as reasonably practicable after such filing and shall use reasonable efforts to
keep the Shelf Registration continuously effective for a period of twelve (12)
months from the date such Shelf Registration is declared effective. Packaging
Dynamics shall have the right, upon written notice to each Holder, to postpone
for up to sixty (60) days any registration requested pursuant to this Section 2
if, in the good faith opinion of the board of directors of Packaging Dynamics,
such registration would materially interfere with any material acquisition or
financing transaction then being pursued by Packaging Dynamics. Packaging
Dynamics may not exercise its right to so delay registration under this Section
2 and Section 3 more than once in any twelve-month period.

           Packaging Dynamics shall supplement or amend, if necessary, each
Shelf Registration, as required by the registration form utilized by Packaging
Dynamics, by the instructions applicable to such registration form, by the Act
or the rules and regulations promulgated thereunder or as reasonably required by
the holder or holders of (or any underwriter for) a majority of the aggregate
outstanding shares of Registrable Securities to be registered pursuant to such
Shelf Registration, and shall furnish to the holders of the Registrable
Securities to which the Shelf Registration relates copies of any such supplement
or amendment prior to its being used and/or filed with the SEC. Packaging
Dynamics shall pay all Registration Expenses (as defined in Section 7 hereof) in
connection with each Shelf Registration, whether or not it becomes effective. No
Shelf Registration shall include any securities other than Registrable
Securities unless the holder or holders of a majority of the aggregate
outstanding shares of Registrable Securities to be registered pursuant to such
Shelf Registration consent to such inclusion in writing; provided, however,
that, subject to compliance by Packaging Dynamics with Section 4 hereof, this
Agreement shall not prohibit the filing of shelf registrations other than a
Shelf Registration.

     2.3   Underwriting Procedures. If the holder or holders of a majority of
the aggregate outstanding shares of Registrable Securities to be registered
pursuant to a Shelf Registration so elect, the offering of such Registrable
Securities pursuant to a Shelf Registration shall be in the form of an
underwritten offering and the managing underwriter or underwriters selected for
such offering shall be the Approved Underwriter (as defined below). In such
event, if the Approved Underwriter advises Packaging

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Dynamics in writing that in its opinion the aggregate amount of Registrable
Securities requested to be included in such offering is sufficiently large as to
have a material adverse effect on the success of such offering, Packaging
Dynamics shall include in such registration only the aggregate amount of
Registrable Securities that, in the opinion of the Approved Underwriter, may be
sold without any such material adverse effect, which amount of Common Stock
shall be allocated first to the Holders who have requested to be included in
such offering pro rata on the basis of the number of Registrable Securities
requested to be registered thereby and second to the Company and any other
holders of Common Stock.

     2.4   Selection of Underwriters. If any Shelf Registration is in the form
of an underwritten offering, the holder or holders of a majority of the
aggregate outstanding shares of Registrable Securities to be registered pursuant
to such Shelf Registration shall select and obtain the investment banker or
investment bankers and manager or managers that will administer the offering
(the "Approved Underwriter"); provided, that the Approved Underwriter shall be
reasonably acceptable to Packaging Dynamics. The holders of Registrable
Securities to be included in such offering shall pay, pro rata on the basis of
the number of Registrable Securities requested to be registered thereby, all
discounts and commissions of the Approved Underwriter.

3.   DEMAND REGISTRATION

     3.1   Request for Demand Registration. At any time after the 60th day
following the date of the Distribution and when a Shelf Registration with
respect to Registrable Securities is not in effect under the Act or a Shelf
Registration is not available for use by the holders of the Registrable
Securities hereunder, the holder or holders of Registrable Securities
constituting one percent (1.0%) or more of the aggregate outstanding shares of
Common Stock as of the date hereof may make a written request for registration
of Registrable Securities having an aggregate offering price of more than $1
million under the Act and under the securities or blue sky laws of any
jurisdiction designated by such holder or holders (each, a "Demand
Registration"). Each request for a Demand Registration shall specify the amount
of the Registrable Securities proposed to be sold and the intended method of
disposition thereof. Upon a request for a Demand Registration, Packaging
Dynamics shall promptly take such steps as are necessary or appropriate to
prepare for the registration of the Registrable Securities to be registered;
provided that Packaging Dynamics shall have the right, upon written notice to
each Holder, to postpone for up to 60 days any registration requested pursuant
to this Section 3 if, in the good faith opinion of the board of directors of
Packaging Dynamics, such registration would materially interfere with any
material acquisition or financial transaction then being pursued by Packaging
Dynamics. Packaging Dynamics may not exercise its right to delay registration
under Section 2 or Section 3 more than once in any twelve month period. Subject
to Section 3.2 hereof, Packaging Dynamics shall have no obligation to register
Registrable Securities under this Section 3.1 on more than three occasions with
respect to any holder of Registrable Securities.

     3.2   Effective Demand Registration and Expenses. Packaging Dynamics shall,
subject to Section 3.3 hereof, use its best efforts to effect Demand
Registrations pursuant

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to written requests made in accordance with Section 3.1 of this Agreement. If a
Demand Registration is not declared effective on or before the expiration of one
hundred and twenty (120) days after a request is delivered under Section 3.1,
then Packaging Dynamics shall be required to effect one (1) additional Demand
Registration for the Registrable Securities included in such Demand Registration
pursuant to the terms of this Agreement. A registration shall not count as a
Demand Registration until it has become effective and remains continuously
effective for not less than one hundred and twenty (120) days. Packaging
Dynamics shall use its best efforts to cause any such Demand Registration to
become effective not later than ninety (90) days after it receives a request
under Section 3.1 hereof. In any registration initiated as a Demand
Registration, Packaging Dynamics shall pay all Registration Expenses in
connection therewith, whether or not such Demand Registration becomes effective.

     3.3   Underwriting Procedures. If the holder or holders of a majority of
the aggregate outstanding shares of Registrable Securities to be registered
pursuant to a Demand Registration so elect, the offering of such issue of
Registrable Securities pursuant to such Demand Registration shall be in the form
of an underwritten offering and the managing underwriter or underwriters
selected for such offering shall be the Approved Underwriter. In such event, if
the Approved Underwriter advises Packaging Dynamics in writing that in its
opinion the aggregate amount of Registrable Securities requested to be included
in such offering is sufficiently large as to have a material adverse effect on
the success of such offering, Packaging Dynamics shall include in such
registration only the aggregate amount of Registrable Securities that, in the
opinion of the Approved Underwriter, may be sold without any such material
adverse effect, which amount of Common Stock shall be allocated first to the
Holders who have requested to be included in such offering pro rata on the basis
of the number of Registrable Securities requested to be registered thereby and
second as to the Company and any other holders of Common Stock.

