UNITED STATES
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 June
30, 2015 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 1-08789
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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller reporting company x
As of
August 1, 2015, there are outstanding 5,364,147 shares of the Registrant’s common stock.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
(unaudited) | | |
| |
ASSETS | |
June 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,798,000 | | |
$ | 1,059,000 | |
Restricted cash | |
| 50,000 | | |
| 50,000 | |
Certificate of deposit | |
| - | | |
| 9,000,000 | |
Accounts receivable, net of allowance for | |
| | | |
| | |
doubtful accounts of $100,000 at June 30, 2015 | |
| | | |
| | |
and $100,000 at December 31, 2014 | |
| 3,654,000 | | |
| 3,192,000 | |
Other receivables | |
| 123,000 | | |
| 131,000 | |
Prepaid expenses and other current assets | |
| 439,000 | | |
| 448,000 | |
Current deferred tax assets | |
| 367,000 | | |
| 367,000 | |
| |
| | | |
| | |
Total current assets | |
| 6,431,000 | | |
| 14,247,000 | |
| |
| | | |
| | |
| |
| | | |
| | |
Property and equipment: | |
| | | |
| | |
Medical equipment and facilities | |
| 84,600,000 | | |
| 82,151,000 | |
Office equipment | |
| 721,000 | | |
| 721,000 | |
Deposits and construction in progress | |
| 10,379,000 | | |
| 13,736,000 | |
| |
| 95,700,000 | | |
| 96,608,000 | |
Accumulated depreciation and | |
| | | |
| | |
amortization | |
| (46,269,000 | ) | |
| (46,572,000 | ) |
Net property and equipment | |
| 49,431,000 | | |
| 50,036,000 | |
| |
| | | |
| | |
| |
| | | |
| | |
Investment in equity securities | |
| 600,000 | | |
| 2,709,000 | |
Other assets | |
| 466,000 | | |
| 536,000 | |
| |
| | | |
| | |
| |
| | | |
| | |
Total assets | |
$ | 56,928,000 | | |
$ | 67,528,000 | |
LIABILITIES AND | |
(unaudited) | | |
| |
SHAREHOLDERS' EQUITY | |
June 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 289,000 | | |
$ | 421,000 | |
Employee compensation and benefits | |
| 160,000 | | |
| 179,000 | |
Other accrued liabilities | |
| 1,301,000 | | |
| 763,000 | |
| |
| | | |
| | |
Current portion of long-term debt | |
| 2,848,000 | | |
| 2,005,000 | |
Current portion of obligations under capital leases | |
| 4,304,000 | | |
| 4,103,000 | |
Advances on line of credit | |
| - | | |
| 8,780,000 | |
| |
| | | |
| | |
Total current liabilities | |
| 8,902,000 | | |
| 16,251,000 | |
| |
| | | |
| | |
Long-term debt, less current portion | |
| 7,811,000 | | |
| 8,586,000 | |
Long-term capital leases, less current portion | |
| 11,345,000 | | |
| 12,190,000 | |
Deferred revenue, less current portion | |
| 779,000 | | |
| 874,000 | |
| |
| | | |
| | |
Deferred income taxes | |
| 3,489,000 | | |
| 3,473,000 | |
| |
| | | |
| | |
Shareholders' equity: | |
| | | |
| | |
Common stock (5,364,000 shares at June 30, 2015 and 5,361,000 shares at December 31, 2014) | |
| 10,376,000 | | |
| 10,376,000 | |
Additional paid-in capital | |
| 5,602,000 | | |
| 5,508,000 | |
Retained earnings | |
| 3,700,000 | | |
| 5,542,000 | |
Total equity-American Shared Hospital Services | |
| 19,678,000 | | |
| 21,426,000 | |
Non-controlling interest in subsidiaries | |
| 4,924,000 | | |
| 4,728,000 | |
Total shareholders' equity | |
| 24,602,000 | | |
| 26,154,000 | |
| |
| | | |
| | |
Total liabilities and shareholders' equity | |
$ | 56,928,000 | | |
$ | 67,528,000 | |
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Medical services revenue | |
$ | 4,394,000 | | |
$ | 3,379,000 | | |
$ | 8,511,000 | | |
$ | 7,443,000 | |
| |
| | | |
| | | |
| | | |
| | |
Costs of revenue: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Maintenance and supplies | |
| 281,000 | | |
| 451,000 | | |
| 614,000 | | |
| 938,000 | |
| |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 1,593,000 | | |
| 1,606,000 | | |
| 3,098,000 | | |
| 3,217,000 | |
| |
| | | |
| | | |
| | | |
| | |
Other direct operating costs | |
| 718,000 | | |
| 477,000 | | |
| 1,400,000 | | |
| 1,154,000 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| 2,592,000 | | |
| 2,534,000 | | |
| 5,112,000 | | |
| 5,309,000 | |
| |
| | | |
| | | |
| | | |
| | |
Gross Margin | |
| 1,802,000 | | |
| 845,000 | | |
| 3,399,000 | | |
| 2,134,000 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Selling and administrative expense | |
| 979,000 | | |
| 937,000 | | |
| 1,800,000 | | |
| 1,859,000 | |
| |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 345,000 | | |
| 510,000 | | |
| 665,000 | | |
| 980,000 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
| 478,000 | | |
| (602,000 | ) | |
| 934,000 | | |
| (705,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
(Loss) on write down investment in equity securities | |
| (2,114,000 | ) | |
| - | | |
| (2,114,000 | ) | |
| - | |
(Loss) on sale of subsidiary | |
| - | | |
| (572,000 | ) | |
| - | | |
| (572,000 | ) |
Gain on foreign currency transactions | |
| - | | |
| 146,000 | | |
| - | | |
| 161,000 | |
Interest and other income | |
| 5,000 | | |
| 6,000 | | |
| 11,000 | | |
| 15,000 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) before income taxes | |
| (1,631,000 | ) | |
| (1,022,000 | ) | |
| (1,169,000 | ) | |
| (1,101,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
| 106,000 | | |
| 34,000 | | |
| 236,000 | | |
| 4,000 | |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) | |
| (1,737,000 | ) | |
| (1,056,000 | ) | |
| (1,405,000 | ) | |
| (1,105,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Less: Net (income) loss attributable to non-controlling interests | |
| (233,000 | ) | |
| 129,000 | | |
| (437,000 | ) | |
| 82,000 | |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) attributable to American Shared Hospital Services | |
$ | (1,970,000 | ) | |
$ | (927,000 | ) | |
$ | (1,842,000 | ) | |
$ | (1,023,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) per share: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) per common share - basic | |
$ | (0.36 | ) | |
$ | (0.20 | ) | |
$ | (0.34 | ) | |
$ | (0.22 | ) |
| |
| | | |
| | | |
| | | |
| | |
(Loss) per common share - assuming dilution | |
$ | (0.36 | ) | |
$ | (0.20 | ) | |
$ | (0.34 | ) | |
$ | (0.22 | ) |
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(Unaudited)
| |
Six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net (loss)
attributable to American Shared Hospital Services | |
$ | (1,842,000 | ) | |
$ | (1,023,000 | ) |
| |
| | | |
| | |
Other comprehensive income: | |
| | | |
| | |
Foreign currency translation adjustments | |
| - | | |
| 779,000 | |
| |
| | | |
| | |
Less comprehensive (income) attributable to the non-controlling interest | |
| - | | |
| (337,000 | ) |
| |
| | | |
| | |
Comprehensive (loss) attributable
to American Shared Hospital Services, net of tax | |
| (1,842,000 | ) | |
| (581,000 | ) |
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY
| |
PERIODS ENDED
DECEMBER 31, 2014 AND JUNE 30, 2015 | |
| |
| | |
| | |
| | |
Accumulated | | |
| | |
| | |
| | |
| |
| |
| | |
| | |
Additional | | |
Other | | |
| | |
| | |
Non-controlling | | |
| |
| |
Common | | |
Common | | |
Paid-in | | |
Comprehensive | | |
Retained | | |
Sub-Total | | |
Interests in | | |
| |
| |
Shares | | |
Stock | | |
Capital | | |
Income (Loss) | | |
Earnings | | |
ASHS | | |
Subsidiaries | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balances at January 1, 2014 | |
| 4,609,000 | | |
| 8,578,000 | | |
| 4,990,000 | | |
| (442,000 | ) | |
| 6,494,000 | | |
| 19,620,000 | | |
| 4,435,000 | | |
| 24,055,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Repurchase common stock | |
| (1,000 | ) | |
| (2,000 | ) | |
| - | | |
| - | | |
| - | | |
| (2,000 | ) | |
| - | | |
| (2,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation
expense | |
| 3,000 | | |
| - | | |
| 373,000 | | |
| - | | |
| - | | |
| 373,000 | | |
| - | | |
| 373,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Private placement common
stock | |
| 750,000 | | |
| 1,800,000 | | |
| - | | |
| - | | |
| - | | |
| 1,800,000 | | |
| - | | |
| 1,800,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fair value of warrants issued
with promissory notes | |
| - | | |
| - | | |
| 145,000 | | |
| - | | |
| - | | |
| 145,000 | | |
| - | | |
| 145,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest
investment in subsidiaries | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 517,000 | | |
| 517,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash distributions to non-controlling
interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (951,000 | ) | |
| (951,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cumulative translation adjustment | |
| - | | |
| - | | |
| - | | |
| 442,000 | | |
| - | | |
| 442,000 | | |
| 337,000 | | |
| 779,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net (loss) income | |
| - | | |
| - | | |
| - | | |
| - | | |
| (952,000 | ) | |
| (952,000 | ) | |
| 390,000 | | |
| (562,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at December 31, 2014 | |
| 5,361,000 | | |
| 10,376,000 | | |
| 5,508,000 | | |
| - | | |
| 5,542,000 | | |
| 21,426,000 | | |
| 4,728,000 | | |
| 26,154,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation
expense | |
| 3,000 | | |
| - | | |
| 94,000 | | |
| - | | |
| - | | |
| 94,000 | | |
| - | | |
| 94,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-controlling interest
investment in subsidiaries | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 27,000 | | |
| 27,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash distributions to non-controlling
interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (268,000 | ) | |
| (268,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net (loss) income | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,842,000 | ) | |
| (1,842,000 | ) | |
| 437,000 | | |
| (1,405,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at June 30, 2015 (unaudited) | |
| 5,364,000 | | |
$ | 10,376,000 | | |
$ | 5,602,000 | | |
$ | - | | |
$ | 3,700,000 | | |
$ | 19,678,000 | | |
$ | 4,924,000 | | |
$ | 24,602,000 | |
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
| |
Six Months ended June 30, | |
| |
2015 | | |
2014 | |
Operating activities: | |
| | | |
| | |
Net (loss) | |
$ | (1,405,000 | ) | |
$ | (1,105,000 | ) |
| |
| | | |
| | |
Adjustments to reconcile net (loss) to net cash from
operating activities: | |
| | | |
| | |
| |
| | | |
| | |
Depreciation and amortization | |
| 3,124,000 | | |
| 3,292,000 | |
| |
| | | |
| | |
Loss on write down of investment in equity securities | |
| 2,114,000 | | |
| - | |
| |
| | | |
| | |
Loss on sale of subsidiary | |
| - | | |
| 572,000 | |
| |
| | | |
| | |
Deferred income tax | |
| 16,000 | | |
| (47,000 | ) |
| |
| | | |
| | |
(Gain) on foreign currency transactions | |
| - | | |
| (161,000 | ) |
| |
| | | |
| | |
Stock-based compensation expense | |
| 94,000 | | |
| 46,000 | |
| |
| | | |
| | |
Other non-cash items | |
| 24,000 | | |
| - | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Receivables | |
| (454,000 | ) | |
| (86,000 | ) |
| |
| | | |
| | |
Prepaid expenses and other assets | |
| 64,000 | | |
| (4,000 | ) |
| |
| | | |
| | |
Customer deposits/deferred revenue | |
| (13,000 | ) | |
| (25,000 | ) |
| |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 305,000 | | |
| (90,000 | ) |
| |
| | | |
| | |
Net cash from operating activities | |
| 3,869,000 | | |
| 2,392,000 | |
| |
| | | |
| | |
Investing activities: | |
| | | |
| | |
Payment for purchase of property and equipment | |
| (1,344,000 | ) | |
| (296,000 | ) |
| |
| | | |
| | |
Investment in equity securities | |
| (5,000 | ) | |
| - | |
| |
| | | |
| | |
Proceeds from sale of subsidiary | |
| - | | |
| 768,000 | |
| |
| | | |
| | |
Net (used in) from cash from investing activities | |
| (1,349,000 | ) | |
| 472,000 | |
| |
| | | |
| | |
Financing activities: | |
| | | |
| | |
Principal payments on long-term debt | |
| (979,000 | ) | |
| (1,772,000 | ) |
| |
| | | |
| | |
Principal payments on capital leases | |
| (1,804,000 | ) | |
| (2,165,000 | ) |
| |
| | | |
| | |
Proceeds from long-term debt financing on property and equipment | |
| 1,023,000 | | |
| - | |
| |
| | | |
| | |
Proceeds from certificate of deposit | |
| 9,000,000 | | |
| - | |
| |
| | | |
| | |
Advances on line of credit | |
| - | | |
| 70,000 | |
| |
| | | |
| | |
Payments on line of credit | |
| (8,780,000 | ) | |
| (1,200,000 | ) |
| |
| | | |
| | |
Non-controlling interest investment in subsidiaries | |
| 27,000 | | |
| 102,000 | |
| |
| | | |
| | |
Cash distributions to non-controlling interests | |
| (268,000 | ) | |
| (434,000 | ) |
| |
| | | |
| | |
Common stock Repurchased | |
| - | | |
| (2,000 | ) |
| |
| | | |
| | |
Private placement common stock | |
| - | | |
| 1,580,000 | |
| |
| | | |
| | |
Net cash (used in) financing activities | |
| (1,781,000 | ) | |
| (3,821,000 | ) |
| |
| | | |
| | |
Effect of changes in foreign exchange rates on cash | |
| - | | |
| (8,000 | ) |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| 739,000 | | |
| (965,000 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 1,059,000 | | |
| 1,909,000 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 1,798,000 | | |
$ | 944,000 | |
| |
| | | |
| | |
Supplemental cash flow disclosure: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
| |
| | | |
| | |
Interest | |
$ | 889,000 | | |
$ | 1,122,000 | |
| |
| | | |
| | |
Income taxes | |
$ | (6,000 | ) | |
$ | 51,000 | |
| |
| | | |
| | |
Schedule of non-cash investing and financing activities | |
| | | |
| | |
Acquisition of equipment with capital lease financing | |
$ | 1,160,000 | | |
$ | 2,732,000 | |
| |
| | | |
| | |
Equipment relieved in sale of subsidiary | |
$ | - | | |
$ | (4,921,000 | ) |
Other assets relieved in sale of subsidiary | |
$ | - | | |
$ | (826,000 | ) |
Debt relieved in sale of subsidiary | |
$ | - | | |
$ | 5,181,000 | |
Other liabilities relieved in sale of subsidiary | |
$ | - | | |
$ | 14,000 | |
Net equity releived in sale of subsidiary | |
$ | - | | |
$ | 1,351,000 | |
OCI released to net income in sale of subsidiary | |
$ | - | | |
$ | (779,000 | ) |
Investment released to net income in sale of subsidiary | |
$ | - | | |
$ | (1,360,000 | ) |
See accompanying notes
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 normal recurring accruals and entries to record the impairment of the Company’s investment in equity securities and the
sale of EWRS Tibbi Cihazlar Ticaret Ltd Sti, “EWRS Turkey”) necessary to present fairly American Shared Hospital Services’
consolidated financial position as of June 30, 2015 and the results of its operations for the three and six month periods ended
June 30, 2015 and 2014, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet
amounts as of December 31, 2014 have been derived from audited consolidated financial statements.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2014 included in the Company’s 10-K filed with the Securities and Exchange Commission.
These
condensed consolidated financial statements include the accounts of American Shared Hospital Services (the “Company”)
and its wholly-owned subsidiaries: OR21, Inc. (“OR21”); MedLeader.com, Inc. (“MedLeader”); and American
Shared Radiosurgery Services (“ASRS”); ASRS’ majority-owned subsidiary, GK Financing, LLC (“GKF”);
GKF’s wholly-owned subsidiaries, GK Financing U.K., Limited (“GKUK”), Instituto de Gamma Knife del Pacifico
S.A.C. (“GKPeru”); ASHS’ majority owned subsidiary, Long Beach Equipment, LLC (“LBE”), GKF’s
majority owned subsidiaries, Albuquerque GK Equipment, LLC (“AGKE”), Jacksonville GK Equipment, LLC (“JGKE”)
and EWRS, LLC (“EWRS”). EWRS owned 100% of EWRS Turkey. The Company sold EWRS Turkey on June 10, 2014.
The
Company through its majority-owned subsidiary, GKF, provided Gamma Knife units to seventeen medical centers as of June 30, 2015
in the states of Arkansas, California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico,
New York, Tennessee, Oklahoma, Ohio, Texas, and Washington.
The
Company also directly provides radiation therapy and related equipment, including Intensity Modulated Radiation Therapy (“IMRT”),
Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an existing Gamma
Knife site in the United States.
The
Company formed the subsidiaries GKUK and GKPeru, for the purposes of expanding its business internationally into the United Kingdom
and Peru; LBE to provide proton beam therapy services in Long Beach, California; and AGKE and JGKE to provide Gamma Knife services
in Albuquerque, New Mexico and Jacksonville, Florida. AGKE began operation in the second quarter 2011 and JGKE began operation
in the fourth quarter 2011. GKPeru is expected to begin operation in the latter part of 2015/early 2016. GKUK is inactive and LBE is not
expected to generate revenue within the next two years.
Based
on guidance provided in accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters
(“ASC 830”), the Company has analyzed its operations outside the United States to determine the functional currency
of each operation. Management determined that these operations were initially accounted for in U.S. dollars since the primary
transactions incurred were in U.S. dollars and the Company provided significant funding towards the startup of the operation.
When Management determined that the operation had become predominantly self-sufficient, the Company changed its accounting for
the operation to the local currency from the U.S. dollar.
As
of June 10, 2014 EWRS Turkey’s balance sheet accounts were translated at rates in effect as of those dates, respectively,
and income and expense accounts were translated at the weighted average rates of exchange during those respective periods. Gains
and losses from foreign currency transactions and remeasurement are listed in the Company’s Condensed Consolidated Statements
of Operations. The Company recorded a net foreign currency gain of $146,000 and $161,000 for the three and six month periods ended
June 30, 2014, respectively.
Based
on guidance provided in accordance with Accounting Standards Update (“ASU”) No. 2014-08 Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), the Company has analyzed the
factors that define a discontinued operation and determined that the sale of EWRS Turkey is considered the sale of a significant
component, but does not represent a major shift in the business, and therefore is not a discontinued operation.
Based
on guidance provided in accordance with ASU No 2013-05 Parent’s Accounting for the Cumulative Translation Adjustment
upon Derecognition of Certain Subsidiaries of Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
(“ASU 2013-05”), the Company no longer holds a financial interest in EWRS Turkey. As of December 31, 2014, the
cumulative translation adjustments previously recognized under accumulated other comprehensive income (loss) were released into
net income as a component of the loss for the sale of EWRS Turkey in the statement of operations. The total cumulative translation
adjustment of $779,000, previously recognized under accumulated other comprehensive income (loss), was included as a component
of the loss calculation for the sale of EWRS Turkey, reported in the statement of operations for the year ended 2014.
Based
on guidance provided in accordance with ASC 280 Segment Reporting (“ASC 280”), the Company has analyzed the
factors that define an operating segment and determined that there is only one operating segment. The seventeen locations are
aggregated into one reportable segment because, in the Company’s judgment, these operating segments have similar historical
economic characteristics and are expected to have similar economic characteristics in the future. Furthermore, each operating
segment utilizes the same business model and technologies, servicing the same end users (radiation therapy patients). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Effective
May 31, 2014 (with closing occurring June 10, 2014) the Company sold EWRS Turkey for EUR 4.2 million (approximately $6.0M). The
proceeds were used to reduce outstanding debt and the excess was cash to the Company of $768,000. Cash transactions were recorded
for the time period June 1 to June 10, 2014, the date of closing. The Company recorded a loss on sale of subsidiary of $572,000.
The Company was eligible for an earn-out in fiscal year 2014 based on future revenue derived from the units sold to Euromedic.
The Company did not meet its 2014 earn-out milestone. The Company is also eligible for an earn-out in fiscal year 2015 based on
future revenues, but does not anticipate it will meet the 2015 earn out therefore no amounts have been recorded as of June 30,
2015.
Based on guidance provided
in ASC 320 Investments – Debt and Equity Securities (“ASC 320”) and Staff Accounting Bulletins (“SAB”)
Topic 5M Other Than Temporary Impairment (“OTTI”) of Certain Investments in Equity Securities (“SAB Topic
5M”), the Company analyzed the recent events of Mevion Medical Systems, Inc. (“Mevion”), formerly Still River
Systems, and determined that these circumstances indicate a decline in value of its Mevion investment that is other-than-temporary,
and determined that a write-down of the carrying value should be recognized at this time. The Company adjusted its investment in
Mevion to the determined fair value of $600,000 and recorded a $2,114,000 impairment loss. The $2,114,000 other than temporary
impairment of its investment in Mevion is recorded in other (loss) on the Company’s Condensed Consolidated Statement of Operations.
Recently Issued Accounting Pronouncements
In
January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-01, Income Statement - Extraordinary
and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
(“ASU No. 2015-01”), which eliminates from United States Generally Accepted Accounting Principles (“GAAP”)
the concept of extraordinary items and requires that an entity separately classify, present, and disclose extraordinary events
and transactions. This ASU will also align more closely GAAP income statement presentation guidance with International Accounting
Standards (“IAS”) 1, Presentation of Financial Statements, which prohibits the presentation and disclosure
of extraordinary items. The new standard is effective for the Company on January 1, 2016. Early application is permitted. The
standard permits the use of either the retrospective or prospective application. The Company is evaluating the effect that ASU
2015-01 will have on its consolidated financial statements and related disclosures and has not yet selected a transition method.
In
February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU
No. 2015-02”), which is intended to improve targeted areas of consolidation guidance for legal entities. The ASU focuses
on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain
legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB
ASC and improves current GAAP. The new standard is effective for the Company on January 1, 2016. Early adoption is permitted.
The Company is evaluating the effect that ASU 2015-02 will have on its consolidated financial statements and related disclosures
and has not yet selected a transition method.
In
April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability,
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The
new standard is effective for the Company on January 1, 2016. Early adoption is permitted. The amendments should be applied on
a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific
effects of applying the new guidance. The Company is evaluating the effect that ASU 2015-03 will have on its consolidated financial
statements and related disclosures and has not yet selected a transition method.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASU 2014-09"),
which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods
or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The
new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use
of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to delay the effective date of
this standard until the first quarter of 2018. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated
financial statements and related disclosures and has not yet selected a transition method.
Note 2. Per
Share Amounts
The
following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended June
30, 2015 and 2014:
| |
Three Months ended June 30, | | |
Six Months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Net (loss) attributable to American Shared Hospital Services | |
$ | (1,970,000 | ) | |
$ | (927,000 | ) | |
$ | (1,842,000 | ) | |
$ | (1,023,000 | ) |
Weighted average common shares for basic earnings per share | |
| 5,484,000 | | |
| 4,718,000 | | |
| 5,480,000 | | |
| 4,718,000 | |
Diluted effect of stock options and restricted stock | |
| - | | |
| - | | |
| - | | |
| - | |
Weighted average common shares for diluted earnings per share | |
| 5,484,000 | | |
| 4,718,000 | | |
| 5,480,000 | | |
| 4,718,000 | |
| |
| | | |
| | | |
| | | |
| | |
Basic (loss) per share | |
$ | (0.36 | ) | |
$ | (0.20 | ) | |
$ | (0.34 | ) | |
$ | (0.22 | ) |
Diluted (loss) per share | |
$ | (0.36 | ) | |
$ | (0.20 | ) | |
$ | (0.34 | ) | |
$ | (0.22 | ) |
Pursuant
to GAAP, potentially dilutive common stock equivalents, such as dilutive stock options, are not considered when their inclusion
in reporting earnings per share would be dilutive to reported losses incurred per share. Because the Company reported a loss for
the three and six month periods ending June 30, 2015 and June 30, 2014, the potentially dilutive effects of approximately 38,000
and 42,000 of the Company’s stock options and 14,000 and 15,000 unvested restricted stock units were not considered for the
reporting period, respectively.
Note 3. Stock-based
Compensation
On
June 2, 2010, the Company’s shareholders approved an amendment and restatement of the 2006 Stock Incentive Plan (the “2006
Plan”). Among other things, the amendment and restatement renamed the 2006 Plan to the Incentive Compensation Plan (the
“Plan”) and increased the number of shares of the Company’s common stock reserved for issuance under the Plan
by an additional 880,000 shares from 750,000 shares to 1,630,000 shares. The shares are reserved for issuance to officers of the
Company, other key employees, non-employee directors, and advisors. The Plan serves as successor to the Company’s previous
two stock-based employee compensation plans, the 1995 and 2001 Stock Option Plans. The shares reserved under those two plans,
including the shares of common stock subject to currently outstanding options under the plans, were transferred to the Plan, and
no further grants or share issuances will be made under the 1995 and 2001 Plans. On June 16, 2015, the Company’s shareholders
approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years.
Stock-based
compensation expense associated with the Company’s stock-based awards to employees is calculated using the Black-Scholes
valuation model. The Company’s stock-based awards have characteristics significantly different from those of traded options,
and changes in the subjective input assumptions can materially affect the fair value estimates. The estimated fair value of the
Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest
rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during
which an employee is required to provide service in exchange for the award (requisite service period), usually the vesting period.
Accordingly, stock-based compensation cost before income tax effect in the amount of $58,000 and $94,000 is reflected in net income
for the three and six month periods ended June 30, 2015, compared to $20,000 and $46,000 in the same periods in the prior year,
respectively.
The
following table summarizes restricted stock awards, consisting primarily of annual automatic grants and deferred compensation
to non-employee directors, for the six month period ended June 30, 2015:
| |
Restricted Stock Awards/Units | | |
Grant Date Weighted- Average Fair
Value | | |
Intrinsic Value | |
Outstanding at January 1, 2015 | |
| 29,000 | | |
$ | 2.88 | | |
$ | - | |
Granted | |
| 3,000 | | |
$ | 2.58 | | |
$ | - | |
Vested | |
| (15,000 | ) | |
$ | 2.85 | | |
$ | - | |
Forfeited | |
| - | | |
$ | - | | |
$ | - | |
Outstanding at June 30, 2015 | |
| 17,000 | | |
$ | 2.84 | | |
$ | - | |
The
following table summarizes stock option activity for the six month period ended June 30, 2015:
| |
Stock Options | | |
Grant Date Weighted- Average
Exercise Price | | |
Weighted- Average Remaining
Contractual Life (in Years) | |
Outstanding at January 1, 2015 | |
| 659,000 | | |
$ | 3.13 | | |
| 5.57 | |
Granted | |
| 12,000 | | |
$ | 2.58 | | |
| - | |
Exercised | |
| (2,000 | ) | |
$ | 2.30 | | |
| - | |
Forfeited | |
| (55,000 | ) | |
$ | 5.97 | | |
| - | |
Outstanding at June 30, 2015 | |
| 614,000 | | |
$ | 2.87 | | |
| 6.08 | |
Exercisable at June 30, 2015 | |
| 82,000 | | |
$ | 2.74 | | |
| 3.44 | |
Note 4. Investment
in Equity Securities
As of
June 30, 2015 and December 31, 2014 the Company had a $600,000 and $2,709,000 investment, respectively, in the common stock of
Mevion. As of June 30, 2015, the Company also has $5,000,000 in non-refundable deposits toward the
purchase of three MEVION S250 systems from Mevion.
The Company has carried its investment
in Mevion at cost and reviews it for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying
value of the investment may be below its cost basis on an other than temporary impairment basis. The Company evaluated this investment
for impairment at December 31, 2014 and reviewed it at June 30, 2015 in light of the length of time and extent to which
market value has been below cost, the financial condition and near term prospects of Mevion, current market conditions and events,
and our ability and intent to retain our investment for a period sufficient to allow for an anticipated recovery in the market
value. On July 27, 2015 Mevion cancelled its planned initial public offering (“IPO”) and announced on August 4, 2015 that it had
entered into an investment agreement where up to $200 million will be invested by HOPU Investments, YuanMing Capital and existing
U.S. investors. Concurrent with this investment, Mevion and the lead investors intend to form a joint venture to produce, sell
and service proton therapy systems for the Chinese market. The Company’s investment in the common stock of Mevion, will represent
an approximate 0.56% interest following this latest private placement transaction on a fully diluted basis.
The Company analyzed the recent events
stated above and determined that the cancellation of Mevion’s IPO indicated a decline in value of its Mevion investment that
is other-than-temporary, and determined that a write-down of the carrying value should be recognized at this time. In assessing
whether the impairment is OTTI, we evaluated the length of time and extent to which market value has been below cost, the financial
conditions and near term prospects of Mevion, the significance of recent events and our ability and intent to retain our investment
for a period sufficient to allow for an anticipated recovery in the market value. There are no current plans to dispose of this
investment but based on the extended period of impairment, coupled with the cancellation of a planned initial public offering,
the Company adjusted its investment in Mevion to the determined fair value of $600,000 and recorded a $2,114,000 impairment loss.
In determining the fair value of the Company’s common stock in Mevion, the Company was able to obtain
several common stock estimates based under a probability weighted expected return method (“P-WERM”). The P-WERM analysis
considered the probability of several potential outcomes in its determination of a fair value of the Mevion investment. The Company
reviewed certain scenarios from the P-WERM analysis as well as additional analyses and estimated the value of its common stock
investment in Mevion at approximately $600,000.
The $2,114,000 other
than temporary impairment of its investment in Mevion is recorded in other (loss) on the Company’s Condensed Consolidated
Statement of Operations. This transaction is treated as a capital loss for tax purposes which may be deducted only to the extent
the Company has capital gains. The Company is not aware of any event or transaction planned where the Company would generate a
capital gain. Therefore, a full valuation allowance was recorded against the income tax benefit from the impairment loss, and the
net impact to the income tax provision for the three and six month periods ended June 30, 2015 was $0.
The first MEVION S250,
located at Barnes-Jewish Hospital in St. Louis, MO (“Barnes-Jewish Hospital”), treated its first patient on December
19, 2013. The second MEVION S250, located at the Ackerman Cancer Center in Jacksonville, Florida (“Ackerman Cancer Center”),
treated its first patient in April 2015. The third MEVION S250, located at Robert Wood Johnson University Hospital in New Brunswick,
New Jersey (“Robert Wood Johnson”), started May 2015. The Company’s first MEVION S250 system was delivered to
UF Health Cancer Center at Orlando Health in November 2014 and anticipates treating patients in the first quarter 2016.
