-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNE+MO6bGpvYWlhQ2pLAWbf9bqT6kMwZasWwiq8CCsgCC9kwnG0y9En9B0Ceq7Iq TaHGSk8S4pFm2mZXj7L59Q== 0000950149-01-501693.txt : 20020410 0000950149-01-501693.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950149-01-501693 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SHARED HOSPITAL SERVICES CENTRAL INDEX KEY: 0000744825 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 942918118 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08789 FILM NUMBER: 1781440 BUSINESS ADDRESS: STREET 1: TWO EMBARCADERO CENTER STREET 2: SUITE 2370 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-3823 BUSINESS PHONE: 4157885300 MAIL ADDRESS: STREET 1: TWO EMBARCADERO CENTER STREET 2: SUITE 2370 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 f76675e10-q.txt AMERICAN SHARED HOSPITAL SERVICES FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________. COMMISSION FILE NUMBER 1-8789 ------------------------ AMERICAN SHARED HOSPITAL SERVICES (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-2918118 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) FOUR EMBARCADERO CENTER, SUITE 3700, SAN FRANCISCO, CALIFORNIA 94111 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 788-5300 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 23, 2001 there are outstanding 3,524,853 shares of the Registrant's common stock. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited) ASSETS Sep. 30, 2001 Dec. 31, 2000 - ---------------------------------------- ------------- ------------- Current assets: Cash and cash equivalents $11,549,000 $12,421,000 Restricted cash 50,000 50,000 Accounts receivable, net of allowance for doubtful accounts of $70,000 in 2001 and $0 in 2000 2,446,000 2,207,000 Prepaid expenses and other assets 509,000 573,000 ----------- ----------- TOTAL CURRENT ASSETS 14,554,000 15,251,000 Property and equipment: Medical equipment and facilities 34,529,000 29,942,000 Office equipment 237,000 225,000 Deposits and construction in progress 1,103,000 1,819,000 ----------- ----------- 35,869,000 31,986,000 Accumulated depreciation and amortization (9,422,000) (7,237,000) ----------- ----------- Net property and equipment 26,447,000 24,749,000 Other assets 250,000 209,000 ----------- ----------- TOTAL ASSETS $41,251,000 $40,209,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $259,000 $81,000 Accrued interest 213,000 153,000 Employee compensation and benefits 145,000 190,000 Other accrued liabilities 343,000 546,000 Current portion of long-term debt 4,184,000 4,126,000 --------- --------- TOTAL CURRENT LIABILITIES 5,144,000 5,096,000 Long-term debt, less current portion 21,068,000 20,300,000 Deferred income taxes 294,000 0 Minority interest 1,169,000 1,155,000 Shareholders' equity: Common stock, without par value: authorized shares - 10,000,000; issued and outstanding shares, 3,525,000 in 2001 and 3,711,000 in 2000 9,240,000 9,746,000 Common stock options issued to officer 2,414,000 2,414,000 Additional paid-in capital 740,000 814,000 Retained earnings 1,182,000 684,000 --------- --------- TOTAL SHAREHOLDERS' EQUITY 13,576,000 13,658,000 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,251,000 $40,209,000 =========== ===========
See accompanying notes 2 AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months ended Sep.30, Nine Months ended Sep.30, ----------------------------- ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- REVENUES: Medical services $ 3,050,000 $ 2,536,000 $ 8,729,000 $ 6,707,000 COSTS AND EXPENSES: Costs of operations: Maintenance and supplies 90,000 44,000 257,000 108,000 Depreciation and amortization 788,000 585,000 2,160,000 1,662,000 Other 188,000 293,000 727,000 659,000 ----------- ----------- ----------- ----------- 1,066,000 922,000 3,144,000 2,429,000 Selling and administrative 798,000 654,000 2,379,000 1,913,000 Interest 652,000 547,000 1,875,000 1,591,000 ----------- ----------- ----------- ----------- Total costs and expenses 2,516,000 2,123,000 7,398,000 5,933,000 ----------- ----------- ----------- ----------- 534,000 413,000 1,331,000 774,000 Interest and other income 100,000 197,000 388,000 631,000 Minority interest (208,000) (186,000) (566,000) (454,000) ----------- ----------- ----------- ----------- Income before income taxes 426,000 424,000 1,153,000 951,000 Income tax (expense) (170,000) 0 (294,000) 0 ----------- ----------- ----------- ----------- Net income $ 256,000 $ 424,000 $ 859,000 $ 951,000 =========== =========== =========== =========== Net income per share: Earnings per common share - basic $ 0.07 $ 0.11 $ 0.24 $ 0.25 =========== =========== =========== =========== Earnings per common share - assuming dilution $ 0.05 $ 0.08 $ 0.17 $ 0.17 =========== =========== =========== ===========
See accompanying notes 3 AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months ended Sep. 30, 2001 2000 ------------ ------------ OPERATING ACTIVITIES: Net income $ 859,000 $ 951,000 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization 2,212,000 1,718,000 Deferred income taxes 294,000 0 Changes in operating assets and liabilities: (Increase) in accounts receivable (239,000) (660,000) (Increase) decrease in prepaid expenses and other assets (5,000) 115,000 (Decrease) in accounts payable and accrued liabilities (10,000) (146,000) ------------ ------------ Net cash from operating activities 3,111,000 1,978,000 INVESTING ACTIVITIES: Purchase of property and equipment (net of financing) (694,000) (267,000) Increase in minority interest 14,000 264,000 ------------ ------------ Net cash from investing activities (680,000) (3,000) FINANCING ACTIVITIES: Payment of dividends (361,000) 0 Payment received for exercise of stock options 15,000 149,000 Repurchase of options/warrants (74,000) 0 Repurchase of common stock (521,000) (198,000) Principal payments on long-term debt and capitalized leases (2,362,000) (1,704,000) ------------ ------------ Net cash from financing activities (3,303,000) (1,753,000) ------------ ------------ Net (decrease) in cash and cash equivalents (872,000) 222,000 Cash and cash equivalents at beginning of period 12,421,000 12,903,000 ------------ ------------ Cash and cash equivalents at end of period $ 11,549,000 $ 13,125,000 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid during the period for: Interest paid $ 1,815,000 $ 1,517,000 Income taxes paid $ 23,000 $ 13,000