     3.4   Selection of Underwriters. If any Demand Registration of Registrable
Securities is in the form of an underwritten offering, the Approved Underwriter
shall be selected and obtained and their discounts and commissions, if any, paid
in accordance with the procedure set forth in Section 2.4 hereof.

4.   PIGGY-BACK REGISTRATION OF COMMON STOCK.

           If Packaging Dynamics proposes to file a registration statement under
the Act with respect to an offering by Packaging Dynamics for its own account
and/or for the accounts of any or all of DCBS Investors, CB Investors or
Packaging Investors of Common Stock or other securities of Packaging Dynamics
(other than a registration statement on Form S-4 or S-8 or any successor or
similar forms thereto), then Packaging Dynamics shall give each Holder at least
20 days' prior written notice of such proposed registration and distribution and
offer to each Holder the opportunity to register such amount of Registrable
Securities as each holder of Registrable Securities hereunder may request in
writing. Subject to Section 9 hereof, Packaging Dynamics shall include, or use
its best efforts (within thirty (30) days after the notice provided for in the
preceding sentence) to cause the managing underwriter or underwriters of a
proposed underwritten

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offering (the "Company Underwriter") to permit the holders of Registrable
Securities to participate in the registration for such offering and to include,
such Registrable Securities in such offering. If Packaging Dynamics is offering
securities of the same class as any Registrable Securities, any such Registrable
Securities of the holders registered pursuant to this Agreement shall be
included in the offering on the same terms and conditions as such securities
being offered by Packaging Dynamics. Notwithstanding the foregoing, if the
Company Underwriter advises Packaging Dynamics in writing that in its opinion
the total amount of Registrable Securities, other Common Stock and other
securities which the holders of Registrable Securities, Packaging Dynamics and
any other persons or entities intend to include in such offering (the "Total
Securities") is sufficiently large as to have a material adverse effect on the
distribution of the Total Securities, then the Total Securities shall be reduced
to the amount recommended by the Company Underwriter, which amount shall be
allocated (1) in the case of a Demand Registration by DCBS Investors, CB
Investors or any of their Transferees (as such term is defined herein), first to
the Holder(s) upon the request of which such Demand Registration was initiated
in an amount equal to the greater of (x) 50% of the then outstanding Registrable
Securities owned by such Holder(s) making such demand and (y) such Holder's or
Holders', as the case may be, pro rata share of the aggregate number of
Registrable Securities requested to be registered by all of the Holders and any
other holders of Registrable Securities, second to the other Holders, pro rata
on the basis of the number of Registrable Securities requested to be registered
by such other Holders, and third to any other holders of Registrable Securities
and (2) in any other case, first to the Company, second to the Holders, pro rata
on the basis of the number of Registrable Securities requested to be registered
thereby, and third to any other holders of Registrable Securities. Packaging
Dynamics shall bear all Registration Expenses in connection with any
registration pursuant to this Section 4 (except for the discounts or commissions
of the Company Underwriter applicable to the holders' Registrable Securities,
which shall be paid in accordance with the procedures set forth in Section 2.4
hereof).

5.   HOLDBACK AGREEMENTS.

           To the extent not inconsistent with applicable law, the holders of
Registrable Securities agree not to effect any public sale or distribution of
any Registrable Securities being registered or of securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Act, during the period commencing on the tenth
(10th) day prior to the anticipated effective date of, and continuing through
and including the one hundred eightieth (180th) day after the actual effective
date of, the applicable registration statement under Section 2 or Section 4 of
this Agreement (except as part of such registration), in each case, if and to
the extent requested by Packaging Dynamics in the case of a nonunderwritten
public offering or if and to the extent requested by Packaging Dynamics or the
Company Underwriter in the case of an underwritten public offering, provided
that, in the event such request is made to holders of Registrable Securities,
Packaging Dynamics shall use reasonable efforts to obtain the agreement of its
directors and executive officers not to effect any public sale or distribution
of any securities of (or securities convertible into or exchangeable or
exercisable for securities of) the same class as the Registrable Securities

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during such period as holders of Registrable Securities are prohibited from
effecting any sale or public distribution pursuant to this Section 5.

6.   REGISTRATION PROCEDURES.

           In connection with any registration effected pursuant to the terms of
this Agreement, Packaging Dynamics shall as expeditiously as possible:

           (a) prepare and file with the SEC, not later than forty-five (45)
days after receipt of a request to file a registration statement with respect to
Registrable Securities, a registration statement of any form for which Packaging
Dynamics then qualifies and which counsel for Packaging Dynamics deems
appropriate for the sale of such Registrable Securities in accordance with the
intended method of distribution thereof. Packaging Dynamics shall use its best
efforts to cause such registration statement to become effective; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, Packaging Dynamics shall (i) provide counsel
selected by the holder or holders of a majority of the aggregate outstanding
shares of Registrable Securities to be registered pursuant to such registration
("Holders' Counsel") and any other Inspector (as defined below) with an
opportunity to participate in the preparation of such registration statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the SEC, which documents shall be subject to the review of
Holders' Counsel, and (ii) notify Holders' Counsel and the holders of
Registrable Securities of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;

           (b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective until the
earliest to occur of (i) the expiration of twelve (12) months and (ii) the date
all Registrable Securities included therein have been sold and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;

           (c) furnish to each Holder and to the Holders' Counsel, prior to
filing a registration statement, copies of such registration statement as
proposed to be filed, and thereafter such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as the Holders'
Counsel may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by the holders of Registrable Securities;

           (d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
the Holders' Counsel reasonably request and do any and all other acts and things
which may be reasonably necessary or advisable to enable the holders of
Registrable Securities to consummate the

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disposition in such jurisdictions of the Registrable Securities held by such
holders of Registrable Securities; provided, however, that Packaging Dynamics
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction;

           (e) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of Packaging Dynamics to enable the holders of
Registrable Securities to consummate the disposition of such Registrable
Securities;

           (f) notify the holders of Registrable Securities, at any time when a
prospectus relating to the registration statement is required to be delivered
under the Act, upon discovery of, or upon the happening of any event as a result
of which, the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made. In such instance,
Packaging Dynamics promptly shall prepare and file a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made;

           (g) enter into and perform customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities, including using its reasonable efforts to cause officers
of Packaging Dynamics to participate in "road shows" and other information
meetings organized by the Approved Underwriter or the Company Underwriter;