Note 5. Line of Credit
As
of December 31, 2014, the Company had a $9,000,000 renewable line of credit with a bank secured by a certificate of deposit. The
line of credit had been in place since June 2004. The Company’s earnings in 2013 were insufficient to satisfy the “profitability”
covenant in the line of credit. The Bank waived this default on August 8, 2014 and agreed to change the maturity date of the facility
to December 31, 2014. The line was paid-off using the proceeds from the certificate of deposit on January 2, 2015.
Borrowing
under the line of credit was subject to interest expense at a rate equal to the bank’s prime rate minus 0.5 percentage point,
or alternatively at the Company’s discretion, the LIBOR rate plus 1.0 percentage point. The weighted average interest rate
on money borrowed against the line of credit during 2014 was 1.40%. As of December 31, 2014, there was $8,780,000 borrowed against
the line of credit.
Note 6. Fair Value of Financial
Instruments
The Company’s
disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the
valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active
markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs
are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions
that market participants would use in pricing the asset or liability.
The
estimated fair value of the Company’s assets and liabilities as of June 30, 2015 and December 31, 2014 were as follows (in
thousands):
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | | |
Carrying Value | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash, cash equivalents, restricted cash | |
$ | 1,848 | | |
$ | - | | |
$ | - | | |
$ | 1,848 | | |
$ | 1,848 | |
Investment in equity securities | |
| - | | |
| - | | |
| 600 | | |
| 600 | | |
| 600 | |
Total | |
$ | 1,848 | | |
$ | - | | |
$ | 600 | | |
$ | 2,448 | | |
$ | 2,448 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Debt obligations | |
$ | - | | |
$ | 9,564 | | |
$ | - | | |
$ | 9,564 | | |
$ | 10,659 | |
Total | |
$ | - | | |
$ | 9,564 | | |
$ | - | | |
$ | 9,564 | | |
$ | 10,659 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash, cash equivalents, restricted cash | |
$ | 1,109 | | |
$ | - | | |
$ | - | | |
$ | 1,109 | | |
$ | 1,109 | |
Certificate of deposit | |
| 9,000 | | |
| - | | |
| - | | |
| 9,000 | | |
| 9,000 | |
Investment in equity securities | |
| - | | |
| - | | |
| 330 | | |
| 330 | | |
| 2,709 | |
Total | |
$ | 10,109 | | |
$ | - | | |
$ | 330 | | |
$ | 10,439 | | |
$ | 12,818 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Advances on line of credit | |
$ | 8,780 | | |
$ | - | | |
$ | - | | |
$ | 8,780 | | |
$ | 8,780 | |
Debt obligations | |
| - | | |
| 10,658 | | |
| - | | |
| 10,658 | | |
| 10,591 | |
Total | |
$ | 8,780 | | |
$ | 10,658 | | |
$ | - | | |
$ | 19,438 | | |
$ | 19,371 | |
Note 7. Repurchase
of Common Stock
In
1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares
of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares repurchased in 2015. There were
1,000 shares repurchased in the first quarter and no shares repurchased in the second quarter of 2014. There are approximately
72,000 shares remaining under this repurchase authorization.
Note 8. Income
Taxes
We
generally calculate our effective income tax rate at the end of an interim period using an estimate of the annualized effective
income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annualized effective
income tax rate cannot be made, we compute our provision for income taxes using the actual effective income tax rate for the results
of operations reported within the year-to-date periods. Our effective income tax rate is highly influenced by relative income
or losses reported and the amount of the nondeductible stock-based compensation associated with grants of our common stock options
and historically from the results of foreign operations. A small change in estimated annual pretax income (loss) can produce a
significant variance in the annualized effective income tax rate given the expected amount of these items. As a result, we have
computed our provision for income taxes for the three and six month periods ended June 30, 2015 and 2014 by applying the actual
effective tax rates to income or (loss) reported within the condensed consolidated financial statements through those periods.
Note 9. Note,
Warrant, & Common Stock Purchase Agreement
In
June 2014, the Company sold in a private offering, an aggregate of 650,000 common shares for gross proceeds of approximately $1,600,000.
The purchasers were three members of the Board of Directors. In October 2014, the Company issued an aggregate of $1,000,000 of
3-year promissory notes with warrants and 100,000 common shares to four members of the Board of Directors, for gross proceeds
of approximately $1,220,000.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
This
quarterly report to the Securities and Exchange Commission may be deemed to contain certain forward-looking statements with respect
to the financial condition, results of operations and future plans of American Shared Hospital Services, which involve risks and
uncertainties including, but not limited to, the risks of the Gamma Knife and radiation therapy businesses, the risks of developing
The Operating Room for the 21st CenturySM program, the risks of investing in a development-stage company,
Mevion, and the risks of timing, financing and operations of the Company’s proton therapy business. Further information
on potential factors that could affect the financial condition, results of operations and future plans of American Shared Hospital
Services is included in the filings of the Company with the Securities and Exchange Commission, including the Company’s
Annual Report on Form 10-K for the year ended December 31, 2014 and the definitive Proxy Statement for the Annual Meeting of Shareholders
held on June 16, 2015
The
Company had seventeen Gamma Knife units in operation on June 30, 2015 and June 30, 2014. Two of the Company’s customer contracts
are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Ten of the Company’s seventeen
current Gamma Knife customers are under fee-per-use contracts, and seven customers are under retail arrangements. The Company’s
contract to provide radiation therapy and related equipment services to an existing Gamma Knife customer is also considered a
retail arrangement. Retail arrangements are further classified as either turn-key or revenue sharing. Revenue from fee per use
contracts is determined by each hospital’s contracted rate. For revenue sharing arrangements, the Company receives a contracted
percentage of the reimbursement received by the hospital. Under turn-key arrangements, the Company receives payment from the hospital
in the amount of its reimbursement from third party payors, and is responsible for paying all the operating costs of the equipment.
Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company
records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect
the actual operating costs. For the turn-key sites, the Company also shares a percentage of net operating profit. The Company
records an estimate of net operating profit based on estimated revenues, less estimated operating costs.
Prior
to April 1, 2013, Medicare’s reimbursement rate for Gamma Knife treatment had been relatively stable. Congress’s enactment
of the American Taxpayer Relief Act of 2012, however, reduced Medicare’s Gamma Knife reimbursement rate from approximately
$10,000 to $5,600, effective April 1, 2013. This change caused a substantial reduction in the Company’s revenues during 2013
and 2014. Effective January 1, 2015, the Centers for Medicare and Medicaid (CMS) established a Comprehensive Ambulatory Payment
Classification for single session radiosurgery treatments, which increased the reimbursement rate by more than $4,000 to $9,768.
CMS has proposed a 2016 total reimbursement rate of approximately $8,830 for a Medicare Gamma Knife treatment. CMS’s 2016
proposal is subject to change before final adoption.
Medical
services revenue increased by $1,015,000 and $1,068,000 to $4,394,000 and $8,511,000 for the three and six month periods ended
June 30, 2015 from $3,379,000 and $7,443,000 for the three and six month periods ended June 30, 2014, respectively. Gamma Knife
revenue, excluding Gamma Knife revenue from EWRS Turkey in 2014, increased $1,204,000 and $1,694,000 compared to the three and
six month periods ended June 30, 2014, respectively. The increase in Gamma Knife revenue was due to an increase in procedures
at existing sites and increased revenue per procedure driven by increased Medicare reimbursement in 2015. The increase in medical
services revenue was partially offset by a decline in volume at the Company’s existing radiation therapy site.
The
number of Gamma Knife procedures increased by 38 and decreased by 76 to 518 and 997 for the three and six month periods ended
June 30, 2015 from 480 and 1,073 in the same periods in the prior year, respectively. Excluding procedures reported from EWRS
Turkey, Gamma Knife procedures increased by 112 and 148 compared to the three and six month periods ended June 30, 2014, respectively.
The increase was primarily due to the addition of a new site in the fourth quarter of 2014 and increased volumes at existing sites,
offset by volume from an existing customer who chose not to renew its contract with the Company during the second quarter 2015.
Total
costs of revenue increased by $58,000 and decreased $197,000 to $2,592,000 and $5,112,000 for the three and six month periods
ended June 30, 2015 from $2,534,000 and $5,309,000 for the three and six month periods ended June 30, 2014, respectively. Excluding
costs of revenue from EWRS Turkey, costs of revenue increased $311,000 and $374,000 for the three and six month periods ended
June 30, 2015, compared to the same periods prior year, respectively. Excluding EWRS Turkey, maintenance and supplies decreased
by $67,000 and $136,000 for the three and six month periods ended June 30, 2015 due to the expiration of two maintenance contracts
at existing sites. Excluding EWRS Turkey, depreciation and amortization increased by $148,000 and $272,000 for the three and six
month periods ended June 30, 2015 due to three Cobalt-60 reloads performed in the first two quarters of 2015. When a reload is
performed the book value of the unit increases which increases depreciation expense. Excluding EWRS Turkey, other direct operating
costs increased by $230,000 and $238,000 for the three and six month periods ended June 30, 2015 compared to the same periods
in the prior year, respectively. The increase for the three and six month periods is due to increased operating costs for the
Company’s retail sites, property taxes, and state and county taxes.
Selling
and administrative costs increased by $42,000 and decreased $59,000 to $979,000 and $1,800,000 for the three and six month periods
ended June 30, 2015 from $937,000 and $1,859,000 for the same periods in the prior year, respectively. Excluding EWRS Turkey,
selling and administrative costs increased $40,000 and decreased $18,000 for the three and six month periods ended June 30, 2015.
For the three month period, the increase was due to increased legal and audit fees. For the six month period, the decrease was
due to rent and travel expense.
Interest
expense decreased by $165,000 and $315,000 to $345,000 and $665,000 for the three and six month periods ended June 30, 2015 from
$510,000 and $980,000 for the three and six month periods ended June 30, 2014, respectively. Excluding EWRS Turkey, interest expense
decreased by $91,000 and $215,000 for the three and six month periods, primarily due to the closure of the Company’s line
of credit on January 2, 2015 and the pay-down of the Company’s existing debt obligation for its IGRT machine at the end
of 2014.
The
Company recorded a loss on the write down of its equity investment in Mevion of $2,114,000 for the three and six month periods
ended June 30, 2015. The Company determined its investment in Mevion was other-than-temporary
and wrote down the carrying value of the investment accordingly. In determining the fair value of the Company’s common stock
in Mevion, the Company reviewed certain scenarios from the P-WERM analysis as well as additional analyses and estimated the value
of its common stock investment in Mevion at approximately $600,000. The Company adjusted its investment in Mevion to the determined
fair value of $600,000 and recorded a $2,114,000 impairment loss. This transaction is
treated as a capital loss for tax purposes which may be deducted only to the extent the Company has capital gains. The Company
is not aware of any event or transaction planned where the Company would generate a capital gain. Therefore a full valuation allowance
was recorded against the income tax benefit from the impairment loss, and the net impact to the income tax provision for the three
and six month periods ended June 30, 2015 was $0.
The
Company recorded a loss from sale of EWRS Turkey of $572,000 for the three and six month periods ended June 30, 2014. The loss
on sale represents the net book value of EWRS’s investment in EWRS Turkey at the date of the sale, after proceeds from the
sale were used to pay off outstanding debt. The Company also recorded income tax expense due to the write off of a deferred tax
asset of $165,000 related to losses sustained by EWRS Turkey through December 31, 2013, for the three and six month periods ended
June 30, 2014. The deferred tax asset could no longer be utilized since EWRS Turkey was sold on June 10, 2014.
The
gain from foreign currency transactions was $0 for the three and six month periods ended June 30, 2015 compared to $146,000 and
$161,000 for the same periods in the prior year, respectively. The gain or loss from foreign currency transactions was driven
by fluctuations in the exchange rate between the US Dollar and Turkish Lira.
Interest
and other income decreased by $1,000 and $4,000 to $5,000 and $11,000 for the three and six month periods ended June 30,
2015 from $6,000 and $15,000 for the three and six month periods ended June 30, 2014, respectively. Interest income is
generated from interest earned on the Company’s certificate of deposit, which was liquidated on January 2, 2015, and
other investments.
The
Company had income tax expense of $106,000 and $236,000 for the three and six month periods ended June 30, 2015 compared to income
tax expense of $34,000 and $4,000 for the three and six month periods ended June 30, 2014, respectively. For the three and six
month periods ended June 30, 2015, the increase in income tax expense is primarily due to higher taxable income attributable to
American Shared Hospital Services. For the three month period ended June 30, 2014, the Company recorded an income tax benefit of
$161,000 due to lower taxable income attributable to American Shared Hospital Services. The income tax benefit was offset by the
deferred tax asset of $165,000 written off due to the sale of EWRS Turkey.
Net
income attributable to non-controlling interest increased by $362,000 and $519,000 to $233,000 and $437,000 for the three and
six month periods ended June 30, 2015 from a loss of $129,000 and $82,000 for the three and six month periods ended June 30, 2014,
respectively. Non-controlling interest primarily represents the 19% interest of GKF owned by a third party, as well as non-controlling
interests in subsidiaries of GKF owned by third parties that began operations in 2011. Variances in net income attributable to
non-controlling interest represent the relative increase or decrease in profitability of GKF and these ventures. For the three
and six month periods ended June 30, 2014, the loss attributable to non-controlling interest was primarily due to the loss on
sale of EWRS Turkey.
The
Company had a net loss of $1,970,000, or $0.36 per diluted share, and $1,842,000, or $0.34 per diluted share, for the three and
six month periods ended June 30, 2015, compared to a net loss of $927,000, or ($0.20) per diluted share, and $1,023,000, or ($0.22)
per diluted share, in the same periods in the prior year, respectively. For the three and six month periods ended June 30, 2015
the loss was attributable to an impairment charge of $2,114,000 related to the Company’s equity investment in Mevion. For
the three and six month periods ended June 30, 2014, the net loss was primarily due to the loss on sale of EWRS Turkey, lower procedure
volume at existing sites, and a decline in reimbursement rates due to changes in payor mix.
Liquidity and Capital
Resources
The
Company had cash and cash equivalents of $1,798,000 at June 30, 2015 compared to $1,059,000 at December 31, 2014. The Company’s
cash position increased by $739,000 due to net cash from operating activities of $3,869,000, proceeds from long-term debt financing
on property and equipment of $1,023,000, capital contributions of $27,000, and net proceeds from the certificate of deposit and
pay-down on the line of credit of $220,000. These increases were offset by payments for the purchase of property and equipment
of $1,344,000, investment in equity securities of $5,000, principal payments on long term debt and capital leases of $2,783,000,
and distributions to non-controlling interests of $268,000.
The
Company had cash and cash equivalents of $944,000 at June 30, 2014 compared to $1,909,000 at December 31, 2013. The Company’s
cash position decreased by $965,000 due to payments for the purchase of property and equipment of $296,000, principal payments
on long term debt and capital leases of $3,937,000, distributions to non-controlling interests of $434,000, repurchase of common
stock of $2,000, net payments on the Company’s line of credit with a bank of $1,130,000 and changes in cash from foreign
exchange rate of $8,000. These decreases were offset by net cash from operating activities of $2,392,000, capital contributions
of $102,000, proceeds from the sale of EWRS Turkey of $768,000, and private placement of common stock of $1,580,000 to three directors
of the Company which closed on June 12, 2014.
The
Company has scheduled interest and principal payments under its debt obligations of approximately $3,417,000 and scheduled capital
lease payments of approximately $5,111,000 during the next 12 months. The Company believes that its cash flow from cash on hand,
operations, and other resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months.
The
Company as of June 30, 2015 had shareholders’ equity of $24,602,000, negative working capital of $2,471,000 and total assets
of $56,928,000.
Commitments
The Company has a $600,000 common stock investment in Mevion, which is considered a long-term investment
on the balance sheet. As of June 30, 2015, the Company also has $5,000,000 in non-refundable deposits toward the purchase
of three MEVION S250 systems from Mevion. The non-refundable deposits are recorded in the condensed consolidated balance
sheets as deposits and construction in progress. In, 2011, the Company entered into an agreement with a radiation oncology
physician group which contributed $400,000 towards the deposits on the third system.
The Company has commitments
to purchase three PBRT systems, one Gamma Knife Perfexion system, and one Gamma Knife model 4C system as of June 30, 2015.
Total Gamma Knife commitments as of June 30, 2015 are $4,934,000. Financing has been committed to the Model 4C unit.
The Gamma Knife model 4C system is projected to be installed in late 2015/early 2016 at the Company’s new customer site in
Peru. There are cash requirements for the Peru commitment in the next 12 months of approximately $600,000. The Company believes
that cash flow from cash on hand and operations will be sufficient to cover this payment. The Perfexion is for a site yet to be
determined and there are no cash requirements for the Perfexion system in the next 12 months.
Total PBRT commitments
are $38,600,000 as of June 30, 2015. The Company’s first PBRT system was delivered in November 2014 for which the Company
has a lease financing commitment, pending execution of definitive documents, for $9,000,000. The lease financing commitment
has been structured so that the Company will be reimbursed $1,000,000 of the progress payments paid, to date. The remaining two
PBRT projects currently do not have anticipated delivery dates. There is a cash payment due, approximately January
2016, for the first PBRT system, which will be financed via the $9,000,000 commitment. The timing of progress payments for PBRT
contracts two and three are dependent upon future events and the Company has some flexibility to delay the due dates of these commitments.
There are no cash requirements for these commitments in the next 12 months.
Total commitments
are approximately $43,534,000, towards which the Company has made non-refundable deposits totaling approximately $5,000,000 and
obtained total financing commitments of $11,784,000. Approximately $26,750,000 of these commitments are not expected to
start becoming due until late 2016 and the Company is in discussions with lenders to finance the remaining two proton systems
and expects to fund the currently unfunded Perfexion unit through additional lending activity. The non-refundable deposits
are classified as deposits and construction in progress under Property and Equipment in the condensed consolidated balance sheets
as of June 30, 2015.
| |
Commitments | | |
Cash Deposits | | |
Financing Commited | | |
Total Commited | |
| |
| | |
| | |
| | |
| |
Proton Beam Units | |
$ | 38,600,000 | | |
$ | 5,000,000 | | |
$ | 9,000,000 | | |
$ | 14,000,000 | |
| |
| | | |
| | | |
| | | |
| | |
Gamma Knife Units | |
| 4,934,000 | | |
| - | | |
| 2,784,000 | | |
| 2,784,000 | |
| |
| | | |
| | | |
| | | |
| | |
Total Commitments | |
$ | 43,534,000 | | |
$ | 5,000,000 | | |
$ | 11,784,000 | | |
$ | 16,784,000 | |
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
The
Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage
or prepayment features. The Company does not have affiliation with partnerships, trusts or other entities whose purpose is to
facilitate off-balance sheet financial transactions or similar arrangements, and therefore
has no exposure to the financing, liquidity, market or credit risks associated with such entities. At June 30, 2015 the Company
had no significant long-term, market-sensitive investments.
Item 4. Controls
and Procedures
Under
the supervision and with the participation of our management, including our chief executive officer and our chief financial officer,
we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e)
of the Securities Exchange Act of 1934. These controls and procedures are designed to ensure that material information relating
to the company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on that
evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2015, our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under
the Securities Exchange Act of 1934 is accumulated and communicated to the chief executive officer and the chief financial officer,
and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to
the issuer’s management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
There
were no changes in our internal control over financial reporting during the three months ended June 30, 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. |
Legal Proceedings. |
|
None. |
|
|
Item 1A. |
Risk Factors. |
|
There are no changes
from those listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. |
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
|
See Current Report on
Form 8-K filed on June 13, 2014 |
|
|
Item 3. |
Defaults Upon Senior Securities. |
|
None. |
|
|
Item 4. |
Mine Safety Disclosures |
|
Not applicable. |
|
|
Item 5. |
Other Information. |
|
None. |
|
|
|
|
Incorporated
by reference herein |
Exhibit
Number |
|
Description |
|
Form |
|
Exhibit |
|
Date |
10.1 |
|
American Shared
Hospital Services 2006 Stock Incentive Plan |
* |
|
|
|
|
|
10.2 |
|
American Shared
Hospital Services Incentive Compensation Plan (Formerly the 2006 Stock Incentive Plan) as amended and restated effective March
18, 2010 |
* |
|
|
|
|
|
10.3 |
|
American Shared
Hospital Services Incentive Compensation Plan as amended and restated effective April 16, 2015 |
* |
|
|
|
|
|
10.4 |
|
Amended and Restated
Equipment Lease Agreement dated as of December 12, 2014, between GK Financing, LLC and the Board of Trustees of the University
of Arkansas on behalf of the University of Arkansas for Medical Sciences |
* |
|
|
|
|
|
10.5 |
|
Addendum Three
to Lease Agreement for a Gamma Knife Unit dated as of April 25, 2015, between The Community Hospital Group, Inc., dba JFK
Medical Center, a New Jersey corporation and GK Financing, LLC |
* |
|
|
|
|
|
31.1 |
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
* |
|
|
|
|
|
31.2 |
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
* |
|
|
|
|
|
32.1 |
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
ǂ
|
|
|
|
|
|
101.INS |
|
XBRL Instance
Document |
* |
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy
Extension Schema Document |
* |
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy
Calculation Linkbase Document |
* |
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy
Definition Linkbase Document |
* |
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy
Label Linkbase Document |
* |
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy
Extension Presentation Linkbase Document |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Filed herewith. |
|
|
|
|
|
|
|
ǂ |
Furnished herewith. |
|
|
|
|
|
|
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: |
August 19, 2015 |
/s/
Ernest A. Bates, M.D. |
|
|
Ernest A. Bates, M.D. |
|
|
Chairman of the Board and Chief Executive
Officer |
|
|
|
Date: |
August 19, 2015 |
/s/ Craig
K. Tagawa |
|
|
Craig K. Tagawa |
|
|
Senior Vice President |
|
|
Chief Operating and Financial Officer |
Exhibit 10.1
AMERICAN SHARED HOSPITAL SERVICES
2006 STOCK INCENTIVE PLAN
article
One
GENERAL
PROVISIONS
This 2006 Stock Incentive
Plan is intended to promote the interests of American Shared Hospital Services, a California corporation, by providing eligible
persons in the Corporation’s service with the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in such service.
Capitalized terms shall have
the meanings assigned to such terms in the attached Appendix.
A. The
Plan shall be divided into three separate equity incentive programs:
- the
Discretionary Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock or stock appreciation rights tied to the value of such Common Stock,
- the
Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common
Stock pursuant to restricted stock awards, restricted stock units or other stock-based awards which vest upon the completion of
a designated service period or the attainment of pre-established performance milestones, or such shares of Common Stock may be
issued through direct purchase or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and
- the
Automatic Grant Program under which eligible non-employee Board members will automatically receive grants at designated intervals
over their period of continued Board service.
B. The
provisions of Articles One and Five shall apply to all equity programs under the Plan and shall govern the interests of all persons
under the Plan.
| III. | ADMINISTRATION OF THE PLAN |
A. The
Compensation Committee shall have sole and exclusive authority to administer the Discretionary Grant and Stock Issuance Programs
with respect to Section 16 Insiders. Administration of the Discretionary Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board’s discretion, be vested in the Compensation Committee
or a Secondary Board Committee, or the Board may retain the power to administer those programs with respect to all such persons.
However, any Awards made to the members of the Compensation Committee other than pursuant to the Automatic Grant Program must be
authorized by a disinterested majority of the Board.
B. Members
of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee
and reassume all powers and authority previously delegated to such committee.
C. Each
Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of
the Discretionary Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the
provisions of those programs and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have
an interest in the Discretionary Grant and Stock Issuance Programs under its jurisdiction or any Award thereunder.
D. Service
as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service
as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement
as Board members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee
shall be liable for any act or omission made in good faith with respect to the Plan or any Award made thereunder..
E. Administration
of the Automatic Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator
shall exercise any discretionary functions with respect to any Award made under that program, except that the Compensation Committee
shall have the express authority to establish from time to time the specific number of shares to be subject to the initial and
annual Awards made to the non-employee Board members under such program.
A. The
persons eligible to participate in the Discretionary Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee
members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants
and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. The
Plan Administrator shall have full authority to determine, (i) with respect to Awards made under the Discretionary Grant Program,
which eligible persons are to receive such Awards, the time or times when those Awards are to be made, the number of shares to
be covered by each such Award,, the time or times when the Award is to vest and become exercisable, the maximum term for which
such Award is to remain outstanding and the status of a granted option as either an Incentive Option or a Non-Statutory Option
and (ii) with respect to Awards made under the Stock Issuance Program, which eligible persons are to receive such Awards, the time
or times when the Awards are to be made, the number of shares subject to each such Award, the vesting and issuance schedules applicable
to the shares which are the subject of such Award and the cash consideration (if any) payable for those shares.
C. The
Plan Administrator shall have the absolute discretion either to grant options or stock appreciation rights in accordance with the
Discretionary Grant Program or to effect stock issuances and other stock-based awards in accordance with the Stock Issuance Program.
D. The
individuals who shall be eligible to participate in the Automatic Grant Program shall be limited to (i) those individuals who first
become non-employee Board members on or after the Plan Effective Date, whether through appointment by the Board or election by
the Corporation’s shareholders, and (ii) those individuals who continue to serve as non-employee Board members on or after
the Plan Effective Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an Award under the Automatic Grant Program at the time he or she first becomes a non-employee
Board member, but shall be eligible to receive periodic Awards under the Automatic Grant Program while he or she continues to serve
as a non-employee Board member.
| V. | STOCK SUBJECT TO THE PLAN |
A. The
stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the
Plan shall be limited to seven hundred fifty thousand (750,000) shares. Such share reserve is comprised of (i) the number of shares
of Common Stock available for issuance under the Predecessor Plans on the Plan Effective Date, including the shares subject to
options outstanding at that time under the Predecessor Plans, and (ii) an additional increase of approximately three hundred sixty
thousand (360,000) shares of Common Stock. The Plan shall serve as the successor to the Predecessor Plans, and no further stock
option grants or stock issuances shall be made under those Predecessor Plans on or after the Plan Effective Date. All options outstanding
under the Predecessor Plans on the Plan Effective Date shall be transferred to this Plan as part of the initial share reserve hereunder
and shall continue in full force and effect in accordance with their terms, and no provision of this Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of those options with respect to their acquisition of shares of Common
Stock thereunder. To the extent any options outstanding under the Predecessor Plans on the Plan Effective Date expire or terminate
unexercised, the number of shares of Common Stock subject to those expired or terminated options at the time of expiration or termination
shall be available for one or more Awards made under this Plan.
B. No
one person participating in the Plan may receive Awards for more than one hundred fifty thousand (150,000)
shares of Common Stock in the aggregate per calendar year.
C. Shares
of Common Stock subject to outstanding Awards made under the Plan (including the options transferred from the Predecessor Plans)
shall be available for subsequent issuance under the Plan to the extent those Awards expire or terminate for any reason prior to
the issuance of the shares of Common Stock subject to those Awards. Unvested shares issued under the Plan and subsequently forfeited
or repurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the
Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance
under the Plan and shall accordingly be available for subsequent reissuance. Should the exercise price of an option under the Plan
be paid with shares of Common Stock, then the authorized reserve of Common Stock under the Plan shall be reduced by the gross number
of shares for which that option is exercised, and not by the net number of shares issued under the exercised stock option. If shares
of Common Stock otherwise issuable under the Plan are withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the issuance, exercise or vesting of an Award, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares issued, exercised or vesting under such Award, calculated in each
instance prior to any such share withholding.
D. If
any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration,
appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under
the Plan, (ii) the maximum number and/or class of securities for which any one person may receive Awards under the Plan per calendar
year, (iii) the maximum number and/or class of securities for which stock option grants and restricted stock unit awards may subsequently
be made under the Automatic Grant Program to new and continuing non-employee Board members, (iv) the number and/or class of securities
and the exercise or base price per share in effect under each outstanding Award under the Discretionary Grant Program and (v) the
number and/or class of securities subject to each outstanding Award under the Stock Issuance Program and the cash consideration
(if any) payable per share. To the extent the foregoing adjustments are to be made to outstanding Awards, such adjustments shall
be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under those Awards. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
E. Outstanding
Awards under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business
or assets.
article
Two
DISCRETIONARY
GRANT PROGRAM
I. OPTION
TERMS
Each option shall be evidenced
by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall
comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions
of the Plan applicable to such options.
A. Exercise
Price.
1. The
exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date.
2. The
exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents evidencing
the option, be payable in one or more of the forms specified below:
(i) cash
or check made payable to the Corporation,
(ii) shares
of Common Stock valued at Fair Market Value on the Exercise Date and held for the requisite period (if any) necessary to avoid
any additional charges to the Corporation’s earnings for financial reporting purposes, or
(iii) to
the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering
such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm on such settlement date in order to complete the sale.
Except to the extent such
sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise
Date.
B. Exercise
and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option
shall have a term in excess of seven (7) years measured from the grant date.
C. Effect
of Termination of Service.
1. The
following provisions shall govern the exercise of any options granted pursuant to the Discretionary Grant Program that are outstanding
at the time of the Optionee’s cessation of Service or death:
(i) Any
option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period
of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no
such option shall be exercisable after the expiration of the option term.
(ii) Any
option held by the Optionee at the time of the Optionee’s death and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or the laws of inheritance or by the Optionee’s designated beneficiary or beneficiaries
of that option.
(iii) Should
the Optionee’s Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one
or more outstanding options granted under this Article Two, then all of those options shall terminate immediately and cease to
be outstanding.
(iv) During
the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which
the option is at the time exercisable. No additional shares shall vest under the option following the Optionee’s cessation
of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to
an express written agreement with the Optionee. Upon the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not
been exercised.
2. The
Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend
the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term,
(ii) include
an automatic extension provision whereby the specified post-Service exercise period in effect for any option granted under this
Article Two shall automatically be extended by an additional period of time equal in duration to any interval within the specified
post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option
could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension
result in the continuation of such option beyond the expiration date of the term of that option, and/or
(iii) permit
the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares
of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect
to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D. Shareholder
Rights. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E. Repurchase
Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while such shares are unvested, the Corporation shall have the right to repurchase
any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share
or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
F. Transferability
of Options. The transferability of options granted under the Plan shall be governed by the following provisions:
(i) Incentive
Options: During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or the laws of inheritance following the Optionee’s death.
