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<SEC-DOCUMENT>0000950149-06-000213.txt : 20060428
<SEC-HEADER>0000950149-06-000213.hdr.sgml : 20060428
<ACCEPTANCE-DATETIME>20060428120047
ACCESSION NUMBER:		0000950149-06-000213
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20060628
FILED AS OF DATE:		20060428
DATE AS OF CHANGE:		20060428
EFFECTIVENESS DATE:		20060428

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN SHARED HOSPITAL SERVICES
		CENTRAL INDEX KEY:			0000744825
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-MEDICAL LABORATORIES [8071]
		IRS NUMBER:				942918118
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08789
		FILM NUMBER:		06788093

	BUSINESS ADDRESS:	
		STREET 1:		FOUR EMBARCADERO CENTER
		STREET 2:		SUITE 3700
		CITY:			SAN FRANCISCO
		STATE:			CA
		ZIP:			94111-4107
		BUSINESS PHONE:		415-788-5300

	MAIL ADDRESS:	
		STREET 1:		FOUR EMBARCADERO CENTER
		STREET 2:		SUITE 3700
		CITY:			SAN FRANCISCO
		STATE:			CA
		ZIP:			94111-4107
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>f19938def14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>def14a</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SCHEDULE 14A<BR>
(Rule&nbsp;14a-101)<BR>
INFORMATION REQUIRED IN PROXY STATEMENT<BR>
SCHEDULE 14A INFORMATION<BR>
Proxy Statement Pursuant to Section&nbsp;14(a) of the Securities<BR>
Exchange Act of 1934</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Filed by the Registrant <FONT face="Wingdings">&#254;</FONT><BR>
Filed by a Party other than the Registrant <FONT face="Wingdings">&#111;</FONT><BR>
Check the appropriate box:

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Preliminary Proxy Statement</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Confidential, For Use of the Commission Only (as permitted by Rule&nbsp;14a-6(e)(2)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Definitive Proxy Statement</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Definitive Additional Materials</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Soliciting Material Pursuant to Rule&nbsp;14a-11(c) or Rule&nbsp;14a-12</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">American Shared Hospital Services<BR>
(Name of Registrant as Specified in Its Charter)<BR>
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payment of Filing Fee (Check the appropriate box):

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No fee required</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(1) and 0-11.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Title of each class of securities to which transaction applies:<BR></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Aggregate number of securities to which transactions applies:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Per unit price or other underlying value of transaction computed to Exchange Act Rule&nbsp;0-11
(set forth the amount on which the filing fee is calculated and state how it was determined):</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Proposed maximum aggregate value of transaction:<BR></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Total fee paid:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fee paid previously with preliminary materials:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Check box if any part of the fee is offset as provided by Exchange Act Rule&nbsp;0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the date of its filing.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amount previously paid:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Form, Schedule or Registration Statement no.:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Filing Party:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Date Filed:</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>

<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS To Be Held On June 28, 2006</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">PROXY STATEMENT 2006 ANNUAL MEETING OF SHAREHOLDERS June 28, 2006</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">INTRODUCTION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#003">PROPOSAL NO. 1 ELECTION OF DIRECTORS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#004">CERTAIN ADDITIONAL INFORMATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">PERFORMANCE GRAPH, TOTAL RETURN TO SHAREHOLDERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#007">AUDIT COMMITTEE REPORT</A></TD></TR>
<TR><TD colspan="9"><A HREF="#008">PROPOSAL NO. 2 APPROVAL OF 2006 STOCK INCENTIVE PLAN</A></TD></TR>
<TR><TD colspan="9"><A HREF="#009">PROPOSAL 3 -- APPROVAL OF THE LONG TERM INCENTIVE COMPENSATION PLAN</A></TD></TR>
<TR><TD colspan="9"><A HREF="#010">PROPOSAL NO. 4 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></TD></TR>
<TR><TD colspan="9"><A HREF="#011">SHAREHOLDER PROPOSALS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#012">ANNUAL REPORT</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 14.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AMERICAN SHARED HOSPITAL SERVICES</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>Four Embarcadero Center, Suite&nbsp;3700</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>San&nbsp;Francisco, California 94111</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<!-- link1 "NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS To Be Held On June 28, 2006" -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>To Be Held On June&nbsp;28, 2006</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<FONT style="font-variant:SMALL-CAPS">TO THE SHAREHOLDERS OF
AMERICAN SHARED HOSPITAL SERVICES:
</FONT>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NOTICE IS HEREBY GIVEN that, pursuant to a call of the Board of
Directors, the 2006 Annual Meeting of Shareholders (the
&#147;Meeting&#148;) of American Shared Hospital Services, a
California corporation (the &#147;Company&#148;), will be held
at the Ritz Carlton Hotel, 600&nbsp;Stockton Street (corner of
California Street), San&nbsp;Francisco, California 94111 at
9:00&nbsp;am (Pacific time), on Wednesday, June&nbsp;28, 2006 to
consider and to act upon the following matters, all as set forth
in the Proxy Statement.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1.&nbsp;ELECTION OF DIRECTORS. To elect the following five
    nominees to the Board of Directors to serve until the next
    Annual Meeting of Shareholders and until their successors are
    elected and have qualified.</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    Ernest A. Bates,&nbsp;M.D.&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    John F. Ruffle</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest R. Bates</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stanley S. Trotman,&nbsp;Jr.</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Olin C. Robison</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    2.&nbsp;2006 STOCK INCENTIVE PLAN. To consider and act upon the
    recommendation of the Board of Directors to approve the
    Company&#146;s 2006 Stock Incentive Plan (the &#147;2006
    Plan&#148;), under which 750,000&nbsp;shares of common stock are
    reserved. The 2006 Plan is intended to serve as a successor to
    our 1995 Stock option Plan (the &#147;1995 Plan&#148;) and our
    2001 Stock Option Plan (the &#147;2001 Plan&#148;). The share
    reserve under the 1995 Plan and the 2001 Plan, including the
    shares of common stock subject to currently outstanding options
    under such plans, will be transferred to the 2006 Plan and will
    comprise approximately 390,000 of the 750,000&nbsp;shares
    reserved under the 2006 Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    3.&nbsp;LONG TERM INCENTIVE COMPENSATION PLAN. To consider and
    act upon the recommendation of the Board of Directors to approve
    the company&#146;s Long Term Incentive Compensation Plan (the
    &#147;Plan&#148;). Under the Plan the executive officers and
    other employees essential to the Company&#146;s financial growth
    and success will have the opportunity to earn additional
    incentive compensation contingent upon attainment of
    pre-established objectives.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    4.&nbsp;RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
    FIRM. To ratify the appointment of Moss Adams LLP as the
    Company&#146;s Independent Registered Public Accounting Firm for
    the year ending December&nbsp;31, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    5.&nbsp;OTHER BUSINESS. To transact such other business and to
    consider and take action upon any and all matters that may
    properly come before the Annual Meeting and any and all
    adjournments thereof.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors knows of no matters, other than those set
forth in paragraphs&nbsp;(1), (2), (3), and (4)&nbsp;above, that
will be presented for consideration at the Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has fixed the close of business on
May&nbsp;1, 2006 as the Record Date for the determination of
shareholders entitled to vote at the Meeting.
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON,
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE. THE PROXY IS REVOCABLE AND
WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE
MEETING. IN ORDER TO FACILITATE THE PROVISION OF ADEQUATE
ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER YOU PLAN TO
ATTEND THE MEETING IN PERSON.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    By Order of the Board of Directors</TD>
</TR>

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f19938f1993801.gif" alt="(-s- Willie R. Barnes)"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Willie R. Barnes</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>Corporate Secretary</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dated: April&nbsp;28, 2006
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
San&nbsp;Francisco, California
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 14.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AMERICAN SHARED HOSPITAL SERVICES</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>Four Embarcadero Center, Suite&nbsp;3700</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>San&nbsp;Francisco, California 94111</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<!-- link1 "PROXY STATEMENT 2006 ANNUAL MEETING OF SHAREHOLDERS June 28, 2006" -->
<DIV align="left"><A NAME="001"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>PROXY STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>2006 ANNUAL MEETING OF SHAREHOLDERS</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>June&nbsp;28, 2006</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<DIV align="left"><A NAME="002"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>INTRODUCTION</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Proxy Statement is being furnished to shareholders of
American Shared Hospital Services, a California corporation (the
&#147;Company&#148;), in connection with the solicitation of
proxies by the Company&#146;s Board of Directors for use at the
2006 Annual Meeting of Shareholders scheduled to be held at the
Ritz Carlton Hotel, 600&nbsp;Stockton Street (corner of
California Street), San&nbsp;Francisco, California 94111 at
9:00&nbsp;am (Pacific time) on Thursday, June&nbsp;28, 2006 and
at any adjournment or adjournments thereof (the
&#147;Meeting&#148;). It is anticipated that this Proxy
Statement and the Proxy will first be sent to shareholders on or
about May&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The matters to be considered and voted upon at the Meeting will
be:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1.&nbsp;To elect five persons to the Board of Directors to serve
    until the next Annual Meeting of Shareholders and until their
    successors are elected and have qualified.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    2.&nbsp;To approve the Company&#146;s 2006 Stock Incentive Plan
    (2006 Plan) which is intended to serve as a successor to the
    Company&#146;s 2001 and 1995 Stock Option Plans.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    3.&nbsp;To approve the Company&#146;s Long Term Incentive
    Compensation Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    4.&nbsp;To ratify the appointment of Moss Adams LLP as the
    Company&#146;s Independent Registered Public Accounting Firm for
    the year ending December&nbsp;31, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    5.&nbsp;To transact such other business as may properly be
    brought before the Meeting and any and all adjournments thereof.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Only shareholders of record at the close of business on
May&nbsp;1, 2006 (the &#147;Record Date&#148;) are entitled to
notice of and to vote at the Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revocability of Proxies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A proxy for use at the Meeting is enclosed. Any shareholder who
executes and delivers such proxy may revoke it at any time prior
to its use by filing with the Secretary of the Company either
written instructions revoking such proxy or a duly executed
proxy bearing a later date. Written notice of the death of the
person executing a proxy, before the vote is counted, is
tantamount to revocation of such proxy. A proxy may also be
revoked by attending the Meeting and voting in person.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Solicitation of Proxies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This proxy solicitation is being made by the Board of Directors
of the Company. The expense of the solicitation will be paid by
the Company. To the extent necessary to assure sufficient
representation at the Meeting, proxies may be solicited by any
appropriate means by directors, officers, regular employees of
the Company and the stock transfer agent for the Common Shares,
who will not receive any additional compensation therefor. The
Company will request that banks, brokers and other fiduciaries
solicit their customers who own beneficially the Common Shares
listed of record in names of nominees and, although there is no
formal arrangement to do so, the Company will reimburse such
persons the reasonable expenses of such solicitation. In
addition, the Company may pay for and utilize the services of
individuals or companies not regularly employed by
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
the Company in connection with the solicitation of proxies, if
the Board of Directors of the Company determines that this is
advisable.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Outstanding Securities</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has fixed May&nbsp;1, 2006 as the Record
Date for the determination of shareholders entitled to notice
of, and to vote at, the Meeting. At the close of business on the
Record Date, there were outstanding and entitled to
vote&nbsp;5,018,885 Common Shares. The Common Shares are the
only class of securities entitled to vote at the Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Vote Required and Voting Procedures</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each holder of Common Shares will be entitled to one vote, in
person or by proxy, for each share standing in its name on the
books of the Company as of the Record Date for the Meeting on
each of the matters duly presented for vote at the Meeting,
except as indicated below in connection with the election of
directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the election of directors, shares are
permitted to be voted cumulatively, if (i)&nbsp;a shareholder
present at the Meeting has given notice at the Meeting, prior to
the voting, of such shareholder&#146;s intention to vote its
shares cumulatively and (ii)&nbsp;the names of the candidates
for whom such shareholder desires to cumulate votes have been
placed in nomination prior to the voting. If a shareholder has
given such notice, all shareholders may cumulate their votes for
candidates in nomination. Cumulative voting allows a shareholder
to give one nominee as many votes as is equal to the number of
directors to be elected, multiplied by the number of shares
owned by such shareholder or to distribute votes on the same
principle between two or more nominees. Discretionary authority
to cumulate votes is hereby solicited by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the solicitation by the Board of Directors of
proxies for use at the Meeting, the Board of Directors has
designated Ernest A. Bates,&nbsp;M.D. and Craig K. Tagawa as
proxies. Common Shares represented by properly executed proxies
will be voted at the Meeting in accordance with the instructions
specified thereon. If no instructions are specified, the Common
Shares represented by any properly executed proxy will be voted
FOR the (1)&nbsp;election of the five nominees for the Board of
Directors named herein, (2)&nbsp;approval and adoption for the
Company&#146;s 2006 Plan, (3)&nbsp;approval and adoption of the
Company&#146;s Long Term Incentive Compensation Plan, and
(4)&nbsp;ratification of the appointment of the Company&#146;s
Independent Registered Public Accounting Firm.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors is not aware of any matters that will
come before the Meeting other than as described above. However,
if such matters are presented, the named proxies will, in the
absence of instructions to the contrary, vote such proxies in
accordance with the judgment of such named proxies with respect
to any such other matter properly coming before the Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All outstanding shares of the Company&#146;s Common Stock
represented by properly executed and unrevoked proxies received
in time for the Meeting will be voted. A shareholder may, with
respect to the election of directors, (i)&nbsp;vote for the
election of all five nominees named herein as directors,
(ii)&nbsp;withhold authority to vote for all such director
nominees or (iii)&nbsp;vote for the election of all such
director nominees other than any nominee(s) with respect to whom
the shareholder withholds authority to vote by so indicating in
the appropriate space on the proxy. Withholding authority to
vote for a director nominee will not prevent such director
nominee from being elected. A shareholder may, with respect to
the approval of the Company&#146;s 2006 Plan, (i)&nbsp;vote for
the approval, (ii)&nbsp;vote against approval, or
(iii)&nbsp;abstain. A shareholder may, with respect to the
approval of the Company&#146;s Long Term Incentive Compensation
Plan, (i)&nbsp;vote for approval, (ii)&nbsp;vote against
approval, or (iii)&nbsp;abstain. A shareholder may, with respect
to the proposal to ratify the appointment of the Company&#146;s
Independent Registered Public Accounting Firm, (i)&nbsp;vote for
the ratification, (ii)&nbsp;vote against the ratification, or
(iii)&nbsp;abstain.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A proxy submitted by a shareholder may indicate that all or a
portion of the shares represented by such proxy are not being
voted by such shareholder with respect to a particular matter.
This could occur, for example, when a broker is not permitted to
vote stock held in street name on certain matters in the absence
of instructions from the beneficial owner of the stock. The
shares subject to any such proxy which are not being voted with
respect to a particular matter (the &#147;non-voted
shares&#148;) will be considered shares not present and entitled
to vote
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
on such matter, although such shares may be considered present
and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A majority of the Common Shares outstanding on the Record Date
must be represented in person or by proxy at the Annual Meeting
in order to constitute a quorum for the transaction of business.
In the election of directors, the five candidates receiving the
highest number of votes will be elected directors of the
Company. Proposals Two, Three and Four require for approval an
affirmative vote of a majority of the voting power present or
represented by proxy and voting on the proposal, assuming a
quorum is present and that the affirmatively voting shares also
constitute at least a majority of the required quorum. For
purposes of these proposals, abstentions and broker non-votes
are counted for purposes of determining the quorum and have the
effect of a vote&nbsp;AGAINST the proposal.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has appointed Geraldine Zarbo of American
Stock Transfer&nbsp;&#38; Trust Company, the registrar and
transfer agent for the Common Shares, or her designee, as the
Inspector of Elections for the Annual Meeting. The Inspector of
Elections will determine the number of Common Shares represented
in person or by proxy at the Annual Meeting, whether a quorum
exists, the authenticity, validity and effect of proxies and
will receive and count the votes. The election of directors will
not be by ballot unless a shareholder demands election by ballot
at the Annual Meeting before the voting begins.
</DIV>