           (h) make available for inspection by any managing underwriter
participating in any disposition pursuant to such registration statement,
Holders' Counsel and any accountant or other agent retained by the holder or
holders of a majority of the aggregate outstanding shares of Registrable
Securities to be registered hereunder or any managing underwriter (collectively,
the "Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of Packaging Dynamics and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause Packaging Dynamics' and
its subsidiaries' officers, directors and employees, and the independent public
accountants of Packaging Dynamics, to supply all information reasonably
requested by any such Inspector in connection with such registration statement.
Records and other information that Packaging Dynamics determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records or other information is necessary to avoid or correct a misstatement or
omission in the registration statement, (ii) the release of such

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Records or other information is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (iii) the information in such Records
or such other information has been made generally available to the public by
someone other than such Inspector. Packaging Dynamics shall not be required to
disclose any such confidential information or Records until and unless the
Inspectors shall have entered into customary confidentiality agreements with
Packaging Dynamics with respect thereto. Each holder of Registrable Securities
agrees that it shall, upon learning that disclosure of such Records or other
information is sought in a court of competent jurisdiction, give notice to
Packaging Dynamics and allow Packaging Dynamics, at Packaging Dynamics' expense,
to undertake appropriate action to prevent disclosure of the Records or other
information deemed confidential;

           (i) in the event such sale is pursuant to an underwritten offering,
use its best efforts to obtain a "cold comfort" letter, dated as of a date
reasonably proximate to the date of the underwriting agreement and the date of
the closing under the underwriting agreement, from Packaging Dynamics'
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as Holders' Counsel or
the managing underwriter reasonably request;

           (j) use its best efforts to obtain, at the request of Holders'
Counsel on the date such securities are delivered to the underwriters for sale
pursuant to such registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to such
securities becomes effective, an opinion of counsel representing Packaging
Dynamics for the purposes of such registration, addressed to the underwriters,
if any, and to the holders of Registrable Securities, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as the Holders' Counsel and the underwriters, if any, may reasonably
request and are customarily included in such opinions;

           (k) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, but no later than fifteen (15) months after the
effective date of the registration statement, an unaudited earnings statement
covering a period of twelve (12) months beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder;

           (l) keep each holder of Registrable Securities advised in writing as
to the initiation and progress of any registration under Section 2, 3 or 4
hereunder;

           (m) provide officers' certificates and other customary closing
documents;

           (n) notify each seller of such Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities of
any stop order or other suspension of effectiveness of the registration
statement;

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           (o) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the earliest
possible moment;

           (p) cooperate with the sellers of such Registrable Securities and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of book-entry securities or, if applicable, of
certificates (not bearing any restrictive legends) representing securities, to
be sold under the registration statement and enable such securities to be in
such denominations or amounts, as the case may be, and registered in such names
as the managing underwriter or underwriters, if any, or such sellers may
request;

           (q) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD");

           (r) use all reasonable efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby; and

           (s) use all reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by Packaging Dynamics are then listed.

           Packaging Dynamics may require each holder of Registrable Securities
to furnish to Packaging Dynamics such information regarding the distribution of
such securities as Packaging Dynamics may from time to time reasonably request
in writing.

           Each holder of Registrable Securities agrees that, upon receipt of
any notice from Packaging Dynamics of the happening of any event of the kind
described in Section 6(f) hereof, such holder of Registrable Securities shall
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 6(f) hereof and, if so directed by Packaging Dynamics, such holder shall
deliver to Packaging Dynamics (at Packaging Dynamics' expense) all copies, other
than permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event Packaging Dynamics shall give any such notice, Packaging
Dynamics shall extend the period during which such registration statement shall
be maintained effective pursuant to this Agreement (including, without
limitation, the period referred to in Section 6(b)) by the number of days of the
period from and including the date of the giving of such notice pursuant to
Section 6(f) hereof to and including the date when the holder of Registrable
Securities shall have received the copies of the supplemented or amended
prospectus contemplated by and meeting the requirements of Section 6(f).

                                       10
<PAGE>

7.   REGISTRATION EXPENSES.

           Packaging Dynamics shall pay all expenses (other than underwriting
discounts and commissions of the Approved Underwriters or of the Company
Underwriter applicable to the holders of Registrable Securities) arising from or
incident to its performance of, or compliance with, this Agreement, including,
without limitation, (i) required SEC, stock exchange and NASD registration and
filing fees (including, if applicable, the fees and expenses of any "qualified
independent underwriter" as such term is defined in Rule 2720 set forth in the
NASD Manual, and of its counsel), (ii) all fees and expenses incurred in
complying with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing (including expenses of printing
prospectuses if such printing is reasonably requested by the holder or holders
of a majority of the Registrable Securities to be registered pursuant to such
registration statement), messenger and delivery expenses, (iv) the fees and
disbursements of counsel to Packaging Dynamics and of its independent public
accountants and any other accounting and legal fees and expenses incurred by
Packaging Dynamics (including, without limitation, any expenses arising from any
special audits or "cold comfort" letters required by or incident to any
registration or qualification), (v) internal expenses (including, without
limitation, all salaries and expenses of officers and employees performing legal
or accounting duties), (vi) the reasonable fees and expenses of any special
experts retained by Packaging Dynamics in connection with any registration
pursuant to the terms of this Agreement, regardless of whether such registration
statement is declared effective, and (vii) any liability insurance or other
premiums for insurance obtained by Packaging Dynamics in connection with any
registration, in each case, regardless of whether such registration is declared
effective. In connection with each registration hereunder, Packaging Dynamics
shall reimburse the holders of Registrable Securities being registered in such
registration for the reasonable fees and disbursements of not more than one
counsel for the holders of Registrable Securities selected by the holder or
holders of a majority of the aggregate outstanding Registrable Securities
included, or to be included, in such registration statement. All of the expenses
described in this Section 7 are herein called "Registration Expenses."