(ii) Non-Statutory
Options. Non-Statutory Options shall be subject to the same limitation on transfer as Incentive Options, except that the
Plan Administrator may structure one or more Non-Statutory Options so that the option may be assigned in whole or in part during
the Optionee’s lifetime to one or more Family Members of the Optionee or to a trust established exclusively for the Optionee
and/or one or more such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
(iii) Beneficiary
Designations. Notwithstanding the foregoing, the Optionee may designate one or more persons as the beneficiary or beneficiaries
of his or her outstanding options under this Article Two (whether Incentive Options or Non-Statutory Options), and those options
shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s
death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms
and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited
time period during which the option may be exercised following the Optionee’s death.
The terms specified below
shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility.
Incentive Options may only be granted to Employees.
B. Dollar
Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates
of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or
any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).
To the extent the Employee
holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of
the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed to become first
exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise
provided under applicable law or regulation.
C. 10%
Shareholder. If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share
shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date,
and the option term shall not exceed five (5) years measured from the option grant date.
| III. | STOCK APPRECIATION RIGHTS |
A. Authority.
The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights
in accordance with this Section III to selected Optionees or other individuals eligible to receive option grants under the Discretionary
Grant Program.
B. Types.
Two types of stock appreciation rights shall be authorized for issuance under this Section III: (i) tandem stock appreciation rights
(“Tandem Rights”) and (ii) stand-alone stock appreciation rights (“Stand-alone Rights”).
C. Tandem
Rights. The following terms and conditions shall govern the grant and exercise of Tandem Rights.
1. One
or more Optionees may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
2. No
such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall accordingly
become entitled under this Section III shall be made in shares of Common Stock valued at Fair Market Value on the option surrender
date.
3. If
the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day
on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event
may such rights be exercised more than seven (7) years after the date of the option grant.
D. Stand-Alone
Rights. The following terms and conditions shall govern the grant and exercise of Stand-alone Rights:
1. One
or more individuals eligible to participate in the Discretionary Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Grant Program. The Stand-alone Right shall relate to a specified number of shares of
Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish. In no event, however,
may the Stand-alone Right have a maximum term in excess of seven (7) years measured from the grant date. Upon exercise of the Stand-alone
Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the
aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the
aggregate base price in effect for those shares.
2. The
number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined
by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base
price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date. In the event outstanding
Stand-alone Rights are to be assumed in connection with a Change in Control transaction or otherwise continued in effect, the shares
of Common Stock underlying each such Stand-alone Right shall be adjusted immediately after such Change in Control so as to apply
to the number and class of securities into which those shares of Common Stock would have been converted in consummation of such
Change in Control had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control
shall also be made to the base price per share in effect under each outstanding Stand-alone Right, provided the aggregate
base price shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding Stand-alone Rights under the Discretionary Grant Program, substitute, for
the securities underlying those assumed rights, one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in the Change in Control transaction.
3. Stand-alone
Rights shall be subject to the same transferability restrictions applicable to Non-Statutory Options and may not be transferred
during the holder’s lifetime, except if such assignment is in connection with the holder’s estate plan and is to one
or more Family Members of the holder or to a trust established for the holder and/or one or more such Family Members or pursuant
to a domestic relations order covering the Stand-alone Right as marital property. In addition, one or more beneficiaries may be
designated for an outstanding Stand-alone Right in accordance with substantially the same terms and provisions as set forth in
Section I.F of this Article Two.
4. The
distribution with respect to an exercised Stand-alone Right shall be made in shares of Common Stock valued at Fair Market Value
on the exercise date.
5. The
holder of a Stand-alone Right shall have no shareholder rights with respect to the shares subject to the Stand-alone Right unless
and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued
upon the exercise of such Stand-alone Right.
E. Post-Service
Exercise. The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the recipient’s
Service shall be substantially the same as those set forth in Section I.C of this Article Two for the options granted under the
Discretionary Grant Program, and the Plan Administrator’s discretionary authority under Section I.C.2 of this Article Two
shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights.
F. Gross
Counting. Upon the exercise of any Tandem or Stand-alone Right under this Section III, the share reserve under Section
V of Article One shall be reduced by the gross number of shares as to which such right is exercised, and not by the net number
of shares actually issued by the Corporation upon such exercise.
IV. CHANGE
IN CONTROL/HOSTILE TAKE-OVER
A. In
the event of a Change in Control, each outstanding Award under the Discretionary Grant Program shall automatically accelerate so
that each such Award shall, immediately prior to the effective date of that Change in Control, become exercisable as to all the
shares of Common Stock at the time subject to such Award and may be exercised as to any or all of those shares as fully vested
shares of Common Stock. However, an outstanding Award under the Discretionary Grant Program shall not become exercisable
on such an accelerated basis if and to the extent: (i) such Award is to be assumed by the successor corporation (or parent thereof)
or is otherwise to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such Award
is to be replaced with a cash retention program of the successor corporation which preserves the spread existing at the time of
the Change in Control on any shares as to which the Award is not otherwise at that time vested and exercisable and provides for
subsequent payout of that spread in accordance with the same exercise/vesting schedule in effect for that Award or (iii) the acceleration
of such Award is subject to other limitations imposed by the Plan Administrator.
B. All
outstanding repurchase rights under the Discretionary Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of a Change in Control, except to the extent: (i)
those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise to continue in full
force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator.
C. Immediately
following the consummation of the Change in Control, all outstanding Awards under the Discretionary Grant Program shall terminate
and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control transaction.
D. Each
option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the
Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of the Plan (iii) the maximum number and/or class of
securities which may be issued without cash consideration under the Stock Issuance Program and (iv) the maximum number and/or class
of securities for which any one person may receive Awards under the Plan per calendar year. To the extent the actual holders of
the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change
in Control, the successor corporation may, in connection with the assumption or continuation of the outstanding options under the
Discretionary Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Change in Control transaction.
E. The
Plan Administrator shall have the discretionary authority to structure one or more outstanding Awards rights under the Discretionary
Grant Program so that those Awards shall, immediately prior to the effective date of a Change in Control, become exercisable as
to all the shares of Common Stock at the time subject to those Awards and may be exercised as to any or all of those shares as
fully vested shares of Common Stock, whether or not those Awards are to be assumed in the Change in Control transaction or otherwise
continued in effect. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the
Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall immediately terminate upon
the consummation of the Change in Control transaction, and the shares subject to those terminated rights shall thereupon vest in
full.
F. The
Plan Administrator shall have full power and authority to structure one or more outstanding Awards under the Discretionary Grant
Program so that those Awards shall become exercisable as to all the shares of Common Stock at the time subject to those Awards
in the event the Optionee’s Service is subsequently terminated by reason of an Involuntary Termination within a designated
period following the effective date of any Change in Control transaction in which those Awards do not otherwise fully accelerate.
In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights
shall immediately terminate with respect to any shares held by the Optionee at the time of such Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in full at that time.
G. The
Plan Administrator shall have the discretionary authority to structure one or more outstanding Awards under the Discretionary Grant
Program so that those Awards shall, immediately prior to the effective date of a Hostile Take-Over, become exercisable as to all
the shares of Common Stock at the time subject to those Awards and may be exercised as to any or all of those shares as fully vested
shares of Common Stock. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of
the Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall terminate automatically
upon the consummation of such Hostile Take-Over, and the shares subject to those terminated rights shall thereupon vest in full.
Alternatively, the Plan Administrator may condition the automatic acceleration of one or more outstanding Awards under the Discretionary
Grant Program and the termination of one or more of the Corporation’s outstanding repurchase rights under such program upon
the subsequent termination of the Optionee’s Service by reason of an Involuntary Termination within a designated period following
the effective date of such Hostile Take-Over.
H. The
portion of any Incentive Option accelerated in connection with a Change in Control or Hostile Take-Over shall remain exercisable
as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To
the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-statutory Option
under the Federal tax laws.
| V. | PROHIBITION ON REPRICING PROGRAMS |
The Plan Administrator shall
not (i) implement any cancellation/regrant program pursuant to which outstanding options or stock appreciation rights under the
Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise price per share,
(ii) cancel outstanding options or stock appreciation rights under the Plan with exercise prices per share in excess of the then
current Fair Market Value per share of Common Stock for consideration payable in equity securities of the Corporation or (iii)
otherwise directly reduce the exercise price in effect for outstanding options or stock appreciation rights under the Plan, without
in each such instance obtaining shareholder approval.
article
Three
STOCK
ISSUANCE PROGRAM
Shares of Common Stock may
be issued under the Stock Issuance Program, either as vested or unvested shares, through direct and immediate issuances without
any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the
terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards
or restricted stock units which entitle the recipients to receive the shares underlying those awards or units upon the attainment
of designated performance goals or the satisfaction of specified Service requirements or upon the expiration of a designated time
period following the vesting of those awards or units.
A. Issue
Price.
1. The
issue price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Shares
of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:
(i) cash
or check made payable to the Corporation,
(ii) past
services rendered to the Corporation (or any Parent or Subsidiary); or
(iii) any
other valid consideration under the California Corporation Code.
B. Vesting
Provisions.
1. Shares
of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon the attainment
of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.
Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards or restricted stock units
which entitle the recipients to receive the shares underlying those awards or units upon the attainment of designated performance
goals or the satisfaction of specified Service requirements or upon the expiration of a designated time period following the vesting
of those awards or units, including (without limitation) a deferred distribution date following the termination of the Participant’s
Service.
2. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Awards
under the Stock Issuance Program so that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable)
upon the achievement of certain pre-established corporate performance goals based on one or more of the following criteria: (1)
return on total shareholder equity; (2) earnings per share of Common Stock; (3) net income or operating income (before or after
taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) earnings before interest, taxes, depreciation,
amortization and charges for stock-based compensation, (6) sales or revenue targets; (7) return on assets, capital or investment;
(8) cash flow; (9) market share; (10) cost reduction goals; (11) budget comparisons; (12) measures of customer satisfaction; (13)
any combination of, or a specified increase in, any of the foregoing; (14) new product development or successful completion of
research and development projects; and (15) the formation of joint ventures, research or development collaborations, or the completion
of other corporate transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base.
In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s performance
under one or more of the measures described above relative to the performance of other entities and may also be based on the performance
of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Performance goals may include a minimum
threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award
will be earned and a maximum level of performance at which an award will be fully earned. The performance goals may, at the time
they are established for one or more Awards under the Stock Issuance Program, be subject to adjustment for one or more of the following
items: extraordinary, unusual or non-recurring items of gain, loss or expense; items of gain, loss or expense related to (a) the
disposal of a business or discontinued operations or (b) the operations of any business acquired by Corporation; accruals for reorganization
and restructuring cost and expenses; and items of gain, loss or expense attributable to changes in tax laws and regulations, accounting
principles or other applicable laws or regulations.
3. Any
new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason
of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding
Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the
Plan Administrator shall deem appropriate.
4. The
Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any dividends paid on such shares, subject to any applicable vesting requirements.
The Participant shall not have any shareholder rights with respect to the shares of Common Stock subject to a restricted stock
unit or share right award until that award vests and the shares of Common Stock are actually issued thereunder. However, dividend-equivalent
units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding restricted stock unit
or share right awards, subject to such terms and conditions as the Plan Administrator may deem appropriate.
5. Should
the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock,
then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further
shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent, the Corporation shall repay to the Participant the lower of (i)
the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation.
6. The
Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares
of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable performance objectives. However, no vesting requirements
tied to the attainment of performance objectives may be waived with respect to shares which were intended at the time of issuance
to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s Involuntary
Termination or as otherwise provided in Section II of this Article Three.
7. Outstanding
share right awards or restricted stock units under the Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards or units, if the performance goals or Service requirements established
for such awards or units are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority
to issue vested shares of Common Stock under one or more outstanding share right awards or restricted stock units as to which the
designated performance goals or Service requirements have not been attained or satisfied. However, no vesting requirements tied
to the attainment of performance goals may be waived with respect to awards or units which were intended, at the time those awards
or units were granted, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s
Involuntary Termination or as otherwise provided in Section II of this Article Three.
| II. | CHANGE IN CONTROL/HOSTILE TAKE-OVER |
A. All
of the Corporation’s outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise
to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
B. Each
outstanding Award under the Stock Issuance Program which is assumed in connection with a Change in Control or otherwise continued
in effect shall be adjusted immediately after the consummation of that Change in Control so as to apply to the number and class
of securities into which the shares of Common Stock subject to that Award immediately prior to the Change in Control would have
been converted in consummation of such Change in Control had those shares actually been outstanding at that time, and appropriate
adjustments shall also be made to the cash consideration (if any) payable per share thereunder, provided the aggregate amount
of such consideration shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding Awards, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
C. If
an Award under the Stock Issuance Program is not assumed or otherwise continued in effect or replaced with a cash retention program
of the successor corporation which preserves the Fair Market Value of the underlying shares of Common Stock at the time of the
Change in Control and provides for the subsequent payout of that value in accordance with the same vesting schedule applicable
to those shares, then such Award shall vest, and the shares of Common Stock subject to that Award shall be issued as fully-vested
shares, immediately prior to the consummation of the Change in Control.
D. The
Plan Administrator shall have the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program
so that the shares of Common Stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in
part immediately upon the occurrence of a Change in Control or upon the subsequent termination of the Participant’s Service
by reason of an Involuntary Termination within a designated period following the effective date of that Change in Control transaction.
E. The
Plan Administrator shall also have the discretionary authority to structure one or more unvested Awards under the Stock Issuance
Program so that the shares of Common Stock subject to those Awards shall automatically vest (or vest and become issuable) in whole
or in part immediately upon the occurrence of a Hostile Take-Over or upon the subsequent termination of the Participant’s
Service by reason of an Involuntary Termination within a designated period following the effective date of that Hostile Take-Over.
F. The
Plan Administrator’s authority under Paragraphs D and E of this Section II shall also extend to any Awards under the Stock
Issuance Program which are intended to qualify as performance-based compensation under Code Section 162(m), even though the automatic
vesting of those issuances, units or awards pursuant to Paragraph D or E of this Section II may result in their loss of performance-based
status under Code Section 162(m).
article
Four
AUTOMATIC
GRANT PROGRAM
A. Grant
Dates. Grants shall be made pursuant to the Automatic Grant Program in effect under this Article Four as follows:
1. Each
individual who is first elected or appointed as a non-employee Board member at any time on or after the date of the 2006 Annual
Meeting shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase
not more than ten thousand (10,000) shares of Common Stock and restricted stock units covering not more than three thousand (3,000)
shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
The actual number of shares for which such initial option grant and restricted stock unit award shall be made shall (subject to
the respective ten thousand (10,000) and three thousand (3,000)-share limits) be determined by the Plan Administrator at the time
of each such grant.
2. On
the date of each annual shareholders meeting, beginning with the 2006 Annual Meeting, each individual who is to continue to serve
as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual
meeting, shall automatically be granted a Non-Statutory Option to purchase not more than three thousand (3,000) shares of common
stock and restricted stock units covering up to not more than an additional one thousand (1,000) shares of Common Stock, provided
that such individual has served as a non-employee Board member for a period of at least six (6) months. There shall be no limit
on the number of such option grants and restricted stock unit awards any one continuing non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or
any Parent or Subsidiary) shall be eligible to receive one or more such annual option grants and restricted stock unit awards over
their period of continued Board service. The actual number of shares for which such annual option grants and restricted stock unit
awards are made to each continuing non-employee Board member shall (subject to the respective three thousand (3,000) and one thousand
(1,000)-share limits) be determined by the Plan Administrator on or before the date of the annual shareholders meeting on which
those grants are to be made.
B. Exercise
Price.
1. The
exercise price per share for each option granted under this Article Four shall be equal to one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The
exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Grant Program. Except
to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
C. Option
Term. Each option granted under this Article Four shall have a maximum term of seven (7) years measured from the option
grant date, subject to earlier termination following the Optionee’s cessation of Service.
D. Exercise
and Vesting of Options. Each option granted under this Article Four shall be immediately exercisable for any or all
of the option shares. However, any unvested shares purchased under the option shall be subject to repurchase by the Corporation,
at the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at
the time of repurchase, upon the Optionee’s cessation of Service prior to vesting in those shares. The shares subject to
each initial ten thousand (10,000)-share-or-less grant shall vest, and the Corporation’s repurchase right shall lapse, in
four (4) successive equal annual installments upon the Optionee’s completion of each year of service as a non-employee Board
member over the four (4)-year period measured from the option grant date. The shares subject to each annual three thousand (3,000)-share-or-less
grant made to a non-employee Board member for his or her continued Board service shall vest, and the Corporation’s repurchase
right shall lapse, in one installment upon the earlier of (i) the Optionee’s completion of one (1)-year of
service as a non-employee Board member measured from the grant date or (ii) the Optionee’s continuation in such Board service
through the day immediately preceding the next annual shareholders meeting following such grant date.
E. Vesting
of Restricted Stock Units and Issuance of Shares. Each restricted stock unit award for up to three thousand (3,000) shares
shall vest in a series of four (4) successive equal annual installments upon the individual’s completion of each year of
service as a non-employee Board member over the four (4)-year period measured from the date that award is made. Each restricted
stock unit award for up to one thousand (1,000) shares shall vest in one installment upon the earlier of (i) the individual’s
completion of one (1)-year of service as a non-employee Board member measured from the date that award is made or (ii) the individual’s
continuation in such Board service through the day immediately preceding the next annual shareholders meeting following such grant
date. However, each restricted stock unit award held by an individual under the Automatic Grant Program will immediately vest in
full upon his or her cessation of Board service by reason of death or Permanent Disability. As the restricted stock units under
the Automatic Grant Program vest in one or more installments, the shares of Common Stock underlying those vested units shall be
promptly issued.
F. Limited
Transferability of Options. Each option under this Article Four may be assigned in whole or in part during the Optionee’s
lifetime to one or more of his or her Family Members or to a trust established exclusively for the Optionee and/or one or more
such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic
relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the options shall, in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall
take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s
death.
G. Termination
of Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee
ceases Service:
(i) The
Optionee (or, in the event of Optionee’s death while holding the option, the personal representative of the Optionee’s
estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance
or the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such
cessation of Service in which to exercise such option.
(ii) During
the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the Optionee’s cessation of Service. However, should the
Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for any or all of those shares as fully vested shares of Common Stock.
(iii) In
no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s
cessation of Service for any reason (other than cessation of Board service by reason of death or Permanent Disability), terminate
and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
| II. | CHANGE IN CONTROL/HOSTILE TAKE-OVER |
A. In
the event of any Change in Control while the individual remains in Service, the following provisions shall apply:
(i) Should
a Change in Control occur prior to the Optionee’s cessation of Service, then the shares of Common Stock at the time subject
to each outstanding option held by such Optionee under this Automatic Grant Program but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable
for all the option shares as fully vested shares of Common Stock and may be exercised for any or all of those vested shares. Immediately
following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of
the Change in Control transaction.
(ii) The
shares of Common Stock which are at the time of such Change in Control subject to any outstanding restricted stock units awarded
to such individual under the Automatic Grant Program shall, immediately prior to the effective date of the Change in Control, vest
in full and be issued to such individual as soon as administratively practicable thereafter, but in no event later than fifteen (15)
business days.
B. In
the event of a Hostile Take-Over while the individual remains in Service, the following provisions shall apply:
(i) The
shares of Common Stock at the time subject to each outstanding option held by such Optionee under this Automatic Grant Program
but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date
of the Hostile Take-Over, become exercisable for all the option shares as fully vested shares of Common Stock and may be exercised
for any or all of those vested shares. Each such option shall remain exercisable for such fully vested option shares until the
expiration or sooner termination of the option term.
(ii) The
shares of Common Stock which are at the time of the Hostile Take-Over subject to any restricted stock units awarded to such individual
under this Automatic Grant Program shall, immediately prior to the effective date of the Hostile Take-Over, vest in full and be
issued to such individual as soon as administratively practicable thereafter, but in no event later than fifteen (15) business
days.
C. All
outstanding repurchase rights under this Automatic Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of any Change in Control or Hostile Take-Over.
D. Each
option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the
Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate
adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding
Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption or continuation of the outstanding options under the Automatic Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.
The remaining terms of each
grant shall be the same as the terms in effect for option grants made under the Discretionary Grant Program, including the prohibition
on repricing contained in Section V of Article Two.
The Compensation Committee
shall have full power and authority to award, in lieu of one or more initial or annual automatic option grants under this Article
Four, unvested shares of Common Stock or restricted stock units which in each instance have an aggregate Fair Market Value substantially
equal to the fair value (as determined for financial reporting purposes in accordance with Financial Accounting Standard 123R or
any successor standard) of the automatic option grant which such award replaces. Any such alternative award shall be made at the
same time the automatic option grant or restricted stock unit award which it replaces would have been made, and the vesting provisions
(including vesting acceleration) applicable to such award shall be substantially the same as in effect for the automatic option
grant or restricted stock unit award so replaced.
article
Five
MISCELLANEOUS
A. The
Corporation’s obligation to deliver shares of Common Stock upon the issuance, exercise or vesting of an Award under the Plan
shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.
B. The
Plan Administrator may, in its discretion, provide any or all Optionees and Participants to whom Awards are made under the Plan
(other than the Awards made under the Automatic Grant Program) with the right to use shares of Common Stock in satisfaction of
all or part of the Withholding Taxes to which such individuals may become subject in connection with the issuance, exercise or
vesting of those Awards. Such right may be provided to any such holder in either or both of the following formats:
Stock Withholding:
The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the issuance, exercise or
vesting of such Award, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by such individual. The shares of Common Stock so withheld shall reduce
the number of shares of Common Stock authorized for issuance under the Plan.
Stock Delivery:
The election to deliver to the Corporation, at the time of the issuance, exercise or vesting of the Award, one or more shares of
Common Stock previously acquired by such holder (other than in connection with the issuance exercise or vesting of the shares triggering
the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one
hundred percent (100%)) designated by the individual. The shares of Common Stock so delivered shall not be added to the shares
of Common Stock authorized for issuance under the Plan.
Unvested shares may, in the
Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares
vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.
| III. | EFFECTIVE DATE AND TERM OF THE PLAN |
A. The
Plan shall become effective on the Plan Effective Date.
B. The
Plan shall serve as the successor to the Predecessor Plans, and no further option grants or stock issuances shall be made under
the Predecessor Plans if this Plan is approved by the stockholders at the 2006 Annual Meeting. Such stockholder approval be obtained,
then all options outstanding under the Predecessor Plans at the time of the 2006 Annual Meeting shall be transferred to this Plan.
C. The
Plan shall terminate upon the earliest to occur of (i) February 22, 2016, (ii) the date on which all shares available
for issuance under the Plan shall have been issued as fully vested shares or (iii) the termination of all outstanding Awards
in connection with a Change in Control. Should the Plan terminate on February 22, 2016, then all Awards outstanding at that time
shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards.
A. The
Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under
the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, amendments to the Plan
will be subject to stockholder approval to the extent required under applicable law or regulation or pursuant to the listing standards
of the stock exchange (or the Nasdaq National Market) on which the Common Stock is at the time primarily traded.
B. The
Compensation Committee of the Board shall have the discretionary authority to adopt and implement from time to time such addenda
or subplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations
of any foreign jurisdictions in which grants or awards are to be made under the Plan and/or to obtain favorable tax treatment in
those foreign jurisdictions for the individuals to whom the grants or awards are made.
C. Awards
may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under
the Plan, provided no shares shall actually be issued pursuant to those Awards until the number of shares of Common Stock available
for issuance under the Plan is sufficiently increased by shareholder approval of an amendment of the Plan authorizing such increase.
If shareholder approval is required and is not obtained within twelve (12) months after the date the first excess Award is made,
then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding.
Any cash proceeds received
by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
A. The
implementation of the Plan, the grant of any Award and the issuance of shares of Common Stock in connection with the issuance,
exercise or vesting of any Award made under the Plan shall be subject to the Corporation’s procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of
Common Stock issuable pursuant to those Awards.
B. No
shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any Stock Exchange
(or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.
| VII. | NO EMPLOYMENT/SERVICE RIGHTS |
Nothing in the Plan shall
confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service
at any time for any reason, with or without cause.
APPENDIX
The following definitions
shall be in effect under the Plan:
A. Annual
Meeting shall mean the annual meeting of the Corporation’s shareholders.
B. Automatic
Grant Program shall mean the automatic option grant program in effect under Article Four of the Plan.
C. Award
shall mean any of the following stock or stock-based awards authorized for issuance or grant under the Plan: stock option, stock
appreciation right, direct stock issuance, restricted stock or restricted stock unit award or other stock-based award.
D. Board
shall mean the Corporation’s Board of Directors.
E. Change
in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i) a
merger, consolidation or other reorganization approved by the Corporation’s shareholders, unless securities representing
more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially
owned the Corporation’s outstanding voting securities immediately prior to such transaction,
(ii) a
shareholder-approved sale, transfer or other disposition (including in whole or in part through one or more licensing arrangements)
of all or substantially all of the Corporation’s assets, or
(iii) the
closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a
“group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior
to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control
with, the Corporation) becomes directly or indirectly the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total
combined voting power of the Corporation’s securities (as measured in terms of the power to vote with respect to the election
of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether
such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more
of the Corporation’s existing shareholders.
F. Code
shall mean the Internal Revenue Code of 1986, as amended.
G. Common
Stock shall mean the Corporation’s common stock.
H. Compensation
Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members.
I. Corporation
shall mean American Shared Hospital Services, a California corporation, and any corporate successor to all or substantially
all of the assets or voting stock of American Shared Hospital Services which has by appropriate action assumed the Plan.
J. Discretionary
Grant Program shall mean the discretionary grant program in effect under Article Two of the Plan pursuant to which stock
options and stock appreciation rights may be granted to one or more eligible individuals.
K. Eligible
Director shall mean a non-employee Board member eligible to participate in the Automatic Grant Program in accordance with
the eligibility provisions of Articles One and Four.
L. Employee
shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and
method of performance.
M. Exercise Date
shall mean the date on which the Corporation shall have received written notice of the option exercise.
N. Fair
Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i) If
the Common Stock is at the time traded on the NASDAQ National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock at the close of regular hours trading (i.e., before after- hours trading begins) on the NASDAQ National
Market on the date in question, as such price is reported by the National Association of Securities Dealers. If there is no closing
selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If
the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on the date in question on
the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation
exists.
O. Family
Member means, with respect to a particular Optionee or Participant, any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law.
P. Hostile
Take-Over shall mean a change in ownership or control of the Corporation effected through either of the following transactions:
(i) a
change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination, or
(ii) the
acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s
shareholders which the Board does not recommend such shareholders to accept.
Q. Incentive
Option shall mean an option which satisfies the requirements of Code Section 422.
R. Involuntary
Termination shall mean the termination of the Service of any individual which occurs by reason of:
(i) such
individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct,
or
(ii) such
individual’s voluntary resignation following (A) a change in his or her position with the Corporation (or any Parent or Subsidiary)
which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction
in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment
by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation (or
any Parent or Subsidiary) without the individual’s consent.
S. Misconduct
shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation
(or any Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes
of the Plan, to constitute grounds for termination for Misconduct.
T. 1934
Act shall mean the Securities Exchange Act of 1934, as amended.
U. Non-Statutory
Option shall mean an option not intended to satisfy the requirements of Code Section 422.
V. Optionee
shall mean any person to whom an option is granted under the Discretionary Grant or Automatic Grant Program.
W. Parent shall
mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
X. Participant
shall mean any person who is issued shares of Common Stock or restricted stock units or other stock-based awards under the
Stock Issuance Program.
Y. Permanent
Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Grant Program, Permanent Disability
or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
Z. Plan
shall mean the Corporation’s 2006 Stock Incentive Plan, as set forth in this document.
AA. Plan
Administrator shall mean the particular entity, whether the Compensation Committee, the Board or the Secondary Board Committee,
which is authorized to administer the Discretionary Grant and Stock Issuance Programs with respect to one or more classes of eligible
persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons
under its jurisdiction.
BB. Plan
Effective Date shall mean the date on which the Plan is approved by the shareholders at the 2006 Annual Meeting.
CC. Predecessor
Plans shall mean (i) the Corporation’s 2001 Stock Option Plan and (ii) the Corporation’s 1995 Stock Option
Plan, as each such Plan is in effect immediately prior to the 2006 Annual Meeting.
DD. Secondary
Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary
Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders.
EE. Section
16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
FF. Service
shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. For
purposes of the Plan, an Optionee or Participant shall be deemed to cease Service immediately upon the occurrence of the either
of the following events: (i) the Optionee or Participant no longer performs services in any of the foregoing capacities for the
Corporation or any Parent or Subsidiary or (ii) the entity for which the Optionee or Participant is performing such services ceases
to remain a Parent or Subsidiary of the Corporation, even though the Optionee or Participant may subsequently continue to perform
services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal
leave approved by the Corporation; provided, however, that should such leave of absence exceed three (3) months, then for
purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the Optionee’s
Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Optionee
is provided with the right to return to Service following such leave either by statute or by written contract. Except to the extent
otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves
of absence, no Service credit shall be given for vesting purposes for any period the Optionee or Participant is on a leave of absence.
GG. Stock
Exchange shall mean either the American Stock Exchange or the New York Stock Exchange.
HH. Stock
Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance
of shares of Common Stock under the Stock Issuance Program.
II. Stock
Issuance Program shall mean the stock issuance program in effect under Article Three of the Plan.
JJ. Subsidiary
shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such
chain.
KK. 10%
Shareholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
LL. Withholding
Taxes shall mean the applicable income and employment withholding taxes to which to which the Optionee or Participant may
become subject in connection with the issuance, exercise or vesting of the Award made to him or her under the Plan.
Exhibit 10.2
AMERICAN SHARED HOSPITAL SERVICES
INCENTIVE COMPENSATION PLAN
(FORMERLY THE 2006 STOCK INCENTIVE
PLAN)
AS AMENDED AND RESTATED EFFECTIVE MARCH 18, 2010
article
One
GENERAL PROVISIONS
This Incentive Compensation
Plan is intended to promote the interests of American Shared Hospital Services, a California corporation, by providing eligible
persons in the Corporation’s service with the opportunity to participate in one or more cash or equity incentive compensation
programs designed to encourage them to continue their service relationship with the Corporation.
Capitalized terms shall
have the meanings assigned to such terms in the attached Appendix.
A. The
Plan shall be divided into four separate equity incentive programs:
- the
Discretionary Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock or stock appreciation rights tied to the value of such Common Stock,
- the
Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common
Stock pursuant to restricted stock awards, restricted stock units or other stock-based awards which vest upon the completion of
a designated service period or the attainment of pre-established performance milestones, or such shares of Common Stock may be
issued through direct purchase or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the
Incentive Bonus Program under which eligible persons may, at the discretion of the Plan Administrator, be provided with incentive
bonus opportunities through performance unit awards and special cash incentive programs tied to the attainment of pre-established
performance milestones, and
- the
Automatic Grant Program under which eligible non-employee Board members will automatically receive grants at designated intervals
over their period of continued Board service.