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<!-- link1 "PROPOSAL NO. 1 ELECTION OF DIRECTORS" -->
<DIV align="left"><A NAME="003"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;NO. 1</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>ELECTION OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Bylaws provide that there shall be no fewer
than five nor more than nine directors and that the exact number
shall be fixed from time to time by a Resolution of the Board of
Directors. The number of directors currently is fixed at five.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors is proposing the persons named below for
election to the Board of Directors. Each of the persons
identified below will be nominated for election to serve until
the next Annual Meeting of Shareholders and until their
successors shall be elected and qualified. Votes will be cast
pursuant to the enclosed proxy in such a way as to effect the
election of each of the persons named below or as many of them
as possible under applicable voting rules. If a nominee shall be
unable or unwilling to accept nomination for election as a
director, it is intended that the proxy holders will vote for
the election of such substitute nominee, if any, as shall be
designated by the Board of Directors. Each of the nominees named
below has notified the Board of Directors that, if elected, he
is willing to serve as a director.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Set forth below is certain information regarding each of the
nominees.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148; THE
ELECTION OF THE NOMINEES NAMED BELOW. PROPERLY EXECUTED PROXIES
RETURNED TO THE COMPANY WILL BE VOTED &#147;FOR&#148; THE
NOMINEES NAMED BELOW UNLESS OTHERWISE INSTRUCTED.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nominees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
ERNEST A. BATES,&nbsp;M.D., founder of the Company, has served
as Chairman of the Board of Directors and Chief Executive
Officer since the incorporation of the Company. He is currently
Vice Chairman of the Board of Trustees of The Johns Hopkins
University, a member of the Board of Trustees at the University
of Rochester, a member of the Board of Overseers of the
University of California at San&nbsp;Francisco School of
Nursing, a member of the Board of Directors of Copia and the
Capital Campaign Chairman and a Board Member of the Museum of
African Diaspora. Dr.&nbsp;Bates is also a member of the State
of California Commission for Jobs and Economic Growth, a member
of the Board of Directors of Salzburg Seminar, a board member of
the Center for Accelerating Medical Solutions-Milken Institute
and a member of the Brookings Institution. Dr.&nbsp;Bates is a
graduate of The Johns Hopkins University and the University of
Rochester School of Medicine. Dr.&nbsp;Bates is 69&nbsp;years
old. Dr.&nbsp;Bates is the father of Board Member Ernest R.
Bates.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
ERNEST R. BATES has been a director of the Company since 2004.
He has been Managing Director, Institutional Fixed Income Sales
of HSBC Securities (USA), Inc. since 2003. Mr.&nbsp;Bates has
also served as Managing Director, Head of Asian Product for HSBC
Securities (USA)&nbsp;Inc. from 1999 to 2003. From 1993 through
1999, Mr.&nbsp;Bates held various positions with Merrill Lynch,
last serving as Vice President, European Syndicate for Merrill
Lynch International. He received his undergraduate degree from
Brown University and a M.B.A. degree from The Wharton Business
School. Mr.&nbsp;Bates is 39&nbsp;years old. Ernest R. Bates is
the son of Board Member Dr.&nbsp;Ernest A. Bates.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
OLIN C. ROBISON has been a director of the Company since 2003.
He is currently President Emeritus of Middlebury College.
Mr.&nbsp;Robison was President and Chief Executive Officer of
the Salzburg Seminar from 1991 to 2005. He was President of
Middlebury College from 1975 to 1990. He is a Director of The
Investment Company of America, American Mutual Fund and AMCAP
(all of the American Funds Group) and has served on the Council
(Board) of the Royal Institute of International Affairs in
London. He received his undergraduate degree from Baylor
University and holds the Doctor of Philosophy degree from Oxford
University. Mr.&nbsp;Robison is 69&nbsp;years old.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
JOHN F. RUFFLE has been a director of the Company since 1995. He
retired in 1993 as Vice-Chairman of the Board and a Director of
J.P.&nbsp;Morgan&nbsp;&#38; Co. Incorporated and Morgan Guaranty
Trust Co. of New York. He is also a Director of Reckson
Associates Realty Corporation; a member of the Board of Trustees
of certain mutual funds in the J.P Morgan family of mutual funds
and certain investment funds managed by J.P Morgan Investment
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Management, Inc.; and a Trustee of The Johns Hopkins University.
He is a graduate of The Johns Hopkins University, with an MBA in
finance from Rutgers University, and is a Certified Public
Accountant. Mr.&nbsp;Ruffle is 69&nbsp;years old.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
STANLEY S. TROTMAN,&nbsp;Jr., has been a director of the Company
since 1996. He retired in 2000 as a Managing Director with the
Health Care Group of PaineWebber Incorporated, an investment
banking firm. Mr.&nbsp;Trotman had been with PaineWebber
Incorporated since 1995 following the consolidation of Kidder,
Peabody, also an investment banking firm, with PaineWebber. He
had previously co-directed Kidder, Peabody&#146;s Health Care
Group since April 1990. Formerly he had been head of the Health
Care Group at Drexel Burnham Lambert, Inc. where he had been
employed for approximately 22&nbsp;years. He is also a Director
of Oncure Medical Corp. He received his undergraduate degree
from Yale University in 1965 and holds an MBA from Columbia
Business School in 1967. Mr.&nbsp;Trotman is 62&nbsp;years old.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Meetings of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors of the Company held four regular meetings
during 2005. All directors attended at least 75% of the
aggregate number of meetings of both the Board of Directors and
of the Committees of the Board on which such director served
during the year.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shareholders may communicate with the Board by writing to:
Four&nbsp;Embarcadero Center, Suite&nbsp;3700;
San&nbsp;Francisco, CA
<FONT style="white-space: nowrap">94111-4107,</FONT> Attention:
Ernest A. Bates. We encourage directors to attend our annual
meeting and all directors attended the 2005 Annual Meeting in
person. All shareholder communications to directors are
forwarded to them.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Committees of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has standing Compensation, Nominating and Corporate
Governance and Audit Committees, each of which is described
below. The American Stock Exchange (&#147;AMEX&#148;) adopted
enhanced board and board committee independence requirements
that became fully applicable to the Company on July&nbsp;31,
2005. The Company was in compliance with these enhanced
requirements prior to July&nbsp;31, 2005. Thus, a majority of
our directors (Messrs.&nbsp;Robison, Ruffle and Trotman) are
independent under the AMEX rules and
Rule&nbsp;<FONT style="white-space: nowrap">10A-3</FONT> under
the Securities Exchange Act and each of the Committees described
above is comprised of these three independent directors. Each of
the Audit, Compensation and Nominating and Corporate Governance
Committees has adopted a formal written charter. These, as well
as our Code of Professional Conduct and Ethics, are available on
our website at www.ashs.com. You may also request a copy of
these documents free of charge by writing our Corporate
Secretary. We intend to post on our website any amendments to
our Code of Professional Conduct and Ethics, as well as any
waivers for directors or executive officers (including our chief
accounting officer and controller and anyone else performing
similar functions) within five business days after the date of
any amendment or waiver. The information on our website is not
part of this proxy statement. The Company&#146;s independent
directors meet at least annually without management and the
non-independent directors, as required by the AMEX rules.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The function of the Compensation Committee is to recommend to
the Board of Directors the compensation of the Company&#146;s
executive officers. The Compensation Committee did not meet
during 2005. The Compensation Committee consists of
Mr.&nbsp;Robison, Mr.&nbsp;Ruffle, and Mr.&nbsp;Trotman.
Mr.&nbsp;Trotman is Chair of the Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the Nominating and Corporate Governance Committee
is to recommend candidates for election to the Board of
Directors. The Company adopted a Nominating and Corporate
Governance Committee Charter during the past year which is
available on our website. The Nominating and Corporate
Governance Committee met once during 2005. In 2006, the
Nominating and Corporate Governance Committee by unanimous
written consent nominated Dr.&nbsp;Bates, Mr.&nbsp;Bates,
Mr.&nbsp;Robison, Mr.&nbsp;Ruffle and Mr.&nbsp;Trotman for
election to the Board. Mr.&nbsp;Robison, Mr.&nbsp;Ruffle and
Mr.&nbsp;Trotman serve on the Nominating and Corporate
Governance Committee. Mr.&nbsp;Trotman is Chair of the
Nominating and Corporate Governance Committee.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the Audit Committee is to review the financial
reporting and internal controls of the Company, to appoint the
independent auditors, and to review the reports of such
auditors. The Audit Committee consists of Mr.&nbsp;Robison,
Mr.&nbsp;Ruffle, and Mr.&nbsp;Trotman. Mr.&nbsp;Ruffle is Chair
of the Audit Committee. During the year 2005 the Audit Committee
held four regular meetings and four telephonic meetings. For
further information concerning the Audit Committee, refer to the
&#147;Audit Committee Report.&#148; Mr.&nbsp;Ruffle is a
&#147;financial expert&#148; and meets the applicable
independence requirements of AMEX and
Rule&nbsp;<FONT style="white-space: nowrap">10-A-3</FONT> under
the Securities Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Company has a Stock Option Committee whose
purpose is to administer the Company&#146;s 1995 Stock Option
Plan and 2001 Stock Option Plan, and to determine recipients of
awards pursuant to such plans and the terms of such awards.
During 2005 the functions of the Stock Option Committee were
performed by the Board as a whole.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Identifying and Evaluating Director Nominees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Nominating and Corporate Governance Committee uses various
methods to identify director nominees. The Nominating and
Corporate Governance Committee assesses the appropriate size and
composition of the Board and the particular needs of the Board
based on whether any vacancies are expected due to retirement or
otherwise. Candidates may come to the attention of the
Nominating and Corporate Governance Committee through current
board members, shareholders, or other sources. All candidates
are evaluated based on a review of the individual&#146;s
qualifications, skills, independence and expertise.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Nominating and Corporate Governance Committee will consider
director candidates submitted by shareholders to:
Four&nbsp;Embarcadero Center, Suite&nbsp;3700,
San&nbsp;Francisco, CA
<FONT style="white-space: nowrap">94111-4107,</FONT> Attention:
Nominating and Corporate Governance Committee. Such
recommendations should be accompanied by (i)&nbsp;evidence of
the shareholder&#146;s stock ownership over the last year,
(ii)&nbsp;a statement that the shareholder is not a competitor
of the Company, (iii)&nbsp;a resume and contact information for
the director candidate, as well as a description of the
candidate&#146;s qualifications and (iv)&nbsp;a statement
whether the candidate has expressed interest in serving as a
director. The Nominating and Corporate Governance Committee
follows the same process and uses the same criteria for
evaluating candidates proposed by shareholders as it does for
candidates proposed by other parties. The Nominating and
Corporate Governance Committee will consider such candidacy and
will advise the recommending shareholder of its final decision.
A shareholder who wishes to nominate a person for director must
provide the nomination in writing to the Secretary at the
Company&#146;s principal offices pursuant to the notice
provisions in the By-laws. Such notice must be received not less
than 60 nor more than 90&nbsp;days prior to the Annual Meeting
or, if less than 70&nbsp;days&#146; notice of the date of such
meeting has been given, then within 10 business days following
the first public disclosure of the meeting date or the mailing
of the Company&#146;s notice. Any such notice must contain
information regarding the nominee and the proponent. Details
concerning the nature of such information are available without
charge from the Company.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Director Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2005, non-employee directors were paid an annual retainer of
$20,000, payable quarterly. In addition, under the
Company&#146;s 2001 Plan, non-employee directors automatically
receive an option grant on the date of the Company&#146;s Annual
Shareholder Meeting each year to acquire up to 4,000&nbsp;shares
of the Company&#146;s common stock at the market price on the
date of grant, until a director has received options to purchase
an aggregate of 12,000&nbsp;shares. Each 4,000&nbsp;share option
grant vests on the first anniversary of the option grant date
provided the non-employee director is in the Company&#146;s
service on such date. Pursuant to such program, Ernest R. Bates
and Olin C. Robison, each received in 2005 an option to
purchase&nbsp;4,000&nbsp;shares of the Company&#146;s common
stock at an exercise price per share of $6.16. In addition,
during 2005 all non-employee directors received a discretionary
option grant to purchase&nbsp;4,000&nbsp;shares of the
Company&#146;s common stock at an exercise price per share of
$6.16, the fair market value of the Company&#146;s common stock
on the option grant date. These discretionary option grants vest
at the rate of 20%&nbsp;per year beginning with the first
anniversary of the option grant date. Non-employee directors
also received reimbursement of expenses incurred in attending
meetings. No payment is made for attendance at meetings by any
director who is a full time employee of the Company.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our stockholders are being asked to vote on a proposal to
approve the implementation of the 2006 Stock Incentive Plan (the
&#147;2006 Plan&#148;). If the 2006 Plan is approved, each
individual who first becomes a non-employee director on or after
the date of the 2006 Annual Meeting will, at the time of his or
her election to the board, receive an option grant to purchase a
specified number of shares of our common stock and a restricted
stock unit award covering an additional number of shares of our
common stock, provided that such individual has not previously
been in the employ of the Company or any of its parents or
subsidiaries. The specific number of shares subject to the
initial award will be determined by the Compensation Committee
of our Board of Directors, but will not exceed
10,000&nbsp;shares for the option component or more than
3,000&nbsp;shares for the restricted stock unit component. In
addition, on the date of each Annual Shareholders Meeting,
beginning with the 2006 Annual Meeting, each individual who will
continue to serve as a non-employee director will automatically
be granted an option to purchase a specified number of shares of
our common stock and a restricted stock unit award covering an
additional number of shares of our common stock, provided such
individual has served as a non-employee director for at least
six (6)&nbsp;months. The specific number of shares subject to
the initial award will be determined by the Compensation
Committee of our Board of Directors, but will not exceed
3,000&nbsp;shares for the option component or more than
750&nbsp;shares for the restricted stock unit component. There
will be no limit on the number of such annual awards any one
eligible non-employee director may receive over his or her
period of continued service on the Board of Directors, and
non-employee directors who have previously been in the
Company&#146;s employ will be eligible to receive one or more
such annual awards over their period of service on the Board of
Directors. Each initial stock option and restricted stock unit
award will vest in 4 equal annual installments upon the
individual&#146;s completion of each year of service. Each
annual stock option and restricted stock award will vest in one
installment upon the individual&#146;s completion of one year of
board service. It is currently anticipated that the annual award
to the non-employee directors at the 2006 Annual Meeting will be
comprised of an option grant for 2,000&nbsp;shares and a
restricted stock unit award for an additional 500&nbsp;shares.
In the event stockholder approval of the 2006 Plan is obtained
at the Annual Meeting, the following non-employee directors will
each receive an option grant for up to 3,000&nbsp;shares of
common stock under the Automatic Option Grant Program under the
2006 Plan and a restricted stock unit award covering up to
750&nbsp;shares of common stock: Messrs.&nbsp;Bates, Robinson,
Ruffle and Trotman. In the event stockholder approval of the
2006 Plan is not obtained, then Mr.&nbsp;Bates will receive an
option grant for 4,000&nbsp;shares under the 2001 Plan&#146;s
automatic grant program, as described above. In either case, the
grants will be made on the date of the 2006 Annual Meeting, and
each option will have an exercise price per share equal to the
closing selling price per share of common stock on such date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the equity compensation award(s), non-employee
directors will receive in 2006 a $20,000 annual retainer fee
payable quarterly, and reimbursement of expenses incurred in
attending meetings.
</DIV>

<!-- link1 "CERTAIN ADDITIONAL INFORMATION" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CERTAIN ADDITIONAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Security Ownership of Certain Beneficial Owners and
Management</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth certain information regarding the
beneficial ownership of the Company&#146;s Common Shares as of
April&nbsp;10, 2006, of (i)&nbsp;each person known to the
Company to own beneficially 5% or more of the Common Shares,
(ii)&nbsp;each nominee for director of the Company,
(iii)&nbsp;the chief executive officer and the
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
chief operating and financial officer named in the Summary
Compensation Table, and (iv)&nbsp;all directors and executive
officers as a group.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Shares Owned Beneficially</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount and Nature</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Beneficial</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B>Name and Address of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ownership (2)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent of Class (3)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Directors and Named Officers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest A. Bates,&nbsp;M.D.(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>880,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest R. Bates(1)(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Olin C. Robison(1)(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    John F. Ruffle(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stanley S. Trotman,&nbsp;Jr.(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Craig K. Tagawa(1)(4) Senior Vice President, Chief Operating and
    Financial Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All Current Directors&nbsp;&#38; Executive Officers as a
    Group<BR>
    (6 people)(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,329,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    5% or More Shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Banque Carnegie Luxembourg S.A.; Carnegie Fund&nbsp;Management
    Company S.A.; D Carnegie&nbsp;&#38; Co. AB;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>287,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carnegie Investment Bank AB(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp; *&nbsp;</TD>
    <TD align="left">
    Less than 1%</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The address of each such individual is c/o&nbsp;American Shared
    Hospital Services, Four Embarcadero Center, Suite&nbsp;3700,
    San&nbsp;Francisco, California 94111.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Each person directly or indirectly has sole voting and
    investment power with respect to the shares listed under this
    column as being owned by such person.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Shares that any person or group of persons is entitled to
    acquire upon the exercise of options or warrants within
    60&nbsp;days after April&nbsp;10, 2006, are treated as issued
    and outstanding for the purpose of computing the percent of the
    class owned by such person or group of persons but not for the
    purpose of computing the percent of the class owned by any other
    person.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Includes shares underlying options that are currently
    exercisable or which will become exercisable within 60&nbsp;days
    following April&nbsp;10, 2006: Mr.&nbsp;Bates,
    4,000&nbsp;shares; Mr.&nbsp;Robison, 8,000&nbsp;shares;
    Mr.&nbsp;Tagawa, 20,000&nbsp;shares; and Directors and Executive
    Officers as a group, 32,000&nbsp;shares.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Based solely on information contained in a Schedule&nbsp;13G
    filed on December&nbsp;19, 2005 by Carnegie Fund Management
    Company S.A.&nbsp;&#151; Luxembourg; Banque Carnegie Luxembourg
    S.A.&nbsp;&#151; Luxembourg; D Carnegie&nbsp;&#38; Co.
    AB&nbsp;&#151; Sweden; and Carnegie Investment Bank
    AB&nbsp;&#151; Sweden.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation of Executive Officers</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the compensation paid by the
Company for the fiscal years ending December&nbsp;31, 2003,
December&nbsp;31, 2004 and December&nbsp;31, 2005 in those years
for services rendered in all capacities during 2003, 2004 and
2005, respectively, to the Chief Executive Officer and each
executive officer
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
other than the Chief Executive Officer who served as an officer
at December&nbsp;31, 2005 and earned cash compensation of
$100,000 or more during 2005.
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary Compensation Table</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Annual Compensation</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other Annual</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2" align="left" nowrap><B>Name and Principal Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary (1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation (3)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest A. Bates,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>432,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chairman of the Board,</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>432,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>432,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Craig K. Tagawa</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>259,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD align="left" valign="bottom" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Operating Officer and</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>260,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD align="left" valign="bottom" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>250,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD align="left" valign="bottom" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Each amount under this column includes amounts accrued in 2003,
    2004, and 2005 that would have been paid to such persons in such
    years, except that such amounts were instead deferred pursuant
    to the Retirement Plan for Employees of American Shared Hospital
    Services, a defined contribution plan and ASHS&#146; Flexible
    Benefit Plan, a defined contribution plan. Both plans are
    available to employees of the Company generally.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The Company&#146;s Board of Directors approved year end
    performance bonuses for 2003, 2004 and 2005 which were paid in
    the fourth quarter of each year, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    The Company has determined that, with respect to the executive
    officers named in the Summary Compensation Table, the aggregate
    amount of other benefits does not exceed the lesser of $50,000
    or 10% of the total annual salary and bonus reported in the
    Summary Compensation Table as paid to such executive officer in
    the relevant year.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Long Term Compensation Awards</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The &#147;Long Term Compensation Awards&#148; Table has been
omitted because no long term compensation awards were made
during the relevant years to the Company&#146;s executive
officers named in the Summary Compensation Table.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Option Grants in Last Fiscal Year</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth stock options granted in 2005 to
each of the Company&#146;s executive officers named in the
Summary Compensation Table. The table also sets forth the
hypothetical grant date present value, assuming the weighted
average assumptions noted below. The actual future value of the
options will depend on the market value of the Company&#146;s
Common Stock.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Individual Grants</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise or</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent of Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Base Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options Granted to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Market Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Present</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Employees in Fiscal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>on Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value ($)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year 2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest A. Bates,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>NA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>NA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>NA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>NA</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Craig K. Tagawa</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.16/share</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6/15/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,945</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The Grant Date Present Value of the Company&#146;s stock-based
    awards to employees was calculated using the Black-Scholes
    valuation model. The Company&#146;s stock-based awards have
    characteristics significantly different from those of traded
    options, and changes in the subjective input assumptions can
    materially affect the present value estimates. The grant date
    present value of the Company&#146;s option grants above was
    estimated assuming the following weighted-average assumptions
    calculated as of December&nbsp;31, 2005: ten year expected life,
    25% expected volatility, 3.1% dividend yield, and 4.3% risk-free
    interest rate.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">9
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    All such options were granted pursuant to the Company&#146;s
    1995 Stock Option Plan and have an exercise price equal to the
    closing market price per share of the Company&#146;s Common
    Stock on the American Stock Exchange on the respective grant
    date.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Shares Authorized for Issuance Under Equity Compensation
Plans</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes, as of December&nbsp;31, 2005,
the total shares of our common stock that may be received by
holders of options upon the vesting and exercise of currently
outstanding options, the weighted average exercise price of
those outstanding options and the number of shares of our common
stock that are still available for future issuance under our
equity compensation plans after considering the stock options
currently outstanding.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of shares to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>be issued upon</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>exercise of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>exercise price of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of shares</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>outstanding options,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>outstanding options,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>remaining available for</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B>Plan Category</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>warrants and rights</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>warrants and rights</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>future issuance</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    1995 and 2001 Stock Option Plans (the only current equity
    compensation plans approved by our shareholders)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243,530</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Any equity compensation plans not approved by security holders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243,530</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Long-Term Incentive Plan Awards in Last Fiscal Year</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The &#147;Long-term Incentive Plan Awards&#148; (&#147;LTIP
Awards&#148;) table has been omitted because no LTIP Awards were
made during 2005 to the Company&#146;s executive officers named
in the Summary Compensation Table.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the number of shares acquired on
exercise of stock options and the aggregate gains realized upon
exercise of such options during 2005, by the Company&#146;s
executive officers named in the Summary Compensation Table. The
following table also sets forth the number of shares underlying
exercisable and unexercisable options held by such executive
officers on December&nbsp;31, 2005.
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>AND FISCAL YEAR-END OPTION VALUES</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Number of Securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Underlying Unexercised</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Value of Unexercised</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Options At Fiscal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>In-the-Money Options At</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Year-End</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Fiscal Year-End&nbsp;(1)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Acquired on</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value ($)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Realized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercisable/Unexercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercisable/Unexercisable</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest A. Bates,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,538,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Craig K. Tagawa</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>383,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>65,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,740</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    This amount is calculated by multiplying the number of Common
    Shares underlying the options at December&nbsp;31, 2005 by the
    market price per Common Share on such date less the option
    exercise price.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Employment Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company had no employment contracts with its directors or
executive officers named in the Summary Compensation Table in
2005.
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">10

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Board of Directors Report on Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following Report of the Board of Directors shall not be
deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing
under the Securities Act or under the Exchange Act, except to
the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed
filed under such Acts.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Report of the Board of Directors describes the
Company&#146;s method of compensating its executive officers,
and describes the basis on which 2005 compensation was paid to
such executive officers, including those named in the Summary
Compensation Table.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2005, the Board of Directors met once to determine that
compensation paid in 2005 by the Company to its Chief Executive
Officer and other executive officers would be based on policies
in effect in recent prior years.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s compensation program seeks to establish
compensation that is competitive in both the healthcare industry
and among entrepreneurial, growth-oriented companies in order to
attract and retain high quality employees. Compensation is
linked to each employee&#146;s level of responsibility and
personal achievements with respect to operational and financial
goals established by the Chief Executive Officer and the Board
of Directors. Depending on the individual officer&#146;s area of
responsibility, such goals may include new business and revenue
acquisition, operating expense reduction and control, operating
efficiencies, etc. In addition, the compensation system seeks to
develop and encourage employee ownership of the Company&#146;s
stock through stock options.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The primary component of executive compensation for the Company
in 2005 was base salary and bonus. Discretionary bonuses may be
paid, based on a formula, if financial and other results of the
individual executive&#146;s area of responsibility meet or
exceed financial and operational targets established at the
beginning of the fiscal year. A bonus of $50,000 for Craig K.
Tagawa was paid for the year 2005, based on continued growth in
the Gamma Knife business.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to base compensation, the Company has used grants of
stock options to retain senior executives and to motivate them
to improve long-term stock market performance. The number of
options granted in the past was determined by reference to the
level of responsibility of the particular executive in the
Company and such executive&#146;s proposed role in the
Company&#146;s future operations. In addition, during 1995 the
Shareholders approved a grant of options to acquire 1,495,000
Common Shares at an initial exercise price of $0.01&nbsp;per
share to the Company&#146;s Chairman and Chief Executive
Officer, in consideration of his continued service to the
Company and his personal guarantee of $6,500,000 of indebtedness
of the Company. The Company&#146;s Chairman and Chief Executive
Officer exercised options to acquire 204,513 Common Shares in
2005. All options awarded under this grant have now been
exercised.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Board of Directors</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    Ernest A. Bates,&nbsp;M.D. Chairman</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    John F. Ruffle</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    Ernest R. Bates</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stanley S. Trotman,&nbsp;Jr.</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    Olin C. Robison</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Willie R. Barnes, the Secretary of the Company, is a partner in
the law firm of Musick, Peeler&nbsp;&#38; Garrett LLP. That law
firm performed legal services for the Company in 2005. The
management of the Company is of the opinion that the fees paid
to Mr.&nbsp;Barnes&#146; law firm are comparable to those fees
that would have been paid for comparable legal services from a
law firm not affiliated with the Company. Mr.&nbsp;Barnes served
during 2004 on the Compensation, Stock Option and Nominating
Committees of the Board of Directors until his term expired on
June&nbsp;17th&nbsp;2004.
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">11