See accompanying notes 4 AMERICAN SHARED HOSPITAL SERVICES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly American Shared Hospital Services' consolidated financial position as of September 30, 2001 and the results of its operations for the three and nine month periods ended September 30, 2001 and 2000, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2000 have been derived from audited financial statements. These financial statements include the accounts of American Shared Hospital Services (the "Company") and its wholly-owned subsidiaries: MMRI, Inc.; European Shared Medical Services Ltd.; American Shared Radiosurgery Services; OR21, Inc. ("OR21"); MedLeader.com, Inc. ("MedLeader"); and the Company's majority-owned subsidiary, GK Financing, LLC ("GK Financing"). European Shared Medical Services, Ltd. was dissolved on April 28, 2000. The Company through its majority-owned subsidiary, GK Financing, provided Gamma Knife units to twelve medical centers as of September 30, 2001 in Arkansas, California, Connecticut, Illinois, Massachusetts, Mississippi, Nevada, New Jersey, Ohio, Texas and Wisconsin. All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2. PER SHARE AMOUNTS Per share information has been computed based on the weighted average number of common shares and dilutive common share equivalents outstanding. For the three and nine months ended September 30, 2001 basic earnings per share was computed using 3,549,000 and 3,581,000 common shares, and diluted earnings per share was computed using 5,126,000 and 5,148,000 common shares and equivalents, respectively. For the three and nine months ended September 30, 2000 basic earnings per share was computed using 3,836,000 and 3,820,000 common shares, and diluted earnings per share was computed using 5,418,000 and 5,465,000 common shares and equivalents, respectively. NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Standards Accounting Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased 5 Enterprises". SFAS No. 141 is effective for transactions initiated after June 30, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company does not expect the adoption of these statements to have a material effect on its consolidated results of operations or financial position. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The Company is required to adopt the provisions of SFAS No. 143 no later than the beginning of fiscal year 2003, with early adoption permitted. The Company does not expect the adoption of this statement to have a material effect on its consolidated results of operations or financial position. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. SFAS No. 144 becomes effective for fiscal years beginning after December 15, 2001, with early applications encouraged. The Company does not expect the adoption of this statement to have a material effect on its consolidated results of operations or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Medical services revenues increased $514,000 and $2,022,000 for the three and nine month periods ended September 30, 2001 from $2,536,000 and $6,707,000 for the three and nine month periods ended September 30, 2000. The increase in third quarter 2001 compared to third quarter 2000 reflects the addition of three new Gamma Knife units. The Company had twelve Gamma Knife units in operation at September 30, 2001 compared to nine at September 30, 2000. For the nine months ended September 30, 2001, the increase is due to three new gamma knife units and an increase in revenue at Gamma Knife centers in operation more than one year of 4%. Ten of the Company's customers are under fee-per-use contracts, and two customers are under revenue sharing agreements ("retail"). For retail units, the Company receives all or a percentage of the reimbursement (exclusive of physician fees) received by the customer, and is responsible for all or a percentage of the operating expenses of the Gamma Knife. Total costs of operations increased $144,000 and $715,000 for the three and nine month periods ended September 30, 2001 from $922,000 and $2,429,000 for the three and nine month 6 periods ended September 30, 2000. Maintenance and supplies increased $46,000 and $149,000 for the three and nine month periods ended September 30, 2001 compared to the same periods in the prior year due to additional Gamma Knife units that started contract maintenance after the expiration of each unit's warranty period. There were nine Gamma Knife units covered under contract maintenance as of September 30, 2001 compared to six as of September 30, 2000. Depreciation and amortization increased $203,000 and $498,000 for the three and nine month periods ended September 30, 2001 compared to the same periods in the prior year due to the three additional Gamma Knife units. Other operating costs decreased $105,000 and increased $68,000 for the three and nine month periods ended September 30, 2001 compared to the same periods in the prior year. The decrease for the third quarter was primarily due to an $80,000 credit to property tax expense, as well as a decrease in certain operating expenses of one of the retail Gamma Knife units due to a corresponding decrease in revenue. The increase for the nine month period was primarily due to increases in insurance and sales/use tax. Selling and administrative costs increased $144,000 