B. The
provisions of Articles One and Six shall apply to all incentive compensation programs under the Plan and shall govern the interests
of all persons under the Plan.
| III. | ADMINISTRATION OF THE PLAN |
A. The
Compensation Committee shall have sole and exclusive authority to administer the Discretionary Grant, Stock Issuance and Incentive
Bonus Programs with respect to Section 16 Insiders. Administration of the Discretionary Grant, Stock Issuance and Incentive Bonus
Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested
in the Compensation Committee or a Secondary Board Committee, or the Board may retain the power to administer those programs with
respect to all such persons. However, any Awards made to the members of the Compensation Committee other than pursuant to the Automatic
Grant Program must be authorized by a disinterested majority of the Board.
B. Members
of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee
and reassume all powers and authority previously delegated to such committee.
C. Each
Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of
the Discretionary Grant, Stock Issuance and Incentive Bonus Programs and to make such determinations under, and issue such interpretations
of, the provisions of those programs and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of
the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties
who have an interest in the Discretionary Grant, Stock Issuance and Incentive Bonus Programs under its jurisdiction or any Award
thereunder.
D. Service
as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service
as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement
as Board members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee
shall be liable for any act or omission made in good faith with respect to the Plan or any Award made thereunder.
E. Administration
of the Automatic Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator
shall exercise any discretionary functions with respect to any Award made under that program, except that the Compensation Committee
shall have the express authority to establish from time to time the specific number of shares to be subject to the initial and
annual Awards made to the non-employee Board members under such program.
A. The
persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee
members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants
and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. The
Plan Administrator shall have full authority to determine, (i) with respect to Awards made under the Discretionary Grant Program,
which eligible persons are to receive such Awards, the time or times when those Awards are to be made, the number of shares to
be covered by each such Award, the time or times when the Award is to vest and become exercisable, the maximum term for which such
Award is to remain outstanding and the status of a granted option as either an Incentive Option or a Non-Statutory Option, (ii)
with respect to Awards made under the Stock Issuance Program, which eligible persons are to receive such Awards, the time or times
when the Awards are to be made, the number of shares subject to each such Award, the vesting and issuance schedules applicable
to the shares which are the subject of such Award and the cash consideration (if any) payable for those shares, and (iii) with
respect to Awards under the Incentive Bonus Program, which eligible persons are to receive such Awards, the time or times when
the Awards are to be made, the performance objectives for each such Award, the amounts payable at designated levels of attained
performance, any applicable service vesting requirements, the payout schedule for each such Award and the form (cash or shares
of Common Stock) in which the Award is to be settled.
C. The
Plan Administrator shall have the absolute discretion to grant options or stock appreciation rights in accordance with the Discretionary
Grant Program, to effect stock issuances and other stock-based awards in accordance with the Stock Issuance Program and to grant
incentive bonus awards in accordance with the Incentive Bonus Program.
D. The
individuals who shall be eligible to participate in the Automatic Grant Program shall be limited to (i) those individuals who first
become non-employee Board members on or after the Plan Effective Date, whether through appointment by the Board or election by
the Corporation’s shareholders, and (ii) those individuals who continue to serve as non-employee Board members on or after
the Plan Effective Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an Award under the Automatic Grant Program at the time he or she first becomes a non-employee
Board member, but shall be eligible to receive periodic Awards under the Automatic Grant Program while he or she continues to serve
as a non-employee Board member.
| V. | STOCK SUBJECT TO THE PLAN |
A. The
stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock reserved for issuance over the term of the Plan shall
be limited to one million six hundred thirty thousand (1,630,000) shares. Such share reserve is comprised of (i) the initial reserve
of seven hundred fifty thousand (750,000) shares of Common Stock authorized under the Plan and (ii) an increase of an additional
eight hundred eighty thousand (880,000) shares of Common Stock authorized by the Board on March 18, 2010 and subject to shareholder
approval at the 2010 Annual Meeting.
B. The
number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section V.A of this Article One shall
be reduced: (i) on a one-for-one basis for each share of Common Stock subject to an Award made under the Discretionary Grant Program
or subject to a stock option grant made under the Automatic Grant Program, (ii) on a one-for-one basis for each share of Common
Stock issued pursuant to a Full Value Award made under the Stock Issuance, Incentive Bonus and Automatic Grant Programs prior to
March 18, 2010 and (iii) by a fixed ratio of 1.59 shares of Common Stock for each share of Common Stock issued pursuant to a Full
Value Award made under the Stock Issuance, Incentive Bonus and Automatic Grant Programs on or after March 18, 2010.
C. The
Plan serves as the successor to the Predecessor Plans, and no further stock option grants or stock issuances are to be made under
those Predecessor Plans on or after the Plan Effective Date. All options outstanding under the Predecessor Plans on the Plan Effective
Date were transferred to this Plan as part of the initial share reserve hereunder and shall continue in full force and effect in
accordance with their terms, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of those options with respect to their acquisition of shares of Common Stock thereunder. To the extent any options
outstanding under the Predecessor Plans on the Plan Effective Date expire or terminate unexercised, the number of shares of Common
Stock subject to those expired or terminated options at the time of expiration or termination shall be available for one or more
Awards made under this Plan.
D. The
maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under Plan shall not exceed one
million six hundred thirty thousand (1,630,000) shares. However, in the event the shareholders do not approve the eight hundred
eighty thousand (880,000) share increase to the authorized reserve under the Plan at the 2010 Annual Meeting, then the maximum
number of shares of Common Stock that may be issued pursuant to Incentive Options granted under Plan shall be continue to be limited
to seven hundred fifty thousand (750,000) shares of Common Stock.
E. Each
person participating in the Plan shall be subject the following limitations:
- for
Awards denominated in terms of shares of Common Stock (whether payable in Common Stock, cash or a combination of both), the maximum
number of shares of Common Stock for which such Awards may be made to such person in any calendar year shall not exceed One Hundred
Fifty Thousand (150,000) shares of Common Stock in the aggregate; provided, however, that for the calendar year in which such person
first commences Service, the foregoing limitation shall be increased to Two Hundred Thousand (200,000) shares, and
- for
Awards denominated in terms of cash (whether payable in cash, Common Stock or a combination of both) and subject to one or more
performance-vesting conditions, the maximum dollar amount for which such Awards may be made to such person in any calendar year
shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000.00) for each calendar year within the applicable performance
measurement period, with any such performance period not to exceed five (5) years and with pro-ration based on the foregoing dollar
amount in the event of any fractional calendar year included within such performance period.
F. Shares
of Common Stock subject to outstanding Awards made under the Plan (including the options transferred from the Predecessor Plans)
shall be available for subsequent issuance under the Plan to the extent those Awards expire or terminate for any reason prior to
the issuance of the shares of Common Stock subject to those Awards. Such shares shall be added back to the number of shares of
Common Stock reserved for award and issuance under the Plan as follows:
(i) for
each share of Common Stock subject to such an expired, forfeited, cancelled or terminated Award made under the Discretionary Grant
Program (including the options transferred from the Predecessor Plans) or subject to an option grant made under the Automatic Grant
Program, one share of Common Stock shall become available for subsequent award and issuance under the Plan,
(ii) for
each share of Common Stock subject to a forfeited or cancelled Full Value Award made under the Stock Issuance, Automatic Grant
or Incentive Bonus Program prior to March 18, 2010, one share shall become available for subsequent award and issuance,
(iii) for
each share of Common Stock subject to a forfeited or cancelled Full Value Award made under the Stock Issuance, Automatic Grant
or Incentive Bonus Program on or after March 18, 2010, 1.59 shares shall become available for subsequent award and issuance, and
(iv) for
each unvested share of Common Stock issued under the Discretionary Grant or Stock Issuance Program for cash consideration not less
than the Fair Market Value per share of Common Stock on the Award date and subsequently repurchased by the Corporation, at a price
per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rights under
the Plan, one share shall become available for subsequent award and issuance under the Plan.
G. Should
the exercise price of an option under the Plan be paid with shares of Common Stock, then the authorized reserve of Common Stock
under the Plan shall be reduced by the gross number of shares for which that option is exercised, and not by the net number of
shares issued under the exercised stock option. If shares of Common Stock otherwise issuable under the Plan are withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with the issuance, exercise or vesting of an Award,
then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares
issued, exercised or vesting under such Award, calculated in each instance prior to any such share withholding.
H. If
any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange
of shares, spin-off transaction or other change affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, or should the value of outstanding shares of Company Stock be substantially reduced as a result of a
spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization
(including, without limitation, a Change in Control transaction), then equitable adjustments shall be made by the Plan Administrator
to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities
for which any one person may receive Common Stock-denominated Awards under the Plan per calendar year, (iii) the maximum number
and/or class of securities that may be issued pursuant to Incentive Options granted under the Plan, (iv) the maximum number and/or
class of securities for which stock option grants and restricted stock unit awards may subsequently be made under the Automatic
Grant Program to new and continuing non-employee Board members, (v) the number and/or class of securities and the exercise or base
price per share in effect under each outstanding Award under the Discretionary Grant Program, (vi) the number and/or class of securities
subject to each outstanding Award under the Stock Issuance Program and the cash consideration (if any) payable per share, (vii)
the number and/or class of securities subject to each outstanding Award under the Incentive Bonus Program denominated in shares
of Common Stock and (viii) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights
under the Plan and the repurchase price payable per share. The adjustments shall be made in such manner as the Plan Administrator
deems appropriate, and such adjustments shall be final, binding and conclusive.
I. Outstanding
Awards under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business
or assets.
article
Two
DISCRETIONARY GRANT PROGRAM
Each option shall be
evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. Exercise
Price.
1. The
exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date.
2. The
exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents evidencing
the option, be payable in one or more of the forms specified below:
(i) cash
or check made payable to the Corporation,
(ii) shares
of Common Stock valued at Fair Market Value on the Exercise Date and held for the requisite period (if any) necessary to avoid
any additional charges to the Corporation’s earnings for financial reporting purposes,
(iii) shares
of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with
such withheld shares to be valued at Fair Market Value on the exercise date, or
(iv) to
the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering
such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm on such settlement date in order to complete the sale.
Except to the extent
such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise
Date.
B. Exercise
and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option
shall have a term in excess of seven (7) years measured from the grant date.
C. Effect
of Termination of Service.
1. The
following provisions shall govern the exercise of any options granted pursuant to the Discretionary Grant Program that are outstanding
at the time of the Optionee’s cessation of Service or death:
(i) Any
option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period
of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no
such option shall be exercisable after the expiration of the option term.
(ii) Any
option held by the Optionee at the time of the Optionee’s death and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or the laws of inheritance or by the Optionee’s designated beneficiary or beneficiaries
of that option.
(iii) Should
the Optionee’s Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one
or more outstanding options granted under this Article Two, then all of those options shall terminate immediately and cease to
be outstanding.
(iv) During
the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which
the option is at the time exercisable. No additional shares shall vest under the option following the Optionee’s cessation
of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to
an express written agreement with the Optionee. Upon the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not
been exercised.
2. The
Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend
the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term,
(ii) include
an automatic extension provision whereby the specified post-Service exercise period in effect for any option granted under this
Article Two shall automatically be extended by an additional period of time equal in duration to any interval within the specified
post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option
could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension
result in the continuation of such option beyond the expiration date of the term of that option, and/or
(iii) permit
the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares
of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect
to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D. Shareholder
Rights. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E. Repurchase
Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while such shares are unvested, the Corporation shall have the right to repurchase
any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share
or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
F. Transferability
of Options. The transferability of options granted under the Plan shall be governed by the following provisions:
(i) Incentive
Options: During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or the laws of inheritance following the Optionee’s death.
(ii) Non-Statutory
Options. Non-Statutory Options shall be subject to the same limitation on transfer as Incentive Options, except that the
Plan Administrator may structure one or more Non-Statutory Options so that the option may be assigned in whole or in part during
the Optionee’s lifetime to one or more Family Members of the Optionee or to a trust established exclusively for the Optionee
and/or one or more such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
(iii) Beneficiary
Designations. Notwithstanding the foregoing, the Optionee may designate one or more persons as the beneficiary or beneficiaries
of his or her outstanding options under this Article Two (whether Incentive Options or Non-Statutory Options), and those options
shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s
death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms
and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited
time period during which the option may be exercised following the Optionee’s death.
The terms specified below
shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility.
Incentive Options may only be granted to Employees.
B. Dollar
Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates
of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or
any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).
To the extent the Employee
holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of
the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed to become first
exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise
provided under applicable law or regulation.
C. 10%
Shareholder. If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share
shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date,
and the option term shall not exceed five (5) years measured from the option grant date.
| III. | STOCK APPRECIATION RIGHTS |
A. Authority.
The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights
in accordance with this Section III to selected Optionees or other individuals eligible to receive option grants under the Discretionary
Grant Program.
B. Types.
Two types of stock appreciation rights shall be authorized for issuance under this Section III: (i) tandem stock appreciation rights
(“Tandem Rights”) and (ii) stand-alone stock appreciation rights (“Stand-alone Rights”).
C. Tandem
Rights. The following terms and conditions shall govern the grant and exercise of Tandem Rights.
1. One
or more Optionees may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
2. No
such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall accordingly
become entitled under this Section III shall be made in shares of Common Stock valued at Fair Market Value on the option surrender
date.
3. If
the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day
on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event
may such rights be exercised more than seven (7) years after the date of the option grant.
D. Stand-Alone
Rights. The following terms and conditions shall govern the grant and exercise of Stand-alone Rights:
1. One
or more individuals eligible to participate in the Discretionary Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Grant Program. The Stand-alone Right shall relate to a specified number of shares of
Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish. In no event, however,
may the Stand-alone Right have a maximum term in excess of seven (7) years measured from the grant date. Upon exercise of the Stand-alone
Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the
aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the
aggregate base price in effect for those shares.
2. The
number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined
by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base
price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date. In the event outstanding
Stand-alone Rights are to be assumed in connection with a Change in Control transaction or otherwise continued in effect, the shares
of Common Stock underlying each such Stand-alone Right shall be adjusted immediately after such Change in Control so as to apply
to the number and class of securities into which those shares of Common Stock would have been converted in consummation of such
Change in Control had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control
shall also be made to the base price per share in effect under each outstanding Stand-alone Right, provided the aggregate
base price shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding Stand-alone Rights under the Discretionary Grant Program, substitute, for
the securities underlying those assumed rights, one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in the Change in Control transaction.
3. Stand-alone
Rights shall be subject to the same transferability restrictions applicable to Non-Statutory Options and may not be transferred
during the holder’s lifetime, except if such assignment is in connection with the holder’s estate plan and is to one
or more Family Members of the holder or to a trust established for the holder and/or one or more such Family Members or pursuant
to a domestic relations order covering the Stand-alone Right as marital property. In addition, one or more beneficiaries may be
designated for an outstanding Stand-alone Right in accordance with substantially the same terms and provisions as set forth in
Section I.F of this Article Two.
4. The
distribution with respect to an exercised Stand-alone Right shall be made in shares of Common Stock valued at Fair Market Value
on the exercise date.
5. The
holder of a Stand-alone Right shall have no shareholder rights with respect to the shares subject to the Stand-alone Right unless
and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued
upon the exercise of such Stand-alone Right.
E. Post-Service
Exercise. The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the recipient’s
Service shall be substantially the same as those set forth in Section I.C of this Article Two for the options granted under the
Discretionary Grant Program, and the Plan Administrator’s discretionary authority under Section I.C.2 of this Article Two
shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights.
F. Gross
Counting. Upon the exercise of any Tandem or Stand-alone Right under this Section III, the share reserve under Section
V of Article One shall be reduced by the gross number of shares as to which such right is exercised, and not by the net number
of shares actually issued by the Corporation upon such exercise.
A. In
the event of a Change in Control, each outstanding Award under the Discretionary Grant Program shall automatically accelerate so
that each such Award shall, immediately prior to the effective date of that Change in Control, become exercisable as to all the
shares of Common Stock at the time subject to such Award and may be exercised as to any or all of those shares as fully vested
shares of Common Stock. However, an outstanding Award under the Discretionary Grant Program shall not become exercisable
on such an accelerated basis if and to the extent: (i) such Award is to be assumed by the successor corporation (or parent thereof)
or is otherwise to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such Award
is to be replaced with a cash retention program of the successor corporation which preserves the spread existing at the time of
the Change in Control on any shares as to which the Award is not otherwise at that time vested and exercisable and provides for
the subsequent vesting and concurrent payout of that spread in accordance with the same exercise/vesting schedule in effect for
that Award, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation
subject to Code Section 409A or (iii) the acceleration of such Award is subject to other limitations imposed by the Plan Administrator.
Notwithstanding the foregoing, any Award outstanding under the Discretionary Grant Program on the date of such Change in Control
shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, if the Fair
Market Value per share of Common Stock on the date of such Change in Control (or any earlier date specified in the definitive agreement
for the Change in Control transaction) is less than the per share exercise or base price in effect for such Award.
B. All
outstanding repurchase rights under the Discretionary Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of a Change in Control, except to the extent: (i)
those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise to continue in full
force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator.
C. Immediately
following the consummation of the Change in Control, all outstanding Awards under the Discretionary Grant Program shall terminate
and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control transaction.
D. Each
Award under the Discretionary Grant Program which is assumed in connection with a Change in Control or otherwise continued in effect
shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Change in Control had the Award been exercised immediately prior
to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to the exercise price payable
per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain
the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation
of the outstanding options under the Discretionary Grant Program, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
E. The
Plan Administrator shall have the discretionary authority to structure one or more outstanding Awards rights under the Discretionary
Grant Program so that those Awards shall, immediately prior to the effective date of a Change in Control, become exercisable as
to all the shares of Common Stock at the time subject to those Awards and may be exercised as to any or all of those shares as
fully vested shares of Common Stock, whether or not those Awards are to be assumed in the Change in Control transaction or otherwise
continued in effect. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the
Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall immediately terminate upon
the consummation of the Change in Control transaction, and the shares subject to those terminated rights shall thereupon vest in
full.
F. The
Plan Administrator shall have full power and authority to structure one or more outstanding Awards under the Discretionary Grant
Program so that those Awards shall become exercisable as to all the shares of Common Stock at the time subject to those Awards
in the event the Optionee’s Service is subsequently terminated by reason of an Involuntary Termination within a designated
period following the effective date of any Change in Control transaction in which those Awards do not otherwise fully accelerate.
In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights
shall immediately terminate with respect to any shares held by the Optionee at the time of such Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in full at that time.
G. The
portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-statutory Option under the Federal
tax laws.
| V. | PROHIBITION ON REPRICING PROGRAMS |
The Plan Administrator
shall not (i) implement any cancellation/regrant program pursuant to which outstanding options or stock appreciation rights under
the Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise price per
share, (ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or base prices per share in excess
of the then current Fair Market Value per share of Common Stock for consideration payable in cash, equity securities of the Corporation
or in the form of any other Award under the Plan, except in connection with a Change in Control transaction, or (iii) otherwise
directly reduce the exercise price in effect for outstanding options or stock appreciation rights under the Plan, without in each
such instance obtaining shareholder approval.
article
Three
STOCK ISSUANCE PROGRAM
Shares of Common Stock
may be issued under the Stock Issuance Program, either as vested or unvested shares, through direct and immediate issuances. Each
such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common
Stock may also be issued under the Stock Issuance Program pursuant to restricted stock units or performance shares which entitle
the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals or the satisfaction
of specified Service requirements or upon the expiration of a designated time period following the vesting of those awards or units.
A. Issue
Price.
1. The
issue price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Shares
of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:
(i) cash
or check made payable to the Corporation,
(ii) past
services rendered to the Corporation (or any Parent or Subsidiary); or
(iii) any
other valid consideration under the California Corporation Code.
B. Vesting
Provisions.
1. Shares
of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon the attainment
of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.
Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to restricted stock units or performance shares
which entitle the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals
or the satisfaction of specified Service requirements or upon the expiration of a designated time period following the vesting
of those Awards, including (without limitation) a deferred distribution date following the termination of the Participant’s
Service.
2. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Awards
under the Stock Issuance Program so that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable)
upon the achievement of certain pre-established corporate performance objectives based on one or more Performance Goals and measured
over the performance period (not to exceed five (5) years) specified by the Plan Administrator at the time of the Award.
3. Any
new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason
of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary
dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt
of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
4. The
Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any dividends paid on such shares, subject to any applicable vesting requirements,
including (without limitation) the requirement that any dividends paid on shares subject to performance-vesting conditions shall
be held in escrow by the Corporation and shall not vest or actually be paid to the Award holder prior to the time those shares
vest. The Participant shall not have any shareholder rights with respect to the shares of Common Stock subject to a restricted
stock unit or share right award until that award vests and the shares of Common Stock are actually issued thereunder. However,
dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding
Awards of performance share or restricted stock units, subject to such terms and conditions as the Plan Administrator may deem
appropriate. In no event, however, shall dividends or dividend-equivalent units relating to Awards subject to performance-vesting
conditions vest or otherwise become payable prior to the time the underlying Award (or portion thereof to which such dividends
or dividend-equivalents units relate) vests upon the attainment of the applicable performance goals and shall accordingly be subject
to cancellation and forfeiture to the same extent as the underlying Award in the event those performance conditions are not attained.
5. Should
the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock,
then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further
shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent, the Corporation shall repay to the Participant the lower of (i)
the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation.
6. The
Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares
of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable performance objectives. However, no vesting requirements
tied to the attainment of Performance Goals may be waived with respect to Awards which were intended at the time of grant to qualify
as performance-based compensation under Code Section 162(m), except in the event of the Participant’s cessation of Service
by reason of death or Permanent Disability or as otherwise provided in Section II of this Article Three.
7. Outstanding
Awards of restricted stock units or performance shares under the Stock Issuance Program shall automatically terminate, and no shares
of Common Stock shall actually be issued in satisfaction of those Awards, if the performance goals or Service requirements established
for such Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to issue
vested shares of Common Stock under one or more outstanding Awards of restricted stock units or performance shares as to which
the designated performance goals or Service requirements have not been attained or satisfied. However, no vesting requirements
tied to the attainment of Performance Goals may be waived with respect to Awards which were intended, at the time those Awards
were made, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s
cessation of Service by reason of death or Permanent Disability or as otherwise provided in Section II of this Article Three.
8. The
following additional requirements shall be in effect for any performance shares awarded under this Article Three:
(i) At
the end of the performance period, the Plan Administrator shall determine the actual level of attainment for each performance objective
and the extent to which the performance shares awarded for that period are to vest and become payable based on the attained performance
levels.
(ii) The
performance shares which so vest shall be paid as soon as practicable following the end of the performance period, unless such
payment is to be deferred for the period specified by the Plan Administrator at the time the performance shares are awarded or
the period selected by the Participant in accordance with the applicable requirements of Code Section 409A.
(iii) Performance
shares may be paid in (i) cash, (ii) shares of Common Stock or (iii) any combination of cash and shares of Common Stock, as set
forth in the applicable Award Agreement.
(iv) Performance
shares may also be structured so that the shares are convertible into shares of Common Stock, but the rate at which each performance
share is to so convert shall be based on the attained level of performance for each applicable performance objective.
A. Each
Award outstanding under the Stock Issuance Program on the effective date of an actual Change in Control transaction may be (i)
assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms
of the Change in Control transaction or (ii) replaced with a cash incentive program of the successor corporation which preserves
the Fair Market Value of the underlying shares of Common Stock at the time of the Change in Control and provides for the subsequent
vesting and payment of that value in accordance with the same vesting schedule in effect for those shares at the time of such Change
in Control. If any such Award is subject to a performance-vesting condition tied to the attainment of one or more specified performance
goals, then upon the assumption, continuation or replacement of that Award, the performance vesting condition shall automatically
be cancelled, and such Award shall thereupon be converted into a Service-vesting Award that will vest upon the completion of a
Service period co-terminous with the portion of the performance period (and any subsequent Service vesting component that was originally
part of that Award) remaining at the time of the Change in Control. However, to the extent any Award outstanding under the Stock
Issuance Program on the effective date of such Change in Control Transaction is not to be so assumed, continued or replaced, that
Award shall vest in full immediately prior to the effective date of the actual Change in Control transaction and the shares of
Common Stock underlying the portion of the Award that vests on such accelerated basis shall be issued in accordance with the applicable
Award Agreement, unless such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B. All
of the Corporation’s outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise
to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
C. Each
outstanding Award under the Stock Issuance Program which is assumed in connection with a Change in Control or otherwise continued
in effect shall be adjusted immediately after the consummation of that Change in Control so as to apply to the number and class
of securities into which the shares of Common Stock subject to that Award immediately prior to the Change in Control would have
been converted in consummation of such Change in Control had those shares actually been outstanding at that time, and appropriate
adjustments shall also be made to the cash consideration (if any) payable per share thereunder, provided the aggregate amount
of such cash consideration shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may,
in connection with the assumption or continuation of the outstanding Awards, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
D. The
Plan Administrator shall have the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program
so that the shares of Common Stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in
part immediately upon the occurrence of a Change in Control or upon the subsequent termination of the Participant’s Service
by reason of an Involuntary Termination within a designated period following the effective date of that Change in Control transaction.
The Plan Administrator’s authority under this Section II.D shall also extend to any Awards under the Stock Issuance Program
which are intended to qualify as performance-based compensation under Code Section 162(m), even though the actual vesting of those
Awards pursuant to this Section II.D may result in their loss of performance-based status under Code Section 162(m).
article
Four
INCENTIVE
BONUS PROGRAM
The Plan Administrator
shall have full power and authority to implement one or more of the following incentive bonus programs under the Plan:
(i) cash
bonus awards (“Cash Awards”),
(ii) performance
unit awards (“Performance Unit Awards”), and
(iii) dividend
equivalent rights (“DER Awards”)
A. Cash
Awards. The Plan Administrator shall have the discretionary authority under the Plan to make Cash Awards which are to vest
in one or more installments over the Participant’s continued Service with the Corporation or upon the attainment of specified
performance objectives. Each such Cash Award shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided however, that each such document shall comply with the terms specified below.
1. The
elements of the vesting schedule applicable to each Cash Award shall be determined by the Plan Administrator and incorporated into
the Incentive Bonus Award Agreement.
2. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Cash
Awards so that those Awards shall vest upon the achievement of pre-established corporate performance objectives based upon one
or more Performance Goals measured over the performance period (not to exceed five (5) years) specified by the Plan Administrator
at the time of the Award.
3. Outstanding
Cash Awards shall automatically terminate, and no cash payment or other consideration shall be due the holders of those Awards,
if the performance objectives or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator
may in its discretion waive the cancellation and termination of one or more unvested Cash Awards which would otherwise occur upon
the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those Awards.
Any such waiver shall result in the immediate vesting of the Participant’s interest in the Cash Award as to which the waiver
applies. Such wavier may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment
or non-attainment of the applicable performance objectives. However, no vesting requirements tied to the attainment of Performance
Goals may be waived with respect to Awards which were intended, at the time those Awards were made, to qualify as performance-based
compensation under Code Section 162(m), except in the event of the Participant’s cessation of Service by reason of death
or Permanent Disability or as otherwise provided in Section II of this Article Four.
4. Cash
Awards which become due and payable following the attainment of the applicable performance objectives or satisfaction of the applicable
Service requirement (or the waiver of such goals or Service requirement) may be paid in (i) cash, (ii) shares of Common Stock valued
at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock as set forth in the applicable
Award Agreement.
B. Performance
Unit Awards. The Plan Administrator shall have the discretionary authority to make Performance Unit Awards in accordance
with the terms of this Article Four. Each such Performance Unit Award shall be evidenced by one or more documents in the form approved
by the Plan Administrator; provided however, that each such document shall comply with the terms specified below.
1. A
Performance Unit shall represent either (i) a unit with a dollar value tied to the level at which pre-established corporate performance
objectives based on one or more Performance Goals are attained or (ii) a participating interest in a special bonus pool tied to
the attainment of pre-established corporate performance objectives based on one or more Performance Goals. The amount of the bonus
pool may vary with the level at which the applicable performance objectives are attained, and the value of each Performance Unit
which becomes due and payable upon the attained level of performance shall be determined by dividing the amount of the resulting
bonus pool (if any) by the total number of Performance Units issued and outstanding at the completion of the applicable performance
period.
2. Performance
Units may also be structured to include a Service requirement which the Participant must satisfy following the completion of the
performance period in order to vest in the Performance Units awarded with respect to that performance period.
3. Performance
Units which become due and payable following the attainment of the applicable performance objectives and the satisfaction of any
applicable Service requirement may be paid in (i) cash, (ii) shares of Common Stock valued at Fair Market Value on the payment
date or (iii) a combination of cash and shares of Common Stock, as set forth in the applicable Award Agreement.
C. DER
Awards. The Plan Administrator shall have the discretionary authority to make DER Awards in accordance with the terms of
this Article Four. Each such DER Award shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided however, that each such document shall comply with the terms specified below.
1. The
DER Awards may be made as stand-alone awards or in tandem with other Awards made under the Plan. The term of each such DER Award
shall be established by the Plan Administrator at the time of grant, but no DER Award shall have a term in excess of seven (7)
years.
2. Each
DER shall represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities
or other property (other than shares of Common Stock), which is made per issued and outstanding share of Common Stock during the
term the DER remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to
whom a DER Award is made, and that account shall be credited per DER with each such dividend or distribution made per issued and
outstanding share of Common Stock during the term of that DER remains outstanding.
3. Payment
of the amounts credited to such book account may be made to the Participant either concurrently with the actual dividend or distribution
made per issued and outstanding share of Common Stock or may be deferred for a period specified by the Plan Administrator at the
time the DER Award is made or selected by the Participant in accordance with the requirements of Code Section 409A. In no event,
however, shall any DER Award made with respect to an Award subject to performance-vesting conditions under the Stock Issuance or
Incentive Bonus Program vest or become payable prior to the vesting of that Award (or the portion thereof to which the DER Award
relates) upon the attainment of the applicable performance goals and shall accordingly be subject to cancellation and forfeiture
to the same extent as the underlying Award in the event those performance conditions are not attained.
4. Payment
may be paid in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock, as set forth in
the applicable Award Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into
which the cash dividend or distribution amounts are to be converted for purposes of the Participant’s book account may be
based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an average of the Fair Market
Value per share of Common Stock over a designated period, as set forth in the applicable Award Agreement.
5. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more DER
Awards so that those Awards shall vest only after the achievement of pre-established corporate performance objectives based upon
one or more Performance Goals measured over the performance period (not to exceed five (5) years) specified by the Plan Administrator
at the time the Award is made.