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compliance with Section&nbsp;16(a) under the Securities
Exchange Act of 1934</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Reports filed under the Exchange Act and received by the Company
on or after January&nbsp;1, 2005, indicate that during
2005&nbsp;directors, officers and 10% shareholders of the
Company filed all required reports within the periods
established by applicable rules, with the following exception:
On June&nbsp;16, 2005, the following individuals acquired
options to purchase shares of the Company&#146;s common stock:
Willie R. Barnes (4,000&nbsp;shares), John F. Ruffle
(4,000&nbsp;shares), Stanley S. Trotman (4,000&nbsp;shares),
Ernest R. Bates (8,000&nbsp;shares), Olin C. Robinson
(8,000&nbsp;shares) and Craig K. Tagawa (14,500&nbsp;shares).
The acquisition of these options was not reported to the
Securities and Exchange Commission until December&nbsp;12, 2005.
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">12

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link2 "PERFORMANCE GRAPH, TOTAL RETURN TO SHAREHOLDERS" -->
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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PERFORMANCE GRAPH, TOTAL RETURN TO SHAREHOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following graph and table compares cumulative total
shareholder return on the Company&#146;s Common Shares
(&#147;ASHS total return&#148;) (i)&nbsp;with the cumulative
total return of the Standard&nbsp;&#38; Poor&#146;s 500 Stock
Index (&#147;S&#38;P500&#148;) and (ii)&nbsp;with the
Standard&nbsp;&#38; Poor&#146;s SmallCap 600 Stock Index
(&#147;S&#38;P SmallCap600&#148;), in each case during the five
years ended December&nbsp;31, 2005.
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
AMONG AMERICAN SHARED HOSPITAL SERVICES, THE S&#38;P 500 INDEX
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
AND THE S&#38;P SMALLCAP 600 INDEX
</DIV>

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<IMG src="f19938f1993802.gif" alt="(LINE GRAPH)">
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    <TD style="border-left:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Base</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
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    <TD colspan="3">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
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<TR style="font-size: 8.0pt;">
    <TD style="border-left:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Period</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
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<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap style="border-left:1.5pt solid #000000;"><B>Company/ Index</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/00</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/01</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/02</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/03</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/04</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>12/05</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
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    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
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    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
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<TR>
    <TD align="left" valign="top" style="border-left:1.5pt solid #000000;">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>AMERICAN SHARED HOSPITAL SERVICES</B></DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.00</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139.38</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196.78</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>301.15</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>307.75</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>335.03</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;border-left:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top" style="border-left:1.5pt solid #000000;">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>S&#38;P 500 INDEX</B></DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.00</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>88.12</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68.64</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>88.33</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97.94</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>102.75</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;border-left:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top" style="border-left:1.5pt solid #000000;">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>S&#38;P SMALLCAP 600 INDEX</B></DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.00</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>106.54</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90.95</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126.23</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>154.82</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>166.71</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "AUDIT COMMITTEE REPORT" -->
<DIV align="left"><A NAME="007"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AUDIT COMMITTEE REPORT</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following Report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or
incorporated by reference into any other filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent the Company specifically
incorporates the Report by reference therein.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee of the Board of Directors consists of three
directors, all of whom are &#145;independent&#146; as defined in
the listing standards of the American Stock Exchange. The
primary purpose of the Audit Committee is to review the
financial reporting and internal controls of the Company, to
appoint independent auditors, to review the reports of such
auditors, and to review annually the Audit Committee charter.
During 2005, the Audit Committee held eight meetings, four of
which were held telephonically. Mr.&nbsp;Ruffle is Chair of the
Audit Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee reviewed and held discussions with
management and the independent auditors regarding the financial
statements of the Company for the fiscal year ended
December&nbsp;31, 2005. These discussions included the quality
of the Company&#146;s internal controls, the audit plans, audit
scope and identification of audit risks. In addition, the
Committee assured that the independent auditors reviewed and
discussed with management the interim financial reports prior to
each quarterly earnings announcement.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s independent auditors provided a formal
written statement that described all relationships between the
auditors and the Company with respect to the auditors&#146;
independence as required by Independence Standards Board
Standard No.&nbsp;1, &#147;Independence Discussions with Audit
Committees,&#148; and the Audit Committee satisfied itself as to
the auditors&#146; independence.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee discussed with the Independent Registered
Public Accounting Firm all matters required to be discussed by
Statement on Auditing Standards No.&nbsp;61, as amended,
&#147;Communication with Audit Committees&#148; and, with and
without the presence of management, reviewed and discussed the
results of the independent auditors&#146; examination of the
Company&#146;s financial statements. Management, being
responsible for the Company&#146;s financial statements,
represented that the Company&#146;s consolidated financial
statements were prepared in accordance with generally accepted
accounting principles. The independent auditors are responsible
for the examination of those statements.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based on the Audit Committee&#146;s discussions with management
and the independent auditors, and the Audit Committee&#146;s
review as described previously, the Audit Committee recommended
to the Board of Directors that the Company&#146;s audited
financial statements be included in its Annual Report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> for the
fiscal year ended December&nbsp;31, 2005, as filed with the
Securities and Exchange Commission.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Submitted by the Audit Committee of the Board of Directors:
</DIV>

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    <TD width="60%"></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">
    John F. Ruffle (chairman)</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Olin C. Robison</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Stanley S. Trotman,&nbsp;Jr.</TD>
</TR>

</TABLE>

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<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;NO. 2</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>APPROVAL OF 2006 STOCK INCENTIVE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shareholders are being asked to vote on a proposal to
approve the implementation of the 2006 Stock Incentive Plan (the
&#147;2006 Plan&#148;) under which 750,000&nbsp;shares of our
common stock will initially be reserved for issuance. The 2006
Plan was adopted by our board of directors on February&nbsp;23,
2006, subject to shareholder approval at the 2006 Annual
Meeting. The 2006 Plan is intended to serve as a successor to
our 1995 Stock Option Plan (the &#147;1995 Plan&#148;) which
expired on August&nbsp;15, 2005 and our 2001 Stock Option Plan
(the &#147;2001 Plan&#148;). The share reserve under those two
plans, including the shares of common stock subject to currently
outstanding options under the plans, will be transferred to the
2006 Plan upon shareholder approval of the 2006 Plan and no
further option grants or share issuances will be made under the
1995 Plan or the 2001 Plan following such shareholder approval
of the 2006 Plan. The share reserve under the 2006 Plan will be
comprised of the following components: (i)&nbsp;approximately
140,000&nbsp;shares subject to outstanding options under the
1995 Plan which are to be transferred to the 2006 Plan,
(ii)&nbsp;the 250,000&nbsp;shares reserved for issuance under
the 2001 Plan, including approximately 6,500&nbsp;shares subject
to currently outstanding options under that plan and
(iii)&nbsp;an additional share increase of approximately
360,000&nbsp;shares. Accordingly, the approval of the 2006 Plan
increases the number of shares available for issuance as equity
compensation by approximately 360,000&nbsp;shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that equity-based incentives have played a pivotal
role in our efforts to attract and retain key personnel
essential to our long-term growth and financial success. For
that reason, we have structured the 2006 Plan to provide us with
more flexibility in designing equity incentives in an
environment where a number of companies have moved from
traditional option grants to other stock or stock-based awards,
such as stock appreciation rights, restricted stock and
restricted stock units. Accordingly, with the 2006 Plan, we will
have a broader array of equity incentives to utilize for
purposes of attracting and retaining the services of key
individuals. We will continue to rely significantly on equity
incentives because we believe that such incentives are necessary
for us to remain competitive in the marketplace for executive
talent and other key employees.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 2006 Plan differs from the 1995 Plan and 2001 Plan in the
following principal respects:
</DIV>

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    <TD width="97%"></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;The new plan will include a stock issuance program
    under which shares of our common stock may be issued at not less
    than their fair market value for cash or other valid
    consideration under the California Corporations Code. Shares may
    also be issued as a bonus for past services or pursuant to
    restricted stock units or other stock-based awards which vest
    upon the attainment of designated performance goals or the
    completion of specified service periods and become payable
    either upon vesting or at a designated time thereafter.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;Stock appreciation rights will also be issuable under
    the 2006 Plan. Such rights will entitle the holders to a
    distribution from us equal in value to the amount by which the
    fair market value of the shares as to which those rights are
    exercised, measured as of the exercise date, exceeds the fair
    market value of those shares at the time the rights were
    granted. The distribution will be made in shares of our common
    stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;Stock options and stock appreciation rights granted
    under the 2006 Plan will not have a term in excess of seven (7)
    years. Options granted under the 1995 Plan and 2001 Plan have
    typically had a maximum term of ten (10)&nbsp;years.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (v)&nbsp;The new plan includes an automatic grant program for
    our non-employee board members pursuant to which they will
    receive option grants and restricted stock units at designated
    intervals over their period of continued board service.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vi)&nbsp;Performance criteria have been incorporated into the
    2006 Plan which will allow the plan administrator to structure
    one or more stock issuances or other stock-based awards so that
    the compensation attributable to those particular awards will
    qualify as performance-based compensation under Internal Revenue
    Code Section&nbsp;162(m).</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vi)&nbsp;The 2006 Plan will not permit the repricing of any
    outstanding stock options or stock appreciation rights without
    shareholder approval.</TD>
</TR>

</TABLE>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vii)&nbsp;Unless sooner terminated by our board of directors or
    in connection with a change in control or ownership, the 2006
    Plan will continue in effect until February&nbsp;22, 2016.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary Description of 2006 Stock Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The principal terms and provisions of the 2006 Plan are
summarized below. The summary, however, is not intended to be a
complete description of all the terms of the 2006 Plan and is
qualified in its entirety by reference to the complete text of
the 2006 Plan. Any shareholder who wishes to obtain a copy of
the actual plan documents may do so upon written request to our
Corporate Secretary at our principal offices at
Four&nbsp;Embarcadero Center, Suite&nbsp;3700,
San&nbsp;Francisco, CA 94111.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Incentive Programs.</I></B> The 2006 Plan consists of
three separate equity incentive programs: (i)&nbsp;the
discretionary grant program, (ii)&nbsp;the stock issuance
program and (iii)&nbsp;the automatic grant program for the
non-employee members of our board of directors. The principal
features of each program are described below.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Types of Awards.</I></B> The various types of equity
incentives which may be issued under the 2006 Plan
(collectively, the &#147;Awards&#148;) are as follows:
(i)&nbsp;stock options and stock appreciation rights under the
discretionary grant program, (ii)&nbsp;direct stock issuances,
stock bonuses and stock issuances pursuant to restricted stock
units and other share-right awards and (iii)&nbsp;and stock
options and restricted stock unit awards under the automatic
grant program.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Administration. </I></B>The compensation committee of our
board of directors will have the exclusive authority to
administer the discretionary grant and stock issuance programs
with respect to Awards made to our executive officers and board
members and will also have the authority to make Awards under
those programs to all other eligible individuals. However, our
board of directors may at any time appoint a secondary committee
of one or more board members to have separate but concurrent
authority with the compensation committee to make Awards under
those two programs to individuals other than executive officers
and board members.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term &#147;plan administrator,&#148; as used in this
summary, will mean our compensation committee and any secondary
committee, to the extent each such entity is acting within the
scope of its administrative authority under the 2006 Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The compensation committee will have the limited discretion
under the automatic grant program to determine the number of
shares subject to each option grant and restricted stock unit
award made under that program, up to the maximum number of
shares permissible per grant or award, but all option grants and
restricted stock unit awards will otherwise be made in strict
compliance with the express terms of that program.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Eligibility. </I></B>Officers and employees, as well as
independent consultants and contractors, in our employ or in the
employ of our parent or subsidiary companies (whether now
existing or subsequently established) will be eligible to
participate in the discretionary grant and stock issuance
programs. The non-employee members of our board of directors
will also be eligible to participate in those two programs as
well as the automatic grant program. As of April&nbsp;10, 2006,
approximately 13 persons (including three (3)&nbsp;executive
officers) were eligible to participate in the discretionary
grant and stock issuance programs, and four
(4)&nbsp;non-employee board members were eligible to participate
in those programs and the automatic grant program.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Securities Subject to 2006 Plan. </I></B>If the 2006 Plan
is approved by our shareholders, 750,000&nbsp;shares of our
common stock will initially be reserved for issuance over the
term of the plan. Such share reserve will be comprised of the
following components: (i)&nbsp;approximately 140,000&nbsp;shares
subject to outstanding options under the 1995 Plan which are to
be transferred to the 2006 Plan, (ii)&nbsp;the
250,000&nbsp;shares reserved for issuance under the 2001 Plan,
including approximately 6,500&nbsp;shares subject to currently
outstanding options under that plan and (iii)&nbsp;an additional
share increase of approximately 360,000&nbsp;shares.
Accordingly, the approval of the 2006 Plan increases the number
of shares available for issuance as equity compensation by
approximately 360,000&nbsp;shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the shareholders approve the 2006 Plan, no further stock
option grants or stock issuances will be made under either our
1995 Plan or our 2001 Plan. However, the outstanding options
under the 1995 Plan and the 2001 will continue in full force in
accordance with their terms, and nothing in the 2006 Plan will
affect those options.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No participant in the 2006 Plan may receive option grants,
stand-alone stock appreciation rights, direct stock issuances
(whether vested or unvested) or other stock-based awards for
more than 150,000&nbsp;shares of our common stock in any single
calendar year, subject to adjustment for subsequent stock
splits, stock dividends and similar transactions. Shareholder
approval of this proposal will also constitute approval of that
<FONT style="white-space: nowrap">150,000-share</FONT>
limitation for purposes of Internal Revenue Code
Section&nbsp;162(m). This limitation will assure that any
deductions to which we would otherwise be entitled upon the
exercise of stock options or stock appreciation rights granted
under the discretionary grant program will not be subject to the
$1&nbsp;million limitation on the income tax deductibility of
compensation paid per executive officer imposed under
Section&nbsp;162(m). In addition, one or more shares issued
under the stock issuance program may also qualify as
performance-based compensation that is not subject to the
Section&nbsp;162(m) limitation, if the vesting of those shares
is tied solely to the attainment of the corporate performance
milestones discussed below in the summary description of that
program.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shares of common stock issuable under the 2006 Plan may be
drawn from shares of our authorized but unissued common stock or
from shares of our common stock that we acquire, including
shares purchased on the open market or in private transactions.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shares subject to Awards under the 2006 Plan which remain
unissued upon the expiration or termination of those Awards will
be available for subsequent grants under the 2006 Plan. Any
unvested shares issued under the 2006 Plan that are subsequently
forfeited or that we repurchase, at a price not greater than the
original issue price paid per share, pursuant to our repurchase
rights under the 2006 Plan will be added back to the number of
shares reserved for issuance under the 2006 Plan and will
accordingly be available for subsequent issuance.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are no net counting provisions in effect under the 2006
Plan. Accordingly, the following share counting procedures will
apply:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Should the exercise price of an option be paid in shares of our
    common stock, then the number of shares reserved for issuance
    under the 2006 Plan will be reduced by the gross number of
    shares for which that option is exercised, and not by the net
    number of new shares issued under the exercised option.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Should shares of common stock otherwise issuable under the 2006
    Plan be withheld by us in satisfaction of the withholding taxes
    incurred in connection with the exercise, issuance or vesting of
    an Award, then the number of shares of common stock available
    for issuance under the 2006 Plan will be reduced by the full
    number of shares issuable pursuant to that Award, as calculated
    prior to any such share withholding.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Upon the exercise of any stock appreciation right granted under
    the 2006 Plan, the share reserve will be reduced by the gross
    number of shares as to which such stock appreciation right is
    exercised, and not by the net number of shares actually issued
    upon such exercise.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Equity Incentive Programs</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Discretionary Grant Program.</I></B> Under the
discretionary grant program, eligible persons may be granted
options to purchase shares of our common stock or stock
appreciation rights tied to the value of our common stock. The
plan administrator will have complete discretion to determine
which eligible individuals are to receive such Awards, the time
or times when those Awards are to be made, the number of shares
subject to each such Award, the vesting schedule (if any) to be
in effect for the Award, the maximum term for which the Award is
to remain outstanding and the status of any granted option as
either an incentive stock option or a non-statutory option under
the federal tax laws.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each granted option will have an exercise price per share
determined by the plan administrator, but the exercise price
will not be less than one hundred percent of the fair market
value of the option shares on the grant date. No granted option
will have a term in excess of seven years. The shares subject to
each option will generally vest in one or more installments over
a specified period of service measured from the grant date.
However, one or more options may be structured so that they will
be immediately exercisable for any or all of the option shares.
The shares acquired under such immediately exercisable options
will be subject to repurchase by us, at the lower of the
exercise price paid per share or the fair market value per
share, if the optionee ceases service prior to vesting in those
shares.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon cessation of service, the optionee will have a limited
period of time in which to exercise his or her outstanding
options to the extent exercisable for vested shares. The plan
administrator will have complete discretion to extend the period
following the optionee&#146;s cessation of service during which
his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in
whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after
the optionee&#146;s actual cessation of service.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 2006 Plan will allow the issuance of two types of stock
appreciation rights under the discretionary grant program:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Tandem stock appreciation rights provide the holders with the
    right to surrender their options for an appreciation
    distribution from us in an amount equal to the excess of
    (i)&nbsp;the fair market value of the vested shares of our
    common stock subject to the surrendered option over
    (ii)&nbsp;the aggregate exercise price payable for those shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Stand-alone stock appreciation rights allow the holders to
    exercise those rights as to a specific number of shares of our
    common stock and receive in exchange an appreciation
    distribution from us in an amount equal to the excess of
    (i)&nbsp;the fair market value of the shares of common stock as
    to which those rights are exercised over (ii)&nbsp;the aggregate
    base price in effect for those shares. The base price per share
    may not be less than the fair market value per share of our
    common stock on the date the stand-alone stock appreciation
    right is granted, and the right may not have a term in excess of
    seven years.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The distribution with respect to any exercised tandem or
stand-alone stock appreciation right will be made in shares of
our common stock. Stock appreciation rights will remain
exercisable for a limited period following the holder&#146;s
cessation of service, but only to the extent those rights are
exercisable at the time of such cessation of service. The plan
administrator will have complete discretion to extend the period
following the holder&#146;s cessation of service during which
his or her outstanding stock appreciation rights may be
exercised and/or to accelerate the exercisability or vesting of
those stock appreciation rights in whole or in part. Such
discretion may be exercised at any time while the stock
appreciation right remains outstanding, whether before or after
the holder&#146;s actual cessation of service.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Repricing Prohibition.</I></B> The plan administrator may
not implement any of the following repricing programs without
obtaining shareholder approval: (i)&nbsp;the cancellation of
outstanding options or stock appreciation rights in return for
new options or stock appreciation rights with a lower exercise
price per share, (ii)&nbsp;the cancellation of outstanding
options or stock appreciation rights with exercise prices per
share in excess of the then current fair market value per share
of our common stock for consideration payable in our equity
securities or (iii)&nbsp;the direct reduction of the exercise
price in effect for outstanding options or stock appreciation
rights.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Stock Issuance Program.</I></B> Shares may be issued under
the stock issuance program at a price per share not less than
their fair market value, payable in cash or other valid
consideration under the California Corporations Code. Shares may
also be issued as a bonus for past services without any cash
purchase price required of the recipient. Shares of our common
stock may also be issued under the program pursuant to share
right awards or restricted stock units which entitle the
recipients to receive those shares, without payment of any cash
purchase price, upon the attainment of designated performance
goals or the completion of a prescribed service period 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
recipient&#146;s service with us.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The plan administrator will have complete discretion to
determine which eligible individuals are to receive Awards under
the stock issuance program, the time or times when those Awards
are to be made, the number of shares subject to each such Award,
the vesting schedule to be in effect for the issuance or award
and the cash consideration (if any) payable per share. The
shares issued may be fully and immediately vested upon issuance
or may vest upon the completion of a designated service period
or the attainment of pre-established performance goals.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to assure that the compensation attributable to one or
more Awards under the program will qualify as performance-based
compensation which will not be subject to the $1&nbsp;million
limitation on the income tax deductibility of the compensation
paid per executive officer which is imposed under Internal
Revenue Code
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">18