and $466,000 for the three and nine month periods ended September 30, 2001 from $654,000 and $1,913,000 for the three and nine month periods ended September 30, 2000. For both the three and nine month periods this increase is primarily due to increased investor relations costs, accounting fees, and sales, business development and marketing costs. For the nine month period ended September 30, 2001 there was $164,000 of development costs for the Company's two startup businesses, OR21 and MedLeader, compared to $119,000 in the prior year. Interest expense increased $105,000 and $284,000 for the three and nine month periods ended September 30, 2001 from $654,000 and $1,913,000 for the three and nine month periods ended September 30, 2000. This is due to three additional Gamma Knife units during the three and nine month periods compared to the prior year, all of which were financed with long-term debt, resulting in additional interest expense. In addition, the newer Gamma Knife units have higher interest expense at the beginning of their loan term than more mature units because interest expense decreases as the outstanding balance of each loan is reduced. Interest and other income decreased $97,000 and $243,000 for the three and nine month periods ended September 30, 2001 from $197,000 and $631,000 for the three and nine month periods ended September 30, 2000 due to lower interest rates on invested cash balances. In addition, for the nine month period ended September 30, 2001 there was a decrease of approximately $73,000 of other income compared to the same period in the prior year. Other income in the prior year consisted primarily of state income tax refunds. Minority interest increased $22,000 and $112,000 for the three and nine month periods ended September 30, 2001 from $186,000 and $454,000 for the three and nine month periods ended September 30, 2000 due to increased profitability of GK Financing. Minority interest represents the 19% interest of GK Financing owned by a third party. The Company recorded $170,000 and $294,000 of income tax expense for the three and nine month periods ended September 30, 2001 compared to no expense for the three and nine month periods ended September 30, 2000. The Company did not record any income tax expense during 2000 or the first three months of 2001 due to net operating loss carryforwards available 7 for tax purposes. The Company expects that it will continue to record an estimated 40% income tax provision for the remainder of the year. The Company had net income of $256,000 ($0.07 per basic share) and $859,000 ($0.24 per basic share) for the three and nine month periods ended September 30, 2001 compared to net income of $424,000 ($0.11 per basic share) and $951,000 ($0.25 per basic share) in the same periods in the prior year. This decrease for both the three and nine month periods ended September 30, 2001 is primarily because the Company began recording a 40% income tax provision in the second quarter, 2001. The effects of the tax provision were partially offset by increased operating results due to three additional Gamma Knife units compared to the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $11,549,000 at September 30, 2001 compared to $12,421,000 at December 31, 2000. The Company's cash position decreased by $872,000 because the Company made deposits of $575,000 on future Gamma Knife purchases, paid its first annual dividend of $0.10 per share ($361,000) to shareholders of record on March 15, 2001, and repurchased 196,000 shares and 69,000 options to purchase shares of Company stock ($595,000). The Company as of September 30, 2001 had shareholders' equity of $13,576,000, working capital of $9,410,000 and total assets of approximately $41,251,000. The Company has scheduled interest and principal payments under its debt obligations of approximately $7,212,000 during the next 12 months. The Company believes that its cash flow from operations and cash resources is adequate to meet its scheduled debt obligations during the next 12 months. The Company is investing its cash in an institutionally priced money market fund pending use in the Company's operations. The investment objective of the money market fund is to maintain a stable net asset value, in order to maximize yield while preserving principal value. 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The following exhibit is filed herewith: Exhibit Number Description -------------- ----------- 10.36 American Shared Hospital Services 2001 Stock Option Plan 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN SHARED HOSPITAL SERVICES Registrant Date: November 13, 2001 /s/ Ernest A. Bates ---------------------------------------- Ernest A. Bates, M.D. Chairman of the Board and Chief Executive Officer Date: November 13, 2001 /s/ Craig K. Tagawa ---------------------------------------- Craig K. Tagawa Senior Vice President Chief Operating and Financial Officer 10 EX-10.36 3 f76675ex10-36.txt EXHIBIT 10.36 Exhibit 10.36 AMERICAN SHARED HOSPITAL SERVICES 2001 STOCK OPTION PLAN I. INTRODUCTION 1.1 PURPOSES. The purposes of the 2001 Stock Option Plan (the "Plan") of American Shared Hospital Services (the "Company") and its subsidiaries from time to time (individually a "Subsidiary" and collectively the "Subsidiaries") are to align the interests of the Company's shareholders and the recipients of options under this Plan by increasing the proprietary interest of such recipients in the Company's growth and success and to advance the interests of the Company by attracting and retaining officers and other key employees and well-qualified persons who are not officers or employees of the Company for service as directors ("non-employee directors"), consultants and advisors of the Company. For purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary, which shall mean an entity in which the Company directly or indirectly owns a majority of the voting interests or, whether by contract or otherwise, has the power to control the policies of such entity. 