A. The
Plan Administrator shall have the discretionary authority to structure one or more Awards under the Incentive Bonus Program so
that those Awards shall automatically vest in whole or in part immediately prior to the effective date of an actual Change in Control
transaction or upon the subsequent termination of the Participant’s Service by reason of an Involuntary Termination within
a designated period following the effective date of such Change in Control. To the extent any such Award is, at the time of such
Change in Control, subject to a performance-vesting condition tied to the attainment of one or more specified performance goals,
then that performance vesting condition shall automatically be cancelled on the effective date of such Change in Control, and such
Award shall thereupon be converted into a Service-vesting Award that will vest upon the completion of a Service period co-terminous
with the portion of the performance period ((and any subsequent Service vesting component that was originally part of that Award)
remaining at the time of the Change in Control.
B. The
Plan Administrator’s authority under Section II.A above shall also extend to any Award under the Incentive Bonus Program
intended to qualify as performance-based compensation under Code Section 162(m), even though the automatic vesting of that Award
may result in the loss of performance-based status under Code Section 162(m).
article
Five
AUTOMATIC GRANT PROGRAM
A. Grant
Dates. Grants shall be made pursuant to the Automatic Grant Program in effect under this Article Four as follows:
1. Each
individual who is first elected or appointed as a non-employee Board member at any time on or after the date of the 2006 Annual
Meeting shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase
not more than ten thousand (10,000) shares of Common Stock and restricted stock units covering not more than three thousand (3,000)
shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
The actual number of shares for which such initial option grant and restricted stock unit award shall be made shall (subject to
the respective ten thousand (10,000) and three thousand (3,000)-share limits) be determined by the Plan Administrator at the time
of each such grant.
2. On
the date of each annual shareholders meeting, beginning with the 2006 Annual Meeting, each individual who is to continue to serve
as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual
meeting, shall automatically be granted a Non-Statutory Option to purchase not more than three thousand (3,000) shares of common
stock and restricted stock units covering up to not more than an additional one thousand (1,000) shares of Common Stock, provided
that such individual has served as a non-employee Board member for a period of at least six (6) months. There shall be no limit
on the number of such option grants and restricted stock unit awards any one continuing non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or
any Parent or Subsidiary) shall be eligible to receive one or more such annual option grants and restricted stock unit awards over
their period of continued Board service. The actual number of shares for which such annual option grants and restricted stock unit
awards are made to each continuing non-employee Board member shall (subject to the respective three thousand (3,000) and one thousand
(1,000)-share limits) be determined by the Plan Administrator on or before the date of the annual shareholders meeting on which
those grants are to be made.
B. Exercise
Price.
1. The
exercise price per share for each option granted under this Article Four shall be equal to one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The
exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Grant Program. Except
to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
C. Option
Term. Each option granted under this Article Four shall have a maximum term of seven (7) years measured from the
option grant date, subject to earlier termination following the Optionee’s cessation of Service.
D. Exercise
and Vesting of Options. Each option granted under this Article Four shall be immediately exercisable for any or all
of the option shares. However, any unvested shares purchased under the option shall be subject to repurchase by the Corporation,
at the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at
the time of repurchase, upon the Optionee’s cessation of Service prior to vesting in those shares. The shares subject to
each initial ten thousand (10,000)-share-or-less grant shall vest, and the Corporation’s repurchase right shall lapse, in
four (4) successive equal annual installments upon the Optionee’s completion of each year of service as a non-employee Board
member over the four (4)-year period measured from the option grant date. The shares subject to each annual three thousand (3,000)-share-or-less
grant made to a non-employee Board member for his or her continued Board service shall vest, and the Corporation’s repurchase
right shall lapse, in one installment upon the earlier of (i) the Optionee’s completion of one (1)-year of
service as a non-employee Board member measured from the grant date or (ii) the Optionee’s continuation in such Board service
through the day immediately preceding the next annual shareholders meeting following such grant date.
E. Vesting
of Restricted Stock Units and Issuance of Shares. Each restricted stock unit award for up to three thousand (3,000) shares
shall vest in a series of four (4) successive equal annual installments upon the individual’s completion of each year of
service as a non-employee Board member over the four (4)-year period measured from the date that award is made. Each restricted
stock unit award for up to one thousand (1,000) shares shall vest in one installment upon the earlier of (i) the individual’s
completion of one (1)-year of service as a non-employee Board member measured from the date that award is made or (ii) the individual’s
continuation in such Board service through the day immediately preceding the next annual shareholders meeting following such grant
date. However, each restricted stock unit award held by an individual under the Automatic Grant Program will immediately vest in
full upon his or her cessation of Board service by reason of death or Permanent Disability. As the restricted stock units under
the Automatic Grant Program vest in one or more installments, the shares of Common Stock underlying those vested units shall be
promptly issued.
F. Limited
Transferability of Options. Each option under this Article Four may be assigned in whole or in part during the Optionee’s
lifetime to one or more of his or her Family Members or to a trust established exclusively for the Optionee and/or one or more
such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic
relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the options shall, in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall
take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s
death.
G. Termination
of Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee
ceases Service:
(i) The
Optionee (or, in the event of Optionee’s death while holding the option, the personal representative of the Optionee’s
estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance
or the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such
cessation of Service in which to exercise such option.
(ii) During
the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the Optionee’s cessation of Service. However, should the
Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for any or all of those shares as fully vested shares of Common Stock.
(iii) In
no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s
cessation of Service for any reason (other than cessation of Board service by reason of death or Permanent Disability), terminate
and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
A. In
the event of any Change in Control while the individual remains in Service, the following provisions shall apply:
(i) Should
a Change in Control occur prior to the Optionee’s cessation of Service, then the shares of Common Stock at the time subject
to each outstanding option held by such Optionee under this Automatic Grant Program but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable
for all the option shares as fully vested shares of Common Stock and may be exercised for any or all of those vested shares. Immediately
following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of
the Change in Control transaction.
(ii) The
shares of Common Stock which are at the time of such Change in Control subject to any outstanding restricted stock units awarded
to such individual under the Automatic Grant Program shall, immediately prior to the effective date of the Change in Control, vest
in full and be issued to such individual as soon as administratively practicable thereafter, but in no event later than fifteen (15)
business days.
B. All
outstanding repurchase rights under this Automatic Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of any Change in Control or Hostile Take-Over.
C. Each
option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the
Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate
adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding
Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption or continuation of the outstanding options under the Automatic Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.
The remaining terms of
each grant shall be the same as the terms in effect for option grants made under the Discretionary Grant Program, including the
prohibition on repricing contained in Section V of Article Two.
A. The
Compensation Committee shall have full power and authority to award, in lieu of one or more initial or annual automatic option
grants under this Article Four, unvested shares of Common Stock or restricted stock units which in each instance have an aggregate
Fair Market Value substantially equal to the grant-date fair value (as determined for financial reporting purposes in accordance
with FASB ASC Topic 781 or any successor standard) of the automatic option grant which such award replaces. Any such alternative
award shall be made at the same time the automatic option grant or restricted stock unit award which it replaces would have been
made, and the vesting provisions (including vesting acceleration) applicable to such award shall be substantially the same as in
effect for the automatic option grant or restricted stock unit award so replaced.
B. The
Compensation Committee shall also have full power and authority to implement a non-employee Board member retainer fee deferral
program under the Plan so as to allow the non-employee Board members the opportunity to elect, prior to the start of each calendar
year, to convert the Board retainer fees to be earned for such year into restricted stock units under the Stock Issuance Program
that will defer the issuance of the shares of Common Stock that vest under those restricted stock units until a permissible date
or event under Code Section 409A. If such program is implemented, the Compensation Committee shall have the authority to establish
such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible
distribution events under Code Section 409A.
article
Six
MISCELLANEOUS
A. The
Corporation’s obligation to deliver shares of Common Stock upon the issuance, exercise or vesting of an Award under the Plan
shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.
B. The
Plan Administrator may, in its discretion, structure one or more Awards so that shares of Common Stock may be used as follows to
satisfy all or part of the Withholding Taxes to which such holders of those Awards may become subject in connection with the issuance,
exercise, vesting or settlement of those Awards:
Stock Withholding:
The Corporation may be given the right to withhold, from the shares of Common Stock otherwise issuable upon the issuance, exercise,
vesting or settlement of such Award, a portion of those shares with an aggregate Fair Market Value equal to the applicable Withholding
Taxes. The shares of Common Stock so withheld shall reduce the number of shares of Common Stock authorized for issuance under the
Plan.
Stock Delivery:
The election to deliver to the Corporation, at the time of the issuance, exercise or vesting of the Award, one or more shares of
Common Stock previously acquired by such holder (other than in connection with the issuance exercise or vesting of the shares triggering
the Withholding Taxes) with an aggregate Fair Market Value at the time of delivery equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the individual. The shares of Common Stock so delivered shall not be added
to the shares of Common Stock authorized for issuance under the Plan.
Unvested shares may,
in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such
shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested
shares.
| III. | EFFECTIVE DATE AND TERM OF THE PLAN |
A. The
Plan became effective on the Plan Effective Date.
B. The
Plan serves as the successor to the Predecessor Plans, and no further option grants or stock issuances are to be made under the
Predecessor Plans. All options outstanding under the Predecessor Plans at the time of the 2006 Annual Meeting were transferred
to this Plan.
C. The
Plan was amended and restated on March 18, 2010 to (i) increase the number of shares of Common Stock authorized for issuance under
the Plan by an additional eight hundred eighty thousand (880,000) shares, (ii) increase, by the same number, the number of shares
of Common Stock that can be issued pursuant to Incentive Options granted under the Plan, (iii) add the Incentive Bonus Program
to the Plan and (iv) effect certain other technical changes to the Plan. The March 18, 2010 amendment and restatement is subject
to shareholder approval at the 2010 Annual Meeting. Should such shareholder approval not be obtained at the 2010 Annual Meeting,
then the authorized increases to the share reserve under the Plan and to the number of shares issuable pursuant to Incentive Options
and the addition of the Incentive Bonus Program to the Plan shall not be implemented, and any Awards granted on the basis of those
authorized share increases shall, in accordance with Section IV.C. below, terminate and cease to be outstanding.
D. The
Plan shall terminate upon the earliest to occur of (i) February 22, 2016, (ii) the date on which all shares available
for issuance under the Plan shall have been issued as fully vested shares or (iii) the termination of all outstanding Awards
in connection with a Change in Control. Should the Plan terminate on February 22, 2016, then all Awards outstanding at that time
shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards.
A. The
Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under
the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, amendments to the Plan
will be subject to shareholder approval to the extent required under applicable law or regulation or pursuant to the listing standards
of the Stock Exchange on which the Common Stock is at the time primarily traded, and no amendment that would reduce or limit the
scope of the prohibition on repricing programs set forth in Section V of Article Two or otherwise eliminated such prohibition shall
be effective unless approved by the shareholders.
B. The
Compensation Committee of the Board shall have the discretionary authority to adopt and implement from time to time such addenda
or subplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations
of any foreign jurisdictions in which grants or awards are to be made under the Plan and/or to obtain favorable tax treatment in
those foreign jurisdictions for the individuals to whom the grants or awards are made.
C. Awards
may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under
the Plan, provided no shares shall actually be issued pursuant to those Awards until the number of shares of Common Stock available
for issuance under the Plan is sufficiently increased by shareholder approval of an amendment of the Plan authorizing such increase.
If shareholder approval is required and is not obtained within twelve (12) months after the date the first excess Award is made,
then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding.
D. The
provisions of the Plan and the outstanding Awards under the Plan shall, in the event of any ambiguity, be construed, applied and
interpreted in a manner so as to ensure that all Awards and Award Agreements provided to Optionees or Participants who are subject
to U.S. income taxation either qualify for an exemption from the requirements of Section 409A of the Code or comply with those
requirements; provided, however, that the Corporation shall not make any representations that any Awards made under the Plan will
in fact be exempt from the requirements of Section 409A of the Code or otherwise comply with those requirements, and each Optionee
and Participant shall accordingly be solely responsible for any taxes, penalties or other amounts which may become payable with
respect to his or her Awards by reason of Section 409A of the Code.
Any cash proceeds received
by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
A. The
implementation of the Plan, the grant of any Award and the issuance of shares of Common Stock in connection with the issuance,
exercise or vesting of any Award made under the Plan shall be subject to the Corporation’s procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of
Common Stock issuable pursuant to those Awards.
B. No
shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any Stock Exchange
on which Common Stock is then listed for trading.
| VII. | NO EMPLOYMENT/SERVICE RIGHTS |
Nothing in the Plan shall
confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service
at any time for any reason, with or without cause.
APPENDIX
The following definitions
shall be in effect under the Plan:
A. Annual
Meeting shall mean the annual meeting of the Corporation’s shareholders.
B. Automatic
Grant Program shall mean the automatic option grant program in effect under Article Four of the Plan.
C. Award
shall mean any of the following awards authorized for issuance or grant under the Plan: stock options, stock appreciation rights,
direct stock issuances, restricted stock or restricted stock unit awards, performance shares, performance units, dividend-equivalent
rights and cash incentive awards.
D. Board
shall mean the Corporation’s Board of Directors.
E. Change
in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i) the
closing of a merger, consolidation or other reorganization approved by the Corporation’s shareholders, unless securities
representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation
are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons
who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,
(ii) the
closing of a shareholder-approved sale, transfer or other disposition (including in whole or in part through one or more licensing
arrangements) of all or substantially all of the Corporation’s assets,
(iii) the
closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a
“group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior
to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control
with, the Corporation) acquires directly or indirectly beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total
combined voting power of the Corporation’s securities (as measured in terms of the power to vote with respect to the election
of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether
such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more
of the Corporation’s existing shareholders, or
(iv) a
change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination,
F. Code
shall mean the Internal Revenue Code of 1986, as amended.
G. Common
Stock shall mean the Corporation’s common stock.
H. Compensation
Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members.
I. Corporation
shall mean American Shared Hospital Services, a California corporation, and any corporate successor to all or substantially
all of the assets or voting stock of American Shared Hospital Services which has by appropriate action assumed the Plan.
J. Discretionary
Grant Program shall mean the discretionary grant program in effect under Article Two of the Plan pursuant to which stock
options and stock appreciation rights may be granted to one or more eligible individuals.
K. Eligible
Director shall mean a non-employee Board member eligible to participate in the Automatic Grant Program in accordance with
the eligibility provisions of Articles One and Four.
L. Employee
shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and
method of performance.
M. Exercise
Date shall mean the date on which the Corporation shall have received written notice of the option exercise.
N. Fair
Market Value per share of Common Stock on any relevant date shall be the closing selling price per share of Common Stock
at the close of regular trading hours (i.e., before after-hours trading begins) on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such price is reported by the National Association
of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite
tape of transactions on any other Stock Exchange on which the Company’s common stock is then primarily traded. If there is
no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
O. Family
Member means, with respect to a particular Optionee or Participant, any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law.
P. Full
Value Award means any of the following Awards made under the Stock Issuance, Incentive Bonus or Automatic Grant Programs
that are settled in shares of Common Stock: restricted stock awards (unless issued for cash consideration equal to the Fair Market
Value of the shares of Common Stock on the award date), restricted stock unit awards, performance shares, performance units, cash
incentive awards and any other Awards under the Plan other than (i) stock options and stock appreciation rights issued under the
Discretionary Grant Program, (ii) stock options issued under the Automatic Grant Program and (iii) dividend equivalent rights under
the Incentive Bonus Program.
Q. Incentive
Bonus Program shall mean the incentive bonus program in effect under Article Four of the Plan.
R. Incentive
Option shall mean an option which satisfies the requirements of Code Section 422.
S. Involuntary
Termination shall mean the termination of the Service of any individual which occurs by reason of:
(i) such
individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct,
or
(ii) such
individual’s voluntary resignation following (A) a change in his or her position with the Corporation (or any Parent or Subsidiary)
which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction
in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment
by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation (or
any Parent or Subsidiary) without the individual’s consent.
T. Misconduct
shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation
(or any Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes
of the Plan, to constitute grounds for termination for Misconduct.
U. 1934
Act shall mean the Securities Exchange Act of 1934, as amended.
V. Non-Statutory
Option shall mean an option not intended to satisfy the requirements of Code Section 422.
W. Optionee
shall mean any person to whom an option is granted under the Discretionary Grant or Automatic Grant Program.
X. Parent
shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Y. Participant
shall mean any person who is issued (i) shares of Common Stock, restricted stock units, performance shares, performance units
or other stock-based awards under the Stock Issuance Program or (ii) an incentive bonus award under the Incentive Bonus Program.
Z. Performance
Goals shall mean any of the following performance criteria upon which the vesting of one or more Awards under the Plan
may be based: (1) return on total shareholder equity; (2) earnings per share of Common Stock; (3) net income or operating income
(before or after taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) earnings before interest, taxes,
depreciation, amortization and charges for stock-based compensation, (6) sales or revenue targets; (7) return on assets, capital
or investment; (8) cash flow; (9) market share; (10) cost reduction goals; (11) budget comparisons; (12) measures of customer satisfaction;
(13) any combination of, or a specified increase in, any of the foregoing; (14) new product development or successful completion
of research and development projects; and (15) the formation of joint ventures, research or development collaborations, or the
completion of other corporate transactions intended to enhance the Corporation’s revenue or profitability or enhance its
customer base. In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s
performance under one or more of the measures described above relative to the performance of other entities and may also be based
on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Performance goals
may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified
portions of an award will be earned and a maximum level of performance at which an award will be fully earned. Each applicable
performance goal may be structured at the time of the Award to provide for appropriate adjustments or exclusions for one or more
of the following items: (A) asset impairments or write-downs; (B) litigation or governmental investigation expenses and
any judgments, verdicts and settlements in connection therewith; (C) the effect of changes in tax law, accounting principles
or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) any
extraordinary or nonrecurring items; (F) items of income, gain, loss or expense attributable to the operations of any business
acquired by the Corporation or costs and expenses incurred in connection with mergers and acquisitions; (G) items of income, gain,
loss or expense attributable to one or more business operations divested by the Corporation or the gain or loss realized upon the
sale of any such business the assets thereof, (H) accruals for bonus or incentive compensation costs and expenses associated with
cash-based awards made under the Plan or other bonus or incentive compensation plans of the Corporation, and (I) the impact of
foreign currency fluctuations or changes in exchange rates.
AA. Permanent
Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Grant Program, Permanent Disability
or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
BB. Plan
shall mean the Corporation’s Incentive Compensation Plan (formerly known as the 2006 Stock Incentive Plan), as set forth
in this document and as subsequently amended or restated from time to time.
CC. Plan
Administrator shall mean the particular entity, whether the Compensation Committee, the Board or the Secondary Board Committee,
which is authorized to administer the Discretionary Grant, Stock Issuance and Incentive Bonus Programs with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
DD. Plan
Effective Date shall mean the date of the 2006 Annual Meeting at which the Plan was approved by the shareholders.
EE. Predecessor
Plans shall mean (i) the Corporation’s 2001 Stock Option Plan and (ii) the Corporation’s 1995 Stock Option
Plan, as each such Plan is in effect immediately prior to the 2006 Annual Meeting.
FF. Secondary
Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary
Grant, Stock Issuance and Incentive Bonus Programs with respect to eligible persons other than Section 16 Insiders.
GG. Section
16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
HH. Service
shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. For
purposes of the Plan, an Optionee or Participant shall be deemed to cease Service immediately upon the occurrence of the either
of the following events: (i) the Optionee or Participant no longer performs services in any of the foregoing capacities for the
Corporation or any Parent or Subsidiary or (ii) the entity for which the Optionee or Participant is performing such services ceases
to remain a Parent or Subsidiary of the Corporation, even though the Optionee or Participant may subsequently continue to perform
services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal
leave approved by the Corporation; provided, however, that should such leave of absence exceed three (3) months, then for
purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the Optionee’s
Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Optionee
is provided with the right to return to Service following such leave either by statute or by written contract. Except to the extent
otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves
of absence, no Service credit shall be given for vesting purposes for any period the Optionee or Participant is on a leave of absence.
II. Stock
Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.
JJ. Stock
Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance
of shares of Common Stock under the Stock Issuance Program.
KK. Stock
Issuance Program shall mean the stock issuance program in effect under Article Three of the Plan.
LL. Subsidiary
shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such
chain.
MM. 10%
Shareholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
NN. 2010
Annual Meeting shall mean the 2010 annual meeting of the Corporation’s shareholders.
OO. Withholding
Taxes shall mean the applicable federal and state income and employment withholding taxes to which the holder of an Award
under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award.
Exhibit 10.3
AMERICAN SHARED HOSPITAL SERVICES
INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED EFFECTIVE APRIL 16, 2015
article
One
GENERAL PROVISIONS
This Incentive Compensation
Plan is intended to promote the interests of American Shared Hospital Services, a California corporation, by providing eligible
persons in the Corporation’s service with the opportunity to participate in one or more cash or equity incentive compensation
programs designed to encourage them to continue their service relationship with the Corporation.
Capitalized terms shall
have the meanings assigned to such terms in the attached Appendix.
A. The
Plan shall be divided into four separate equity incentive programs:
- the
Discretionary Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock or stock appreciation rights tied to the value of such Common Stock,
- the
Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common
Stock pursuant to restricted stock awards, restricted stock units or other stock-based awards which vest upon the completion of
a designated service period or the attainment of pre-established performance milestones, or such shares of Common Stock may be
issued through direct purchase or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the
Incentive Bonus Program under which eligible persons may, at the discretion of the Plan Administrator, be provided with incentive
bonus opportunities through performance unit awards and special cash incentive programs tied to the attainment of pre-established
performance milestones, and
- the Automatic Grant Program under which eligible non-employee
Board members will automatically receive grants at designated intervals over their period of continued Board service.
B. The
provisions of Articles One and Six shall apply to all incentive compensation programs under the Plan and shall govern the interests
of all persons under the Plan.
| III. | ADMINISTRATION OF THE PLAN |
A. The
Compensation Committee shall have sole and exclusive authority to administer the Discretionary Grant, Stock Issuance and Incentive
Bonus Programs with respect to Section 16 Insiders. Administration of the Discretionary Grant, Stock Issuance and Incentive Bonus
Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested
in the Compensation Committee or a Secondary Board Committee, or the Board may retain the power to administer those programs with
respect to all such persons. However, any Awards made to the members of the Compensation Committee other than pursuant to the Automatic
Grant Program must be authorized by a disinterested majority of the Board.
B. Members
of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee
and reassume all powers and authority previously delegated to such committee.
C. Each
Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of
the Discretionary Grant, Stock Issuance and Incentive Bonus Programs and to make such determinations under, and issue such interpretations
of, the provisions of those programs and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of
the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties
who have an interest in the Discretionary Grant, Stock Issuance and Incentive Bonus Programs under its jurisdiction or any Award
thereunder.
D. Service
as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service
as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement
as Board members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee
shall be liable for any act or omission made in good faith with respect to the Plan or any Award made thereunder.
E. Administration
of the Automatic Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator
shall exercise any discretionary functions with respect to any Award made under that program, except that the Compensation Committee
shall have the express authority to establish from time to time the specific number of shares to be subject to the initial and
annual Awards made to the non-employee Board members under such program.
A. The
persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee
members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants
and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. The
Plan Administrator shall have full authority to determine, (i) with respect to Awards made under the Discretionary Grant Program,
which eligible persons are to receive such Awards, the time or times when those Awards are to be made, the number of shares to
be covered by each such Award, the time or times when the Award is to vest and become exercisable, the maximum term for which such
Award is to remain outstanding and the status of a granted option as either an Incentive Option or a Non-Statutory Option, (ii)
with respect to Awards made under the Stock Issuance Program, which eligible persons are to receive such Awards, the time or times
when the Awards are to be made, the number of shares subject to each such Award, the vesting and issuance schedules applicable
to the shares which are the subject of such Award and the cash consideration (if any) payable for those shares, and (iii) with
respect to Awards under the Incentive Bonus Program, which eligible persons are to receive such Awards, the time or times when
the Awards are to be made, the performance objectives for each such Award, the amounts payable at designated levels of attained
performance, any applicable service vesting requirements, the payout schedule for each such Award and the form (cash or shares
of Common Stock) in which the Award is to be settled.
C. The
Plan Administrator shall have the absolute discretion to grant options or stock appreciation rights in accordance with the Discretionary
Grant Program, to effect stock issuances and other stock-based awards in accordance with the Stock Issuance Program and to grant
incentive bonus awards in accordance with the Incentive Bonus Program.
D. The
individuals who shall be eligible to participate in the Automatic Grant Program shall be limited to (i) those individuals who first
become non-employee Board members on or after the Plan Effective Date, whether through appointment by the Board or election by
the Corporation’s shareholders, and (ii) those individuals who continue to serve as non-employee Board members on or after
the Plan Effective Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an Award under the Automatic Grant Program at the time he or she first becomes a non-employee
Board member, but shall be eligible to receive periodic Awards under the Automatic Grant Program while he or she continues to serve
as a non-employee Board member.
| V. | STOCK SUBJECT TO THE PLAN |
A. The
stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock reserved for issuance over the term of the Plan shall
be limited to one million six hundred thirty thousand (1,630,000) shares. Such share reserve is comprised of (i) the initial reserve
of seven hundred fifty thousand (750,000) shares of Common Stock authorized under the Plan and (ii) an increase of an additional
eight hundred eighty thousand (880,000) shares of Common Stock authorized by the Board on March 18, 2010 and approved by the stockholders
at the 2010 Annual Meeting.
B. The
number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section V.A of this Article One shall
be reduced: (i) on a one-for-one basis for each share of Common Stock subject to an Award made under the Discretionary Grant Program
or subject to a stock option grant made under the Automatic Grant Program, (ii) on a one-for-one basis for each share of Common
Stock issued pursuant to a Full Value Award made under the Stock Issuance, Incentive Bonus and Automatic Grant Programs prior to
March 18, 2010 and (iii) by a fixed ratio of 1.59 shares of Common Stock for each share of Common Stock issued pursuant to a Full
Value Award made under the Stock Issuance, Incentive Bonus and Automatic Grant Programs on or after March 18, 2010.
C. The
Plan serves as the successor to the Predecessor Plans, and no further stock option grants or stock issuances are to be made under
those Predecessor Plans on or after the Plan Effective Date. All options outstanding under the Predecessor Plans on the Plan Effective
Date were transferred to this Plan as part of the initial share reserve hereunder and shall continue in full force and effect in
accordance with their terms, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of those options with respect to their acquisition of shares of Common Stock thereunder. To the extent any options
outstanding under the Predecessor Plans on the Plan Effective Date expire or terminate unexercised, the number of shares of Common
Stock subject to those expired or terminated options at the time of expiration or termination shall be available for one or more
Awards made under this Plan.
D. The
maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under Plan shall not exceed one
million six hundred thirty thousand (1,630,000) shares.
E. Each
person participating in the Plan shall be subject the following limitations:
- for
Awards denominated in terms of shares of Common Stock (whether payable in Common Stock, cash or a combination of both), the maximum
number of shares of Common Stock for which such Awards may be made to such person in any calendar year shall not exceed One Hundred
Fifty Thousand (150,000) shares of Common Stock in the aggregate; provided, however, that for the calendar year in which such person
first commences Service, the foregoing limitation shall be increased to Two Hundred Thousand (200,000) shares, and
- for
Awards denominated in terms of cash (whether payable in cash, Common Stock or a combination of both) and subject to one or more
performance-vesting conditions, the maximum dollar amount for which such Awards may be made to such person in any calendar year
shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000.00) for each calendar year within the applicable performance
measurement period, with any such performance period not to exceed five (5) years and with pro-ration based on the foregoing dollar
amount in the event of any fractional calendar year included within such performance period.
F. Shares
of Common Stock subject to outstanding Awards made under the Plan (including the options transferred from the Predecessor Plans)
shall be available for subsequent issuance under the Plan to the extent those Awards expire or terminate for any reason prior to
the issuance of the shares of Common Stock subject to those Awards. Such shares shall be added back to the number of shares of
Common Stock reserved for award and issuance under the Plan as follows:
(i) for
each share of Common Stock subject to such an expired, forfeited, cancelled or terminated Award made under the Discretionary Grant
Program (including the options transferred from the Predecessor Plans) or subject to an option grant made under the Automatic Grant
Program, one share of Common Stock shall become available for subsequent award and issuance under the Plan,
(ii) for
each share of Common Stock subject to a forfeited or cancelled Full Value Award made under the Stock Issuance, Automatic Grant
or Incentive Bonus Program prior to March 18, 2010, one share shall become available for subsequent award and issuance,
(iii) for
each share of Common Stock subject to a forfeited or cancelled Full Value Award made under the Stock Issuance, Automatic Grant
or Incentive Bonus Program on or after March 18, 2010, 1.59 shares shall become available for subsequent award and issuance, and
(iv) for
each unvested share of Common Stock issued under the Discretionary Grant or Stock Issuance Program for cash consideration not less
than the Fair Market Value per share of Common Stock on the Award date and subsequently repurchased by the Corporation, at a price
per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rights under
the Plan, one share shall become available for subsequent award and issuance under the Plan.
G. Should
the exercise price of an option under the Plan be paid with shares of Common Stock, then the authorized reserve of Common Stock
under the Plan shall be reduced by the gross number of shares for which that option is exercised, and not by the net number of
shares issued under the exercised stock option. If shares of Common Stock otherwise issuable under the Plan are withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with the issuance, exercise or vesting of an Award,
then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares
issued, exercised or vesting under such Award, calculated in each instance prior to any such share withholding.
H. If
any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange
of shares, spin-off transaction or other change affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, or should the value of outstanding shares of Company Stock be substantially reduced as a result of a
spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization
(including, without limitation, a Change in Control transaction), then equitable adjustments shall be made by the Plan Administrator
to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities
for which any one person may receive Common Stock-denominated Awards under the Plan per calendar year, (iii) the maximum number
and/or class of securities that may be issued pursuant to Incentive Options granted under the Plan, (iv) the maximum number and/or
class of securities for which stock option grants and restricted stock unit awards may subsequently be made under the Automatic
Grant Program to new and continuing non-employee Board members, (v) the number and/or class of securities and the exercise or base
price per share in effect under each outstanding Award under the Discretionary Grant and Automatic Grant Programs, (vi) the number
and/or class of securities subject to each outstanding Award under the Stock Issuance and Automatic Grant Programs and the cash
consideration (if any) payable per share, (vii) the number and/or class of securities subject to each outstanding Award under the
Incentive Bonus Program denominated in shares of Common Stock and (viii) the number and/or class of securities subject to the Corporation’s
outstanding repurchase rights under the Plan and the repurchase price payable per share. The adjustments shall be made in such
manner as the Plan Administrator deems appropriate, and such adjustments shall be final, binding and conclusive.