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Section&nbsp;162(m), the plan administrator will also have the
discretionary authority to structure one or more of those Awards
so that the underlying shares of common stock will vest only
upon the achievement of certain pre-established corporate
performance goals based on one or more of the following
criteria: (1)&nbsp;return on total shareholder equity;
(2)&nbsp;earnings per share; (3)&nbsp;net income or operating
income (before or after taxes); (4)&nbsp;earnings before
interest, taxes, depreciation and amortization;
(5)&nbsp;earnings before interest, taxes, depreciation,
amortization and charges for stock-based compensation,
(6)&nbsp;sales or revenue targets; (7)&nbsp;return on assets,
capital or investment; (8)&nbsp;cash flow; (9)&nbsp;market
share; (10)&nbsp;cost reduction goals; (11)&nbsp;budget
comparisons; (12)&nbsp;measures of customer satisfaction;
(13)&nbsp;any combination of, or a specified increase in, any of
the foregoing; (14)&nbsp;new product development or successful
completion of research and development projects; and
(15)&nbsp;the formation of joint ventures, research or
development collaborations, or the completion of other corporate
transactions intended to increase our revenue or profitability
or enhance our customer base. In addition, such performance
goals may be based upon the attainment of specified levels of
our 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 our 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. In addition,
the performance goals may 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)&nbsp;the disposal of a business
or discontinued operations or (b)&nbsp;the operations of any
acquired business; 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The plan administrator will have the discretionary authority at
any time to accelerate the vesting of any and all shares of
restricted stock or other unvested shares outstanding under the
stock issuance program. 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
Section&nbsp;162(m), except in the event of certain involuntary
terminations or changes in control or ownership.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Outstanding restricted stock units or other stock-based awards
under the stock issuance program will automatically terminate,
and no shares of our common stock will actually be issued in
satisfaction of those units or awards, if the performance goals
or service requirements established for such units or awards are
not attained. The plan administrator, however, will have the
discretionary authority to issue shares of our common stock in
satisfaction of one or more outstanding restricted stock units
or other stock-based right awards as to which the designated
performance goals or service requirements are not attained.
However, no vesting requirements tied to the attainment of
performance objectives may be waived with respect to units or
awards which were intended at the time of issuance to qualify as
performance-based compensation under Section&nbsp;162(m), except
in the event of certain involuntary terminations or changes in
control or ownership.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Automatic Grant Program.</I></B> Under the automatic grant
program, non-employee board members will receive a series of
automatic grants of stock options and restricted stock unit
awards over their period of board service. All grants under the
Automatic Grant Program will be made in strict compliance with
the express provisions of such program, and shareholder approval
of this Proposal will also constitute pre-approval of each
option grant and restricted stock unit award made under the
Automatic Grant Program on or after the date of the Annual
Meeting and the subsequent exercise of those options and the
subsequent issuance of the shares subject to those restricted
stock unit awards in accordance with the terms of the program
summarized below.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Two types of awards will be made under the program:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Initial Awards. Each individual who first becomes a non-employee
    member of the board on or after the date of the Annual Meeting
    will, at the time of his or her election to the board, receive
    an option grant to purchase a specified number of shares of our
    common stock and a restricted stock unit award covering an
    additional number of shares of our common stock, provided that
    such individual has not previously been in the employ of the
    Company of any of its parents or subsidiaries. The specific
    number of shares subject to the initial award will be determined
    by the compensation</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">19
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    committee of our board of directors, but will not exceed
    10,000&nbsp;shares for the option component or more than
    3,000&nbsp;shares for the restricted stock unit component.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Annual Award. On the date of each annual shareholders meeting,
    beginning with the Annual Meeting, each individual who will
    continue to serve as a non-employee Board member will
    automatically be granted an option to purchase a specified
    number of shares of our common stock and a restricted stock unit
    award covering an additional number of shares of our common
    stock, provided such individual has served as a non-employee
    board member for at least six (6)&nbsp;months. The specific
    number of shares subject to the initial award will be determined
    by the compensation committee of our board of directors, but
    will not exceed 3,000&nbsp;shares for the option component or
    more than 750&nbsp;shares for the restricted stock unit
    component. There will be no limit on the number of such annual
    awards any one eligible non-employee member of the Board may
    receive over his or her period of continued service on the
    Board, and non-employee members of the Board who have previously
    been in the Company&#146;s employ will be eligible to receive
    one or more such annual awards over their period of service on
    the Board.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
It is currently anticipated that the annual award to the
non-employee board members at the Annual Meeting will be
comprise of an option grant for 2,000&nbsp;shares and a
restricted stock unit award for an additional 500&nbsp;shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each option grant under the program will have an exercise price
per share equal to the fair market value per share of our common
stock on the grant date and will have a term of seven years,
subject to earlier termination following the optionee&#146;s
cessation of board service. The option will be immediately
exercisable for all of the option shares; however, we may
repurchase, at the <I>lower </I>of the exercise price paid per
share or the fair market value per share, any shares purchased
under the option which are not vested at the time of the
optionee&#146;s cessation of board service. The shares subject
to each initial 10,000-or-less-share automatic option grant will
vest in four successive equal annual installments upon the
optionee&#146;s completion of each year of board service over
the four-year period measured from the grant date. The shares
subject to each annual automatic option grant made to a
continuing board member will vest upon the earlier of
(i)&nbsp;that individual&#146;s completion of one year of board
service measured from the grant date or (ii)&nbsp;such
individual&#146;s continuation in board service through the day
immediately preceding the date of the next annual shareholders
meeting following such grant date. However, the shares will
immediately vest in full upon the optionee&#146;s death or
disability while a board member or upon the occurrence of
certain changes in ownership or control.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The option grants under the automatic option grant program will
be taxable as non-statutory options under the Federal income tax
laws.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The initial restricted stock unit award made to a newly elected
or appointed non-employee board member will vest in a series of
four (4)&nbsp;successive equal annual installments upon his or
her completion of each year of board service over the four
(4)-year period measured from the award date. Each annual
restricted stock unit award made to a continuing non-employee
board member will vest upon his or her continuation in board
service through the earlier of (i)&nbsp;the completion of the
one (1)-year period of service measured from the award date or
(ii)&nbsp;the individual&#146;s continuation in such service
capacity through the day immediately preceding the next annual
shareholders meeting following such award date. However, each
restricted stock unit award held by a non-employee director
under the automatic grant program will immediately vest in full
upon certain changes in control or ownership or his or her
cessation of board service by reason of death or disability. As
the restricted stock units vest in one or more installments, the
shares of common stock underlying those vested units will be
promptly issued.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stock Awards&nbsp;&#151; Predecessor Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth, as to our Chief Executive
Officer, our other most highly compensated executive officers
(with base salary and bonus for the 2005 fiscal year in excess
of $100,000) and the other individuals and groups indicated, the
number of shares of our common stock subject to option grants
made under
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">20

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
the 1995 and 2001 predecessor plans from January&nbsp;1, 2005
through April&nbsp;10, 2006, together with the weighted average
exercise price per share in effect for such option grants.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B>Name and Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted&nbsp;(#)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share&nbsp;($)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest A. Bates,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Craig K. Tagawa</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All current executive officers as a group (3&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Directors:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ernest R. Bates</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Olin C. Robison</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    John F. Ruffle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stanley S. Trotman</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All current non-employee directors as a group (4&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All employees, including current officers who are not executive
    officers, as a group (9&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.07</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>New Plan Benefits</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No Awards will be made under the 2006 Plan at any time prior to
shareholder approval of the plan at the Annual Meeting. If such
shareholder approval is obtained, then the following
non-employee members of our board will each receive an automatic
option grant for 2,000&nbsp;shares of our common stock and a
restricted stock unit award covering an additional
500&nbsp;shares upon his election to the board at the Annual
Meeting: Ernest R. Bates, Olin Robison, John Ruffle and Stanley
Trotman,&nbsp;Jr. Each such option grant will have an exercise
price per share equal to the fair market value per share of our
common stock on the grant date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>General Provisions</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Vesting Acceleration.</I></B> In the event we should
experience a change in control, the following special vesting
acceleration provisions will be in effect for all options, stock
appreciation rights and other awards granted or made under the
discretionary grant and stock issuance programs:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;Each outstanding Award under the discretionary grant
    program will automatically accelerate in full upon a change in
    control, if that Award is not assumed or otherwise continued in
    effect by the successor corporation or replaced with a cash
    retention program which preserves the spread existing on the
    unvested shares subject to the Award (the excess of the fair
    market value of those shares over the exercise or base price
    payable for such shares) and provides for subsequent payout of
    that spread in accordance with the same vesting schedule in
    effect for those shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;All unvested shares outstanding under the
    discretionary grant and stock issuance programs will immediately
    vest upon a change in control, except to the extent our
    repurchase rights with respect to those shares are to be
    assigned to the successor corporation or otherwise continued in
    effect. Each outstanding restricted stock unit or other
    stock-based award under the stock issuance program will vest as
    to the number of shares of our common stock subject to such unit
    or award upon the occurrence of a change in control, unless the
    unit or award is assumed by the successor corporation or
    otherwise continued in effect.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;The plan administrator will have complete discretion
    to grant one or more Awards under the discretionary grant
    program which will become exercisable as to all the underlying
    shares in the event the individual&#146;s service with us or the
    successor entity is terminated (actually or constructively)
    within a designated period following a change in control
    transaction in which those Awards are assumed or otherwise
    continued in effect. Outstanding awards under the stock issuance
    program may also be structured to vest in full on an accelerated
    basis upon similar terms and conditions.</TD>
</TR>

</TABLE>

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iv)&nbsp;The plan administrator will have the discretion to
    structure one or more Awards under the discretionary grant
    program so that those Awards rights will immediately vest upon a
    change in control, whether or not the Awards are to be assumed
    or otherwise continued in effect. The plan administrator may
    also structure unvested stock issuances or restricted stock
    units or other share rights awards under the stock issuance
    program so that those awards will in all events vest immediately
    upon a change in control.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (v)&nbsp;A change in control will be deemed to occur in the
    event (a)&nbsp;we are acquired by merger or asset sale or
    (b)&nbsp;there occurs any transaction or series of related
    transactions pursuant to which any person or group of related
    persons becomes directly or indirectly the beneficial owner of
    securities possessing (or convertible into or exercisable for
    securities possessing) more than fifty percent (50%) of the
    total combined voting power of our securities outstanding
    immediately after the consummation of such transaction or series
    of related transactions, whether such transaction involves a
    direct issuance from us or the acquisition of outstanding
    securities held by one or more of our shareholders.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vi)&nbsp;The plan administrator will also have the
    discretionary authority to structure one or more outstanding
    Awards under the discretionary grant program so that those
    Awards will, 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. In addition,
    the plan administrator will have the authority to structure one
    or more Awards under the stock issuance program so that the
    shares of common stock subject to those Awards will immediately
    vest upon the consummation of a hostile take-over.
    Alternatively, the plan administrator may condition such vesting
    acceleration upon the subsequent termination of the
    individual&#146;s service within a designated period following
    the effective date of such hostile take-over.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vii)&nbsp;A hostile take-over will be deemed to occur if
    (a)&nbsp;there is a change in the majority of our board of
    directors as a result of one or more contested elections for
    board membership or (b)&nbsp;securities possessing more than
    fifty percent (50%) of the total combined voting power of our
    outstanding securities are acquired pursuant to a hostile tender
    offer.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The acceleration of vesting in the event of a change in the
ownership or control may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a
takeover attempt or other efforts to gain control of us.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Changes in Capitalization. </I></B>In the event any change
is made to the outstanding shares of our common stock by reason
of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in
corporate structure effected without our receipt of
consideration, appropriate adjustments will be made to:
(i)&nbsp;the maximum number and/or class of securities issuable
under the 2006 Plan; (ii)&nbsp;the maximum number and/or class
of securities for which any one person may be granted Awards
(whether vested or unvested) under the 2006 Plan per calendar
year; (iii)&nbsp;the number and/or class of securities and the
exercise price or base price per share in effect under each
outstanding option or stock appreciation right; (iv)&nbsp;the
number and/or class of securities subject to each outstanding
restricted stock unit or other stock based award and the cash
consideration (if any) payable per share; and (v)&nbsp;the
maximum number and/or class of securities for which grants may
subsequently be made under the automatic grant program to new
and continuing non-employee board members. Such adjustments will
be designed to preclude any dilution or enlargement of benefits
under the 2006 Plan or the outstanding Awards there under.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Valuation.</I></B> The fair market value per share of our
common stock on any relevant date under the 2006 Plan will be
deemed to be equal to the closing selling price per share on
that date on the American Stock Exchange. On April&nbsp;10,
2006, the fair market value per share of our common stock
determined on such basis was $7.00.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Shareholder Rights and Transferability. </I></B>No
optionee will have any shareholder rights with respect to the
option shares until such optionee has exercised the option and
paid the exercise price for the purchased shares. The holder of
a stock appreciation right will not have any shareholder rights
with respect to the shares subject to that right unless and
until such person exercises the right and becomes the holder of
record of any shares of our common stock distributed upon such
exercise. Options are not assignable or transferable other than
by will or the laws of inheritance following optionee&#146;s
death, and during the optionee&#146;s lifetime, the option may
only be exercised by the optionee. However, the plan
administrator may structure one or more non-statutory options
under
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
the 2006 Plan so that those options will be transferable during
optionee&#146;s lifetime to one or more members of the
optionee&#146;s family or to a trust established for the
optionee and/or one or more such family members or to the
optionee&#146;s former spouse, to the extent such transfer is in
connection with the optionee&#146;s estate plan or pursuant to a
domestic relations order. Stand alone stock appreciation rights
will be subject to the same transferability restrictions
applicable to non-statutory options.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A participant will have certain shareholder rights with respect
to any shares of common stock issued to him or her under the
2006 Plan, whether or not his or her interest in those shares is
vested. Accordingly, the participant will have the right to vote
such shares and to receive any regular cash dividends paid on
such shares, but will not have the right to transfer such shares
prior to vesting. A participant will not have any shareholder
rights with respect to the shares of common stock subject to a
restricted stock unit or other share right award until that unit
or 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 units or other
share-right awards, subject to such terms and conditions as the
plan administrator may deem appropriate.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Special Tax Election.</I></B> The plan administrator may
provide one or more holders of Awards under the 2006 Plan with
the right to have us withhold a portion of the shares otherwise
issuable to such individuals in satisfaction of the withholding
taxes to which they become subject in connection with the
exercise, vesting or issuance of those Awards. Alternatively,
the plan administrator may allow such individuals to deliver
previously acquired shares of our common stock in payment of
such withholding tax liability.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Amendment and Termination. </I></B>Our board of directors
may amend or modify the 2006 Plan at any time, subject to any
shareholder approval requirements under applicable law or
regulation or pursuant to the listing standards of the stock
exchange (or the American Stock Exchange) on which our shares of
common stock are at the time primarily traded. Unless sooner
terminated by our board of directors, the 2006 Plan will
terminate on the earliest of (i)&nbsp;February&nbsp;22, 2016
(ii)&nbsp;the date on which all shares available for issuance
under the 2006 Plan have been issued as fully-vested shares or
(iii)&nbsp;the termination of all outstanding Awards in
connection with certain changes in control or ownership.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary of Federal Income Tax Consequences</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of the Federal income taxation
treatment applicable to us and the participants who receive
awards under the 2006 Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Option Grants.</I> Options granted under the discretionary
grant program may be either incentive stock options which
satisfy the requirements of Section&nbsp;422 of the Internal
Revenue Code or non-statutory options which are not intended to
meet such requirements. The Federal income tax treatment for the
two types of options differs as follows:
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Incentive Options.</I> No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income
is recognized for regular tax purposes at the time the option is
exercised, although taxable income may arise at that time for
alternative minimum tax purposes. The optionee will recognize
taxable income in the year in which the purchased shares are
sold or otherwise made the subject of certain other
dispositions. For Federal tax purposes, dispositions are divided
into two categories: (i)&nbsp;qualifying and
(ii)&nbsp;disqualifying. A qualifying disposition occurs if the
sale or other disposition is made more than two (2)&nbsp;years
after the date the option for the shares involved in such sale
or disposition is granted and more than one (1)&nbsp;year after
the date the option is exercised for those shares. If the sale
or disposition occurs before these two periods are satisfied,
then a disqualifying disposition will result.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon a qualifying disposition, the optionee will recognize
long-term capital gain in an amount equal to the excess of
(i)&nbsp;the amount realized upon the sale or other disposition
of the purchased shares over (ii)&nbsp;the exercise price paid
for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i)&nbsp;the fair market value of
those shares on the exercise date or (if less) the amount
realized upon such sale or disposition over (ii)&nbsp;the
exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain recognized upon the
disposition will be a capital gain.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the optionee makes a disqualifying disposition of the
purchased shares, then we will be entitled to an income tax
deduction, for the taxable year in which such disposition
occurs, equal to the amount of ordinary income recognized by the
optionee as a result of the disposition. We will not be entitled
to any income tax deduction if the optionee makes a qualifying
disposition of the shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Non-Statutory Options.</I> No taxable income is recognized by
an optionee upon the grant of a non-statutory option. The
optionee will in general recognize ordinary income, in the year
in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and we will be
required to collect the withholding taxes applicable to such
income from the optionee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the shares acquired upon exercise of the non-statutory option
are unvested and subject to repurchase by us in the event of the
optionee&#146;s termination of service prior to vesting in those
shares, then the optionee will not recognize any taxable income
at the time of exercise but will have to report as ordinary
income, as and when our repurchase right lapses, an amount equal
to the excess of (i)&nbsp;the fair market value of the shares on
the date the repurchase right lapses over (ii)&nbsp;the exercise
price paid for the shares. The optionee may, however, elect
under Section&nbsp;83(b) of the Internal Revenue Code to include
as ordinary income in the year of exercise of the option an
amount equal to the excess of (i)&nbsp;the fair market value of
the purchased shares on the exercise date over (ii)&nbsp;the
exercise price paid for such shares. If the Section&nbsp;83(b)
election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with
respect to the exercised non-statutory option. The deduction
will in general be allowed for our taxable year in which such
ordinary income is recognized by the optionee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Appreciation Rights.</I> No taxable income is
recognized upon receipt of a stock appreciation right. The
holder will recognize ordinary income in the year in which the
stock appreciation right is exercised, in an amount equal to the
excess of the fair market value of the underlying shares of
common stock on the exercise date over the base price in effect
for the exercised right, and we will be required to collect the
withholding taxes applicable to such income from the holder.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the holder in connection
with the exercise of the stock appreciation right. The deduction
will be allowed for the taxable year in which such ordinary
income is recognized.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Direct Stock Issuances.</I> The tax principles applicable to
direct stock issuances under the 2006 Plan will be substantially
the same as those summarized above for the exercise of
non-statutory option grants.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restricted Stock Units.</I> No taxable income is recognized
upon receipt of a restricted stock unit. The holder will
recognize ordinary income in the year in which the shares
subject to that unit are actually issued to the holder. The
amount of that income will be equal to the fair market value of
the shares on the date of issuance, and we will be required to
collect the withholding taxes applicable to such income from the
holder.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the holder at the time
the shares are issued. The deduction will be allowed for the
taxable year in which such ordinary income is recognized.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Deductibility of Executive Compensation.</I> We anticipate
that any compensation deemed paid by us in connection with the
disqualifying disposition of incentive stock option shares or
the exercise of non-statutory options or stock appreciation
rights will qualify as performance-based compensation for
purposes of Internal Revenue Code Section&nbsp;162(m) and will
not have to be taken into account for purposes of the
$1&nbsp;million limitation per covered individual on the
deductibility of the compensation paid to certain of our
executive officers. Accordingly, the compensation deemed paid
with respect to options and stock appreciation rights granted
under the 2006 Plan will remain deductible by us without
limitation under Section&nbsp;162(m). However, any compensation
deemed paid by us in connection with shares issued under the
stock issuance program will be subject to the $1&nbsp;million
limitation, unless the vesting of the shares is tied solely to
one or more of the performance milestones described above.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Accounting Treatment</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the accounting standards established by Statement of
Financial Accounting Standards No.&nbsp;123R, <I>Share-Based
Payment,</I> or SFAS&nbsp;123R, we will be required to expense
all share-based payments, including grants of stock options,
stock appreciation rights, restricted stock units and all other
awards under the 2006 Plan. Accordingly, stock options and stock
appreciation rights which are granted to our employees and
non-employee Board members will have to be valued at fair value
as of the grant date under an appropriate valuation formula, and
that value will then have to be charged as a direct compensation
expense against our reported earnings over the designated
service period of the award, which is generally the vesting
period. Similar option expensing will be required for any
unvested options outstanding on the January&nbsp;1, 2006
effective date of the new accounting standards, with the grant
date fair value of those unvested options to be expensed against
our reported earnings over the remaining vesting period. For
shares issuable upon the vesting of restricted stock units
awarded under the 2006 Plan, we will be required to amortize
over the service period, which is generally the vesting period,
a compensation cost equal to the fair market value of the
underlying shares on the date of the award. If any other shares
are unvested at the time of their direct issuance, then the fair
market value of those shares at that time will be charged to our
reported earnings ratably over the vesting period. Such
accounting treatment for restricted stock units and direct stock
issuances will be applicable whether vesting is tied to service
periods or performance goals. The issuance of a fully-vested
stock bonus will result in an immediate charge to our earnings
equal to the fair market value of the bonus shares on the
issuance date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Option grants and other awards made under the 2006 Plan to
non-employee consultants will result in a direct charge to our
reported earnings based on the fair value of each such award as
measured on each vesting date for that award. Accordingly, such
charge will include the appreciation in the fair value of the
award over the period between the grant date and each applicable
vesting date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Required Vote and Board Recommendation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting on
Proposal&nbsp;No.&nbsp;2, provided that affirmative vote also
represents at least majority of the voting power required to
constitute a quorum at the Annual Meeting, is required for
approval of the 2006 Plan. Should such approval not be obtained,
then the 2006 Plan will not be implemented. However, the
existing 2001 Stock Option Plan will continue in full force and
effect until its May&nbsp;17, 2011 expiration date and option
grants may continue to be made under that plan until such
expiration date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF PROPOSAL&nbsp;NO.&nbsp;2. PROPERLY EXECUTED PROXIES RETURNED
TO THE COMPANY WILL BE VOTED &#147;FOR&#148; THE APPROVAL OF THE
COMPANY&#146;S 2006 STOCK INCENTIVE PLAN.</B>
</DIV>