8.   INDEMNIFICATION; CONTRIBUTION

     8.1   Indemnification by Packaging Dynamics. Packaging Dynamics agrees to
indemnify, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors, partners, members, employees and agents and
each person who controls (within the meaning of the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") such holder, and any
investment adviser thereof or agent therefor from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation and legal expenses) arising out of or based upon any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or notification or offering
circular (as amended or supplemented if Packaging Dynamics shall have furnished
any amendments or supplements thereto) or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which

                                       11
<PAGE>

they were made. The indemnification agreement contained in this Section 8.1
shall not apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to Packaging Dynamics by such
holder of Registrable Securities expressly for use therein. The indemnification
agreement contained in this Section 8.1 with respect to any preliminary
prospectus shall not inure to the benefit of any person from whom the person
asserting any such losses, claims, damages, liabilities or expenses purchased
the Registrable Securities that are the subject thereof (or to the benefit of
any person controlling such person) if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, and such person failed to deliver a
copy of the amended or supplemented prospectus to the person asserting such
loss, claim, damage, liability or expense after Packaging Dynamics had furnished
such person with copies of the same; provided, however, that Packaging Dynamics
shall have provided such amended or supplemental prospectus within a reasonable
period prior to such sale. Packaging Dynamics shall also indemnify any
underwriters of the Registrable Securities, their officers, directors and
employees and each person who controls such underwriters (within the meaning of
the Act and the Exchange Act) to the same extent as provided above with respect
to the indemnification of the holders of Registrable Securities.

     8.2   Indemnification by Each Holder. In connection with any registration
statement in which a holder of Registrable Securities is participating pursuant
to Section 2, 3 or 4 hereof, such holder shall furnish to Packaging Dynamics in
writing such information and affidavits with respect to such holder as Packaging
Dynamics may reasonably request for use in connection with any such registration
statement, preliminary prospectus or prospectus (or amendment or supplement
thereof) and each holder of Registrable Securities agrees to indemnify, to the
same extent and subject to the same exceptions and limitations as set forth in
the foregoing indemnity from the Company to the Holders, Packaging Dynamics, any
underwriter retained by Packaging Dynamics and their respective directors,
officers, employees and each person who controls Packaging Dynamics or such
underwriter (within the meaning of the Act and the Exchange Act), but only with
respect to any such information furnished in writing by such holder of
Registrable Securities for use therein. In no event shall any Holder have any
liability hereunder for an amount in excess of such Holder's net proceeds
pursuant to the offering giving rise to such liability.

     8.3   Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure so to notify the
Indemnifying Party shall relieve the Indemnifying Party of any liability that it
may have to the Indemnified Party hereunder only to the extent that it is
materially prejudiced by such delay or failure. In case notice of commencement
of any such action shall be given to the Indemnifying Party as above provided,
the Indemnifying Party shall be entitled to participate in and, to the extent it
may wish, jointly with any

                                       12
<PAGE>

other Indemnifying Party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such Indemnified Party. The Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be paid by the Indemnified Party
unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying
Party fails to assume the defense of such action with counsel reasonably
satisfactory to the Indemnified Party, (iii) the named parties to any such
action (including any impleaded parties) have been advised by their counsel that
either (x) representation of such Indemnified Party and the Indemnifying Party
by the same counsel would be inappropriate under applicable standards of
professional conduct or (y) there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnifying
Party. In the instances listed in the previous sentence, the Indemnifying Party
shall not have the right to assume the defense of such action on behalf of the
Indemnified Party, but will not be obligated to pay the fees and expenses of
more than one counsel (in addition to any local counsel) for all Indemnified
Parties with respect to such claim. The Indemnified Party shall not be required
to consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability with respect to such
claim or litigation. The Indemnifying Party shall not be liable for any
settlement entered into without its consent, which consent shall not be
unreasonably withheld, conditioned or delayed.

     8.4   Contribution. If the indemnification provided for in this Section 8
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 8.1, 8.2 and 8.3, any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding. In no event shall any Holder have any liability hereunder for an
amount in excess of such Holder's net proceeds pursuant to the offering giving
rise to such liability.

           The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations

                                       13
<PAGE>

referred to in the immediately preceding paragraph. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person.

9.   PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.

           A holder of Registrable Securities may not participate in any
underwritten registration hereunder unless such holder (a) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements entered into in accordance with this Agreement and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, custody agreements and other documents reasonably required under the
terms of such underwriting arrangements and (c) agrees to pay their pro rata
portion of all underwriting discounts and commissions of Approved Underwriters
or the Company Underwriter.

10.  COVENANT OF HOLDERS OF REGISTRABLE SECURITIES.

           Subject to the provisions of this Agreement relating to Registration
Expenses, each holder of Registrable Securities by its acceptance of the
Registrable Securities agrees to reasonably cooperate with Packaging Dynamics in
connection with the preparation and filing of any registration statement
hereunder.

11.  RULE 144.

           Packaging Dynamics covenants that it shall file any reports required
to be filed by it under the Act, the Exchange Act and the rules and regulations
adopted by the SEC thereunder and that it shall take such further action as a
holder of Registrable Securities may reasonably request (including providing any
information necessary to comply with Rule 144 or Rule 144A under the Act), all
to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Act, as such
rules may be amended from time to time, or (b) any similar rules or regulations
hereafter adopted by the SEC. Packaging Dynamics shall, upon the request of a
holder of Registrable Securities, deliver to such holder of Registrable
Securities a written statement as to filings made by Packaging Dynamics with the
SEC.

12.  MISCELLANEOUS

     12.1  Recapitalization, Exchanges, etc., Affecting Packaging Dynamics'
Capital Stock. The provisions of this Agreement shall apply, to the full extent
set forth herein with respect to any and all common stock of Packaging Dynamics
or any successor or assign of Packaging Dynamics (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for or in substitution of, the Registrable Securities and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
The Company shall cause any successor or assign (whether by merger
consolidation, sale

                                       14
<PAGE>

of assets or otherwise) to enter into a new registration rights agreement with
the Holders on terms substantially the same as this Agreement as a condition of
any such transaction.

     12.2  No Inconsistent Agreements. Packaging Dynamics shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.

     12.3  Remedies. The holders of Registrable Securities, in addition to being
entitled to exercise all rights granted by law (including recovery of damages),
shall be entitled to specific performance of their rights under this Agreement.
Packaging Dynamics agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense that a remedy at law
would be adequate in any action for specific performance.

     12.4  Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless Packaging Dynamics has consented in writing thereto and has obtained (i)
the written consent of the holder or holders of at least a majority of the
aggregate outstanding shares of Registrable Securities affected by such
amendment, modification, supplement, waiver or departure and (ii) if such
amendment, modification, supplement, waiver or departure from the provisions
hereof would adversely affect the rights of DCBS Investors or its members, the
written consent of the holder or holders of at least a majority of all such
Registrable Securities owned by DCBS Investors or any of its members.