I. Outstanding
Awards under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business
or assets.
| VI. | PROHIBITION ON REPRICING PROGRAMS |
Except in connection
with a corporate transaction involving the Corporation (including, without limitation, any stock dividend, distribution (whether
in the form of cash, shares of Common Stock, other securities, or other property), stock split, extraordinary cash dividend, recapitalization,
change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of
Common Stock or other securities, or similar transactions), the Corporation may not, without obtaining stockholder approval: (i)
amend the terms of outstanding options or stock appreciation rights to reduce the exercise price of such outstanding options or
base price of such stock appreciation rights; (ii) cancel outstanding options or stock appreciation rights in exchange for options
or stock appreciation rights with an exercise price or base price, as applicable, that is less than the exercise price or base
price of the original options or stock appreciation rights; or (iii) cancel outstanding options or stock appreciation rights with
an exercise price or base price, as applicable, above the current stock price in exchange for cash or other securities. This Section
VI is intended to govern the repricing or exchange of “underwater” options and stock appreciation rights and shall
not be construed to prohibit the adjustments provided for in Article One, Section V.H of this Plan.
article
Two
DISCRETIONARY GRANT PROGRAM
Each option shall be
evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
1. The
exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date.
2. The
exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents evidencing
the option, be payable in one or more of the forms specified below:
(i) cash
or check made payable to the Corporation,
(ii) shares
of Common Stock valued at Fair Market Value on the Exercise Date and held for the requisite period (if any) necessary to avoid
any additional charges to the Corporation’s earnings for financial reporting purposes,
(iii) shares
of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with
such withheld shares to be valued at Fair Market Value on the exercise date, or
(iv) to
the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering
such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm on such settlement date in order to complete the sale.
Except to the extent
such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise
Date.
B. Exercise
and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option
shall have a term in excess of seven (7) years measured from the grant date.
| C. | Effect of Termination of Service. |
1. The
following provisions shall govern the exercise of any options granted pursuant to the Discretionary Grant Program that are outstanding
at the time of the Optionee’s cessation of Service or death:
(i) Any
option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period
of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no
such option shall be exercisable after the expiration of the option term.
(ii) Any
option held by the Optionee at the time of the Optionee’s death and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or the laws of inheritance or by the Optionee’s designated beneficiary or beneficiaries
of that option.
(iii) Should
the Optionee’s Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one
or more outstanding options granted under this Article Two, then all of those options shall terminate immediately and cease to
be outstanding.
(iv) During
the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which
the option is at the time exercisable. No additional shares shall vest under the option following the Optionee’s cessation
of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to
an express written agreement with the Optionee. Upon the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not
been exercised.
2. The
Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend
the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term,
(ii) include
an automatic extension provision whereby the specified post-Service exercise period in effect for any option granted under this
Article Two shall automatically be extended by an additional period of time equal in duration to any interval within the specified
post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option
could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension
result in the continuation of such option beyond the expiration date of the term of that option, and/or
(iii) permit
the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares
of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect
to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D. Shareholder
Rights. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E. Repurchase
Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while such shares are unvested, the Corporation shall have the right to repurchase
any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share
or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
F. Transferability
of Options. The transferability of options granted under the Plan shall be governed by the following provisions:
(i) Incentive
Options: During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or the laws of inheritance following the Optionee’s death.
(ii) Non-Statutory
Options. Non-Statutory Options shall be subject to the same limitation on transfer as Incentive Options, except that the
Plan Administrator may structure one or more Non-Statutory Options so that the option may be assigned in whole or in part during
the Optionee’s lifetime to one or more Family Members of the Optionee or to a trust established exclusively for the Optionee
and/or one or more such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
(iii) Beneficiary
Designations. Notwithstanding the foregoing, the Optionee may designate one or more persons as the beneficiary or beneficiaries
of his or her outstanding options under this Article Two (whether Incentive Options or Non-Statutory Options), and those options
shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s
death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms
and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited
time period during which the option may be exercised following the Optionee’s death.
The terms specified below
shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility.
Incentive Options may only be granted to Employees.
B. Dollar
Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates
of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or
any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).
To the extent the Employee
holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of
the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed to become first
exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise
provided under applicable law or regulation.
C. 10%
Shareholder. If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share
shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date,
and the option term shall not exceed five (5) years measured from the option grant date.
| III. | STOCK APPRECIATION RIGHTS |
A. Authority.
The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights
in accordance with this Section III to selected Optionees or other individuals eligible to receive option grants under the Discretionary
Grant Program.
B. Types.
Two types of stock appreciation rights shall be authorized for issuance under this Section III: (i) tandem stock appreciation rights
(“Tandem Rights”) and (ii) stand-alone stock appreciation rights (“Stand-alone Rights”).
C. Tandem
Rights. The following terms and conditions shall govern the grant and exercise of Tandem Rights.
1. One
or more Optionees may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
2. No
such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall accordingly
become entitled under this Section III shall be made in shares of Common Stock valued at Fair Market Value on the option surrender
date.
3. If
the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day
on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event
may such rights be exercised more than seven (7) years after the date of the option grant.
D. Stand-Alone
Rights. The following terms and conditions shall govern the grant and exercise of Stand-alone Rights:
1. One
or more individuals eligible to participate in the Discretionary Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Grant Program. The Stand-alone Right shall relate to a specified number of shares of
Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish. In no event, however,
may the Stand-alone Right have a maximum term in excess of seven (7) years measured from the grant date. Upon exercise of the Stand-alone
Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the
aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the
aggregate base price in effect for those shares.
2. The
number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined
by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base
price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date. In the event outstanding
Stand-alone Rights are to be assumed in connection with a Change in Control transaction or otherwise continued in effect, the shares
of Common Stock underlying each such Stand-alone Right shall be adjusted immediately after such Change in Control so as to apply
to the number and class of securities into which those shares of Common Stock would have been converted in consummation of such
Change in Control had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control
shall also be made to the base price per share in effect under each outstanding Stand-alone Right, provided the aggregate
base price shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding Stand-alone Rights under the Discretionary Grant Program, substitute, for
the securities underlying those assumed rights, one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in the Change in Control transaction.
3. Stand-alone
Rights shall be subject to the same transferability restrictions applicable to Non-Statutory Options and may not be transferred
during the holder’s lifetime, except if such assignment is in connection with the holder’s estate plan and is to one
or more Family Members of the holder or to a trust established for the holder and/or one or more such Family Members or pursuant
to a domestic relations order covering the Stand-alone Right as marital property. In addition, one or more beneficiaries may be
designated for an outstanding Stand-alone Right in accordance with substantially the same terms and provisions as set forth in
Section I.F of this Article Two.
4. The
distribution with respect to an exercised Stand-alone Right shall be made in shares of Common Stock valued at Fair Market Value
on the exercise date.
5. The
holder of a Stand-alone Right shall have no shareholder rights with respect to the shares subject to the Stand-alone Right unless
and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued
upon the exercise of such Stand-alone Right.
E. Post-Service
Exercise. The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the recipient’s
Service shall be substantially the same as those set forth in Section I.C of this Article Two for the options granted under the
Discretionary Grant Program, and the Plan Administrator’s discretionary authority under Section I.C.2 of this Article Two
shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights.
F. Gross
Counting. Upon the exercise of any Tandem or Stand-alone Right under this Section III, the share reserve under Section
V of Article One shall be reduced by the gross number of shares as to which such right is exercised, and not by the net number
of shares actually issued by the Corporation upon such exercise.
A. In
the event of a Change in Control, each outstanding Award under the Discretionary Grant Program shall automatically accelerate so
that each such Award shall, immediately prior to the effective date of that Change in Control, become exercisable as to all the
shares of Common Stock at the time subject to such Award and may be exercised as to any or all of those shares as fully vested
shares of Common Stock. However, an outstanding Award under the Discretionary Grant Program shall not become exercisable
on such an accelerated basis if and to the extent: (i) such Award is to be assumed by the successor corporation (or parent thereof)
or is otherwise to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such Award
is to be replaced with a cash retention program of the successor corporation which preserves the spread existing at the time of
the Change in Control on any shares as to which the Award is not otherwise at that time vested and exercisable and provides for
the subsequent vesting and concurrent payout of that spread in accordance with the same exercise/vesting schedule in effect for
that Award, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation
subject to Code Section 409A or (iii) the acceleration of such Award is subject to other limitations imposed by the Plan Administrator.
Notwithstanding the foregoing, any Award outstanding under the Discretionary Grant Program on the date of such Change in Control
shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, if the Fair
Market Value per share of Common Stock on the date of such Change in Control (or any earlier date specified in the definitive agreement
for the Change in Control transaction) is less than the per share exercise or base price in effect for such Award.
B. All
outstanding repurchase rights under the Discretionary Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of a Change in Control, except to the extent: (i)
those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise to continue in full
force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator.
C. Immediately
following the consummation of the Change in Control, all outstanding Awards under the Discretionary Grant Program shall terminate
and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control transaction.
D. Each
Award under the Discretionary Grant Program which is assumed in connection with a Change in Control or otherwise continued in effect
shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Change in Control had the Award been exercised immediately prior
to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to the exercise price payable
per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain
the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation
of the outstanding options under the Discretionary Grant Program, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
E. The
Plan Administrator shall have the discretionary authority to structure one or more outstanding Awards rights under the Discretionary
Grant Program so that those Awards shall, immediately prior to the effective date of a Change in Control, become exercisable as
to all the shares of Common Stock at the time subject to those Awards and may be exercised as to any or all of those shares as
fully vested shares of Common Stock, whether or not those Awards are to be assumed in the Change in Control transaction or otherwise
continued in effect. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the
Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall immediately terminate upon
the consummation of the Change in Control transaction, and the shares subject to those terminated rights shall thereupon vest in
full.
F. The
Plan Administrator shall have full power and authority to structure one or more outstanding Awards under the Discretionary Grant
Program so that those Awards shall become exercisable as to all the shares of Common Stock at the time subject to those Awards
in the event the Optionee’s Service is subsequently terminated by reason of an Involuntary Termination within a designated
period following the effective date of any Change in Control transaction in which those Awards do not otherwise fully accelerate.
In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights
shall immediately terminate with respect to any shares held by the Optionee at the time of such Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in full at that time.
G. The
portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-statutory Option under the Federal
tax laws.
article
Three
STOCK ISSUANCE PROGRAM
Shares of Common Stock
may be issued under the Stock Issuance Program, either as vested or unvested shares, through direct and immediate issuances. Each
such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common
Stock may also be issued under the Stock Issuance Program pursuant to restricted stock units or performance shares which entitle
the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals or the satisfaction
of specified Service requirements or upon the expiration of a designated time period following the vesting of those awards or units.
1. The
issue price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Shares
of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:
(i) cash
or check made payable to the Corporation,
(ii) past
services rendered to the Corporation (or any Parent or Subsidiary); or
(iii) any
other valid consideration under the California Corporation Code.
1. Shares
of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon the attainment
of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.
Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to restricted stock units or performance shares
which entitle the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals
or the satisfaction of specified Service requirements or upon the expiration of a designated time period following the vesting
of those Awards, including (without limitation) a deferred distribution date following the termination of the Participant’s
Service.
2. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Awards
under the Stock Issuance Program so that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable)
upon the achievement of certain pre-established corporate performance objectives based on one or more Performance Goals and measured
over the performance period (not to exceed five (5) years) specified by the Plan Administrator at the time of the Award.
3. Any
new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason
of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary
dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt
of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
4. The
Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any dividends paid on such shares, subject to any applicable vesting requirements,
including (without limitation) the requirement that any dividends paid on shares subject to performance-vesting conditions shall
be held in escrow by the Corporation and shall not vest or actually be paid to the Award holder prior to the time those shares
vest. The Participant shall not have any shareholder rights with respect to the shares of Common Stock subject to a restricted
stock unit or share right award until that award vests and the shares of Common Stock are actually issued thereunder. However,
dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding
Awards of performance share or restricted stock units, subject to such terms and conditions as the Plan Administrator may deem
appropriate. In no event, however, shall dividends or dividend-equivalent units relating to Awards subject to performance-vesting
conditions vest or otherwise become payable prior to the time the underlying Award (or portion thereof to which such dividends
or dividend-equivalents units relate) vests upon the attainment of the applicable performance goals and shall accordingly be subject
to cancellation and forfeiture to the same extent as the underlying Award in the event those performance conditions are not attained.
5. Should
the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock,
then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further
shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent, the Corporation shall repay to the Participant the lower of (i)
the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation.
6. The
Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares
of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable performance objectives. However, no vesting requirements
tied to the attainment of Performance Goals may be waived with respect to Awards which were intended at the time of grant to qualify
as performance-based compensation under Code Section 162(m), except in the event of the Participant’s cessation of Service
by reason of death or Permanent Disability or as otherwise provided in Section II of this Article Three.
7. Outstanding
Awards of restricted stock units or performance shares under the Stock Issuance Program shall automatically terminate, and no shares
of Common Stock shall actually be issued in satisfaction of those Awards, if the performance goals or Service requirements established
for such Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to issue
vested shares of Common Stock under one or more outstanding Awards of restricted stock units or performance shares as to which
the designated performance goals or Service requirements have not been attained or satisfied. However, no vesting requirements
tied to the attainment of Performance Goals may be waived with respect to Awards which were intended, at the time those Awards
were made, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s
cessation of Service by reason of death or Permanent Disability or as otherwise provided in Section II of this Article Three.
8. The
following additional requirements shall be in effect for any performance shares awarded under this Article Three:
(i) At
the end of the performance period, the Plan Administrator shall determine the actual level of attainment for each performance objective
and the extent to which the performance shares awarded for that period are to vest and become payable based on the attained performance
levels.
(ii) The
performance shares which so vest shall be paid as soon as practicable following the end of the performance period, unless such
payment is to be deferred for the period specified by the Plan Administrator at the time the performance shares are awarded or
the period selected by the Participant in accordance with the applicable requirements of Code Section 409A.
(iii) Performance
shares may be paid in (i) cash, (ii) shares of Common Stock or (iii) any combination of cash and shares of Common Stock, as set
forth in the applicable Award Agreement.
(iv) Performance
shares may also be structured so that the shares are convertible into shares of Common Stock, but the rate at which each performance
share is to so convert shall be based on the attained level of performance for each applicable performance objective.
A. Each
Award outstanding under the Stock Issuance Program on the effective date of an actual Change in Control transaction may be (i)
assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms
of the Change in Control transaction or (ii) replaced with a cash incentive program of the successor corporation which preserves
the Fair Market Value of the underlying shares of Common Stock at the time of the Change in Control and provides for the subsequent
vesting and payment of that value in accordance with the same vesting schedule in effect for those shares at the time of such Change
in Control. If any such Award is subject to a performance-vesting condition tied to the attainment of one or more specified performance
goals, then upon the assumption, continuation or replacement of that Award, the performance vesting condition shall automatically
be cancelled, and such Award shall thereupon be converted into a Service-vesting Award that will vest upon the completion of a
Service period co-terminous with the portion of the performance period (and any subsequent Service vesting component that was originally
part of that Award) remaining at the time of the Change in Control. However, to the extent any Award outstanding under the Stock
Issuance Program on the effective date of such Change in Control Transaction is not to be so assumed, continued or replaced, that
Award shall vest in full immediately prior to the effective date of the actual Change in Control transaction and the shares of
Common Stock underlying the portion of the Award that vests on such accelerated basis shall be issued in accordance with the applicable
Award Agreement, unless such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B. All
of the Corporation’s outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise
to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
C. Each
outstanding Award under the Stock Issuance Program which is assumed in connection with a Change in Control or otherwise continued
in effect shall be adjusted immediately after the consummation of that Change in Control so as to apply to the number and class
of securities into which the shares of Common Stock subject to that Award immediately prior to the Change in Control would have
been converted in consummation of such Change in Control had those shares actually been outstanding at that time, and appropriate
adjustments shall also be made to the cash consideration (if any) payable per share thereunder, provided the aggregate amount
of such cash consideration shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may,
in connection with the assumption or continuation of the outstanding Awards, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
D. The
Plan Administrator shall have the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program
so that the shares of Common Stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in
part immediately upon the occurrence of a Change in Control or upon the subsequent termination of the Participant’s Service
by reason of an Involuntary Termination within a designated period following the effective date of that Change in Control transaction.
The Plan Administrator’s authority under this Section II.D shall also extend to any Awards under the Stock Issuance Program
which are intended to qualify as performance-based compensation under Code Section 162(m), even though the actual vesting of those
Awards pursuant to this Section II.D may result in their loss of performance-based status under Code Section 162(m).
article
Four
INCENTIVE
BONUS PROGRAM
The Plan Administrator
shall have full power and authority to implement one or more of the following incentive bonus programs under the Plan:
(i) cash
bonus awards (“Cash Awards”),
(ii) performance
unit awards (“Performance Unit Awards”), and
(iii) dividend
equivalent rights (“DER Awards”)
A. Cash
Awards. The Plan Administrator shall have the discretionary authority under the Plan to make Cash Awards which are to vest
in one or more installments over the Participant’s continued Service with the Corporation or upon the attainment of specified
performance objectives. Each such Cash Award shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided however, that each such document shall comply with the terms specified below.
1. The
elements of the vesting schedule applicable to each Cash Award shall be determined by the Plan Administrator and incorporated into
the Incentive Bonus Award Agreement.
2. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Cash
Awards so that those Awards shall vest upon the achievement of pre-established corporate performance objectives based upon one
or more Performance Goals measured over the performance period (not to exceed five (5) years) specified by the Plan Administrator
at the time of the Award.
3. Outstanding
Cash Awards shall automatically terminate, and no cash payment or other consideration shall be due the holders of those Awards,
if the performance objectives or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator
may in its discretion waive the cancellation and termination of one or more unvested Cash Awards which would otherwise occur upon
the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those Awards.
Any such waiver shall result in the immediate vesting of the Participant’s interest in the Cash Award as to which the waiver
applies. Such wavier may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment
or non-attainment of the applicable performance objectives. However, no vesting requirements tied to the attainment of Performance
Goals may be waived with respect to Awards which were intended, at the time those Awards were made, to qualify as performance-based
compensation under Code Section 162(m), except in the event of the Participant’s cessation of Service by reason of death
or Permanent Disability or as otherwise provided in Section II of this Article Four.
4. Cash
Awards which become due and payable following the attainment of the applicable performance objectives or satisfaction of the applicable
Service requirement (or the waiver of such goals or Service requirement) may be paid in (i) cash, (ii) shares of Common Stock valued
at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock as set forth in the applicable
Award Agreement.
B. Performance
Unit Awards. The Plan Administrator shall have the discretionary authority to make Performance Unit Awards in accordance
with the terms of this Article Four. Each such Performance Unit Award shall be evidenced by one or more documents in the form approved
by the Plan Administrator; provided however, that each such document shall comply with the terms specified below.
1. A
Performance Unit shall represent either (i) a unit with a dollar value tied to the level at which pre-established corporate performance
objectives based on one or more Performance Goals are attained or (ii) a participating interest in a special bonus pool tied to
the attainment of pre-established corporate performance objectives based on one or more Performance Goals. The amount of the bonus
pool may vary with the level at which the applicable performance objectives are attained, and the value of each Performance Unit
which becomes due and payable upon the attained level of performance shall be determined by dividing the amount of the resulting
bonus pool (if any) by the total number of Performance Units issued and outstanding at the completion of the applicable performance
period.
2. Performance
Units may also be structured to include a Service requirement which the Participant must satisfy following the completion of the
performance period in order to vest in the Performance Units awarded with respect to that performance period.
3. Performance
Units which become due and payable following the attainment of the applicable performance objectives and the satisfaction of any
applicable Service requirement may be paid in (i) cash, (ii) shares of Common Stock valued at Fair Market Value on the payment
date or (iii) a combination of cash and shares of Common Stock, as set forth in the applicable Award Agreement.
C. DER
Awards. The Plan Administrator shall have the discretionary authority to make DER Awards in accordance with the terms of
this Article Four. Each such DER Award shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided however, that each such document shall comply with the terms specified below.
1. The
DER Awards may be made as stand-alone awards or in tandem with other Awards made under the Plan. The term of each such DER Award
shall be established by the Plan Administrator at the time of grant, but no DER Award shall have a term in excess of seven (7)
years.
2. Each
DER shall represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities
or other property (other than shares of Common Stock), which is made per issued and outstanding share of Common Stock during the
term the DER remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to
whom a DER Award is made, and that account shall be credited per DER with each such dividend or distribution made per issued and
outstanding share of Common Stock during the term of that DER remains outstanding.
3. Payment
of the amounts credited to such book account may be made to the Participant either concurrently with the actual dividend or distribution
made per issued and outstanding share of Common Stock or may be deferred for a period specified by the Plan Administrator at the
time the DER Award is made or selected by the Participant in accordance with the requirements of Code Section 409A. In no event,
however, shall any DER Award made with respect to an Award subject to performance-vesting conditions under the Stock Issuance or
Incentive Bonus Program vest or become payable prior to the vesting of that Award (or the portion thereof to which the DER Award
relates) upon the attainment of the applicable performance goals and shall accordingly be subject to cancellation and forfeiture
to the same extent as the underlying Award in the event those performance conditions are not attained.
4. Payment
may be paid in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock, as set forth in
the applicable Award Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into
which the cash dividend or distribution amounts are to be converted for purposes of the Participant’s book account may be
based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an average of the Fair Market
Value per share of Common Stock over a designated period, as set forth in the applicable Award Agreement.
5. The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more DER
Awards so that those Awards shall vest only after the achievement of pre-established corporate performance objectives based upon
one or more Performance Goals measured over the performance period (not to exceed five (5) years) specified by the Plan Administrator
at the time the Award is made.
A. The
Plan Administrator shall have the discretionary authority to structure one or more Awards under the Incentive Bonus Program so
that those Awards shall automatically vest in whole or in part immediately prior to the effective date of an actual Change in Control
transaction or upon the subsequent termination of the Participant’s Service by reason of an Involuntary Termination within
a designated period following the effective date of such Change in Control. To the extent any such Award is, at the time of such
Change in Control, subject to a performance-vesting condition tied to the attainment of one or more specified performance goals,
then that performance vesting condition shall automatically be cancelled on the effective date of such Change in Control, and such
Award shall thereupon be converted into a Service-vesting Award that will vest upon the completion of a Service period co-terminous
with the portion of the performance period ((and any subsequent Service vesting component that was originally part of that Award)
remaining at the time of the Change in Control.
B. The
Plan Administrator’s authority under Section II.A above shall also extend to any Award under the Incentive Bonus Program
intended to qualify as performance-based compensation under Code Section 162(m), even though the automatic vesting of that Award
may result in the loss of performance-based status under Code Section 162(m).
article
Five
AUTOMATIC GRANT PROGRAM
A. Grant
Dates. Grants shall be made pursuant to the Automatic Grant Program in effect under this Article Four as follows:
1. Each
individual who is first elected or appointed as a non-employee Board member at any time on or after the date of the 2006 Annual
Meeting shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase
not more than ten thousand (10,000) shares of Common Stock and restricted stock units covering not more than three thousand (3,000)
shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
The actual number of shares for which such initial option grant and restricted stock unit award shall be made shall (subject to
the respective ten thousand (10,000) and three thousand (3,000)-share limits) be determined by the Plan Administrator at the time
of each such grant.
2. On
the date of each annual shareholders meeting, beginning with the 2006 Annual Meeting, each individual who is to continue to serve
as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual
meeting, shall automatically be granted a Non-Statutory Option to purchase not more than three thousand (3,000) shares of common
stock and restricted stock units covering up to not more than an additional one thousand (1,000) shares of Common Stock, provided
that such individual has served as a non-employee Board member for a period of at least six (6) months. There shall be no limit
on the number of such option grants and restricted stock unit awards any one continuing non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or
any Parent or Subsidiary) shall be eligible to receive one or more such annual option grants and restricted stock unit awards over
their period of continued Board service. The actual number of shares for which such annual option grants and restricted stock unit
awards are made to each continuing non-employee Board member shall (subject to the respective three thousand (3,000) and one thousand
(1,000)-share limits) be determined by the Plan Administrator on or before the date of the annual shareholders meeting on which
those grants are to be made.
1. The
exercise price per share for each option granted under this Article Four shall be equal to one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The
exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Grant Program. Except
to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
C. Option
Term. Each option granted under this Article Four shall have a maximum term of seven (7) years measured from the option
grant date, subject to earlier termination following the Optionee’s cessation of Service.
D. Exercise
and Vesting of Options. Each option granted under this Article Four shall be immediately exercisable for any or all
of the option shares. However, any unvested shares purchased under the option shall be subject to repurchase by the Corporation,
at the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at
the time of repurchase, upon the Optionee’s cessation of Service prior to vesting in those shares. The shares subject to
each initial ten thousand (10,000)-share-or-less grant shall vest, and the Corporation’s repurchase right shall lapse, in
four (4) successive equal annual installments upon the Optionee’s completion of each year of service as a non-employee Board
member over the four (4)-year period measured from the option grant date. The shares subject to each annual three thousand (3,000)-share-or-less
grant made to a non-employee Board member for his or her continued Board service shall vest, and the Corporation’s repurchase
right shall lapse, in one installment upon the earlier of (i) the Optionee’s completion of one (1)-year of
service as a non-employee Board member measured from the grant date or (ii) the Optionee’s continuation in such Board service
through the day immediately preceding the next annual shareholders meeting following such grant date.
E. Vesting
of Restricted Stock Units and Issuance of Shares. Each restricted stock unit award for up to three thousand (3,000) shares
shall vest in a series of four (4) successive equal annual installments upon the individual’s completion of each year of
service as a non-employee Board member over the four (4)-year period measured from the date that award is made. Each restricted
stock unit award for up to one thousand (1,000) shares shall vest in one installment upon the earlier of (i) the individual’s
completion of one (1)-year of service as a non-employee Board member measured from the date that award is made or (ii) the individual’s
continuation in such Board service through the day immediately preceding the next annual shareholders meeting following such grant
date. However, each restricted stock unit award held by an individual under the Automatic Grant Program will immediately vest in
full upon his or her cessation of Board service by reason of death or Permanent Disability. As the restricted stock units under
the Automatic Grant Program vest in one or more installments, the shares of Common Stock underlying those vested units shall be
promptly issued.
F. Limited
Transferability of Options. Each option under this Article Four may be assigned in whole or in part during the Optionee’s
lifetime to one or more of his or her Family Members or to a trust established exclusively for the Optionee and/or one or more
such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic
relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the options shall, in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall
take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s
death.
G. Termination
of Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee
ceases Service:
(i) The
Optionee (or, in the event of Optionee’s death while holding the option, the personal representative of the Optionee’s
estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance
or the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such
cessation of Service in which to exercise such option.
(ii) During
the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the Optionee’s cessation of Service. However, should the
Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for any or all of those shares as fully vested shares of Common Stock.
(iii) In
no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s
cessation of Service for any reason (other than cessation of Board service by reason of death or Permanent Disability), terminate
and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
A. In
the event of any Change in Control while the individual remains in Service, the following provisions shall apply:
(i) Should
a Change in Control occur prior to the Optionee’s cessation of Service, then the shares of Common Stock at the time subject
to each outstanding option held by such Optionee under this Automatic Grant Program but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable
for all the option shares as fully vested shares of Common Stock and may be exercised for any or all of those vested shares. Immediately
following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of
the Change in Control transaction.
(ii) The
shares of Common Stock which are at the time of such Change in Control subject to any outstanding restricted stock units awarded
to such individual under the Automatic Grant Program shall, immediately prior to the effective date of the Change in Control, vest
in full and be issued to such individual as soon as administratively practicable thereafter, but in no event later than fifteen (15)
business days.
B. All
outstanding repurchase rights under this Automatic Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event of any Change in Control or Hostile Take-Over.
C. Each
option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the
Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate
adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding
Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption or continuation of the outstanding options under the Automatic Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.
The remaining terms of
each grant shall be the same as the terms in effect for option grants made under the Discretionary Grant Program, including the
prohibition on repricing contained in Section V of Article Two.
A. The
Compensation Committee shall have full power and authority to award, in lieu of one or more initial or annual automatic option
grants under this Article Four, unvested shares of Common Stock or restricted stock units which in each instance have an aggregate
Fair Market Value substantially equal to the grant-date fair value (as determined for financial reporting purposes in accordance
with FASB ASC Topic 781 or any successor standard) of the automatic option grant which such award replaces. Any such alternative
award shall be made at the same time the automatic option grant or restricted stock unit award which it replaces would have been
made, and the vesting provisions (including vesting acceleration) applicable to such award shall be substantially the same as in
effect for the automatic option grant or restricted stock unit award so replaced.
B. The
Compensation Committee shall also have full power and authority to implement a non-employee Board member retainer fee deferral
program under the Plan so as to allow the non-employee Board members the opportunity to elect, prior to the start of each calendar
year, to convert the Board retainer fees to be earned for such year into restricted stock units under the Stock Issuance Program
that will defer the issuance of the shares of Common Stock that vest under those restricted stock units until a permissible date
or event under Code Section 409A. If such program is implemented, the Compensation Committee shall have the authority to establish
such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible
distribution events under Code Section 409A.
article
Six
MISCELLANEOUS
A. The
Corporation’s obligation to deliver shares of Common Stock upon the issuance, exercise or vesting of an Award under the Plan
shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.
B. The
Plan Administrator may, in its discretion, structure one or more Awards so that shares of Common Stock may be used as follows to
satisfy all or part of the Withholding Taxes to which such holders of those Awards may become subject in connection with the issuance,
exercise, vesting or settlement of those Awards:
Stock Withholding:
The Corporation may be given the right to withhold, from the shares of Common Stock otherwise issuable upon the issuance, exercise,
vesting or settlement of such Award, a portion of those shares with an aggregate Fair Market Value equal to the applicable Withholding
Taxes. The shares of Common Stock so withheld shall reduce the number of shares of Common Stock authorized for issuance under the
Plan.
Stock Delivery:
The election to deliver to the Corporation, at the time of the issuance, exercise or vesting of the Award, one or more shares of
Common Stock previously acquired by such holder (other than in connection with the issuance exercise or vesting of the shares triggering
the Withholding Taxes) with an aggregate Fair Market Value at the time of delivery equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the individual. The shares of Common Stock so delivered shall not be added
to the shares of Common Stock authorized for issuance under the Plan.
Unvested shares may,
in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such
shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested
shares.
| III. | EFFECTIVE DATE AND TERM OF THE PLAN |
A. The
Plan became effective on the Plan Effective Date.
B. The
Plan serves as the successor to the Predecessor Plans, and no further option grants or stock issuances are to be made under the
Predecessor Plans. All options outstanding under the Predecessor Plans at the time of the 2006 Annual Meeting were transferred
to this Plan.