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<DIV align="left"><A NAME="009"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;3&nbsp;&#151; APPROVAL OF THE LONG TERM
INCENTIVE COMPENSATION PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Background and Reasons for Adoption</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board of Directors adopted the Long-Term Incentive
Compensation Plan (the &#147;Plan&#148;) on February&nbsp;23,
2006 in order to provide our executive officers and other
individuals in our employ who are essential to our financial
growth and success with the opportunity to earn additional
incentive compensation contingent upon our attainment of
pre-established performance objectives and to defer any
compensation so earned until a specified date or termination of
employment. The implementation of the Plan is subject to
shareholder approval at the Annual Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Plan is designed to advance our &#147;pay for
performance&#148; policy by creating a substantial bonus
potential for each participant tied solely to our achievement of
financial objectives designed to expand our business operations
and create shareholder value. We believe that the Plan will help
us attain such goals and also provide us with an important
compensation vehicle to attract and retain high performing
executives on a competitive basis. The Plan will serve as a
long-term performance incentive program that will be in addition
to our annual bonus program for executive officers and other key
management personnel.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The payments under the Plan are intended to qualify as
&#147;performance-based compensation&#148; within the meaning of
Section&nbsp;162(m) of the Internal Revenue Code (the
&#147;Code&#148;). In general, Section&nbsp;162(m) limits the
amount of compensation we can deduct for federal income tax
purposes per covered individual to $1&nbsp;million per year. The
individuals subject to this limitation include our Chief
Executive Officer and each of our other four highly compensation
executive officers for the year. However, the
Section&nbsp;162(m) limit does not apply to any compensation
which qualifies as &#147;performance based.&#148; One of the
principal requirements for such performance-based compensation
is that the compensation be paid pursuant to a
shareholder-approved plan which sets forth the types of
performance milestones which will serve as the basis for bonus
payments under the Plan, the class of employees eligible to
participate in the Plan, the maximum bonus amount payable per
participant and the other material features of the Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accordingly, if the shareholders approve this Proposal, we
anticipate that all payments under the Plan upon the attainment
of the established performance milestones will be deductible by
us for federal income tax purposes without any limitation under
Section&nbsp;162(m) of the Code.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of the principal features of the
Plan. However, such summary is not intended to be a complete
description of all provisions of the Plan. Any shareholder who
wishes to obtain a copy of the actual plan document may do so
upon written request to Investor Relations, American Shared
Hospital Services, Four&nbsp;Embarcadero Center,
Suite&nbsp;3700, San&nbsp;Francisco, California 94111.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Administration.</I></B> The Plan will be administered by
the compensation committee of our Board of Directors, so long as
that committee is comprised of two or more non-employee Board
members who qualify as &#147;outside directors&#148; under Code
Section&nbsp;162(m). Otherwise, a Board committee meeting that
requirement will be appointed as the plan administrator. For
purposes of this summary, the Board committee serving as
administrator will be referred to as the plan administrator.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Authority.</I></B> The plan administrator will have full
and complete authority to administer the Plan and select the
eligible employees who are to participate in the Plan. The plan
administrator will also be responsible for the interpretation
and construction of any provision of the Plan and the adoption
of rules and regulations for plan administration. The plan
administrator will make all decisions relating to an
individual&#146;s eligibility for participation in the Plan, his
or her entitlement to benefits there under and the amount of any
such benefit entitlement.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Eligibility.</I></B> Participation in the Plan is limited
to our executive officers and any other individuals with
management responsibilities who are determined by the plan
administrator to be eligible for participation. As of
April&nbsp;10, 2006, two executive officers and one other key
employee were eligible to participate in the Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Establishment of Performance Period and Performance
Objectives.</I></B> The plan administrator will have complete
discretion to implement one or more performance periods under
the Plan in accordance with the following parameters:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;Each period will consist of one (1)&nbsp;or more
    consecutive calendar years, up to a five (5)-year maximum. The
    plan administrator will, within the first ninety (90)&nbsp;days
    of the performance period, designate the actual number of
    calendar years which will comprise that period.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;The plan administrator will, within the first ninety
    (90)&nbsp;days of each performance period, establish the
    specific performance goals and objectives which must be attained
    for that performance period based on one or more of the
    following performance milestones: (1)&nbsp;return on total
    shareholder equity; (2)&nbsp;earnings per share. (3)&nbsp;net
    income or operating income (before or after taxes);
    (4)&nbsp;earnings before interest, taxes, depreciation and
    amortization; (5)&nbsp;earnings before interest, taxes,
    depreciation, amortization and charges for stock-based
    compensation, (6)&nbsp;sales or revenue targets; (7)&nbsp;return
    on assets, capital or investment; (8)&nbsp;cash flow;
    (9)&nbsp;market share; (10)&nbsp;cost reduction goals;
    (11)&nbsp;budget comparisons; (12)&nbsp;measures of customer
    satisfaction; (13)&nbsp;any combination of, or a specified
    increase in, any of the foregoing; (14)&nbsp;the formation of
    joint ventures or the completion of other corporate transactions
    intended to enhance our revenue or profitability or enhance our
    customer base. In addition, such performance goals may be based
    upon the attainment of specified levels of our performance under
    one or more of the measures described above</TD>
</TR>

</TABLE>

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    <TD>&nbsp;</TD>
    <TD align="left">
    relative to the performance of other entities and may also be
    based on the performance of any of our business units or
    divisions or any parent or subsidiary.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;For each specific performance objective, the plan
    administrator will establish threshold, target and maximum
    levels of attainment. With respect to any performance objective
    which is to be calculated in a manner which deviates from
    generally acceptable accounting standards, the plan
    administrator will specify the deviations at the time the
    performance objective is set. Accordingly, one or more of the
    following items may be excluded from the calculation of the
    performance objective: extraordinary, unusual or non-recurring
    items of gain, loss or expense; items of gain, loss or expense
    related to (a)&nbsp;the disposal of a business or discontinued
    operations or (b)&nbsp;the operations of any business acquired
    by Corporation during the performance period; 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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Bonus Formula.</I></B> The plan administrator will also,
within the first ninety (90)&nbsp;days of the performance
period, establish for each participant the formula for
calculating the bonus to which he or she may become entitled for
that performance period based on the level at which each
performance milestone is actually attained. Accordingly, for
each performance milestone, the formula will designate a
threshold, target and above-target dollar contribution to the
participant&#146;s bonus entitlement, with the actual dollar
amount of such contribution to be based on the actual level of
attainment of each performance objective. The various levels of
contribution designated for each performance objective may be
tied to percentages or multiples of the average of the annual
rates of base salary in effect for the participant at the start
of each calendar year within the applicable performance period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Maximum Bonus Amount.</I></B> The maximum bonus payable
per participant will be limited to the dollar amount determined
by multiplying the number of calendar years in the performance
period by Two Hundred Fifty Thousand Dollars ($250,000). Such
maximum amount will be pro-rated for any participant entitled
only to a pro-rata bonus for the period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Service Requirement.</I></B> A participant will not become
entitled to a bonus for a particular performance period unless
he or she continues in our employ through the completion of that
performance period or ceases employment by reason of retirement,
death, disability or an involuntary termination (other than for
cause). However, a participant who ceases, for any of the
foregoing reasons, to remain in our employ prior to the
completion of the performance period will only be entitled to a
pro-rated bonus. Should a participant leave our employ for any
other reason prior the completion of the performance period,
then he or she will not be entitled to any bonus for that period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Determination of Individual Bonus Amount.</I></B> The
actual bonus amount for each participant will be determined
pursuant to the following procedure:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;As soon as administratively practicable following the
    completion of the performance period, the plan administrator
    will, on the basis of the audited financial statements for the
    fiscal years included within that period, determine the actual
    level of attainment for each performance objective and then
    measure that level of attainment against the threshold level,
    the target level and the above-target level of attainment
    established for that performance objective.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;The plan administrator will certify in writing the
    actual level of attainment of each such performance objective.
    Based on such certification, the plan administrator will
    determine each participant&#146;s bonus by aggregating the
    dollar amounts earned for each performance milestone based on
    the actual level of attainment. To the extent the actual level
    of attainment for any performance milestone is at a point
    between two of the levels established by the plan administrator,
    the dollar amount of the portion of the bonus tied to that
    milestone will be pro-rated between the two points on a
    straight-line basis. In no event will any bonus be earned with
    respect to a particular performance milestone if the actual
    level of attainment is below threshold.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;The plan administrator will have complete and
    absolute discretion to reduce the bonus determined for one or
    more participants in accordance with the foregoing procedure,
    but no such reduction will result in an increase to the bonus of
    any other participant.</TD>
</TR>

</TABLE>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Deferral Election.</I></B> A participant may make an
advance election to defer the receipt of all or part of the
bonus he or she earns. The participant may designate certain
dates or events (such as separation from service or a change in
control) for the payment of the deferred bonus and may elect to
receive the payment at that time in either a lump sum or an
installment distribution over a period not to exceed five years.
In the absence of such a deferral election, the bonus will be
paid in a lump sum on or about March&nbsp;15 of the calendar
year following the completion of the performance period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Deferred Balance.</I></B> The amount of the deferred bonus
will be credited to an account established for the participant
on our books. The account will be adjusted periodically to
reflect the earnings, gains and losses tied to one or more
investment funds selected by the participant from the
alternatives under the plan. The investment choices will mirror
the investment funds available under our employee 401(k) savings
plan, but no actual investments will be made on the
participant&#146;s behalf. The investment return will be solely
in the form of book entries to the participant&#146;s account.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Effective Date.</I></B> The Plan will not become effective
unless approved by the shareholders at the Annual Shareholders
Meeting. In the event of such shareholder approval, the first
performance period may commence with the 2007 or any subsequent
calendar year.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Power to Amend. </I></B>The Board may at any time amend
the provisions of the Plan to any extent and in any manner the
Board deems advisable, subject to any shareholder approval
requirements under Code Section&nbsp;162(m) or any other
applicable law or regulation. No amendment will be made which
would cause bonuses payable under the Plan to fail to qualify
for the performance-based compensation exemption from the
deduction limitations of Section&nbsp;162(m).
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>New Plan Benefits</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of April&nbsp;10, 2006, no performance period has been
established under the Plan, and no bonus awards have been made.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Tax Summary</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The participant will recognize ordinary income in the year in
which the bonus is paid to such individual, and we will be
required to collect certain withholding taxes applicable to such
income from him or her. We will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by
the participant at the time the bonus is paid. The deduction
will in general be allowed for our taxable year in which such
ordinary income is recognized by the participant.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that any bonuses paid by us under the Plan will
qualify as performance-based compensation for purposes of Code
Section&nbsp;162(m) and will not have to be taken into account
for purposes of the $1.0&nbsp;million limitation per covered
individual on the deductibility of the compensation paid to
certain executive officers.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Voting on the Proposal</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The affirmative vote of the holders of a majority of the shares
of Common Stock present in person or by proxy and voting
thereon, is required for approval of the Plan, provided with the
shares voting affirmatively must also constitute at least a
majority of the voting power required to constitute a quorum at
the Annual Meeting. In the event stockholders do not approve
this proposal, the Plan will not be implemented.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF PROPOSAL&nbsp;NO.&nbsp;3. PROPERLY EXECUTED PROXIES RETURNED
TO THE COMPANY WILL BE VOTED &#147;FOR&#148; THE APPROVAL OF THE
COMPANY&#146;S LONG TERM INCENTIVE COMPENSATION PLAN.</B>
</DIV>

<!-- link1 "PROPOSAL NO. 4 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->
<DIV align="left"><A NAME="010"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;NO. 4</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s consolidated financial statements for the
years ended December&nbsp;31, 2005, 2004 and 2003 have been
audited by Moss Adams LLP. The Audit Committee has appointed
Moss Adams LLP to be the
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Company&#146;s Independent Registered Public Accounting Firm for
the fiscal year ending December&nbsp;31, 2006, subject to
Shareholder ratification at the Meeting (see
Proposal&nbsp;No.&nbsp;4).
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Representatives of Moss Adams LLP are expected to be present at
the Annual Meeting to respond to appropriate questions and will
be given an opportunity to make a statement if they so desire.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The aggregate fees billed by Moss Adams LLP and their respective
affiliates for professional services performed for 2005 and 2004
are as follows:
</DIV>

<CENTER>
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    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
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    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Audit-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Audit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Related</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>All Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fees&nbsp;(a)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fees&nbsp;(b)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Tax Fee&nbsp;(c)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fees&nbsp;(d)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total Fees</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>2005</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>147,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>77,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>131,000</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    (a)</TD>
    <TD></TD>
    <TD valign="top">
    Consists of fees billed for professional services rendered in
    connection with the audit of our consolidated financial
    statements and review of interim condensed consolidated
    financial statements included in our quarterly reports and
    services normally provided in connection with statutory and
    regulatory filings or engagements.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (b)</TD>
    <TD></TD>
    <TD valign="top">
    Audit related fees were primarily related to meetings with the
    audit committee, attendance at the annual stockholder meeting,
    accounting advice, review of comment letter received from the
    SEC and advice related to Section&nbsp;404 of the Sarbanes-Oxley
    Act.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (c)</TD>
    <TD></TD>
    <TD valign="top">
    Consists of tax compliance and preparation and other tax
    services.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (d)</TD>
    <TD></TD>
    <TD valign="top">
    Consists of fees for all other services other than those
    reported above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of the above services were approved by the Audit Committee.
The Audit Committee pre-approves all audit and permissible
non-audit services provided by the independent auditors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of the Independent Registered
Public Accounting Firm</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee pre-approves services performed by the
Company&#146;s independent registered public accounting firm in
order to assure that the provision of such services and related
fees do not impair the Independent Registered Public Accounting
Firm&#146;s independence. The Independent Registered Public
Accounting Firm must provide the Audit Committee with an
engagement letter outlining the scope of the audit services
proposed to be performed during the applicable calendar year and
the proposed fees for such audit services. If agreed to by the
Audit Committee, the engagement letter will be formally accepted
by the Audit Committee as evidenced by the execution of the
engagement letter by the Chair of the Audit Committee. The Audit
Committee approves, if necessary, any changes in terms,
conditions and fees resulting from changes in audit scope,
Company structure or other matters. The Audit Committee may
grant pre-approval for those permissible non-audit services that
it believes are services that would not impair the independence
of the Independent Registered Public Accounting Firm. The Audit
Committee may not grant approval for any services categorized as
&#147;Prohibited Non-Audit Services&#148; by the Securities and
Exchange Commission. Certain non-audit services have been
pre-approved by the Audit Committee, and all other non-audit
services must be separately approved by the Audit Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF PROPOSAL&nbsp;NO.&nbsp;4. PROPERLY EXECUTED PROXIES RETURNED
TO THE COMPANY WILL BE VOTED &#147;FOR&#148; THE RATIFICATION OF
THE APPOINTMENT OF MOSS ADAMS LLP AS THE COMPANY&#146;S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR
ENDING DECEMBER&nbsp;31, 2006.</B>
</DIV>

<!-- link1 "SHAREHOLDER PROPOSALS" -->
<DIV align="left"><A NAME="011"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SHAREHOLDER PROPOSALS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under certain circumstances, shareholders are entitled to
present proposals at shareholders&#146; meetings. To be eligible
for inclusion in the Proxy Statement for the Company&#146;s next
Annual Meeting of Shareholders, a
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">29

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
shareholder proposal must be received at the Company&#146;s
principal executive offices prior to February&nbsp;1, 2007. A
Shareholder&#146;s notice should list each proposal and contain
a brief description of the business to be brought before the
meeting; the name and address of the shareholder proposing such
business; the number of shares held by the shareholder; and any
material interest of the shareholder in the business.
</DIV>

<!-- link1 "ANNUAL REPORT" -->
<DIV align="left"><A NAME="012"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>ANNUAL REPORT</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s 2005 Annual Report, which includes financial
statements, but which does not constitute a part of the proxy
solicitation material, accompanies this proxy statement.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    By Order of the Board of Directors</TD>
</TR>

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f19938f1993801.gif" alt="(-s- Willie R. Barnes)"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Willie R. Barnes</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>Corporate Secretary</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dated: April&nbsp;28, 2006
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
San&nbsp;Francisco, California
</DIV>

<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">30
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt">APPENDIX A
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMERICAN SHARED HOSPITAL SERVICES</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>2006 STOCK INCENTIVE PLAN</B></U>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>ARTICLE ONE</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>GENERAL PROVISIONS</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;PURPOSE OF THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>II.&nbsp;STRUCTURE OF THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Plan shall be divided into three separate equity incentive programs:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-family: Symbol">&#045;</FONT> 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,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-family: Symbol">&#045;</FONT> 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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-family: Symbol">&#045;</FONT> 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>III. ADMINISTRATION OF THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Compensation Committee shall have sole and exclusive authority to administer the
Discretionary Grant and Stock Issuance Programs with respect to Section&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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..
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IV.&nbsp;ELIGIBILITY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The persons eligible to participate in the Discretionary Grant and Stock Issuance Programs
are as follows:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Employees,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) non-employee members of the Board or the board of directors of any Parent
or Subsidiary, and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The Plan Administrator shall have full authority to determine, (i)&nbsp;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)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. The individuals who shall be eligible to participate in the Automatic Grant Program shall
be limited to (i)&nbsp;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&#146;s
shareholders, and (ii)&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>V.&nbsp;STOCK SUBJECT TO THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;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)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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
</DIV>


<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to (i)&nbsp;the maximum number and/or class of
securities issuable under the Plan, (ii)&nbsp;the maximum number and/or class of securities for which
any one person may receive Awards under the Plan per calendar year, (iii)&nbsp;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)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE TWO</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>DISCRETIONARY GRANT PROGRAM</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;OPTION TERMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each option shall be evidenced by one or more documents in the form approved by the Plan
Administrator; <U>provided</U>, 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Exercise Price</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) cash or check made payable to the Corporation,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;s earnings for financial reporting purposes, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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)&nbsp;a brokerage firm (reasonably satisfactory
to the Corporation for purposes of administering such procedure in compliance with
the Corporation&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Exercise and Term of Options</B></U><B>. </B>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)&nbsp;years measured from the grant date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. <U><B>Effect of Termination of Service</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;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&#146;s cessation of Service
or death:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Any option outstanding at the time of the Optionee&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Any option held by the Optionee at the time of the Optionee&#146;s death and
exercisable in whole or in part at that time may be subsequently exercised by the
personal representative of the Optionee&#146;s estate or by the person or persons to whom
the option is transferred pursuant to the Optionee&#146;s will or the laws of inheritance
or by the Optionee&#146;s designated beneficiary or beneficiaries of that option.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Should the Optionee&#146;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&nbsp;Two, then all of those options shall terminate
immediately and cease to be outstanding.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) extend the period of time for which the option is to remain exercisable
following the Optionee&#146;s cessation of Service from the limited exercise period
otherwise in effect for that option to such greater period of time as
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">the Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) include an automatic extension provision whereby the specified
post-Service exercise period in effect for any option granted under this Article&nbsp;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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. <U><B>Shareholder Rights</B></U><B>. </B>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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. <U><B>Repurchase Rights</B></U><B>. </B>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 <B><I>lower </I></B>of (i)&nbsp;the exercise price paid
per share or (ii)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. <U><B>Transferability of Options</B></U>. The transferability of options granted under the Plan
shall be governed by the following provisions:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U><I>Incentive Options</I></U>: 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&#146;s death.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <U><I>Non-Statutory Options</I></U>. 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&#146;s lifetime to one or more Family Members of the Optionee or to a trust
</DIV>


<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">established exclusively for the Optionee and/or one or more such Family Members, to the extent such
assignment is in connection with the Optionee&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <U><I>Beneficiary Designations</I></U>. 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&nbsp;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&#146;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&#146;s death.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>II.&nbsp;INCENTIVE OPTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The terms specified below shall be applicable to all Incentive Options. Except as modified by
the provisions of this Section&nbsp;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 <U>not</U> be subject to the terms of this Section&nbsp;II.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Eligibility</B></U><B>. </B>Incentive Options may only be granted to Employees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Dollar Limitation</B></U><B>. </B>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).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent the Employee holds two (2)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. <U><B>10% Shareholder</B></U><B>. </B>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)&nbsp;years measured from the option grant date.
</DIV>