     12.5  Notices. All notices or other communications provided for herein
shall be in writing and shall be given personally, telegraphed, telexed, sent by
facsimile transmission or sent by prepaid air courier or certified, registered
or express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, telexed, sent by
facsimile transmission and confirmed in writing, (b) two (2) business days
thereafter if sent by reputable overnight, prepaid air courier or (c) three (3)
business days following the mailing thereof, if mailed by certified first class
mail, postage prepaid, return receipt requested, in any such case as follows (or
to such other address or addresses as a party may have advised the other in the
manner provided in this Section 12.5):

                    (i)  if to Packaging Dynamics:

                         Packaging Dynamics Corporation
                         3900 West 43rd Street
                         Chicago, Illinois 60632
                         Telephone: (773) 254-6000
                         Telecopy: (773) 254-8204
                         Attention: Chief Executive Officer

                                       15
<PAGE>

                    (ii) if to the Holders:

                         Packaging Investors, L.P.
                         c/o Group III 31, L.L.C.
                         201 Main Street
                         Suite 3100
                         Fort Worth, Texas 76102
                         Telephone: (817) 390-8500
                         Telecopy: (817) 338-2067
                         Attention: Kevin G. Levy

                         and

                         DCBS Investors, L.L.C.
                         c/o Packaging Dynamics Corporation
                         3900 West 43rd Street
                         Chicago, Illinois 60632
                         Telephone: (773) 254-6000
                         Telecopy: (773) 254-8204
                         Attention: Frank V. Tannura
                                    G. Douglas Patterson

                         and

                         CB Investors, L.L.C.
                         c/o Packaging Dynamics Corporation
                         3900 West 43rd Street
                         Chicago, Illinois 60632
                         Telephone: (773) 254-6000
                         Telecopy: (773) 254-8204
                         Attention: Frank V. Tannura
                                    G. Douglas Patterson

and if to any other holder of Registrable Securities, at the address that such
holder shall have furnished to Packaging Dynamics in writing, or, until any such
other holder so furnishes to Packaging Dynamics an address, then to and at the
address of the last holder of such Registrable Securities that has furnished an
address to Packaging Dynamics.

     12.6  Successors and Assigns. Except as otherwise expressly provided
herein, the provisions of this Agreement shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto, including without limitation any person or entity to whom or
which any Registrable Securities are transferred or distributed other than in
violation of Section 4 of the Stockholders Agreement (a "Transferee"), it being
understood and agreed that no such transfer shall be made, and Packaging
Investors shall not be required to acknowledge or recognize any such transfer,
unless such Transferee has executed and delivered an agreement whereby

                                       16
<PAGE>

such Transferee agrees to become a party hereto and to be bound by all the
provisions hereof which were applicable to such Transferee's transferor.

     12.7  Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

     12.8  Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     12.9  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed wholly within such State.

     12.10 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law. Furthermore, in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.

     12.11 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements, discussions and understandings
between the parties with respect to such subject matter.

                            [Signature page follows.]

                                       17
<PAGE>

           IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date first above written.

                                    PACKAGING DYNAMICS CORPORATION

                                    By: /s/ Frank V. Tannura
                                        --------------------------------
                                        Name:
                                        Title:

                                    PACKAGING INVESTORS, L.P.

                                    By: /s/ Kevin G. Levy
                                        --------------------------------
                                        Name: Kevin G. Levy
                                        Title: Vice President of Group III 31
                                                L.L.C., General Partner

                                    DCBS INVESTORS, L.L.C.

                                    By: /s/ Frank V. Tannura
                                        --------------------------------
                                        Name:
                                        Title:

                                    CB INVESTORS, L.L.C.

                                    By: /s/ Frank V. Tannura
                                        --------------------------------
                                        Name:
                                        Title:

                                                 [Registration Rights Agreement]<PAGE>
                                                                   EXHIBIT 4.30

                          AMPERSAND MEDICAL CORPORATION

                           1999 EQUITY INCENTIVE PLAN

                         ESTABLISHED AS OF JUNE 1, 1999

<PAGE>

                          AMPERSAND MEDICAL CORPORATION

                           1999 EQUITY INCENTIVE PLAN
                         ESTABLISHED AS OF JUNE 1, 1999

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                              <C>
Article 1.        Establishment, Objectives and Duration..........................................................1

Article 2.        Definitions.....................................................................................1

Article 3.        Administration..................................................................................4

Article 4.        Shares Subject to the Plan and Maximum Awards...................................................5

Article 5.        Eligibility and Participation...................................................................6

Article 6.        Stock Options...................................................................................6

Article 7.        Stock Appreciation Rights.......................................................................8

Article 8.        Restricted Stock................................................................................9

Article 9.        Performance Units and Performance Shares.......................................................10

Article 10.       Performance Measures...........................................................................12

Article 11.       Beneficiary Designation........................................................................12

Article 12.       Deferrals......................................................................................13

Article 13.       Retention Rights...............................................................................13

Article 14.       Amendment, Modification, Termination and Adjustments...........................................13

Article 15.       Payment of Plan Awards and Conditions Thereon..................................................14

Article 16.       Change in Control..............................................................................14

Article 17.       Withholding....................................................................................16

Article 18.       Indemnification................................................................................16

Article 19.       Successors.....................................................................................16

Article 20.       Legal Construction.............................................................................17
</TABLE>

<PAGE>

ARTICLE 1. ESTABLISHMENT, OBJECTIVES AND DURATION

      1.1. ESTABLISHMENT OF THE PLAN. Ampersand Medical Corporation, a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Ampersand Medical Corporation
1999 Equity Incentive Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units.

      Subject to approval by the Company's stockholders, the Plan shall become
effective as of June 1, 1999 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof.

      1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.

      The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.

      1.3. DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 14 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after May 31, 2009.

ARTICLE 2. DEFINITIONS

      Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:

      2.1. "AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations of the Exchange Act.

      2.2. "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.

      2.3. "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.

      2.4. "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.

      2.5. "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
<PAGE>

      2.6. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.

      2.7. "COMMITTEE" means any committee appointed by the Board to administer
the Plan, as specified in Article 3 herein.

      2.8. "COMPANY" means Ampersand Medical Corporation, a Delaware
corporation, including any and all Subsidiaries and Affiliates, and any
successor thereto as provided in Article 19 herein.

      2.9. "CONSULTANT" means a consultant or advisor who provides bona fide
services to the Company as an independent contractor. Service as a Consultant
shall be considered employment for all purposes of the Plan, except for purposes
of an ISO grant under Article 6.

      2.10. "COVERED EMPLOYEE" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.

      2.11. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate.

      2.12. "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan exists, at
the discretion of the Committee.