1.2 ADMINISTRATION. This Plan shall be administered by a committee (the "Committee") designated by the Board of Directors of the Company (the "Board") consisting of two or more members of the Board. The Committee shall, subject to the terms of this Plan, select eligible officers and other key employees for participation in this Plan and shall determine the number of shares of Common Stock subject to each option granted hereunder, the exercise price of such option, the time and conditions of exercise of such option and all other terms and conditions of such option, including, without limitation, the form of the option agreement. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an option, conditions with respect to the grant, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties. Each option hereunder shall be evidenced by a written agreement (an "Agreement") between the Company and the optionee setting forth the terms and conditions applicable to such option. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; provided, however, that the Committee may not delegate its power and authority with regard to the grant of an award under this Plan to any person who is a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") or who, in the Committee's judgment, is likely to be a covered employee at any time during the period an option granted hereunder to such employee would be outstanding. No member of the Board of Directors or Committee, and neither the Chief Executive Officer nor other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interprctation, construction or determination made in connection with this Plan in good faith, and the niembers of the Board of Directors and the Committee and the Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys' fees) arising therefrom to the full extent permitted by law and under any directors' and officers' liability insurance that may be in effect from time to time. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (i) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (ii) acts approved in writing by a majority of the members of the Committee without a meeting. 1.3 ELIGIBILITY. Participants in this Plan shall consist of such officers and other key employees of the Company and its Subsidiaries, and such non-employee consultants and advisors, as the Committee in its sole discretion may select from time to time; provided, however, that any officer who beneficially owns more than 15% of the outstanding shares of Common Stock shall not be eligible to participate in the Plan. The Committee's selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Non-employee directors of the Company shall be eligible to participate in this Plan in accordance with Section III. 1.4 SHARES AVAILABLE. Subject to adjustment as provided in Section 4.7, 250,000 common shares, without par value, of the Company ("Common Stock"), shall be available for grants of options under this Plan, reduced by the sum of the aggregate number of shares of Common Stock which become subject to outstanding options. To the extent that shares of Common Stock subject to an outstanding option are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such option or by reason of the delivery or withholding of shares of Common Stock to pay all or a portion of the exercise price of such option, if any, or to satisfy all or a portion of the tax withholding obligations relating to such option, then such shares of Common Stock shall again be available under this Plan. Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock. II. STOCK OPTIONS 2.1 GRANTS OF STOCK OPTIONS. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is not an incentive stock option, shall be a non-qualified stock option. An incentive stock option shall mean an option to purchase shares of Common Stock that meets the requirements of the Code, or any successor provision, which is intended by the Committee to constitute an incentive stock option. Each incentive stock option shall be granted within ten years of the effective date of this Plan. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as incentive stock options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall constitute non-qualified stock options. "Fair Market Value" shall mean the closing transaction price of a share of Common Stock as reported in the American Stock Exchange Composite Transactions on the date as of which such value is being determined or, if there shall be no reported transaction on such date, on the next preceding date for which a transaction was reported; provided that if Fair Market Value for any date cannot be determined as above provided, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. 2.2 TERMS OF STOCK OPTIONS. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) Number of Shares and Purchase Price. The number of shares of Common Stock subject to an option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of Common Stock purchasable upon exercise of a non-qualified stock option shall not be less than 25% of the Fair Market Value of a share of Common Stock on the date of grant of such option and the purchase price per share of Common Stock purchasable upon exercise of an incentive stock option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; provided further, that if an incentive stock option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (a "Ten Percent Holder"), the purchase price per share of Common Stock shall be the price (currently 110% of Fair Market Value) required by the Code in order to constitute an incentive stock option. (b) Option Period and Exercisabilitv. The period during which an option may be exercised shall be determined by the Committee and set forth in the Agreement relating to such option; provided, however, that no option shall be exercised later than ten years after its date of grant; provided further, that if an incentive stock option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock. At any time after the grant of an option the Committee may, in its sole discretion and subject to whatever terms and conditions it determines appropriate, accelerate the period during which an option is exercisable. (c) Method of Exercise. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (A) in cash, (B) by delivery of previously owned whole shares of Common Stock for which the optionee has good title, free and clear of all liens and encumbrances, and having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (D) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise together with irrevocable instructions to sell a sufficient portion of the shares and deliver the sale proceeds to the Company, or (E) a combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the option and (ii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (B)-(E) and in the case of an optionee who is subject to Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), the Company may require that the method of making such payment be in compliance with Section 16 and the rules and regulations thereunder. Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing Common Stock shall be delivered until the full purchase price therefor has been paid. (d) Additional Options. The Committee shall have the authority to include in any Agreement relating to an option a provision entitling the optionee to an additional option in the event such optionee exercises the option represented by such option agreement, in whole or in part, by delivering previously owned whole shares of Common Stock in payment of the purchase price in accordance with this Plan and such Agreement. Any such additional option shall be for a number of shares of Common Stock equal to the number of delivered shares, shall have a purchase price determined by the Committee in accordance with this Plan, shall be exercisable on the terms and subject to the conditions established by the Committee at the time of grant of such additional option, and shall be subject to such other terms and conditions as the Committee shall determine in accordance with this Plan. 2.3 TERMINATION OF EMPLOYMENT OR DIRECTORSHIP. (a) Permanent and Total Disability. Subject to Section 4.8 and unless otherwise specified in the Agreement relating to an option, if an optionee's employment or directorship with the Company terminates by reason of Permanent and Total Disability (as defined in Section 22(e)(3) of the Code), each option held by such optionee shall be exercisable only to the extent that such option is exercisable on the effective date of such termination and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is one year (or such shorter period as set forth in the Agreement relating to such option) after the effective date of such termination and (ii) the expiration date of the term of such option. (b) Death. Subject to Section 4.8 and unless otherwise specified in the Agreement relating to an option, if an optionee's employment or directorship with the Company terminates by reason of death, each option held by such optionee shall be exercisable only to the extent that such option is exercisable on the date of such optionee's death and may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such shorter period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. (c) Other Termination. Subject to Section 4.8 and unless otherwise specified in the Agreement relating to an option, if an optionee's employment or directorship with the Company terminates for any reason other than Permanent or Total Disability or death, each option held by such optionee shall be exercisable only to the extent that such option is exercisable on the effective date of such optionee's termination and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such shorter period as set forth in the Agreement relating to such option) after the effective date of such optionee's termination and (ii) the expiration date of the term of such option; provided that if such optionee's employment is terminated for Cause, all options held by such optionee shall terminate automatically on the effective date of such optionee's termination of employment. For purposes of this Plan, "Cause" shall mean termination for commission of an act of dishonesty, theft, fraud, embezzlement, falsification of books and records, continued or prolonged intoxication, both alcohol and drug related, and conviction of a felony or a crime involving moral turpitude, and in any event, the determination of the Committee with respect thereto shall be final and conclusive. (d) Death Following Termination of Employment. Subject to Section 4.8 and unless otherwise specified in the Agreement relating to an option, if an optionee dies during the one-year period following termination by reason of Permanent and Total Disability, or if an optionee dies during the three-month period following termination for any reason other than Permanent or Total Disability or death (or, in each case, such shorter period as the Committee may specify in the Agreement relating to an option), each option held by such optionee shall be exercisable only to the extent that such option is exercisable on the date of such optionee's death and may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such shorter period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. (e) Unexercisable Options. No portion of an option which is unexercisable as of the date on which an optionee's employment or directorship with the Company terminates shall thereafter become exercisable; provided, however, that provision may be made in the Agreement relating to such option that such option shall become exercisable, with the consent of the Committee, in the event of a termination of employment because of the optionee's normal retirement or permanent and total disability (each as determined by the Committee in accordance with Company policies), or death, or in the event of termination of directorship upon expiration of the regular term thereof. III. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS 3.1 ELIGIBILITY. Each member of the Board of Directors of the Company who is not an employee, either full-time or part-time, of the Company or a Subsidiary shall be granted options to purchase shares of Common Stock in accordance with this Section III. All options granted under this Section III shall be non-qualified stock options. 3.2 GRANTS OF STOCK OPTIONS. Each non-employee director shall be granted non-qualified stock options as folio (a) Time of Grant. Commencing with the 2001 annual meeting of stockholders (or, if later, on the date on which a person is first elected or begins to serve as a non-employee director other than by reason of termination of employment), and, thereafter, on the date of each annual meeting of stockholders of the Company, each person who is a non-employee director after such meeting of stockholders shall be granted an option to purchase 4,000 shares of Common Stock (which amount shall be pro-rated if such person is first elected or begins to serve as a non-employee director on a date other than the date of an annual meeting of stockholders) at a purchase price per share equal to the Fair Market Value of the Common Stock on the date of grant of such option; provided, that the aggregate number of options granted to any person hereunder or under any other plan of the Company, including, but not limited to, the 1995 Stock Option Plan, shall not exceed 12,000. (b) Option Period and Exercisability. Each option granted under this Article III shall be fully exercisable one year after its date of grant (unless the Agreement relating to such option specifies an earlier date, either as to all or a portion of the shares covered thereby) and shall expire ten years after its date of grant. An exercisable option, or portion thereof, may be exercised in whole or in part only with respect to whole shares of Common Stock. Options granted under this Article HI shall be exercisable in accordance with Section 2.2(c) and shall be subject to the provisions of Sections 2.3(a) through (d) in the event of the termination of a director's service on the Board. IV. GENERAL 4.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan will be submitted for the approval of the Company's stockholders within 12 months after the date of the Board's initial adoption of this Plan. Options may be granted prior to such stockholder approval, provided that such Options shall not be exercisable prior to the time when this Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said 12-month period, all options previously granted shall thereupon be cancelled and become null and void. This Plan shall terminate ten years after its effective date unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any option granted prior to termination. Options may be granted hereunder at any time prior to the termination of this Plan, provided that no award may be made later than ten years after the effective date of this Plan. 4.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation; provided, however, that no amendment shall be made without stockholder approval if such amendment would (a) increase the maximum number of shares of Common Stock available under this Plan (subject to Section 4.7), (b) reduce the minimum purchase price per share of Common Stock subject to an option, (c) effect any change inconsistent with Section 422 of the Code, or (d) extend the term of this Plan or the maximum period during which an option may be exercised; provided, further, that this Plan shall not be amended in a manner which fails to comply with Rule l6b-3(c)(2)(ii)(B) under Section 16 of the Exchange Act. No amendment may impair the rights of a holder of an outstanding option without the consent of such holder. 4.3 AGREEMENT. No option shall be valid until an Agreement is executed by the Company and the optionee and, upon execution by the Company and the optionee and delivery of the Agreement to the Company, such option shall be effective as of the effective date set forth in the Agreement. 4.4 NON-TRANSFERABILITY. No option hereunder shall be transferable other than by will or the laws of descent and distribution or pursuant to the beneficiary designation procedures set forth in Section 4.11. Each option may be exercised during the optionee's lifetime only by the optionee or the optionee's legal representative or similar person. Except as permitted by the second preceding sentence, no option hereunder shall be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any option hereunder, such option and all rights thereunder shall immediately become null and void. 4.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock, payment by the optionee of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with an option hereunder. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with the option (the `Tax Date") in the amount necessary to satisfy any such obligation or (ii) the optionee may satisfy any such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery to the Company of previously owned whole shares of Common Stock for which the optionee has good title, free and clear of all liens and encumbrances, and having an aggregate Fair Market Value determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having an aggregate Fair Market Value determined as of the Tax Date, (D) a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise together with irrevocable instructions to sell a sufficient portion of the shares and deliver the sale proceeds to the Company or (E) any combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the option; provided, however, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (B)(E) and that in the case of an optionec who is subject to Section 16 of the Exchange Act, the Company may require that the method of satisfying any such obligation be in compliance with Section 16 and the rules and regulations thereunder. An Agreement may provide for shares of Common Stock to be delivered or withheld having a Fair Market Value in excess of the minimum amount required to be withheld. Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the optionee. 4.6 RESTRICTIONS ON SHARES. Each option hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such option upon any securities exchange or under any law, or the nsent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any option hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 4.7 ADJUSTMENT. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities available under this Plan, the number and class of securities subject to each outstanding option, the purchase price per security, and the number of securities subject to each option to be granted to non-employee directors pursuant to Article III shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options without an increase in the aggregate purchase price. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any adjustment would result in a fractional security being (i) available under this Plan, such fractional security shall be disregarded, or (ii) subject to an option under this Plan, the Company shall pay the optionee, in connection with the first exercise of the option in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (A) the fraction of such security (rounded to the nearest hundredth) by (B) the excess, if any, of (x) the Fair Market Value on the exercise date over (y) the exercise price of the option. 4.8 CHANGE IN CONTROL. (a) (1) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(3) or (4) below in connection with which the holders of Common Stock receive shares of common stock that are registered under Section 12 of the Exchange Act, there shall be substituted for each share of Common Stock available under this Plan, whether or not then subject to an outstanding option, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. In the event of any such substitution, the purchase price per share of each option shall be appropriately adjusted by the Committee, such adjustments to be made without an increase in the aggregate purchase price or base price. (2) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(1) or (2) below, or in the event of a Change in Control pursuant to Section (b)(3) or (4) below in connection with which the holders of Common Stock receive consideration other than shares of common stock that are registered under Section 12 of the Exchange Act, each outstanding option shall be surrendered to the Company by the holder thereof, and each such option shall immediately be cancelled by the Company, and the holder shall receive, within ten days of the occurrence of a Change in Control pursuant to Section (b)( 1) or (2) below or within ten days of the approval of the stockholders of the Company contemplated by Section (b)(3) or (4) below, a cash payment from the Company in an amount equal to the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of (i) the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control over (ii) the purchase price per share of Common Stock subject to the option. The Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder. (b) "Change in Control" shall mean: (1) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this Section 4.8(b); (2) individuals who, as of the effective date of the Plan, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the effective date of the Plan whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (3) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (4) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. 4.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any right to participate in this Plan. Neither this Plan nor any option granted hereunder shall confer upon any person any right to continued employment by the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment of any person at any time without liability hereunder. 4.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock which are subject to an option hereunder until such person becomes a stockholder of record with respect to such shares of Common Stock. 4.11 DESIGNATION OF BENEFICIARY. Each optionee may file with the Committee a written designation of one or more persons as such optionee's beneficiary or beneficiaries (both primary and contingent) in the event of the optionee's death. To the extent an outstanding option granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such option. Each beneficiary designation shall become effective only when filed in writing with the Committee during the optionee's lifetime on a form prescribed by the Committee. The spouse of a married optionee domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Committee of a new beneficiary designation shall cancel all previously filed beneficiary designations. If an optionee fails to designate a beneficiary, or if all designated beneficiaries of an optionee predecease the optionee, then each outstanding option hereunder held by such optionee, to the extent exercisable, may be exercised by such optionee's executor, administrator, legal representative or similar person. 4.12 GOVERNING LAW. This Plan, each option hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of California and construed in accordance therewith with out giving effect to principles of conflicts of laws. Adopted by the Board of Directors on November 30, 2000 -----END PRIVACY-ENHANCED MESSAGE-----