<P align="center" style="font-size: 10pt">9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>III. STOCK APPRECIATION RIGHTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Authority</B></U>. The Plan Administrator shall have full power and authority, exercisable
in its sole discretion, to grant stock appreciation rights in accordance with this Section&nbsp;III to
selected Optionees or other individuals eligible to receive option grants under the Discretionary
Grant Program.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Types</B></U>. Two types of stock appreciation rights shall be authorized for issuance
under this Section&nbsp;III: (i)&nbsp;tandem stock appreciation rights (&#147;Tandem Rights&#148;) and (ii)&nbsp;stand-alone
stock appreciation rights (&#147;Stand-alone Rights&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. <U><B>Tandem Rights</B></U>. The following terms and conditions shall govern the grant and
exercise of Tandem Rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;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)&nbsp;the aggregate exercise price payable
for such vested shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;III shall be made in shares of Common Stock valued at Fair Market Value
on the option surrender date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 <I>later</I>
of (i)&nbsp;five (5)&nbsp;business days after the receipt of the rejection notice or (ii)&nbsp;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)&nbsp;years after the date
of the option grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. <U><B>Stand-Alone Rights</B></U>. The following terms and conditions shall govern the grant and
exercise of Stand-alone Rights:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;years measured
from the grant date. Upon exercise of the Stand-
</DIV>


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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">alone Right, the holder shall be entitled to receive a distribution from the Corporation in an
amount equal to the excess of (i)&nbsp;the aggregate Fair Market Value (on the exercise date) of the
shares of Common Stock underlying the exercised right over (ii)&nbsp;the aggregate base price in effect
for those shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, <U>provided</U> the aggregate base price
shall remain the same. To the extent the actual holders of the Corporation&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s lifetime, except if such
assignment is in connection with the holder&#146;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&nbsp;I.F of this
Article&nbsp;Two.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. <U><B>Post-Service Exercise</B></U>. The provisions governing the exercise of Tandem and
Stand-alone Rights following the cessation of the recipient&#146;s Service shall be substantially the
same as those set forth in Section&nbsp;I.C of this Article&nbsp;Two for the options granted under the
</DIV>


<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Discretionary Grant Program, and the Plan Administrator&#146;s discretionary authority under
Section&nbsp;I.C.2 of this Article&nbsp;Two shall also extend to any outstanding Tandem or Stand-alone
Appreciation Rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. <U><B>Gross Counting</B></U><B>. </B>Upon the exercise of any Tandem or Stand-alone Right under this
Section&nbsp;III, the share reserve under Section&nbsp;V of Article&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IV.&nbsp;CHANGE IN CONTROL/HOSTILE TAKE-OVER</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 <B><I>not </I></B>become exercisable on such an accelerated basis if and to the extent: (i)&nbsp;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)&nbsp;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)&nbsp;the
acceleration of such Award is subject to other limitations imposed by the Plan Administrator.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;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)&nbsp;such
accelerated vesting is precluded by other limitations imposed by the Plan Administrator.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
</DIV>


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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Control shall also be made to (i)&nbsp;the exercise price payable per share under each outstanding
option, <U>provided</U> the aggregate exercise price payable for such securities shall remain the
same, (ii)&nbsp;the maximum number and/or class of securities available for issuance over the remaining
term of the Plan (iii)&nbsp;the maximum number and/or class of securities which may be issued without
cash consideration under the Stock Issuance Program and (iv)&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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
</DIV>


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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s outstanding repurchase rights
under such program upon the subsequent termination of the Optionee&#146;s Service by reason of an
Involuntary Termination within a designated period following the effective date of such Hostile
Take-Over.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>V.&nbsp;PROHIBITION ON REPRICING PROGRAMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan Administrator shall not (i)&nbsp;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)&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE THREE</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>STOCK ISSUANCE PROGRAM</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;STOCK ISSUANCE TERMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Issue Price</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) cash or check made payable to the Corporation,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) past services rendered to the Corporation (or any Parent or Subsidiary);
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any other valid consideration under the California Corporation Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Vesting Provisions</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s Service.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. The Plan Administrator shall also have the discretionary authority, consistent with Code
Section&nbsp;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)&nbsp;return on total shareholder equity; (2)&nbsp;earnings per share of Common Stock;
(3)&nbsp;net income or operating income (before or after taxes); (4)&nbsp;earnings before interest, taxes,
depreciation and amortization; (5)&nbsp;earnings before interest, taxes, depreciation, amortization and
charges for stock-based compensation, (6)&nbsp;sales or revenue targets; (7)&nbsp;return on assets, capital
or investment; (8)&nbsp;cash flow; (9)&nbsp;market share; (10)&nbsp;cost reduction goals; (11)&nbsp;budget comparisons;
(12)&nbsp;measures of customer satisfaction; (13)&nbsp;any combination of, or a specified increase in, any of
the foregoing; (14)&nbsp;new product development or successful completion of research and development
projects; and (15)&nbsp;the formation of joint ventures, research or development collaborations, or the
completion of other corporate transactions intended to enhance the Corporation&#146;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&#146;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&#146;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)&nbsp;the disposal of a business or
discontinued operations or (b)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;s receipt of consideration shall be
issued subject to (i)&nbsp;the same vesting requirements applicable to the Participant&#146;s unvested shares
of Common Stock and (ii)&nbsp;such escrow arrangements as the Plan Administrator shall deem appropriate.
</DIV>


<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 <B><I>lower </I></B>of (i)&nbsp;the cash consideration paid for the
surrendered shares or (ii)&nbsp;the Fair Market Value of those shares at the time of cancellation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;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&#146;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&nbsp;162(m), except in the
event of the Participant&#146;s Involuntary Termination or as otherwise provided in Section&nbsp;II of this
Article&nbsp;Three.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;162(m), except in
</DIV>


<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the event of the Participant&#146;s Involuntary Termination or as otherwise provided in Section&nbsp;II
of this Article&nbsp;Three.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>II.&nbsp;CHANGE IN CONTROL/HOSTILE TAKE-OVER</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. All of the Corporation&#146;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)&nbsp;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)&nbsp;such accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s
Service by reason of an Involuntary Termination within a designated period following the effective
date of that Change in Control transaction.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
</DIV>


<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">whole or in part immediately upon the occurrence of a Hostile Take-Over or upon the subsequent
termination of the Participant&#146;s Service by reason of an Involuntary Termination within a
designated period following the effective date of that Hostile Take-Over.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. The Plan Administrator&#146;s authority under Paragraphs D and E of this Section&nbsp;II shall also
extend to any Awards under the Stock Issuance Program which are intended to qualify as
performance-based compensation under Code Section&nbsp;162(m), even though the automatic vesting of
those issuances, units or awards pursuant to Paragraph&nbsp;D or E of this Section&nbsp;II may result in
their loss of performance-based status under Code Section&nbsp;162(m).
</DIV>


<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE FOUR</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>AUTOMATIC GRANT PROGRAM</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;TERMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Grant Dates</B></U>. Grants shall be made pursuant to the Automatic Grant Program in
effect under this Article&nbsp;Four as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Exercise Price</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The exercise price per share for each option granted under this Article&nbsp;Four shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
</DIV>


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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. <U><B>Option Term</B></U><B>. </B>Each option granted under this Article&nbsp;Four shall have a maximum term
of seven (7)&nbsp;years measured from the option grant date, subject to earlier termination following
the Optionee&#146;s cessation of Service.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. <U><B>Exercise and Vesting of Options</B></U><B>. </B>Each option granted under this Article&nbsp;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 <B><I>lower </I></B>of (i)
the exercise price paid per share or (ii)&nbsp;the Fair Market Value per share of Common Stock at the
time of repurchase, upon the Optionee&#146;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&#146;s repurchase right shall lapse, in four (4)&nbsp;successive equal annual installments upon
the Optionee&#146;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&#146;s repurchase right shall lapse, in one installment
upon the <B><I>earlier </I></B>of (i)&nbsp;the Optionee&#146;s completion of one (1)-year of service as a non-employee
Board member measured from the grant date or (ii)&nbsp;the Optionee&#146;s continuation in such Board service
through the day immediately preceding the next annual shareholders meeting following such grant
date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. <U><B>Vesting of Restricted Stock Units and Issuance of Shares</B></U><B>. </B>Each restricted stock
unit award for up to three thousand (3,000) shares shall vest in a series of four (4)&nbsp;successive
equal annual installments upon the individual&#146;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)&nbsp;the individual&#146;s completion of one (1)-year of service as a
non-employee Board member measured from the date that award is made or (ii)&nbsp;the individual&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. <U><B>Limited Transferability of Options</B></U><B>. </B>Each option under this Article&nbsp;Four may be
assigned in whole or in part during the Optionee&#146;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&#146;s estate plan or pursuant
to a domestic relations order. The assigned portion may only be exercised by the
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;Four, and the options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee&#146;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&#146;s death.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;G. <U><B>Termination of Service</B></U><B>. </B>The following provisions shall govern the exercise of any
options held by the Optionee at the time the Optionee ceases Service:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The Optionee (or, in the event of Optionee&#146;s death while holding the
option, the personal representative of the Optionee&#146;s estate or the person or
persons to whom the option is transferred pursuant to the Optionee&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;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.
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>II.&nbsp;CHANGE IN CONTROL/HOSTILE TAKE-OVER</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. In the event of any Change in Control while the individual remains in Service, the
following provisions shall apply:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Should a Change in Control occur prior to the Optionee&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. In the event of a Hostile Take-Over while the individual remains in Service, the following
provisions shall apply:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, <U>provided</U> the aggregate exercise price payable for such securities
shall remain the same. To the extent the actual holders of the Corporation&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>III. REMAINING TERMS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;V of Article&nbsp;Two.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IV.&nbsp;ALTERNATIVE AWARDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE FIVE</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>MISCELLANEOUS</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>I.&nbsp;TAX WITHHOLDING</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Corporation&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock Withholding</U>: 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock Delivery</U>: 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>II.&nbsp;SHARE ESCROW/LEGENDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unvested shares may, in the Plan Administrator&#146;s discretion, be held in escrow by the
Corporation until the Participant&#146;s interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing those unvested shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>III. EFFECTIVE DATE AND TERM OF THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Plan shall become effective on the Plan Effective Date.
</DIV>


<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Plan shall terminate upon the <U>earliest</U> to occur of (i)&nbsp;February&nbsp;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)&nbsp;the termination of all outstanding Awards in connection with a Change in
Control. Should the Plan terminate on February&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IV.&nbsp;AMENDMENT OF THE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>V.&nbsp;USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>VI.&nbsp;REGULATORY APPROVALS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>VII. NO EMPLOYMENT/SERVICE RIGHTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s Service at any time for any reason, with or without cause.
</DIV>


<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>APPENDIX </B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following definitions shall be in effect under the Plan:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <U><B>Annual Meeting</B></U> shall mean the annual meeting of the Corporation&#146;s shareholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <U><B>Automatic Grant Program</B></U> shall mean the automatic option grant program in effect
under Article&nbsp;Four of the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. <U><B>Award</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. <U><B>Board</B></U> shall mean the Corporation&#146;s Board of Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. <U><B>Change in Control</B></U> shall mean a change in ownership or control of the Corporation
effected through any of the following transactions:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a merger, consolidation or other reorganization approved by the
Corporation&#146;s shareholders, <U>unless</U> 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&#146;s outstanding voting securities immediately prior to such
transaction,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;s assets, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the closing of any transaction or series of related transactions pursuant
to which any person or any group of persons comprising a &#147;group&#148; within the meaning
of Rule&nbsp;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&nbsp;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&#146;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
</DIV>

<P align="center" style="font-size: 10pt">A-1.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">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&#146;s existing shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. <U><B>Code</B></U> shall mean the Internal Revenue Code of 1986, as amended.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;G. <U><B>Common Stock</B></U> shall mean the Corporation&#146;s common stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;H. <U><B>Compensation Committee</B></U> shall mean the Compensation Committee of the Board comprised
of two (2)&nbsp;or more non-employee Board members.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I. <U><B>Corporation</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;J. <U><B>Discretionary Grant Program</B></U> shall mean the discretionary grant program in effect
under Article&nbsp;Two of the Plan pursuant to which stock options and stock appreciation rights may be
granted to one or more eligible individuals.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;K. <U><B>Eligible Director</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;L. <U><B>Employee</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;M. <U><B>Exercise Date</B></U> shall mean the date on which the Corporation shall have received
written notice of the option exercise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;N. <U><B>Fair Market Value</B></U> per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

<P align="center" style="font-size: 10pt">A-2.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;O. <U><B>Family Member</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;P. <U><B>Hostile Take-Over</B></U> shall mean a change in ownership or control of the Corporation
effected through either of the following transactions:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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)&nbsp;have been Board members continuously since the beginning
of such period or (B)&nbsp;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)&nbsp;who were still in office at the time the Board approved such election or
nomination, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&nbsp;13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Corporation&#146;s outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation&#146;s shareholders which the Board does not
recommend such shareholders to accept.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Q. <U><B>Incentive Option</B></U> shall mean an option which satisfies the requirements of Code
Section&nbsp;422.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R. <U><B>Involuntary Termination</B></U> shall mean the termination of the Service of any individual
which occurs by reason of:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) such individual&#146;s involuntary dismissal or discharge by the Corporation (or
any Parent or Subsidiary) for reasons other than Misconduct, or
</DIV>

<P align="center" style="font-size: 10pt">A-3.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) such individual&#146;s voluntary resignation following (A)&nbsp;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)&nbsp;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)&nbsp;a relocation
of such individual&#146;s place of employment by more than fifty (50)&nbsp;miles, provided and
only if such change, reduction or relocation is effected by the Corporation (or any
Parent or Subsidiary) without the individual&#146;s consent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;S. <U><B>Misconduct</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;T. <U><B>1934 Act</B></U> shall mean the Securities Exchange Act of 1934, as amended.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U. <U><B>Non-Statutory Option</B></U> shall mean an option not intended to satisfy the requirements
of Code Section&nbsp;422.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;V. <U><B>Optionee</B></U> shall mean any person to whom an option is granted under the Discretionary
Grant or Automatic Grant Program.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;W. <U><B>Parent</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X. <U><B>Participant</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Y. <U><B>Permanent Disability or Permanently Disabled</B></U> 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)&nbsp;months or more. However, solely for purposes of the Automatic
Grant Program, Permanent Disability or Permanently Disabled shall mean the
</DIV>


<P align="center" style="font-size: 10pt">A-4.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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)&nbsp;months or more.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Z. <U><B>Plan</B></U> shall mean the Corporation&#146;s 2006 Stock Incentive Plan, as set forth in this
document.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AA. <U><B>Plan Administrator</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BB. <U><B>Plan Effective Date</B></U> shall mean the date on which the Plan is approved by the
shareholders at the 2006 Annual Meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CC. <U><B>Predecessor Plans</B></U> shall mean (i)&nbsp;the Corporation&#146;s 2001 Stock Option Plan and (ii)
the Corporation&#146;s 1995 Stock Option Plan, as each such Plan is in effect immediately prior to the
2006 Annual Meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DD. <U><B>Secondary Board Committee</B></U> 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&nbsp;16 Insiders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EE. <U><B>Section&nbsp;16 Insider</B></U> shall mean an officer or director of the Corporation subject to
the short-swing profit liabilities of Section&nbsp;16 of the 1934 Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FF. <U><B>Service</B></U> 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)&nbsp;the Optionee or
Participant no longer performs services in any of the foregoing capacities for the Corporation or
any Parent or Subsidiary or (ii)&nbsp;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, <U>however</U>, 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&#146;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
</DIV>


<P align="center" style="font-size: 10pt">A-5.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GG. <U><B>Stock Exchange</B></U> shall mean either the American Stock Exchange or the New York Stock
Exchange.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HH. <U><B>Stock Issuance Agreement</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;II. <U><B>Stock Issuance Program</B></U> shall mean the stock issuance program in effect under
Article&nbsp;Three of the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;JJ. <U><B>Subsidiary</B></U> 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KK. <U><B>10% Shareholder</B></U> 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).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LL. <U><B>Withholding Taxes</B></U> 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.
</DIV>



<P align="center" style="font-size: 10pt">A-6.
</DIV>


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<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Appendix&nbsp;B
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMERICAN SHARED HOSPITAL SERVICES</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>LONG-TERM INCENTIVE COMPENSATION PLAN</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE I</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>NAME AND PURPOSE</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.01 </B><U><B>Purpose</B></U>. American Shared Hospital Services, a corporation duly organized and
existing under the laws of State of California (the &#147;Corporation&#148;), hereby establishes the American
Shared Hospital Services Long-Term Incentive Compensation Plan (the &#147;Plan&#148;) in order to provide a
select group of management and other highly compensated individuals in the Corporation&#146;s employ
with the opportunity to earn additional incentive compensation contingent upon the Corporation&#146;s
attainment of pre-established performance objectives and their completion of designated service
periods and to defer any compensation so earned until the expiration of a designated period of
time, their separation from service with the Corporation or a substantial change in the control or
ownership of the Corporation. The deferral features of the Plan shall function as a so-called &#147;top
hat&#148; plan of deferred compensation and shall be subject to the provisions of the Employee
Retirement Income Security Act of 1974 (as amended from time to time) applicable to such a plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.02 </B><U><B>General</B></U>. The benefits provided under the Plan shall be paid, as they become due,
either directly from the Corporation&#146;s general assets or through a grantor trust arrangement
established in accordance with the provisions of Article&nbsp;VIII. The interest of each participant
(and his or her beneficiary) in any benefits that become payable under the Plan shall be no greater
than that of an unsecured creditor of the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE II</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ADMINISTRATION OF THE PLAN</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.01 </B><U><B>Plan Administrator</B></U><B>. </B>The Plan shall be administered by a committee of two or more
non-employee Board members who qualify as &#147;outside directors&#148; under Code Section 162(m) and Section
1.162-27(e) of the Treasury Regulations thereunder. The Board committee acting in such capacity
shall hereinafter be referred to as the Plan Administrator and shall have full and complete
authority to administer the Plan and select the Eligible Employees who are to participate in the
Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.02 </B><U><B>Authority</B></U>. The interpretation and construction of any provision of the Plan and
the adoption of rules and regulations for plan administration shall be made by the Plan
Administrator. Decisions of the Plan Administrator shall be final and binding on all parties who
have an interest in the Plan, including (without limitation) all decisions relating to an
individual&#146;s eligibility for participation in the Plan, his or her entitlement to benefits
hereunder and the amount of any such benefit entitlement. The Plan Administrator shall also have
the discretionary
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">authority to determine whether the involuntary termination of any Participant&#146;s Employee
status constitutes a Termination for Cause (pursuant to the criteria set forth in Section&nbsp;3.18),
and such determination shall be final and binding on the Participant for purposes of such
Participant&#146;s benefit entitlement (if any) under the Plan.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE III</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>DEFINITIONS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.01 </B>&#147;<U><B>Account</B></U>&#148; shall mean the account maintained on the Corporation&#146;s books and
records for each Participant who elects to defer any Long-Term Incentive Bonus such Participant
earns under the Plan. The Participant&#146;s Account will be divided into a series of subaccounts, and
there will accordingly be a separate <B>Deferral Subaccount </B>for each Long-Term Incentive Bonus the
Participant elects to defer under the Plan. Each outstanding Account under the Plan shall be
adjusted periodically for investment earnings, gains and losses pursuant to Article&nbsp;VII.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.02 &#147;</B><U><B>Board</B></U><B>&#148; </B>shall mean the Corporation&#146;s Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.03 &#147;</B><U><B>Change in Control</B></U><B>&#148; </B>shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;a merger, consolidation or other reorganization approved by the
Corporation&#146;s shareholders in which the persons who beneficially owned (within the
meaning of Rule&nbsp;13d-3 of the 1934 Act) the Corporation&#146;s outstanding voting
securities immediately prior to such transaction do not immediately thereafter
beneficially own, directly or indirectly and in substantially the same proportion,
securities representing more than fifty percent (50%) of the total combined voting
power of the voting securities of the successor corporation, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;a shareholder-approved sale, transfer or other disposition of all or
substantially all of the Corporation&#146;s assets, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.&nbsp;&nbsp;the closing of any transaction or series of related transactions pursuant to
which any person or any group of persons comprising a &#147;group&#148; within the meaning of
Rule&nbsp;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&nbsp;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&#146;s securities (as measured in terms of the power to vote
with respect to the election of Board
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">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&#146;s existing shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.04 </B>&#147;<U><B>Code</B></U>&#148; shall mean the Internal Revenue Code of 1986, as amended from time to
time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.05 </B>&#147;<U><B>Corporation</B></U>&#148; shall mean American Shared Hospital Services Corporation and any
successor or assignee corporation, whether by way of merger, acquisition or other reorganization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.06 </B>&#147;<U><B>Deferral Election</B></U>&#148; shall mean the irrevocable election filed by the Participant
under Article&nbsp;VI of the Plan pursuant to which all or a portion of his or her Long-Term Incentive
Bonus for a particular Earn-Out Period is to be deferred in accordance with the provisions of the
Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.07 </B>&#147;<U><B>Disability or Disabled</B></U>&#148; shall mean the Participant&#146;s inability to engage in any
substantial gainful employment by reason of any physical or medical impairment which is expected to
result in death or continue for a period of twelve (12)&nbsp;consecutive months or more.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.08 &#147;</B><U><B>Earn-Out Period</B></U><B>&#148; </B>shall mean the period of one or more consecutive calendar years
established by the Plan Administrator over which the Corporation must attain the Performance
Milestones which the Plan Administrator has designated for that period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.09 </B>&#147;<U><B>Eligible Employee</B></U>&#148; shall mean any executive officer or any other individual with
management responsibilities who is determined by the Plan Administrator to be a highly compensated
Employee in accordance with the guidelines established from time to time by the Plan Administrator.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.10 </B>&#147;<U><B>Employee</B></U>&#148; shall mean any person in the employ of the Corporation, subject to
its control and direction as to both the work to be performed and the manner and method of
performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.11 &#147;</B><U><B>Involuntary Termination</B></U><B>&#148; </B>shall mean the termination of Employee status by
reason of:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Employee&#146;s discharge or dismissal by the Corporation for any reason other than a
Termination for Cause, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Employee&#146;s death or Disability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.12 &#147;</B><U><B>Long-Term Incentive Bonus</B></U><B>&#148; </B>shall mean the bonus to which the Participant may
become entitled with respect to a particular Earn-Out Period on the basis of the Corporation&#146;s
attainment of the specific Performance Milestones the Plan Administrator has established for that
Earn-Out Period.
</DIV>