      2.13. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.

      2.14. "EMPLOYEE" means any full-time, active employee of the Company or
its Subsidiaries or Affiliates. Directors or Consultants who are not employed by
the Company shall not be considered Employees under this Plan.

      2.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.

      2.16. "FAIR MARKET VALUE" shall be determined on the basis of the average
of the closing bid and asked prices for a share of Company common stock on the
Over the Counter Bulletin Board (as reported by the National Quotation Bureau,
LLC or a comparable quotation service) over the ten trading days occurring
immediately prior to the relevant date, unless the Company common stock has
become listed on the Nasdaq SmallCap Market or a comparable market system, in
which case "Fair Market Value" shall be determined on the basis of the closing
sale price at which a share of Company common stock has been sold the regular
way on the Nasdaq SmallCap Market or comparable market system, or if there is no
such sale on the relevant date, then on the last previous day on which there was
such a sale.

      2.17. "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.

<PAGE>

      2.18. "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.

      2.19. "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.

      2.20. "NON-EMPLOYEE DIRECTOR" shall mean a Director who is not also an
Employee. Service as a Non-Employee Director shall be considered employment for
all purposes of the Plan, except for purposes of an ISO grant under Article 6.

      2.21. "NON-QUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.

      2.22. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.

      2.23. "OPTION PRICE" means the price at which a Share may be purchased by
a Participant pursuant to an Option.

      2.24. "PARTICIPANT" means an Employee, Non-Employee Director or Consultant
who has been selected to receive an Award or who has outstanding an Award
granted under the Plan.

      2.25. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).

      2.26. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.

      2.27. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.

      2.28. "PERIOD OF RESTRICTION" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.

      2.29. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.

      2.30. "RESTRICTED STOCK" means an Award granted to a Participant pursuant
to Article 8 herein.

<PAGE>

      2.31. "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement plan.

      2.32. "SHARES" means the shares of common stock of the Company.

      2.33. "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted alone
or, in connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.

      2.34. "SUBSIDIARY" means any corporation, partnership, joint venture or
other entity in which the Company has a majority voting interest (including all
divisions, affiliates and related entities).

      2.35. "TANDEM SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when a
Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).

ARTICLE 3. ADMINISTRATION

      3.1. THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board consisting of not less than two (2) Directors who meet
the "outside director" requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act and the requirements of Code
Section 162(m), or by any other committee appointed by the Board, provided the
members of such committee meet such requirements.

      3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select individuals who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 14 herein)
amend the terms and conditions of any outstanding Award to the extent such terms
and conditions are within the discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority as identified herein.

      3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.

ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

      4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to Sections 4.2 and
4.3 herein, the maximum number of Shares with respect to which Awards may be
granted to Participants under the Plan shall be two million (2,000,000). Shares
issued under the Plan may be either authorized but unissued Shares, treasury
Shares or any combination thereof.

<PAGE>

      Unless and until the Committee determines that an Award to a Covered
Employee shall not be designed to comply with the Performance-Based Exception,
the following rules shall apply to grants of such Awards under the Plan, subject
to Sections 4.2 and 4.3.

      (a) STOCK OPTIONS AND SARS: The maximum aggregate number of Shares that
may be subject to Stock Options, with or without Tandem SARs, or Freestanding
SARs, granted in any one fiscal year to any one Participant shall be five
hundred thousand (500,000).

      (b) RESTRICTED STOCK: The maximum aggregate grant with respect to Awards
of Restricted Stock which are intended to qualify for the Performance-Based
Exception, and which are granted in any one fiscal year to any one Participant
shall be four hundred thousand (400,000) Shares.

      (c) PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum aggregate payout
(determined as of the end of the applicable performance period) with respect to
Awards of Performance Shares or Performance Units which are intended to comply
with the Performance-Based Exception, and which are granted in any one fiscal
year to any one Participant shall be equal to the Fair Market Value of four
hundred thousand (400,000) Shares.

      4.2. LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan. The foregoing notwithstanding, the aggregate number of
Shares that may be issued under the Plan upon the exercise of ISOs shall not be
increased when Restricted Stock or other Shares are forfeited.

      4.3. ADJUSTMENTS. In the event of any change in corporate capitalization
such as a stock split, or a corporate transaction such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Code Section 368) or
any partial or complete liquidation of the Company, such adjustment shall be
made in the number and class of Shares which may be delivered under Section 4.1,
in the number and class of and/or price of Shares subject to outstanding Awards
granted under the Plan, and in the Award limits set forth in subsections 4.1(a),
4.l(b) and 4.l(c), as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the number of Shares subject to any Award shall always
be a whole number.

ARTICLE 5. ELIGIBILITY AND PARTICIPATION

      5.1. ELIGIBILITY. Persons eligible to participate in this Plan include
Consultants, Non-Employee Directors and officers and certain key salaried
Employees of the Company with potential to contribute to the success of the
Company or its Subsidiaries, including Employees who are members of the Board.

      5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Participants those to
whom Awards shall be granted, and shall determine the nature and amount of each
Award.

<PAGE>

ARTICLE 6. STOCK OPTIONS

      6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.

      6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO, whose grant is intended not to fall under the provisions of Code Section
422.

      6.3. OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.

      6.4. DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the tenth
anniversary date of its grant and provided further that no Option shall be
exercisable later than the fifth anniversary date of its grant for an ISO
granted to a Participant, who at the time of such grant, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company.

      6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.

      6.6. PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.

      The Option Price upon exercise of any Option shall be payable to the
Company in full in a form as determined by the Committee either: (a) in cash or
its equivalent; (b) by tendering previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the total Option Price
(provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price); (c) by withholding Shares which otherwise would be acquired on
exercise having an aggregate Fair Market Value at the time of exercise equal to
the total Option Price; (d) by promissory note of the Participant; or (e) by any
combination of the foregoing methods of payment.

      The Committee may also allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.

      Subject to any governing rules or regulations, as soon as practicable
after receipt of a written notification of exercise and full payment, the
Company shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares

<PAGE>

purchased under the Option(s).

      6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.

      6.8. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each Option
Award Agreement shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the Participant's
employment or consulting arrangement with the Company. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with each Participant, need not be uniform among
all Options issued pursuant to this Article 6, and may reflect distinctions
based on the reasons for termination of employment.

      6.9.  NONTRANSFERABILITY OF OPTIONS.

      (a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant or the Participant's legal representative (to
the extent permitted under Code Section 422).