C. The
Plan was amended and restated on March 18, 2010 to (i) increase the number of shares of Common Stock authorized for issuance under
the Plan by an additional eight hundred eighty thousand (880,000) shares, (ii) increase, by the same number, the number of shares
of Common Stock that can be issued pursuant to Incentive Options granted under the Plan, (iii) add the Incentive Bonus Program
to the Plan and (iv) effect certain other technical changes to the Plan. The March 18, 2010 amendment and was approved by the stockholders
at the 2010 Annual Meeting. The Plan was amended and restated on April 16, 2015, to extend the term of the Plan by two years, from
February 22, 2016 to February 22, 2018, subject to stockholder approval at the 2015 Annual Meeting.
D. The
Plan shall terminate upon the earliest to occur of (i) February 22, 2018, (ii) the date on which all shares available
for issuance under the Plan shall have been issued as fully vested shares or (iii) the termination of all outstanding Awards
in connection with a Change in Control. Should the Plan terminate on February 22, 2018, then all Awards outstanding at that time
shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards.
A. The
Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under
the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, amendments to the Plan
will be subject to shareholder approval to the extent required under applicable law or regulation or pursuant to the listing standards
of the Stock Exchange on which the Common Stock is at the time primarily traded, and no amendment that would reduce or limit the
scope of the prohibition on repricing programs set forth in Section VI of Article One or otherwise eliminated such prohibition
shall be effective unless approved by the shareholders.
B. The
Compensation Committee of the Board shall have the discretionary authority to adopt and implement from time to time such addenda
or subplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations
of any foreign jurisdictions in which grants or awards are to be made under the Plan and/or to obtain favorable tax treatment in
those foreign jurisdictions for the individuals to whom the grants or awards are made.
C. Awards
may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under
the Plan, provided no shares shall actually be issued pursuant to those Awards until the number of shares of Common Stock available
for issuance under the Plan is sufficiently increased by shareholder approval of an amendment of the Plan authorizing such increase.
If shareholder approval is required and is not obtained within twelve (12) months after the date the first excess Award is made,
then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding.
D. The
provisions of the Plan and the outstanding Awards under the Plan shall, in the event of any ambiguity, be construed, applied and
interpreted in a manner so as to ensure that all Awards and Award Agreements provided to Optionees or Participants who are subject
to U.S. income taxation either qualify for an exemption from the requirements of Section 409A of the Code or comply with those
requirements; provided, however, that the Corporation shall not make any representations that any Awards made under the Plan will
in fact be exempt from the requirements of Section 409A of the Code or otherwise comply with those requirements, and each Optionee
and Participant shall accordingly be solely responsible for any taxes, penalties or other amounts which may become payable with
respect to his or her Awards by reason of Section 409A of the Code.
Any cash proceeds received
by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
A. The
implementation of the Plan, the grant of any Award and the issuance of shares of Common Stock in connection with the issuance,
exercise or vesting of any Award made under the Plan shall be subject to the Corporation’s procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of
Common Stock issuable pursuant to those Awards.
B. No
shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any Stock Exchange
on which Common Stock is then listed for trading.
| VII. | NO EMPLOYMENT/SERVICE RIGHTS |
Nothing in the Plan shall
confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service
at any time for any reason, with or without cause.
APPENDIX
The following definitions
shall be in effect under the Plan:
A. Annual
Meeting shall mean the annual meeting of the Corporation’s shareholders.
B. Automatic
Grant Program shall mean the automatic option grant program in effect under Article Four of the Plan.
C. Award
shall mean any of the following awards authorized for issuance or grant under the Plan: stock options, stock appreciation rights,
direct stock issuances, restricted stock or restricted stock unit awards, performance shares, performance units, dividend-equivalent
rights and cash incentive awards.
D. Board
shall mean the Corporation’s Board of Directors.
E. Change
in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i) the
closing of a merger, consolidation or other reorganization approved by the Corporation’s shareholders, unless securities
representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation
are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons
who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,
(ii) the
closing of a shareholder-approved sale, transfer or other disposition (including in whole or in part through one or more licensing
arrangements) of all or substantially all of the Corporation’s assets,
(iii) the
closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a
“group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior
to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control
with, the Corporation) acquires directly or indirectly beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total
combined voting power of the Corporation’s securities (as measured in terms of the power to vote with respect to the election
of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether
such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more
of the Corporation’s existing shareholders, or
(iv) a
change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination,
F. Code
shall mean the Internal Revenue Code of 1986, as amended.
G. Common
Stock shall mean the Corporation’s common stock.
H. Compensation
Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members.
I. Corporation
shall mean American Shared Hospital Services, a California corporation, and any corporate successor to all or substantially
all of the assets or voting stock of American Shared Hospital Services which has by appropriate action assumed the Plan.
J. Discretionary
Grant Program shall mean the discretionary grant program in effect under Article Two of the Plan pursuant to which stock
options and stock appreciation rights may be granted to one or more eligible individuals.
K. Eligible
Director shall mean a non-employee Board member eligible to participate in the Automatic Grant Program in accordance with
the eligibility provisions of Articles One and Four.
L. Employee
shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and
method of performance.
M. Exercise
Date shall mean the date on which the Corporation shall have received written notice of the option exercise.
N. Fair
Market Value per share of Common Stock on any relevant date shall be the closing selling price per share of Common Stock
at the close of regular trading hours (i.e., before after-hours trading begins) on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such price is reported by the National Association
of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite
tape of transactions on any other Stock Exchange on which the Company’s common stock is then primarily traded. If there is
no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
O. Family
Member means, with respect to a particular Optionee or Participant, any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law.
P. Full
Value Award means any of the following Awards made under the Stock Issuance, Incentive Bonus or Automatic Grant Programs
that are settled in shares of Common Stock: restricted stock awards (unless issued for cash consideration equal to the Fair Market
Value of the shares of Common Stock on the award date), restricted stock unit awards, performance shares, performance units, cash
incentive awards and any other Awards under the Plan other than (i) stock options and stock appreciation rights issued under the
Discretionary Grant Program, (ii) stock options issued under the Automatic Grant Program and (iii) dividend equivalent rights under
the Incentive Bonus Program.
Q. Incentive
Bonus Program shall mean the incentive bonus program in effect under Article Four of the Plan.
R. Incentive
Option shall mean an option which satisfies the requirements of Code Section 422.
S. Involuntary
Termination shall mean the termination of the Service of any individual which occurs by reason of:
(i) such
individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct,
or
(ii) such
individual’s voluntary resignation following (A) a change in his or her position with the Corporation (or any Parent or Subsidiary)
which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction
in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment
by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation (or
any Parent or Subsidiary) without the individual’s consent.
T. Misconduct
shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation
(or any Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes
of the Plan, to constitute grounds for termination for Misconduct.
U. 1934
Act shall mean the Securities Exchange Act of 1934, as amended.
V. Non-Statutory
Option shall mean an option not intended to satisfy the requirements of Code Section 422.
W. Optionee
shall mean any person to whom an option is granted under the Discretionary Grant or Automatic Grant Program.
X. Parent
shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Y. Participant
shall mean any person who is issued (i) shares of Common Stock, restricted stock units, performance shares, performance units
or other stock-based awards under the Stock Issuance Program or (ii) an incentive bonus award under the Incentive Bonus Program.
Z. Performance
Goals shall mean any of the following performance criteria upon which the vesting of one or more Awards under the Plan
may be based: (1) return on total shareholder equity; (2) earnings per share of Common Stock; (3) net income or operating income
(before or after taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) earnings before interest, taxes,
depreciation, amortization and charges for stock-based compensation, (6) sales or revenue targets; (7) return on assets, capital
or investment; (8) cash flow; (9) market share; (10) cost reduction goals; (11) budget comparisons; (12) measures of customer satisfaction;
(13) any combination of, or a specified increase in, any of the foregoing; (14) new product development or successful completion
of research and development projects; and (15) the formation of joint ventures, research or development collaborations, or the
completion of other corporate transactions intended to enhance the Corporation’s revenue or profitability or enhance its
customer base. In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s
performance under one or more of the measures described above relative to the performance of other entities and may also be based
on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Performance goals
may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified
portions of an award will be earned and a maximum level of performance at which an award will be fully earned. Each applicable
performance goal may be structured at the time of the Award to provide for appropriate adjustments or exclusions for one or more
of the following items: (A) asset impairments or write-downs; (B) litigation or governmental investigation expenses and
any judgments, verdicts and settlements in connection therewith; (C) the effect of changes in tax law, accounting principles
or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) any
extraordinary or nonrecurring items; (F) items of income, gain, loss or expense attributable to the operations of any business
acquired by the Corporation or costs and expenses incurred in connection with mergers and acquisitions; (G) items of income, gain,
loss or expense attributable to one or more business operations divested by the Corporation or the gain or loss realized upon the
sale of any such business the assets thereof, (H) accruals for bonus or incentive compensation costs and expenses associated with
cash-based awards made under the Plan or other bonus or incentive compensation plans of the Corporation, and (I) the impact of
foreign currency fluctuations or changes in exchange rates.
AA. Permanent
Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Grant Program, Permanent Disability
or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
BB. Plan
shall mean the Corporation’s Incentive Compensation Plan (formerly known as the 2006 Stock Incentive Plan), as set forth
in this document and as subsequently amended or restated from time to time.
CC. Plan
Administrator shall mean the particular entity, whether the Compensation Committee, the Board or the Secondary Board Committee,
which is authorized to administer the Discretionary Grant, Stock Issuance and Incentive Bonus Programs with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
DD. Plan
Effective Date shall mean the date of the 2006 Annual Meeting at which the Plan was approved by the shareholders.
EE. Predecessor
Plans shall mean (i) the Corporation’s 2001 Stock Option Plan and (ii) the Corporation’s 1995 Stock Option
Plan, as each such Plan is in effect immediately prior to the 2006 Annual Meeting.
FF. Secondary
Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary
Grant, Stock Issuance and Incentive Bonus Programs with respect to eligible persons other than Section 16 Insiders.
GG. Section
16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
HH. Service
shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. For
purposes of the Plan, an Optionee or Participant shall be deemed to cease Service immediately upon the occurrence of the either
of the following events: (i) the Optionee or Participant no longer performs services in any of the foregoing capacities for the
Corporation or any Parent or Subsidiary or (ii) the entity for which the Optionee or Participant is performing such services ceases
to remain a Parent or Subsidiary of the Corporation, even though the Optionee or Participant may subsequently continue to perform
services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal
leave approved by the Corporation; provided, however, that should such leave of absence exceed three (3) months, then for
purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the Optionee’s
Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Optionee
is provided with the right to return to Service following such leave either by statute or by written contract. Except to the extent
otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves
of absence, no Service credit shall be given for vesting purposes for any period the Optionee or Participant is on a leave of absence.
II. Stock
Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.
JJ. Stock
Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance
of shares of Common Stock under the Stock Issuance Program.
KK. Stock
Issuance Program shall mean the stock issuance program in effect under Article Three of the Plan.
LL. Subsidiary
shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such
chain.
MM. 10%
Shareholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
NN. 2010
Annual Meeting shall mean the 2010 annual meeting of the Corporation’s shareholders.
OO. 2015
Annual Meeting shall mean the 2015 annual meeting of the Corporation’s shareholders.
PP. Withholding
Taxes shall mean the applicable federal and state income and employment withholding taxes to which the holder of an Award
under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award.
Exhibit 10.4
Confidential material appearing in this document
has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.
AMENDED AND RESTATED EQUIPMENT LEASE AGREEMENT
This AMENDED AND RESTATED EQUIPMENT LEASE
AGREEMENT (this “Agreement”) is made and entered into on the date of full execution by and between GK FINANCING,
LLC, a California limited liability company (“GKF”), and the BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS
on behalf of THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES (“Hospital”), with reference to the following facts:
Recitals:
A. Hospital
and GKF entered into an Equipment Lease Agreement dated October 29, 1998 (the “1998 Lease Agreement”), which was amended
by (i) a certain Amendment to Equipment Lease Agreement dated effective as of September 15, 2005, (ii) a certain Amendment Two
to Equipment Lease Agreement dated effective as of October 31, 2007, and (iii) a certain Amendment Three to Equipment Lease Agreement
dated effective as of June 11, 2010 (the 1998 Lease Agreement, as so amended by the foregoing amendments, is referred to herein
as the "Original Lease").
B. Pursuant
to the Original Lease, GKF leases to Hospital a Leksell Gamma Knife Perfexion model (the “Equipment”), which GKF acquired
from by Elekta Instruments, Inc., a Georgia corporation (“Elekta”), pursuant to that certain Agreement dated October
31, 2006, together with the Exhibits attached thereto between GKF and Elekta (collectively, the “Purchase Agreement”).
GKF’s lease of the Equipment to Hospital pursuant to the Original Lease shall continue upon the terms, covenants, conditions
and agreements set forth in this Agreement.
C. Hospital
and GKF desire to amend and restate the Original Lease as set forth in this Agreement. Upon the execution of this Agreement, the
Original Lease shall be superseded by this Agreement and shall no longer have any force or effect from and after the Effective
Date.
Agreement:
NOW, THEREFORE, in consideration of the
mutual covenants, conditions and agreements set forth herein, and for such other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Lease.
Subject to and in accordance with the covenants and conditions set forth in this Agreement, GKF hereby leases to Hospital, and
Hospital hereby leases from GKF, the Equipment. It is acknowledged that the Equipment leased to Hospital pursuant to this Agreement
is a Leksell Gamma Knife Perfexion model, including all hardware and software related thereto.
2. LGK
Agreement. Simultaneously with the execution of the 1998 Lease Agreement, Hospital and Elekta entered into that certain LGK
Agreement (the “LGK Agreement”), a copy of which is attached hereto as Exhibit 1. Hospital shall perform, satisfy and
fulfill all of its obligations arising under the LGK Agreement when and as required thereunder. Hospital acknowledges that GKF
is a third party beneficiary of the LGK Agreement and, in that capacity, GKF shall be entitled to enforce Hospital’s performance,
satisfaction and fulfillment of its obligations thereunder.
3. Term
of the Agreement. It is acknowledged that the term of the Original Lease is currently set to expire on September 27, 2016.
The term of this Agreement (the “Term”) shall commence on the “Effective Date”, the date of the performance
of the first clinical Gamma Knife procedure (“First Procedure Date”) performed after the “Reload” of the
Equipment pursuant to 6.5 below and, unless earlier terminated or extended in accordance with the provisions of this Agreement,
shall continue until December 31, 2021. . Notwithstanding the Original Lease being superseded by this Agreement, Hospital’s
obligation to make the Lease Payments to GKF for the Equipment described in Section 8 below shall continue unabated, commencing
on the Effective Date and continuing for the Term of this Agreement.
4. Certificate
of Need; User License. Hospital maintains and shall continue to hold a User License from the Nuclear Regulatory Commission
and, if necessary, from the applicable state agency authorizing it to take possession of and maintain the Cobalt supply required
in connection with the use of the Equipment during the term of this Agreement. Hospital also maintains and shall continue to hold
all other licenses, permits, approvals, consents and authorizations which may be required by state or local governmental or other
regulatory agencies for the charging of the Equipment with its Cobalt supply, the conduct of acceptance tests with respect to the
Equipment, and the use of the Equipment during the Term, as more fully set forth in Article 2.1 of the LGK Agreement.
5. Delivery
of Equipment; Site.
5.1 Pursuant
to the Original Lease, the Equipment was delivered to Hospital at 4301 W. Markham, Little Rock, Arkansas 72205 (the “Site”)
on or prior to the delivery date agreed upon by Hospital and Elekta in the LGK Agreement. GKF makes no representations or warranties
concerning delivery of the Equipment to the Site or the actual date thereof.
5.2 Subject
to Section 6 below, Hospital, at its cost and expense, shall continue to provide a safe, convenient and properly prepared Site
for the Equipment in accordance with Elekta’s guidelines, specifications, technical instructions and site planning criteria
(which site planning criteria are attached as Exhibit B to the LGK Agreement) (collectively the “Site Planning Criteria”).
The location of the Site has been approved by GKF.
6. Site
Preparation, Installation and Cobalt Reloading of the Equipment.
6.1 Pursuant
to the Original Lease, GKF, at its cost and expense, prepared all plans and specifications required to prepare, construct and improve
the Site for the installation, use and operation of the Equipment during the Term. The plans and specifications (i) were, pursuant
to the Original Lease, approved by Hospital, which approval was not unreasonably withheld or delayed; (ii) complied and shall continue
to comply in all respects with the Site Planning Criteria; and (iii) to the extent required by applicable law and pursuant to the
Original Lease, were submitted to the State of Arkansas Health Department and the State of Arkansas Building Services Office for
their review. Pursuant to the Original Lease, GKF, at its cost and expense, obtained all permits, certifications, approvals or
authorizations required by applicable federal, state or local laws, rules or regulations necessary to prepare, construct and improve
the Site as provided above.
6.2 Pursuant
to the Original Lease, GKF, at its cost and expense, prepared, constructed and improved the Site as necessary for the installation,
use and operation of the Equipment during the Term, including, without limitation, providing all temporary or permanent shielding
required for the charging of the Equipment with the Cobalt supply and for its subsequent use, selecting and constructing a proper
foundation for the Equipment and the temporary or permanent shielding, aligning the Site for the Equipment, and installing all
electrical systems and other wiring required for the Equipment. Pursuant to the Original Lease and in connection with the construction
of the Site, GKF, at its cost and expense, selected, purchased and installed all radiation monitoring equipment, devices, safety
circuits and radiation warning signs required at the Site in connection with the use and operation of the Equipment. GKF shall
be responsible for the shipment, storage, placement and removal of all Cobalt and depleted Cobalt, provided that, if Hospital
elects to purchase the Equipment pursuant to Section 19.2 below, Hospital shall be solely responsible for such duties following
its election. Any depleted Cobalt supply shall be properly disposed of by GKF at such time as GKF shall deem necessary, in GKF’s
sole and absolute judgment.
6.3 In
addition to construction and improvement of the Site and pursuant to the Original Lease, GKF, at its cost and expense, was responsible
for the installation of (and installed) the Equipment at the Site, including the positioning of the Equipment on its foundation
at the Site in compliance with the Site Planning Criteria.
6.4 During
the Term, GKF, at its cost and expense, shall maintain the Site in a good working order, condition and repair, reasonable wear
and tear excepted.
6.5 Cobalt
Reload of the Equipment. GKF, at GKF’s cost and expense, shall reload the Equipment with new cobalt-60 that meets the
manufacturer’s radioactivity level specifications (the “Reload”), subject to the following additional terms and
conditions:
(a) Scheduling
and Process for the Reload. The Reload shall be performed at the Site and shall include any required installation and rigging.
Subject to scheduling availability, GKF shall use its commercially reasonable efforts to perform the Reload on or before June 2015;
provided that the Reload shall be performed only after all necessary and appropriate licenses, permits, approvals, consents
and authorizations, including, without limitation, the proper handling of the cobalt-60 (collectively, the “Permits”),
have been obtained by Hospital at Hospital’s sole cost and expense (other than any filing or registration fees which shall
be paid by GKF). The timing and procedure for such Reload shall be as mutually agreed upon between the parties. Notwithstanding
anything to the contrary contained in this Agreement, GKF makes no representation or warranty to Hospital concerning the Reload,
and GKF shall have no obligation or liability to pay any damages to Hospital resulting therefrom, including, without limitation,
any lost revenues or profits during the period of time that the Equipment is unavailable to perform procedures due to the Reload
process.
(b) Hospital
Personnel and Services. Upon request and as required by GKF, Hospital, at Hospital’s cost and expense, shall provide
GKF with Hospital personnel (including Hospital’s physicists) and services in connection with the Reload, among other things,
to oversee, supervise and assist with construction and compliance with local, state and federal regulatory requirements and with
nuclear regulatory compliance issues and the calibration of the Equipment. Hospital shall not be entitled to reimbursement for
its respective personnel costs, internal costs or overhead.
(c) No
Additional Responsibilities. It is understood by the parties that GKF is not responsible for any upgrades, hardware, cobalt
reloading, software changes and/or other modifications to the Equipment, except as expressly set forth herein or otherwise agreed
upon in writing by Hospital and GKF.
7. Marketing
Support. GKF shall coordinate its Gamma Knife marketing plan with Hospital, which marketing plan shall be subject to the approval
of Hospital.
8. Lease
Payments.
8.1 In
consideration and as compensation to GKF for (i) the lease of the Equipment by GKF to Hospital pursuant to this Agreement;
(ii) the preparation by GKF of all plans and specifications required to prepare, construct and improve the Site for the installation,
use and operation of the Equipment; (iii) the preparation, construction and improvement of the Site as necessary for the installation,
use and operation of the Equipment; (iv) the installation and Reload by GKF of the Equipment at the Site; and (v) the maintenance
by GKF of the Site in a good working order, condition and repair, *. As used herein:
(1) “Technical Component
Collections” means the *.
(2) “Global Fee Component”
means *. Hospital shall be solely responsible for the negotiation of “global fee” services and for the billing and
collection of such fees; provided that any case management or “global” fees must be approved in writing by GKF
prior to their implementation.
(3) Hospital’s “Direct
Cost Component” means *.
(4) For
purposes of this Section 8 only, "Procedure" means any treatment that involves stereotactic, external, single fraction,
conformal radiation, commonly called radiosurgery, that may include one or more isocenters during the patient treatment session,
delivered to any site(s) superior to the foramen magnum, which Procedure is performed by Hospital, its representatives, affiliates,
joint ventures and/or partnerships, on an inpatient or outpatient basis, or “under arrangement” (as used in the Medicare
billing context), using any of the Equipment and/or any other equipment or devices that are used in lieu of, or as an alternative
to, the Equipment, and includes, without limitation, any and all related treatment planning and delivery, imaging and other ancillary
services.
On each anniversary date of this Agreement, the parties shall meet
to review Hospital’s Direct Cost Component, and any adjustments thereto must be mutually agreed upon by the parties in writing.
Upon request by GKF, Hospital shall promptly furnish GKF with written documentation substantiating such Direct Cost Component.
If no Procedures are performed by Hospital or any other person utilizing the Equipment, no Lease Payments shall be owing by Hospital
to GKF.
8.2 Payment
by Hospital to GKF of the Lease Payments shall be made within ten (10) days following receipt by Hospital of the reimbursement
for the technical component of such Procedures from payor sources, which Lease Payments shall continue for a period of eighteen
(18) months following the termination or expiration of this Agreement (the "Collections Run-Out Period") with respect
to any Technical Components Collections received by Hospital or its representatives or affiliates during the Collections Run-Out
Period pertaining to any and all Procedures with dates of service prior to the termination or expiration of this Agreement. To
facilitate Hospital’s billing and collection for Gamma Knife procedures performed, within two (2) business days after any
Gamma Knife procedure is performed, GKF shall cause the administrative support individual referenced in Section 11.3 below to provide
Hospital with written confirmation of the names of the patients treated. Hospital shall submit claims for reimbursement to the
appropriate payors for each Procedure within forty-five (45) days after the patient receiving the treatment is discharged. All
or any portion of any Lease Payment which is not paid in full within sixty (60) days after its due date shall bear interest at
the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect as published in the Wall Street
Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial
borrower and lender, if less) until the unpaid Lease Payment, together with all accrued interest thereon is paid in full. If GKF
shall at any time accept a Lease Payment from Hospital after it shall become due, such acceptance shall not constitute or be construed
as a waiver of any or all of GKF’s rights under this Agreement, including the rights of GKF set forth in Section 20 hereof.
8.3 Within
thirty (30) days after the close of each month, Hospital shall provide GKF with a written report indicating the status of billings
and collections for each Procedure performed during that month, including, without limitation, the amount of the claim submitted
and the amount received for each such procedure. Upon request by GKF, Hospital shall furnish to GKF information regarding reimbursement
rates from any or all payor sources for Procedures (applicable to procedures performed either on an inpatient or outpatient basis).
If such reimbursement rates should change at any time or from time to time after the date hereof, in each instance, Hospital shall
provide written notice thereof to GKF within five (5) days of Hospital receiving notice thereof.
8.4 Within
ten (10) days after Hospital’s receipt of written request by GKF, GKF shall have the right to audit Hospital’s books
and records to verify the number of Procedures performed and Technical Component Collections received by Hospital or its representatives
or affiliates, utilizing the Equipment and any other equipment or devices, and Hospital shall provide GKF (or cause GKF to be provided)
with access to such books and records; provided that any patient names or identifiers shall not be disclosed.
8.5 The
provisions of this Section 8 shall survive the termination or expiration of this Agreement.
9. Use
of the Equipment.
9.1 The
Equipment shall be used by Hospital only at the Site and shall not be removed therefrom. Hospital shall use the Equipment only
in the regular and ordinary course of Hospital’s business operations and only within the capacity of the Equipment as determined
by Elekta’s specifications. Hospital shall not use nor permit the Equipment to be used in any manner nor for any purpose
which, in the opinion of Elekta or GKF, the Equipment is not designed or reasonably suitable.
9.2 This
is an agreement of lease only. Nothing herein shall be construed as conveying to Hospital any right, title or interest in or to
the Equipment, except for the express leasehold interest granted to Hospital for the Term. All Equipment shall remain personal
property (even though said Equipment may hereafter become attached or affixed to real property) and the title thereto shall at
all times remain exclusively in GKF.
9.3 During
the Term, upon the request of GKF, Hospital shall promptly affix to the Equipment in a prominent place, or as otherwise directed
by GKF, labels, plates, insignia, lettering or other markings supplied by GKF indicating GKF’s ownership of the Equipment,
and shall keep the same affixed for the entire Term. Hospital hereby authorizes GKF to cause this Agreement or any statement or
other instrument showing the interest of GKF in the Equipment to be filed or recorded, or refiled or re-recorded, with all governmental
agencies considered appropriate by GKF, at GKF’s cost and expense. Hospital also shall promptly execute and deliver, or cause
to be executed and delivered, to GKF any statement or instrument requested by GKF for the purpose of evidencing GKF’s interest
in the Equipment, including financing statements and waivers with respect to rights in the Equipment from any owners or mortgagees
of any real estate where the Equipment may be located.
9.4 At
Hospital’s cost and expense, Hospital shall (a) protect and defend GKF’s ownership of and title to the Equipment from
and against all persons claiming against or through Hospital, (b) at all times keep the Equipment free from any and all liens,
encumbrances, attachments, levies, executions, burdens, charges or legal processes imposed against Hospital, and (c) give GKF immediate
written notice of any matter described in clause (b).
10. Additional
Covenants of Hospital. In addition to the other covenants of Hospital contained in this Agreement, Hospital shall, at its cost
and expense:
10.1 Provide
properly trained professional, technical and support personnel and supplies required for the proper performance of Gamma Knife
procedures utilizing the Equipment. In this regard, Hospital shall maintain on staff a minimum of two (2) Gamma Knife trained teams,
each comprised of a neurosurgeon, radiation oncologist and a medical physicist.
10.2 Direct,
supervise and administer the diagnosis, treatment and care of all patients who receive Gamma Knife procedures.
10.3 In
consultation with GKF, provide reasonable and customary marketing support in terms of administrative and physician support for
the Gamma Knife service to be operated by the Hospital.
10.4 Keep
the Equipment and the Site fully protected, secure and free from unauthorized access or use by any person.
11. Additional
Covenants of GKF. In addition to the other covenants of GKF contained in this Agreement, GKF, at its cost and expense, shall:
11.1 Use
its best efforts to require Elekta to meets its contractual obligations to GKF and Hospital upon delivery of the Equipment and
put the Equipment, as soon as reasonably possible, into good, safe and serviceable condition and fit for its intended use in accordance
with the manufacturer’s specifications, guidelines and field modification instructions.
11.2 Cause
Hospital to enjoy the use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF or
granted to Elekta under the LGK Agreement or the Purchase Agreement.
11.3 Furnish
an individual who shall be located at the Site and who shall provide administrative and marketing support services at the Site.
12. Maintenance
of Equipment; Damage or Destruction of Equipment.
12.1 During
the Term and except as otherwise provided in this Agreement, GKF, at its cost and expense, shall (a) maintain the Equipment in
good operating condition and repair, reasonable wear and tear excepted, and (b) subject to Hospital’s compliance with its
obligations under the LGK Agreement and under Sections 4, 5, 9, 10, 12, and 16 hereunder, cause the equipment to be in compliance
with all applicable state and federal regulations. A schedule of the maintenance to the Equipment to be performed shall be delivered
by GKF to Hospital. Hospital shall promptly notify GKF in the event of any damage or destruction to the Equipment or of any required
maintenance or repairs to the Equipment. GKF shall pursue all remedies available to it under any warranties made by Elekta with
respect to the Equipment so that the Equipment will be free from defects in design, materials and workmanship and will conform
to Elekta’s technical specifications concerning the Equipment.
12.2 GKF
and Elekta shall have the right to access the Equipment for the purpose of inspection and the performance of repairs at all reasonable
times, upon reasonable advance notice and with a minimum of interference or disruptions to Hospital’s regular business operations.
12.3 Hospital
shall be liable for any damage to or destruction of the Equipment caused by the misuse, improper use, or other intentional and
wrongful or negligent acts or omissions of Hospital’s officers, employees, agents, contractors and physicians. In the event
the Equipment is damaged as a result of the misuse, improper use, or other intentional and wrongful or negligent acts or omissions
of Hospital’s officers, employees, agents, contractors and physicians, to the extent such damage is not covered by any warranties
or insurance, GKF may service or repair the Equipment as needed and the cost thereof shall be paid by Hospital to GKF immediately
upon written request; provided that, if GKF’s charges and costs for such service or repair are not paid in full by
Hospital within sixty (60) days after GKF’s request therefor, in addition to such charges and costs, Hospital shall pay interest
thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in
effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged
by law between an unrelated, commercial borrower and lender, if less) and costs incurred by GKF in collecting such amount from
Hospital (other than attorneys’ fees). Any work so performed by GKF shall not deprive GKF of any of its rights, remedies
or actions against Hospital for such damages.
12.4 If
the Equipment is rendered unusable as a result of any physical damage to or destruction of the Equipment, Hospital shall give GKF
written notice thereof. GKF shall determine, within thirty (30) days after it is given written notice of such damage or destruction,
whether the Equipment can be repaired. Subject to Section 12.3 above, in the event GKF determines that the Equipment cannot be
repaired, at the election of GKF in GKF’s sole and absolute discretion, (a) GKF, at its cost and expense, may replace the
Equipment as soon as reasonably possible taking into account the availability of replacement equipment from Elekta, Elekta’s
other then existing orders for equipment, and the then existing limitations on Elekta’s manufacturing capabilities, and (b)
in such event, this Agreement shall continue in full force and effect as though such damage or destruction had not occurred. If
GKF elects not to replace the Equipment, GKF shall provide written notice of such election to Hospital, and this Agreement shall
terminate on the date that is ninety (90) days following the date of such notice. In the event GKF determines that the Equipment
can be repaired, subject to Section 12.3 above, GKF shall cause the Equipment to be repaired as soon as reasonably possible thereafter.