<P align="center" style="font-size: 10pt">3
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.13 </B><U><B>1934 Act </B></U>shall mean the Securities Exchange of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.14 </B><U><B>Maximum Bonus Amount</B></U> shall mean the maximum dollar amount of the Long-Term
Incentive Bonus which a Participant may earn for any one Earn-Out Period. Such Maximum Bonus Amount
shall be determined by the Plan Administrator within the first ninety (90)&nbsp;days of the Earn-Out
Period, but in no event shall such amount exceed the dollar amount determined by multiplying the
number of calendar years comprising the Earn-Out Period by Two Hundred Fifty Thousand Dollars
($250,000). For any pro-rated Long-Term Incentive Bonus which becomes payable under the Plan, the
<U><B>Pro-Rated Maximum Bonus Amount</B></U> shall be determined by multiplying the Maximum Bonus Amount
for the Earn-Out Period to which that bonus relates by a fraction, the numerator of which is the
number of days the Participant continued in Employee status during that Earn-Out Period and the
denominator of which is the total number of days in the calendar years comprising such Earn-Out
Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.15 </B>&#147;<U><B>Participant</B></U>&#148; shall mean each Eligible Employee who participates in the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.16 &#147;</B><U><B>Performance Milestones</B></U><B>&#148; </B>shall mean one or more of the following performance
goals as to which the Plan Administrator may designate specific objectives to be attained by the
Corporation for a particular Earn-Out Period: (1)&nbsp;return on total shareholder equity; (2)&nbsp;earnings
per share of Common Stock; (3)&nbsp;net income or operating income (before or after taxes); (4)&nbsp;earnings
before interest, taxes, depreciation and amortization; (5)&nbsp;earnings before interest, taxes,
depreciation, amortization and charges for stock-based compensation, (6)&nbsp;sales or revenue targets;
(7)&nbsp;return on assets, capital or investment; (8)&nbsp;cash flow; (9)&nbsp;market share; (10)&nbsp;cost reduction
goals; (11)&nbsp;budget comparisons; (12)&nbsp;measures of customer satisfaction; (13)&nbsp;any combination of, or
a specified increase in, any of the foregoing; (14)&nbsp;the formation of joint ventures or the
completion of other corporate transactions intended to enhance the Corporation&#146;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&#146;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&#146;s business units or divisions or any Parent or Subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.17 </B>&#147;<U><B>Retirement</B></U>&#148; shall mean the Participant&#146;s termination of Employee status (other
than a Termination for Cause) on or after (i)&nbsp;his or her attainment of age sixty five (65)&nbsp;or (ii)
his or her attainment of age fifty-five (55)&nbsp;and completion of at least fifteen (15)&nbsp;years of
Employee status.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.18 &#147;</B><U><B>Termination for Cause"</B></U> shall mean the Corporation&#146;s termination of the
Participant&#146;s status as an Employee for one or more of the following reasons: (i)&nbsp;the
Participant&#146;s failure to correct deficiencies in his or her level of performance within a
reasonable period of time following the identification of those deficiencies by the Board (in the
case of the Chief Executive Officer) or by the Corporation&#146;s Chief Executive Officer (in the case
of any other Participant), (ii)&nbsp;the Participant&#146;s habitual neglect of his or her duties or his or
her repeated absenteeism, excessive tardiness or continued failure to follow established rules and
procedures for the Corporation&#146;s employees, (iii)&nbsp;the Participant&#146;s commission of any act of fraud
or
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">embezzlement, (iv)&nbsp;any unauthorized use or disclosure by the Participant of material
confidential information or trade secrets of the Corporation, (v)&nbsp;a material breach by the
Participant of any of his or her fiduciary obligations as an officer of the Corporation or (vi)&nbsp;the
Participant&#146;s intentional and knowing participation in the preparation or release of false or
materially misleading financial statements relating to the Corporation&#146;s operations and financial
condition or his or her intentional and knowing submission of any false or erroneous certification
required of the Participant under the Sarbanes-Oxley Act of 2002 or any securities exchange on
which shares of the Common Stock are at the time listed for trading or (vii)&nbsp;any other intentional
misconduct by the Participant adversely affecting the business or affairs of the Corporation in a
material manner. The foregoing definition shall not in any way preclude or restrict the right of
the Corporation to discharge or dismiss any Participant or other Employee 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 Cause.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.19 </B>&#147;<U><B>Valuation Date</B></U>&#148; shall mean any date as of which the balance credited to each of
the Participant&#146;s Deferral Subaccounts is to be determined. If the date in question is coincident
with a date on which the U.S. financial markets are open for business, then the Valuation Date
shall be that same date; otherwise, the Valuation Date shall be first date immediately preceding
the date in question on which the U.S. financial markets are open for business.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IV</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>PARTICIPATION</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.01 </B><U><B>Eligibility Rules</B></U>. The Plan Administrator shall have absolute discretion in
selecting the Eligible Employees who are to participate in each Earn-Out Period implemented under
the Plan. The Participants for each Earn-Out Period shall be selected not later than the
ninetieth (90th) day after the start date of that Earn-Out Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.02 </B><U><B>Cessation of Participation</B></U>. The Plan Administrator shall have complete discretion
to exclude one or more individuals from Participant status for one or more subsequent Earn-Out
Periods implemented under the Plan. If any individual is excluded from Participant status for one
or more Earn-Out Periods, then such individual shall not be entitled to any Long-Term Incentive
Bonus for those Earn-Out Periods. However, such individual shall continue to have the right, during
his or her period of continued Employee status, to direct the hypothetical investment of any
Deferral Subaccounts maintained on his or her behalf pursuant to the provisions of Article&nbsp;VI.
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE V</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>LONG-TERM INCENTIVE BONUSES</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.01 </B><U><B>Establishment of Earn-Out Period and Bonus Potential</B></U>. The Plan Administrator
shall have complete discretion to implement one or more Earn-Out Periods under the Plan in
accordance with the following parameters:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Each Earn-Out Period shall be coincidental with a period of not less than
one (1)&nbsp;or more than five (5)&nbsp;consecutive calendar years. The Plan Administrator
shall, within the first ninety (90)&nbsp;days of the Earn-Out Period, designate the
actual number of calendar years which shall comprise that Earn-Out Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The Plan Administrator shall, within the first ninety (90)&nbsp;days of each
Earn-Out Period, establish the specific performance goals and objectives which must
be attained for that Earn-Out Period based on one or more of the Performance
Milestones. For each specific performance objective, the Plan Administrator shall
establish threshold, target and maximum levels of attainment. With respect to any
performance objective which is to be calculated in a manner which deviates from
generally acceptable accounting standards, the Plan Administrator shall specify the
deviations at the time the performance objective is set.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The Plan Administrator shall also, within the first ninety (90)&nbsp;days of
the Earn-Out Period, establish for each Participant the formula for calculating the
Long-Term Incentive Bonus to which he or she may become entitled for that Earn-Out
Period based on the level at which each Performance Milestone is actually attained.
Accordingly, for each Performance Milestone, the formula shall designate a
threshold, target and above-target dollar contribution to the Participant&#146;s
Long-Term Incentive Bonus, with the actual dollar amount of such contribution to be
based on the actual level of attainment of each performance objective. The various
levels of contribution designated for each performance objective may be tied to
percentages or multiples of the average of the annual rates of base salary in
effect for the Participant at the start of each calendar year within the applicable
Earn-Out Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.02 </B><U><B>Service Requirement</B></U>. A Participant shall not become entitled to a Long-Term
Incentive Bonus for a particular Earn-Out Period unless the Participant continues in Service
through the completion of that Earn-Out Period or the Participant ceases Service in that Earn-Out
Period by reason of Retirement or Involuntary Termination (other than Termination for Cause);
<B><I>provided, however, </I></B>that a Participant whose Employee status terminates by reason of Retirement or
Involuntary Termination prior to the completion of the Earn-Out Period shall only be entitled to a
pro-rated Long Term Incentive Bonus for that period determined in accordance
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">with Section&nbsp;5.06. Should the Participant cease Service for any other reason prior the
completion of the Earn-Out Period, then he or she shall not be entitled to any Long-Term Incentive
Bonus for that Earn-Out Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.03 </B><U><B>Determination of Individual Bonus Amount.</B></U> The following provisions shall govern
the determination of the Long-Term Incentive Bonus for each Participant who continues Employee
status through the completion of the Earn-Out Period or is otherwise entitled to a pro-rated bonus
for such Earn-Out Period pursuant to the provisions of Section&nbsp;5.02:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) As soon as administratively practicable following the completion of the
Earn-Out Period, the Plan Administrator shall, on the basis of the Corporation&#146;s
audited financial statements for the fiscal years included within that Earn-Out
Period, determine the actual level of attainment for each performance objective
designated for that Earn-Out Period and shall then measure that level of attainment
against the threshold level, the target level and the above-target level of
attainment established for that performance objective.
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) In making such determination and measurement, the Plan Administrator shall
exclude the following items, as calculated and determined in accordance with
generally accepted accounting principles, but only to the extent those items were
designated as potential adjustments to the performance objectives at the time those
objective were established for the Earn-Out Period: all extraordinary, unusual or
non-recurring items of gain, loss or expense; all items of gain, loss or expense
related to (a)&nbsp;the disposal of a business or discontinued operations or (b)&nbsp;the
operations of any business acquired by Corporation during the Earn-Out Period; all
accruals for reorganization and restructuring cost and expenses; and all items of
gain, loss or expense attributable to changes in tax laws and regulations,
accounting principles or other applicable laws or regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The Plan Administrator shall certify in writing the actual level of
attainment of each such performance objective, as adjusted for the items specified
in subparagraph (ii)&nbsp;above. Based on such certification and measurement, the Plan
Administrator shall then determine the Long-Term Incentive Bonus for each
Participant by aggregating the dollar amounts earned for each Performance Milestone
based on the actual level of attainment of that particular milestone. To the extent
the actual level of attainment for any Performance Milestone is at a point between
two of the levels established by the Plan Administrator, the dollar amount of the
portion of each Long-Term Incentive Bonus tied to that Performance Milestone shall
be pro-rated between the two points on a straight-line basis. The Long-Term
Incentive Bonus so calculated shall be subject to the pro-ration provisions of
Section&nbsp;5.05 for certain Participants who ceased Service prior to the completion of
that Performance Period. In no event, however, shall any Long-Term Incentive Bonus
be earned with respect to a particular Performance Milestone if the actual level of
attainment of that Performance Milestone is below the threshold level set for that
milestone. By way of illustration, if the actual level of attainment for one of two
performance objectives is at the threshold level established by the Plan
Administrator and the actual level of attainment for the second performance
objective is at the target level, then the Long-Term Incentive Bonus will be at the
threshold dollar level set for the first performance objective and at the target
dollar level set for the other objective.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The Plan Administrator shall have complete and absolute discretion to
reduce the Long-Term Incentive Bonus determined for one or more Participants in
accordance with the foregoing provisions of this Section&nbsp;5.03; <B><I>provided, however</I></B>,
that no such reduction shall result in an increase to the Long-Term Incentive Bonus
of any other Participant or Participants. In no event shall the Long-Term Incentive
Bonus for any Participant exceed the Maximum Bonus Amount for the Earn-Out Period
or, for a Participant entitled to only a pro-rated Long-Term Incentive Bonus under
Section&nbsp;5.05, the Pro-Rated Maximum Bonus Amount.
</DIV>

<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.04 </B><U><B>Pro-Rated Award</B></U>. A Participant whose Employee status terminates prior to the
completion of the Earn-Out Period by reason of Retirement or Involuntary Termination shall be
entitled to a pro-rated Long-Term Incentive Bonus in a dollar amount determined by multiplying (i)
the actual Long-Term Incentive Bonus to which he or she would have been entitled under Section&nbsp;5.03
had he or she continued in Employee status through the last day of the applicable Earn-Out Period
by (ii)&nbsp;fraction, the numerator of which is the number of days such Participant remained in
Employee status during the Earn-Out Period and the denominator of which is the total number of days
in that Earn-Out Period. The Participant&#146;s pro-rated Long-Term Incentive Bonus for the Earn-Out
Period shall be the lesser of (i)&nbsp;the dollar amount so calculated or (ii)&nbsp;the Pro-Rated Maximum
Bonus Amount for that Earn-Out Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.05 </B><U><B>Change in Control Pro-Ration</B></U>. Should a Change in Control transaction be
consummated more than six (6)&nbsp;months after the start of the Earn-Out Period but before the date
that period was originally scheduled to be completed, then the Earn-Out Period shall terminate upon
the consummation of the Change in Control, and the following procedures shall govern the
calculation of the pro-rated Long-Term Incentive Bonuses to become payable in connection therewith:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>First</I>, the dollar amount of each Participant&#146;s Long-Term Incentive Bonus shall
be calculated by assuming that each performance objective established for the
Earn-Out Period will be attained at the target level.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Then</I>, the Long-Term Incentive Bonus so calculated shall, for each Participant
who continued in Employee status through the date of such Change in Control, be
multiplied by a fraction, the numerator of which is the number of days such
Participant remained in Employee status during the portion of the Earn-Out Period
ending with the Change in Control and the denominator of which is the total number
of days for which that Earn-Out Period was originally scheduled to last. The
Participant&#146;s pro-rated Long-Term Incentive Bonus for the Earn-Out Period shall be
the lesser of (i)&nbsp;the dollar amount so calculated or (ii)&nbsp;the Pro-Rated Maximum
Bonus Amount calculated for that Earn-Out Period on the basis of the total number of
days for which that Earn-Out Period was originally scheduled to last.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Finally</I>, the Long-Term Incentive Bonus of each Participant whose Employee
status was terminated by reason of Retirement or Involuntary Termination during the
Earn-Out Period in which such Change in Control occurred shall be calculated by
multiplying the Long-Term Incentive Bonus calculated for him or her under the first
step above by a fraction, the numerator of which is the number of days such
Participant completed in Employee status during that Earn-Out Period and the
denominator of which is the total number of days for which that Earn-Out Period was
originally scheduled to last. The Participant&#146;s pro-rated Long-Term Incentive Bonus
for the Earn-Out Period shall
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">be the lesser of (i)&nbsp;the dollar amount so calculated or (ii)&nbsp;the Pro-Rated Maximum
Bonus Amount calculated for that Earn-Out Period on the basis of the total number of
days for which that Earn-Out Period was originally scheduled to last.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Long-Term Incentive Bonuses shall be earned or otherwise become payable with respect to
any Earn-Out Period in which a Change in Control is consummated, if such consummation occurs
within the first six (6)&nbsp;months of that Earn-Out Period.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VI</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>PAYMENT OR DEFERRAL OF LONG-TERM INCENTIVE BONUSES</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.01 </B><U><B>Payment</B></U>. The following provisions shall govern the payment of each Long-Term
Incentive Bonus to which a Participant becomes entitled under the Plan:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;Except to the extent the Participant has filed a timely Deferral Election, the Long-Term
Incentive Bonus to which the Participant becomes entitled for a particular Earn-Out Period shall be
paid to him or her in a lump sum on March&nbsp;15 of the calendar year following the calendar year in
which that Earn-Out Period ends or (to the extent applicable) on the thirtieth (30th) day following
the consummation of the Change in Control, unless in either instance it is not administratively
practical to complete the requisite calculations under Article&nbsp;V prior to such date. In such event
payment shall be deferred but shall be made no later than December&nbsp;31 of the calendar year
following the calendar year in which the Earn-Out Period ends or (with respect to an Earn-Out
Period ending with the Change in Control) the later of (i)&nbsp;the end of the calendar year in which
such Change in Control is consummated or (ii)&nbsp;the fifteenth (15th) day of the third calendar month
following the consummation of the Change in Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;A Participant may make a Deferral Election with respect to all or part of any Long-Term
Incentive Bonus to which he or she may become entitled under the Plan. However, only one Deferral
Election may be made per Long-Term Incentive Bonus. The Deferral Election must be made by filing an
appropriate election form with the Plan Administrator or its designate in accordance with the
following requirements:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) An individual who is selected as a Participant for an Earn-Out Period on or
before date the performance objectives for that Earn-Out Period are established by
the Plan Administrator may file the Deferral Election with respect to all or part of
any Long-Term Incentive Bonus earned for that period at any time while such
individual remains in Employee status up until the final six (6)&nbsp;months of that
Earn-Out Period. The Deferral Election must specify a payment date or payment event
for the deferred portion in accordance with the events listed below or may specify
that payment is to occur upon the earliest or the latest of any of those events:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- a specified date which is at least twelve (12)&nbsp;months later than the last day
of the applicable Earn-Out Period,
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- the Participant&#146;s separation from service (as determined in accordance with
the criteria established under Code Section&nbsp;409A and the applicable Treasury
Regulations thereunder) at any time following the conclusion of the applicable
Earn-Out Period, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- the closing of a Change in Control at any time following the conclusion of
the applicable Earn-Out Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) A Participant who does not otherwise qualify for a Deferral Election under
subparagraph (i)&nbsp;above may file a Deferral Election with respect to all or part of
any Long-Term Incentive Bonus, provided such election is filed at least twelve (12)
months prior to the last day of the Earn-Out Period to which that Long-Term
Incentive Bonus relates. In no event, however, shall such election become effective
or otherwise have any force or applicability until the expiration of the twelve
(12)-month period measured from the date such election is filed with the Plan
Administrator or its designate, and such election shall accordingly become null and
void should a Change in Control be consummated within that twelve (12)-month period.
The Deferral Election must specify a payment date for the deferred portion which is
at least five (5)&nbsp;years later than the March&nbsp;15 date on which the Long-Term
Incentive Bonus would have otherwise become payable in the absence of such Deferral
Election or any Change in Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.02 </B><U><B>Deferral Account.</B></U> If a Participant makes a timely Deferral Election under
Section&nbsp;6.01 with respect to all or part of his or her Long-Term Incentive Bonus, then a Deferral
Subaccount shall be established for the Participant and credited with the dollar amount of the
portion of the Long-Term Incentive Bonus subject to that Deferral Election, as and when that bonus
would have otherwise become due and payable to the Participant in the absence of such Deferral
Election. The Participant shall at all times be fully vested in the balance credited to each of
his or her Deferral Subaccounts, as adjusted periodically for investment earnings, gains and losses
pursuant to Article&nbsp;VII. Distribution of each Deferral Subaccount shall be made or commence on the
payment date or payment event specified in the Deferral Election made with respect to the Long-Term
Incentive Bonus credited to that subaccount or as soon as administratively practicable thereafter,
but in no event later than December&nbsp;31 of the calendar year in which that payment date or event
occurs or (if later) the fifteenth (15th) day of the third calendar month following such specified
payment date or event. The distribution shall be made in a lump sum payment, unless the
Participant designates an installment distribution over a period not to exceed five (5)&nbsp;years in
his or her Deferral Election with respect to that Deferral Subaccount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.03 </B><U><B>Distribution Upon Death or Disability</B></U>. The following provisions shall govern the
distribution of benefits under the Plan in the event the Participant with one or more Deferred
Subaccounts under the Plan should die while in Employee status or at any time
</DIV>