      (b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all NQSOs granted to a
Participant under this Article 6 shall be exercisable during his or her lifetime
only by such Participant or the Participant's legal representative.

ARTICLE 7. STOCK APPRECIATION RIGHTS

      7.1. GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs or any combination of these forms of SAR.

      The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.

      The grant price of a Freestanding SAR shall equal the Fair Market Value of
a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.

      7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the

<PAGE>

Shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option. A Tandem SAR may be exercised only
with respect to the Shares for which its related Option is then exercisable.

      Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.

      7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.

      7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.

      7.5. TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten years.

      7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:

      (a) the difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by

      (b) the number of Shares with respect to which the SAR is exercised.

      At the discretion of the Committee, the payment upon SAR exercise may be
in cash, in Shares of equivalent value or in some combination thereof. The
Committee's determination regarding the form of SAR payout shall be set forth in
the Award Agreement pertaining to the grant of the SAR.

      7.7. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each SAR Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the SAR following termination of the Participant's employment
or consulting arrangement with the Company and/or its Subsidiaries. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants, need not be
uniform among all SARs issued pursuant to the Plan and may reflect distinctions
based on the reasons for termination of employment.

      7.8. NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all

<PAGE>

SARs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant or the Participant's legal representative.

ARTICLE 8. RESTRICTED STOCK

      8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.

      8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted and such other
provisions as the Committee shall determine.

      8.3. TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted under the Plan may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee and specified in the
Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant or the Participant's legal
representative.

      8.4. OTHER RESTRICTIONS. Subject to Article 10 herein, the Committee shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals and/or restrictions under applicable federal or state securities laws.

      The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.

      Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.

      8.5. VOTING RIGHTS. Participants holding Shares of Restricted Stock
granted hereunder may be granted the right to exercise full voting rights with
respect to those Shares during the Period of Restriction.

      8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate. Without limiting the generality
of the preceding sentence, if the grant or vesting of Restricted

<PAGE>

Shares granted to a Covered Employee is designed to comply with the requirements
of the Performance-Based Exception, the Committee may apply any restrictions it
deems appropriate to the payment of dividends declared with respect to such
Restricted Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.

      8.7. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT. Each Restricted
Stock Award Agreement shall set forth the extent to which the Participant shall
have the right to receive unvested Restricted Shares following termination of
the Participant's employment or consulting arrangement with the Company. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with each Participant, need not be
uniform among all Shares of Restricted Stock issued pursuant to the Plan and may
reflect distinctions based on the reasons for termination of employment;
provided, however, that except in the cases of terminations by reason of death
or Disability, the vesting of Shares of Restricted Stock which qualify for the
Performance-Based Exception and which are held by Covered Employees shall occur
at the time they otherwise would have, but for the employment termination.

ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES

      9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.

      9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participant. For purposes of this Article 9, the time period during which the
performance goals must be met shall be called a "Performance Period."

      9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance goals have been achieved.

      9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum following the
close of the applicable Performance Period. Subject to the terms of this Plan,
the Committee, in its sole discretion, may pay earned Performance Units/Shares
in the form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period. Such Shares may
be granted subject to any restrictions deemed appropriate by the Committee. The
determination of the Committee with respect to the form of payout of such Awards
shall be set forth in the Award Agreement pertaining to the grant of the Award.

<PAGE>

      At the discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares, but not
yet distributed to Participants (such dividends shall be subject to the same
accrual, forfeiture and payout restrictions as apply to dividends earned with
respect to Shares of Restricted Stock, as set forth in Section 8.6 herein). In
addition, Participants may, at the discretion of the Committee, be entitled to
exercise their voting rights with respect to such Shares.

      9.5. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT DUE TO DEATH,
DISABILITY OR RETIREMENT. Unless determined otherwise by the Committee and set
forth in the Participant's Award Agreement, in the event the employment or
consulting arrangement of the Participant is terminated by reason of death,
Disability or Retirement during a Performance Period, the Participant shall
receive a payout of the Performance Units/Shares which is prorated, as specified
by the Committee in its discretion.

      Payment of earned Performance Units/Shares shall be made at a time
specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Covered Employees who retire during a Performance Period, payments shall be made
at the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.

      9.6. TERMINATION OF EMPLOYMENT OR CONSULTING ARRANGEMENT FOR OTHER
REASONS. In the event the Participant's employment or consulting arrangement
terminates for any reason other than those reasons set forth in Section 9.5
herein, all Performance Units/Shares shall be forfeited by the Participant to
the Company unless determined otherwise by the Committee, as set forth in the
Participant's Award Agreement.

      9.7. NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.

ARTICLE 10. PERFORMANCE MEASURES

      Unless and until the Committee proposes for stockholder vote and
stockholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees which are designed to
qualify for the Performance-Based Exception, the performance measure(s) to be
used for purposes of such grants shall be chosen from among net income either
before or after taxes, market share, customer satisfaction, profits, share
price, earnings per share, total stockholder return, return on assets, return on
equity, operating income, return on capital or investments, or economic value
added (including, but not limited to, any or all of such measures in comparison
to the Company's competitors, the industry or some other comparator group).

      The Committee shall have the discretion to adjust the determinations of
the degree of attainment of the preestablished performance goals; provided,
however, that Awards which are

<PAGE>

designed to qualify for the Performance-Based Exception, and which are held by
Covered Employees, may not be adjusted upward (the Committee shall retain the
discretion to adjust such Awards downward).

      In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).

ARTICLE 11. BENEFICIARY DESIGNATION

      Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, the Participant's beneficiary shall be paid
to the Participant's estate.

ARTICLE 12. DEFERRALS

      The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.

ARTICLE 13. RETENTION RIGHTS

      13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate the services of any Participant at any
time, nor confer upon any Participant any right to continue as an Employee,
Non-Employee Director or Consultant.

      13.2. PARTICIPATION. No Participant shall have the right to be selected to
receive an Award under this Plan or, having been so selected, to be selected to
receive a future Award.

ARTICLE 14. AMENDMENT, MODIFICATION, TERMINATION AND ADJUSTMENTS

      14.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of
the Plan, the Board, upon recommendation of the Committee, may at any time and
from time to time, alter, amend, suspend or terminate the Plan in whole or in
part.

      14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof)

<PAGE>

affecting the Company or the financial statements of the Company or of changes
in applicable laws, regulations or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan; provided that unless the Committee determines otherwise, no such
adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan or Awards meeting the requirements of Code Section
162(m), as from time to time amended.