Hospital shall fully cooperate with GKF to effect the replacement of the Equipment or the repair of the Equipment (including, without
limitation, providing full access to the Site) following the damage or destruction thereof.
13. [Intentionally
omitted.]
14. Financing
of Equipment by GKF. GKF, in its sole discretion, may finance the Equipment. Financing may be in the form of an installment
loan, a capitalized lease or other commercially available debt or financing instrument. If GKF finances the Equipment through an
installment loan, GKF shall be required to provide the Equipment as collateral for the loan. If GKF finances the Equipment through
a capitalized lease, title shall vest with the lessor until such time as GKF exercises its buy-out option under the lease, if any.
If required by the lender, lessor or other financing entity (the “Lender”), GKF may assign its interest under this
Agreement as security for the financing. Hospital’s interest under this Agreement shall be subject to the interests of the
Lender and Hospital shall execute such documentation as the Lender shall reasonably require in furtherance of this Section 14.
15. Equipment
Operational Costs. Except as otherwise expressly provided in this Agreement, Hospital shall be responsible for all costs and
expenses incurred, directly or indirectly, in connection with the operation and use of the Equipment during the Term, including,
without limitation, the costs and expenses required to provide trained physicians, professionals, and technical and support personnel,
supplies and other items required to properly operate the Equipment and perform Gamma Knife procedures. GKF shall be responsible
for all costs and expenses for all utilities required for the operation and use of the Equipment.
16. Taxes.
GKF shall pay all sales or use taxes imposed or assessed in connection with the purchase of the Equipment and all personal property
taxes imposed, levied or assessed on the ownership and possession of the Equipment during the Term. All other taxes, assessments,
licenses or other charges imposed, levied or assessed on the Equipment during the Term shall be paid by Hospital before the same
shall become delinquent, whether such taxes are assessed or would ordinarily be assessed against GKF or Hospital; provided, however,
Hospital shall not be required to pay any federal, state or local income, franchise, corporation or excise taxes imposed upon GKF’s
net income realized from the lease of the Equipment. In case of a failure by Hospital to pay any taxes, assessments, licenses or
other charges when and as required under this Section, GKF may (in GKF’s sole and absolute discretion) pay all or any part
of such taxes, in which event the amount paid by GKF shall be immediately payable by Hospital to GKF upon written request; provided
that, if GKF is not repaid in full by Hospital within sixty (60) days after GKF’s request therefor, in addition to the repayment
of the amounts paid by GKF, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%)
in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or
the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less)
and costs incurred by GKF in collecting such amount from Hospital (other than attorneys’ fees).
17. No
Warranties by GKF. Hospital warrants that, as of the date the first Gamma Knife procedure was performed at the Site using the
Equipment (the "First Procedure Date"), it has (a) thoroughly inspected the Equipment, (b) determined that the Equipment
is consistent with the size, design, capacity and manufacture selected by it, and (c) satisfied itself that to the best of its
knowledge the Equipment is suitable for Hospital’s intended purposes and is good working order, condition and repair. GKF
SUPPLIES THE EQUIPMENT UNDER THIS AGREEMENT IN ITS “AS IS” CONDITION. GKF, NOT BEING THE MANUFACTURER OF THE EQUIPMENT
OR THE MANUFACTURER’S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT’S
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS
TO PATENT INFRINGEMENT OR THE LIKE. GKF shall not be liable for any direct, indirect and consequential losses or damages suffered
by Hospital or by any other person, and Hospital expressly waives any right to hold GKF liable hereunder for, any claims, demands
and liabilities arising out of or in connection with the design, manufacture, possession or operation of the Equipment, including
injury to persons or property resulting from the failure of, defective or faulty design, operation, condition, suitability or use
of the Equipment, or with the accuracy, completeness or suitability of the Site Planning Criteria, including GKF’s good faith
compliance therewith. All warranty or other similar claims with respect to the Equipment or the Site Planning Criteria shall be
made by Hospital solely and exclusively against persons other than GKF, including Elekta or any other manufacturers or suppliers.
In this regard and with prior written approval of GKF, Hospital may, in GKF’s name, but at Hospital’s sole cost and
expense, enforce all warranties, agreements or representations, if any, which may have been made by Elekta or manufacturers, suppliers
or other third parties regarding the Equipment to GKF or Hospital. GKF shall not be responsible for the delivery, installation
or operation of the Equipment or for any delay or inadequacy of any or all of the foregoing.
18. Termination
for Economic Justification.
18.1 If,
after each twelve (12) month period following the Effective Date, based upon the utilization of the Equipment and other factors
considered relevant by GKF in the exercise of its discretion, within a reasonable period of time after GKF’s written request,
Hospital does not provide GKF with a reasonable economic justification to continue this Agreement and the provision of Gamma Knife
services at the Hospital, then and in that event, GKF shall have the option to terminate this Agreement by giving a written notice
thereof to Hospital not less than ninety (90) days prior to the effective date of the termination designated in GKF’s written
notice.
18.2 Notwithstanding
the provisions of Section 18.1, if at any time during the term of this Agreement, Hospital is suspended or terminated from participation
in the Medicare program, GKF shall have the option to terminate this Agreement immediately by giving written notice thereof to
Hospital.
18.3 As
a result of any termination of this Agreement pursuant to this Section 18, GKF may enter upon the Site and remove the Equipment
and any improvements made by GKF to the Site without liability of any kind or nature for so doing or GKF may demand that Hospital
remove and return the Equipment and such improvements to GKF, all at GKF’s sole cost and expense. Notwithstanding the foregoing,
Hospital may elect in its sole discretion to purchase GKF’s Site improvements by giving GKF notice of Hospital’s election
within five (5) days following the receipt by Hospital of GKF’s written notice of termination. The purchase price (the “TI
Purchase Price”) for such Site improvements shall be equal to the actual cost of such improvements incurred by GKF which
are then unamortized as of the effective date of such termination. Amortization shall be straight-line over a period of fifteen
(15) years corresponding with the Term of this Agreement. As an example, if GKF elected to terminate this Agreement pursuant to
Section 18.1 on the date which is five years after the First Procedure Date, then the TI Purchase Price on such termination would
be 10/15s of the actual cost of the Site improvements. The costs of such improvements shall be evidenced by invoices and other
documentation, and shall include any financing charges or costs. Within five (5) days following GKF’s receipt of Hospital’s
election to purchase the Site improvements, GKF shall inform Hospital of the amount of the TI Purchase Price as determined in accordance
with this Section 18.3, and shall provide Hospital upon request with supporting documentation therefor. Payment of the TI Purchase
Price shall be made by Hospital to GKF within five (5) days following GKF’s determination of the TI Purchase Price.
19. Options
to Extend Agreement. As of the end of the Term, Hospital shall have the option either to:
19.1 Extend
the Term of this Agreement for a specified period of time and upon such other terms and conditions as may be agreed upon in writing
by GKF and Hospital taking into account the use (e.g., number of Gamma Knife procedures, etc.) of the Equipment at the Site during
the initial Term and other factors deemed relevant by the parties;
19.2 Purchase
the Equipment from GKF for cash (or other immediately available federal funds) at its then fair market value (based upon the “in
use” value of the Equipment); or
19.3 Terminate
this Agreement as of the expiration of the Term.
Hospital shall exercise one (1) of the three (3) options referred
to above by giving an irrevocable written notice thereof to GKF at least nine (9) months prior to the expiration of the Term. Any
such notice shall be sufficient if it states in substance that Hospital elects to exercise its option and states which of the three
(3) options referred to above Hospital is exercising. If Hospital fails to exercise the option granted herein at least nine (9)
months prior to the expiration of the Term, the option shall lapse and this Agreement shall expire as of the end of the Term. Further,
if Hospital exercises the option specified in Section 19.1 above and the parties are unable to mutually agree upon the length of
the extension of the Term or any other terms or conditions applicable to such extension prior to the expiration of the Term, this
Agreement shall expire as of the end of the initial Term.
20. Events
of Default by Hospital and Remedies.
20.1 The
occurrence of any one of the following shall constitute an event of default under this Agreement (an “Event of Default”):
20.1.1 Hospital
fails to pay any Lease Payment when due pursuant to Paragraph 8 above and such failure continues for a period of thirty (30) days
after written notice thereof is given by GKF or its assignee to Hospital; however, if Hospital cures the payment default within
the applicable thirty (30) day period, such default shall not constitute an Event of Default.
20.1.2 Hospital
attempts to remove, sell, transfer, encumber, assign, sublet or part with possession of the Equipment or any items thereof, except
as expressly permitted herein.
20.1.3 Hospital
fails to observe or perform any of its covenants, duties or obligations arising under this Agreement or the LGK Agreement and such
failure continues for a period of thirty (30) days after written notice thereof by GKF to Hospital; however, if Hospital cures
the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure,
Hospital commences to cure the default during the initial thirty (30) day period and Hospital diligently completes the cure as
soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.
20.1.4 Hospital
ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a
petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement
under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed
against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or
of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution
or liquidation
20.1.5 Within
sixty (60) days after the commencement of any proceedings against Hospital seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed,
or if within thirty (30) days after the appointment without Hospital’s consent or acquiescence of any trustee, receiver or
liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.
20.2 Upon
the occurrence of an Event of Default with respect to Hospital, GKF may at its option do any or all of the following:
20.2.1 By
written notice to Hospital, immediately terminate this Agreement as to the Equipment, wherever situated. As a result of the termination,
GKF may enter upon the Site and remove the Equipment and any improvements made by GKF to the Site without liability of any kind
or nature for so doing or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at Hospital’s
sole cost and expense.
20.2.2 Under
Article 12, Section 12 of the Arkansas Constitution, UAMS as a sovereign entity, may not enter into a covenant or agreement to
hold a party harmless or to indemnify from prospective damages. The obligation of UAMS to reimburse GKF and its affiliates with
respect to any loss, expense, damage, liability, claims or demands, either at law or in equity, for actual or alleged personal
injuries or property damage caused by UAMS and its employees, agents, subcontractors, or volunteers, and under arising out of the
terms of the Agreement, may be pursued only by GKF and its affiliates in a proceeding before the Arkansas State Claims Commission.
In any such proceeding or in any court proceeding commenced by the injured party or parties, UAMS agrees with GKF and its affiliates
that: (1) it will cooperate with GKF and its affiliates in the defense of any action or claim brought against GKF and its affiliates
seeking the foregoing damages or relief; (2) it will in good faith cooperate with GKF and its affiliates should GKF and its affiliates
present any claim of the foregoing nature against UAMS to the Claims Commission of the State of Arkansas; (3) it will not take
any action to frustrate or delay the prompt hearing on claims of the foregoing nature by the said Claims Commission (including,
without limitation, seeking to invalidate this Agreement), and will make reasonable efforts to expedite said hearing; provided,
however UAMS reserves the right to assert in good faith all claims and defenses available to it in any proceeding in said Claims
Commission or other appropriate forum. The obligations of this paragraph shall survive the expiration or termination of the Agreement.
This Agreement shall not be construed as or constitute a waiver of sovereign immunity of the State of Arkansas or its entities
thereof, including UAMS; nor shall it constitute a waiver of the legal requirements for filing a claim against UAMS or the legal
requirement that any and all claims against the State of Arkansas, its entities, including UAMS must be filed with the Arkansas
State Claims Commission. In furtherance of the foregoing, upon the occurrence of an Event of Default with respect to Hospital,
GKF shall have the right to recover damages as may be awarded by the Arkansas State Claims Commission for the loss of the bargain
represented by this Agreement. For purposes of determining such damages, the parties agree that the following methodology constitutes
a reasonable method to calculate GKF’s damages resulting from an Event of Default under the circumstances existing as of
the date of this Agreement, and shall recommend its adoption by the Arkansas State Claims Commission, specifically: (a) the amount
of such damages shall be equal to the present value of the unpaid estimated future Lease Payments to be made by Hospital to GKF
through the end of the Term discounted at the rate of nine percent (9%); and (b) the unpaid estimated future Lease Payments shall
be based on the historical trend of payments made by Hospital to GKF hereunder taking into account known factors which could impact
the historical trend through the end of the Term. GKF shall use reasonable commercial efforts to mitigate its damages by attempting
to sell or lease the Equipment; provided that (i) GKF shall not be obligated to give preference to the sale or lease of
the Equipment over the sale, lease or other disposition of similar equipment or improvements owned or leased by GKF, (ii) GKF shall
have no obligation to sell or lease any improvements made by GKF to the Site, and (iii) GKF’s inability in good faith to
mitigate damages shall not limit or otherwise affect the foregoing methodology for determining damages as set forth in this Section.
20.2.3 Sell,
dispose of, hold, use or lease the Equipment or any improvements made by GKF to the Site, as GKF in its sole and absolute discretion
may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment or improvements
over the sale, lease or other disposition of similar Equipment or improvements owned or leased by GKF). Notwithstanding the foregoing,
Hospital may elect in its sole discretion to purchase GKF’s Site improvements by giving GKF notice of Hospital’s election
within five (5) days following the receipt by Hospital of GKF’s written notice of termination. The purchase price for such
Site improvements shall be equal to the TI Purchase Price (as defined and calculated in accordance with Section 18.3 above). Within
five (5) days following GKF’s receipt of Hospital’s election to purchase the Site improvements, GKF shall inform Hospital
of the amount of the TI Purchase Price and shall provide Hospital upon request with supporting documentation therefor. Payment
of the TI Purchase Price shall be made by Hospital to GKF within five (5) days following GKF’s determination of the TI Purchase
Price. The TI Purchase Price shall be in addition to any other damages, rights or remedies which GKF may be entitled to as a result
of such termination.
20.2.4 Exercise
any other right or remedy which may be available to GKF under the Uniform Commercial Code or any other applicable law or proceed
by appropriate court action, without affecting GKF’s title or right to possession of the Equipment or improvements, to enforce
the terms hereof or to recover damages for the breach hereof or to cancel this Agreement as to the Equipment.
In addition to the foregoing remedies, Hospital agrees to be responsible
for all costs and expenses incurred as a result of the Event of Default (other than attorneys’ fees).
20.3 Upon
termination of this Agreement or the exercise of any other rights or remedies under this Agreement or available under applicable
law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums
owing under this Agreement. The rights and remedies afforded GKF under this Agreement shall be deemed cumulative and not exclusive,
and shall be in addition to any other rights or remedies to GKF provided by law or in equity.
21. Events
of Default by GKF and Remedies.
21.1 The
occurrence of any one of the following shall constitute an Event of Default hereunder:
21.1.1 GKF
shall fail to observe or perform any of its covenants, duties or obligations arising under this Agreement and such failure shall
continue for a period of thirty (30) days after written notice thereof is given by Hospital to GKF; however, if GKF cures the default
within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, GKF commences
to cure the default during the initial thirty (30) day period and GKF diligently completes the cure as soon as reasonably possible
following the end of the thirty (30) day period, such default shall not constitute an Event of Default.
21.1.2 GKF
ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a
petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement
under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed
against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or
of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution
or liquidation.
21.1.3 Within
sixty (60) days after the commencement of any proceedings against GKF seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed,
or if within thirty (30) days after the appointment without GKF’s consent or acquiescence of any trustee, receiver or liquidator
of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.
21.2 Upon
the occurrence of an Event of Default involving GKF, Hospital may at its option do any or all of the following:
21.2.1 By
written notice to GKF, immediately terminate this Agreement as to the Equipment and, in such event, GKF shall remove the Equipment,
the Cobalt and any improvements made by GKF to the Site, at GKF’s sole cost and expense or, in the absence of removal by
GKF within a reasonable period of time after a written request therefor, Hospital may remove the Equipment, the Cobalt and such
improvements with all due care and store the same at GKF’s sole cost and expense.
21.2.2 Seek
to recover from GKF such loss as may be realized by Hospital in the ordinary course of events as a result of the Event of Default.
21.3 GKF
shall in any event remain fully liable for reasonable damages as provided by law and for all costs and expenses incurred by GKF
on account of such default, including but not limited to, all court costs (other than attorneys’ fees). However, GKF shall
not in any manner be or become liable to Hospital for any consequential or incidental damages that may be suffered by Hospital
which arise out of or result from the Event of Default. The rights and remedies afforded Hospital under this Agreement shall be
deemed cumulative to include the purchase option contained in section 18.3 and not exclusive and shall be in addition to any other
rights or remedies to Hospital provided by law or in equity.
21.4 Notwithstanding
the occurrence of an Event of Default with respect to GKF (including any claim which would otherwise be in the nature of a set-off),
Hospital shall fully perform and pay its obligations hereunder (including payment of all Lease Payments) without set-off or defense
of any kind. Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or applicable
law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums
owing under this Agreement when and as due.
22. Removal
of Equipment. Upon expiration of the Term, GKF, at its cost and expense, shall remove the Equipment from the Site not more
than ninety (90) days following the last day of the Term; provided that all of GKF’s right, title and interest in
and to the improvements made by GKF to the Site pursuant to Section 6 above shall thereupon transfer to Hospital.
23. Insurance.
23.1 During
the Term, GKF shall, at its cost and expense, purchase and maintain in effect an all risk property and casualty insurance policy
covering the Equipment. The all risk property and casualty insurance policy shall be for an amount not less than the replacement
cost of the Equipment. The all risk property and casualty insurance policy maintained by GKF shall be evidenced by a certificate
of insurance or other reasonable documentation which shall be delivered by GKF to Hospital upon request following the commencement
of this Agreement and as of each annual renewal of such policy during the Term.
23.2 During
the Term, Hospital shall, at its cost and expense, purchase and maintain in effect professional liability insurance covering the
use or operation of the Equipment by Hospital’s physicians. The professional liability insurance policies shall provide coverage
in amounts not less than One Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) annual aggregate.
The policies to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation
which shall be delivered by Hospital to GKF no later than the First Procedure Date and as of each annual renewal of such policies
during the Term.
23.3 Pursuant
to the Original Lease, during the construction of the Site and prior to the First Procedure Date, GKF, at its cost and expense,
purchased and maintained a general liability insurance policy which conformed with the coverage amounts and other requirements
described in Section 23.2 above and which named Hospital as an additional insured party. The policy to be maintained by GKF hereunder
shall be evidenced by a certificate of insurance or other reasonable documentation which was delivered by GKF to Hospital prior
to the commencement of any construction at the Site.
23.4 During
the Term, Hospital shall purchase and maintain all workers compensation insurance to the maximum extent required by applicable
law.
24. [Intentionally
omitted.]
25. Miscellaneous.
25.1 Binding
Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors
and assigns. Except as provided under Section 14, neither party shall assign this Agreement nor any of its respective rights hereunder
and Hospital shall not sublease the Equipment without the prior written consent of the other party, which consent shall not be
unreasonably withheld. An assignment or sublease shall not relieve the assigning party or sublessor of any liability for performance
of this Agreement during the remainder of the Term. Any purported assignment or sublease made without the other party’s prior
written consent shall be null, void and of no force or effect.
25.2 Agreement
to Perform Necessary Acts. Each party agrees to perform any further acts and execute and deliver any further documents which
may be reasonably necessary or otherwise reasonably required to carry out the provisions of this Agreement.
25.3 Validity.
If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular
context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any
court or other tribunal of competent jurisdiction, then the application of such clause or provision in contexts or to situations,
circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected
thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect.
25.4 Attorney’s
Fees and Costs. In the event of any action, arbitration or other proceedings between or among the parties hereto with respect
to this Agreement, each party shall pay for their own attorneys’ fees and related costs and expenses, irrespective of which
party is deemed to be the prevailing party.
25.5 Entire
Agreement; Amendment. This Agreement together with the Exhibits attached hereto constitutes the full and complete agreement
and understanding between the parties hereto concerning the subject matter hereof and shall supersede any and all prior written
and oral agreements with regard to such subject matter. This Agreement may be modified or amended only by a written instrument
executed by all of the parties hereto.
25.6 Number
and Gender. Words in the singular shall include the plural, and words in a particular gender shall include either or both additional
genders, when the context in which such words are used indicates that such is the intent.
25.7 Effect
of Headings. The titles or headings of the various paragraphs hereof are intended solely for convenience or reference and are
not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement.
25.8 Counterparts.
This Agreement may be executed in one or more counterparts by the parties hereto. All counterparts shall be construed together
and shall constitute one agreement.
25.9 Governing
Law. This Agreement shall be interpreted and enforced in accordance with the internal laws, and not the law of conflicts, of
the State of Arkansas applicable to agreements made and to be performed in that State.
25.10 Exhibits.
All exhibits attached hereto and referred to in this Agreement are hereby incorporated by reference herein as though fully set
forth at length.
25.11 Ambiguities.
The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that
any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual
intent of the parties with respect to such ambiguous provision.
25.12 Representations.
Each of the parties hereto represents (a) that no representation or promise not expressly contained in this Agreement has been
made by any other party hereto or by any of its agents, employees, representatives or attorneys; (b) that this Agreement is not
being entered into on the basis of, or in reliance on, any promise or representation, expressed or implied, other than such as
are set forth expressly in this Agreement; (c) that it has been represented by counsel of its own choice in this matter or has
affirmatively elected not to be represented by counsel; (d) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (e) it has full power and authority to execute, deliver and perform this Agreement,
and (f) the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other
similar action.
25.13 Non-Waiver.
No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement,
or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute
a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party
from exercising any such right, power or remedy at any later time or times.
25.14 Notices.
All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing
and shall be delivered to the party to whom notice is to be given either (a) by personal delivery (in which case such notice shall
be deemed to have been duly given on the date of delivery), (b) by next business day air courier service (e.g., Federal Express
or other similar service) (in which case such notice shall be deemed given on the business day following deposit with the air courier
service), or (c) by United States mail, first class, postage prepaid, registered or certified, return receipt requested (in which
case such notice shall be deemed given on the third (3rd) day following the date of mailing), and properly addressed as follows:
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To GKF: |
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Craig K. Tagawa |
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Chief Executive Officer |
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GK Financing, LLC |
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Four Embarcadero Center |
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Suite 3620 |
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San Francisco, CA 94111 |
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To Hospital: |
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University of Arkansas for Medical Sciences, Hospital |
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4301 W. Markham slot # 557 |
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Little Rock, Arkansas 72205 |
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Attn: Chief Executive Officer |
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with a copy to: |
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UAMSOffice of General Counsel |
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4301 W. Markham slot # 860 |
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Little Rock, Arkansas 72205 |
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Attn: Office of General Counsel |
A party to this Agreement may change his, her or its address for
purposes of this Section by giving written notice to the other parties in the manner specified herein.
25.15 Special
Provisions Respecting Medicare and Medicaid Patients
25.15.1 Hospital
and GKF shall generate such records and make such disclosures as may be required, from time to time, by the Medicare, Medicaid
and other third party payment programs with respect to this Agreement in order to meet all requirements for participation and payment
associated with such programs, including but not limited to the matters covered by Section 1861(v)(1)(I) of the Social Security
Act.
25.15.2 For the purpose
of compliance with Section 1861(v)(1)(I) of the Social Security Act, as amended, and any regulations promulgated pursuant thereto,
both parties agree to comply with the following statutory requirements (a) Until the expiration of four (4) years after the termination
of this Agreement, both parties shall make available, upon written request to the Secretary of Health and Human Services or, upon
request, to the Comptroller General of the United States, or any of their duly authorized representatives, the contract, and books,
documents and records of such party that are necessary to certify the nature and extent of such costs, and (b) if either party
carries out any of the duties of the contract through a subcontract with a value or cost of $10,000 or more over a twelve month
period, with a related organization, such subcontract shall contain a clause to the effect that until the expiration of four (4)
years after the furnishing of such services pursuant to such subcontract, the related organization shall make available, upon written
request to the Secretary, or upon request to the Comptroller General, or any of their duly authorized representatives the subcontract,
and books, documents and records of such organization that are necessary to verify the nature and extent of such costs.
25.16 Force
Majeure. Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under
this Agreement directly or indirectly caused by conditions beyond its reasonable control, including, without limitation, fires,
floods, earthquakes, snow, ice, disasters, acts of God, accidents, riots, wars, operation of law, strikes, governmental action
or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Notwithstanding the
foregoing, all parties shall make good faith efforts to perform under this Agreement in the event of any such circumstance. Further,
once such an event is resolved, the parties shall again perform their respective obligations under this Agreement.
25.17 Independent
Contractor Status. With respect to the performance of the duties and obligations arising under this Agreement, nothing in this
Agreement is intended nor shall be construed to create a partnership, an employer/employee relationship, a joint venture relationship,
or a lease or landlord/tenant relationship between GKF and Hospital.
25.18 Supplier
and Owner of Equipment. The parties hereto agree that, notwithstanding anything to the contrary set forth herein, the Lease
is and shall be treated and interpreted as a "finance lease," as such term is defined in Article 2A of the Uniform Commercial
Code and Section 4-2A-103(1)(g) of the Arkansas Code Annotated, that GKF shall be treated as a finance lessor who is entitled to
the benefits and releases from liability accorded to a finance lessor under Article 2A of the Uniform Commercial Code and Section
4-2A-103(1)(g) of the Arkansas Code Annotated. In furtherance of the foregoing, Hospital acknowledges that, before signing this
Amendment, GKF has informed Hospital in writing (a) that Elekta is the entity supplying the Equipment, (b) that Hospital is entitled
(under Section 2A of the Uniform Commercial Code and Section 4-2A-103(1)(g) of the Arkansas Code Annotated) to the promises and
warranties, including those of any third party, provided to GKF by Elekta which is the entity supplying the goods in connection
with or as part of the contract by which GKF acquired the Equipment or the right to possession and use of the Equipment, and (c)
that Hospital may communicate with Elekta and receive an accurate and complete statement of those promises and warranties, including
any disclaimers and limitations of them or of remedies. Hospital also acknowledges that Hospital has selected Elekta to supply
the Equipment and has directed GKF to acquire the Equipment or the right to possession and use of the Equipment from Elekta.
[Signatures continued on next page]
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed as of the date first set forth above.
“GKF” |
GK FINANCING, LLC, |
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a California limited liability company |
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By: |
/s/ Ernest A. Bates, M.D 12/12/14 |
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Ernest A. Bates, M.D. date
Policy Committee Member |
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“Hospital” |
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THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES |
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By: |
/s/ Roxane A. Townsend, MD 12/4/14 |
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Roxane A. Townsend, MD date
Vice Chancellor for Clinical Programs |
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CEO UAMS Medical Center |
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BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS on behalf of THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES |
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By: |
/s/ William R. Bowes, CFO |
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William R. Bowes, CFO date
Vice Chancellor for Finance & Administration |
Exhibit 8.1
HOSPITAL’S DIRECT COST COMPONENT
Registered nurse |
[*] |
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Recovery room |
[*] |
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Hospital daily charge |
[*] |
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Hospital, including ventilator daily charge |
[*] |
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MRI procedure |
[*] |
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CT procedure |
[*] |
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Angiography procedure |
[*] |
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Physicist |
[*] |
Exhibit 10.5
ADDENDUM THREE
TO LEASE AGREEMENT FOR A GAMMA KNIFE
UNIT
This ADDENDUM THREE TO LEASE AGREEMENT FOR
A GAMMA KNIFE UNIT (this “Addendum Three”) is dated effective as of April 25, 2015 and is entered into between The
Community Hospital Group, Inc., dba JFK Medical Center, a New Jersey corporation (“JFK”), and GK Financing, LLC, a
California limited liability company (“GKF”).
RECITALS
WHEREAS, on December 11, 1996, GKF and JFK
executed a Lease Agreement for a Gamma Knife Unit (the “Original Lease”), which lease agreement was amended by certain
Addendum One dated effective as of July 1, 2002 and Addendum Two dated effected January 9, 2008 (such Lease Agreement, as amended
by such Addendum One and Addendum Two is referred to herein as the “Lease”); and
WHEREAS, the parties desire to further amend
the terms and provisions of the Lease as set forth herein.
NOW THEREFORE, in consideration of the mutual
covenants and agreements set forth herein, and for the other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Defined Terms. Unless otherwise
defined herein, the capitalized terms used herein shall have the same meanings set forth in the Agreement.
2. Extension of Term.
a. It is acknowledged that the First Procedure
Date under the Lease was April 25, 2000, and therefore, pursuant to Section 4 of the Lease and Section 2 of Addendum Two, the Lease
is currently set to expire on at 11:59 p.m. on April 24, 2015.
b. The parties hereby agree to extend the
Lease to 11:59 p.m. on April 24, 2016.
3. Captions. The captions and
paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Addendum Three.
4. Full Force and Effect. Except
as amended by this Addendum Three, all of the terms and provisions of the Lease shall remain in full force and effect. Notwithstanding
the foregoing, to the extent of any conflict or inconsistency between the terms and provisions of this Addendum Three and that
of the Lease, the terms and provisions of this Addendum Three shall prevail and control.
IN WITNESS WHEREOF, the parties have executed
this Addendum Three effective as of the date first written above.
GKF: |
JFK: |
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GK FINANCING, LLC |
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THE COMMUNITY HOSPITAL GROUP, INC., dba JFK Medical Center |
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By: |
/s/ Ernest A. Bates, M.D. |
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By: |
/s/ Amie Thornton |
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Name: |
Ernest A. Bates, M.D. |
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Name: |
Amie Thornton |
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Title: |
Policy Committee Member |
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Title: |
Senior VP, Operations |
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Exhibit 31.1
CERTIFICATION
I, Ernest A. Bates, M.D., as chief executive officer of American
Shared Hospital Services, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Shared Hospital Services;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any changes in the registrant’s
internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
August 19, 2015
/s/ Ernest A. Bates, M.D. |
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Ernest A. Bates, M.D. |
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Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION
I, Craig K. Tagawa., as chief financial officer of American
Shared Hospital Services, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Shared Hospital Services;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any changes in the registrant’s
internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
August 19, 2015
/s/ Craig K. Tagawa |
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Craig K. Tagawa |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being
submitted in connection with the Quarterly Report on Form 10-Q of American Shared Hospital Services for the quarterly period ended
June 30, 2015 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Ernest A. Bates, M.D., the Chief Executive
Officer and Craig K. Tagawa, the Chief Financial Officer of American Shared Hospital Services, each certifies that, to the best
of his knowledge:
1. the
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of American Shared Hospital Services.
August 19, 2015
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/s/ Ernest A. Bates, M.D. |
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Ernest A. Bates, M.D. |
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Chief Executive Officer |
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/s/ Craig K. Tagawa |
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Craig K. Tagawa |
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Chief Financial Officer |
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