<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">thereafter, or become Disabled following cessation of Employee status, while there is an
outstanding balance credited to those subaccounts and shall supersede any provision to the contrary
in Section&nbsp;6.02.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;The undistributed portion shall be paid in a lump sum to the Participant or (in the event
of the Participant&#146;s death) to his or her designated beneficiary(ies) under the Plan. Such payment
shall be made as soon as administratively practical following the Participant&#146;s death or
Disability, but in no event later than December&nbsp;31 of the calendar year in which Participant dies
or becomes Disable or (if later) the fifteenth (15th) day of the third calendar month following the
date of his or her death or Disability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;The Participant may designate one or more such beneficiaries, or may revoke his or her
existing beneficiary designation and make a new designation, by filing a properly completed
beneficiary designation in accordance with the procedures established by the Plan Administrator or
its designate. Should the Participant die without a valid beneficiary designation in effect or
after the death of his or her designated beneficiary(ies), then any amounts due him or her under
the Plan shall be paid to the personal representative of his or her estate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.04 </B><U><B>Valuation</B></U>. The amount to be distributed from any Deferral Subaccount pursuant
to this Article&nbsp;VI shall be determined on the basis of the balance credited to that subaccount as
of the most recent practicable Valuation Date (as determined by the Plan Administrator or its
designate) preceding the date of the actual distribution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.05 </B><U><B>Installment Distribution</B></U>. To the extent the Participant elects an installment
distribution in his or her Deferral Election with respect to a particular Deferral Subaccount, that
subaccount shall be paid in a series of annual installments over the designated period. The amount
of each annual installment shall be determined by dividing the balance credited to that subaccount
on the Valuation Date immediately prior to the installment by the number of remaining installments
(including the current installment).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.06 </B><U><B>Withholding Taxes</B></U>. The Participant shall be responsible for the satisfaction of
all federal, state and local income, employment and other payroll taxes (including FICA taxes)
which are required to be withheld on his or her Long-Term Incentive Bonus, and such taxes shall
accordingly be paid, as and when they become due under applicable law, through the Corporation&#146;s
withholding of those taxes from the wages and earnings payable to the Participant or by any other
means acceptable to the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VII</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>INVESTMENT RETURN</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.01 </B><U><B>Investment Return</B></U>. Each of the Participant&#146;s Deferral Subaccounts shall be
adjusted periodically to reflect the earnings, gains and losses equal to the actual investment
experience realized for the period by one or more of the investment funds selected by the
</DIV>

<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Participant from the investment alternatives identified in Appendix&nbsp;I. At the time a Long-Term
Incentive Bonus is initially credited to the Participant&#146;s Deferral Subaccount, that bonus shall be
automatically deemed invested in the &nbsp;&nbsp;&nbsp;&nbsp; Fund and shall continue to be deemed so invested until
the Participant reallocates the balance of that subaccount to one or more other investment funds
pursuant to the provisions of Section&nbsp;7.02. On each day on which the U.S. financial markets are
open, each of the Participant&#146;s Deferral Subaccounts shall be adjusted to reflect the investment
earnings, gains or losses those subaccounts would have actually realized had they been invested on
that day in the selected investment funds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.02 </B><U><B>Reallocation of Account Balances Between Funds</B></U>. A Participant may elect at any
time to reallocate (in such percentages as the Plan Administrator shall authorize) part or all of
the balance of one or more of his or her Deferral Subaccounts among the available investment
alternatives. Accordingly, a separate reallocation may be made as to each such subaccount. Each
designated reallocation shall be effected as soon as reasonably practicable after the new
allocations are filed by the Participant in accordance with procedures established by the Plan
Administrator or its designate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.03 </B><U><B>Account Value</B></U>. The value of each of the Participant&#146;s Deferral Subaccounts on
any Valuation Date in question shall be equal to the balance credited to that subaccount as of the
close of business on that date, including the appropriate adjustments for (i)&nbsp;any deferred
Long-Term Incentive Bonus or investment gains or earnings credited to such subaccount as of such
date and (ii)&nbsp;any investment losses charged against the subaccount as of such date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.04 </B><U><B>Statement of Accounts</B></U>. Following the close of each calendar quarter, each
Participant shall receive a written statement of the value of his or her Deferral Subaccounts as of
the last Valuation Date in that quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.05 </B><U><B>No Required Investment</B></U>. Although the investment return on a Participant&#146;s
Account is to be measured by the actual gains, earnings and losses realized by one or more of the
investment alternatives selected by the Participant pursuant to this Article&nbsp;VII, the Corporation
shall not be under any obligation to make the selected investments, and the investment experience
shall only be tracked as debits or credits to the Participant&#146;s book accounts over the deferral
period. To the extent the Corporation should elect to make any actual investments, the Corporation
shall be the sole and exclusive owner of those investments, and no Participant shall have any
right, title or interest in or to those investments.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VIII</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>MISCELLANEOUS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.01 </B><U><B>Plan Effective Date</B></U>. The Plan shall become effective immediately upon approval
by the Corporation&#146;s shareholders at the 2006 Annual Shareholders Meeting. In the event of such
shareholder approval, the first Earn-Out Period may commence with the 2007 or any subsequent
calendar year.
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.02 </B><U><B>Deferred Commencement Date</B></U><B>. </B>Notwithstanding any provision to the contrary in the
Plan, no distribution which becomes due and payable from the Participant&#146;s Deferral Subaccounts by
reason of his or her termination of Employee status shall be made to that Participant prior to the
<B><I>earlier </I></B>of (i)&nbsp;the expiration of the six (6)-month period measured from the date of his or her
&#147;separation from service&#148; (as determined in accordance with the criteria established under Code
Section&nbsp;409A and the applicable Treasury Regulations thereunder) or (ii)&nbsp;the date of his or her
death, if the Participant is deemed at the time of such separation from service to be a &#147;key
employee&#148; within the meaning of that term under Code Section 416(i) <B><I>and </I></B>such delayed commencement
is otherwise required in order to avoid a prohibited distribution under Code Section&nbsp;409A(a)(2).
Upon the expiration of the applicable Code Section&nbsp;409A(a)(2) deferral period, all payments
deferred pursuant to this Section&nbsp;8.02 shall be paid in a lump sum to the Participant, and any
remaining payments shall be made on their scheduled payment dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.03 </B><U><B>Benefits Not Funded</B></U>. The obligation to pay the vested balance of each
Participant&#146;s Account hereunder shall at all times be an unfunded and unsecured obligation of the
Corporation. Except to the extent the Corporation may in its sole discretion elect to implement a
grantor trust to hold funds for the payment of any benefits which become due and payable hereunder,
the Corporation shall not have any obligation to establish any trust, escrow arrangement or other
fiduciary relationship for the purpose of segregating funds for the payment of the balances
credited to the outstanding Accounts under the Plan, nor shall the Corporation be under any
obligation to invest any portion of its general assets in mutual funds, stocks, bonds, securities
or other similar investments in order to accumulate funds for the satisfaction of its respective
obligations under the Plan. The Participant (or his or her beneficiary) shall look solely and
exclusively first to the general assets of the Corporation for the payment of the Account
maintained on the Participant&#146;s behalf under the Plan. Payments from any grantor trust established
by the Corporation under the Plan shall be made as and when benefits become payable to Participants
in accordance with the distribution provisions of Article&nbsp;VI of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.04 </B><U><B>No Employment Right</B></U>. Neither the action of the Corporation in establishing or
maintaining the Plan, nor any action taken under the Plan by the Plan Administrator, nor any
provision of the Plan itself shall be construed so as to grant any person the right to remain in
the employ or service of the Corporation for any period of specific duration, and the Participant
shall at all times remain an Employee at will and may accordingly be discharged at any time, with
or without cause and with or without advance notice of such discharge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.05 </B><U><B>Amendment/Termination</B></U>. The Board may at any time amend the provisions of the
Plan to any extent and in any manner the Board shall deem advisable, and such amendment shall
become effective at the time of such Board action, subject to any shareholder approval requirements
under Code Section 162(m) or any other applicable law or regulation or the listing regulations of
any securities exchange (or the Nasdaq National Market) on which the Corporation&#146;s common stock is
at the time traded. Without limiting the generality of the foregoing, the Board may amend the Plan
to impose such restrictions upon the timing, filing and effectiveness of Deferral Elections, the
investment procedures and investment alternatives available under Article&nbsp;VII and the distribution
provisions of Article&nbsp;VI which the Board deems
</DIV>

<P align="center" style="font-size: 10pt">14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">appropriate or advisable in order to avoid the current income taxation of amounts deferred
under the Plan which might otherwise occur as a result of changes to the tax laws and regulations
governing deferred compensation arrangements such as the Plan and may also, in such event, cease
further deferrals under the Plan. The Board may also at any time terminate the Plan in whole or in
part. Except for such modifications, limitations or restrictions as may otherwise be required to
avoid current income taxation or other adverse tax consequences to Participants as a result of
changes to the tax laws and regulations applicable to the Plan, no such plan amendment or plan
termination authorized by the Board shall adversely affect the benefits of Participants accrued to
date under the Plan or otherwise reduce the then outstanding balances credited to their Deferral
Subaccounts or otherwise adversely affect the distribution provisions in effect for those
subaccounts, and all amounts deferred prior to the date of any such plan amendment or termination
shall, subject to the foregoing exception, continue to become due and payable in accordance with
the distribution provisions of Article&nbsp;VI as in effect immediately prior to such amendment or
termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.06 </B><U><B>Applicable Law</B></U>. The deferral provisions of Article&nbsp;VI and VII of the Plan are
intended to constitute an unfunded deferred compensation arrangement for a select group of
management and other highly compensated persons, and all rights thereunder shall be construed,
administered and governed in all respects in accordance with the provisions of the Employee
Retirement Income Security Act of 1974 (as amended from time to time) applicable to such an
arrangement and, to the extent not pre-empted thereby, by the laws of the State of California
without resort to its conflict-of-laws provisions. All other provisions of the Plan shall also be
construed, administered and governed by the laws of the State of California without resort to its
conflict-of-laws provisions. If any provision of this Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions of the Plan shall continue in
full force and effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.07 </B><U><B>Satisfaction of Claims</B></U>. Any payment made to a Participant or his or her legal
representative or beneficiary in accordance with the terms of this Plan shall to the extent thereof
be in full satisfaction of all claims with respect to that payment which such person may have
against the Plan, the Plan Administrator (or its designate) or the Corporation, any of whom may
require the Participant or his or her legal representative or beneficiary, as a condition precedent
to such payment, to execute a receipt and release in such form as shall be determined by the Plan
Administrator.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.08 </B><U><B>Alienation of Benefits</B></U>. No person entitled to benefits under the Plan shall have
any right to transfer, assign, alienate, pledge, hypothecate or otherwise encumber his or her
interest in such benefits prior to actual receipt of those benefits. The benefits payable under the
Plan shall not, prior to actual payment, be subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or any other person and
shall not, to the maximum extent permitted by law, be transferable by operation of law in the event
of the bankruptcy or insolvency of the Participant or any other person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.09 </B><U><B>Successors and Assigns</B></U>. The obligation of the Corporation to make the payments
required hereunder shall be binding upon the successors and assigns of the Corporation, whether by
merger, consolidation, acquisition or other reorganization. Except for
</DIV>

<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">such modifications, limitations or restrictions as may otherwise be required to avoid current
income taxation or other adverse tax consequences to Participants as a result of changes to the tax
laws and regulations applicable to the Plan, no amendment or termination of the Plan by any such
successor or assign shall adversely affect or otherwise impair the rights of Participants to
receive benefit payments hereunder, to the extent attributable to amounts accrued or deferred prior
to the date of such amendment or termination, in accordance with the applicable vesting and
distribution provisions of Article&nbsp;VI as in effect immediately prior to such amendment or
termination.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IX</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>BENEFIT CLAIMS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.01 </B><U><B>Claims Procedure</B></U>. No application is required for the payment of benefits under
the Plan. However, if any Participant (or beneficiary) believes he or she is entitled to a benefit
from the Plan which differs from the benefit determined by the Administrative Committee, then such
individual may file a written claim for benefits with the Plan Administrator. Each claim shall be
acted upon and approved or disapproved within ninety (90)&nbsp;days following receipt by the Plan
Administrator.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.02 </B><U><B>Denial of Benefits</B></U>. In the event any claim for benefits is denied, in whole or
in part, the Plan Administrator shall notify the claimant in writing of such denial and of his or
her right to a review by the Plan Administrator and shall set forth, in a manner calculated to be
understood by the claimant, specific reasons for such denial, specific references to pertinent
provisions of the Plan on which the denial is based, a description of any additional material or
information necessary to perfect the claim, an explanation of why such material or information is
necessary, and an explanation of the review procedure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.03 </B><U><B>Review</B></U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;Any person whose claim for benefits is denied in whole or in part may appeal to the Plan
Administrator for a full and fair review of the decision by submitting to the Plan Administrator,
within ninety (90)&nbsp;days after receiving written notice from the Plan Administrator of such denial,
a written statement:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) requesting a review by the Plan Administrator of his or her claim for
benefits;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) setting forth all of the grounds upon which the request for review is
based and any facts in support thereof; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) setting forth any issues or comments which the claimant deems pertinent
to his or her claim.
</DIV>

<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;The Plan Administrator shall act upon each such appeal within sixty (60)&nbsp;days after receipt
of the claimant&#146;s request for review by the Plan Administrator, unless special circumstances
require an extension of time for processing. If such an extension is required, written notice of
the extension shall be furnished to the claimant within the initial sixty (60)-day period, and a
decision shall be rendered as soon as possible, but not later than one hundred twenty (120)&nbsp;days
after receipt of the initial request for review. The Plan Administrator shall make a full and fair
review of each such appeal and any written materials submitted by the claimant or the Participating
Employer in connection therewith and may require the Participating Employer or the claimant to
submit such additional facts, documents or other evidence as the Plan Administrator may, in its
sole discretion, deem necessary or advisable in making such a review. On the basis of its review,
the Plan Administrator shall make an independent determination of the claimant&#146;s eligibility for
benefits under the Plan. The decision of the Plan Administrator on any benefit claim shall be
final and conclusive upon all persons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;Should the Plan Administrator deny an appeal in whole or in part, the Plan Administrator
shall give written notice of such decision to the claimant, setting forth in a manner calculated to
be understood by the claimant the specific reasons for such denial and specific reference to the
pertinent Plan provisions on which the decision was based. Such notice shall also include a
statement that the claimant has a right to bring a civil action under Section 502(a) of the
Employee Retirement Income Security Act of 1974 (as amended from time to time).
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>APPENDIX I</B></U>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>LIST OF INVESTMENT FUND ALTERNATIVES</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The investment fund alternatives for the 2005 Plan Year shall be the same as the investment
funds available for such year for salary deferral contributions made under the American Shared
Hospital Services 401(k) Savings Plan.
</DIV>


<P align="center" style="font-size: 10pt"></DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AMERICAN SHARED HOSPITAL SERVICES
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">For the Annual Meeting of Shareholders to be held June&nbsp;28, 2006
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THE UNDERSIGNED HEREBY NOMINATE(S), CONSTITUTE(S) AND APPOINT(S) ERNEST A. BATES, M.D. AND CRAIG K.
TAGAWA, AND EACH OF THEM, ATTORNEYS, AGENTS, AND PROXIES OF THE UNDERSIGNED, WITH FULL POWERS OF
SUBSTITUTION TO EACH, TO ATTEND AND TO ACT AS PROXY OR PROXIES OF THE UNDERSIGNED AT THE ANNUAL
MEETING OF SHAREHOLDERS OF AMERICAN SHARED HOSPITAL SERVICES TO BE HELD ON JUNE 28, 2006 AT 9:00 AM
PACIFIC TIME AT THE RITZ CARLTON HOTEL, 600 STOCKTON STREET, SAN FRANCISCO, CALIFORNIA, OR ANY
ADJOURNMENTS THEREOF, AND TO VOTE AS SPECIFIED HEREIN THE NUMBER OF SHARES THAT THE UNDERSIGNED, IF
PERSONALLY PRESENT, WOULD BE ENTITLED TO VOTE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148; THE ELECTION OF THE FIVE PERSONS NOMINATED FOR
ELECTION TO THE BOARD OF DIRECTORS, &#147;FOR&#148; THE APPROVAL OF 2006 STOCK INCENTIVE PLAN, &#147;FOR&#148; THE
APPROVAL OF THE LONG TERM INCENTIVE COMPENSATION PLAN, AND &#147;FOR&#148; THE RATIFICATION OF MOSS ADAMS LLP
AS THE COMPANY&#146;S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2006. YOU ARE ENCOURAGED TO
SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES. THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED, SUBJECT TO THE PROXYHOLDER&#146;S
DISCRETIONARY AUTHORITY TO CUMULATE VOTES, &#147;FOR&#148; THE ELECTION OF THE PERSONS NOMINATED ON THE
REVERSE SIDE, AND WILL HAVE THE EFFECT OF WITHHOLDING DISCRETIONARY AUTHORITY TO CUMULATE VOTES AND
&#147;FOR&#148; THE RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THE BOARD OF DIRECTORS IS
NOT AWARE OF ANY OTHER MATTERS THAT WILL COME BEFORE THE ANNUAL MEETING, OTHER THAN THOSE DESCRIBED
IN THIS PROXY. HOWEVER, IF SUCH MATTERS ARE PRESENTED, THE NAMED PROXIES WILL, IN THE ABSENCE OF
INSTRUCTIONS TO THE CONTRARY, VOTE SUCH PROXIES IN ACCORDANCE WITH THE JUDGMENT OF SUCH NAMED
PROXIES WITH RESPECT TO ANY SUCH OTHER MATTER PROPERLY COMING BEFORE THE MEETING. THIS PROXY MAY
BE REVOKED PRIOR TO ITS EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT IN
WRITING REVOKING THIS PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE. THIS PROXY ALSO MAY BE
REVOKED BY ATTENDANCE AT THE MEETING AND ELECTION TO VOTE IN PERSON.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">(continued, and to be signed on the other side)
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#091;X&#093; PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This proxy when properly executed will be voted in the manner directed herein and in the
discretion of the proxy holders and all other matters coming before the meeting. If no direction is
made, this proxy will be voted FOR the election of directors recommended herein, and FOR Proposals
No.&nbsp;2, No.&nbsp;3, and No.&nbsp;4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors recommends a vote FOR election of the directors nominated herein, FOR
the approval of 2006 stock incentive plan, FOR the approval of the long term incentive compensation
plan, and FOR the ratification of independent registered public accounting firm.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ELECTION OF DIRECTORS. To elect five of the persons named below to the Board of Directors to
serve until the 2007 Annual Meeting of Shareholders and until their successors are elected and
have qualified.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#091; &#093; FOR all nominees (except as indicated to the contrary below).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#091; &#093; WITHHOLD AUTHORITY to vote for all nominees.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Instruction: To withhold authority for any individual nominee(s), write that nominee&#146;s
name(s) in the space below.)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NOMINEES:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ernest A. Bates, M.D.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ernest R. Bates</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Olin C. Robison</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">John F. Ruffle</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stanley S. Trotman, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>2006 STOCK INCENTIVE PLAN. TO APPROVE THE COMPANY&#146;S 2006 STOCK INCENTIVE PLAN (THE &#147;2006
PLAN&#148;). THE 2006 PLAN WILL SERVE AS A SUCCESSOR TO OUR 2001 AND 1995 STOCK OPTION PLANS. THE
2006 PLAN HAS 750,000 SHARES OF OUR COMMON STOCK RESERVED FOR ISSUANCE, INCLUDING
APPROXIMATELY 390,000 SHARES THAT WILL BE TRANSFERRED FROM THE 2001 AND 1995 STOCK OPTION
PLANS TO THE 2006 PLAN.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">&#091; &#093; FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; ABSTAIN</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>LONG TERM INCENTIVE COMPENSATION PLAN. TO APPROVE THE COMPANY&#146;S LONG TERM INCENTIVE
COMPENSATION PLAN. UNDER THIS PLAN EXECUTIVE OFFICERS AND OTHER EMPLOYEES ESSENTIAL TO THE
COMPANY&#146;S FINANCIAL GROWTH AND SUCCESS ARE ELIGIBLE TO EARN INCENTIVE COMPENSATION CONTINGENT
UPON THE ATTAINMENT OF PRE-ESTABLISHED PERFORMANCE OBJECTIVES.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">&#091; &#093; FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; ABSTAIN</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. To ratify the appointment of
Moss Adams LLP as the Company&#146;s independent registered public accounting firm for the year
ending December&nbsp;31, 2006.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">&#091; &#093; FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#091; &#093; ABSTAIN</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby ratifies and confirms all that said attorneys and proxies, or any of
them, or their substitutes, shall lawfully do or cause to be done by virtue hereof, and hereby
revokes any and all proxies heretofore given by the undersigned to vote at the Meeting. The
undersigned acknowledges receipt of the Notice of the Annual Meeting and the Proxy Statement
accompanying such Notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS ABOVE AND RETURN IN THE ENCLOSED ENVELOPE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I plan to attend the meeting in person &#091; &#093;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Signature
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Signature
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Signature, if held jointly</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NOTE: Please date this proxy and sign as your name(s) appear(s) on this document. Joint owners
should each sign personally. Corporate proxies should be signed by an authorized officer.
Executors, administrators, trustees, etc. should give their full titles.
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