      14.3. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary (but subject to Section 14.2 hereof), no termination,
amendment or modification of the Plan shall adversely affect in any material way
any Award previously granted under the Plan without the written consent of the
Participant holding such Award.

      14.4. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 14, make any adjustments it deems appropriate.

ARTICLE 15. PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON

      15.1. EFFECT OF COMPETITIVE ACTIVITY. Anything contained in the Plan to
the contrary notwithstanding, if the employment of any Participant who is an
Employee shall terminate, for any reason other than death, while any Award to
such Participant is outstanding hereunder, and such Participant has not yet
received the Shares covered by such Award or otherwise received the full benefit
of such Award, such Participant, if otherwise entitled thereto, shall receive
such Shares or benefit only if, during the entire period from the date of such
Participant's termination to the date of such receipt, such Participant shall
have earned out such Award by: (i) making himself or herself available, upon
request, at reasonable times and upon a reasonable basis, to consult with,
supply information to, and otherwise cooperate with the Company or any
Subsidiary or Affiliate thereof with respect to any matter that shall have been
handled by him or her or under his or her supervision while he or she was in the
employ of the Company or of any Subsidiary or Affiliate thereof; and (ii)
refraining from engaging in any activity that is directly or indirectly in
competition with any activity of the Company or any Subsidiary or Affiliate
thereof.

      15.2. NONFULFILLMENT OF COMPETITIVE ACTIVITY CONDITIONS; WAIVERS UNDER THE
PLAN. In the event of a Participant's nonfulfillment of any condition set forth
in Section 15.1 hereof, such Participant's rights under any Award shall be
forfeited and canceled forthwith; provided, however, that the nonfulfillment of
such condition may at any time (whether before, at the time of, or subsequent to
termination of employment) be waived by the Committee upon its determination
that in its sole judgment there shall not have been and will not be any
substantial adverse effect upon the Company or any Subsidiary or Affiliate
thereof by reason of the nonfulfillment of such condition.

<PAGE>

      15.3. EFFECT OF INIMICAL CONDUCT. Anything contained in the Plan to the
contrary notwithstanding, all rights of a Participant under any Award shall
cease on and as of the date on which it has been determined by the Committee
that such Participant at any time (whether before or subsequent to termination
of such Participant's employment in the case of a Participant who is an
Employee) acted in manner inimical to the best interests of the Company or any
Subsidiary or Affiliate thereof.

ARTICLE 16. CHANGE IN CONTROL

      16.1. DEFINITION. For purposes of this Plan, a "Change in Control" of the
Company is deemed to have occurred as of the first day that any one or more of
the following conditions shall have been satisfied:

      (a) the "Beneficial Ownership" of securities representing more than
thirty-three percent (33%) of the combined voting power of the Company is
acquired by any "person" as defined in Section 13(d) and 14(d) of the Exchange
Act (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company); or

      (b) the stockholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to sell or
otherwise dispose of all or substantially all of its assets, or adopt a plan of
liquidation; or

      (c) during any period of three (3) consecutive years, individuals who at
the beginning of such period were members of the Board cease for any reason to
constitute at least a majority thereof (unless the election, or the nomination
for election by the Company's stockholders, of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of such period or whose election or nomination was
previously so approved).

      16.2. TREATMENT OF OUTSTANDING AWARDS. Subject to Section 16.3 herein,
upon the occurrence of a Change in Control:

      (a) any and all Options and SARs granted hereunder shall become
immediately exercisable and shall remain exercisable throughout their entire
term;

      (b) any restriction periods and restrictions imposed on Restricted Stock
which are not performance-based shall lapse; and

      (c) the target payout opportunities attainable under all outstanding
Awards of performance-based Restricted Stock, Performance Units and Performance
Shares shall be deemed to have been fully earned for the entire Performance
Period(s) as of the effective date of the Change in Control. The vesting of all
Awards denominated in Shares shall be accelerated as of the effective date of
the Change in Control, and there shall be paid out to Participants within thirty
(30) days following the effective date of the Change in Control a pro rata
number of Shares (or their cash equivalents) based upon an assumed achievement
of all relevant targeted performance goals and upon the length of time within
the Performance Period which has elapsed

<PAGE>

prior to the Change in Control. Awards denominated in cash shall be paid pro
rata to Participants in cash within thirty (30) days following the effective
date of the Change in Control, with the proration determined as a function of
the length of time within the Performance Period which has elapsed prior to the
Change in Control, and based on an assumed achievement of all relevant targeted
performance goals.

      16.3. TERMINATION, AMENDMENT AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 16 may not be terminated,
amended or modified on or after the date of an event which is likely to give
rise to a Change in Control to affect adversely any Award theretofore granted
under the Plan without the prior written consent of the Participant with respect
to said Participant's outstanding Awards.

      16.4. POOLING OF INTEREST ACCOUNTING. Notwithstanding anything contained
in the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Board may, in its discretion, take any action necessary to preserve the use of
pooling of interests accounting.

ARTICLE 17. WITHHOLDING

      17.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.

      17.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, and signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.

ARTICLE 18. INDEMNIFICATION

      Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law or
otherwise, or any power

<PAGE>

that the Company may have to indemnify them or hold them harmless.

ARTICLE 19. SUCCESSORS

      All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
or assets of the Company.

ARTICLE 20. LEGAL CONSTRUCTION

      20.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.

      20.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

      20.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.

      20.4. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.

      20.5. GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of California.

<PAGE>

                                 FIRST AMENDMENT
                                       TO
                          MOLECULAR DIAGNOSTICS, INC.'S
                           1999 EQUITY INCENTIVE PLAN

         Pursuant to the approval of stockholders of Molecular Diagnostics, Inc.
at the 2000 Annual Meeting of Stockholders, the 1999 Equity Incentive Plan
("Plan") is hereby amended to increase the number of shares subject to the Plan
by deleting "two million (2,000,000)" in Article 4.1 and inserting in its place
"three million (3,000,000)." Except as amended hereby, the Plan shall remain in
full force and effect.

<PAGE>

                                SECOND AMENDMENT
                          MOLECULAR DIAGNOSTICS, INC.'S
                           1999 EQUITY INCENTIVE PLAN

         Pursuant to the approval of stockholders of Molecular Diagnostics, Inc.
at the 2002 Annual Meeting of Stockholders, the 1999 Equity Incentive Plan
("Plan") is hereby amended to increase the number of shares subject to the Plan
by deleting "three million (3,000,000)" in Article 4.1 and inserting in its
place "five million five hundred thousand (5,500,000)." Except as amended
hereby, the Plan shall remain in full force and effect.

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